Ref 3

DISCHARGE OF CONTRACT
Discharge of Contract (Sec 37)
Meaning: Discharge of Contract Means Termination of

Contractual Relationship between the parties.
It means the rights and obligations created by the promisor
and promisee comes to an end.
Following are the ways of discharge of contract.

By Performance
By Agreement or consent
By impossibility of Performance
By Lapse of time
By Operation of Law
By Breach of contract
Business Laws-Prof.Benny Pappachen
1- Discharge of Contract by
Performance
By Performance means completion of the

obligations (doing what was contracted)
Discharge by performance means when the
parties involved in the contract fulfills their
obligations, as per the contracted conditions &
specifications and the contract comes to an end
If one of the party fulfills the obligations of the
contract and the other party don’t, then, the
performing party can take a legal action against
the non performing party.

1- Discharge of Contract by
Performance
Discharge of Contract by performance can be;

1) Actual Performance : when both the parties
have performed their individual obligations.
2) Attempted Performance or Tender :
- Tender is not actual performance but it is the
offer to perform
- Here, the promisee refuses the offer
- Contract can be terminated with or without the
legal action taken on non performing party.

Example:
1.Peter agrees to sell his cycle to John for an amount of
Rs 10,000 to be paid by John on the delivery of the cycle.
As soon as it is delivered, John pays the promised
amount.
Since both the parties to the contract fulfil their obligation
arising under the contract, then it is discharged by
performance. (ACTUAL PERFORMANCE)
2.Peter agrees to sell his laptop to John for an amount of

Rs 15,000. He also promises to deliver it within 2 days.
The next day, when Peter approached John with his laptop,
John refuses to accept it without any valid reason. The
contract is discharged since Peter attempted the
performance of his promise.
(ATTEMPTED PERFORMANCE/TENDER)
Attempted Performance or Tender
In case of Attempted performance, where the

promisee refuses to accept the performance of
the promisor, still the promisor is not responsible
for the non performance and also does not lose
his rights under the contract.
‘A’ ‘B’ Refuses the Offer of ‘A’

promisor promisee
In this case the promisor ‘A’ is not responsible of

any legal actions, as ‘A’ is ready to perform his
obligations.
Types of Tender
1.Tender of Goods or Services:
Meaning: Where the promisor offers to deliver the goods or
services but the promisee refuses to accept the delivery
Effect: a. Goods or services need not be offered again
b. Promisor may sue the promisee for non performance
c. Promisor is discharged from his liability
2. Tender of Money:
Meaning: where the promisor offers to pay the amount but
the promisee refuses to accept
Effect: a. Promisor is not discharged from his liability to pay
the amount
b. Promisor will not be liable for interest from the date of a
valid tender
Attempted Performance/Tender
When the performance has become due, it is sometimes sufficient if the
promisor offers to perform his obligation under the contract. This offer is
known as attempted performance or more commonly as tender. Thus,
tender is an offer of performance, which of course, complies with the
terms of the contract. If goods are tendered by the seller but refused by
the buyer, the seller is discharged from further liability, given that the
goods are in accordance with the contract as to quantity and quality, and
he may sue the buyer for breach of contract if he so desires. The
rationale being that when a person offers to perform, he is ready, willing
and capable to perform. Accordingly, a tender of performance may
operate as a substitute for actual performance, and can effect a complete
discharge.
In this regard, Section 38 of Indian Contract Act says:
‘Where a promisor has made an offer of performance to the promisee,
and the offer has not been accepted, the promisor is not responsible for
non-performance, nor does he thereby lose his rights under the contract.
For example, A contracts to deliver to B, 100 tons of basmati rice at his
warehouse, on 6 December 2015. A takes the goods to B‘s place on the
due date during business hours, but B, without assigning any good
reason, refuses to take the delivery. Here, A has performed what he was
required to perform under the contract. It is a case of attempted
performance and A is not responsible for non-performance of B, nor does
he thereby lose his rights under the contract.’
Requisites of a Valid Tender
1. It must be unconditional
Ex: Keshav owes some money to Chetan. Keshav,
the debtor, offers to pay Chetan the creditor, the
due amount on a condition that, Chetan should
sell some of his shares at a certain price. Due to the
condition, this is not a valid tender.
2. The contract must be for the whole quantity or
complete obligations.
Ex: In above case, if Keshav pays the due amount
in installments to Chetan, it is not valid tender

3. It must be by a person, who is on position to and

willing to perform his promise
4. It must be made at the proper time and place. A
tender of goods after the office hours or money
before the due date, is not a valid tender
Ex: Hemant owes `10000 to Kiran, payable on 10 th

