28022024121612PM

Business Law (BL)
DU # 2318MN301
Unit-1
Indian Contract Act –
1872 and Specific
Contracts
Prof. Kinjal Thaker
Darshan Institute of Management
Darshan University, Rajkot
kinjal.thaker@darshan.ac.in
7096979973
Topics
 • Looping
General Principles of Contract Act-Introduction
• Essentials of a valid contract
• Agreement and contract
• Types of contracts
• Proposal and Acceptance
• Capacity to contract
• Free consent
• Performance and discharge of a contract
• Remedies on breach of a contract
• Specific Contracts Indemnity, Guarantee, Bailment, Pledge, Agency, etc
What is law?
 “A body of rules of action or conduct prescribed by a controlling authority, and

having binding legal force. That which must be obeyed and followed by citizens
subject to sanctions or legal consequence is a law.”
#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

Prof. Kinjal Thaker 3
Types of Law in India
 Criminal Law
Criminal law is enforced by the police. Instances like homicide (હત્યા), rape,
assault (હુમલો), and theft are dealt with under Criminal Law. Offences that are
dedicated towards any particular person, however, are seen as being towards all
people, though it doesn’t come under the Criminal law.
For example, A murder case, theft, rape.
 Civil Law
Civil law is a law that looks at actions that aren’t the crime. It’s a part of the law
dealing with disputes between organizations and people.
For example, Defamation (માનહાની), custody of youngsters, property disputes,
possession points, insurance coverage claims, and many others.

Types of law in India
 Common Law
The Common Law also referred to as case law judicial precedent or judge-
made law is a section of the law that is derived from the judicial determination
of courts and comparable tribunals. Because the identity suggests it’s common
to all.
For example, Hindu marriage act, Muslim marriage act
 Statutory Law
Statute or Statutory Law is a law established by an act of the legislature that’s
signed by the executive or legislative body. For state law, the acts are handled
by the state legislature and signed by the state governor. In rare circumstances,
the chief (President or governor) could refuse to signal the invoice or reject it,
which is named a “veto.”

Introduction to Indian
Contract Act – 1872
Introduction to Indian Contract Act – 1872
 The Indian Contract Act came into effect on 1st

September 1872 and is one of the oldest
mercantile laws of the country.
 This law provides guidelines that help in the
formation and compliance of Contracts in a
regulated and organized manner.
 These rules and regulations provide the
framework for the Course of Action to be
followed in case of any disputes arising from
the Contracts.

Introduction to Indian Contract Act – 1872 (Continued.)
 The Act has 266 sections and is applicable to the entire country
 The Indian Contract Act, 1872 provides the guidelines for forming a valid
Contract.
 It plays an important role wherever there is an agreement or a Contract.

What is a Contract?
What is a Contract?
 A contract is a legally binding agreement between two or more parties that
creates obligations enforceable by law.
 A contract is an agreement made between two or more parties which the law
will enforce.

Meaning of Contract
Every promise or set of promises
forming consideration for each other.
Contrac Agreement
t
Enforceability
Enforceability by the
law
Meaning of Contract (Continued.)
Sir William Anson defines a contract as “The
Law of Contract is intended to ensure that what a
man has been led to expect shall come to pass,
and that what has been promised to him shall be
performed”.
According to Salmond, a contract is “ an

agreement creating and defining obligations
between the parties.”

Meaning of Contract (Continued.)
According to sec.2(h),
A contract is defined as an agreement enforceable by the law.

Essentials of a Valid Contract
Essentials of a Valid Contract
Intention to
Offer & Lawful
create a Legal
Acceptance Consideration
Relationship
Capacity to
Free Consent Lawful Object
Parties
Legal
Certainty and
Agreement not Formalities
Possibility of
Declared Void (Writing &
Performance
Registration)
Essentials of a Valid Contract (Continued.)
1. Offer and Acceptance
 There must a ‘lawful offer’ and a ‘lawful
acceptance’ of the offer, thus resulting in an
agreement.
 There must be two parties to an agreement where
one party makes the offer and other party accepting
it.
 The acceptance must also be according to the mode
prescribed and must be communicated to the
offeror.

