CHAPTER 1

Contracts, Indemnity, Guarantee, Bailment and Pledge

The Godfather was released in 1972 starring Marlon Brando as Vito Corleone and Al Pacino as Vito's
son Michael Corleone. The film was based on Mario Puzo's bestselling novel of the same name. Vito
Corleone was a don, and the head of a mafia family. His son Michael was the only college-educated
member, who was far removed from the family business. He was, however, unwillingly transformed
into a merciless boss, taking over the reins of the mafia business empire from his father. Michael's
evolution is the axis of the movie. In the movie, a well-known singer, Johnny Fontane, who is Vito's
grandson, desperately wants to star in a movie. He seeks Vito's help. The following is an exchange
between the two that beautifully brings out the importance of an 'offer in a contract: Vito Corleone:
Good. Because a man who doesn't spend time with his family can never be a real man. Come here.
You look terrible. I want you to eat. I want this Hollywood bigshot's gonna give you what you want.
Johnny Fontane: It's too late, they start shooti vou to rest a while. And in a month trom nou ing in a
week. Vito Corleone: 'm gonna make him an fe enjoy he can't refuse. Now, you just go outside and
eniou vourself, and, uh, forget about all this nonsense. I want you, I want you to leave it all to me.
The punchline-l'm gonna make him an offer can't refuse -delivered by Brando is among the mos
memorable American movie quotations of all time. know, you must be wondering which one is the
best It is: "Frankly, my dear, I don't give a damn, by Clark Gable as Rhett Butler in the 1939 movie
Gone with the Wind.) But The Godfather sums it all. Contracts can best be understood with the
initiation of a contractual relationship-an offer, also known as a proposal. In another scene, Michael
tells his girltriend Kay Adams: Luca Brasi held a gun to his head, and my father assured him that
either his brains or his signature would be on the contract." he the most Sounds illegal, but it
worked, at least in the movie! One should not try this in real life. Kay: Michael, you never told me
your tamily knew Johnny Fontane! Michael: Oh sure, you want to meet him? Kay: Yeah! Michael:
You know, my father helped Johnny in his career

Kay: Really? How? Michael: Let's listen to this song Kay: (after listening to Johnny for a while) Please,
Michael. Tell me. Michael: Well, when Johnny was first starting out, he was signed to this contract
with a big band leader. And as his career got better and better he wanted to get out of it. Now,
Johnny is my father's godson. My father went to see the band leader, and offered him $10,000 to let
Johnny go, but the bandleader said no. So the next day, my father went to see the band leader
again, only this time with Luca Brasi. Within an hour, the band leader signed the release, with a
certified check of $1000. Kay: How did he do that? Michael: My father made him an offer he couldn't
refuse. Kay: What was that? Michael: Luca Brasi held a gun to his head, and my father assured him
that either his brains or his signature would be on the contract. (Kay stares at Michael in disbelief)
Michael: That's a true story. That's my family, Kay, it's not me. This is, of course, the manner in which
the underworld and the mafia work, legal aspects of contracts relegated to the dust heap. Or, it
would not be wrong to say that the law of contract is used by them to their advantage by forcing it
upon the vulnerable and helpless in an unfair manner that binds them in voidable contracts, rarely
Contested in a court of law. When these are contested, it leads to interesting developments. We will
now discuss the importance of the original contract document and a little bit more about the case
later in the chapter.

IMPORTANCE OF THE ORIGINAL POWER OF ATTORNEY

 In January 2017, the Supreme Court of India pronounced a judgment-Harjas Rai Makhija v.
Pushparani Jain that highlighted the importance of keeping Original documents safely and securely
notwithstanding the availability of a photocopy. In 1981, Pushparani, a resident of the United States,
was allotted a plot of land by the Bhopal Development Authority. She appointed her brother
Jinendra as her attorney. Possession of the plot was taken by her through her brother. Later in 1983,
on the basis of another power of attorney in favour of Jinendra, the plot of land was sold to one
Makhija. Interestingly, the 1983 power of attorney was never produced in any court. Only the
photocopies were submitted. In October 1988, Jinendra and Makhija entered into an agreement to
sell the plot of land with the condition that the sale deed was to be executed on or before 30 April
1989. Makhija was handed over possession of the property. Pushparani challenged the 1983 power
of attorney and filed a suit in the Bhopal District Court for declaration that the sale deed was without
any authority and she should also be granted possession and mesne profits, which are profits
enjoyed by a tenant in wrongful possession that can be recovered by the landlord. Makhija filed
another suit in the court for specific performance of the contract entered into by him and Jinendra
on behalf of Pushparani. The matter was decided in favor of Pushparani by the district court and
later in appeal by the high court too. In a further appeal to the Supreme Court, the only issue was
that of the production of the original power of attorney of 1983 in Jinendra's favor. It could not be
produced and Makhija lost the case. The legal issue was of an agreement between the parties, which
are competent to contract. It is important that the parties in a contract must be competent to
contract. The important criteria are the age-eighteen years in India-and a sound mind. Another
important aspect is if the contract has to be made on someone else's behalf, whether it's a company,
which is a distinct legal entity, or an individual. It is essential that the person entering into the
contract must have authority, which, typically in case of individuals, is in writing as a power of
attorney. In the above case, as the original document could not be produced, the courts did not give
recognition to the photocopy, signifying the utmost importance of the original to safeguard
vulnerable persons from fraud and cheating. As we are embracing the digital and the electronic
more and more, this case is a reminder that nothing can be a substitute for the original. The
situation is different if the original itself is in a digital form, but for paper documents, producing the
original is mandatory.

In another interesting case, Enercon India v, Enercon Gmbh, which was decided by the Supreme
Court a few years ago in 2014, the contentious issue between the parties was regarding the
formation of several agreements through multiple and continuous communication through emails,
SMSs and telephone. As it was well settled in a catena of judgments that the formation of a contract
need not only be through the signing of documents, the Supreme Court upheld the formation of
contract through numerous communication channels. Even oral contracts are valid contracts in the
eyes of the law, provided all other conditions are fulfilled. So legally it is very easy to form a contract.
However, for all practical purposes, it is important to understand that certain safeguards are
necessary to be taken by the parties while forming a contract. Practically, it is reasonable for parties
to rely on written documents, which are properly signed. Both the parties should keep an original
with them. Usually, for this purpose, two copies of the original document are created. In case there
is only one copy, it is important that the original is accessible and can be produced in a court of law.
Otherwise, if challenged, there is almost no recourse in the absence of the original document. Legal
alliances between companies are also contractual in nature and may be under the jurisdiction of
more than one legal system. A cross-border impact on business is imminent.