October, 2017 along with interest. Hemant offers to
pay entire amount on 5 th September, 2017, with
interest up to 5 th September. Since the contract
considered the payment of interest up to 10 th Oct.,
this is invalid tender.Business Laws-Prof.Benny Pappachen
5. In case of tender of goods, it must give a
reasonable opportunity to the promisee for
inspection of goods. A tender of goods at such
time, when the other party can not inspect the
goods is not a valid contract.
Ex: Manik agrees to sell 10 tons of linseednoil to Subhash
in the last week of March. Manik delivered 10 tons of
said linseed oil late by 9 pm on 31st March. Subhash
refused to accept due to late hour deliver. Held, late
hours is not the reason for refusal, as he can check the
product & delivery is on due date

2- Discharge of Contract by Agreement
(Consent)
When both the parties involved in the contract,

agrees on rights and obligations of each other &
the procedure of discharge of contract.
Simply the contract itself involves an agreement
on how to discharge the agreement.
Ex: ‘A’ sells his car to ‘B’ at `100000. A also agrees
that, if the car is not up to the expectations of ‘B’,
then ‘B’ can return the car back to ‘A’ with 7 days
from the date of handover.
This is discharge of contract by Express Consent

(Consent)
Discharge of contract by Implied Consent:
a) Novation:
Novation occurs when a new contract is substituted for an
existing contract either between the same parties or between
different parties. The consideration for the new contract is the
discharge of the old contract.
❑ To effect a novation, there must be a valid enforceable new
substituted contract.
❑ Consent of all parties is necessary for novation.
❑ Novation should take place before the breach or expiry of old
contract.
Example: A is indebted to B and B to C. By mutual agreement
B’s debt to C and A’s debt to B is cancelled and C accepts A as
his debtor. There is novation.
(Consent)

b) Rescission: Rescission (Cancellation) of contract
takes place b/n the parties;
By mutual understanding between both the parties
Rescission occurs when the parties to a contract agree to dissolve
the contract. In the case of rescission only the old contract is
cancelled and no new contract comes to exist in its place. The
parties come out of the contract by mutual agreement.
Ex: ‘A’ promises to supply fashionable goods to ‘B’
after 3 months. But by then the goods go out of
fashion, hence both the parties rescind the contract
Rescission: In Insurance, it is Cancellation due to nonpayment of premiums
(Consent)

c) Alteration: Alteration of contract means one or
more terms and conditions of the contract are
altered (changed) with mutual consent.
In this the old contract gets automatically cancelled
Ex: ‘A’ promises to supply 10000 meters of printed cloth to
‘B’ to his shop no. 10 on specific date and price. Now ‘B’
has altered the contract by asking for plain white cloth
10000 meters to be delivered at shop no. 12. The
alteration of contract cancels the earlier contract for
printed cloth.
In alteration there is change in the terms of the contract but
no change of the parties to it. In novation there may be
change of parties. Business Laws-Prof.Benny Pappachen
(Consent)
d) Remission: Remission means acceptance of lesser
fulfilment of performance
Remission means acceptance of lesser amount, or lesser degree of
performance than what was contracted for in full discharge of the
contract. For such a release or promise there no need for consideration
or new agreement. After the remission has been communicated to the
promisor and accepted by him, the promisee cannot claim the remitted
(sacrificed) amount.
Ex: ‘A’ owes `10000 to ‘B’ for a specific period of time and
with specific interest rate (` 9000 original amount + ` 1000
as interest). To satisfy the whole debt and due to urgency,
‘B’ asks to ‘A’ to pay only ` 9000 without interest against
discharge of contract
Ex: Painted door, without painted door, due to urgency
(Consent)

