Indian Contract Act,

1872
Contract
 CONTRACT
 A voluntary, deliberate, and legally binding
agreement between two/more competent parties.
 Usually written but may be spoken or implied,
and generally have to do with employment, sale
or lease, or tenancy.
 A contractual relationship is evidenced by
– An offer (Proposal),
– Acceptance of the offer, and
– Valid (legal and valuable) consideration.
 Each party to a contract acquires rights & duties
relative to the rights & duties of the other parties.
 While all parties may expect a fair benefit from
the contract (otherwise courts may set it aside
as inequitable) it does not follow that each party
will benefit to an equal extent.
PROPOSAL : S2(a), When one person
signifies to another his willingness to do or
to abstain from doing anything, with a
view to obtaining the assent of that other to
such act or abstinence, he is said to make
a proposal.

PROMISE: S2(b), When the person to

whom the proposal is made signifies his
assent thereto, the proposal is said to be
accepted. A proposal, when accepted,
becomes a promise.
S2 (c) : The person making the proposal
is called the ‘promisor’ and the person
accepting the proposal is called ‘promisee’.
CONSIDERATION: S2(d) , When, at the desire
of the promisor, the promisee or any other
person has done or abstained from doing, or
does or abstains from doing, or promises to
do or to abstain from doing, something, such
Act or abstinence or promise is called a
consideration for promise.

AGREEMENT: S2(e), Every promise and every

set of promises, forming the consideration for
each other, is agreement.
AGREEMENT = OFFER + ACCEPTANCE

CONTRACT: S2(h), a contract is defined as

an agreement enforceable by the law.
CONTRACT = AGREEMENT + ENFORCIBILITY
BEFORE LAW
COMMUNICATION, ACCEPTANCE &
REVOCATION OF PROPOSALS
S4: Communication when complete:
•Proposal: When it comes to the knowledge
of the person to whom it is made.
• Acceptance: when it comes to the,
knowledge, of the proposer.
• Revocation: is complete,
•as against the person who makes it,
when it is put into a course of
transmission to the person to whom it is
made, so as "to be out of the power of the
person who makes it;
• as against the person. to whom it is
made, when it comes to his knowledge.
ESSENTIAL ELEMENTS OF A
VALID CONTRACT (S 10)

1.Offer & acceptance.

2.Intention to create legal relationship.
3.Consensus - ad - idem.
4.Consideration.
5.Capacity to contract.
6.Free consent.
7.Legality of object.
8.Possibility of performance.
9.Writing & registration.
 TYPES OF CONTRACTS
Valid Contract: If all the condition are
fulfilled it is called as a valid contract.
Types
 Absolute contract - A contract which is
not dependent on fulfillment of any
condition.
 Contingent contract - In a contract to do
or not to do something, if an event is
collateral, does or doesn't happen.
 Express contract - When contracts are
either in writing or in oral.
 Implied contract - When contracts are
neither in writing nor in oral.
 INVALID CONTRACTS
Invalid Contract - In a contract if any one
condition is not fulfilled.
Is Void (Void-ab-initio) - An agreement which is
not valid from the beginning.
Becomes Void - An agreement which is valid in the
beginning but due to some supervening
impossibility the contract becomes void.
Voidable Contract - A contract which is valid
unless until avoided by either the party.
Illegal Contract - An agreement forbidden by law.
Unenforceable Contract - It is valid but due to
some technical defect the contract becomes void. In
case defects are removed the contract is
enforceable (lack of registration, lack of sign etc)
OTHER TYPES OF CONTRACTS
Executed Contract: A contract where both
the parties have performed their obligation,
there is remaining nothing to perform.
Executory Contract: A contract where both
the parties are yet to perform their
obligation.
Unilateral Contract: A contract one party
has performed his obligation and other
person is yet to perform his obligation.
Bilateral Contract: A contract where both
the parties have performed their obligation.
Bilateral & Executory are same and inter–
changeable.
 Offer
(Proposal)
 OFFER
S2(a): when a person made a proposal,
when he signifies to another his willingness
to do or to abstain from doing something.