2. Intention to create legal relations
 There must be an intention among the parties that the
agreement should be attached to legal obligations.
Agreements between husband and wife also lack the
intention to create a legal relationship and thus do not
result in contracts.
 Example
 M promises his wife N to get her a necklace if she will
sing a song. N sang the song M did not bring the
necklace for her.
 N cannot bring an action in a court to enforce the
agreement as it lacked the intention to create legal
relations.
3. Lawful consideration
 Consideration has been defined as the price paid by
one party for the promise of the other.
 An agreement is legally enforceable only when
each of the parties to it gives something and gets
something.
 Example
 Assume you go to a restaurant, you order many
dishes and in return, you cannot give him 5 KG of
wheat you have to pay the price determined.

4. Capacity of parties
 The parties to an agreement must be capable of entering
into a valid contract.
 The contracting parties must be of
 (1) The age of majority (not being Minor) and
 (2) Sound mind and
 (3) Must not be disqualified by any law to which they
are subject (sec.11).
 If any of the parties to the agreement suffers from
minority, lunacy, idiocy, drunkenness, etc. The
agreement is not enforceable at law, except in some
special cases.

5. Free consent
 ‘Consent’ means that the parties must have agreed upon the
same thing in the same sense (sec. 13). It should be free of any
pressure or misunderstanding.
 There is absence of ‘free consent,’ if the agreement is induced
by
 coercion
 undue influence
 fraud
 misrepresentation or
 mistake (sec. 14)
 If the agreement is faulty by any of the first four factors, the
contract would be voidable and cannot be enforced by the party
Prof. Kinjal Thaker guilty of coercion,
#2318MN301 (BL) undue influence
 Indian Contract etc.
Act – 1872 and Specific
20
6. Lawful object
 For the formation of a valid contract it is also
necessary that the parties to an agreement must agree
for a lawful object.
 The object for which the agreement has been entered
into must not be fraudulent or illegal or immoral or
opposed to public policy or must not imply injury to
the person or the other of the reasons mentioned
above the agreement is void.
 Example: A contract made to kill someone is void.

7. Agreement not declared void
 The agreement must not have been expressly declared
to be void under the Act. Sections 24-30 specify certain
types of agreements that have been expressly declared to
be void.
 Example,
 An agreement in the prohibition of marriage, an
agreement in the prohibition of trade, and an agreement
have been expressly declared void under sections 26, 27,
and 30 respectively.

8. Certainty
 Section 29 of the contract Act provides that “Agreements,
the meaning of which is not certain or capable of being
made certain, are void.”
 In order to give rise to a valid contract the terms of the
agreement must not be vague or uncertain. It must be
possible to ascertain the meaning of the agreement,
for otherwise, it cannot be forced.
 Example,
 A, agrees to sell B “a hundred ton of oil” there is nothing
whatever to show what kind of oil was intended. The
agreement is void for uncertainly.
 A, agrees to sell B “one of the car” but not specified
which of the car than the agreement is void for
uncertainty.
Prof. Kinjal Thaker
23
9. Possibility of performance
 Yet another essential feature of a valid contract is
that it must be capable of performance. Section 56
lays down that
 “An agreement to do an act impossible in itself is
void”.
 If the act is impossible in itself, physically or
legally, the agreement cannot be enforced at law.
 Example
 A agrees with B, to discover treasure by magic. The
agreement is not enforceable.
 A agrees with B to put life into B’s dead wife, the
agreement is void as it is impossible to perform.
10. Legal formalities/Writing and registration
 A contract may be made by words spoken or
written.
 According to the Indian Contract Act, a contract
is to be valid, when the documents in which the
contract is incorporated and to be stamped.
 In some other cases, a contract, besides being a
written one, has to be registered.

Agreement and Contract
Meaning of Agreement
“Every promise and every set of promise, forming the

consideration for each other is an agreement”
 A proposal when accepted becomes a promise. The promisor makes a proposal

and the promisee accepts the proposal.
 Both promisor and promisee promise to perform their part of reciprocal
promises. This set of promises on the part of the promisor and the promisee
constitutes an agreement.