TOYOTA-SUZUKI ALLIANCE: BUSINESS AND LEGAL IMPLICATIONS FOR INDIAN AUTOMOBILE

COMPANIES
In February 2017, Toyota and Suzuki declared their strategic alliance; they had first made such an
announcement four months ago in October 201O: This development was hot on the heels of the
global media reporting that Volkswagen had defeated Toyota as the No. 1 automobile company,
notwithstanding the fact that Volkswagen was mired in legal investigations and actions in the
European Union, the US and other countries for using a cheat device-a software--to show false
emission readings. Did Toyota's action indicate its desperation to somehow gain a foothold in the
growing automobile market in India, where Suzuki had already established itself as the market
leader for the last two decades? Interestingly, Birla's Hindustan Motors, which had been decimated
by Suzuki in partnership with Maruti Udyoog Limited, sold Ambassador, its iconic brand, to French
Peugeot on 6 February 2017 for around $12 million--a very small sum considering the position
Ambasador had held in the Indian market. No American, European, Asian or Indian brand has so far
been able to make a dent in Maruti-Suzuki's loyal customer base. While the whole country was
reeling under demonetization, Maruti-Suzuki's financial health remained steady, in fact it was
fantastic. Small wonder! Maruti-Suzuki has been provided a very sound foundation by their
founders-R.C. Bhargava for Maruti and O. Suzuki for Suzuki who emphasized the need to embrace
newer technology and make customer-friendly cars. Ambassadors became extinct as Hindustan
Motors had simply shut its eyes and ears to new developments and continued using, which was even
back then, obsolete technology for its cars. O. Suzuki, the grand old man, has been known to be a
tough negotiator. He talks tough but is not a Spoilsport. He believes in following the collaborative
style of negotiation with the aim of a bigger pie for both the partners. That's how Maruti-Suzuki
became a name to reckon with in India. O. Suzuki, who signed the agreement with Toyota, must
have taken care of the major irritants and kept in mind the differences between the two companies.
Earlier, Suzuki had burnt its fingers in a deal with Volkswagen when its relationship with Fiat became
a bit too cozy for VW's comfort. One can't deny the fact that at a time when technology companies,
such as Google and Tesla, among others, are in the fray for the automobile business, traditional
motor companies can't take such developments lightly. They have to keep pace with the times and
make tactical alliances for survival. Suzuki would not have liked the relationship with Toyota to go
the wrong way In the Indian market, Suzuki and Toyota must be aware of the legalities involved.
Several business marriages have resulted in divorce due to changing legal and political
environments. The issues of competition law, such as monopoly or any monopolistic tendency for
that matter, which are likely to arise given the humongous nature of the joined entity, should be
addressed right at the beginning. Indian companies may overtly or covertly initiate proceedings
against the combined entity to either Oust it or clip its wings. Other points of concern could be
intellectual property, technology transfer, confidentiality agreements and non-disclosure clauses.
There must be exclusivity contracts with Maruti and other Indian Companies to whom Suzuki is
providing cuttng-edge technology. With Toyota coming closer to Suzuki practical enforcement of
such clauses moves into a zone of uncertainty. Indian automobile companies may also face the heat
due to better and cheaper spare parts a d . . . . n services provided by the combined entity, which
have been mad .61 b . e poss1 e y the scale of the companies and their access to the latest
tech~ology. U~e of futuristic technology-electric and h~bnd cars, dnverless cars, non-conventional
fuels, better rruleage, safer and sturdier vehicles-will be difficult t b d . l o e countere using egal
tools. Indian companies will have to rethink and rework their business models. Can contracts help in
streamlining business? Of course! In case parties are not able to negotiate a contract well, it might
be a disaster, a self-made one, for tlie negligent party. McDonald's has learnt it the hard way.

JOLT TO MCDONALD'S: FAILURE TO NEGOTIATE: In June 2017, forty-one out of fifty-five McDonald's
outlets in New Delhi had to shut down as their licences were not renewed. For a big multinational
company like McDonald's, which has been opening outlets now in even tier-two cities of India, this
was shocking news. In a huge market like the capital, shutting shop for even a few hours could result
in a big loss for a fast-food company. So it was difficult to comprehend what could have happened
that led to this massive closure. A quick background: McDonald's is one of the biggest fast-food
companies in the world. Its unique selling proposition has been extremely fast service along with a
high quality of food. The same standards of service, hygiene, pricing, etc., are maintained
everywhere in a given geographical area and jurisdiction, barring a few locations, such as aurports,
where the prices of the products might be a notch higher. The corporate entity, typically, does not
operate on its own, but allows others to operate under a licence with stringent conditions pertaining
to the quality of goods sold and the services delivered. Standardization of almost everything-the SIze
and weight ot a potato patty in its hugely popular McAloo Tikki burger, for example, is fixed-has
been one of the important reasons for its 1immense commercial success. Licencees quality have to
strictly adhere to all conditions to commercially exploit the brand name and be permitted to use the
trademark, logo, slogan, trade dress and related intellectual property. In the instant case, how the
licencee-Connaught Plaza Restaurants Pvt. Ltd (CPRL), steered by one Vikram Bakshi-managed to get
so much bargaining power as to challenge the global chain is not very clear. But the licencee had not
become strong overnight. It appears that McDonald's top management failed to check the increasing
strength of one individual and his supporters The situation worsened to such an extent that the was
nothing left to negotiate-Vikram Bakshi wanted to control the lion's share of McDonald's business
and acted as a very tough negotiator-and the party supposedly the higher bargaining power,
MclDonald's, reached a state of desperation. This is most untortU and speaks volume about the lack
of leadership at the top, which failed m creating viable options within reasonable period of time.
~------a 1An arbitration matter between McDonald's and Vikram Bakshi is being heard for the past
two years in the London Court of International Arbitration and proceedings are also on in more than
one foru'm in India. This is an interesting case study of how a global company tied its hands behind
its back and succumbed to pressure in the boardroom in the last fifteen years or so. This is the same
company that was expanded globally by Ray Kroc, who had taken control of McDonald's from its
founders-McDonald brothers Richard and Maurice. Kroc was a legend, known for cancelling a
franchise's licence if even a lone fly was spotted on its premises. A simple analysis of the case and
the company's history tells us that a tearing hurry to open more and more outlets to earn more
profit was responsible for the slackening of McDonald's stringent standards, vhich ultimately led to
its undoing. The franchisees must have been allowed to cut corners-maybe not in a regular and
routine manner, or, who knows, it might have become a matter of routine-by turning a blind eye and
not taking strict action in instances of intentional wrongdoing or gross negligence. Extremely high
standards and leniency don't go together. One has to be ruthless to be perfect or near perfect, and
cannot permit anyone to pull them down. Businesses cannot afford the luxury of being oblivious.