Types of Offer
 Express offer
 Implied offer
 Specific offer
 General offer
 Cross offer
 Counter offer
 Standing offer
Express Offer: - Offer is given to another person
either in writing or in oral.
Implied Offer: - Offer is given to another person
neither in writing nor in oral.
Specific Offer:Offer is given to a specific person.
General Offer: Offer is to entire world at a large.
Cross Offer: - When both the persons are
making identical offers to each other in ignorance
of other’s offer.
Counter Offer: When both the persons are
making offers to each other which are not
identical in ignorance of other’s offer.
Standing Offer: An offer which remains
continuously enforceable for a certain period.
LEGAL RULES FOR OFFER
 Offer must be given with an intention to
create a legal relationship.
 Offer must be definite.
 There is a clear cut difference between
offer, invitation to offer, invitation to
sale.
 Offer must be communicated.
 Mere statement of price is not an offer.
 Acceptance
S2(b): When a person made a proposal
to another to whom proposal is made,
if proposal is assented there to, it is
called acceptance.
LEGAL RULES FOR ACCEPTANCE
•Acceptance must be given as per the mode
prescribed by the offerer.
• Acceptance must be given before the lapse of time
or within reasonable time.
• Acceptance must be unconditional.
• Acceptance may be given by;
• any person in case of general offer.
•any specific person in case of specific offer.
• Acceptance must be communicated.
• Mental acceptance is no acceptance or
acceptance must not be derived from silence.
• Acceptance must not be precedent to offer.
Consideration
 CONSIDERATION
Definition : S2(d): “when at the desire of
the promisor or promisee or any other
person has done or abstained from
doing or does or abstains from doing
,or promises to do or to abstain from
doing , something , such an act or
abstinence or promise is called a
consideration for the promise .

When a party to an agreement promises

to do something he must get “something”
in return .This “something” is defined as
consideration.
STRANGER TO CONTRACT
It is general rule of contract that only
parties to contract can sue & be sued
on that contract . This rule is known as
‘Doctrine of Pr ivity’ ie relationship
between the parties to contract .
Exceptions
 A trust or a charge .
 Marriage settlement , partition or other
family arrangements .
 Estoppel
 Assignment of contract .
 Contract with agent .
 Covenants running with land .
 CONTRACT WITHOUT
CONSIDERATION IS VOID –
EXCEPTIONS
 Love & affection.
 Compensation for voluntary service .
 Promise to pay a time – barred debt .
 Completed gift .
 Agency (S185) .
 Charity .
 Contract of bailment (S148 ) .

No Consideration No Contract
Capacity to
Contract
CAPACITY TO CONTRACT
Condition for a person to enter into
contract;
 He must be major
 He must be sound mind
 He must not be disqualified by any
other law.
Disqualified Persons to Enter Into a
Contract;
 Minor
 Unsound person
 Others ie alien enemy, insolvent, convict,
coy/ corporation against MOA/ AOA .
 MINOR
 Indian Majority Act S (3): Minor is
any person under the age of 18 yrs.
 In the following cases a person is said
to be minor if he does not complete
the age of 21 years
– Any person under the Guardian & Wards
Act ,1890
– Any person which comes under
superintendence of law/ legal representative.
Rules Governing Minor’s Agreement
 Rule 1 : Judges are counselors, jury is the
servant , law is the guardian.
 Rule 2: In case minor entered into a
contract which is unlawful , illegal , immoral
he is also prosecutable & punishable under
the relevant law.
 UNSOUND PERSON
 S 12: a person generally sound ,
occasionally unsound can enter into
a contract when he of sound mind
 A person generally unsound
occasionally sound can enter into
contract when he is sound mind

