1 INDIAN CONTRACT ACT, 1872 Definition of Contract An agreement enforceable by law is a contract.

Thus to make a contract, there must be [I] an agreement [ii] agreement should be enforceable by law. Definition of Agreement Every promise and every set of promises forming the consideration for each other. Definition of promise romise is defined as an accepted proposal. Thus! A contract is an agreement, an agreement is a promise and a promise is an accepted proposal. Thus every contract is an agreement but every agreement is not a contract An agreement grows into a contract when following conditions are satisfied "! #] $] %] &] There is some consideration for it. arties are competent to contract. Their consent is free. Their ob'ect is lawful.

Proposal or offer ( roposal is the starting point. DEFINITION )hen one person signifies to another his willingness to do or 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 makes the proposal is called *offerer+ and the person to whom it is made is called the *offeree+ Comm!nication of proposal The first part of the definition of *proposal+ lays emphasis upon the re,uirement that the willingness to make a proposal should be -signified.. To signify means to indicate or declare. It further means that the proposal should be communicated to the other party. The process of making a proposal is completed by the act of communicating it to the other party. The communication may be made by words of mouth or by writing or by conduct. The communication of the proposal is complete when it comes to the knowledge of the person to whom it is made.

2 ACCEPTANCE Definition" )hen the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes promise. Thus, -acceptance. is the assent given to a proposal and it has the effect of converting the proposal into promise. Comm!nication of Acceptance The definition clearly re,uires that the assent should be signified. It may be oral or written or by conduct. The acceptance must be communicated to the offerer himself. A communication to any other person is as ineffectual as if no communication has been made. E/. ( 0 had been supplying coal to railway company without any formal agreement. 0 suggested that a formal agreement should be drawn up. The agents of both the parties met and drew up a draft of agreement. It had some blanks when it was sent to 0 for his approval. 1e filled up the blanks including the name of arbitrator and then returned it to the company. The agent of the company put the draft in his drawer and it remained there without final approval having been signified. 0 kept up his supply of coals but on the new terms and also received the payments on new terms. A dispute having arisen, 0 refused to be bound by the agreement. The conduct of company.s agent in keeping the agreement in his drawer was an evidence of the fact that he had mentally accepted it. 0ut he had not e/pressed his mental determination and therefore the mere putting of agreement was not a sufficient acceptance. 0ut the subse,uent conduct of the parties in supplying and accepting coal on the basis of the proposed agreement was a conduct that evidenced their intention. The final acceptance was clearly given when the company commenced a course of dealing. #o$e of Comm!nication Acceptance has to be made in the manner prescribed or indicated by the offerer. An acceptance given in any other manner may not be effective. )hen no mode of acceptance is prescribed, acceptance must be e/pressed in some usual and reasonable manner. %&en comm!nication of acceptance is complete ( )hen a letter of acceptance is posted and is out of power of the acceptor, the proposer becomes bound. 0ut the acceptor will become bound only when the letter is received by the proposer.

3 Re'ocation of Acceptance ( An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards. Thus the communication of revocation should reach earlier than the acceptance itself. )hat will be the result if they reach together. The section does not make this point clear. E/. ( A proposes by letter sent by post, to sell his house to 0. 0 accepts the proposal by a letter sent by post. 0 may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards. CON(IDERATION 2E/amine the role of consideration in a contract. 3tate the e/ceptions to the rule 4o consideration, 4o 5ontract. 6efine and analyse consideration7 Definition ( )hen, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstain from doing or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. At t&e $esire of t&e promisor ( The definition clearly emphasises that an act or abstinence which is to be a consideration for the promise must be done or promised to be done in accordance with the desire of the promisor. In other words, the act shall not be a good consideration for a promise unless it is done at the desire of the promisor. E/. ( The laintiff, on the order of 5ollector of a town, built at his own e/pense, certain shops in a laintiff having

ba8ar. The shops came to be occupied by the defendants who, in consideration of

e/pended money in the construction, promised to pay him a commission on articles sold through their agency in the ba8ar. The laintiff..s action to recover the commission was re'ected. The court held

that the only ground for making of the promise is the e/penses incurred by laintiff in establishing the market but it is clear that anything done in that way was not *at the desire+ of the defendants, so as to constitute consideration. The act was the result not of the promise but of the collector.s order. Promisee or an) ot&er person 5onsideration be done by *the promisee or any other person+. It may move from the promisee or if the promisor has no ob'ection, from any other person. E/. ( A person had a daughter to marry and in order to provide her a marriage portion he intended to sell a wood of which he was possessed at the time. 1is son 2the defendant7 promised that if 9the