SIGNIFICANCE OF CONTRACTS Contracts are integral to business and managers have to deal with
them almost on a daily basis. Although most of them are routine, sometimes there are significant
contracts that require the application of the mind and involve decision-making . Contracts help
businesses move from a zone of uncertainty to certainty. But no matter how hard one may try, even
this zone is given to turmoil and changes due to forces beyond one's control or changed
circumstances that might make honouring such contracts imprudent. Contracts govern businesses in
most of the jurisdictions by providing freedom to the parties involved to negotiate in accordance to
their bargaining power the terms and conditions, which necessarily should be within the framework
of the law of the land. For international contracts involving two or more foreign parties, the situation
might be complex depending on the dissimilarity in their legal systems. We will take a look at the law
in India. But in most evolved jurisdictions of the world, the basic principles remain more or less the
same. There are contracts in general with the applicability of basic principles and then there are
some special ones like indemnity, guarantee, bailment, and pledge-to deal with certain specific
transactions in business. Which law governs contracts in lndia? How are the important terms
defined? What is the law in other countries The law of contract in India is contained in the Indian
Contract Act, 1872. A business manager must be familiar with the important terms of this Act. Most
of the commercial law is based on this Act. Although there is no need to learn the clauses section-
wise, I have provided them with their respective section numbers here (this style has not been
repeated elsewhere in the book).

► 2(h)-An agreement enforceable by law is a contract.

► 2(e)-Every promise and every set of promises, forcing consideration for each other, is an
agreement.

► 2(b)-When a 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.

► 2(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 the other to such an act or abstinence, he is said to make a
proposal.

► 2(c)-The person making the proposal is called the promisor, and the person accepting the
proposal is called promisee. They are also called as offeror and offeree respectively.

► 2(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,
somethmg, such as an act or abstinence or promise, it is called a consideration for the promise. (The
section numbers aren't important, but if you want, you can read up more on them.)

What is a contract? What is the importance of free Consent? As mentioned above [in 2(h)], a
contract is an agreement entorceable by law. Any agreement that is not permitted by the law is not
a contract. For instance. an agreement between two parties for gambling in India is not a contract. It
is, nonetheless, an agreement. Just as all squares are rectangles but not all rectangles are squares, all
contracts are agreements but not all agreements are contracts. According to Section 10, all
agreements are contracts if they are made with the free consent of the parties competent to
contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared
to be void. Free Consent of the parties means that they must consent freely, enter into the contract
willingly and voluntarily. Presence of fraud, misrepresentation, coercion, undue influence or mistake
will have a negative impact on thhe validity of the contract. What is consensus ad idem? Should the
contract Contract necessarily be in writing? What is privity of contract? There needs to be a 'meeting
of minds'. In case the promisor is talking about apples and the promisee is thinking about oranges,
there is no contract. This goes down to the root of the matter-intention of the parties. As mentioned
earlier, in the eyes of the law, an oral contract is as good as a written contract. However, it is difficult
to prove an oral contract and, hence, advisable to enter into a written contract, especially when the
stakes are high or when one is dealing with a new party. There may be some contracts that have to
be in writing as required by the law, for example, the arbitration clause and the transfer of property
under the Transfer of Property Act. A contract creates rights and obligations ~ between the parties.
only a party to the contract, and no one else, can enforce their rights against the other party . If,
contract creates rights between the parties called jus in personam and not against the world at large
as understood in jus in rem. What is consideration? What is 'peppercorn theory'? There has to be a
consideration in each and every agreement, otherwise, it simply becomes a gift, with the other party
under no obligation to do anything. The parties must agree to do something or abstain from doing
something. It has to be mutual. Absence of consideration makes the contract void. However, the law
is not bothered about the 'adequacy of consideration'. This is best explained by the 'peppercorn
theory', which says that any small or insignificant thing can be sufficient consideration for anything
highly valuable. Even a peppercorn can be sufficient consideration in a promise. The courts,
however, can go into the question of the adequacy of consideration in case it is doubtful if consent
was given freely or not. If the courts find that consent was not given freely and that the
consideration is insignificant, then the contract may be held to be voidable.

What do we mean by offer and acceptance? What is the mirror-image rule What is implied
acceptance? What provisional acceptance? What is rejection? The terms proposal and 'offer are
used interchangeably and defined in Section 2(a) of the Indian Contract Act. Acceptance by the
promisee must be absolute and unqualified. It is also called the mirror-image rule. Just as a mirror
reflects what is in front of it, the offer made to the offeree must be accepted as is, Without any
change. In case any change is made, it does not remain an offer. It becomes a counter-offer. Usually,
silence is not to be construed as acceptance. There might be exceptions based on the norms,
practices and customs of a particular culture. But, such situations are rare. If the offeree performs
any of the conditions of the proposal or accepts any consideration, it becomes an implied
acceptance of the proposal. Something less than absolute acceptance is known as provisional
acceptance. The offer doesn't come to an end, however, only rejection-expressed or implied puts an
end to it.

Contract

What is the difference between an offer and an invitation to offer: What is the importance of
communication contracts? The offer must be definite and unambiguous and must be coupled with
the intention to create a contract at the relationship. In case it is just a statement or a piece of
information, it will not become an offer. Until and unless an offer is made and communicated to the
offeree, cannot be accepted· The manner in which the acceptance is to be communicated needs to
be usual and reasonable :.The manner in which acceptance has to be communicated needs to be
usual and reasonable, unless the offer prescribes the manner. If it is just a statement without the
intention of being accepted by the other party and also without the intention of creating contractual
relationship, it is simply an 'invitation to offer'. Advertisements, price lists, picking up goods in a self-
service store, etc., fall into this category. An offer can be revoked by the offeror before acceptance.
Similarly, an acceptance can be revoked before it comes to the knowledge of the offeror. According
to Section 4, the communication of a proposal or its revocation is considered to be complete against
different parties at different points of time. When contracts are negotiated face-to-face or through
almost instantaneous digital means there is hardly any problem. This section is relevant in case the
parties are at different places and communication has to be made through slower means such as the
postal service.