Difference between Agreement
and Contract
Difference between Agreement and Contract
Point of Agreement Contract
Difference
Meaning When a proposal is accepted by the person When an agreement is

to whom it is made, with requisite enforceable by law, it becomes
consideration, it is an agreement. a contract.
Elements Offer and Acceptance Agreement and Enforceability
Defined in Section 2 (e) Section 2 (h)
In writing Not necessarily Normally written and
registered
Legal Does not creates legal obligation Creates legal obligation
obligation
One in other Every agreement need not be a contract. All contracts are agreement
ScopeProf. Kinjal Thaker Wide #2318MN301 (BL) 
Narrow
Indian Contract Act – 1872 and Specific
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Types of Contracts
Types of Contracts
Valid Contract
Voidable Contract
Void Contract
Unenforceable
Contract
Express contract
Implied contract
Quasi-contract
Executed contract
Types of Contracts (Continued.)
 Valid Contract
 A valid contract is one which has all essential elements and is enforceable by law.
 Voidable Contract
 An agreement which is enforceable by law at the option of one or more of the
parties but not at the option of others is a voidable contract. When the consent
of a party to a contact is not free, i.e. it is caused by coercion, undue influence,
misrepresentation or fraud, the contract is voidable at his option.
 A voidable contract continues to be valid till it is avoided by the party.
 Example: A promise to sell his car to B for Rs. 50,000. His consent is obtained by
use of force. The contract is a voidable at the option of A. He may avoid the
contract or elect to be bound by it.

 Void contract
 A contract that ceases to be enforceable by law becomes void when it ceases to
be enforceable. A contract, when originally entered into, may be valid and binding
on the parties. But afterwards because of any reason it ceases to be enforceable by
law. E.g. war breaks out, changing rules.
 Example: A contract to import goods from a foreign country. It may subsequently
become void when a war breaks out between the importing country and exporting
country.
 Unenforceable Contract
 An unenforceable contract is one which cannot be enforced in a court of law
because of some technical defect such as absence of writing, signature, etc.
 In the event of a breach of contract, the aggrieved party will not be entitled to the
legal remedies.

 Express contract
 If the terms of a contract are expressly agreed upon (whether by words spoken or
written) at the time of formation of the contract, the contract is said to be an
express contract.
 Implied Contract
 The terms of a contract are inferred from the conduct or dealings between the
parties. When the proposal or acceptance of any promise is made otherwise than
in words, the promise is said to be implied. Such an implied promise leads to an
implied contract.
 Example, You board the bus. It is implied from the conduct that you have entered
into an implied promise to purchase a ticket.

 Quasi Contract
 Quasi Contract laws have been derived from the Latin statement “Nemo debet
locupletari ex aliena jactura” which proclaims that no human being should gain
an unjust benefit from another’s loss. It was one of the main principles of Roman
law.
 The word ‘Quasi’ means having some resemblance to but not all.
 Similarly, a Quasi Contract means laws that are like regular contract law but not
quite so. A regular contract should have some essential components to be considered
valid. It includes offers, acceptance, consideration, two or more parties who are
legally and mentally capable, etc.
 Certain relations resemble those created by a contract or certain obligations which
are not contract in fact but are so in the contemplation of law.
 Example: If a package belonging to A is delivered to M, then M is legally obligated
to return it to A. If M uses up the contents of the packaging for himself, then A has
the right to sue him. In that case, the court can order M to reimburse A under Quasi-
contract
Prof. Kinjal Thakerlaw.
35
 Executed contract
 ‘Executed’ means that which is done.
 An executed contract is one in which both the parties have performed their
respective obligations.
 Example: A agrees to sell his car at 50,000 RS. to B. When B pays the money and
A gives the keys of the car. i.e., when both the parties perform their obligation, the
contract is said to be executed.

Proposal and Acceptance
Meaning of Proposal
 Proposal is the first essential element of valid contract.
The Indian Contract Act of 1872 states in section 2(a) that

“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”.
 The person who offers the proposal is known as the promisor or offeror.
 The person who is being proposed is referred to as the promisee or offeree.
 The proposal turns into a promise when the person to whom it is being made
accepts it.

Meaning of Proposal
 A proposal or offer is the initial point of an agreement.
 When one party offers a proposal to another party then both parties enter into a
legally binding agreement. So, every agreement is also considered a promise or
set of promises.
 Example: If ‘X’ tells ‘Y’ that he desired to marry in 2024, then it is not
considered an offer of marriage. Because a valid offer states that willingness
must be made to get the assent of the other. So, if ‘X’ adds another statement
“Will you marry me?” then it is considered as an offer. There are various types
of offers such as general offers, special offers, cross offers and counter offer
contract law.