4 father would forbear to sell at his re,uest, he would pay the daughter say :s. #;,<<<=!. The father accordingly forbore but the defendant did not pay. The daughter and her husband sued the defendant for the amount. It is clear that the defendant gave this promise to his father and it was father alone, who, by abstaining from selling the wood, had furnished consideration, for the promise. The laintiff was

neither privy to the contract, 9nor interested in the consideration9. 0ut it is e,ually clear that the whole ob'ect of the agreement was to provide a portion to the plaintiff. It would have been highly ine,uitable to allow the son to keep the wood and yet to deprive his sister of her portion, he was accordingly held liable. *as $one or a+staine$ from $oing It means that consideration is an act which has already been done at the desire of the promisor or is promised to be done in future. ast consideration is good consideration in India. E/. ! If A saves 0 from drowning and 0 later promises A, a reward. The promise would be enforceable such act, abstinence or promise is called consideration. 5onsideration must be of some value. It does not mean that even a worthless act will suffice to make a good consideration. E/. ( A promises to give his 4ew >aruti #<<< car to 0, provided 0 will fetch it from garage. The act of fetching the car can not be called a consideration for the promise. Therefore, consideration must be of some value in the eyes of the law. E,ceptions to t&e consi$eration 1nat!ral lo'e an$ affection ( A written and registered agreement based on natural love and

affection between near relatives is enforceable without consideration. 94ear relatives9 include parties related by blood or marriage. E/. ( A sued 0, his brother, for share in certain lands. 0ut the suit was dismissed as 0 solemnly affirmed that the property was not ancestral, 0 then agreed by registered writing to give A one half of the same property. The present suit was brought to obtain that share. The laintiff admitted that he and his brother had long been on bad terms. 0ut in spite of the strained relations, the court held 9that this is 'ust the case to which. $;2#7 should be held to apply. The defendant had such natural love and affection for his brother that in order to be reconciled to him, he was willing to give him his property.

5 2past 'ol!ntar) ser'ice ( A promise to compensate wholly or in part, a person who has

already voluntarily done something for the promisor is enforceable. E/. ( A promise made after attaining ma'ority to pay for goods supplied to the promisor during minority has been held to be within the e/ception. .time/+arre$ $e+ts ( A promise to pay a time barred debt is enforceable. The promise should be in writing. It should also be signed by the promisor. The promise may be to pay the whole or any part of the debt. E/. ( where a tenant in a letter to landlord referred to the arrears of time!barred rent and said, 9I shall send by the end of month of >arch.9 It was held that the document falls under this provision. 0Agenc)?0y a contract of Agency, a person employees another person to do any act for him or to represent him in dealing with third persons so as to bind himself by the acts of such another person.4o consideration is necessary to create an agency. 1C&arit)! )here a person promises to contribute to charity and on the faith of this promise, the promisee undertakes a liability to the e/tent not e/ceeding the promised subscription, the contract shall be valid %&o are t&e persons competent to contract2 Every person is competent to contract who is of the age of ma'ority, according to the law to which he is sub'ect and who is of sound mind and is not dis,ualified from contracting by any law to which he is sub'ect. Thus following persons are incompetent to contract " #7 $7 %7 >inors ersons of unsound mind ersons dis,ualified by law to which they are sub'ect The age of ma'ority is #@ years e/cept when a guardian of minor.s person or

Age of ma3orit)

property has been appointed by the court in which case it is $# years. arties to the contract must be competent and hence minor is not competent. Persons of !nso!n$ min$ The agreement of a person of unsound mind is absolutely void. A

person is said to be of sound mind for the purpose of making a contract if at the time when he makes

6 it, he is capable of understanding it and of forming a rational 'udgement as to its effects upon his interest. 6is,ualified persons " E/. ( Insolvent, etc. (*ORT NOTE( ON FREE CON(ENT, 4N4D EINF54ENCE, #I(REPRE(ENTATION, COERCION DEFINE CON(ENT" F4556 E7P5AIN %*EN CON(ENT I( (AID TO 8E FREE" Aree consent is an essential re,uirement of valid contract. A consent is said to be free when it is not caused by #7 coercion $7 undue influence %7 fraud &7 misrepresentation ;7 mistake. )here consent to an agreement is caused by coercion, undue influence, etc. the agreement is a contract voidable at the option of the party whose consent was so caused. E/. ( if a person is induced to sign an agreement by fraud, he may, on discovering the truth, either uphold the contract or re'ect it. If he confirms it, the contract becomes binding on both the parties. 91Coercion ( is the committing or threatening to commit, any act forbidden by Indian enal