Do the questions of jurisdiction and limitation matter? Which law shall govern the contract depends
on the place where it has been formed. Hence, it is important to find out as to where the offer was
accepted. The applicable law is more important in international contracts. However, in domestic
contracts parties are quite particular as to which court in which geographical area shall have
jurisdiction. This is governed primarily by the procedural law but is also dependent on the
substantive law of the contract. The time at which the contract came into being determines the
limitation period for many purposes, which sets the clock ticking for making any claim. The limitation
period is usually governed by the Limitation Act, 1963, with its Section S-delay condonation-put to
good use by lawyers. On some occasions, the time of the formation of the contract also determines
the place for the ongoing communication between the parties.

What is the impact of an acceptance on an offer? What is a standard form of contract?

Assuming all other conditions are met, an acceptance converts an offer into a binding contract. It
might be the result of oral communication, by signing a document, or through tickets, vouchers,
receipts, or customary trade practices, which are typically an implied acceptance. Such an
acceptance is said to be like a lighted matchstick to a train of gunpowder. Consumers are often
provided with a standard form contract- with no option to negotiate-by several sellers and service
providers. These are take-it-or-leave-it contracts. Contracts with railways, airlines, telephone
companies, insurance companies, etc., fall into this category. These are also considered to be
binding unless the conditions are absolutely one-sided with the intention to dupe the consumers ,
Contracts are also formed through auctions and the tendering process, particularly by the
government for public work. Submission of a tender in response to a Notice Inviting Tender (NIT) is
not an acceptance; it is only an offer and NIT is considered to be an invitation to offer. The fall of the
hammer in an auction is acceptance

How does a contract get discharged?

What do we mean by novation, rescission and alterations Once a Contract comes into existence, it
must also end. This is called the discharge of a contract. It might be by performance as the parties
had envisaged while entering into the contract. It might be by a tender of performance that might
not have been accepted by the other party. Both parties can mutually decide to discharge the
contract at any stage. Party autonomy is paramount in a contract. The parties are free to end a
contract in the same way as they are free to enter into it. The only thing to be kept in mind is that
the contract has to be within the legal framework. In case a contract cannot be performed due to
subsequent impossibility or operation of law, it is discharged. The contract is also discharged by
breach, which might give rise to an action for claiming compensation. Subsequent impossibility is
often cited in contracts, but it does not mean difficulty of performance, commercial impossibility,
failure on the part of the third party on whom one of the parties to a contract relied upon, etc. A
contract might be substituted by a new contract novation-or it might be rescinded or altered. In such
cases, it is not required that the earlier contract is performed as the intention of the parties is clearly
to perform the new one and not the old one.

What happens if a contract is not performed? What do we mean by liquidated damages? What is
force majeure? A contract must be performed, i.e. the parties must carry out the obligations created
under the contract In case, a party breaches (does not perform)-it must compensate the aggrieved
party by paying damages compensation-that may be predetermined liquidated damages, usually
called LD, or claimed without any pre-estimated and predetermined amount called unliquidated
damages. The aggrieved party might also ask for specific performance of the contract, i.e. as the
other party to do specifically what it had promised. A non-performing party might wriggle out only
for special reasons, those beyond his control, known as force majeure. These might either be
manmade, such as wars, riots, law and order problems, or due to nature, known as, an 'act of God',
such as an earthquake or a tsunami or floods, etc. There are mainly four types of damages:

a. Ordinary Damages: These damages are meant to compensate the aggrieved party for the normal
losses suffered and to put back the party in a position in which it might have been had the contract
been performed. These do not take care of indirect or remote loss.
b. Special Damages: These damages are more than the ordinary damages and the aggrieved party
can claim these when it has been decided so between the parties. It might be due to special
circumstances that have been communicated. In such a case, the part committing breach is liable to
pay not only ordinary damages but also for the indirect loss.

c Punitive Damages: At times courts might award punitive damages. It is done to punish the party
committing a breach . These are rare.

d Nominal Damages: A sum of one rupee might be awarded to vindicate the claim of the aggrieved
party when there has been no substantial loss but ·violation of a legal right made technically.

What is mitigation of loss? What is the difference between LD and penalty? The aggrieved party is
duty bound to minimize the loss due to breach of contract. He cannot claim the losses that he
suffered due to his own neglect. His actions must be in conformity with that of a 'reasonable and
prudent person'. Thus, he cannot pass everything on to the party committing the breach. In case the
parties do not make an effort to estimate the loss that could happen and simply stipulate a sum, it is
called 'penalty' and is in terrorem. The idea is to terrorize the other party so it performs the promise
made. The major difference between LD and penalty is that in the former the intention is to
compensate the aggrieved party, but the latter is meant to serve as a deterrent so that the other
party performs. Whenever the LD mentioned is out of proportion or is simply unreasonable, it can be
interpreted as penalty. Be it LD or penalty, the aggrieved party can claim only a reasonable
compensation not exceeding the amount mentioned in either. Courts, usually, do not allow penalty.
Let us examine a few cases.

sUNDARAM FINANCE V. NOORJAHAN BEEVI, SUPREME COURT OF INDIA, 20162 In September 1983,
Sundaram Fin~nce entere~ into a hire purchase agreement with NooIJaha_n for mancing R 1 4 7 000
for purchasing a commercial vehicle. The h:er:._Noorjahan-was to pay back i thirty-six monthly
instalments. Since May 1984, NooIJal~an defa~lted in payment of the instalments. Sundaram
Fmance seized the vehicle in February 1985 and sent a legal notice to settle the contract within ten
days of its receipt. No payment was made. In May 1985, Sundararn Finance sold the vehicle,
adjusted the amount and further demanded a balance of Rs 40,000. Noorjahan did not pay anything.
In May 1988, just before the three-year period since the vehicle was sold ended and the date of
demand notice was going to expire, Sundaram Firiance filed a suit for recovering the amount with
interest. Noorjahan's husband, who was a guarantor, was impleaded as a party. Noorjahan's counsel
argued iriter alia on the ground that the suit was barred by limitation. The law of limitation-as
contained in the Limitation Act, 1963-provides for the time from which the period begins to run. The
period provided is of three years. Section 55 provides that for compensation for breach of any
contract the period shall begin from the time when the contract is broken. In case of successive or
continuing breaches, it is usually the latter time. Also, Section 113 provides that for any suit for
which no period of limitation is provided elsewhere in the schedule of this Act, the period will begin
to run from the time when the right to sue accrues. Sundaram Finance insisted that the period of
three years started from May 1985 when the vehicle was sold. However, NooIJahan made the
submission that it had started from May 1984 when the default was made and Sundaram Finance
could have sued to recover the unpaid amount. The Supreme Court held that Section 55 was
applicable and the period began when Noorjahan first defaulted as clause 4 of the contract had
mentioned that if the hirer committed breach of agreement, the financier was entitled to seize the
vehicle. Even if it is assumed that the period started later when the final legal notice was sent, it was
still February 1985 and the period of three years was to end in February 1988. Thus, in any case,
Sundaram Finance's suit was barred by limitation. It is a good case highlighting the importance of
being vigilant in cases of breach of contract and taking timely legal action.