Elements of a Valid Offer or Proposal
To make a proposal there must be a minimum of two participants.
The individual making the offer is referred to as the offeror and
Parties involved the individual to whom the offer is made is referred to as the
offeree.
Communication
The offeree must be aware of the offer proposal. The offer must
of the offer be communicated to the offeree before he can accept it.
To do or abstain
The offeror must let the offeree know whether he is willing to
from doing perform the act that comprises the offer or not.
Create legal An offer or proposal must establish a legal relationship between

the parties. A party invitation is not a valid offer because it is a
relations social obligation.
Elements of a Valid Offer or Proposal (Continued.)
The offer must not be

vogue It is necessary for the proposal or offer to be made with the goal of
winning the offeree’s approval.
An offer or proposal An offer may contain some specific condition. The offeree must
can be conditional decide whether to accept the offer under those restrictions. If the
offeree adds some of his conditions then it is called a counteroffer.
The inconvenience of
acceptance cannot be The offer can not state negatively that it will be assumed accepted if
on the offeree the acceptance is not communicated within a certain time period.
Offer proposal can be

specific or implied The offer can be made explicit by using certain words, a written
document, or a verbal message.
Meaning of Acceptance
 According to the Indian Contract Act, 1872, Section 2(b), acceptance is
expressed as “When the person to whom the proposal has been made signifies
his assent thereto, the offer is said to be accepted. Thus, the proposal when
accepted becomes a promise.”
 After an offer is made, the next important and essential element in the formation
of a contract is acceptance.
 It has been remarked that it is acceptance alone that converts an offer into a
promise, thus creating mutual obligations and rights between the contracting
parties.
 In ordinary language, it means to signify the unconditional assent to the
proposal by the acceptor.

Types of Acceptance
Expressed If the acceptance is written or oral.

acceptance
Implied If the acceptance is shown by conduct

acceptance
Condition When a person to whom an offer has been made

tells the offeror that he or she is ready to accept
al the offer with certain changes made to the
acceptance condition of the offer.
Capacity to Contract
Meaning of Capacity to Contract
 The primary element of a valid partnership contract is the capability or
eligibility of partners to form a business agreement.
 The capacity to contract here means the legal ability of an individual or an
entity to enter into a partnership or a contract. According to business law, the
partner must be competent and fulfill the specified criteria before signing a
contract.
 Section 11 of the Indian Contract Act, 1972 details the capacity in contract law.
It defines the ability to form contracts based on three aspects. They are as
follows.
 Attaining specified age
 Being of sound mind
 Not be disqualified from entering into a contract on the basis of any law he is
subjected to
People Disqualified under Law
 Other than minors and people of unsound mind, some individuals might be
restricted from entering into any contract as well. Such individuals do not hold
the capacity to contract under valid business laws. Disqualification under
contractual laws could include reasons related to politics, legal status, etc. This
could also happen when a person is a foreign sovereign, national enemy,
convict, or insolvent.
 Alien enemies: People who have citizenship in countries that don't have cordial
relationships with India or in a war situation are called Alien enemies. People
signing the contract during a war situation is not encouraged and a contract during
a peace situation is valid.
 Pardanashin Women: Pardanashin women who will be under the influence are
not eligible to be involved in the contract as they cannot understand the contract.

People Disqualified under Law (Continued.)
 State Ambassadors: The ambassadors are incompetent to contract.
 Convict Serving Sentence: People who are on Bail or serving their sentence are
not allowed to sign a contract.
 Legal professionals: People who work as judges, advocates, public prosecutors
are not allowed to sign a contract related to their connections.

Free Consent
Meaning of Free Consent
 Consent is a contract between two or more parties to agree with a mutual
commitment to achieve a desire or any other. Free consent in business law
helps to understand all the legal rules which we need to follow in business.
 Section 13 of the Indian Contract Act 1872, meaning of free consent is an
agreement made between two parties for the same purpose with the Union of
Thoughts. It is under the principle of consensus-ad-idem. It is the definition
of free consent.