5ode or the unlawful detaining or threatening to detain any property to the pre'udice of any person whatever with the intention of causing any person to enter into an agreement. E/. ( A consent obtained at the point of pistol or by threatening to cause hurt. 924n$!e Infl!ence ( 3ometimes the parties to an agreement are so related to each other that

one of them is able to dominate the will of the other. E/. ( A spiritual advisor 2Buru7 induced the plaintiff his devotee to gift to him the whole of his property to secure benefits to his soul in the ne/t world. 3uch a consent is said to be obtained by undue influence. A person is deemed to be in a position to dominate the will of the other when he holds authority over the other or when he stands in a fiduciary relation to the other. E/. ( A father by reason of his authority over the son can dominate the will of the son. 1usband can dominate the will of wife. 9.Fra!$ : It means and includes any of the following acts committed by a party to contract with

intend to deceive another party to enter into the contract. i7 ii7 iii7 iv7 v7 the suggestion as to a fact which is not true active concealment of fact a promise made without any intention of performing it any other act fitted to deceive any such act or omission which law specifically declared to be fraudulent.

7 E/. ( The director of a company issued a prospectus containing a statement of facts which were false. It was held that a person who had taken shares on the faith of prospectus could repudiate the contract on the ground of fraud. 90#isrepresentation ( where a person asserts something which is not true, though he believes

it to be true, his assertion amounts to misrepresentation. It is misstatement of facts by one which misleads the other. E/. ( A makes a positive statement to 0 that 5 will made the director of the company. A makes the statement on information derived not directly from 5 but from >. 0 applies for shares on the faith of the statement which turns out to be false. The statement amounts to misrepresentation because the information received second hand did not warrant A to make the positive statement to 0. 91#ista;e ( )hen both the parties to an agreement are under a mistake to a matter of fact

essential to the agreement, the agreement is altogether void. 1owever, an unilateral mistake i.e. mistake of one party does not render the agreement void. E/ ( 20oth parties under mistake7 A agrees to sell to 0 a specific cargo of goods supposed to be on its way from England to >umbai. It turns out that before the day of bargain, the ship had been cast away and the goods lost. 4either of the parties was aware of these facts. The agreement was void. E/. ( 2unilateral mistake7 A agrees to purchase from 0 #@ carat gold thinking to be pure gold, 0 had not been instrumental to the creation of such an impression. It is valid contract. (*ORT NOTE( 5A%F45 O8<ECT, 5E=A5IT6 OF O8<ECT( 5A% F45 O8<ECT ( An agreement, the ob'ect or consideration of which is unlawful is void. It is unlawful in the sense that it is criminal or law will not enforce it. 5onsideration or ob'ect is unlawful if it is forbidden by law or is fraudulent or involves in'ury to the person or property of another or is immoral or opposed to public policy. E/. ( A agrees to pay :s. #<<=! to 0 on 0.s stealing 5.s purse. In this case, court cannot compel A to pay 0 because theft is hit by Indian enal 5ode. E/. ( 2Cnlawful consideration7 A promises to obtain for 0 an employment and 0 promises in return, to pay :s.Dne Eac to A. The agreement is void as the consideration is unlawful. In law public policy covers certain specified topics. E.g. trading with enemy, marriage brokerage, agreement in the restraint of trade, agreement in restraint of legal proceedings, etc.

8 DEFINE AND E7P5AIN >A5ID CONTRACT, >OIDA85E CONTRACT AND >OID A=REE#ENT( >A5ID CONTRACT ( All agreements are contracts if they are made by free consent of parties competent to contract, for lawful consideration and with lawful ob'ect. >OID CONTRACT ! It is one of which the law does not give effect. An agreement not enforceable by law is said to be void. The following types of agreements are declared to be void. 1Agreements ?it&o!t consi$eration ( This is of course sub'ect to few e/ceptions contained

in sec. $;. 2Agreements in restraint of marriage ( Every agreement in restraint of marriage of any

person other than minor is void. This is to discourage the agreements which restrain freedom of marriage. The restrain may be that the party may be restrained from marrying at all or from marrying for a fi/ed period or from marrying a particular person which agreement will be void. .Agreements in restraint of tra$e ( Areedom of trade and commerce is a fundamental right

protected by the constitution of India. The principle is that every man shall be at liberty to work for himself using his labour, skill and talent and that by any contract this right can not be taken out. E/. ( The plaintiff and defendant were rival shopkeepers in a locality in 5alcutta. The defendant agreed to pay a sum of money to the plaintiff if he would close his business in that locality. The plaintiff accordingly did so, but the defendant refused to pay. It was held that agreement was void. E,ceptions 1(ale of =oo$?ill ( Dne who sells the goodwill of a business my agree with the buyer to

refrain from carrying on a similar business within specified local limits. 2Partners&ip Act : It provides that the partners during the continuance of the firm to restrict

their mutual liberty by agreeing that none of them shall carry on any business other than that of business. It also restrains the outgoing partner from carrying on similar business within a specified period. 3uch agreements are void. 0Agreements in restraint of legal procee$ings ( Any clause in the agreement providing that

neither party shall have the right to enforce the agreement by legal proceeding is void.