GRANAROLO SPA V. AMBROSI EMMI FRANCE SA, EUROPEAN COURT OF JUSTICE, 20163 Granarolo
SpA, an Italian company, had entered into a contract with Ambrosi Emmi France SA, a French
company, for distributing food products manufactured by the former in France. The contract worked
out well for about twenty-five years. Interestingly, there was no framework contract or exclusivity
agreement. A framework contract is a general agreement that sets out the t&c for long term
relationship and within which specific contracts usually purchases are made. An Exclusivity
agreement prohibits parties from entering into agreements with other parties for similar purposes.
In early December 2012, Granarolo informed Ambrosi that from T January 2013 another French
company would distribute its products in France and Belgium. Taken aback by the abrupt
termination and very short notice, Ambrosi moved the Tribunal de Commerce de Marseille for
damages against Granarolo. The contract mentioned the place for the purpose of jurisdiction as the
one where the goods were delivered or were supposed to be delivered. That place was Granarolo's
plant in Bologna, Italy, as the words Ex works were mentioned in the invoices. The court decided
that it had jurisdiction and considered it a case of tort rather than contracts. The law of tort is a body
of rights-created outside contracts and is used by courts to provide damages for wrongful acts of
others. Granarolo appealed in Cour d'appeal de Paris on the ground that the dispute should be
decided on the basis of contract law and not tort law. The court of appeal stayed the proceedings
and reterred the matter to the European Court of Justice for a preliminary ruling. The ECJ observed
that for resolution of a dispute on the basis of a contract, it must be concluded between the parties,
not necessarily in writing. Contractual obligations may arise tacitly from unequivocal acts expressing
parties’ intent, There was a clear demonstration of the existence of a tacit contractual relationship
based on a long-standing business relationship, the good faith between the parties, regularity of
transactions, discounts granted, correspondence exchanged, etc. The ECJ left it for the national court
to decide if 'ex works’ appeared in the successive contracts or not. If they appeared, then goods
would be regarded as delivered at Granarolo’s Bologna plant and not at Ambrosi's seat in Nice
France. Jurisdiction is an important issue to be decided in contractual disputes, and this case
highlights it well.

M&G POLYMERS USA, LLC, V. TACKETT, US SUPREME COURT, 20154 This was a unanimous decision
regarding a collective bargaining agreement (CBA). Such agreements are negotiated between the
management of a company and its trade union. In the year 2000, a limited liability company (LLC) in
the US-M&G Polymers-purchased a company called Point Pleasant Polyester Plant. At that time,
M&G entered into a CBA with the employees union. It was inter alia related to pension and
insurance. One of the clauses was that the retirees, along with their surviving spouses and
dependants, would receive a full company contribution towards healthcare benefits. It was also
mentioned that such benefits were to be provided for the duration of the agreement, which was to
be renegotiated in three years. After the agreement expired, M&G asked the retirees to contribute,
but they sued M&G on the ground that the agreement had created a lifetime right. The district court
decided in favour of M&G, but on appeal, the sixth circuit court reversed the decision. The company
appealed in the US Supreme Court, which decided against the circuit court and upheld the decision
of the district court. The Supreme Court observed that the circuit court did not follow the ordinary
principles of contract law. CBAs have to be interpreted as ordinary contracts provided they are
within the periphery of law and consistent with federal labour policy. If any such agreement is
unambiguous, it must be literally interpreted. One of the settled principles is that a written
agreement is presumed to encompass the whole agreement of the parties. Other traditional
principles include the rule that ambiguousS writings should not be interpreted to create litetime
promises. Also, the rule is well settled that in the ordinary course, upon termination of a bargaining
agreement, contractual obligations cease.

This case illustrates well the point that a contract within the legal periphery is to be performed as is
without bringing in elements such as an unreasonable interpretation or issues of emotion and
charity for the party with the lesser bargaining power. The intent of the parties will be understood
by the courts through plain and simple reading of contractual provisions when unambiguous. It is
only in cases of ambiguity that the courts may exercise discretion in interpretation, which could be
tilted in favour of the weaker party. Contracts are created to be performed and need not
unnecessarily be interfered with. So far we have discussed contracts in general. Let us have a look at
some special ones.

INDEMNITY, GUARANTEE, BAILMENT AND PLEDGE

What is a contract of indemnity? What do we mean by indemnifier and indemnified? A contract of