Violating Factors of Free Consent
 Coercion
 When a person unlawfully, threatens or forces a person
via some forbidden acts, leads to coercion.
 It means the entry of either of the parties might be forceful
or any of them committed to illegal activities or
commitments against the Indian penal code etc.
 The effect of coercion leads to the cancellation of the entire
contract after investigating thoroughly.
 The legal body will restrict the obligations of both parties
in this case. If the commitment is done forcefully, clearly
we can say that it is not free of consent.

Violating Factors of Free Consent (Continued.)
 Fraud
 Another important factor of free consent is fraud. When
a person provides false assertion, makes any promises
in order to deceive a person or plans to get an advantage
over the other party, then the act is considered as fraud.
 It involves the omission of promises made during the
agreement, the false assertion of facts, false actions to
cheat the other party, etc. and many more deceiving
actions come under this fraud.
 According to Section 17 of the Indian law of contract,
the other party has been given rights to claim for the
deceived amounts as well as to revoke the entire contract
and can make modifications where he got damaged.

 Misinterpretation
 Providing a false assertion or fake representation
of the fact to the party or making unwarranted
information to mislead the other party.
 According to Section 18 of the Indian law of
contract, the misrepresentation is nothing but
showing the false information at the beginning of
the contract itself.
 The facts which are committed at the ground level
may not be reliable, then it is considered as
misrepresentation of the contract.
 Again here we have two kinds of
misrepresentations-one is innocent
misrepresentation and the other is a negligent
misrepresentation.
 Undue influence
 When one of the parties has a dominating nature
or uses its power to work against the will of the
other party.
 Undue influence is another factor to violates free
consent.
 It occurs when one of the other parties dominates
the other party in any aspect.
 There is a chance of taking unfair advantage
because of their dominating position on the other
party. The principal behind undue influence is the
doctrine of equity. The effect of undue influence
leads to the voidability of the contract of free
consent under Section 19 A.
Performance and Discharge of
a Contract
Performance and Discharge of a Contract
 The term discharge of contract means the ending of the contractual
relationship between the parties.
 A contract is said to have been discharged when it ceases to operate i.e. when
the rights and obligations created by the parties came to an end.
 A contract can be discharged if the parties mutually agree to terminate the
contract. Also, there are different methods through which contracts can be
discharged.

Methods to Discharge of Contract
Discharge
Discharge by Discharge
by Impossibilit by
Performanc y of Operation
e Performanc of Law
e
Discharge
Discharge Discharge
by
by Lapse of by Breach
Agreement
Time of Contract
or Consent

Methods to Discharge of Contract (Continued.)
 Discharge by Performance
 Performing means doing all those things which are required by a contract.
Discharge of performance occurs when the parties to the contract fulfill their
obligations set out under the contract within the specified time and in the manner
prescribed. In such a case, parties are discharged and contracts come to an end.
But if only one of the party performs, he alone is discharged. Such a party gets the
right of action against the other party who is guilty. Such a party gets the right of
action against the other party who is guilty.
 Discharge of Performance may be
 Actual Performance- By performing the act for which the contract was constituted.
 Attempted Performance- By attempting the act, not necessarily the act may be
finished.

 Discharge by Agreement or Consent
 Discharge by agreement or consent under the Indian Contract Act allows parties
to end their contractual obligations through mutual agreement. This can be
achieved through various means such as novation, rescission, alteration,
remission, waiver, and merger. These methods require the consent of all parties
involved and provide a legally recognized way to terminate contracts in India.
 Novation: Substituting a new contract for an existing one, with the consent of all
parties.
 Rescission: Agreement to terminate the contract, essentially 'undoing' it.
 Alteration: Modification of the terms of the contract with the consent of all parties.
 Remission: Acceptance of a lesser performance than what was originally agreed upon.
 Waiver: Intentional relinquishment of a right or claim under the contract.
 Merger: When a contract merges with a higher form of contract, such as when a
judgment is given on the contract.