9 14ncertain agreements ( Agreements, the meaning of which is not certain or capable of

being made certain, are void. E/. ( A agrees to sell to 0 a hundred tons of oil. There is nothing whatever to show what kind of oil was intended. The agreement was void for uncertainty. @%agering agreements ( These agreements are void. )ager is a promise to give money

upon the determination of uncertain event. E/"!F promises to pay :s.Ten Thousand to G if it rained on a particular day and G promises to pay :s.Ten Thousand to F if it did not. 3uch agreement is a wagering agreement. 8REAC* OF CONTRACT )e have so far seen how a contract is made, the essential elements that go to make a valid contract and also how a contract is to be performed and how a contract may be put an end to. )e shall now discuss about the breach of contract and also the mode in which compensation for breach of contract is estimated. Anticipator) +reac& of contract It is important concept under the law of contractual relationship. )hen the promisor refuses altogether to perform his promise and signifies his unwillingness even before the time for performance has arrived, it is called Anticipatory 0reach. )e shall now e/plain this difference in the amount of damages by means of an illustration, F agrees to sell to G a certain ,uantity of say, wheat at :s. #<<<=! per ,uintal to be delivered, say on %rd >arch. Dn the $nd Aeb, F gives notice e/pressing his unwillingness to sell wheat, and the price of wheat on the date is :s.#,##<=! per ,uintal. If G repudiates the contract forthwith 2)hich he is entitled to do at his option7 he would be able to recover damages H :s.##<=! per ,uintal, being the difference between market price on the $nd Aeb and the contract price. If instead of taking the action forthwith, he keeps the contract alive till the %rd >arch and in the mean time, the price increases to :s. #,#$;=! per ,uintal on the date. G would be able to recover damages H :s.#$;=! per ,uintal. If, on the other hand, during the intervening period between $nd Aeb and %rd >arch, private sale of wheat is prohibited by the Bovt., the contract would become void, and G would not be able to recover any damages whatever. Thus you observe that if the promise keeps the contract alive, he does so not only for his own benefit but also for the benefit of the promisor. The promisor in that event, not only would be entitled to perform the contract

10 notwithstanding his previous repudiation but also would be able to take advantage of any supervening circumstances whereby he is benefited. Act!al +reac& of contract In contract to anticipatory breach, it is a case of refusal to perform the promise on the scheduled date. The parties to a lawful contract are bound to perform their respective promises. 0ut when one of the parties breaks the contract by refusing to perform his promise he is said to have committed a breach. In that case, the other party to the contract obtains a right of action against the one who has refused to perform his promise. The Act in sec. I%, has laid down the rules as to how the amount of compensation is to be determined. Dn the breach of contract, the party who suffers from such a breach, is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him by the breach. A compensation can be claimed for any loss or damage which naturally arises in the usual course of events. A compensation can also be claimed for any loss or damage which the party knew when they entered into the contract, as likely to result from the breach. That is to say, special damage can be claimed only on a previous notice. 0ut no compensation is payable for any remote or indirect loss. Again in estimating loss or damage, the means, if any, available to the aggrieved party for remedying the inconvenience caused due to the non!performance of the contract must be taken into account. In other words, the party suffering from the breach is bound to take reasonable steps to minimise the loss. The rules relating to compensation were clearly enunciated in 21adley v. 0a/endale 2#@;&7 J E/. %&#7. In that case, the plaintiff mill was stopped by the breakage of a crank shaft. It was necessary to send the broken shaft as a pattern for a new one. It was communicated to the defendant, who were the carriers, that the mill has been stopped and that the shaft must be sent to the manufacturer immediately. 0ut they were not appraised of the fact that the working of the mill could not be resumed without the new shaft. 6ue to negligence on the part of the defendants, the delivery of the shaft to the manufacturer was delayed with the result that the plaintiff did not receive the shaft until some days after they would otherwise have received. The restarting of the mill was thereby delayed and the plaintiffs could not make profit which they would have otherwise earned. It was held in that case that loss of profit could not be taken into account for estimating the damage. The reason for this was that