indemnity or indemnity simpliciter has been dealt with under sections 124 and 125 of the Indian
Contract Act. Indemnity means providing a security against loss or damage, i.e. to compensate for
loss. So, one party may indemnify the other against all losses and claims that it might suffer during
the course of the business. A contract for indemnity involves two parties the 'indemnifier' and the
indemnified'. The former covers the losses of the latter. Indemnity is, typically, not unconditional.
The indemnified has to prove the loss he has suffered. It is the duty of the indemnified to keep an
account in a proper manner, provide sutticient evidence and all relevant details to the indemnifier to
prove that he has suftered a loss. In case the indemnitier is not convinced enough, he might refuse
to compensate for the loss. What can be a good example of indemnity? More than a hundred years
ago, in a very interesting development, Henry Ford promised to indemnity all dealers, importers,
agents and users of Ford's gasoline automobiles. At that time, George Selden, a lawyer, held a patent
(no. 549160 dated 5 November 1895), which controlled broadly all gasoline automobiles. When
Henry Ford started manutacturing the Ford cars, Selden published notices in the newspapers to the
effect that anyone who was making, selling, or using any gasoline automobile made or sold by an
unlicenced manufacturer would be liable to prosecution. Ford was the main target. In response to
this notice, Henry Ford published his own notice in the newspapers and promised to indemnify the
Concerned parties. What is the position of insurance vis-d-vis indemnity? Broadly speaking,
insurance is indemnity that requires the losses to be proved. The idea of indemnification has been in
vogue in the bus1ness community for a very long time. It often happens that a person would like to
execute his business plan but is not in a position to take the financial risk. In such a situation, a
financially sound party may promise to indemnify the other person provided he considers that the
business plan is good and, probably, should be successful, However, the other party's risk has to be
taken by someone and it is the indemnifier who takes this risk. The essential requirement that losses
must be proved 1S a problem in a good number of cases as sometimes the aggrieved party fails to
provide sufficient evidence. In such a scenari0, the contract of guarantee comes handy. What is a
contract of guarantee Unlike indemnity-which involves two parties-the Contract of guarantee
involves three parties. These are the pruncipal debtor who borrows money, the creditor who lends
money, and the surety who gives the guarantee to the creditor on behalf of the principal debtor to
repay in case the principal debtor is unable to do so. Guarantee is covered under Section 126 and
some other continuing sections of the Indian Contract Act. It is a very important concept in contract
law and has developed over a period of time. lt is very common in the business community. There
are ditterent types of guarantees; a common one is for loans. The other is pertormance guarantee,
which can either be oral or written; it can be a very specific guarantee or a continuing guarantee,
etc. A guarantee can also be either for the whole debt or part of it. What is a bank guarantee One of
the most important types of guarantees where the bank is the surety is called the bank guarantee'. It
is a very popular method of guarantee and is often used in a contract. We will discuss more about
this in the chapter on banking. What is contract of bailment? What do we mean by bailor and
bailee? The contract of bailment or bailment simpliciter has been discussed in Section 148 of the
Indian Contract Act. Bailment is the relationship between the 'bailor' and the bailee', where the
former delivers certain goods to the latter for a particular purpose, and when the purpose is
accomplished the goods are returned to the bailor. The Ownership of the goods remains with the
bailor and the bailee is merely in possession of them. 1 he important thing is to remember that the
bailment is only for delivery of goods. It is not for immovable property like land buildings, etc. What
are the duties of a bailee? The foremost duty of the bailee is that when the purpose is accomplished,
he must return the goods to the bailor, and while they are in his possession, he must take proper
care of them. In case of a specific understanding between the parties, the bailee must do exactly as
planned. For example, in case the bailor hands over a cow-a cow and all other animals are defined as
goods under the Sale of Goods Act-to the bailee and both agree that the latter shall take care of it by
properly feeding it, provid1ng shelter and other necessary conditions, then the bailee is bound to
take such care. If the understanding is also that the bailee will milk the cow, sell the milk, keep an
account of the proceeds of sale, and hand over that sumn of money when the bailor wishes to take
the animal back, it is the duty of the bailee to do all this in a proper manner. There may be another
understanding between the two of them: that the bailor will pay 50 per cent or the proceeds of the
sale mentioned earlier to the bailee. In such a scenario, the bailor is bound to pay that sum of money
to the bailee, or the latter can deduct that amoun and pay him the rest while settling the account. It
is important for the bailee to understand that ne cannot make use of any of the goods bailed in a
mannel that has not been authorized-either in express or implie terms-by the bailor. For instance, a
car is bailed to a person for satekeeping on condition that it won't be used. Any usage of that car if
done will be unauthorized. Is bailment common? Bailment is a very common phenomenon. For
instance, when a person gives his watch to a horologist for repair, apart from the commitment to
fixing the product, it is also a contract of bailment. The watch owner is the bailor and the person
who repairs the watch is the bailee. The conditions of such bailment are that after repairing the
watch, the bailee will return it to the bailor. The bailor is under an obligation to pay a reasonable
sum of money or consideration mutually agreed between them, to the bailee tor repair1ng the
watch. What is gratuitous bailment? What type of care is expected in gratuitous bailment? This is an
exception to the general concept that in a contract there has to be consideration tor both the
parties. Here, there is consideration for only one party. This situation, called 'gratuitous bailment, is
when the parties do not have a mutual understanding of any payment. A motorcycle lent by the
owner to his friend is a good example of gratuitous bailment. Similarly, in a class, if a student
borrows a pen from his classmate, then in most cases it will be gratuitous bailment. However, if the
owner says that he will lend his pen only if he is treated to a cup of coffee, then it will be a different

Situation. Another situation may arise 1f the intention Or both the parties is just to have this
conversation in a triendly manner without any intention to create a Contractual relationship'.
However, in the same example the situation may take a nasty turn if the classmates never had the
intention to create a contractual relationship but the borrower, i.e. bailee in a gratuitous bailment,
did not take proper care of the pen while using it. Should the pen be very valuable-in terms of cost
or of sentimental value-then the bailor may be in a very difticult position. In the eyes of the law, if
the parties did not have the intention to create a contractual relationship, nothing can happen under
contract law as there was no meeting of the minds. However, equity demands that the borrower
must compensate the lender in a reasonable manner. What will be the reasonable sum? A cup of
cottee? A new pen of similar make, or as demanded by the lender? It will be a question to be
decided according to the facts and Circumstances of the case. Is the interpretation of conditions of
bailment contextuals So it can be seen that bailment is an important topic under contract law, which
is used every day. In commercial transactions, bailment is also very commonly used and a number of
disputes arise because the parties may not have entered into a detailed contract at the time of
handing over the possession of goods. In a number or cases, particularly without detailed conditions
agreed upon mutually, parties are supposed to behave as a reasonable and prudent person. It is
easier said than done. What is reasonable, and who is a prudent person, is very difficult to be
determined. It all depends on the facts and circumstances, i.e. it is highly contextual.

What is the meaning of pledge or patwning?

Pledge or pawning-both are same-has been defined under Section 172 of the Indian Contract Act. It
is similar to the contract of bailment with the difference that the bailment of goods in a pledge is
done as a security for payment of a debt or performance of a promise. In such a scenario, the bailor
is called the 'pawnor' and the bailee is called the pawnee. All conditions of the contract of bailment
will also apply in case of a pledge. The pawnee has to return the goods to the pawnor whenever the
debt has been paid or the promise has been pertormed. Like bailment, pledge is also only for goods
and not for immovable property. The delivery of goods may be 'actual', when the goods are really
delivered to the pawnee, or 'constructive', when the goods are not delivered directly to the pawnee
but either the keys of a godown or documents or title to the goods are delivered. Another
interesting aspect is that the goods may remain in the possession of the pawnor but the constructive
delivery is made to the pawnee.