 Discharge by Impossibility of Performance
 If it is impossible for any of the parties entered in the contract to perform their
obligations, then the impossibility of performance of contract leads to discharge of
contract. If the impossibility of performing the contract exists from the start, then
it is termed as impossibility by ab-initio. However, impossibility of performing
the contract may also arise later due to:
 An unforeseen change in the law
 Destruction of subject-matter of the contract
 Non-existence or Non-occurrence of a particular state of things.
 Outbreak of War

 Discharge of Contract by a Lapse of a Time
 According to The Limitation Act, 1963, there is a specific time period for the
performance of a contract.
 If the promisor failed to perform his duties and the promisee failed to take action
within this specified period, then the promisee in such a case cannot be deprived
of his remedy through law. Here, the contract is said to be discharged due to the
lapse of time.
 Example: John takes a loan from one of his friends and agrees to pay him
installments every month for the next five years. However, he does not pay even a
single installment. His friend calls him several times but then gets busy and takes
no action. After three years, he approaches the court to help him recover his
money. However, the court rejects his complaint because he has crossed the time-
limit of three years to recover his debts.

 Discharge of Contract By Operation of Law
 A contract can be discharged by the operation of law in the following
circumstance:
 Unauthorized Material Alteration of Written Document: A party can discharge the
contract i.e from his side if the other party changes the terms such as price or
quantity of contract without taking any permission from the former.
 By Insolvency
 By Death
 Discharge by Breach of Contract
 A contract is obliged to perform according to its terms. But when a promisor fails
to perform a contract according to the terms of the contract, then he is said to have
committed a breach of contract. The breach of contract is of two types
 Actual Breach- It refers to failure to perform the obligation when the performance is
due.
 Anticipated Breach- It takes place when one party before the arrival of the fixed date
forThaker
Prof. Kinjal performance states that it cannot or will not able to perform material part61of the
Remedies on Breach of a
Contract
Remedies on Breach of a Contract
 When a contract is breached, the injured party has certain remedies available to
them.
 These remedies aim to compensate the injured party for the losses suffered
due to the breach and to put them in the position they would have been in if the
breach had not occurred.
Specific
Damages Injunction
Performance
Quantum Mitigation
Rescission
Meruit of Damages
Remedies on Breach of a Contract (Continued.)
 Damages: Damages refer to the monetary compensation awarded to the
injured party to make up for the loss suffered due to the breach. There are
different types of damages:
 Compensatory Damages: These aim to compensate the injured party for the
actual loss suffered as a result of the breach. The damages awarded are meant
to cover the financial loss incurred, such as loss of profits or expenses incurred
due to the breach.
 Nominal Damages: When the injured party has suffered a breach but has not
incurred any actual loss, nominal damages may be awarded to recognize the
breach of contract. However, the amount awarded is usually minimal.
 Liquidated Damages: In some contracts, the parties may agree in advance on the
amount of damages to be paid in case of breach. These are known as liquidated
damages and are enforceable as per the terms of the contract.

 Specific Performance: In certain cases, the court may order specific
performance of the contract, requiring the breaching party to fulfill their
obligations under the contract. This remedy is typically available when damages
are inadequate to compensate the injured party, and the subject matter of the
contract is unique or rare.
 Injunction: An injunction is a court order restraining a party from doing a
certain act or requiring them to perform a certain act. In cases of breach of
contract, an injunction may be granted to prevent the breaching party from
further violating the terms of the contract or to compel them to fulfill their
obligations.
 Rescission: Rescission involves canceling the contract and restoring the
parties to the position they were in before the contract was formed. This
remedy is available when there has been a fundamental breach of contract or
when the contract was entered into under circumstances such as fraud or
misrepresentation.
Prof. Kinjal Thaker
65
 Quantum Meruit: Quantum meruit literally means "as much as he deserves."
This remedy allows the injured party to claim reasonable compensation for the
work done or services rendered before the contract was breached. It applies
when there is no express agreement on the price or when the contract is
terminated prematurely.
 Mitigation of Damages: The injured party has a duty to mitigate their losses
by taking reasonable steps to minimize the damages resulting from the breach.
Failure to mitigate damages may reduce the amount of compensation awarded.