11 the circumstances as communicated to the defendants did not show that the mill could not be re! started without the shaftK that a delay in delivery would entail loss of profit due to stoppage of the mill and that the plaintiffs did not have another shaft or there did not e/ist any other defects in the machinery to cause the stoppage. If the plaintiff had informed the defendants of the fact that the mill was stopped for want of the shaft, the plaintiff would have been entitled to receive from the defendants as compensation the average amount of profit which would have been made by working of the mill for the time the delivery of the shaft was delayed. 5ia+ilit) for $amages a5ia+ilit) for special $amages )here a party to a contract receives notice of special

circumstances affecting the contract, he will be liable not only for damages arising naturally and directly from the breach but also for special damages. +5ia+ilit) to pa) 'in$icti'e or e,emplar) $amages These damages may be awarded only

in two cases, vi8. 2i7 for breach of promise to marryK and 2ii7 for wrongful dishonour by a banker of his customer.s che,ue. In a breach of promise to marry, e/emplary damages may be awarded to the other party taking into consideration the in'ury caused to his or her feelings. The amount of damages recoverable by the drawer of che,ue from his banker in case of wrongful dishonour of this che,ue may be ,uite heavy, depending upon the loss of credit and reputation suffered on that account. A business man whose credit has suffered will get e/emplary damage even if he has sustained no pecuniary loss. c5ia+ilit) to pa) nominal $amages " 4ominal damages are awarded where the plaintiff has

proved that there has been a breach of contract but he has not in fact suffered any real damage. 4ow you may ask why such damages are at all awarded. The answer is simple. It is awarded 'ust to establish the right to decree for the breach of contract. The amount may be a rupee or even #< paise. $Damages for $eterioration ca!se$ +) $ela) In the case of deterioration caused to goods

by delay, damages can be recovered from carrier even without notice. The word -deterioration. not only implies physical damages to the goods but it may also mean loss of special opportunity for sale.

12 CONTIN=ENT AND A4A(I : CONTRACT( %&at is a Contingent Contract2 According to sec. %# of the Act, a contingent contract is a contract to do or not to do something, if some even collateral to such contract, does or does not happen. 5ontracts of Indemnity or of insurance are of this class. E/ample" A contracts to pay 0. :s. #,<<,<<< if 0.s house is destroyed by fire. This is a contingent contract. Essential of a contingent contract #7 The performance of a contingent contract is made dependent upon the happening or non!

happening of some event. A contract may be sub'ect to a condition precedent or subse,uent. $7 The event on which the performance is made to depend, is an event collateral to the contract,

i.e., it does not form part of the reciprocal promises, which constitute the contract. Thus the event should neither be a performance promised, not the consideration for a promise. Thus 2i7 where A agrees to deliver #<< bags of wheat and 0 agrees to pay the price only afterwards, the contract is a conditional contract and not contingentK because the event on which 0.s obligation is made to depend is a part of the promise itself and not a collateral event. 2ii7 3imilarly, where A promises to pay 0 :s. #,<<,<<< if he marries 5, it is not a contingent contract. %7 The contingent event should not be the mere will of the promisor. Aor instance, if A promises

to pay 0 :s. #<,<<< if he so chose, it is not a contingent contract. 2In fact, it is not a contract at all7 1owever, where the event is within the promisor.s will but not merely his will, it may be contingent contract. Aor e.g. if A promises to pay 0 :s.#<,<<< if A left 6elhi for 0ombay on a particular day, it is a contingent contract, because going to 0ombay is an event no doubt within A.s will, but is not merely his will. %&at is a A!asi Contract2 In the case of every contract, the promisor voluntarily undertakes an obligation in favour of the promisee. A similar obligation may be imposed by law upon a person for the benefit of another even in the absence of a contract. 3uch cases are know as ,uasi contracts. The obligation created in either of the cases is identical. Luasi contracts are based on principles of e,uity, 'ustice and good conscience. The salient features of ,uasi contractual right, are as follows "!