What are the rights of the pawnee? How common is pawning?

In case the pawnor is not able to pay the debt within the agreed time or is not able to perform the
promise as agreed between the parties, the pawnee can retain the goods, sell to them in the market
and recover the amount that has been paid by the pawnor along with administrative charges for
making such a sale, and reasonable interest. The rest of the money has to be returned to the pawnor
Pawning or pledging was and is very common. It has been a very popular tool of commercial
transactions, particularly in raising money during times of crisis Pawning is a common trope in
popular culture-in a 1916 Charlie Chaplin movie called The Pawn Shop Chaplin had played the role of
an assistant to a pawnshop owner. Pledging is deep-rooted in our society and can easily be observed
in day-to-day life in cities, towns and even in remote villages. For that matter, it is much more
common in remote areas where typically a moneylender lends money to a needy person. However,
while lending money, he asks tor a security. In a good number of cases, the moneylender accepts
gold, silver, and other valuable things as security. It is also Common practice that the moneylender
takes the risk of lending money after properly examining the goods and ascertaining their value,

What can be a good and easy-to-understand example of pawning? Is moneylending typically

observed in lndian villages and towns?

Let me tell you about a moneylender, a gold ring and u risk associated with lending money. For
example, let say the rate of gold is Rs 20,000 for 10 grams. A pers old WIshes to borrow a sum of Rs
15,000 and owns a go ring of around 10 grams. He goes to the moneylender, who evaluates the
quality and the weight of the gold. According to his calculation, the value of the gold ring is around
Rs 20,000. He agrees to lend a sum of Rs 15,000. The borrower promises to pay back the principal Rs
15,000-along with interest at the rate of 2 per cent per month within a period of one year. He is
supposed to pay the interest, which amounts to Rs 300 every month. Now let us say the rate of gold
shoots up in the market and touches Rs 30,000 for 10 grams. So the value of the gold ring is now
around Rs 30,000. The pawnor is paying Rs 300 every month, which makes it Rs 3600 for a year.
Along with the interest, he has to pay the principal sum of Rs 15,000. So, he has to pay Rs 18,600 to
get back his ring. In case he is not able to do that, the pawnee (moneylender) is at liberty to sell the
ring in the market and recover his principal amount, interest, and expenses incurred in selling the
ring, in addition to the interest for delay in the entire transaction. The money that remains after the
moneylender has recovered his amount has to be paid back to the pawnor. In this case, the pawnor
wil be very much interested to get back his ring as the price of gold has shot up. On the contrary, if
for some reason, let us say the rate of gold touches a low of Rs 10,000 for 10 grams; its value has
dropped. The pawnor is supposed to payy the pawnee a sum of Rs 18,600. In such a situation, no
sane person would like to pay the sum of Rs 18,600 to get back goods that are only worth Rs 10,000.
In this scenario, the pawnor would not be interested in paying back either the debt or the interest
on the principal sum.

Risk is, theretore, integral in the business of moneylending.

Let us examine a few cases that highlight the application of legal principles in business situations.
PRAVEENBHAI V. UNITED INDIA INSURANCE COMPANY, SUPREME COURT OF INDIA, 20155 Ramesh
was employed by Praveenbhai as a cleaner for vehicle 1-a dumper-and was asked to fill water in the
radiator of vehicle 2-another dumper-when suddenly the bonnet of vehicle 2 fell on his head and he
died. The incident occurred on 20 May 2002; it fell under Rajkot courts jurisdiction. The
commissioner of the labour court held that the insurance company was not liable as vehicle 1 was
not involved in the accident. However, the owner of vehicle 2, Praveenbhai, was liable to
compensate Ramesh's family. Praveenbhai appealed in the Gujarat High Court where the
commissioner's order was upheld on the ground that Ramesh was employed as a cleaner for vehicle
1 only, hence, the insurance company was not liable to indemnify Praveenbhai for the sum of money
he was ordered to pay to Ramesh S family. Aggrieved by this order, Praveenbhai appealed in the
Supreme Court primarily on the ground that botn the vehicles owned by him were insured by the
sam insurance company. Als0, because Ramesh died during the course of his employment, the
insurance company was bound to indemnify. Moreover, the Motor Vehicles Act, 1988-which makes
it mandatory to buy insurance for motor vehicles-being a beneficial legislation, the insurance
company should fulfil its social and legal duties and indemnify the owner of the vehicles. The
insurance company's lawyer argued that since Ramesh was employed only tor vehicle 1, which was
not involved in the accident, the company was rightly exonerated by the courts below trom
indemnitying. The issue to be decided by the Supreme Court was whether the insurance company
was liable to indemnity the vehicle owner for the death of a person who was employed by him for
another vehicle. Vehicle 2 was duly insured, but Ramesh was only a third party for it. Admittedly, he
was not employed for it. The Supreme Court made a safe assumption that Ramesh was filling water
in vehicle 2 only on the direction of the owner and was, undoubtedly, working in the course of his
employment. It exercised its extraordinary jurisdiction under Article 142 of the Constitution of India,
which provides power to the court to pass such a decree or make such an order as is necessary for
doing complete justice. The court observed that the cleaner was from the lowest strata of the
society, hence, the insurance company should indemnify Praveenbhai.