Persons of Unsound Mind

 Lunatic ,
 Idiots ,
 Drunken or intoxicated persons .
Free Consent
 FREE CONSENT
S 10 : one of the essentials of a valid
contract is “Free Consent”
S 13: defines “consent” as “Two or more
persons are said to consent when they
agree upon the same thing in the same
sense”.
S 14: Consent is said to be free when it is
not caused by;
– Coercion
– Undue influence
– Fraud
– Misrepresentation
– Mistake
 COERCION
S15: Coercion means “Committing or
threaten to commit any act forbidden by IPC
1860 or unlawful detaining or threatening to
detaining any other persons property with a
view to enter into an agreement. It is
immaterial whether the IPC is or is not in
force where the coercion is employed.”
The threat amounting to coercion need not
necessarily be from a party to contract , it may
also proceed from a stranger to contract.
Eg: A and B , both Indians are on a voyage trip to
US when the ship is on the Atlantic Ocean. B
threatens A, that if doesn’t transfer his property to
B’s name then he will push him into the water.
Now though the IPC is not in force on the
Atlantic ocean it is still considered a
coercion.
 UNDUE INFLUENCE
1. S16: defines undue influence as ‘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.

2. Essentials of Undue Influence;

(a) There are two persons
(b) One must dominate the other
(c) There must be unfair advantage
(d) It involves the moral pressure
There is an undue influence between
-Principal and agent
-Superior and and subordinate
-Doctor and patient
-Father and son
-Teacher and student
-Promoter and company
-Master and servant
-Spiritual advisor and devotee

N0 undue influence in following relations;

1.wife and husband
2.landlord and tenant
3.debtor and creditor
Case: Raniannapurna vs Swaminathan : A poor
Hindu widow was persuaded by a money lender to
agree to pay 100% rate of interest on money lent by
him. She needed the money to establish her right
to maintenance. It was a clear case of undue
influence and the court reduced the RoI to 24%.
 FRAUD
S17: fraud means and includes any of
those acts committed by a party to contract
or with his connivance or by his agent with
an intent to deceive or induce a person to
enter a contract:
 The suggestion that a fact is true when it
is not true and the person making it does
not believe in it to be true.
 The active concealment of a fact by a
person having knowledge or belief of the fact.
 A promise made without any intention of
performing it.
 Any other act fitted to deceive.
 Any such act or omission as the law
specially declares to be fraudulent.
The Essentials of Fraud are:
1. There must be a representation or
assertion and it must be false
2.The representation must relate to a fact
3.The representation must have been made
with the intention of inducing the other
party to act upon it
4.The representation must have been made
with a knowledge of its falsity
5.The other party must have subsequently
suffered some loss
 MISREPRESENTATION
S18; there is misrepresentation, When;
1. A person positively asserts a fact is true when
his information does not warrant it to be so,
though he believes it to be true.
2. There is any Breach of duty by a person which
brings an advantage to the person committing it
by misleading another to his prejudice.
3. A party causes however innocently the other
party to the agreement to make a mistake as to
the substance of the thing which s the subject of
the agreement
Case: Babul vs RA Singh: M, a marriage broker,
gave Y the photograph of a man and told him that the
man was young & rich. Y conveyed the same to his
daughter who agreed for proposal. But on day of
marriage it was discovered that the man’s age was 60.
There is fraud between M and Y, whereas it is
misrepresentation between Y and his daughter.
 MISTAKE
 Mistake of fact is a ground of avoidance.
 A mistake is an error in understanding facts,
meaning of words or the law, which causes one
party or both parties to enter into a contract
without understanding the responsibilities or
outcomes. Such a mistake can entitle one party
or both parties to a rescission of the contract.
 S 20 defines: “Where both parties to an agreement
are under a mistake as to a matter of fact,
essential to agreement, the agreement is void.“
 A mistake is an erroneous belief, that certain
facts are true. It can be argued as a defense, and
if raised successfully can lead to the agreement in
question being found void ab initio or voidable,
or alternatively an equitable remedy may be
provided by the courts.
Unlawful Objectives
& Void Agreements
 UNLAWFUL OBJECT
 If the object of an agreement is the
performance of an unlawful act, the
agreement is unenforceable.
 For a contract to be valid, the object and the
consideration should be legal.
 The word object means purpose or design.
UNLAWFUL AGREEMENTS
S 23: An agreement forbidden by law.
S 24: An agreement defecting any provisions of law.
Case- Ahmed vs Rajesh: A leased a flat to R at a
rent of Rs 1,200. With the object of deceiving the
authorities two agreements were entered, one for
Rs 450 and other for Rs 750. A sued R for recovery
of an installment of Rs 750. Held A could not
recover and R was entitled to remain in possession
of the flat.
 WAGER CONTRACT (SEC 30)
A contract in which one person promises to
another to pay money or money’s worth by the
happening of an uncertain future event in
consideration for other person’s promise to pay if
the event does not happen.
ESSENTIAL ELEMENTS OF WAGERING
•There are two persons.
•There must be an uncertain future event.
•No control over the event by both the parties.
•There must be a reciprocal promise.
•Others are not interested in the contract.