13 a7 in the first place, such a right is always a right to money and generally, though not always to a

li,uidated sum of moneyK b7 3econdly, it does not arise from any agreement of the parties concerned, but is imposed by

the lawK and c7 Thirdly, it is a right which is available not against the entire world, but against a particular

person= persons only, so that in this respect it resembles a contractual right. T)pes of B!asi/contracts 9aClaim for necessaries s!pplie$ to persons incapa+le or contracting 9(ec"@8- If

necessaries are supplied to a person who is incapable of contracting, e.g. a minor or a person of unsound mind, the supplier is entitled to claim their price from the property of such a person. Accordingly, if A supplies to 0, a lunatic, necessaries suited to 0.s station in life, A would be entitled to recover their price from 0.s property. 1e would also be able to recover the price for necessaries supplied by him to his 20.s7 wife or minor child since 0 is legally bound to support them. 1owever, if 0 has no property nothing would be realisable. 9+Rig&t to reco'er mone) pai$ for anot&er person 9sec" @C- A person who has paid a sum of

money which another is obliged to pay, is entitled to be reimbursed by that other person provided the payment has been made by him to protect his own interest. 9cO+ligation of a person en3o)ing +enefits of non/B!rat!ito!s act 9sec" 7D-

3uch an obligation arises under the provision of sec. I< which is reproduced below" ! *)here a person lawfully does anything for another person, or delivers anything to him not intending to do so gratuitously, and such other person en'oyes the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered+ Aor e.g. M, a govt. servant was ordered to compulsorily retire forthwith. 1e filed a writ petition and obtained an order from the 1igh 5ourt staying the govt.s direction. The govt did not give him any work but paid the salary in view of the stay order. Ainally, the writ petition was dismissed. The govt deducted the amount of salary that was paid to M after the stay order has been issued from his arrears with the govt. M challenges the deduction. The 1igh 5ourt held that M was bound to repay the salary received by him during said period under sec. I< of the 5ontract Act.

14 9$Responsi+ilit) of a fin$er of goo$s" 3uch a responsibility arises under sec. I# which 3ec.

is reproduced below "! *A person who finds goods belonging to another and takes them into his custody is sub'ect to the same responsibility as a bailee+ It is thus evident that the legal liability of a finder of goods is similar to that of a bailee. 1e is, therefore, re,uired to take proper case of the thing found, not to appropriate it to his own use and when the owner is traced, to restore it to the owner. Aurther, he must take as much care of the goods found as a man of ordinary pridence would, under similar circumstances, take care of his own goods of the same bulk, ,uantity and value as those of the goods found. 9e5ia+ilit) for mone) pai$ or t&ings $eli'ere$ +) mista;e or !n$er coercion

3uch liability arises under sec. I$ of the 5ontract Act which 3ec. is reproduced below " *A person to whom money has been paid, or anything delivered, by mistake or under coercion must repay or return it.+ E/"!A and 0 'ointly owe :s.#<<< to 5. A alone pays the amount to 5 and 0 not knowing this fact pays to 5 :s.#<<< over and again. 5 is bound to repay the amount to 0 CONTRACT( OF INDE#NIT6 AND =4ARANTEE Contract of In$emnit) A contract of indemnity is a type of contingent contract. *A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or the conduct of any other person is called a *contract of indemnity+. Aor e.g. A may contract to indemnify 0 against the conse,uences of any proceedings which 5 may take against 0 in respect of a sum of :s. ;,<<< advanced by 5 to 0. In conse,uence, when 0 who is called upon to pay the sum of money to 5 fails to do so, 5 would be able to recover the amount from A. Rig&ts of t&e in$emnit) &ol$er 9(ec" 121The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor" 2#7 all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify appliesK

15 2$7 All costs which he may be compelled to pay in any such suit, if in bringing or defending it, he did not contravene the orders or the promisor and acted as it would have been prudent for him to act in the absence of any contract of indemnity, of if the promisor authorised him to bring or defend the suit. 2%7 All sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorised him to compromise the suit. Contract of =!arantee 9(ec" 12@A contract of guarantee is a contract to perform the promise made or discharge liability incurred by a third person in case of his default. Thus, if A applies for shares in a limited company and 0 agrees with the company that any amount, which remains unpaid on the call, shall be paid by him. It is a contract of guarantee. Implie$ promise to in$emnif) s!ret) *In every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety, and the surety is entitled to recover from the principal debtor whatever sum he had rightfully paid under the guarantee but no sums which he has paid wrongfully.+ Consi$eration in case of g!arantee " *Anything done, or any promise made, for the benefit of the principal debtor may be a sufficient consideration to the surety for giving the guarantee.+ Nat!re of s!ret)Es lia+ilit)" *The liability of the surety is co!e/tensive with that of the principal debtor, unless it is otherwise provided by the contract+. The language of the sec. suggests that the surety is liable to the same e/tent as the principal debtor. )hen the debtor cannot be held liable to any defect in the document e/ecuted by him, the surety also ceases to be liable on the contract entered into by him. 1owever, a surety.s liability to pay the debt is not discharged even if the creditor omits to sue the principal debtor since the surety is separately liable on the promise of guarantee. Dn that account though the principal debtor has not been sued, the action is maintainable against the surety. Disc&arge of s!ret) 2#7 Any variance made without the surety.s consent in the terms of the contract, between the

principal debtor and the creditor, discharge the surety as to the transactions taking place subse,uent to the variance. 23ec. #%%7