e) Waiver: Waiver is an act by which a person knowingly relinquishes his right
or claim to which he is entitled. Under the Contract Law, waiver is a method by
which the promisee (person to whom a promise was made) with his free
consent, extinguishes the obligations which are to be performed by the
promisor (person who makes the promise). Section 63 of the Indian
Contract Act For example, waiver of farmer’s loan by bank.
f) Merger: When a superior right and an inferior right coincide and meet in
one and the same person, the inferior right vanishes into the superior right.
This is known as merger. It occurs when one inferior right or obligation
of one party get merged in other superior right or obligation
Illustration: (i) A man holding property under a lease buys the property. His
rights as a lessee vanish. They are merged into the rights of ownership which
he has now acquired.
(ii) A may agree to work as a part-time employee of B. Later, they may decide
that A will work as full-time employee.
3] Discharge by the Impossibility of
Performance(Doctrine of frustration)
If it is impossible for any of the parties to the contract to perform
their obligations, then the impossibility of performance leads to a
discharge of the contract. If the impossibility exists from the
start, then it is impossibility ab-initio. However, the impossibility
might also arise later due to:
• An unforeseen change in the law
• Destruction of the subject-matter essential to the performance
• The non-existence or non-occurrence of a particular state of
things which was considered a given for the performance of
the contract
• A declaration of war
Example: Peter enters into a contract with John to marry his
sister Olivia within one year. However, Peter meets with an
accident and becomes insane. The impossibility of performance
leads to a discharge of the contract.
4.Discharge of a Contract by
Lapse of Time
The Limitation Act, 1963 prescribes a specified period
for performance of a contract. If the promisor fails to perform
and the promisee fails to take action within this specified
period, then the latter cannot seek remedy through law. It
discharges the contract due to the lapse of time.
Example: Peter takes a loan from John and agrees to pay
instalments every month for the next five years. However, he
does not pay even a single instalment. John calls him a few
times but then gets busy and takes no action. Three years
later, he approaches the court to help him recover his money.
However, the court rejects his suit since he has crossed the
time-limit of three years to recover his debts.
5- Discharge of Contract by Operation of
Law
The contract can be discharged if both or any

one of the party wishes independently to discharge
the contract. It is called as discharge by operation
of law. Type of Discharge in this type can be
a) By death of any one of the party
b) By merger of both the parties
c) By insolvency: If the party is declared as insolvent
d) By unauthorized alteration of terms written in the
contract. (the alteration must be significant to
any one of the party)
6- Discharge of Contract by Breach
of Contract
Breach of contract means breaking of
obligations which a contract imposes on
parties.
Breach of contract may be;
1) Actual Breach of Contract
2) Anticipatory or constructive breach of
Contract

of Contract
1) Actual Breach of Contract can be ;
a) At the time when the performance is due;
Ex: ‘A’ promises to sell 5 bags of Wheat to ‘B’ in first
week of Oct. 2017. ‘A’ denies the supply 5 bags of
wheat in the month of Sept. 2017.
b) During the performance of contract
:
Ex: ‘A’ promises to supply 10000 chairs to ‘B’ up to
last week of December 2017. After supply of 7000
chairs, ‘A’ refuses to supply balance chairs due to
technical issue. The contract is breached.

of Contract
2.Anticipatory Breach of contract

An anticipatory breach is when one of the parties to the
contract acknowledges that they won’t be able to fulfill their
side of the contract by the agreed upon time.
So, this usually happens when the breaching party notifies the
other party of their inability to fulfill their contract obligations.
Example (1): Architects make it impossible to meet a
deadline. That is, they stop work on one project and put all
their resources into a new project with another developer. The
first developer would have cause to take legal action against
the architects.
Example (2): If a service is delivered a monthly basis and the
receiver says they won’t being paying for a month but still
expect the service, that would be an anticipatory breach of
contract.
Solved Question on Discharge of
a Contract
Q: Peter agrees to sell his laptop to John for an
amount of Rs 15,000. He also promises to deliver it
within 2 days. The next day, when Peter approached
John with his laptop, John refuses to accept it
without any valid reason. Is the contract discharged?
Ans: Yes, in the above case the contract is

discharged. The contract is discharged since Peter
attempted the performance of his promise.
Remedies for the Breach of
Contract
In any contract, there are rights and obligation to
both the parties under contract.
Remedy means it is the way out given by law for
the enforcement of a right by the injured party.
When the contract is broken, the injured party
(the party at loss) has one more of the following
remedies
a)
Rescission of contract
b)
Suit for Damages
c)
Suit upon Quantum Meruit
d)
Suit for specific performance of contract
e) Suit for InjunctionBusiness Laws-Prof.Benny Pappachen
a- Rescission of Contract (sec 39)
(Cancellation of Contract)
If the contract is broken by one party, the other

party can file a case (sue) against other party in
the court to treat the contract as rescinded
(cancelled) & refusing any further performance.
Ex: Abhijit promised to supply 100 bags of cement
to Sujit by 10th Sept. But on 5th Sept. Abhijit refused
to supply cement. Therefore Sujit can file a case
against Abhijit or he can breach the contract and
need not to pay anything to Abhijit.
b) Suit for Damages( sec 73)
b) Suit for Damages: When one party rescinds

(cancels) the contract, there is possibility that, the
other party may incur losses.
-
Damages are the monetary compensation allowed

-to injured party by the court for the loss.
Ordinary Damage: can claim nominal damage, which

will be equal to the amount of loss.