IDBI V. HUBTOWN, SUPREME COURT OF INDIA, 2016

In 2009 and 2010, the Dutch development bank based in The Hague-Nederlandse
FinancieringsMaatschappij voor Ontwikkelingslanden N.V.-better known as FMO invested around Rs
400 crore in a slum-rehabilitation project being undertaken in Mumbai by an Indian company called
Rubix and an Industrial Park being undertaken by another Indian company Amazia. Both Rubix and
Amazia were under the control of the Indian company Vinca Developer, which was the holding
company. So, primarily, FMO was the lender and Vinca was the borrower. Industrial LDevelopment
Bank of India (IDBI) was appointed as the debenture trustee for the investment deal and was
supposed to take proper care of FMO's investment and see to it that interest on the investment was
duly paid and the principal amount protected. Also, in this relationship, Ackruti City Ltd (later known
as Hubtown Ltd) was made the guarantor. The corporate guarantee inter alia mentioned that in case
Vinca-Rubix and Amazia-failed to honour the payment terms, Hubtown would pay the principal sum,
interest, damages, etc., to IDBI. Vinca failed to make the interest payments at regular milestones and
later couldn't pay the principal amount as well. In a suit filed in the Bombay High Court for
enforcement of corporate guarantee given by Hubtown to lDBI and therefore to FMO-Vinca averred
that the foreign direct investment (FDI) policy and the Foreign Exchange Management Act (FEMA)
regulations in India permitted FDI in townships and construction of houses only by Wa of equity
investments and prohibited non-equity-debt investment. lt was alleged that to get a fixed return of
abou 14.5 per cent per annum on its investment, FMO na Circumvented this requirement by creating
an investn ent

structure of compulsorily convertible debentures (CCD) and optionally partially convertible

debentures (OPCD). The high court held that the guarantee was part of the illegal structure and
therefore prima facie illegal and unenforceable. This was challenged in the Supreme Court, which
held that the corporate guarantee was between IDBI, Hubtown and Vinca-all Indian companies.
Hence, there was no question of any FEMA regulation. The guarantee must be honoured. It set aside
the high court decision, ordered Hubtown to deposit Rs 418 crore and asked the high court to decide
FMO's claim within a year.

VIRENDER V. AMERICAN CONSOLIDATION SERVICES, SUPREME COURT OF INDIA, 20167

Virender and Girish-both in India -had entered into a contract to send garments to an American
company Zip Code, which is part of the Coronet Group. In 1994 they handed over the consignment
to American Consolidation Services (ACS), Mumbai, which acted as an agent of Zip Code, the
principal. ACS handed over the consignment to Hoeg Lines, the shipping carrier of Norway, through
an Indian office in Mumbai. ACS issued cargo receipts with the consignee Central Fidelity Bank,
Richmond, VA, USA (now known as Wells Fargo Bank). However, in the bill of lading issued by the
shipping carrier the name of the consignee was changed to Coronet Group and the shipper was
named as Cavalier Shipping Co. The cargo receipts clearly mentioned the bailment agreement, which
provided that from and after the delivery of goods by ACS to the carrier, according the consignee's
instructions, the sole responsibility liability for the care, custody, carriage and delivery of to and
goods was that of the concerned carrier. Virender and Girish did not receive the payment for the
consignment and approached ACS. According to the law of bailment, ACS had acted as the bailee
when they had handed over the consignment and were liable to take care of the goods and return
them when asked by the bailor. Interestingly, they had not made any payment to ACS as shipping
charges, and so there was no question of any contractual liability. The only question was of
gratuitous bailment, which made the bailee liable to take reasonable care of the goods and return
them to the bailor. However, ACS maintained that it was acting only as an agent for Coronet and any
action taken should lie against Coronet. They approached the National Consumer Disputes Redressal
Commission (NCDRC) for relief under the Consumer Protection Act, 1986, against ACS, which was
denied. In an appeal in the Supreme Court, they were ordered to implead Coronet, Central Fidelity
Bank, and the shipping company in the matter and NCDRC was directed to decide the matter. The
result was the same. NCDRC held that only Coronet was liable to make the payment as the
consignment was deliverc to it and ACS only acted as an agent. So ACS had no responsibility as bailee
and couldn't be held liable to compensate them. There was no question of deticieney or service as
no contract per se was entered into betWe them and ACS.

SEBI V. PAN ASA ADVISORS, SUPREME COURT OF INDA, 6 JULY 20158 In 2009,

Asahi Intrastructure and five other companies had issued global depository receipts (GDRs) with Pan
Asia Advisors-which was later known as Global Finance and Capital Limited, London-as lead
manager. The case of the other five companies was similar to that of Asahi. The Supreme Court
decided Asahi's case that was to be applied mutatis mutandis to the other companies. Asahi had
issued GDRs of around $6 million. A legal entity, Vintage, took a loan from Euram, a foreign bank
lender, for subscribing to Asahi's GDRs. The entire transaction was managed by a loan-and-pledge
agreement signed by Vintage, Euram and Asahi. These two agreements were intertwined. Asahi was
the pledgor with Euram and had agreed to the terms of loan agreement. Euram secured its loan by
pledging GDR issued by Asahi. It was alleged by the Securities and Exchange Board of India (Sebi)
that Asahi did not disclose the pledge agreement either to Sebi or the shareholders. The pledge
agreement had further provided for pledging Asahi's assets as collateral security for payment of a
loan of about $6 million. Euram was given the rights of realization of pledged securities in case of
loan default. The combination of loan and pledge agreement resulted in the common ownership of
the bank account by the borrower, the subscriber and the issuing company. Sebi alleged that the
transactions between Asahi, Vintage and Euram were part of a scheme to fraudulently raise fake
capital by the issuing company. In 2013, Sebi debarred Pan Asia Advisors from dealing with securities
for ten years. In appeal, the Securities Appellate Tribunal, by a 2-1 majority decision, set aside Sebis
order on the ground that the GDRs were issued outside lndia and hence were beyond Sebi's
jurisdiction. Sebi appealed in the Supreme Court, where the court held that it had jurisdiction as the
basic purpose for which Sebi had been created was to protect the interests of the Indian investors
whenever it found any fraud or misdeed negatively impacting the interests of Indian investors in
securities. It is an interesting case that highlights the importance of the financial regulator's reach
beyond Indian shores to protect investors interest. It also shows the use of pledging as a mechanism
to secure loans and how vigilant regulators need to be to unbundle complex looking loan and pledge
agreements intertwined together to find the real and dubious nature of the instruments.

TAKEAWAY FOR MANAGERS Business managers must have a good understanding of the
fundamental principles of contracts, both general and special, and try to appreciate their application
in different jurisdictions. At times, it has been observed that realistic application is very well guided
by the norms and practices evolved over decades and centuries and the theoretical reading simply
may not be very helpful. Managers have to be extra cautious while dealing with contracts of special
nature as they may have certain peculiar features, very different from general contracts. For
instance, there is only one-sided consideration in a gratuitous bailment, whereas the bailee is
responsible for the safekeeping and taking reasonable care of goods handed over. As law develops
with the pronouncement of judgments in common law countries, precedents have a great binding
value, and India follows the common law system-managers will do well to keep a track of the latest
judgments pronounced by higher courts, especially those related to their field of business.