Eg: In a wrestling bout, A tells B that wrestler

No1 will win. B challenges the statement of A.
They bet with each other over the result of the
bout. This is a wagering agreement.
Contingent
Contracts
CONTINGENT CONTRACT(S 31)
A contingent contract is a contract to do or
not to do something, if some event,
collateral to such contract, does or does not
happen. Also called conditional contract.
Essential Elements :Contingent Contract;
 There are two persons.
 There must be an uncertain future event.
 Some control over the event but not absolute
control.
 No reciprocal promise between the persons.
 Others may be interested in the contract.
 It is a valid contract.
Eg: A contracts to pay B Rs 10K, if B’s house is
burnt. This is a contingent contract.
 DIFFERENCES BETWEEN A
WAGERING AGREEMENT AND A
CONTINGENT AGREEMENT
Wager Agreement Contingent Agreement
 There is a  There is no reciprocal
reciprocal promise. promise.
 It is a void  It is a valid contract.
contract.
 Others are not  Others are interested
interested in the in the contract.
contract.
 It is contingent in  It may not be
nature. wagering in nature.
Discharge of
A Contract
DISCHARGE OF A CONTRACT

Discharge by performance.
Discharge by agreement or consent.
Discharge by impossibility of
performance.
Discharge by lapse of time.
Discharge by operation of law.
Discharge by breach of contract.
DISCHARGE BY PERFORMANCE

Actual Performance: When both parties

perform their promises & there is nothing
remaining to perform
Attempted Performance: When the promisor
offers to perform his obligation ,but promisee
refuses to accept the performance.
 DISCHARGE BY
AGREEMENT OR CONSENT
NOVATION (Sec 62): New contract substituted
for old contract with the same or different parties
RESCISSION (Sec 62) : When some or all terms of
a contract are cancelled
ALTERATION (Sec 62):When one or more terms
of a contract is/are altered by the mutual consent
of the parties to the contract
REMISSION (Sec 63) :Acceptance of a lesser
fulfilment of the promise made.
WAIVER :Mutual abandonment of the right by
the parties to contract
MERGER :When an inferior right accruing to a
party to contract merges into a superior right
accruing to the same party
DISCHARGE BY IMPOSSIBILITY
OF PERFORMANCE
 Known to parties
 Unknown to parties
 Subsequent impossibility
 Supervening Impossibility (S 56)
– Destruction of subject matter
– Non-existance of state of things
– Death or incapacity of personal services
– Change of law
– Outbreak of war
DISCHARGE BY LAPSE OF TIME
The Limitation Act 1963, clearly states that a
contract should be performed within a
specified time called period of limitation.
If it is not performed and if the promisee takes
no action within the limitation time, then he is
deprived of his remedy at law.