b) Suit for Damages
-
Special Damage : This damage is aroused due
to breach of contract under special
circumstances.
The compensation can be awarded due to
indirect loss faced by the injured party

b) Suit for Damages
-Vindictive or Exemplary Damage : These are those

damages awarded as punishment rather than
compensation.
Ex: Cheque bounce penalty to the issuer
- Damages for the loss of Reputation : Similar to
above example, A businessman, whose cheque
bounced due to mistake of bank, even though
sufficient balance was available in his account.
Here the businessman can file a case against
Bank due to loss of Reputation
b) Suit for Damages
Damage for Inconvenience or Discomfort : The

- damage can be recovered for the physical
inconvenience or discomfort.
Ex: Non working of A/C in Movie Theater causing discomfort,
audience can claim the damage
Damages Agreed in Advance : When a contract is

- made b/n the parties, they can decide in
advance the conditions for damages to be paid.
Ex: Mitali owes ` 5000 to Neetu and promised to pay on 10 th Sept. If
she fails to pay on time, Mitali will pay ` 6000 to Neetu. This means
Neetu can claim a maximum of ` 6000 from Mitali

EXAMPLES
d) Suit for Specific Performance of
Contract
In some cases, instead of damages against
breach of contract, court may ask for the
defaulter parties for a specific performance.
(No damage but perform your obligation)
Situations for Specific performance;
a) When compensation is inadequate
b) When actual damage is unable to calculate
(ascertain)
c) When the compensation is not possible in terms of
money

e) Suit for Injunction
Sometimes the Contract is made for not to do

something
In such case of breach of contract, court may
restrain (jail or punish) the party at fault.
Ex: An TV actress, Renuka has promised to act
exclusively for Balaji Telefilms and not to perform
with any other production house during contract
period of 2 years. But Renuka contracted with Zee
Telefilms co. Held, Renuka can be restrained (not
allowed) by injunction (banned) from doing so.

(Summarize)
Remedies for the Breach of Contract
In any contract, there are rights and obligation to
both the parties under contract.
Remedy means it is the way out given by law for
the enforcement of a right by the injured party.
When the contract is broken, the injured party
(the party at loss) has one more of the following
remedies
a)
Rescission of contract
b)
Suit for Damages
c)
Suit upon Quantum Meruit
d)
Suit for specific performance of contract
e) Suit for InjunctionBusiness Laws-Prof.Benny Pappachen
SPECIAL CONTRACTS
1. CONTRACT OF INDEMNITY-SEC. 124 & 125

2. CONTRACT OF GUARANTEE-SEC. 126 TO 147
3. CONTRACT OF BAILMENT-SEC. 148 TO 181
4. CONTRACT OF PLEDGE
5. CONTRACT OF AGENCY

Contract of Indemnity-Sec-124
A Contract of indemnity is the contract in which

one party promise to get compensation or
to save from losses by the conduct of the
promisor or by the conduct of anyone else.
Ex: ‘A’ (insurance company) has a contract to
indemnify ‘B’ (insured person) against any
consequences caused to him due to accident or
death or may be due to another party ‘C’, for
which ‘A’ has charged ` 1000 as fees per a period.
Contract of Indemnity
Ex: ‘M’ asked ‘N’ to sell cattle, which were

actually belonging to ‘O’, and also promised for
compensation on any loss occurred to him (N)
from sale of cattle.
‘O to whom cattle were belonging, held liable
‘N’ for selling his cattle.
Since ‘M’ asked ‘N’ to sell cattle and also
promised to compensate losses, now ‘N’ can
recover the losses caused to him from ‘M’.
This is promise to indemnify.

Rights of Indemnity Holder
(Insured Person)
Indemnifier is responsible to
pay any losses
pay damages which arises to indemnity holder
under the contract.
The indemnifier is also responsible to pay all costs
which indemnity holder is compelled to pay for
bringing or defending such legal suits.
In legal suit, even if there is compromise b/n
indemnity holder and other party on to pay some
amount, this shall have to be paid by the indemnifier
(i.e. outside court settlement )
Indemnifier: is the one who protects from losses or compensates
Like insurance company Business Laws-Prof.Benny Pappachen
Contract of Guarantee-Sec-126
A Contract of guarantee is the contract to
perform the promise or discharge the liability of a
third person in case of his default.
The person who gives the guarantee is called as
‘Surety’.
The defaulter 3 rd person is called as ‘ Principal
Debtor”. (To whose default guarantee is given)
The person to whom, the guarantee is given is
called as ‘Principal Creditor’.
Contract of Guarantee
Ex: Ajay needs some money for his business.