16 2$7 The surety is discharged by any contract between the principal debtor and the creditor by

which the principal debtor is released or by any act or ommission of the creditor the legal conse,uence of which is the discharge of the principal debtor 2sec. #%&7 2%7 )here a creditor makes a composition 2i.e. settlement7 with, or promises to give time to the

principal debtor, or promises not to sue the principal debtor, by a contract between the creditor and the principal debtor the surety is absolved from the liability under the guarantee, unless the surety assents to such new contract 2sec. #%;7 2&7 It may further be noted that if there are co!sureties, a release by the creditor of one of them

does not discharge the other co!surety or co!suretiesK also that as between the other co!sureties per se it does not absolve the surety so released from his responsibility to another or others. 2sec. #%@7 2;7 The surety is also discharged when the creditor does any act which is inconsistent with the

rights of the surety or omits to do any act which, his duty to the surety re,uires him to do, and the eventual remedy of the surety against the principal debtor is thereby impaired. 2sec. #%J7 Distinction +et?een a Contract of In$emnit) an$ a contract of =!arantee #] 4o. of arties"!In 5ontract of Indemnity there are two parties i.e. Indemnifier and Indemnity (1older. In 5ontract of Buarantee there are three parties i.e. rincipal 6ebtor, 5reditor and 3urety. $] 4o. of 5ontracts"!In 5ontract of Indemnity there is only one contract between Indemnifier and Indemnity!1older. In 5ontract of Buarantee there are three contracts i.e. between a] creditor and principal debtor b] surety and principal debtor c] surety and creditor %] Cndertaking"!In 5ontract of Indemnity, Indemnifier undertakes to save the Indemnity (1older from any loss .In 5ontract of Buarantee, the surety undertakes for the payment of debt of the principal debtor. &] 4ature of Eiability"!In 5ontract of Indemnity, the liability of Indemnifier is primary and unconditional .In 5ontract of Buarantee the liability of surety is secondary and conditional. ;] 4ature of Event"!In 5ontract of Indemnity, the liability arises only on happening of contingency. In 5ontract of Buarantee, the liability arises only on the non!performance of an e/isting promise or non! payment of an e/isting debt.

17 8AI5#ENT AND P5ED=E A bailment is defined under sec. #&@, as an act whereby goods are delivered by one person to another for some purpose on a contract that the goods shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person who delivers the goods is known as the -bailor. and the person to whom the goods are delivered is known as the -bailee.. Aor e.g. If F delivers his car to G for repairs, F is the bailor and G the bailee. 8ailorEs $!ties 2#7 The bailor is bound to disclose to the bailee faults, if any, in the goods bailed of which the

bailor is aware. If the bailor does not make such disclosure, he would be responsible for damage suffered by the bailee directly from such faults. 2$7 )here goods are given to the bailee to be kept, carried or to be worked upon and the

bailment is gratuitous, the bailor must reimburse the bailee for the e/penses incurred by him for the purpose of the bailment. 2%7 If the bailor was not entitled to make the bailment or to receive back the goods or to give

directions in respect of them, he must compensate the bailee for any loss which the bailee may sustain in conse,uence thereof. 2&7 The bailor must compensate the bailee for the loss or damage suffered by the bailee that is in

e/cess of the benefit received, where he had lent the goods gratuitously and decides to terminate the bailment before the e/piry of the period of bailment. 5are to be taken by bailee " In all cases of bailment, the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence, under similar circumstances, would take of his own goods of the same bulk, ,uality and value 2sec. #;#7 D!ties of a +ailee following duties "! 2#7 4ot to make an unauthorised use of the goods bailed. If the bailee makes the unauthorised In addition to the duties prescribed by sec. #;# and #;$, the bailee has the

use, he would be responsible for damage, if any, suffered on this account and must pay compensation to the bailor. 3uch a liability would arise even if the bailee is not guilty of any negligence and even if the damage is the result of an accident 2sec. #;&7

18 2$7 4ot to mi/ the goods bailed with his own Boods without the consent of the bailor. If he does

so, it would have to be seen whether the goods mi/ed with each other can be separated or divided. If it can be done the property in the goods shall remain with the respective owners but the bailee shall have to bear the e/penses of separation or division and also any damage arising due to the unauthorised mi/ing. If however, the goods mi/ed do not admit of separation or division, the bailor shall be compensated by the bailee for the loss of the goods. 23ec. #;N and #;I7 2%7 To return the goods bailed on the e/piration of the period of bailment or the accomplishment

of the purpose of bailment without any demand being made. If the bailee defaults and goods are not returned, delivered, or tendered at the appropriate time, he would be responsible for the loss, destruction or deterioration that occurs subse,uently 2sec. #N< and #N#7 2&7 To deliver to the bailor any increase or profit accruing from the goods bailed.