DISCHARGE BY OPERATION
 Death
OF LAW
 Merger
 Insolvency
 Unauthorised alteration of the terms of a
written agreement
 Rights & liabilities vesting in the same person
DISCHARGE BY BREACH OF
CONTRACT
 It is a legal cause of action and type of
civil wrong, in which, a binding agreement
or bargained for exchange, is not
honoured by the party (ies) to contract by
non performance or interference with the
other party’s performance.
 Actual Breach :
 At the time of performance
 During the performance
 Anticipatory Breach
 By the act of promisor (implied repudiation)
 By renunciation of obligation (express
repudiation)
 Remedies
for
Breach of Contract
BREACH OF CONTRACT
 Legal cause of action.
 Civil wrong.
 Binding Agreement : Non-
performance/ interference with
other party’s performance.
REMEDIES OF INJURED
PARTY
 A remedy is a means given by law
for the enforcement of a right
 Following are the remedies
– Rescission of damages.
– Suit upon quantum meruit.
– Suit for specific performance.
– Suit for injunction.
 RESCISSION
When a contract is broken by one party, the
other party may sue to treat the contract as
rescinded and refuse further performance. In
such a case, he is absolved of all his obligations
under the contract.
The court may give rescission due to;
 contract is voidable.
 contract is unlawful.
The court may refuse to rescind if ;
 Plaintiff has ratified the contract.
 Parties cannot be restored to the original position.
 The third party has acquired for value.
 When only a part is sought to be rescinded (Ref S
27 of Specific Relief Act 1937).
 DAMAGES
Damages are a monetary compensation allowed
to the injured party by the court for the loss or
injury suffered by him by the breech of the
contract. The objective of awarding damages for
the breach of contract is to put the injured party
in the same position as if he had not been
injured. This is called Doctrine of Restitution.
The fundamental basis is awarding damages for the
pecuniary loss.
Restitution means restoration. It is based on the
noble principle that a person should not be allowed
to unjustly enrich himself at the expense of
another. Therefore, when a contract becomes void,
the party who has received any benefit under it
must restore it to the other party or must
compensate the other party by the value of benefit.
 QUANTUM MERUIT
 quantum meruit is a Latin phrase meaning
"what one has earned".
 In the context of contract law, it means
something along the lines of "reasonable value
of services".
 A reasonable sum of money to be paid for
services rendered or work done when the
amount due is not stipulated in a legally
enforceable contract.
 A right to sue on a quantum meruit arises when
a contract, partly performed by one party, has
been discharged by breach of contract by the
other party.
 This right is performed not on original contract
but on implied promise by other party for what
has been done.
EXAMPLE OF QUANTUM MERUIT
Person A (plaintiff ) tells neighbuor B (defendant)
that he is going to build a wall on their property
that will give a benefit to both A and B.
A implies that it would be cheaper for both of
them if A performs the labor instead of hiring a
professional.
B agrees that the wall should be built, but no
price is negotiated.
A builds the wall, and then asks B to compensate
him for the benefit of the wall that he conferred on
B (usually half the value of the wall). B refuses.
A is entitled to some compensation based
on quantum meruit, because there was an implied
promise between A and B, because A was acting
under the assumption that B would pay for part of
his services.
EXAMPLE OF QUANTUM MERUIT
(contd)
A contractor is contracted to work on a school.
Contractor does some work but then quits
(breach of contract). Contractor is entitled to be
paid for the services he has already provided
for the school on the basis of quantum
meruit (however the school may be entitled to
damages arising out of the need to look for a
new contractor).
SPECIFIC PERFORMANCE
When damages are not an adequate remedy,
the court may, direct the party in breach to
carry out his promise according to terms of the
contract. This is a direction by the court for
specific performance of the contract at the
suit of the party not in breach.