He requests Vijay to pay some money on credit
to him.
Since Vijay don’t have enough money, he
requests ‘Sanjay’ to pay money to help Ajay.
Vijay also promises (takes guarantee of Ajay) to
Sanjay, if Ajay fails to pay (return borrowed
money), then he (Vijay) will pay to Sanjay.
Here Ajay is Principal Debtor, Vijay is Surety and
Sanjay is Principal Creditor
Contract of Guarantee
The functions of Contract of Guarantee is to

enable a person to get Loan, Goods on Credit or
even an employment (like reference for job).
A Guarantee therefore may be given for;
1) The repayment of Debts (in case of Loan)
2) The payment of Price of Goods sold on Credit
3)
The good conduct and honesty of the person,
which is also called as ‘fidelity’ guarantee.
The guarantee can be given for the existing or
future debt or obligations.
Fidelity: Loyalty or reliability Business Laws-Prof.Benny Pappachen
Essential Features of Guarantee
1) Concurrence: A Contract of guarantee

requires the Concurrence ( consensus/Assent) of
all the 3 parties i.e. Surety, Principal Debtor and
the Principal Creditor
Ex: In earlier example, when Sanjay accepts
Vijay as Surety and Ajay as Debtor, and pays to
Ajay, here all the 3 parties are in Concurrence
(Agreed for the contract)
2) Primary Liability in Some Persons: There must be

a primary liability on some person which will be
enforceable by law, other than Surety. If there is no
primary liability defined, then there is no contract of
Guarantee
Ex: In earlier example, if Ajay fails to pay the loan,
then being surety, Vijay has to pay money to
Sanjay. In any case Vijay can not demand for money
to Ajay legally , if there is no primary liability defined
on Ajay.
Liability of Surety is Secondary (contingent)
3) Essentials of Valid Contract: A contract of
Guarantee must have all the essentials of Valid
Contract. But following 2 points must be noted.
a) All the parties in the contract must be capable of
falling in contract. Though the Principal debtor is not
capable, the surety is considered as capable
b) Though surety is not directly getting benefited in
contract of guarantee, the consideration of
performance of principal debtor is most important.
Ex: Anil requests to Mohan to sell him goods on credit.
Sunil takes guarantee of Payment with consideration
of both party’s performance
4) Writing not necessary: A contract of Guarantee

may be either oral or written.
It may be express or implied
Implied guarantee may be inferred (conditional)
from the course of conduct of the parties
involved in the contract.
A Contract of Guarantee is different from normal
Contract or Agreement as in Guarantee there
are minimum 3 parties and in agreement
minimum 2 parties are required
Difference in Contract of Indemnity
& Contract of Guarantee
Sr. Contract of Indemnity Contract of Guarantee
Contract of Indemnity involves only 2 In contract of Guarantee, 3 parties are
1 parties (1-Promisor (indemnifier) & 2- involved. (1-Principal Debtor, 2-Surety and
Indemnified (promisee) 3-Principal Creditor)
The liability of the Indemnifier is Primary to The Liability of the Principal debtor is
2
the Promisee primary and that of Surety is Secondary
There will be 3 contracs in Contract of
There is only one contract between the Guarantee i.e. b/n Debtor & Creditor,
3
promisor and the promisee Creditor and Surety and Surety and the
debtor
It is not necessary for the Indemnifier to Here the Surety has to give the guarantee
4
act on the request of the Indemnified on the request of the Principal debtor
The liability of the indemnifier arises only There is liability on Debtor or the Surety in
5
on the happening of the contingency case of non performance
The surety can sue the debtor as being
6 The indemnifier can not sue the third party
defaulter to Creditor
TYPES OF GUARANTEE
1. SPECIFIC GUARANTEE
A guarantee is a “specific guarantee”, if it is
intended to be applicable to a particular debt
and thus comes to an end on its repayment.
2. CONTINUING GUARANTEE
A guarantee which extends to a series of
transactions is called a “continuing guarantee”,

Continuing Guarantee
Ex: Sumit requested to Chandan to give

employment to Pravin.
Chandan is a Land Lord and having many
houses given on rent.
Sumit considers that, Chandan will employ Pravin
to collect rent from all the tenants of Chandan
every month.
Sumit promises to Chandan to be responsible to
the amount of ` 10000 for the due collection by
Pravin.
This is continuing contract of Guarantee
Guarantee Revocation
(Cancellation/Withdrawal)
A Continuing Guarantee can be revoked by
1) Notice:(sec-130) A continuing guarantee, at any

point of time can be revoked by notice to the
Creditor.

Guarantee Revocation
2) By the death of the Surety(sec 131) The death of

surety ends up the continuing contract from the
time of death.