E/"! A leaves a cow in the custody of 0 to be taken care of. The cow has a calf. 0 is bound to deliver the calf as well as the cow to A. 23ec. #N%7 2;7 4ot to do anything inconsistent with the conditions of bailment. 23ec #;%7

8aileeEs partic!lar lien If in accordance with the purpose of the bailment, any service re,uiring labour or skill is rendered by the bailee is respect of the goods bailed , he is entitled to remuneration if the bailor refuses to pay for the service, the bailee has the right to retain the goods bailed until he receives his remuneration. This right of the bailee to retain the goods is known as the particular lien of the bailee 2sec. #I<7. 3uch a lien has been given to the bailee only because he uses labour or skill for improving the goods bailed. It entitles the bailee to retain the goods but originally he has no right to sell the goods to realise his dues. A right to sell may, however, be given to the bailee by special agreement. =eneral lien A general lien is the right to retain the property of another for a general balance of accountK but a particular lien is a right to retain it only for a charge on account of labour employed or e/penses incurred in improving the property bailed. 0ankers, attorneys of a 1igh 5ourt and policy brokers have general lien on goods coming into their possession in the course of their trade. A banker has a general lien on cash, che,ues, bills of e/change and securities deposited with him in the character of a banker in respect of any amount due

19 to him. 3uppose, A borrows from his banker :s. ;<<<< without any security and later borrows a further sum of :s.#,<<<<=! from the same banker on the security of some gold ornaments. Even after A has repaid the second loan of :s.#,<<<< the banker can retain the ornaments as security for the loan of :s.;<,<<< which was originally advanced without any security. 3imilarly, a solicitor can e/ercise his right of general lien on the papers which he is entrusted with any may retain them until all amounts due to him have been paid. %&at is ple$ge 2 ledge is a specie of bailment" it is the bailment of goods as security for payment of debt or performance of a promise. )hen goods have been pledged, the bailor is called in this case the pawnor and the bailee the pawnee. In the case of pledge no transfer of any interest in property takes place, but a special right to property is carved out in favour of the pledge, i.e. he has the right to dispose of the property in certain circumstances. Pa?neeEs rig&ts 9aPawnees right of retainer (Sec. 173) " The pawnee may retain the goods pledged not only

for the payment of the debt or the performance of the promise, but also for the recovery of the interest on the debt and all necessary e/penses incurred by him in relation to the possession or for the preservation of the goods pledged. Thus, in a case where 1 pledges a stock of steel rods with > bank for a loan of :s.#,<<<<< at an interest H NO p.a., the bank may retain the goods not only for the realisation of the amount of loan but also for realising the interest thereon. 9+Pawnees right of retention in regard to subsequent advances (Sec. 174) " 3ub'ect to a

contract to the contrary, the pawnee would not be entitled to retain the goods to subse,uent advances made by the pawnee, provided this has not been e/pressly surrendered by a contract. 9cPawnees right to extraordinary ex enses incurred (Sec. 17!) The pawnee is entitled to

receive from the pawnor e/traordinary e/penses for the preservation of the goods pledged. 9$Pawnees right where awnor "a#es defau$t (Sec. 177) If the pawnor makes default in

the payment of the debt, or the performance of the promise in respect of which the goods were pledged, the pawnee may bring a suit against the pawner upon the debt or the promise and retain the goods pledged as a collateral securityK or he may sell the thing pledged on giving the pawnor a reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of

20 the debt, the pawner would be personally liable for the balance in respect of which a suit can be instituted. If, however, the proceeds of the sale are greater than the amount due, the pawnee must refund the surplus to the pawnor.

Pa?norEs rig&t to re$eem 9(ec" 177If a time is stipulated for the payment of the debt or performance of the promise, for which the pledge is made, and the pawnor makes default, he may redeem the goods pledged at any subse,uent time before the goods are sold, but in that case, he must pay, in addition, any e/penses occasioned by the default. The period for a suit against pawnee to recover the things pledged is three years from the date of pawnee.s refusal to do so after demand. 2The Eimitation Act #JN% ( schedule, I<7.