Cases for Specific Performance to be

enforced
 When the act agreed to be done is such that
compensation is not adequate relief.
 When there is no standard for ascertaining
the actual damage.
 When it is probable that compensation
cannot be agreed to be done.
EXAMPLE SPECIFIC PERFORMANCE
 specific performance is most often used
as a remedy in transactions regarding
land, such as in the sale of land where the
vendor refuses to convey title. The reason
being that land is unique and that there is
not another legal remedy available to put
the non-breaching party in the same
position had the contract been performed.
 INJUNCTION
When a party is in breach of a negative term of
contract, the court may, by issuing an order,
restrain him by doing what he promised him not to
do. Such an order of the court is called injunction.
An injunction is an equitable remedy in the form
of a court order that compels a party to do or
refrain from specific acts.
A party that fails to comply with an injunction
faces criminal or civil penalties, including possible
monetary sanctions and even imprisonment. They
can also be charged with contempt of court.
A legal remedy that may be sought in a civil
lawsuit, in addition to, or in place of, monetary
damages. Rather than offering money as payment
for a wrong in a civil action, injunctive relief is a
court order for the defendant to stop a specified act
or behavior.
 Quasi Contracts
Quasi: Used to show that something is almost
but not completely, the thing described
 QUASI CONTRACTS
An obligation of one party to another imposed
by law independently of an agreement
between the parties.
A contract that exists by order of a court,
not by agreement of the parties. Courts
create quasi contracts to avoid the unjust
enrichment of a party in a dispute over
payment for a good or service.
 Types;
– S 68: Supply of necessaries.
– S 69: Payment by a interested person.
– S 70: Obligation to pay for non gratuitous acts.
– S 71: Responsibility of finder of goods.
– S 72: Mistake or Coercion.
 S 68: SUPPLY OF NECESSARIES
TO PERSON INCAPABLE OF
CONTRACTING
‘If a person, incapable of entering into a
contract, or anyone whom he is legally
bound to support, is supplied by another
person with necessaries suited to his
condition in life, the person who has
furnished such supplies is entitled to be
reimbursed from the property of such
incapable person’. Eg A minor.
 S 69: PAYMENT BY A
INTERESTED PERSON
A person who is interested in the payment
of money which another is bound by law to
pay, and who therefore pays it, is entitled to
be reimbursed by the other.
The essential elements center around
 The payment made should be bona fide of
ones interest.
 The payment should not be a voluntary
one.
 The payment must be such that the other
is bound by law to pay.
 S 70: OBLIGATION TO PAY
FOR NON GRATUITOUS ACTS
When a person lawfully does or delivers
anything for the other, not intending to do so
gratuitously and the person derives any
benefit from it, he is liable to compensate or
restore the thing so done or delivered.

Here three conditions must satisfy

 The thing must have been done lawfully.
 The person intending to do it must not have
done it gratuitously.
 The person must have derived benefit from
the act.
Gratuitous: Unnecessary, Harmful or Upsetting
 S 71: RESPONSIBILITY OF THE
FINDER OF GOODS
A person who finds goods belonging to another
and takes them into his custody is subject to
same responsibility as the bailee (take as much
care of goods as a man of ordinary prudence
would).
In addition, he must make efforts to trace the
owner and till the owner is found out, the
property will vest with the finder. He can sell in
case of;
– Goods are of perishable nature.
– Owner cannot be found out.
– When owner refuses to pay for the lawful
charges
– When the lawful charges amount to two thirds
of thing.
Indemnity
 INDEMNITY (S 24)
 A contract by which one party promises
to another to save him from loss caused to
him by the conduct of the promisor himself
, or by the conduct of any other person is
called A contract of indemnity.