Provisions for Guarantee Revocation
3) By Other modes:
- By Novation : Substitution of Old Contract with New (like the
contract was loan without interest changed to with interest b/n the parties)
- By Variance in Terms of Contracts: Without Surety’s Consent
(from Commission to salary) (payment by installation per month, later given weekly etc.)
- By Creditor’s act or omission impairing surety : Performance of the

party, without notice to the Surety (Ex: construction of Ship, prepay of
installments)
- By release or discharge of the principal debtor : Earlier contract is

revoked, the new contract b/n parties releases Surety. (Ex: ‘A’
appointed ‘B’ at Surat for certain job on surety of ‘C’. Now ‘A’ cancelled earlier
contract with ‘B’ and shifted him to work in Mumbai with new contract. Now since
the surety was for Surat, for Mumbai, a new place, there will be no surety of ‘C’.
Rights of Surety
A) Right Against Creditor:

1) Before the payment of the Guaranteed debt:
When the payment is due on debtor and before
the creditor call upon the surety to make the
payment, the creditor must sue the debtor first (if the
primary liability is defined on the principal debtor). The
surety has to make the due payment to creditor.
In case of fidelity (guarantee on Job), the surety
can ask to terminate the candidate, in case of
proven dishonesty

Rights of Surety
A) Right Against Creditor contd….:
2) Right of Set off : Sometimes the Debtor is entitled
to certain counter claims/deductions from the loan
obtained from the creditor. In such cases the surety is
entitled to the benefit of such counter claim or
deductions,if the creditor files a suit against the surety
3) Right of Subrogation: If the guaranteed debts
become due and if surety pays all the dues to the
creditor, the surety will now become the creditor to
the debtor and can get back all the dues from the
debtor as like that of creditor.
Subrogation: the act of substituting of one creditor
Business Laws-Prof.Benny Pappachenfor another
Rights of Surety
B) Right Against Principal Debtor:

1) Right to be relieved of Liability: once the due debt
has been cleared by the debtor to the creditor, the
surety can ask the debtor to exonerate (clear) him
(surety) from the liability.
2) Right to indemnity: In the contract of guarantee,
there is implied promise from the debtor to the
surety, to indemnify him (Surety) from any losses as
well the surety can recover all the payments made
along with interest to the creditor from the debtor.

Rights of Surety
C) Right against Co-Sureties:

1) Co-Sureties liable to contribute equally: where
there are 2 or more sureties for the same debt, all
the co-sureties are liable to contribute equally to
the extent of default.
Ex: S1, S2 & S3 are the 3 co-sureties to ‘M’ for the
some of ` 3000 for ‘P’. ‘M’ lends ` 3000 to ‘P’, which
the ‘P’ defaults. Now all the 3 sureties are equally
liable to clear all the debts to the creditor with the
share of ` 1000 each or as per the proportion of
surety of contract
Discharge of Surety
Surety is said to be discharged, when his liability

comes to an end.
2 3
1
By Revocation By conduct of Creditor By invalidation of Contract
Guarantee Guarantee Failure of Failure of

Revocation By death Novation obtained by obtained by Co-surety Considera
By Surety of Surety Misinterpretation Concealment To Join -tion
A Surety
Variance Release of Compounding Creditor’s Loss of Security

in Discharge of By Creditor Act or Omission
Terms of Principal With principal Impairing surety’s
Contract Debtor debtor Eventual Remedy
3-CONTRACT OF BAILMENT
• Section 148 defines Bailment as:
• “The delivery of goods by one to another person
for some purpose, upon a contract that they shall,
when the purpose is accomplished, be returned or
otherwise disposed of according to the directions
of the person delivering them.” The person
delivering the goods is called the ‘Bailor’, and the
person to whom goods are delivered is called the
‘Bailee’
ESSENTIALS AND LEGAL RULES AS TO BAILMENT
1. There must be a Contract: Agreement between Bailor and Bailee

2 Delivery of Goods:Possesion of goods must be delivered by Bailor to Bailee
3. No Transfer of Ownership: Though possession is transfered
,ownership remains with the Bailor
4. Delivery of Goods for Some Purpose: Delivery must be for
some specific purpose
5. Return of Specific Goods: Goods are delivered to Bailee with condition
that the goods will be returned to
6. Movable Goods: Goods bailed must be movable

7. Deposit of Money Into Bank is not a contract of Bailment
as money deposited is not returned in identical coins and notes