Special Contracts
Special Contracts
Bailment
Guarante
Pledge
e
Indemnit Special
Agency
y Contracts

1. Contract of Indemnity – Section 124 and 125
 Contract of indemnity can be defined as a legal contract between two persons
whereby one party commits to indemnify, i.e. to compensate or reimburse,
the loss incurred to the other party, by the conduct of the party, who is making
the promise or by the conduct of the third party.
 A person who promises to save the other party from loss is called as
indemnifier.
 A person who is promised to be saved against loss is called an indemnity
holder.
 The contract of indemnity is a form of contingent contract.
 The object of the contract of Indemnity should not be unlawful.
 Examples – 1) Beta Insurance Company entered into a contract with Alpha Ltd., to
compensate for loss caused by accidental fire to the company’s stock of goods up
to Rs. 50,00,000 for a premium of Rs. 1,00,000. This is an express form of a
contract of indemnity.
Prof. Kinjal Thaker
69
2. Contract of Guarantee – Section 126 - 147
 A "contract of guarantee" is a contract to perform the promise, or discharge
the liability, of a third person in case of his default.
 A guarantee may be either oral or written.
 Example – Bahubali advances a loan of rupees 10,000 to Bhallal Dev. Kattappa
who is the boss of Bhallal Dev promises that in case Bhallal Dev fails to repay
the loan, then he will repay the same. In this case of a contract of guarantee,
Bahubali is the Creditor, Bhallal Dev the principal debtor and Kattappa is the
Surety.

2. Contract of Guarantee – Section 126 – 147 (Continued.)
There are 3 parties

to contract of
Guarantee
Principal Debtor
Creditor
The person in respect Surety
The person to whom
of whose default the The person who
the guarantee is given
guarantee is given is gives the guarantee is
is called the
called the "principal called the "surety“
"creditor"
debtor“

3. Contract of Bailment – Section 148-171
 A bailment is a transaction whereby one person delivers goods to another
person for some purpose, upon a contract that they are, when the purpose is
accomplished to be returned or otherwise disposed of according to the
directions of the person delivering them
 Bailment is an act of delivering goods to a bailee for a particular purpose,
without transfer of ownership.
 Bailment is derived from French word ‘ballier’ which means ‘to deliver’
 The person who delivers the goods is called the bailor and the person to whom
they are delivered is called the bailee.
 The ownership of the goods remains with the bailor, the bailee getting only
the possession

3. Contract of Bailment – Section 148-171 (Continued.)
Gratuitous bailment -
Free of charge either for
the benefit of the bailor
or for the benefit of the
There are two types of bailee
contract of bailment
Non-gratuitous bailment-
both the parties get some
benefit

4. Contract of Pledge – Section 172-182
 Contract of pledge is a subset of a contract of bailment. Here, the goods bailed
are kept as a security for a debt or a performance of a promise.
 Pledge is defined in Section 172 of the Indian Contract Act,1872 as “The
bailment of goods as security for payment of a debt or performance of a
promise is called pledge.”
 The bailor is in this case called the ‘pawnor’.
 The bailee is called ‘pawnee’.
 It is covered under Chapter IX (Section 172- Section 181) of the Indian Contract
Act, 1872.

5. Contract of Agency – Section 182-238
 The law of agency is based on the Latin maxim “qui facit per alium, facit per
se”, which means, he who acts through another is deemed in law to do it
himself.
 Agency has nowhere been defined in the Act but on the basis of this section 182,
an ‘agency’ may be defined as a contract by which an agent is employed by a
principal to act on his behalf or to represent him in dealings with the outside
world.
 In other words, the relation of agency arises when one person (the agent) has
authority to act on behalf of another (the principal). The relationship has its
origin in the contract.
 ‘Representation’ is an essential element of agency. It is also necessary that the
representation must have reached a stage where legal position of the principal
can be altered i.e., the principal can be held liable for agent’s act.
THANK
YOU
Prof. Kinjal Thaker
Assistant Professor
Darshan Institute of Management
Darshan University, Rajkot
kinjal.thaker@darshan.ac.in

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Business Law (BL)

 “A body of rules of action or conduct prescribed by a controlling authority, and

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

 The Indian Contract Act came into effect on 1st

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

According to Salmond, a contract is “ an

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

“Every promise and every set of promise, forming the

 A proposal when accepted becomes a promise. The promisor makes a proposal

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

Meaning When a proposal is accepted by the person When an agreement is

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

The Indian Contract Act of 1872 states in section 2(a) that

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

Create legal An offer or proposal must establish a legal relationship between

The offer must not be

Offer proposal can be

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

Expressed If the acceptance is written or oral.

Implied If the acceptance is shown by conduct

Condition When a person to whom an offer has been made

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

There are 3 parties

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

#2318MN301 (BL)  Indian Contract Act – 1872 and Specific

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