Typical Example : Insurance Contract

whereby one party (the insurer, or the
indemnitor) agrees to compensate the other
(the insured, or the indemnitee) for any
damages or losses, in return for premiums
paid by the insured to the insurer.
 INDEMNITY (S 24) (contd)
Essential Features of Indemnity
 There are two persons , the
indemnifier the indemnified or the
indemnity holder
 There must be loss either by the
promisor’s conduct or by any other
person’s conduct
 It is a contingent contract by
nature.
 It may be express or implied.
Guarantee
 GUARANTEE (S 126)
 A contract of guarantee is a contract to
perform the promise, or discharge the
liability of a third person in case of his
default.
 The person who gives the guarantee is
known as the ‘surety’.
 The person in respect of whom the
guarantee is given is known as the
‘principal debtor’, and,
 The person to whom the guarantee is
given is called the ‘creditor’.
 A guarantee may be either oral or
written.
GUARANTEE:ESSENTIAL FEATURES
 Concurrence of three contracts.
 Primary liability is that of the principal
debtor
 In case the debtor is a minor , the surety’s
liability becomes primary
 All the essentials of a valid contract
 It may be in writing or oral
 There need not be full disclosure of facts to
the surety before he gives the guarantee
GUARANTEE: TYPES
Specific: When a guarantee extends to a
single transaction or debt.
Continuing : When a guarantee extends to a
series of transactions.
 EXAMPLE OF GUARANTEE
 A gives guarantee to B for the payment of
the price of five sacks of flour to be
delivered by B to C and to be paid in a
month.
 B delivers 5 sacks to C, C in return pays
for them.
 Afterwards, B delivers flour to C to which
C does not pay.
 Here, the guarantee given by A was a
specific guarantee so C is not liable
for the sacks delivered subsequently.
 INDEMNITY & GUARANTEE
 Indemnity and Guarantee are a type of
contingent contracts, which are
governed by Contract Law.
 Indemnity implies protection against loss,
in terms of money to be paid for loss.
 Indemnity is when one party promises to
compensate the loss occurred to the other
party, due to the act of the promisor or
any other party.
 Guarantee is when a person assures the
other party that he/she will perform the
promise or fulfill the obligation of the
third party, in case he/she default.
KEY DIFFERENCES : INDEMNITY
(S 124) & GUARANTEE (S 126)
 In indemnity, one party makes a promise to
the other that he will compensate for any loss
occurred to the other party because of the act
of the promisor or any other person.
 In guarantee, one party makes a promise to
the other party that he will perform the
obligation or pay for the liability, in the case of
default by a third party.
 In indemnity two parties, indemnifier and
indemnified but in the contract of guarantee,
three parties i.e. debtor, creditor, and surety.
 KEY DIFFERENCES : INDEMNITY
(S 124) & GUARANTEE (S 126) (contd)
 The liability of the indemnifier in the
contract of indemnity is primary whereas if
we talk about guarantee the liability of the
surety is secondary because the primary
liability is of the debtor.
 Purpose of the contract of indemnity is to
save the other party from suffering loss.
 Aim of contract of guarantee, is to assure the
creditor that either contract will be performed,
or liability will be discharged.
 In the contract of indemnity, the liability
arises when the contingency occurs while in
the contract of guarantee, the liability
already exists.
Bailment
 BAILMENT (S 148)
 From French word “ballier” means “to
deliver” .
 An act of delivering goods to a bailee for a
particular purpose, without transfer of
ownership.
 Bailment means delivery of goods by one
person to another for some purpose,
upon a contract, that they shall ,when the
purpose is accomplished, be returned or
otherwise disposed of according to the
instructions of the person delivering them.
 The person delivering the goods is called
‘bailor’ and person to whom they are
delivered is ‘bailee’.
 BAILMENT : EXPLAINED
 Transfer of personal property by one party (the
bailor) in the possession, but not ownership, of
another party (bailee) for a particular purpose.
 Such transfer is made under an express or
implied contract (called bailment contract or
contract of bailment) that the property will be
redelivered to the bailor on completion of that
purpose, provided the bailee has no lien on the
goods (such as for non-payment of its charges).
 Bailee is under an obligation to take reasonable
care of the property placed under its
possession.
 Bailment contracts are a common occurrence
in everyday life; eg: giving clothes to a launderer,
leaving car with an auto mechanic, handing over
cash or other valuable to a bank, etc.
 HOW IT WORKS (EXAMPLE)
 Raja owns a big piece of farmland on the eastern
shore of AP. His adult son wants to move to the
area and farm the land.
 Rather than transferring ownership of the
property to his son, Raja (bailor) transfers
possession or custody of the farmland to his son
(the bailee).
 The son might pay rent or a lease fee in return.
The son only receives custody and control of the
property, but Raja still owns it.
 Raja is thus responsible for paying the property
taxes and is liable for what happens on the land
(unless the bailee failed to care for the land
properly).
 Bailment almost always involves a written
contract.
ESSENTIALS OF BAILMENT
 There are two persons namely Bailor and
Bailee.
 There must be delivery of goods .
 The goods must be in deliverable
condition.
 Only the goods are delivered but not the
ownership of goods.
 Their must be purpose.
 Bailey can use the goods.
 Goods must be returned or disposed off
after the purpose is accomplished.
Pledge
 PLEDGE
 Pledge is a special kind of Bailment in
which a person transfers the possession of
his property to another for securing loan
taken from other.
 It only differs from bailment in the matter
of purpose. Pledge is Bailment with a
purpose to secure a loan or a promise
 S 172: The bailment of goods as
security for payment of a debt or
performance of a promise is called
“Pledge”.
 The bailor in this case is called “pledger”
or “pawnor” and the bailee is called the
“pledgee” or “pawnee”.
 PLEDGE: AN EXAMPLE
 The son (the "Debtor")has borrowed
money from his father (the "Creditor" or
"Secured Party") to purchase shares of
stock in a Corporation.
 The loan was made pursuant to a
separate promissory note, which the
parties to this Pledge Agreement will
attach as an exhibit to the Pledge
Agreement.
 RIGHTS & DUTIES
Rights of Pawnee
 Right of retainer.
 Right of retainer for subsequent advances.
 Right to extraordinary expenses.
 Right against true owner, when the Pawnor’s
title is defective.
 Pawnee’s rights where pawnor makes default.
Rights of Pawnor
 Right to get back goods.
 Right to redeem debt.
 Presentation and maintenance of goods.
 Rights of an ordinary debtor.
PLEDGE, HYPOTHECATION & MORTGAGE
 Pledge is used when the lender takes actual
possession of assets and retains the possession of
the goods until the pledgor (i.e. borrower) repays
the entire debt amount. Such securities or goods
are movable securities. In case there is default
by the borrower, the pledgee has a right to sell
the goods in his possession and adjust its
proceeds towards the amount due (ie principal
and interest amount).
 Hypothecation is used for creating charge
against the security of movable assets, but here
the possession of the security remains with
the borrower itself. Thus, in case of default the
lender (ie to whom the goods / security has been
hypothecated) will have to first take possession
and then sell the same. Eg Car Loans.
PLEDGE, HYPOTHECATION &
MORTGAGE (contd)
 Mortgage : is used for creating charge
against immovable property which
includes land, buildings or anything that is
attached to the earth or permanently
fastened to anything attached to the earth
(However, it does not include growing
crops or grass as they can be easily
detached from the earth). Eg: Housing
Loan / Home Loan. In this case house is
mortgaged in favour of the bank / financer
but remains in possession of the borrower,
which he uses for himself or even may give
on rent.
 DIFFERENCE PLEDGE,
HYPOTHECATION & MORTGAGE
Pledge Hypothecation Mortgage
Type of
Movable Movable Immovable
Security
Usually
Possessi Remains
Remains with Remains
on of the with lender
Borrower with
security (pledgee)
Borrower

Eg of Gold Loan, Car / Vehilce

Loan Advance Loans, Adv Housing
where against against stock Loans
used NSCs, and debtors
Agency
DIFFERENCES BETWEEN SUB-
AGENT & SUBSTITUTE AGENT
SUB-AGENT SUBSTITUTE AGENT
1. He works under 1. He works under
the agent the Principal
2. There is no 2. There is a contract
contact between between him & the
the agent & the Principal
principal 3. Agent is in no way
3. Agent is wholly & responsible for the
solely responsible acts of the
for the acts of the Substituted Agent
sub-agent
TERMINATION OF AGENCY
 By act of parties
– Agreement
– Revocation by the principal
– Revocation by the agent
 By operation of law
– Performance of the contract
– Expiry of time
– Death of either party
– Insanity of either party
– Insolvency of either party
– Destruction of the subject matter
– Principal becoming an alien enemy
– Dissolution of a company
– Termination of sub-agents authority