Classification of Bailment
Bailment can be broadly categorized into two types:
On the basis of Remuneration
• Gratuitous Bailment
When a bailment is made without any consideration of
benefit to the bailor or to the bailee, it is referred to as
gratuitous bailment. In simple terms, it is a bailment
without any consideration.
For example, when one lends a book to a friend free of
cost.
• Non-Gratuitous Bailment
When generally there is a consideration for bailment
between the bailor and the bailee then it is referred to as
non-gratuitous bailment.
For example, when someone gets a book issued from a
library in exchange for a fee.
On the basis of benefits to the parties
• For the exclusive benefit of the bailor
In this case, the bailor delivers his/her good to the bailee
for safe custody. There is no benefit/benefit for the
bailee.
For example, leaving a pet with a neighbour when going
out.
• For the exclusive benefit of the bailee
In this case, the bailor delivers a good for the benefit of
the bailee. For example, a friend borrowing our car for a
week.
• For the mutual benefit of them both
In this case, the bailor deliver his good to the bailee for
consideration and both the parties get benefit out of
bailment,
For example, giving a bike for repair to a mechanic, for
which the mechanic gets paid.
• Rights Of Bailor
1. Right of indemnity for losses due to negligence by bailee[S.152]
2. Termination of bailment on inconsistent use by the bailee[S.153]
3. Compensation for unauthorised use by the bailee[S.154]
4. Compensation when the bailee mixes the goods bailed with own
goods [S.155]
5. Right of return of goods back[S.160]
6. Right to profit from goods bailed[S.163]
• Duties Of Bailor
1. To Disclose faults in goods bailed [S.150]
2. To repay the necessary expenses [S.158]
3. To indemnify the bailee [S.164]
4. Liability on premature breach of bailment[S.159]

• Rights Of Bailee
1. Right to compensation for loss on account of fault in goods
bailed[S.150]
2. Right to receive necessary expenses[S.158]
3. Right against premature termination of bailment[S.159]
4. Right to compensation in case of defective title[S.164]
5. Delivery of goods to one of the joint owners[S.165]
6. Right against third parties
• Duties Of Bailee
1. Take reasonable care of goods[S.151]
2. Not to make unauthorized use of goods[S.154]
3. Not to mix goods with his own goods[S.155-157]
4. Duty to return goods[S.160&161]
5. Not doing any act inconistent with terms of bailment[S.153]
6. Returning any profitBusiness
[S.163] Laws-Prof.Benny Pappachen
Conclusion
• Contract of bailment involves the transfer of
possession of the good from the bailor to the
bailee for the specific purpose and both, the
bailor and the bailee, have been confronted
with some rights and duties which are
necessary for them to follow whenever seem
suitable.
• Also, for the contract of bailment to be valid,
all the essential features need to be fulfilled.
• Moreover, bailment of goods is different from
the sale of goods as bailment is involved with
the transfer of possession while the sale is
involved with the transfer of ownership.
4-CONTRACT OF PLEDGE OF PAWN
• Section 172
“Pledge is the bailment of goods as security for
payment of debt or performance of a promise.”
Bailment of goods as a security for payment of

debts or performance of promise is called
pledge. The bailor is called pledgor or pawnor
and the bailee is called Pawnee.

• ESSENTIALS OF PLEDGE:
1. Delivery of Goods:
2. Delivery of goods should be by way of security..
3. Goods must be movable.
• RIGHTS OF PAWNEE
1. Right of retainer {S.173}:
2. Retainer for subsequent advances (Sec174)
3. Right to extraordinary expenses {S.175}
4. Right in case of default of the pawnor(sec176)
• RIGHTS OF PAWNOR
1. Right of redemption
2. Right to take back the goods.
Contract of Agency
The business involves complex (multiple) activities

A single person can not manage all the business
activities.
One has to outsource or depend upon outside
person to get done all or some of the activities,
such other (outsider) people will be called as
Agents
Agency is the organization, who is providing
services to other organization(s).
Ex: Marketing Agency, Transportation Agency etc.

Contract of Agency
Agent is the person employed to do any act or

another person or to represent another person in
dealing with third person.
Any person who is capable of doing work on his
own or through some other person or firm, can
become an Agent.
The organization, which is providing such a
particular service on behalf of another business,
person, or group, is called as Agency.
Contract of Agency
The business or the person, for whom such

agents works and provides their services are
called as Principal.
Example:
Somesh asked Mahesh to buy 2 tickets of a
Movie for him. In this case;
Somesh is the Principal &
Mahesh is acting as his Agent

Essentials of Relationship of Agency
Agreement b/n the Principal & Agent: Agency

can be formed on an Agreement and not
necessarily a contract.
The contract exists b/n the Principal and 3 rd party
(organization) to whom the agent is working for.
The principal is agreed to be represented by the
agent, upon the contract and hence is liable for
the acts of agent.

Classification of Agents
1) Special Agent: Where the Principal appoints a

agent for a special task. Ex: To Sell House, Land.
Such agency gets over, once the act is done
2) General Agent: The agent is appointed to do all
the acts related to the business. Ex: Manager. The
authority of the agent is continuous until end.
3) Universal Agent: The agents authority is unlimited
for the principal and has authority to bind his
principal by any act he does.
Relationship of Principal & Agent
A) Duties of Agent: A agent has to perform number

of duties for his principal as follows
a) To carryout work undertaken as per the instructions of
the principal. Ex: following terms of sales of goods,
care taking and compensating for the losses if
any.
b) To carryout the work with reasonable care, skill and
diligence. Ex: Insuring the goods, enquiring the
party, follow up with clients, etc.
A) Duties of Agent: contd…..
c) To render proper accounts to his principal.

d) To communicate with his principal in case of difficulty.
e) Not to deal on his account without consent of
principal, the agent should not deal on his own for
any business transaction of the agency)
f)To pay sums received for his principal.
g) To protect and preserve the interest of his
principal even after his death.
A) Duties of Agent: contd…
h) Not to use the information obtained in the course of

agency against the principal:
i) Not to make secret profit from agency
j) Not to put himself in a position where interest and duty
conflicts
k) Not to delegate the authority on Principal

B) Duties of Principal: The duties of principal are the

rights of agent against his principal as follows;
a) To indemnify the agent against the consequences of
all lawful acts
b) To indemnify the agent the consequences of acts
done in good faith
c) To indemnify the agent caused due to neglect of the
principal
d) To pay the agent the commission or remuneration as
agreed

Termination of Agency
Following are the different modes of termination

of agency
2
1
By Act of the Parties By Operation of Law
Agreement Revocation by Revocation by

the Principal the Agent
Performance Death or Insolvency Expiry of Destruction Dissolution Principal/agent

/completion insanity Of either Time line Of Subject of company Becoming an
of the Of either Party Matter Alien enemy
Contract Party
THE END

Ref 3

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ref 3

Uploaded by

Copyright:

Available Formats

DISCHARGE OF CONTRACT

Discharge of Contract (Sec 37)

Meaning: Discharge of Contract Means Termination of

Following are the ways of discharge of contract.

By Performance means completion of the

Business Laws-Prof.Benny Pappachen

Discharge of Contract by performance can be;

Business Laws-Prof.Benny Pappachen

2.Peter agrees to sell his laptop to John for an amount of

In case of Attempted performance, where the

‘A’ ‘B’ Refuses the Offer of ‘A’

In this case the promisor ‘A’ is not responsible of

Business Laws-Prof.Benny Pappachen

3. It must be by a person, who is on position to and

Ex: Hemant owes `10000 to Kiran, payable on 10 th

Business Laws-Prof.Benny Pappachen

When both the parties involved in the contract,

Business Laws-Prof.Benny Pappachen

Discharge of contract by Implied Consent:

Discharge of contract by Implied Consent:

Discharge of contract by Implied Consent:

The contract can be discharged if both or any

Business Laws-Prof.Benny Pappachen

Business Laws-Prof.Benny Pappachen

2.Anticipatory Breach of contract

Ans: Yes, in the above case the contract is

If the contract is broken by one party, the other

b) Suit for Damages: When one party rescinds

Damages are the monetary compensation allowed

Ordinary Damage: can claim nominal damage, which

Business Laws-Prof.Benny Pappachen

Business Laws-Prof.Benny Pappachen

-Vindictive or Exemplary Damage : These are those

Damage for Inconvenience or Discomfort : The

Damages Agreed in Advance : When a contract is

Business Laws-Prof.Benny Pappachen

Business Laws-Prof.Benny Pappachen

Sometimes the Contract is made for not to do

Business Laws-Prof.Benny Pappachen

1. CONTRACT OF INDEMNITY-SEC. 124 & 125

Business Laws-Prof.Benny Pappachen

A Contract of indemnity is the contract in which

Ex: ‘M’ asked ‘N’ to sell cattle, which were

Business Laws-Prof.Benny Pappachen

Ex: Ajay needs some money for his business.

The functions of Contract of Guarantee is to

1) Concurrence: A Contract of guarantee

2) Primary Liability in Some Persons: There must be

4) Writing not necessary: A contract of Guarantee

Business Laws-Prof.Benny Pappachen

Ex: Sumit requested to Chandan to give

A Continuing Guarantee can be revoked by

1) Notice:(sec-130) A continuing guarantee, at any

Business Laws-Prof.Benny Pappachen

2) By the death of the Surety(sec 131) The death of

Business Laws-Prof.Benny Pappachen

- By Creditor’s act or omission impairing surety : Performance of the

- By release or discharge of the principal debtor : Earlier contract is

A) Right Against Creditor:

Business Laws-Prof.Benny Pappachen

B) Right Against Principal Debtor:

Business Laws-Prof.Benny Pappachen

C) Right against Co-Sureties: