Business Law 2020

Business law
Business Law
Semester – III
BMS
Student Workbook
Edition: 2020
#44/4, District Fund Road, Behind Big Bazaar, Jayanagar 9th Block, Bengaluru, Karnataka 560069
Only for private circulation Page 1

Business law
Module – 1
Introduction to Business Law &
Indian Contract Act of 1872
Structure:
1.1 Meaning and Scope of business law
1.2 Sources of Indian business law.
1.3 Indian Contract Act of 1872
1.4 Definition
1.5 Types of contract
1.6 Essentials of Offer and Acceptance
1.7 Revocation of Offer
1.8 Consideration- Essentials- Exceptions
1.9 Capacity of contract
1.10 Minors agreements
1.11 Free consent - Coercion-Undue Influence-Fraud- Mistake-Misrepresentation (Meaning
only)
1.12 Legality of object and consideration
1.13 Various modes of discharge of a contract
1.14 Remedies for breach of contract.
1.15 Summary
2.1 Indemnity
2.1.1 Introduction
2.1.2 Meaning
2.1.3 Essentials
2.1.4 Rights of holders and indemnifier
2.1.5 Kinds of Contract of Indemnity
2.2 Guarantee
2.2.1 Meaning
2.2.2 Essentials
2.2.3 Invalid Guarantee
2.2.4 Differences between indemnity and guarantee
2.3 Bailment
2.3.1 Introduction
2.3.2 Meaning
2.3.3 Essential’s
2.3.4 Kinds
2.3.5 Rights of bailer and bailee
2.4 Pledge
2.4.1 Meaning
2.4.2 Essentials
2.4.3 Rights
2.4.4 Differences between bailment and pledge
2.5 Summary
2.6 Self-Assessment Questions
2.7 Answers

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Learning Objectives:
 To understand the meaning and scope of business laws
 To understand the various aspects of Indian Contract act
 To understand the different types of contracts
 To learn about the essentials of an offer and acceptance
 To understand the concept of Consideration
 To understand the term breach and remedies for a breach.
 Understand the meaning of Indemnity, Guarantee, Bailment and Pledge
 Understand the essentials of the various special contracts.
 To know the rights and duties if various parties involved in special contracts.
 Understand the circumstances under which a contract of bailment terminates
 Understand the meaning of pledge and distinction between Indemnity and Guarantee
 Understand the meaning of pledge and distinction between Bailment and Pledge
Introduction:
Meaning and definition of LAW
Law refers to the principles and regulations established by a Government and applicable to
people, whether in the form of legislation or of custom and policies recognized and enforced by
judicial decision.
Business law is that branch of law which is concerned with such matters as are the subjects of
what may be called mercantile transactions. I.e., it deals with contractual situations and the rights
and obligations arising out of mercantile transactions between mercantile persons. A mercantile
person may be a single individual, partnership, or a company.
A few definitions of law are worth quoting in this context. According to Blackstone ‘’Law in its
most general and comprehensive sense signifies a rule of action and is applied indiscriminately
to all kinds of actions whether animate or inanimate, rational or irrational.’’
Salmond defines law as the ‘’body of principles recognized and applied by the state in the
administration of Justice.’’
Woodrow Wilson defines law as ‘’that portion of the established habit and thought of mankind
which has gained distinct and formal recognitions in the shape of the uniform of rules backed by
the authority and power of the Government.’’
1.1 Meaning and Definition of Business Law and its Scope:
Business law: is also called commercial or mercantile law which is that branch of a legal system
that regulates business activities. A mercantile person may be a single individual, partnership, or
a company. The same meaning is revealed in the definitions given below:

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1) ‘’Business law is that portion of the legal system which guarantees orderly conduct of
business affairs and the settlement of legitimate disputes in a just manner.’’
2) ‘’Business law establishes a set of rules and prescribes conduct that enables us to avoid
misunderstandings and injury in our business relationships’’
Scope of Business Law

The scope of business law is indeed vast. It usually deals with topics of licenses, large houses,
monopolies, issue of securities, contracts, property, agency, negotiable instruments, foreign
exchange, partnerships, companies, insurance, sales, bailment, guarantees, labour, bankruptcy,
consumer interest, business crimes, raising loans from financial institutions, obtaining electricity,
iron and steel, customer clearance, allotment of materials, import of capital goods, pollution
control and the like. These and other aspects are covered by legislation enacted by central, state,
or local bodies.
1.2 Sources of Business Law:
The important sources of business law are:
 Legislation
 Custom
 Case law
 Natural law
 English law
1. Legislation – Legislation is a common source of law. Both parliament and State assemblies
have enacted several legislations that cover various aspects of the business.
2. Custom – A substantial part of business law is customary, notwithstanding advances made in

science and technology. This is true both in developed and developing countries. A custom,
when accepted by courts and incorporated in judicial interpretations, becomes a law.
3. Case law- Popularly called ‘’precedent’’ by lawyers is a judgment of a superior court

including a point of law or principle and which necessitates its adoption and adherence in a
subsequent case involving the same point. Case law is useful in as much as it helps courts to
render uniformity concerning the interpretation of statutes of formulation of principles.
4. Natural law- Natural law or natural justice is another source of law. The natural justice that
no man can be punished twice for the same crime is a guiding principle for any legislation.
Similarly, natural justice demands that no individual can be dubbed guilty unless the charges are
proved against him/her.
5. English Law- Our business laws are largely based on English acts applicable in England. Our
sale of goods act, for instance, has been taken directly from the English Sale of Goods Act.
Similarly, our Companies Act corresponds with the English Companies act. A gain in any
discussion on the Indian Contract Act, reference is invariably made to the English law.

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1.3 THE INDIAN CONTRACT ACT, 1872:
Introduction
In an ordinary sense, the words agreement & contract are used in the same sense, but from a
legal point of view, both the terms are not the same. To understand them, it is necessary to know
the definition of both the terms.
1.4 Meaning:
Agreement
Section 2 (e) of the Indian contract act defines an Agreement as, “Every promise and every set of
promises forming the consideration for each other’s, is an agreement”
An agreement involves a proposal or offer by one party & acceptance of the same by another
party.
AGREEMENT=OFFER + ACCEPTANCE
However, there are some agreements, which are not enforceable in a court of law. Such
agreements do not give rise to contractual obligations and are not contracts. An agreement of
purely social or domestic nature is not a contract.
Balfour Vs Balfour
A husband and wife were residents in Ceylon, where the husband was employed. They went to
England for nine months of vacation. At the end of the time, the husband had to return alone as
the wife was advised to remain in England because of illness. The husband promised to send her
a maintenance allowance of £30 a month until she returned to Ceylon. The husband failed to pay
the amount. The wife sued for the allowance. It was held that there was no binding contract. She
could not recover as it was a social agreement and parties did not intend to create any legal
relations.
Meaning of a Contract
Section 2(h) of the Indian contract act, 1872, defines a Contract as under, “An agreement
enforceable by law is a contract”
A contract is an agreement made between two or more parties which the law will enforce.
CONTRACT = AGREEMENT + ENFORCEMENT AT LAW
1.5 .Types of contracts:
Contracts can further be divided into three major categories.

I. According to the legal validity
II. According to the formation
III. According to the performance

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I. Classification according to the legal validity
1.Valid Contract: A contract that satisfies all the circumstances prescribed through law is valid.
If one or more of these elements is/are missing, the contract is either void, voidable, illegal or
unenforceable
2.Void contract:
A contract which ceases to be enforceable by law becomes void. Void contracts can be “Void
from the time of entering into a contract, for example, entering into a contract with minor is void,
or can become void at a later date. A contract originally valid when entered into but later on
becomes unenforceable by the change of law, may subsequently become void, e.g. contract to
import goods from a foreign country will become void when war breaks out between the
importing and exporting country.
3. Voidable contract:
An agreement which is enforceable at the option of one or more of the parties thereto but not at
the option of the other or others is a voidable contract. In such contracts, free consent is missing.
The consent of the party is not free when it is caused by coercion, undue influence, fraud, or
misrepresentation. The party whose consent is not free may repudiate/avoid/cancel the contract.
The voidable contract continues to be valid until it is avoided by the party entitled to do so. For
example, "A" threatens "B" with dire consequences unless "B" enters into a contract to sell a
piece of land to "A" at Rs. 1. In this case, the contract to sell the land is voidable at the instance
of "B" and "B" can choose to either sell the land to "A" at the agreed price or avoid the contract
by approaching a Court of law.
Difference between Voidable and Void Contracts

A voidable contract occurs when one of the involved parties would not have agreed to the
contract originally if he had known the true nature of all of the elements of the contract before
original acceptance. With the presentation of new knowledge, the aforementioned party has the
opportunity to reject the contract after the fact. Alternatively, a contract is voidable when one or
both parties were not legally capable of agreeing, such as when one party is a minor.
In contrast, a void contract is inherently unenforceable. A contract may be deemed void should
the terms require one or both parties to participate in an illegal act or if a party becomes
incapable of meeting the terms as set forth, such as in the event of one party’s death.
4. Illegal agreement:
A contract that is against public policy, which is criminal and is immoral, is called an illegal
contract. The collateral transaction/agreement also becomes illegal. All illegal agreements are
void but all void agreements are not illegal.
Example: A agrees with B to manufacture prohibited goods – A takes a loan for the purpose
from C who knows about the purpose of the loan – the agreement between A and C is collateral
to the main agreement between A and B, which is illegal – collateral agreement, is also illegal.

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5. Unenforceable contract:
An unenforceable contract cannot be enforced in a Court of law due to technical defects. The
contract may be carried out by the parties, but no legal remedies will be available in case of
breach by either party - e.g. non-registration, non-payment of stamp duty, etc. makes the contract
unenforceable.
II. Classification according to Formation:

1. Express contract
If the terms are expressly agreed upon at the time of formation of the contract, the contract is
said to be expressed contract. - The terms of a contract may be written or oral. Example: X says
Y, will you buy my car for Rs. 1, 00,000? Y says to X, I am ready to buy your car for Rs.
1,00,000. It is an express contract.
2. Implied contract
If the contract is inferred from the act or conduct of the parties – proposal or acceptance made
otherwise than by words then it becomes an implied contract.
E.g. when a person gets into the bus, lets a porter carry his luggage at the railway station, takes
food at a restaurant, there is an implied contract.
3. Quasi-contract
A Quasi-contract is created by law. It resembles a contract in which a legal obligation is imposed
on a party that is required to perform it. It rests on the ground of equity that “A person is not
allowed to enrich himself unjustly at the expense of others”
Example: A leaves his goods at B’s place by mistake – B consumes the goods as his own – B is
bound to pay for the goods to A as there was a quasi-contract under which B was under a legal
obligation to return A’s goods.
III. Classification according to Performance

1. Executed contract
An executed contract is one where both parties have performed their respective obligations.
Example: John has been looking at a TV he wants to purchase. After deciding to go forward with
the purchase, John walks into the electronics store and pays for the TV in cash. John walks out of
the store with the TV and the store has the full payment. This contract is considered executed
since the TV was paid for in full and all terms of the contract were met.
2. Executory contract
Executory contracts are those where under the terms of the contract either or both parties have
yet to fulfill his/their part of the obligation. There are many types of executory contracts, some
more complex than others:
 Rental lease: Tenant is required to pay the landlord rent; the landlord is required to provide
living space.
 Equipment lease: Borrower must pay rent on the equipment borrowed; renter must provide
equipment.

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 Development contract: The contractor receives payment from the owner when building
milestones are complete; the contractor performs duties for the building owner.
 Car lease: Consumer makes lease payments to the dealership; the dealership provides the
car in return.
3. Unilateral contract
A unilateral contract is a one-sided contract where one party has to fulfill his part of obligation –
the other party has already fulfilled his obligation before or at the time of formation of the
contract. Such contracts are also known as contracts with executed consideration.
Example: A permits a porter to carry his luggage to the railway carriage – contracts come into
existence when the porter places the luggage in the carriage – at that time porter has already
fulfilled his obligation – A yet to fulfill his obligation.
4. Bilateral contract
A bilateral contract is one where both parties have yet to fulfill their obligations. Such contracts
are known as the contract with executory consideration. Example: Bobby pays Ram Rs 1,000 to
install sprinklers in his yard. This seems like a unilateral contract in which Bobby is obligated to
pay the money only if Ram accepts by installing sprinklers. When Ram begins the installation,
the contract is converted to a bilateral contract that requires both parties to perform certain
actions. Ram must provide the complete service of sprinkler installation, for which Bobby must
pay Rs 1,000.
1.6 Essential Elements of a Valid Contract:
1. Offer & Acceptance

There must be two parties to an agreement, i.e. one party making the offer & other party
accepting it. The terms of the offer must be definite & the acceptance of the offer must be
absolute & unconditional.
Example- A offered to B to sell his house for Rs50000 & B accepted the same.
2. Intention to Create Legal Relationship

When the two parties agree, their intention must be to create a legal relationship between them. If
there is no such intention on the part of the parties there is no contract between them.
Example- An agreement to have lunch at a friend's house is not an agreement intending to create
a legal relationship.
3. Lawful Consideration
An agreement to be enforceable by law must be supported by consideration. Consideration
means an advantage or benefit of moving from one party to another. The agreement is legally
enforceable only when both the parties give something & get something in return.
Example- A agreed to sell his house for Rs 50000 to B. it can be said that house is a
consideration for B and Rs 50000 is the consideration for A
4. Capacity of Parties

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The parties to an agreement must be competent to contract. If either of the parties cannot
contract, the contract is not valid. The following persons are incompetent to contract-minors,
persons of unsound mind, persons disqualified by law to which they are subject.
5. Free Consent
Consent means the parties must have agreed upon the same thing in the same sense.
Example- A who owns two cars, one Maruti & other Santro, offers to sell B one car, A
intending it to be the Maruti. B accepts the offer thinking that it is the Santro, there is no consent
& hence no contract.
Consent is said to be free when it is not caused by coercion, fraud, mistake, undue influence,
miss-representation.
6. Lawful Object
The object of the agreement must not be forbidden by law, fraudulent involves an injury to the
person or property of any other, immoral, or opposed to public policy.
Example- A hired a house from B for use of his house for gambling purposes. The object is said
to be unlawful
7. Certainty of Meaning
The agreement must be certain and not vague or indefinite.
Example- A agrees to sell to B 100 tons of oil there is nothing whatever to show what kind of oil
was intended. The agreement is void for uncertainty.
8. Possibility of Performance
If the act is impossible in itself, physically or legally it cannot be enforced at law.
Example- Mr. A agrees with B to discover treasure by magic. Such an agreement is not
enforceable.
9. Agreement not declared to be Void or Illegal

The agreement though satisfying all the conditions for a valid contract must not have been
expressly declared void by any law in force in the country.
Example- A agreed to pay to B Rs5000 if B does not marry in his life and B agreed. The
agreement is in restraint of marriage and hence void.
10. Legal Formalities

A contract may be made by words spoken or written. In India, writing is required in cases of
sale, mortgage, lease, a gift of immovable property, etc. Other formalities that may be required
are stamping, registration, etc.
1.7 Offer & Acceptance –Essential elements

An offer is a proposal by one party to another to enter into a legally binding agreement with
him. According to Sec.2 (a) of Indian contract act, Offer is defined as, “When one person
signifies to another his willingness to do or to abstain from doing anything, to obtain the assent
of that other to such act or abstinence, he is said to make a proposal”

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An Offer may be express or implied.

If the proposal or acceptance of any promise is made in words, the promise is said to be express.
If it is made otherwise than in words, the promise is said to be implied.
Essentials of an offer:
1. Must be capable of being accepted and constitute legal relationship: must be such as
would constitute a valid contract when it is accepted - a social invitation is not offered as no
intention of legal relationship. e.g. invitation to a dinner which has no intention to create a
relationship. An offer must impose some legal duty on the party making it.
2. Terms must be definite, unambiguous, and certain: The terms of the offer must not be
vague and indefinite. The terms must be clear, definite, certain to create a contractual
relationship. Examples :-(a) A says to B “I will sell you my car”. A owns four different cars.
The offer is not valid because it is not definite.
(b) A made a contract with B and promised that if he was satisfied with him as a customer, he
would favorably consider his application for the renewal of the contract. The promise is too
vague to create any legal relationship.
3. Different from a declaration of intention or invitation to offer: Mere declaration of

intention or announcement or advertisement does not constitute an offer – E.g. advertisement of
an auction sale is not an offer.
Display of goods in the showcase, quotations, catalogs, advertisements are an invitation to offer
and not offer itself – the potential customers need to make the offer which will then be accepted -
the seller may or may not accept the offer.
Newspaper advertisements are not offers. An exception is a general offer of a reward to the
public. Anyone can accept the general offer by fulfilling the condition that constitutes a contract.
4. Offer must be communicated: An offer to be complete must be communicated. Unless

communicated there is no acceptance. A mere act of acceptance without knowledge of the offer
does not constitute acceptance.
Lalman Vs. GauriDutt - GauriDutt sends servant Lalman to trace lost nephew. He later
announces reward to the finder. Lalman finds the nephew and claims the reward. GauriDutt
refuses that no offer was communicated to him. The court held that Lalman was ignorant of offer
– hence, no acceptance –Lalman was not entitled to reward.
5. Intention to obtain the assent: Offer must be made to obtain the assent of the other party and
it must not be a mere declaration of intention to make an offer.
6. Non-compliance of a condition not deemed to be acceptance: An offer must not contain a

term the non-compliance of which may be assumed to be accepted.
Example: A writes to B offering his horse for Rs.500, adding “if you do not reply, I shall
assume you have accepted the offer” – in case of B’s silence, no specific acceptance – no
contract.

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7. Declaration of price not an offer: A mere statement of the price is not an offer to sell.
Harvey Vs. Facey- Harvey sends a telegram to Facey asking “Will you sell us Bumper Hall
Pen? Telegraph lowest cash price.” –
Facey replies “Lowest price for Bumper Hall Pen £ 900.” -
Harvey telegraphs to Facey “We agree to buy Bumper Hall Pen for the sum of £ 900 asked by
you.”
Held, Facey only quoted the price and did not answer to the first question of Harvey’s first
telegram – hence no offer by Facey to sell.
8. Special terms to the contract must be communicated in the offer: Special terms must be
communicated at the time of the proposal. They cannot be inserted in the contract later on
unilaterally and they must be decipherable (understandable) in a reasonable manner.
Example: A passenger had purchased a ticket for a journey. On the back of the ticket, there were
certain terms and conditions. One of the terms was that the carrying company was not liable for
losses of any kind. But there was nothing on the face of the ticket to draw the attention of the
passenger to the terms and conditions on the back of the ticket. Held, the passenger was not
bound by the terms and conditions on the backside of the ticket.
Types of Offers
Offer may be made to –
(i) Definite person or class of persons – a specific offer may be accepted by only the person(s) to
whom the offer is made.
(ii) The world at the large – general offer – may be accepted by anyone having notice of the
offer.
Carlill Vs. Carbolic Smoke Ball Co. - A company manufactured smoke balls – company
advertised in newspapers a reward of £ 100 to anyone who contracted influenza after using the
smoke balls as per printed instructions. One Miss. Carlill used smoke balls as per directions but
she contracted influenza. The company refused the reward saying they never made an offer to
her, It was held that a general offer was made and Miss. Carlill had accepted the offer by using
the smoke balls, hence she was entitled to recover the reward.
Cross offer: when two parties make identical offers, in ignorance of each other’s offers– one
cannot be construed as an offer or the other as acceptance – no valid contract. Example: An offer
by A to sell to B on certain terms and an offer by B to buy from A on the same terms unaware of
the A's proposition at that time, is an example of a cross-offer.
Counter Offer – When acceptance with the variation of terms offered by the offeror – not valid
acceptance – no contract - earlier offer cannot be revived.
Hyde Vs. Wrench - W offered to sell the farm at £1000 – H rejected it – instead offered to buy it
for £950 – turned down by W – subsequently H agreed to pay £1000 – Held, H gave a
counteroffer, rejecting the previous offer – earlier offer cannot be revived by giving acceptance
to it - no contract.

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Acceptance: Sec.2 (b) - When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.
Acceptance of offer results in a contract. Acceptance must be communicated to the offeror. It
may be express or implied. When communicated by words (spoken or written) or some specific
act, it is express – it is implied by the conduct of the parties or circumstances.
Example: Strike of the hammer on the table by the auctioneer – implied acceptance.
Essentials of Acceptance:
1. Must be absolute and unqualified - The acceptance must conform to all the terms of the offer.
To be binding, it must be absolute and unqualified in respect of all the terms of the offer. If
the parties are not ad idem on all matters concerning the offer and acceptance, there is no
contract.
2. Communicated to offeror –Acceptance must be communicated to the offeror to create a

binding contract. Mental acceptance is no acceptance in the eyes of law. But where the offer
is to be accepted by being acted upon, no communication to the offer will be necessary.
Example: The manager of a railway company received a draft agreement. The manager
wrote the word “approved” and put the draft in the drawer of his table. By some oversight,
the document remained in the drawer and was never communicated. It was held that there
was no contract, as the acceptance had not been communicated.
3. Made in prescribed or reasonable mode -The acceptance must be according to the mode
prescribed or usual and reasonable mode. If acceptance is not in prescribed or reasonable
mode offeror must intimate acceptor insisting acceptance in prescribed mode, if acceptor is
not informed, it is deemed acceptable.
Example: A makes an offer to B – writes “If you accept the offer, reply by wire” – B replies
by post – If A does not insist on acceptance by proper mode, it is valid acceptance.
4. Given within a reasonable time – if any time limit is prescribed the acceptance must be given
within that time. If no time limit is given, then the acceptance must be within a reasonable
time.
5. Cannot precede an offer – Acceptance cannot precede offer. If it precedes the offer it
becomes an invalid acceptance
Example: Company allots shares without application – ignorant of the allotment, allottee
applies for shares – allotment is invalid, as it precedes the offer.
6. Must indicate the intention of acceptor to fulfill terms of the promise- It must show an
intention on the part of the acceptor to fulfill the terms of the promise. If not such intention is
present, the acceptance is not valid.
7. Must be communicated by the person to whom the offer has been made –The acceptance
must be given by the party or parties to whom the offer is made. acceptance by other person
or unauthorized person is invalid

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8. Must be given before offer lapses or is withdrawn- It must be given before the offer lapses or
before the offer is withdrawn.
9. Cannot be implied by silence: The acceptance of an offer cannot be implied from the silence
of offeree or his failure to answer unless the offeree has by his previous conduct indicated
that his silence means that he accepts.
1.8 Revocation of an Offer:
Section 6 has described the modes in which an offer lapses. Revocation of an offer must be at
any time before its acceptance is complete as against the offeror; revocation must be
communicated to the offeree. An offer comes to an end, and is no longer open to acceptance
under the following circumstances:
1. By communication of notice of revocation - An offer can be revoked at any time before

the acceptance of the offer is complete as against the offeror.
2. By lapse of time: The offer revokes if not accepted within the prescribed time and if no
time is prescribed, it lapses after a reasonable time.
3. Non-fulfillment of condition precedent: If the offeree fails to fulfill a condition precedent

to the acceptance, the offer lapses.
Example: A offered to sell goods to B – condition is that agreed price is to be paid before
a certain date – B fails to pay by a specified date – Held, the offer stands revoked.
4. Death or insanity of offeror – The offer lapses by death or insanity of the offeror provided
offeree must know of it before giving acceptance. If acceptance is given in ignorance of
the offeror’s death/insanity, acceptance is valid.
5. Counteroffer - If the offer is accepted with modification of terms of the offer, or some
new condition – qualified acceptance.
6. If not accepted according to prescribed or usual mode –The offer is revoked if it is not
accepted according to the prescribed mode, provided offeror gives notice to offeree about
the lacunae but if the offeror keeps quiet he is deemed to have accepted the acceptance.
7. Law is changed – if the contemplated contract becomes illegal or incapable of

performance the offer is revoked.
8. Rejection of offer – When offeree rejects the offer, it comes to an end. Once rejected
offer cannot subsequently be accepted.
1.9 Consideration:

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According to Sec. 2(d) –Consideration is one of the essential elements of a valid contract. When
at the desire of the promisor, the promisee or any other person has done/abstained from doing or
promises to do or abstain from doing something - such act or abstinence or promise is called a
consideration for the promise.
It means the price for which the promise of the other is bought - a valuable consideration as a
price of the promise – some of the value received by the promisee as an inducement of the
promise quid pro quo ( something in return) – may be of some benefit to the plaintiff or some
detriment to the defendant.
Case: Abdul Aziz Vs. Masum Ali – a promise to subscribe Rs.500 for re-building a mosque – not
fulfilled – secretary of mosque committee filed a suit for the enforcement of promise – Held, the
promise no enforceable as no consideration in the sense of benefit for the promisor – the
secretary of the committee suffered no detriment as nothing has been done to carry out the
repairs – no contract.
Case: Kedarnath Vs. Gauri Mohamed - Commissioner of Howrah Municipality started a

collection of funds by public subscription – to erect town hall – defendant a subscriber – signed
his name in subscription book for Rs.100 – on the faith of promised subscriptions, plaintiff
entered into a contract with a contractor – the defendant did not pay the promised amount – Held,
the act of the plaintiff in entering into a contract with a contractor was done at the desire of the
defendant to constitute consideration – the promise was “In consideration of your agreeing to
enter into a contract to erect, I undertake to supply money for it.”
Essential features of consideration:

1. Must move at the desire of promisor – Consideration must move at the desire of the
promise. If done at the instance of a third party or without desire of promisor it is not
good consideration.
2. Consideration may move from promisee or any other person - Consideration may move
even from a stranger. The Contract cannot be enforced by a stranger to contract even if
made for his benefit but a stranger to consideration can sue if the party to the contract
(privity to contract).
Case: Chinnaya Vs. Ramayya – old lady gifted landed property to her daughter – gift
deed registered – included condition of payment of an annuity of Rs.653 per year to the
plaintiff (old lady’s sister) - daughter executed an Iqrarnama(agreement) with plaintiff
promising to pay the annuity – default by daughter – plaintiff sued for recovery – Held,
consideration had moved from an old lady – also concluded that deed of gift and
Iqrarnama executed simultaneously – regarded as one transaction – sufficient
consideration for that transaction.
3. The Consideration may be Forbearance to sue – The term “forbearance to sue” means
that the plaintiff has a right of action against the defendant or any other person, and on a

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promise by the defendant, he (plaintiff) refrains from bringing the legal action. The
forbearance to sue is regarded as a valid consideration.
4. The consideration may be either positive or negative.

According to section 2(d) of the Indian Contract, the consideration may be a promise to
do something or abstain from doing something. Thus, consideration may be an act “to
do” or “not to do” something i.e., it may be positive or negative.
a. May be past, present or future – The legal rule says, ‘The promise or any person has
done, or abstained from doing, or does or abstains from doing, or promises to do or
abstain from doing something…” which means that consideration can be past,
present or future.
Past consideration: When something is done or suffered before the date of the
agreement, at the desire of the promisor, it is called ‘past consideration.’ It must be
noted that past consideration is good consideration only if it is given by the promisee,
‘at the desire of the promisor.
Example: A teaches the son of B at B’s request in January, and in February B
promises to pay A a sum of Rs 200 for his services. The services of A will be past
consideration.
Present consideration: Consideration which moves simultaneously with the promise,

is called ‘present consideration’ or ‘executed consideration’.
Example: A sells and delivers a book to B, upon B’s promise to pay for it at a future
date. The consideration waiting from A is present or executed consideration since A has
done his act of delivering the book simultaneously. with the promise of B.
Future consideration. When the consideration on both sides is to move at a future
date, it is called ‘future consideration’ or ‘executory consideration’. It consists of an
exchange of promises and each promise is a consideration for the” other.
Example: X promises to sell and deliver 10 bags of wheat to Y for Rs 6,500 after a
week, upon Y’s promise to pay the agreed price at the time of delivery. The promise
of X is supported by the promise of Y and the consideration is executory on both
ideas.
5. Need not be adequate – where consent of the promisor is freely given, the inadequacy of
consideration does not make the contract void. Adequacy of consideration is for the
parties to consider at the time of the agreement, and not for the court when it is sought to
be enforced.
6. Must be real and not illusionary - It is one of the essential elements of the consideration
that it must be real and not illusory.
Example: A engages B for certain work – promises to pay ‘reasonable sum’ – promise
unenforceable as consideration is uncertain.
7. Must be something which promisor is not already bound to do: A person may be bound to
do something by law. Similarly, the performance of a contractual obligation is also not a

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consideration for the promise. When a person undertakes to do more than contractual or
legal duty then it becomes a valid consideration for the promise.
8. The consideration must be Lawful – This essential element says that “Every agreement of
which the consideration is unlawful, is void” It means that an agreement must be
supported by lawful consideration.
“No Consideration, No Contract”
The general rule is that an agreement made without consideration is void. This rule is contained
in section 25 of the Indian Contract Act, which reads as under:
“An agreement without consideration is void”
However, there are exceptions to this general rule, which is provided in section 25 itself.
Contract without consideration is void – Exceptions thereto:

Sec.25 – Agreement made without consideration is void, unless
(1) Natural Love and Affection

It is expressed in writing and registered under the law for the time being in force and is made on
account of natural love and affection between parties standing in near relation to each other and
is valid and enforceable even when there is no consideration.
Example: Venkataswamy Vs. Rangaswamy - Out of natural love and affection for his brother
Rangaswamy, Venkataswamy promises to discharge Rangaswamy’s debt to B – registered
agreement – Venkataswamy fails to discharge the debt – Rangaswamy discharges it and sue
Venkataswamy to recover the amount – Held, the valid agreement covered under Sec.25.
(2) Voluntary Compensation.

According to this exception, a promise made without any consideration is valid if, it is a promise
to compensate, wholly or in part, a person who has already voluntarily done something for the
promisor, or something which the promisor was legally compellable to do; In other words, a
promise to pay for past voluntary services is binding even though it is without consideration.
Examples:
A finds B’s purse and gives it to him. B promises to give A Rs 50. This is a contract.
A rescued B from drowning in the river, and B, appreciating the service that had been rendered,
promises to pay Rs 1,000 to A. There is a contract between A and B.
(3) Promise to pay the time-barred debt:

According to this exception, a promise, made in writing and signed by the person so charged or
his agent, to pay wholly or in part a debt which cannot be enforced for payment under the law for
the limitation of suits. A takeover of the assets and liabilities of a business house does not
amount to a promise to pay a time-barred debt. Example: A owes B Rs 1,000, but the debt is
barred by the Limitation Act. A signs a written promise to pay B Rs 500 on account of the debt

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(4) Completed gift

Sec. 25 shall not affect the validity of any gift made. The explanation states that ‘Nothing in this
section shall affect the validity, as between the donor and the done, of any gift made”
(5) Agency
No consideration is necessary to create an agency. Thus, when a person is appointed as an agent,
his appointment is valid even if there is no consideration.
(6) Remission by the promisee, of performance of the promise (Sec. 63). For compromising a due
debt, i.e., agreeing to accept less than what is due, no consideration is necessary. In other words, a
creditor can agree to give up a part of his claim and. there needs to be no consideration for such an
agreement. Similarly, an agreement to extend the time for performances of a contract need not be
supported by consideration (Sec.63).
(7) Contribution to charities. A promise to contribute to charity, though gratuitous, would be

enforceable, if, on the faith of the promised subscription, the promisee takes definite steps in
furtherance of the object and undertakes a liability, to the extent of liability incurred, not exceeding
the promised amount of subscription. In Kedarnath vs. Ghorie Mohammad, the defendant had
agreed to subscribe Rs 100 towards the construction of a Town Hall at Howrah. The plaintiff
(secretary of the Town Hall) on the faith of the promise entrusted the work to a contractor and
undertook liability to pay him. The defendant was held liable. But where the promisee had done
nothing on the faith on the promise, a promised subscription is not legally recoverable. Accordingly,
in Abdul Aziz vs Masum Ali, the defendant promised to subscribe Rs 500 to a fund started for
building, a Mosque but steps had been taken to carry out the repairs. The defendant was held not
liable and the suit was dismissed.
1.10 Capacity to contract:
One of the essential conditions for the enforceability of an agreement is that the concerned
parties must be competent to agree. Sec.10 requires the parties to be competent to make a valid
contract. The section states that “All agreements are contracts if they are made by the free
consent of parties competent to contract” Thus, an agreement is valid and enforceable only if the
parties are competent to enter a valid contract. Competence to contract is defined in Sec.11.
Sec.11: Every person is competent to contract who –
(a) is of the age of majority;
(b) is of sound mind; and
(c) is not disqualified from contracting by any law.
Persons not competent to contract:

As per the statement of section 11 of the Indian contract act, the following persons are not
competent to contract, i.e., they are incapable of entering into a valid contract.
(a) Minors,
(b) Persons of unsound mind, and
(c) Persons disqualified by any law to which they are subject.
Minors: Indian Majority Act, 1875 – Sec.3 specifies that –

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(1) a minor is a person who has not completed 18 years of age.

(2) In the following cases, a person attains majority on completion of 21 years of age :
(a) where guardian appointed for person or property of minor under the Guardians and
Wards Act, 1890, or
(b) Where superintendence of minor’s property is under the Court of Wards.
Rules regarding agreements with minors:
1. Agreement with or by minor is void ab initio: Minor cannot bind himself by contract - such
agreement is inoperative. An agreement with a minor does not create any legal rights and
obligations between the concerned parties.
MohiriBibi Vs. DharmodasGhose - minor mortgaged his property to money-lender to secure

a loan of Rs.20, 000 – Out of it, Rs.10500 paid to the minor – Subsequently, minor sued for
setting aside the mortgage. Held, the mortgage was entered into with a minor and hence
voids – Request for repayment of the amount advanced to the minor as part of consideration
also turned down.
2. Minor can be promisee or beneficiary -A minor can be beneficiary (payee, endorsee, or

promisee) – such contracts enforceable at the option of the minor.
3. His agreement cannot be ratified by him on attaining the age of majority – ratification relates
to the date of making of contract – therefore, the contract which was then void cannot be
made valid by subsequent ratification - Consideration given during minority is not valid – if
fresh contract entered into after majority, fresh consideration to be paid.
However, where services rendered at the desire of minor during minority and continued after
a majority on the same request forms good consideration for the subsequent express promise
to pay.
4. No liability in contract or Tort arising out of contract – The term “tort” may be defined as
any wrong for which a civil suit can be brought. A minor is not liable either for breach of
contract or for damages on account of the tort of deceit.
If a minor misrepresented his age and enters into an agreement, he cannot be sued either in
contract or in the tort of deceit (i.e., fraud). Because, if the injured party is allowed to sue, it
would be an indirect way of enforcing the void agreement.
5. No Estoppel against a minor – The term estoppels may be defined as the prevention of a
claim or assertion by law. In other words, when someone makes another person believe that a
particular thing or fact is true, and then later on he cannot be allowed to deny the truth of that
thing. But Minor can always plead minority – Even if minor misrepresents his age, he cannot
be sued.
6. No specific performance of agreement –Since the agreement by a minor is void; the court
will never direct “Specific performance” of such an agreement by him.
However, if a contract is entered into by parent/guardian/manager within the scope of
authority and for benefit of minor, such a contract is enforceable.

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7. Minor cannot be a Partner. – A minor, being incompetent to enter into a contract, cannot be a
partner in a firm. However, he can become a partner in an existing partnership for a share in
the profits only – cannot be liable for liabilities of the firm.
8. Minor cannot be adjudged insolvent – As a minor is incapable of contracting debts, he cannot

be held liable for any – so cannot be adjudged insolvent.
9. Liable for ‘necessaries’ supplied - Minor not personally liable for the necessaries supplied to
him or his minor dependents. Only his estate is liable for ‘necessaries’ supplied or necessary
services rendered to him – Necessary things are those without which an individual cannot
reasonably exist – articles of luxury are always excluded through luxurious articles of utility
are in some cases allowed considering the fortune and circumstances of the particular minor
– liability not on account of contract but out of quasi-contract.
To render the minor’s estate liable, the supplier has to prove that the goods supplied are
necessary for the minor. Two conditions must be satisfied – (i) the contract must be for
goods reasonably necessary for his support in his station in life, and (ii) he must not have
already a sufficient supply of these necessaries. Also, a loan incurred by a minor to obtain
the necessaries binds the minor and is recoverable.
10. Minor can be an agent – An agent is merely a connecting link between his principle and third
person. Minor bind the principal by his acts without incurring any personal liability.
11. Minor can be a shareholder – A minor can hold up shares of a company. He cannot hold
partly paid-up shares as he cannot be held liable for calls. Since membership of a company
arises based on a contract, a minor cannot be a member of a company. A minor, being
incompetent to contract, cannot be a shareholder of the company. A company can also refuse
to register, transfer, or transmission of shares in favour of a minor unless the shares are fully
paid.
12. Minor cannot be a surety: A minor cannot be sure as he is not liable to pay or compensate
anything under a contract.
13. Minor can execute a Negotiable Instrument: The minor is competent to draw, negotiate, or
endorse the negotiable instruments. It may be, however, be noted that the minor will not
incur any personal liability under such instruments.
Persons of unsound mind: Sec.12 –A Person said to be of sound mind to make a contract if, at
the time when he makes it, he is capable of understanding it and forming a rational judgment as
to its effect upon his interest. There is a presumption in favour of sanity.
The soundness of mind depends on –

(a) Capacity to understand the contents of business concerned and
(b) Ability to form a rational judgment as to its effects on their interest.

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Person, usually of unsound mind, may enter into contract when of sound mind – but the person
usually of sound mind, may not make a contract when of unsound mind.
Example:
1. Patients in a lunatic asylum - may contract during intervals of the soundness of mind.
2. Insane man – delirious from fever or drunk – incapable of forming a rational judgment as
to its effects on his interest – cannot contract while such delirium (fever or restlessness)
or drunkenness lasts.
Sec.68 – the estate of persons of the unsound mind liable for necessities supplied to them –
however, no personal liability.
Persons debarred by law:

1. Alien enemies: All persons other than Indian citizens are aliens. An alien is a person who is a
foreigner to the land. He may be either an “alien friend” or an “alien enemy”. An alien
(citizen of a foreign country) living in India can enter into a contract with citizens of India
during peacetime only, that too subject to the government restrictions. On the declaration of
war between India and his country, he becomes an alien enemy and cannot enter into
contracts.
2. Foreign sovereigns, diplomatic staff, and accredited representatives: Foreign sovereigns and
accredited representatives of a foreign state or ambassadors enjoy special privileges, by
which they cannot be sued in Indian courts. If they choose, they can enter into contracts and
can enforce such contracts in Indian courts. To sue them prior permission of the Central
Government is required.
3. Corporations: Their authority is regulated by memorandum and articles – They cannot enter
into contracts of strictly personal nature.
4. Insolvents: When a person is declared Insolvent, His property vests in Official Receiver or
Official Assignee, and he is deprived of the power to deal in that property. He may contract
on discharge by Court.
5. Convicts: A convict cannot enter into a contract during imprisonment. He gets the power to
deal in any contract only on discharge or completion of sentence or pardon.
1.11 Free consent:
The consent of the parties means that there is a perfect identity of the minds of both parties i.e.,
there is no misunderstanding between the parties regarding the subject matter of the contract. In
English law, this is called consensus ad idem (i.e, meeting of the minds)
The term free consent is defined as the consent which is obtained by the free will of the parties,
and neither party is forced or induced to give his consent.
Sec 14 – consent said to be free when not caused by –
(1) coercion as defined in Sec.15, or
(2) undue influence, as defined in Sec.16, or

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(3) fraud, as defined in Sec.17, or

(4) misrepresentation, as defined in Sec.18, or
(5) mistake, subject to provisions of Sec.20-22.
When consenting to an agreement caused by coercion, undue influence, fraud, or

misrepresentation – agreement contracts, voidable at the option of the party whose consent was
so caused (Sec.19) – If he confirms it, the contract is binding on both parties.
Where consent is caused by mistake – agreement is void.
Coercion: Sec.15 – coercion is committing or threatening to commit any act forbidden by IPC or
unlawfully detaining or threatening to detain any property to the prejudice of any person with an
intention to causing such person to agree.
Example:
(1) A threatens to shoot B if B does not release him (A) from debt which A owes to B - B
releases A under the threat - The release brought about by coercion.
(2) Ranganayakamma Vs. Alwar - Husband of a young girl of 13 died – relatives of husband
prevented the removal of his body for cremation unless she adopts a boy to inherit the
properties of her husband - she consented – Held, the consent was not free but was induced
by coercion – adoption set aside.
(3) Muthia Vs. MuthuKaruppa– an agent refused to hand over the account books of a business to
the new agent unless the principal released him from all liabilities - principal gave the
release deed as demanded – Held, release deed given under coercion – voidable at the option
of the principal.
Undue Influence: Sec.16 (1): A contract is said to be induced by undue influence where the
relations subsisting between the parties are such that one of the parties in a position to dominate
the will of the other and uses that position to obtain an unfair advantage over the other.
A person is deemed to be in a position to dominate the will of another –

(a) Where he holds a real or apparent authority over the other – e.g. relationship between doctor
and patient, master and servant.
(b) Where he stands in a fiduciary relation (relation of trust and confidence) to the other – e.g.
between father and son, solicitor and client, trustee and beneficiary, and promoter and
company.
(c) Where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by age, illness, or mental or bodily distress – e.g. relationship between
the medical attendant and his patient.
The principle applies to every case where influence is acquired and abused, where confidence is
reposed and betrayed. Contracts entered into by undue influence are voidable at the option of the
person whose consent is so obtained.
Examples:

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(1) During the minority of his son (B), A advanced money to him - upon B’s coming of age,
misuses parental influence – obtains a bond from B for a greater amount than the sum due in
respect of the advance – Held, A employs undue influence.
(2) Mannu Singh Vs. UmadatPandey – spiritual guru induced his devotee to gift him the whole
of his property in return for a promise of salvation (nirvana) – Held, the consent of the
devotee was given under undue influence.
(3) RaneeAnnapurni Vs. Swaminath – poor Hindu widow was persuaded by money-lender to
agree to pay 100% rate of interest on money borrowed – She needed the money to establish
her right to maintenance – Held, consent obtained by undue influence and the Court reduced
the rate of interest to 24%.
To avoid a contract on the ground of undue influence, the plaintiff has to establish that –
(a) The other party was in a position to dominate his will.
(b) The other party used his influence to obtain the plaintiff’s consent to the contract, and
(c) The transaction is unconscionable (unreasonable to shock the conscience)
Relationships which raise a presumption of undue influence :

i. Parent and child
ii. Guardian and ward
iii. Trustee and beneficiary
iv. Religious adviser and disciple
v. Doctor and patient
vi. Solicitor and client, and
vii. Fiancé and fiancée.
Difference between coercion and undue influence
Coercion Undue Influence

1. The consent is given under the threat 1. Consent is given by a person who is so
of an offense (i.e. committing or placed with another that the other
threatening to commit an act person is in a position to dominate his
forbidden by IPC or detaining or will.
threatening to detain the property
unlawfully)
2. Coercion is mainly physical. It 2. Undue influence is moral. It involves
involves physical or violent force. moral force or mental pressure.
3. There must be an intention of causing 3. The influencing party must use his
any person to enter into a contract. position to obtain an unfair advantage
over the other party.
4. It involves a criminal act. 4. No criminal activity is involved.
Misrepresentation –According to Sec.18 a false statement made honestly believing it to be true

or not knowing it to be false and includes non-disclosure of material fact without intent to
deceive the other party.
Any statement wrongly made by one party to the contract during negotiations to induce the other
party to enter into a contract is called misrepresentation. May be made either –
(i) Innocently or unintentionally – is called misrepresentation.

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(ii) Intentionally or deliberately or wilfully with intention to deceive or defraud

the other party – is called fraud
Example:
1. A offers to sell his horse to B telling him that the horse is sound. A genuinely believes the
horse to be sound though he has no sufficient ground for the belief. Later, B finds the horse
to be unsound. The statement made by A is a misrepresentation.
Requirements of misrepresentation –
(i) Must relate to the material fact – a mere expression of opinion is not a
misrepresentation.
(ii) Must be wrong – but honestly believed to be true by the person making it.
(iii) Must be made before the conclusion of the contract – made to induce the other party
to enter into the contract.
(iv) Made with the intention that it is acted upon by the other party.
(v) Must be acted upon by another party – must have induced him to enter into the
contract.
(vi) Need not be made directly to the plaintiff – made to the third party to communicate it
to the other party to the contract is also a misrepresentation.
Babul Vs. R.A. Singh – A tells his wife that bridegroom proposed for their daughter was a
young man - within hearing of the daughter – daughter gave consent to marry believing the
statement of her father -but the bridegroom was over 60 years – Held, consent was vitiated/
obtained by misrepresentation and fraud.
Fraud – Sec.17 -
Fraud exists when -
(1) A false representation is made –
(a) knowingly, or
(b) without belief in its truth, or
(c) Recklessly careless whether it is true or false.
(2) Concealment of a material fact or partial statement of fact, so that the withholding of fact
makes the statement made false
(3) A promise is made without any intention of performing it.
(4) Any other act to deceive.
(5) Any act or omission specially declared to be fraudulent.
A false statement must have been made intentionally to deceive the other party or to induce him
to enter into a contract. Example: B having discovered a vein of iron ore in the estate of A adopts
means to conceal and is successful to conceal the existence of the ore from A. Through A’s
ignorance he buys that estate at an undervalue.

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The distinction between fraud and misrepresentation –
Basis Misrepresentation Fraud

Intention There is no intention to deceive There is an intention to deceive
the other party. It is innocently the other party. It is deliberate or
made. wilful.
Belief The person making the The person making the
representation believes to be representation does not believe it
true. to be true or makes it recklessly
without caring as to whether it is
true or false.
Tort Simple misrepresentation is no It is a cause of action in tort for
tort. damages.
Rescission The aggrieved party can rescind The aggrieved party can rescind
and damages the contract or sue for restitution. the contract and also sue for
However, there can be no suit damages.
for damages.
Discovery of The aggrieved party cannot Where there is active
truth avoid the contract if he had the concealment, the contract is
means to discover the truth by voidable even though the
ordinary diligence. aggrieved party had the means to
discover the truth with ordinary
diligence.
Mistake: It is an erroneous belief about something. It can be a mistake of law or a mistake of

fact.
The term mistake may be defined as an incorrect belief which leads one party to misunderstand
the other. The mistake takes place where the concerned parties are not fully aware of the terms of
the agreement, and they take the terms in a different sense. An agreement is valid as a contract
only when the parties agree upon the same thing in the same sense. Example: A contract gets
formed between A and B according to which A has to send his raw cotton to B in Peerless Ship.
While entering into the Contract A thinks about 2nd Peerless and B thinks about 1st Peerless.
Here mistakes as to the Identity of Subject Matter from both sides can be seen. Court decides that
the Contract can be avoided and Compensation needs not to be paid.
Sec.20 – Where both parties are under mistake as to a matter of fact essential to the agreement –
the agreement is void.
Sec.21 – A contract is not voidable because it was caused by the mistake of the law of the
country. However, mistake as to the law of a foreign country is treated as a mistake of fact and
makes the contract void.
Sec.22 – A contract is not voidable merely because it was caused by the mistake of one party as
to a matter of fact.

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The mistake may be bilateral or unilateral.

Bilateral Mistake: Both the parties are mistaken as to a matter of fact essential to the agreement
– agreement is void.
Unilateral Mistake: The term unilateral mistake may be defined as a mistake in which the only
one of the parties to an agreement is confused about the facts, which are essential to the
agreement. Unilateral mistake is not a valid ground for avoiding the contract. A person is bound
by an agreement to which he has expressed a clear asset unless the unilateral mistake is caused
by misrepresentation or fraud.
1.12Legality of Object:
The term legality may be defined as conformity to law. Therefore, the legality of object and
consideration for a contract means that it must be lawful. Section 23 of the Indian Contract act
states in the cases where the object or consideration is not legal, an agreement becomes lawful.
The consideration and objects of a contract are lawful, unless it –

(1) Is forbidden by law –If the object or the consideration of an agreement is the doing of an
act which is forbidden by law, the agreement is void. An act or an undertaking is forbidden by
law
 when any act punishable under criminal law or
 Any special legislation or regulations.
Example:
(a) A promises to obtain for B employment in public service – B promises to pay Rs.1000 to A –
unlawful consideration – void agreement.
(b) A promises to drop prosecution instituted against B for robbery – B promises to restore the
value of things taken – unlawful object – void agreement.
(2) It defeats the provision of any law – This clause refers to cases where the object or
consideration of an agreement is of such nature that, though not directly forbidden by law,
it would indirectly lend to the violation of the law, whether enacted or otherwise.
Example: A agreed to enter into the services of a company in consideration of a weekly wage of
Rs 120, and a weekly allowance of Rs.25. Both parties knew that the expense allowance means
the evasion of tax. In this case, the agreement is void as it defeats the provision of law.
(3) It is fraudulent: An agreement entered into between parties with a fraudulent purpose is
unlawful within the meaning of section 23 and hence void. If the two parties agree to
practice a fraud on a third party, then the agreement between the first two parties is
unlawful and void.
Example: A, B, and C agree – for the division of profits to be acquired by them by fraud – the
object is unlawful – void agreement.
(4) It involves or implies injury to person or property of another – If the object of an agreement
is to cause injury to the person or property of another, it is void, being unlawful agreement.

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Thus an agreement to commit a crime or any crime or any wrong action, for which a civil
suit can be brought, is unlawful and void.
(5) Opposed to public policy –Public policy may be defined as that policy of the law, which
prevents enforceability of agreements that are injurious to the society. An agreement is said
to be opposed to public policy when it is against the public interest.
Heads of Public policy: All such agreements are declared void as being opposed to public
policy.
(i) Agreement of trading with the enemy

(ii) Agreement to commit a crime.
(iii)An agreement that interferes with the administration of justice – it is opposed to public
policy – Examples – agreement to use the improper influence of any kind with the
judges and officers of justice – agreement not to prosecute an offender is for stifling
(oppressing) prosecution.
(iv) Agreement in restraint of legal proceedings - Example - prohibiting any party from
enforcing his rights under a contract – curtailing (restricting) the period of limitation
prescribed by Law of Limitation – however agreement to refer a dispute to arbitration is
valid.
(v) Trafficking in public offices and titles or for procurement of public recognition like
Padma Vibhushan etc. for monetary consideration.
(vi) Agreement tending to create interest opposed to duty – anything against public or
professional duty.
Example – A directs his agent B to buy a particular house for him – B tells A that it
cannot be bought for a specific reason - buys the house for himself – against
professional duty – A can compel B to sell it to him at the price B paid for it.
(vii) Agreement in restraint of parental rights.
(viii) An agreement restricting personal liberty.
(ix) Agreement in restraint of marriage, other than a minor, is void.
(x) Marriage brokerage agreement.
(xi) Agreements interfering with marital status.
(xii) Agreement to defraud creditors or revenue authorities.
(xiii) Agreement in restraint of trade – which interferes with the liberty to engage in any
lawful trade, profession, or vocation – Sec.27.
Exceptions to the rule that “an agreement in restraint of trade is void” :

(a) Sale of goodwill – seller of goodwill may be reasonably restrained from - carrying on a
similar business - within specified local limits - as long as the buyer or any other person
deriving title from him carries on like business.
(b) Partnership – four provisions which validate agreements in restraint of trade –
(i) partner not to carry on any business other than that of the firm.
(ii) outgoing partner not to carry on a similar business within a specified period or
within specified local limits.
(iii) in anticipation of dissolution, partners may restrain each other from carrying on a
similar business within a specified period or within specified local limits.

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(c) Trade combinations – regulations as to opening and closing of business in a market,

licensing of traders, supervisions, and control of dealers and mode of dealing are valid, even
though in restraint of trade.
However, where a combination tends to create a monopoly and is against the public interest, it
becomes void.
(d) Exclusive dealing agreements – reasonable restriction valid - negative stipulation
nothing but an ordinary incident of or ancillary to the positive covenant.
(e) Service contracts – restriction from accepting any other engagement during his
employment is valid.
Where restriction imposed to protect an employer against an employee making use of trade
secrets learned in the course of employment - such restriction is valid.
However, restriction on similar engagement after the termination of service is void.
1.13 Discharge of Contract/Termination or putting an end to the contract:
Discharge of a contract means that the parties are no more liable under the contract is said to be
discharged or terminated. Thus, the discharge of a contract means that the parties are no more
liable under the contract. In other words, when the rights and obligations created by the contract
come to an end, the contract is said to be discharged.
Modes of Discharge of a Contract.

Discharge/termination of the contract – all rights and obligations under contract cease – may be
discharged-
(i) By performance
(ii) By agreement or consent
(iii) By impossibility of performance
(iv) By lapse of time
(v) By operation of law
(vi) By breach of contract.
1. Discharge by the performance –Performance is the usual mode of discharge of a contract.

The contract is said to be discharged when both parties fulfill their contractual obligations
within the time in a prescribed manner.
Both parties may discharge their respective duties either by actually performing the contract or
by making an offer to perform it. Thus the phrase, “Perform or Offer to Perform” provides for
two modes of performance:
(a) Actual performance – when both parties discharge their obligations then it is known as
the actual performance of the contract. If only one party performs his promise, the lone
is discharged and he acquires the right to take action against the other party for the
performance of his obligation.

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(b) Attempted or tender performance – A contract need not be performed. An offer to

perform an obligation is called ”tender of performance”. And a valid tender of
performance is equivalent to the performance of the promise.
Where promisor offers to perform, but promisee refuses to accept performance, tender is
equivalent to actual performance, except in case of tender of money – tenderer discharged
without prejudice to his rights.
Example: A entered into a contract with B to deliver certain goods at a certain price to B. A
offered the goods to B at a proper time and place. But B refused to accept the goods. In this case,
A is discharged from further liability.
2. Discharge by agreement or consent –A contract may be discharged by mutual agreement of

the concerned parties. The rights and obligations created by an agreement can be discharged
without their performance through another agreement between the parties, which provides for
the extinguishment of the earlier rights and obligations. “a thing may be destroyed in the
same manner in which it is constituted”
The consent may either be Express or Implied.
1. Express consent at the time of the Formation of the contract.

Example: A sells a machine to B on approval with the condition that if the machine does not
work efficiently, B can return it within one week, if the machine does not give satisfaction.
Consent to return the machine is given to B at the time of the formation of the contract.
2. Express consent after the formation of the contract:

If the parties to a contract agree to substitute a new contract for it or to rescind or alter it, the
original contract need not be performed”
It is understood that the original contract is discharged when the parties enter into a fresh
contract in place of the original contract. And the following are the important methods for the
discharge of the contract by a fresh contract.
(A) Novation – The term Novation means a new contract substitute existing one either between
the same parties or between one of the existing parties and a third party and this must take place
before the expiry of the old contract. Discharge of the old contract is the consideration for the
new contract. The new contract must be valid and enforceable.
The Novation may be of the following two types:

 Novation involving a change in parties, but the contract remaining the same:
Sometimes, the parties to the contract are changed. But the contract remains the same. In
such cases, the contract between the original parties is discharged and need not be
performed.
Example: (i) A owes money to B – enters into an agreement with B and gives him
mortgage of his (A’s) estate – new contract replaces the old one.
 Novation without changes of Parties;

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The substitution of the contract may take place even without a change of parties. That is,
sometimes the concerned parties to a contract agree to substitute the existing contract for
a new contract. In such situations, the original contract is discharged and need not be
performed.
Example: A borrowed Rs.40,000 from B and mortgaged his house as security for the
repayment. Subsequently, the mortgage of the house was replaced by a new mortgage of
the land, however, the new mortgage was not registered. It was held that the parties were
bound by the original mortgage, as the new mortgage was not enforceable for want of
registration.
(B) Rescission – Rescission means cancellation of the contract. A contract may be discharged,
before the date of the performance, by agreement between the parties to the effect that it shall no
longer bind them. Such an agreement amounts to “rescission” or cancellation of the contract.
Rescission may take place in any of the following modes:
 By mutual consent
 By the aggrieved party
 By the party whose consent is not free
 Non-performance till a long time.
Rescission may either be total or partial. Partial rescission is the variation of the original contract
either by:
 Rescinding some of the terms of the contract; or
 Substituting new terms for the ones which are rescinded; or
 Adding new terms without rescinding any of the terms of the original contract.
(C) Alteration –Alteration means a change or modification of one or more terms of the old
contract by mutual consent. An alteration may either be material or immaterial. If the material
alteration in a written contract is done by mutual consent, the original contract is discharged by
alteration and the new contract in its altered form takes place. A material alteration is one which
alters the legal effect of the contract. The immaterial alteration does not affect the validity of the
contract and does not amount to alteration in the technical sense.
(D) Remission – Remission may be defined as the acceptance of lesser fulfillment of a promise
made, e.g. acceptance of lesser amount than due in the discharge of the whole debt.
(E) Waiver – Waiver is defined as mutual abandonment of rights by parties to the contract who
is entitled to claim the performance of the contract. On waiver, the other party to the contract is
discharged from the performance of his liabilities under the contract.
Example: A promised to paint a picture for B. Afterwards, B forbade him to do so. In this case, B
has waived his right to claim the performance. And thus, A is no longer liable to perform the
promise.
(F) Merger – Merger takes place when an inferior right accruing to a party under contract
merges with superior right accruing to the same party under the same or other contracts. In such

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cases, the inferior rights merge into superior rights. And on the merger, the inferior rights vanish
and are not required to be enforced.
Example: P holds a property under a lease agreement – later P buys the said property under a
different agreement – P’s rights as lessee merge into his rights as an owner
3. Discharge by the impossibility of performance – A contract is discharged if its performance

becomes impossible. In other words, there is no question of discharge of a contract, which is
entered into performing something impossible. A discharge may fall into two categories –
(a)Impossibility existing at the time of agreement (Initial impossibility) – It is the

impossibility, which exists at the time of the formation of a contract. It makes the contract void
ab initio, i.e., void from the beginning.
The rules are based on maxims – (i) lexioncogitadimpossibilia, i.e. law does not recognize what
is impossible, and (ii) impossibiliumnullaobligatoest, i.e. what is impossible does not create an
obligation – may be known or unknown to parties.
Couturier Vs. Hastie – H employed by C as del credere agent to sell C’s cargo of corn which
was in transit – H sold the cargo to a third person - Unknown to both, the corn became
fermented in transit and already sold by the master of the ship at an intermediate port – buyer
repudiated the contract and H were sued for the price (being del credere agent) – Held, as goods
had already been lost before the contract was made, the contract void ab initio due to
impossibility of performance - H not liable.
(b) Impossibility arising after the formation of contract – It is also known as a post-
contractual or supervening impossibility. It is the impossibility, which is after the formation of
the contract. The contract becomes void. Normally parties not discharged by supervening
impossibility and are liable for damages – however, if caused by circumstances beyond their
control, parties are discharged from further performance
Supervening impossibility may be due to following reasons –

(i) Destruction of subject matter – When the subject matter of a contract, after its formation is
destroyed without fault of parties, the contract is discharged.
(ii) Non-existence or non-occurrence of a particular state of things – also called ‘frustration of
contract’.
When certain things necessary for performance cease to exist the contract becomes void
on the ground of impossibility. If a contract depends on the occurrence of an event, which
does not happen the contract is discharged.
Example – A and B contract to marry each other – before the date fixed for the marriage, A goes
mad – contract becomes void.
(iii) Death or incapacity of a Promisor – Certain contracts require personal performance by the
promisor himself. In such cases, the death or incapability of the promisor puts an end to the
contract and it is discharged.

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Example – R undertook to perform at a concert for a certain price – before she could perform,
she was taken seriously ill – Held, she was discharged due to illness.
(iv) Change of law or change in Government policy- A contract is discharged by the

impossibility of performance by the subsequent change in the law and change in government
policy. Impossibility created by law is a valid excuse for non-performance.
(v) The outbreak of war – Any contract entered into with alien enemy during war is unlawful and
void and contracts entered into before outbreak of war, are suspended during the war and maybe
revived after the war is over.
In following cases, contract not discharged on grounds of supervening impossibility –

(a) The difficulty of performance – A contract is not discharged may be due to unforeseen events
or delays. Difficulty does not excuse performance.
(b) Commercial impossibility – Commercial impossibility means that the situation has so
changed that if the contract is performed, it will result in a loss to the promisor. A contract is
not discharged on the non-realization of expected high profits or an increase in the cost of
acquisition because of the outbreak of war or inflation or sudden depreciation of money.
(c) Impossibility due to the conduct of a third person –Sometimes, the performance of a contract
depends upon the behavior of a third person. Where non-performance due to default of the
third person on whose work the promisor relied – the contract is not discharged.
(d) Strikes, lock-outs, or civil disturbances – All such events do not discharge the contract unless
specifically provided by the parties.
(e) Failure of one of the objects – where contract entered into with several objects, failure of one
of them does not discharge the contract.
4. Discharge by lapse of time – The contract must be performed within the time specified by the
Limitation Act, 1940. After the expiry of the limitation period, the courts will not enforce the
contract. And thus the contracts are discharged, as the parties cannot enforce their respective
obligations through the court of law.
5. Discharge by operation of law-

(i) Death of the Promisor – Contracts involving personal skill or ability are
terminated on the death of promisor – in other contracts, rights and liabilities of
the deceased person pass on to legal representatives
(ii) The merger of rights - when inferior right accruing to a party under contract
merges with superior right accruing to the same party under the same or other
contracts, a merger takes place.
Example: P holds a property under a lease agreement – later P buys the said
property under a different agreement – P’s rights as lessee merge into his rights as
an owner

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(iii) By insolvency – A contract is discharged when a person is adjudged insolvent and

discharged from all liabilities incurred before such adjudication.
(iv) By unauthorized alteration of terms of the written agreement – where a party
makes any material alteration without consent of the other party, the contract
becomes voidable at the option of another party. If however alteration is not
material, parties may opt to carry out the common intention.
6. Discharge by breach of contract –Breach of Contract means non-fulfillment of contractual

obligations. It may be either –
(i) Actual breach of contract – It occurs when on the due date of performance or during the
performance, a party fails to perform his obligations. The actual breach may take place -
(a) At the time when performance is due – When one party fails or refuses to perform his
obligation under the contract, it may lead to a breach of contract. If time is not the
essence of the contract, the other party may accept delayed performance subject to
payment of compensation.
(b) During the performance of a contract – Breach may occur by a non-performance by
one party and the other party is entitled to sue for breach of contract may be by –
 Express repudiation – either by word or act.
 Implied repudiation – impossibility created by an act of a party to contract – it
amounts to a breach of contract – the other party discharged from further
performance.
(ii) Anticipatory breach of contract – In executory contract (performance still due), one
party repudiates his obligation under the contract before the time for performance
arrives and the other party is absolved from performance of his obligation under the
contract and may also sue for breach of contract
May be done by –
 Express renunciation – e.g. before the date of actual delivery, the supplier
intimates the buyer that he is not going to supply the goods.
 Some act so that performance becomes impossible
The anticipatory breach does not necessarily discharge the contract unless the promisee so
chooses.
If promisee refuses to accept repudiation by promisor and treats it as alive, the consequences
maybe –
(i) Promisor may perform his promise when the time for performance arrives and
promisee is bound to accept the performance.
(ii) While the contract is still alive, a supervening impossibility may discharge the
contract – promisee loses his right to sue for damages.
The measure of damages in anticipatory breach of contract

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(i) If the contract ended by promisee at once – damages will be measured by the
difference between price prevailing on the date of the breach and the contract
price.
(ii) If the contract is kept alive till the date of performance – the measure of
damages will be the difference between price prevailing on the date of
performance and the contract price.
1.14 REMEDIES FOR BREACH OF CONTRACT:
Parties to a lawful contract are expected to perform their respective obligations, but whenever
there is a breach of contract, the injured or the aggrieved party can enforce his rights in the court
of law. The process of enforcing the rights is known as remedies for breach of contract.
Types of Remedies for Breach of Contract:

1. SUIT FOR RECESSION
Where a party refuses to perform its obligation in the contract, the injured party becomes entitled
to put an end to the contract. This is called the right of recession. On the recession of the
contract, the aggrieved party is discharged from all the obligations under the contract.
Example- A promises to B to supply 10 bags of cement on a certain day. B agrees to pay the
price after the receipt of the goods. A does not supply the goods. B is discharged from liability to
pay the price.
2. SUIT FOR RESTITUTION

This section provides that when an agreement is discovered to be void any person who has
received a benefit under such agreement or bound to restore it or to make compensation for it to
the person from whom he received it.
Example- A pays B Rs1000 in consideration of B's promising to marry C, A's daughter. C died at
the time of promise. The agreement is void but B must repay A Rs1000.
3. SPECIFIC PERFORMANCE
In certain cases of breach of contract, damages are not an adequate remedy. The court may in
such cases direct the party in breach to carry out his promises according to the terms of the
contract. This is the direction of the court for specific performance of the contract at the suit of
the party not in breach.
4. SUIT FOR INJUNCTION

It means an order of the court restraining a person from doing something which he promised not
to do.
Example- A, a film actor agrees to act in a film of B.A also agrees that during the completion of
the film or one year whichever is earlier, he will not act in any other film. Later on before the
completion of film & one year A contracts with c to act in his film. Here B can restrain to A by
an injunction order.

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5. QUANTUM MERUIT
The term, Quantum merit means “as much as earned’ in legal terms. It means payment in a
proportion of the work alone. Under this type of remedy, a person can recover compensation in
proportion to work done or service rendered by him. This doctrine is applied where there is no
express promise to pay definite remuneration to a person.
Example- A contract to make 10 chairs with B at the rate of Rs.500 per chair. B made 4 chairs
then a refuses to make further. Here B is entitled to Rs.2000 based on quantum merit.
6. CLAIM FOR DAMAGES

Damages mean the monetary compensation for the loss sustained by the aggrieved party for the
non-performance of the obligation by the defaulting party. Damages are to be awarded for losses,
which naturally arose from the breach.
Kinds of Damages
 Ordinary damages/General or compensatory damages- they are those which
arise in the usual sense of things that happen from breach of contract. In other
words, the ordinary damages are due to a natural and probable consequence of
the breach of the contract.
 Special damages- they are in the form of additional damages suffered by the
aggrieved party due to breach of contract. These are resulting from a breach of
contract under some special or unusual circumstances.
 Exemplary damages/Punitive damages- exemplary damages are rewarded to

the injured party not based on the actual loss caused to it but of the injury to the
feeling or reputation or goodwill. It includes breach of contract to marry &
dishonour of the cheque.
 Nominal damages- where the damages recoverable are very small areas known
as nominal damages. In some cases, there may be a breach of contract but no
material loss would have been caused thereby. Thus, nominal damages are
awarded only for namesake.
Introduction to special contract

2.1.1 Introduction:
In a literal sense, indemnity means where a person is a victim of a loss, compensation to him is
to be provided, or to save him from the loss caused by different causes. To indemnify means to
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compensate or to make good of the loss. The contract of indemnity means a promise or statement
of liability to pay compensation for a loss or wrong in a transaction.
In the law of contract, indemnity is the obligation, undertaken by one party to cover the loss or
debt incurred by another. It is similar to a contingent contract, a part of the general contract, and
is of special nature.
2.1.2 Meaning and definition of a contract of indemnity:

According to Sec. 124 of Indian Contract Act- A contract by which one party promises to save
the other from loss, caused to him by the contract of the promisor himself or by the conduct of
any other person, is called a contract of indemnity.
The definition of ‘contract of indemnity’ as given in the Indian Contract Act is not exhaustive.
It includes:
i) Express promises to indemnify, and cases where the loss is caused by the conduct of the
promisor himself or by the conduct of any other person.
It does not include:

i) Implied promises to indemnify, and cases where the loss arises from accidents and events
not depending on the conduct of the promisor or any other person.
It has been held in several cases in India that a duty to indemnify may arise by operation of law
even in the absence of express agreements. A promise to indemnify may be either express or
implied from the circumstances of the case.
In English law, it is defined in a wider sense than that of the Indian Contract Act. In England a
Contract of Indemnity is a: ‘A promise to save another party from a loss caused as a result of a
transaction entered into at the instance of the promisor.’ It covers all types of losses caused by
events or accidents (personal or natural).
According to the Dictionary of Garner on modern legal usages- ‘Indemnity is a security or

protection against a contingent hurt, damage or loss.’
According to the Black’s Law Dictionary- ‘Indemnity is an undertaking whereby one agrees to
indemnify another, upon the occurrence of the anticipated loss.’
Thus, a contract of indemnity is a part of the general class of contingent contracts. It is entered
into with the object of protecting the promisee against anticipated loss. The contingency upon
which the whole contract of indemnity depends is the happening of loss.
Parties in Contract of Indemnity

There are only two parties in a contract of indemnity.
1. Indemnifier (Promisor): The person who promises to make good the loss is called
Indemnifier.
2. Indemnified (Promisee)or Indemnity-Holder: The person whose loss is to be made good
is called Indemnified.

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Examples for Contract of Indemnity:

Example: A contract to indemnify B against the consequences of any proceedings which C
may take against B in respect of a certain sum of Rs. 200/-. This is a contract of indemnity.
Example: A and B go into a shop. B says to the shopkeeper, ‘Let him (A) have the goods. I
will see you paid.’ The contract is one of indemnity. [Goulston Discount Co. Ltd. V. Clark
(1967)2 Q.B. 493]
A contract of indemnity differs from indemnity for the breach of contract. The first is related to
the contract to bear the anticipated loss by one party and the latter one is related to the damage
for the breach of contract by the breaching party.
2.1.3 Essentials of Contract of Indemnity:

A valid contract of indemnity should fulfill the following conditions:
i. Anticipated loss: A contract of indemnity is a security for an anticipated loss.
ii. Requirements of a valid contract: Contract of indemnity being a species of contract
must have all essentials of a valid contract like free consent, the competence of the
parties, consideration, etc.
iii. To save the other party: There must be a promise to save the other party from some
loss.
iv. Covers only the actual loss: It covers only the actual loss may be due to the promisor
himself or any other person and it covers only the loss caused by an event mentioned in
the contract. The event mentioned in the contract must happen.
v. May be express or implied: The contract of indemnity may be express or implied. An
express promise is one where a person promises to compensate the other party in an
express term. Implied promise is one where the conduct of the promisor shows his
intention to indemnify the other party from a loss.
vi. Depend on good faith: This contract depends on good faith.
2.1.4A Rights and duties of indemnifier:

The rights of the indemnity-holder are the duties of indemnifier, and duties of the indemnity-
holder are the rights of the indemnifier. There are not prescribed any specific rights of the
indemnifier in Indian law. However, he is not liable for indemnity.
Rights of the indemnifier:

i. If indemnity-holder acts negligently.
ii. If indemnity-holder is acting to cause any loss or damage.
iii. If he is acting against the instructions of the other party (promisor).
Duties of indemnifier:
The duties of an indemnifier arise in the following circumstances:
i. There must be a loss following the contract to make the indemnifier liable.
ii. There must be an occurrence of the anticipated event. Without any occurrence of the
prescribed event, there is no indemnity by the indemnifier.
iii. Where the right of indemnity is used by the indemnity-holder prudently and the
instruction of the indemnifier is not contravened or when there is no breach of contract.

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iv. If the costs demanded by the indemnifier are not caused by negligence, haphazard
behaviour.
2.1.4B Rights and duties of indemnity-holder

A person whose loss is to be made good is called the indemnity-holder. According to Section
125 of the Contract Act, he has rights against the indemnifier under the legal provisions
incorporated under the Indian Contract Acts. The indemnity-holder is entitled to recover any or
all of the amounts of compensation under the contract.
Rights of indemnity-holder
i. All indemnity amounts (damage) prescribed in the contract.
ii. All the damages he may be compelled to pay a third party for the loss.
iii. All the costs spent on the case filed or defended by him in connection with the contract
relating to indemnity.
iv. All the costs of legal actions, if it becomes necessary to initiate such an action for a
failure to pay the amount mentioned in all the above clauses.
Duties of indemnity-holder
Except otherwise is mentioned in the contract, the indemnifier will not liable for the loss in the
following circumstances. They are called duties of indemnity-holder too.
i. Duty to work prudently: Except otherwise is mentioned in the contract, the indemnifier
will not liable for the loss caused by the negligence work of the indemnity-holder. In
other words, indemnity-holder has to work prudently.
ii. Duty not to act to cause harm or loss: If the indemnity-holder acting to cause any loss or
damage, the indemnifier will not liable for such loss. In other words, it is the duty of
indemnity-holder not to act to cause harm or loss.
iii. Duty to comply with the intention of promisor: If the indemnity-holder acting against the
instruction of the other party or promisor, the indemnifier will not liable for the loss
caused by such against the act to his instruction. In other words, indemnity-holder must
comply with the intention of the promisor.
2.1.5 Kinds of the contract of indemnity:

A contract of indemnity can be classified into two categories based on the expression of the
parties at the time of its formulation as express and implied.
i. Express contract of indemnity: When the parties to contract expressly enter into a
contract of indemnity. A party expressly promises to indemnify the other party from a
loss.
Example: A promise to compensate B if B’s goods are damaged due to the conduct of
C.
ii. Implied contract of indemnity: When the contract of indemnity is deemed to have
concluded by the conduct of the parties or from the circumstances of the particular case,
it is known as an implied contract of indemnity.
Example: A hires a motorcycle from the B’s shop to use for one day. The motorcycle
gets damaged due to the accident. Here, A has to compensate for damage to B, although
he has not agreed expressly to do so.

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2.2 Contract of Guarantee:
2.2.1 Meaning:
A contract of guarantee is a contract to perform the promise or discharge the liability, of a third
person in case of his default. The person who gives the guarantee is called the ‘surety’, the
person in respect of whose default the guarantee is given is called the ‘principal debtor’ and the
person to whom the guarantee is given is called the ‘creditor’. A guarantee may be either oral or
written (Sec. 126). It may be expressed or implied and may even be inferred from the course of
conduct of the parties concerned.
S, P, and C unless otherwise stated, in the following pages of this Chapter, S stands for surety, P
for the principal debtor, and C for the creditor.
Examples: (a) S requests C to lend Rs. 500 to P and guarantees that if P fails to pay the amount,
he will pay. This is a contract of guarantee. S, in this case, is the surety, C, the creditor, and P,
the principal debtor.
(b) S and P go into a shop. S says to the shopkeeper, C, “Let P has the goods, and if he does not
pay, I will.” This is a contract of guarantee [Birlcmyrv. Damell, (1704) 1 Salk, 27],
A contract of guarantee is a tripartite agreement which contemplates the principal debtor P. the
creditor C, and the surety S. in It, there is a triangular relationship in which the following three
collateral contracts may be distinguished:
(1) As between C and P., there is a contract out of which the guaranteed debt arises.
(2) As between S and C, there is a contract by which S guarantees to pay to C, P’s debt in case of
his (P’s) default.
(3) As between S and P, there is a contract that P shall indemnify S in case S says in the event of
a default by P. This contract, if it is not expressed between the parties is always implied.
2.2.2 Essentia1 features of a contract of guarantee

1. Concurrence. A contract of guarantee requires the concurrence of all the three parties to it,
viz., the principal debtor, the creditor, and the surety. Example: C enters into a contract with P.
S., without any communication with P. undertakes for a consideration moving from C to
indemnify C against any damage that may arise from a breach of P’s obligation. This does not
make S a surety for P. for a person cannot become a surety without the consent of the principal
debtor.
2. Primary liability in some person. There must be a primary liability in some person other
than surety. The word ‘liability’ as used in the definition of guarantee (Sec. 126) means “a
liability which is enforceable at law.” If that liability does not exist, there cannot be a contract of
guarantee. But a guarantee given for the debt of a minor is an exception to this rule.

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Example: P owes a debt to C. S gives a guarantee to C for the payment of the debt after it is
barred by the Law of Limitation. S pays the amount to C. He cannot recover the amount from P
as there is no enforceable liability against P.
The primary liability in a contract of guarantee is that of the principal debtor. The liability of the
surety is secondary. It arises only when there is a default by the principal debtor.
3. Essentials of a valid contract. A contract of guarantee must have all the essential elements of
a valid contract. But the following two points should be noted:
(1) All the parties must be capable of entering into a valid contract, though the principal debtor
may be a person suffering from the incapacity of contract. In such a case, the surety is regarded
as the principal debtor and is liable to pay personally even though the principal debtor (e.g., a
minor) is not liable to pay (Kashibav. Shrtpat, (1895)19 1.LR.Born. 6971).
(2) Consideration received by the principal debtor is sufficient for the surety and it is not
necessary that it must result in some benefit to the surety himself. It is sufficient if something is Comment [PR1]:
done or some promise is made for the benefit of the principal debtor. Sec. 127 lays down this
rule as follows: “Anything done, or promise made for the benefit of the principal debtor may be a
sufficient consideration to the surety for giving the guarantee.”
Examples: (a) P requests C, to sell and deliver to him goods on credit. C agrees to do so,
provided S will guarantee the payment of the price of the goods. S promises to guarantee the
payment in consideration of C's promise to deliver the goods. This is sufficient consideration for
S’s promise.
(b) C sells and delivers goods to P. S afterward requests C to forbear to sue P for the debt for a
year. He promises that if C does so, he will pay for the goods In default of payment by P. C
agrees to forbear as requested. This is sufficient consideration for S’s promise.
(c) C sells and delivers goods to P. S, afterward without consideration, agrees to pay for them in
default of P. The agreement is void.
4. Writing not necessary. A guarantee may be either oral or written (Sec. 126). It may be
express or implied guarantee may be inferred from the course of conduct of the parties
concerned. But in England, a guarantee must be in writing and signed by the party to be charged.
A guarantee is not a contract of uberrimaefidei

A contract of guarantee is not a contract of uberrimaefidei, i.e., one ‘requiring full disclosure of
all material facts by the principal debtor or creditor to the surety before the contract is entered
into. Fraud on the part of the principal debtor is not enough to set aside the contract unless the
surety can show that the creditor or his agent knew of the fraud and vas a party to it. When a
guarantee Is given to a banker, there is no obligation on the banker to inform the Intending
surety, f matters affecting to the credit of the debtor, or any circumstances connected with the
transaction which render the position of the surety more hazardous [Wythesv. Labuchere,
(1859)3 De. G & J 593].

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Example: S guaranteed the account of P with the bank. P afterward drew on this side's account
and paid off an overdraft he had with another bank. Held the fact that the bank was suspicious
that p was defrauding S, and did not communicate its suspicions to S, did not discharge the
guarantee [National provincial bank of England v. Glanusk, (1913) 3 K.B. 335].
If the guarantee is like an insurance, as in a fidelity guarantee. All material facts must be
disclosed; otherwise, the surety can avoid the contract.
Example: C engaged p as a clerk to collect money for him. P misappropriated some of C’s
receipts and failed to account for them. This sum was made good by P’s relations and C agreed
to retain p in his service on having a fidelity guarantee. S gave his guarantee for Ps duly
accounting. C did not acquaint S with Ps previous dishonesty. Held, disclosure of Ps previous
dishonesty [London General Omnibus C.v. Holloway, (1992) 2 K.B. 72].
2.2.3 Invalid Guarantee:

1. Guarantee obtained by misrepresentation. Any guarantee which has been obtained
through misrepresentation made by the creditor, or with his knowledge and assent,
concerning a material part of the transaction, is Invalid (Sec. 142).
2. Guarantee obtained by concealment. Any guarantee which the creditor has obtained
through keeping silence as to material circumstances is Invalid (Sec. 143).
Examples: (a) C engages 4 as a clerk to collect money for him. P fails to account for some of hl
receipts and C, in consequence, calls upon him to furnish security for his duly accounting. S
gi4ies his guarantee for P’s duly accounting. C does not acquaint S with P’s previous conduct. P
afterward makes default. The guarantee is invalid.
(b) S guarantees to C payment for Iron to be supplied by him to P to the extent of 2,000 tons. P
and C have privately agreed that P should pay C Rs. 500 per ton beyond the market price, such
excess to be applied in liquidation of an old debt. This agreement is concealed from S. S is not
liable as a surety.
(3)Guarantee on contract that creditor shall not act on it until a co-surety joins. Where a
person gives a guarantee upon a contract that a creditor shall not act upon it until another person
has joined in it’ as co-surety, the guarantee is not valid if the other person does not join (Sec.
144). This means if the surety agrees to be only one of several co-sureties, he will not be liable
unless the others execute the guarantee.
Example: S2 signed a guarantee given to a bank which, on the face of’ it, was intended to be the
Joint and several guarantees of S1, S2, S3, and S4. S4 did not sign and he afterward died. The
bank did not ‘agree with S1, S2, and S3 to dispense with S4’s signatures. Held S2 was not liable
(National Provincial Bank of England v. Bracken bury, (1966) 22 T.LR 727}.
(4) Failure of consideration. Where in a contract of guarantee there is a failure of Consideration

as between the creditor and the principal debtor, the surety is discharged.
2.2.4 Distinction between a contract of indemnity and a contract of guarantee

Contract of Indemnity

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1. There are two parties to the contract, viz., the Indemnifier (promisor) and the indemnified
(promisee).
2. The liability of the indemnifier to the indemnified is primary and independent.
3. There is only one contract in the case of a contract of indemnity; there is a contract
between the Indemnifier and the Indemnified.
4. The Indemnifier doesn't need to act at the request of the Indemnified.
5. The liability of the Indemnifier arises only on the happening of a contingency.
6. An Indemnifier cannot sue a third party for loss in his name, because there is no privacy
of contract. He can do so only If there is an agreement in his favour.
Contract of guarantee
1. There are three parties to the contract viz., the creditor, the principal debtor, and the
surety.
2. The liability of the surety to the creditor as collateral or secondary, the primary liability is
that of the principal debtor.
3. In a contract of guarantee, there are free contracts: one between the principal debtor and
the creditor the second between the creditor and the surety and the third between the
surety and the principal debtor.
4. The surety must give the guarantee at the request of the debtor.
5. There is usually an existing debit or duty, the performance of which is guaranteed by the
surety.
6. A surety on discharging the debt due by the principal debtor, steps into the shoes of the
creditor. He can proceed against the principal debtor in his own right.
2.3 Bailment:
2.3.1 Introduction:
A ‘bailment’ is the delivery of goods by one person to another for some purpose upon a contract
that they shall when the purpose is accomplished, be returned or disposed of according to the
directions of the person delivering them. The person delivering the goods is called the ‘Bailer’
and the person to whom the goods are delivered is called the ‘bailee’.
Examples of a contract of bailment are: delivering a watch or radio for repair; leaving a car or
scooter at a parking stand; leaving luggage in a cloakroom; delivering gold to a goldsmith for
making ornaments; leaving garments with a dry cleaner and so on. The essence of bailment is the
transfer of possession. The ownership remains with the owner. There cannot be a bailment of
immovable property. A ‘pledge’ is a bailment of goods where the goods are delivered as a
security for payment of a debt or performance of a promise. The Bailer is called the ‘pledgor’ or
‘pawnor’ and the bailee is called the ‘pledgee’ or ‘pawnee’. Thus, the pledge is a special kind of
bailment. Pledge can be made only of movable properties. To make the pledge legally valid the
pledgor must have the legal right or title to retain the goods.
2.3.2 Meaning and Definition

According to Section 148 of the Contract Act — “A bailment is the delivery of goods by one
person to another for some purpose, upon a contract that they shall, when the purpose is

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accomplished, be returned or otherwise disposed of according to the directions of the person

delivering them.”
The person delivering the goods is called the ‘Bailer,’ the person to whom they are delivered is
called the ‘bailee,’ and the transaction is called the ‘bailment. ‘A ‘bailment’ is thus delivery of
goods on condition that the recipient shall ultimately restore them to the Bailer or dispose of
them according to the directions of the Bailer. Common examples of bailment are hiring of
goods, furniture or a cycle, delivering of cloth to a tailor for making a suit, delivering a watch or
scooter for repair, depositing goods for safe custody, etc.
A ‘bailment’ is thus delivery of goods on condition that the recipient shall ultimately restore
them to the Bailer or dispose of them according to the directions of the Bailer. Common
examples of bailment are hiring of goods, furniture or a cycle, delivering of cloth to a tailor for
making a suit, delivering a watch or scooter for repair, depositing goods for safe custody, etc.
2.3.3 Essential features:

From the definition given by Section 148 it follows that a bailment has the following
characteristic features:
1. It is a delivery of movable goods by one person to another person (not being his servant).
Section 149 explains the mode of delivery to the bailee and states that the delivery of goods may
be either ‘actual’ or ‘constructive’. When the Bailer hands over to the bailee physical possession
of the goods, that is called ‘actual delivery.’ ‘Constructive delivery,’ on the other hand, does not
involve handing over the physical possession, but something is done which has the effect of
putting the goods in the possession of the bailee. For example, goods stored in a warehouse can
be delivered by handing over the key of the warehouse, or goods in transit, e.g., when they are at
sea or on a railway, can be delivered by handing over the bill of lading or the railway receipt
representing the goods.
2. The goods are delivered/or some purpose. When goods are delivered by mistake without any
purpose, there is no bailment within the meaning of its definition in Section 148.
3. The goods are delivered subject to the condition that when the purpose is accomplished the
goods are to be returned in specie or disposed of according to the directions of the Bailer,
either in their original form or in an altered form. It is to be emphasized that bailment is
concerned with only movable goods. Money is not included in the category of movable goods.
Thus a deposit of money with a banker is not a bailment because there is no obligation to
return the identical money. But if notes and coins are deposited in a box for safe custody, it is
a bailment as they are to be returned in specie.
2.3.4 Kinds of Bailment

Bailment may be classified from (i) benefit, and (ii) reward to the parties.
Kinds from the ‘benefit’ point of view. From the ‘benefit’ point of view, bailment can be
grouped into three classes;
1. Bailment for the exclusive benefit of the Bailer, e.g., Bailer leaves goods in the safe custody
of the bailee without any compensation to be paid.

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2. Bailment for the exclusive benefit of the bailee, e.g., a loan of some article. Thus where A
borrows B’s fountain pen to use in the examination hall, the bailment is for the sole benefit
of A, the bailee.
3. Bailment for the mutual benefit of the Bailer and the bailee. It is the most common type of
bailment. Contracts for repair, hire, etc., fall within this class, wherein the Bailer receives
the benefit of service and the bailee benefits by the receipt of the agreed charges.
Kinds from the ‘reward’ point of view. Bailment may also be classified based on ‘reward’ into:
1. Gratuitous bailment. It is one in which neither the Bailer nor the bailee is entitled to any
remuneration, e.g., loan of a book to a friend, depositing of goods for safe custody without
any charge.
2. Non-gratuitous bailment. It is also called as a ‘bailment for a reward.’ Here, either the Bailer
or the bailee is entitled to remuneration, e.g., the motor car let out for hire, cloth given for
tailoring for charges.
Difference between ‘Sale’ and ‘Bailment’

In the case of a ‘sale’, the ownership is transferred to the buyer and the buyer is under no
obligation to return the goods, but in the case of a ‘bailment’ the ownership in goods is not
transferred to the bailee and he is bound to return the goods in specie.
The explanation to Section 148 points out that ‘if a person already in possession of the goods of
another, contracts to hold them as a bailee, he thereby becomes the bailee, and the owner (i.e.,
the buyer) becomes the Bailer although such goods may not have been delivered by way of
bailment.’ Thus, where A sells a cycle to B but B leaves it in A’s possession till the completes
his other shopping, A becomes a bailee although originally he was the owner.
Difference between ‘Bailment’ and ‘License’

A contract of ‘license’ is that under which one party is permitted to place his goods on the
premises belonging to the other party. It is to be noted that in a contract of a license, there is no
delivery of goods to the licenser. The licenser merely permits the licensee to use the licenser’s
place for keeping the licensee’s goods. Thus, in a contract of a license, the goods are not
delivered to the licenser, while in bailment the goods are delivered to the bailee and the bailee is
responsible for their safety.
Illustration: A went to see a horse race. He parked his car in a field belonging to a farmer, who
gave a ticket to him. After the race was over, A returned to the field and found that the car had
been stolen. A filed a suit against the farmer. In defense, the farmer argued that he was not the
bailee of the car and therefore he was under no obligation to look after the safety of the car.
He had merely permitted A to use his field for parking the car. It was held, that this was a
contract of license and not of bailment and the farmer was under no obligation to look after A’s
car. The car had not been delivered to the farmer; as such he was not liable for any damage or
penalty. (Of course, the licenser should not be a party to the theft, i.e., he should not cooperate
with the thieves).
2.3.5 Rights and Duties of Bailer and Bailee:

Rights of Bailee

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1. Enforcement of Bailer’s duties. The duties of the Bailer are the rights of the bailee. As such,
the bailee can, by suit, enforce the duties of the Bailer enumerated above. To recapitulate, the
bailee has the following rights against the Bailer (based on the Bailer’s duties discussed
above):
(i) The right to claim damages for loss arising from the undisclosed faults in the goods
bailed (Sec. 150).
(ii) The right to claim reimbursement for extraordinary expenses incurred concerning the
thing bailed (Sec. 158).
(iii) Right to indemnity for any loss suffered by him because of the defective title of the
Bailer to the goods bailed (Sec. 164).
(iv) The right to claim compensation for expenses incurred for the safe custody of the goods
if the Bailer has wrongfully refused to take delivery of them after the term of bailment is
over.
2. The right to deliver goods to one of several joint Bailers (Sec. 165). Where goods have
been bailed by several joint owners, the bailee has a right to deliver them to, or according to
the directions of, one joint owner without the consent of all, in the absence of any agreement
to the contrary.
3. The right to deliver goods, in good faith, to Bailer without title (Sec. 166). The bailee has a
right to deliver the goods, in good faith, to the Bailer without title, without incurring any
liability towards the true owner.
4. Right of lien. The right to retain possession of the property or goods belonging to another
until some debt or claim is paid is called the right of lien. The right depends on possession and
is lost as soon as possession of the goods is lost. As such it is also called ‘possessory lien.’
Liens may be of two types—‘particular’ and ‘general.’
‘Particular lien’ means the right to retain only that particular property in respect of which the
charge is due.
‘General lien’ means the right to retain all the goods of the other party until all the claims of the
holder against the party are satisfied. In other words, this is a right to retain the goods of another
as a security for a general balance of the account.
Bailee’s particular lien: Section 170 confers the right of particular lien upon a bailee and
provides that “where the bailee has, by the purpose of the bailment, rendered any service
involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a
contract to the contrary, a right to retain such goods until he receives due remuneration for the
services he has rendered in respect of them”.
Thus a bailee has a particular lien when the following conditions are fulfilled:
(i) The bailee must have rendered some service to the thing bailed and must be entitled to
some remuneration for it, which must not have been paid.
(ii) The service rendered by the bailee must be one involving the exercise of labour or skill in
respect of the goods bailed, to confer an additional value on the article.

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Illustration [(a) appended to Sec. 170]: A, delivers a rough diamond to B, a jeweller, to be cut
and polished which is accordingly done. B is entitled to retain the stone until he is paid for the
services he has rendered. (Jeweller’s labour and skill must have enhanced the value of the stone.)
It is to be emphasized that there is no lien if the labour and skill exercised by the bailee do not
improve the value of the goods bailed. Thus a person who takes a horse for feeding and keeping
at his stable has no lien for his charges because no additional value has been added to the horse
by his labour (Hutton vs. Car Maintenance Co.). Similarly, there is no lien for safe custody
charges because there is no exercise of labour or skill (VithobavsMaruthi). In such cases, the
bailee can only sue the Bailer for the charges due.
(iii) The services must have been performed in full under the directions of the Bailer, within the
agreed time or a reasonable time.
Illustration: A gives his watch to B for repair. B promises A to deliver the watch on the third
day. But B takes one week to repair it, B is not entitled to retain the watch until he is paid.
(iv) There must not be an agreement to perform the service on credit.
Illustration [(b) appended to Sec. 170]: A gives cloth to B, a tailor, to make into a coat. B
promises A to deliver the coat as soon as it is finished and to give a three months’ credit for the
price. B is not entitled to retain the coat until he is paid.
(v) The goods must be with bailee. If possession is lost, the lien is also lost.
(v) There must not be a contract to the contrary.

If all the above-mentioned conditions are satisfied, the bailee can exercise his right of particular
lien until he is paid for his services.
The following points must also be noted in connection with the bailee’s particular lien:
(a) The bailee retaining the article to enforce his lien cannot charge for keeping it.
(b) The bailee cannot exercise his lien for the non-payment of extraordinary expenses
incurred about the thing bailed. He should sue them.
Besides the bailee, other persons who are entitled to exercise the right of particular lien are the
finder of goods (Sec. 168), pawnee (Secs. 173-174), agent (Sec. 221), and the unpaid seller (Sec.
47 of the Sale of Goods Act).
Rights of Bailer
1. Enforcement of bailee’s duties. The duties of the bailee are the rights of the Bailer. The
Bailer can enforce by suit all the duties of the bailee (already discussed) as his rights. To
recapitulate, the Bailer has the following rights against the bailee (based on the bailee’s
duties discussed earlier):
(i) The right to claim damages for loss caused to the goods bailed by bailee’s negligence
(Sec. 151).

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(ii) The right to claim compensation for any damage arising from or during unauthorized
use of the goods bailed (Sec. 154).
(iii) The right to claim compensation for any loss caused by the unauthorized mixing of
goods bailed with his goods (Secs. 155-156).
(iv) The right to demand the return of goods as soon as the time for which they were bailed
has expired, or the purpose for which they were bailed has been accomplished (Sec.
160).
(v) The right to claim any natural accretion to the goods bailed (Sec. 163).
2. The right to terminate bailment if the bailee uses the goods wrongfully (Sec. 153). The
Bailer has a right to terminate the bailment, if the bailee does, about the goods bailed, any act
which is inconsistent with the terms of the bailment, although the term of bailment has not
expired or the purpose of bailment has not been accomplished.
Illustration (to Sec. 153): A gives on hire to B a horse for his riding. B drives the horse in his
carriage. The contract of bailment is voidable at the option of A.
3. The right to demand the return of goods at any time in case of gratuitous bailment (Sec.
159). When the goods are lent without reward (i.e., gratuitously), the Bailer can demand their
return whenever he pleases even though he lent them for a specified purpose or time and the
bailee is not guilty of wrongful use. But if the premature return of goods causes the bailee loss
over benefit derived by him from the use of such goods, the Bailer must indemnify the bailee
for the amount in which the loss occasioned exceeds the benefit derived.
Rights of Bailers and Bailee’s against Wrong-doers

If a third person wrongfully deprives the bailee of the use or possession of the goods bailed, or
does them any injury, the bailee is entitled to use such remedies as the owner might have used in
the like case if no bailment had been made; and either the Bailer or the bailee may bring a suit
against the wrong-doer for such deprivation or injury (Sec. 180). Whatever is obtained by way of
relief or compensation in any such suit, is to be apportioned, as between the Bailer and the
bailee, according to their respective interests (Sec. 181).
For example, if somebody forcefully takes possession of a coat from a tailor’s shop, then either
the tailor or the owner of the coat may sue the wrong-doer. If the tailor files the suit, he shall
handover the recovered amount, after deducting his tailoring charges, to the owner of the coat.
Duties of Bailee
A bailee is a person to whom the goods are delivered. His duties are as follows:
1. Duty to take reasonable care of goods delivered to him. Section 151 lays down this duty,
thus, “In all cases of bailment the bailee is bound to take as much care of the goods bailed to
him as a man of ordinary prudence would, under similar circumstances, take of his goods of
the same bulk, quality and value as the goods bailed.” In other words, the bailee must take
reasonable care of goods — namely the care which an average prudent man can be expected
to take care of his goods in similar circumstances. The bailee is not an insurer of goods bailed
to him. If despite reasonable care, the goods are lost or destroyed or deteriorated, without any
negligence on his part, he is not liable in respect of any damage to the goods. It is open to
parties to increase or decrease the obligations of the bailee in the matter of care by special

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contract. In the absence of any special contract, the standard of reasonable care will apply
(Sec. 152). Even where the liability of the bailee is increased to keep the goods safe from
thefts or accidents, he will not be liable for loss caused by State enemies or, by an act of God,
e.g., fire, lightning, flood, etc., or by communal riots (Sunder vs. Ram Swarupl).
It is important to note that under this duty of reasonable care, the bailee is also bound to take
reasonable steps to recover the goods if they have been stolen. Thus, where some goods were
stolen from the bailee’s custody without his fault, but he made no efforts whether by informing
the owner or the police to recover them, he was held liable (Coldman vs. Hill). Also, note that
the degree of care required from the bailee is the same whether the bailment is gratuitous or for a
reward.
2. Duty not to make unauthorized use of goods entrusted to him (Sec. 154). The bailee must
use the goods strictly under the terms of the bailment. If he makes unauthorized use of the
goods, he is liable to make compensation to the Bailer for any damage arising to the goods
from or during such use of them. This liability is absolute. It arises even if the bailee is not
guilty of any negligence, or the damage is the result of an act of God or an inevitable
accident. Besides, as per Section 153, the Bailer can also terminate the bailment if the bailee
makes unauthorized use of goods.
Illustrations:
(a) A hired a horse for riding to the Exhibition ground. On the Exhibition ground, the horse
was frightened by the crowd and ran into a ditch and injured itself. The bailee (i.e., A) of
the horse was not to be blamed for the accident. He is not liable for the injury to the
horse.
(b) A hired a horse for riding to the Exhibition ground. But later on, he went riding in a
different direction in violation of the contract. During the ride, the horse became
frightened and ran into a ditch and injured itself. A the hirer was not to be blamed for the
accident, but he is liable to the Bailer for the injury to the horse because he made
unauthorized use of the horse.
(c) A lends a horse to B for his riding only. B allows C, a member of his family, to ride the
horse. C rides with care, but the horse accidentally falls and is injured. B is liable to make
compensation to A for the injury done to the horse. [Illustration (a) to Section 154]
(d) A goldsmith accompanied by his wife went from his village to another village to attend a
marriage. The goldsmith took with him some ornaments entrusted to his care by
customers. The object was to enable his wife to wear the ornaments at the marriage. On
the way, a gang of robbers attacked them and took away all their goods including the
ornaments. The goldsmith was held liable to the customers for the price of ornaments
because he had made unauthorized use of the goods entrusted to his care.
3. Duty not to mix goods bailed with his goods. It is also the duty of a bailee that he should not
mix his goods with those of the Bailer, without Bailer’s consent. If the goods are mixed with
the consent of the Bailer, there is no breach of duty, and the Bailer and the bailee shall have an
interest, in proportion to their respective shares, in the mixture thus produced (Sec. 155). But
if the bailee, without the consent of the Bailer, mixes up his goods with those of the Bailer,
whether intentionally or accidentally, the following rules apply:

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(a) Where the goods can be separated or divided, the property in the goods remains in the
parties respectively, but the bailee is bound to bear the expenses of separation as well as
any damage arising from the mixture (Sec. 156).
Illustration (to Sec. 156): A bails 100 bales of cotton marked with a particular mark to
B. B, without A’s consent, mixes the 100 bales with other bales of his own, bearing a
different mark. A is entitled to have his 100 bales returned, and B is bound to bear all the
expenses incurred in the separation of the bales, and any other incidental damage.
(b) Where the goods mixed cannot be separated, the bailee must compensate the Bailer for
his loss (Sec. 157).
Illustration (to Sec. 157): A bails a barrel of Cape flour worth Rs 45 to B. B, without
A’s consent mixes the flour with country flour of his own, worth only Rs 25 a barrel. B
must compensate A for the loss of his flour.
4. Duty to return the goods. Section 160 lays down this duty in the following terms: “It is the
duty of the bailee to return, or deliver, according to the Bailer’s directions the goods bailed,
without demand, as soon as the time for which they were bailed has expired, or the purpose
for which they were bailed has been accomplished.” Where there are several joint Bailers, the
bailee may return the goods to any one of the joint owners (Sec. 165). When the bailee fails to
return the goods at the proper time, he becomes responsible to the Bailer for any loss,
destruction, or deterioration of the goods from that time (Sec. 161). It is important to note that
if the goods are not returned at the proper time, the bailee is liable for the loss occurring
thereafter even without his negligence, i.e., by an act of God. Of course, this is in addition to
the bailee’s liability for ordinary damages for breach of contract of bailment.
Illustration: A hires a horse from B for one week. But A defaults in returning the horse on
the due date. The horse dies one day after the expiry of the period of bailment without any
fault on A’s part. A is liable for the price of the horse to B, along with damages for the delay.
(If the horse dies within one week, i.e., before the expiry of the period of bailment without A’s
negligence, A is not liable for the price.)
5. Duty to deliver any accretion to the goods (Sec. 163). The bailee must deliver to the Bailer
any natural increase or profit accruing from the goods bailed unless there is a contract to the
contrary.
Illustration (appended to Sec. 163): A leaves a cow in the custody of B to be taken care of.
The cow has a calf. B is bound to deliver the calf as well as the cow to A.
Duties of Bailer:
A Bailer is a person who delivers the goods. His duties are as follows:
1. Duty to disclose faults in goods bailed. Section 150 lays down this duty. The Section makes
a distinction between a gratuitous Bailer and a Bailer for reward and provides as follows:
(a) A gratuitous Bailer is bound to disclose to the bailee all those faults in the goods bailed, of
which he is aware and which materially interfere with the use of them, or expose the
bailee to extraordinary risks, and if he fails to do so, he will be liable to pay such damages
to the bailee as may have resulted directly from the faults. A gratuitous Bailer will not be
liable for damages arising to the bailee from defects of which he was ignorant.

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Illustration (to Sec. 150): A lends a horse, which he knows to be vicious, to B. He does
not disclose the fact that the horse is vicious. The horse runs away. B is thrown and
injured. A is responsible for B to the damage sustained.
(b) A Bailer for reward is responsible for all defects in the goods bailed whether he is aware
of the defects or not if he does not disclose them to the bailee. Unlike a gratuitous Bailer,
ignorance of the defects is no defense for him.
Illustration (to Sec. 150): A hires a carriage of B. The carriage is unsafe though B is not
aware of it, and A is injured. B is responsible for the injury of A. (If the carriage were
lent gratuitously, B would not be liable under the circumstances. Similarly, had B told the
fault to A, and then also he would not be liable.)It may be mentioned that where the
goods bailed are dangerous, the Bailer has to disclose the fact to the bailee otherwise he
will be liable for all the resulting damage (Great Northern Rly. vs L.E.P. Transport Ltd.).
For example, A delivers to B, a carrier, some explosives in a case but does not warn B.
The case is handled without extra care necessary for such articles and there is an
explosion. The carrier is injured and some other goods are damaged. A the Bailer is liable
for all the resulting damage.
2. Duty to repay necessary expenses in case of gratuitous bailment (Sec. 158). Where, by
the conditions of the bailment, the goods are to be kept or to be carried or to have work done
upon them by the bailee for the Bailer, and the bailee is to receive no remuneration, it is the
duty of the Bailer to repay all the necessary expenses incurred by the bailee for the bailment.
Thus where a horse is bailed without reward for safe custody, the Bailer must reimburse the
bailee for usual feeding expenses of the horse as well as for the medical expenses, if any.
3. Duty to repay any ‘extraordinary’ expenses in case of non-gratuitous bailment. Where

under the terms of the bailment, the bailee is to receive remuneration for his services, the
Bailer must bear extraordinary expenses, if any, incurred by the bailee to the thing bailed. In
such a bailment the Bailer is not to bear the ordinary or usual expenses. Thus where a horse
is bailed for safe custody and the bailee is to receive Rs 80per day as custody charges, the
Bailer is not liable to repay the bailee the ordinary expenses of feeding the horse. But if
during the bailee’s custody the horse falls ill without any negligence on his part, the Bailer
must repay the bailee the medical expenses incurred in connection with the treatment of the
horse, these being extraordinary expenses.
4. Duty to indemnify bailee (Sec. 164). A Bailer is also bound to indemnify the bailee for any
loss suffered by the bailee because the Bailer was not entitled to bail the goods because of the
defective title.
Illustration: A gives his neighbour’s scooter to B for use without the neighbour’s
permission. The neighbour sues B and receives compensation. A is bound to indemnify B for
his losses.
5. Duty to receive back the goods. The Bailer must receive back the goods when the bailee
returns them after the time of bailment has expired or the purpose of bailment has been
accomplished. If the Bailer refuses to take delivery of goods when it is offered at the proper
time, the bailee can claim compensation for all necessary expenses of, and incidental to, the

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safe custody. carrier, some explosives in a case but does not warn B. The case is handled
without extra care necessary for such articles and there is an explosion. The carrier is injured
and some other goods are damaged. A the Bailer is liable for all the resulting damage.
Termination of Bailment
A contract of bailment terminates under the following circumstances:
1. If the bailment is for a ‘specified period,’ the bailment terminates as soon as the
stipulated period expires.
2. If the bailment is for a ‘specific purpose,’ the bailment terminates as soon as the purpose
is fulfilled.
3. If the bailee does any act concerning the goods bailed, which is inconsistent with the
terms of bailment, the bailment may be terminated by the Bailer even though the term of
bailment has not expired or the purpose of bailment has not been accomplished(Sec.
153).
4. A gratuitous bailment can be terminated by the Bailer at any time, even before the
specified time or before the purpose is achieved, subject to the limitation that where such
termination causes loss over benefit derived by the bailee, the Bailer must indemnify the
bailee for the amount in which the loss occasioned exceeds the benefit derived(Sec. 159).
5. A gratuitous bailment is terminated by the death either of the Bailer or the bailee(Sec.
162)
2.4 Pledge:
2.4.1 Meaning:
The bailment of goods as security for payment of a debt or performance of a promise is called
‘pledge’. The bailer, in this case, is called the ‘pledger’ or ‘pawnor’ and the bailee is called the
‘pledgee’ or ‘pawnee’ (Sec. 172).
A pledge is a bailment for security. It is a special kind of bailment. If A borrows Rs. 200 from B
and keeps his watch as security for payment of the debt, the bailment of a watch is a pledge. Any
kind of movable property, i.e., goods, documents, or valuables may be pledged. Even a Savings
Bank Pass Book may be pledged [J. &K. Bank v. Tek Chand, A.I.R (1959) J. & K. 671. But
delivery is necessary to complete a pledge.
The delivery may be actual or constructive. If, because of the bulk of the property or for some
other reason, actual delivery is Impracticable, a symbolic delivery will suffice (for example
delivery of the keys to a safe deposit box).
Example: The producer of a film borrowed a sum of money from a financier-distributor and
agreed to deliver the final prints of the film when ready. Held, the agreement was not a pledge,
there being no actual transfer of possession Revenue Authority v. Sudarshan pictures, AIR.
(1968) Mad. 319.
2.4.2 Essential features of a Valid Pledge:

The legal definition of pledge, discussed in the last article, reveals the essential feature of the
pledge which is as under:

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1. Delivery of possession: It is an essential and important element of a valid pledge that the
possession of the goods must be delivered by the pawnor to the Pawnee. It may be noted that
only the possession of the goods passes from one person to another and not the ownership. The
ownership remains with the pawnor. If the possession is not delivered then there cannot be a
valid pledge.
The delivery of possession to the Pawnee may be of two kinds (a) actual delivery, (b)
constructive delivery. Actual delivery means the delivery of physical possession. And
constructive delivery means when there is no change in physical possession. The delivery of
keys of a go down where the goods are stored is constructive delivery. Similarly, the delivery of
documents of titles which enables the Pawnee to obtain the possession is the constructive
delivery of goods.
2. Delivery should be upon a contract:

It is another essential element of a valid pledge that the delivery of possession should be made in
pursuance of a contract of pledge. Thus, the delivery of goods should be made to create a pledge.
It is, however not necessary that the delivery of the goods and the advance of money (i.e.) should
be simultaneous. Delivery may be made before or in contemplation of advance. In such cases, a
valid pledge results as soon as the advance is made. The delivery may also be made after getting
the advance. In such cases, a valid pledge results as soon as the goods are delivered.
3. Delivery should be for security:

The goods should be delivered by one person to another by way of security. The Pawnor should
deliver the goods to the Pawnee as a security for the payment of a loan or the fulfillment of an
obligation. It may be noted that this particular essential element distinguishes the pledge from
other similar, transactions. Thus, where the object of delivery of goods is to provide security for
the payment of a loan, the transaction is a pledge. And where the delivery is for some other
purpose then it may be a bailment and not a pledge.
4. Delivery should be upon a condition to return:

It is also an important element of a valid pledge. The goods should be delivered to the Pawnee as
a security for some loan or the fulfillment of the promise. When such a loan is repaid or promise
is fulfilled, the security should be returned to the Pawnor.
2.4.3 Rights and duties of pawnor and pawnee

The rights and duties of pawnor and Pawnee are almost similar to those of bailor and bailee. But
the rights of the Pawnee and Pawnor need a special mention.
Rights of Pawnee
1. Right of retainer. The Pawnee may retain the goods pledged until his dues are paid. He may
retain them not only for the payment of the debt or the performance of the promise, but for
(a) the Interest due on the debt, and (b) all necessary expenses incurred by him In respect of
the possession or for the preservation of the goods pledged (Sec. 173). He can however
exercise only a particular hen over the goods.

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2. Right of retainer for subsequent advances. When the Pawnee lends money to the same
pawnor after the date of the pledge, it is presumed that the right of retainer over the pledged
goods extends to subsequent advances also. This presumption can be rebutted only by a
contract to the contrary (Sec. 174).
3. Right to extraordinary expenses. The Pawnee is entitled to receive from the pawnor
extraordinary expenses incurred by him for the preservation of the goods pledged (Sec. 175).
For such expenses, he has no right to retain, the goods; he can only sue to recover them.
4. Right against true owner when the pawnor title is defective. When the pawnor has
obtained possession of the goods pledged by him under a voidable contract (Le., by fraud,
undue influence, coercion, etc.) but the contract has not been rescinded at the time of the
pledge, the pawnee acquires a good title to the goods, provided he acts in good faith and
without notice of the pawnor defect of the title (Sec. 178-A).
5. Pawnee’s rights where pawnor makes default (Sec. 176). Where the pawnor fails to
redeem his pledge, the Pawnee can exercise the following rights:
1) He may file a suit against the pawnor upon the debt or promise and may retain the goods
pledged as collateral security.
2) He may sell the goods pledged after giving the pawnor a reasonable notice of the sale. Of
these two rights, while the right to retain or sell the pawned goods is not concurrent, the
right to sue and sell are concurrent rights, I.e., the pawnee may sue and at the same time
retain the goods as concurrent security or sell them after giving reasonable notice of the
sale to the pawnor [Harldas Mundrav. National & Grindlays Bank Ltd., A.I.R. (1963)
Cal. 1321.
3) He can recover from the pawnor any deficiency arising on the sale of the goods by him.
But he shall have to hand over the surplus, if any, revised on the sale of the goods to the
pawnor.
Rights of pawnor
1. Right to get back goods. On the performance of promise or repayment of loan and
interest, if any, the pawnor is entitled to get back the goods pledged.
2. The right to redeem the debt. Quite often time is stipulated for the payment of the debt,
or performance of the promise, for which the pledge is made. In such a case If the pawnor
makes default in payment of the debt or performance of the promise at the stipulated
time, he may still redeem the goods pledged at any subsequent time before the actual sale
of them; but he must, In that case, pay besides any expenses which have arisen from his
default (Sec. 177).
3. Preservation and maintenance of the goods. The pawnor has a right to see that the
Pawnee, like bailee, preserves the goods pledged and properly maintains them.
4. Rights of an ordinary debtor. The pawnor has, in addition to the above rights, the rights
of an ordinary debtor which are conferred on him by various Statutes meant for the
protection of debtors.
2.4.4 Pledge by non-owners

The general rule is that It is the owner who can ordinarily create a valid pledge. But In the
following cases even a non-owner can create a valid pledge:
1. Pledge by a mercantile agent. Where a mercantile agent is, with the wisent of the owner, in

Business law
possession of goods or the documents of title to goods, any pledge made by him, when acting in
the ordinary course of business of a mercantile agent, It is valid as If he were expressly
authorized by the owner of the goods to make the same. But the pledge Is valid only If the
pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has not the
authority to pledge (Sec. 178).
The term ‘mercantile agent’ is defined in Sec. 2 (9) of the Sale of Goods Act, 1930, thus:
“Mercantile agent means a mercantile agent having In the customary course of business as such
agent authority either to sell goods, or to consign goods for sale, or to buy goods, or to raise
money on the security of goods.”
2. Pledge by seller or buyer in possession after the sale. A seller left in possession of goods
after the sale and a buyer who obtains possession of goods with the consent of the seller before a
sale can create a valid pledge provided the pawnee acts In good faith and have no notice of the
previous sale of goods to the buyer or of the lien of the seller over the goods (Sec. 30 of the Sale
of Goods Act, 1930).
Example. S sells 100 bags of wheat to B, delivery, and payment of the price to be made lx the
next three months. Before the goods are delivered to B, S pledges the goods with P who acts
Bonafide and has no notice of the prior sale. The pledge is valid.
3. Pledge where pawnor has limited interest. Where a person pledges goods in which he has
only a limited interest, the pledge Is valid to the extent of that interest (Sec. 179). A person
haying alien over the goods or a finder of goods may pledge the to the extent of his Interest
Example. F finds a pen on a road and pledges it with P for Rs.20. F had, however, Incurred Rs.
10 in getting the pen repaired. The owner can get the pen by paying Rs. 10 to P. the pledgee
4. Pledge by co-owner in possession. One of the several co-owners goods in possession thereof
with the asset of the ether co-owners may create a valid pledge of the goods.
5. Pledge by a person in possession under a voidable contract. where a person obtains

possession of goods under a voidable contra4, the pledge created by him Is valid provided (1) the
contract has not been rescinded before the contract, pledge and (2) the pawnee acts In good faith
and without notice of the pawnor defect of the title (Sec. 178-A).
2.4.5 Difference between Pledge and Bailment

1. Pledge is the bailment of goods as a security for the performance of a specific promise, i.e.,
the payment of a debt or performance of a promise. Bailment, on the other hand, is for any kind.
2. In case of default by the pawnor to repay the debt, the Pawnee may, after giving notice to the
pawnor, sell the goods pledged with him. The bailee may either retain the goods or sue for his
charges.
3. In case of pledge, the Pawnee has no right to use the goods pledged with him. In the case of
bailment, the bailee may do so if the terms of bailment so provide.

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1.15 Summary:
 Law refers to the principles and regulations established by a Government and applies to
people, whether in the form of legislation or of custom and policies recognized and
enforced by judicial decision.
 Business law: also called commercial or mercantile law, is a branch of the legal system
which regulates business activities.
 The important sources of business law are Legislation, Custom, Case law, Natural law,
English law.
 A contract is an agreement enforceable by law – give rise to legal obligation. Social
obligation, no contract.
 An agreement which is enforceable by law at the option of one or more of the parties, but
not at the option of others or others is a voidable contract
 When at the desire of the promisor, the promisee or any other person has done/abstained
from doing or promises to do or abstain from doing something - such act or abstinence or
promise is called a consideration for the promise.
 An agreement is valid and enforceable only if the parties are competent to enter into a
valid contract
 A minor is a person who has not completed 18 years of age.
 The consent of the parties means that there is a perfect identity of minds of both the
parties i.e, there is no misunderstanding between the parties regarding the subject matter
of the contract
 The legality of object and consideration for a contract means that it must be lawful.
 Discharge of a contract means that the parties are no more liable under the contract is said
to be discharged or terminated
 The process of enforcing the rights is known as remedies for breach of contract.
 A contract by which one party promises to save the other from loss, caused to him by the
contract of the promisor himself or by the conduct of any other person, is called a contract of
indemnity.
 Few features of indemnity are Anticipated loss, Requirements of a valid contract, To save
another party, Covers only the actual loss, May be express or implied, Depend on good faith.
 A ‘contract of guarantee’ is a contract to perform the promise, or discharge the liability, of a
third person in case of his default.
 The person who gives the guarantee is creditor the ‘surety’, the person in respect of whose
default the guarantee is given is called the ‘principal debtor’, and the person to whom the
guarantee is given is called the ‘creditor’.
 A contract of guarantee must have all the essential elements of a valid contract.
 A bailment is a delivery of goods by one person to another for some purpose, upon a contract
that they shall, when the purpose is accomplished, be returned or otherwise disposed of
according to the directions of the person delivering them.
 It is essentially the delivery of movable goods by one person to another person (not being his
servant). The goods are delivered/or some purpose

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 Rights of Bailee are- Enforcement of Bailer’s duties, Right to deliver goods to one of several
joint Bailers, Right to deliver goods, in good faith, to Bailer without title, Right of lien, etc.
 The bailment of goods as security for payment of debt or performance of a promise is called
‘pledge’.
 The bailor is, In this case, called the ‘pawnor or ‘pledger’ and the bailee are called the
‘pawnee or ‘pledgee’ (Sec. 172).
 Rights of Pawnee. (1) Right to retain goods for debt, interest, and expenses, and subsequent
advances. (2) Right to extraordinary expenses. (3) Right against true owner when the pawnor
title is defective. (4) Rights where pawnor makes default - (a) Suit against the pawnor.
(Retention of the goods as collateral security) (c) Suit for the sale of the goods pledged. (d)
Right of sale. (e) The right to recover deficiency on sale.
 Pledge by non-owners. The general rule is that it is the where who can ordinarily create
a valid pledge. But in the following cases pledge even by a non- owner is valid (1) Pledge
by a mercantile agent. (2) Pledge by seller or buyer in possession after the sale. (3)
Pledge by a person having limited interest. (4) Pledge by a co-owner in possession. (5)
Pledge by a person in possession under a voidable contract
1.16 Terminal Questions:
2 Marks Questions
1. What is an Agreement?
2. Define Business Law?
3. Define Contract.
4. What is an Offer?
5. What is Acceptance?
6. What is a Consideration?
7. What is the Revocation of Offer?
8. What is Capacity to Contract?
9. Who is a Minor?
10. Who is a person of an Unsound Mind?
11. Who is an Alien enemy?
12. What is Coercion?
13. What is Undue influence?
14. What is a Mistake?
15. What is Fraud?
16. What is Misrepresentation?
17. What is Novation?
18. What is Restitution?
19. What is Injunction?
20. What is Rescission?
21. What is a Waiver?
22. What is Supervening impossibility?
23. What is Commercial impossibility?
24. What is Quantum merit?
25. What are Punitive damages?
26. What is Indemnity?

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27. What are the kinds of contracts of indemnity?

28. What is Bailment?
29. Give an example of the contract of Indemnity.
30. What is the difference between bailment and license?
31. Define Contract of guarantee.
32. Define Pledge.
5 Marks Questions
1. What are the sources of Business law?
2. What are the essential elements of the contract act?
3. What are the essential elements of Offer?
4. What is exceptions to the fact “No consideration, No contract”
5. What are the effects of Minor’s agreement?
6. Who are the persons disqualified by law?
7. What is Free consent and which are the elements which affect the consent of the parties?
8. Explain the heads of public policy.
9. Explain the methods of discharge of contract by a fresh contract?
10. Explain the various types of Damages.
1. Briefly discuss the essentials of Indemnity.
2. What are the different kinds of bailment?
3. Describe the characteristic features of bailment.
4. Distinguish between a contract of Indemnity and a contract of guarantee.
5. Explain invalid Guarantee.
6. Distinguish between bailment and pledge.
7. When is a pledge created by non-owners valid?
11. When a pledger fails to redeem his pledge, what right does the pledgee have in the
pledge?
14 Marks Questions
1. Explain the essential elements of Offer and Acceptance.
2. Explain the essential elements of Consideration.
3. Who is a Minor? Explain the nature of a Minor’s agreement and the effects of a minor’s
agreement.
4. What is the Legality of an object and explain the various cases where the object and
consideration of an agreement are unlawful.
5. Explain the various modes of Discharge of Contract.
6. Explain the various types of remedies for breach of contract.
7. Discuss the rights and duties of indemnifier and Indemnity-Holder.
8. Describe the duties and responsibilities of a bailee.
9. Define Contract of guarantee. Explain the essential features of a contract of guarantee.
10. Define Pledge. What are the respective rights and duties of Pawnor and Pawnee?
1.17 Answers:

Business law
2 Marks Questions
1. (Refer sec 1.4)
2. (Refer sec 1.1)
3. ( Refer sec 1.4)
4. (Refer sec 1.7)
5. (Refer sec 1.7)
6. (Refer sec 1.9)
7. (Refer sec 1.8)
8. ( Refer sec 1.10)
9. (Refer sec 1.10)
10. ( Refer sec 1.10)
12. ( Refer sec 1.10)
13. ( Refer sec 1.11)
14. ( Refer sec 1.11)
15. ( Refer sec 1.11)
16. ( Refer sec 1.11)
17. ( Refer sec 1.11)
18. (Refer sec 1.13)
19. (Refer sec 1.1.3)
23. (Refer 1.1.3)
27. Ref Sec 2.1.2
28. Ref Sec 2.1.5
29. Ref Sec 2.3.2
30. Ref Sec 2.1.2
31. Ref Sec 2.3.4
32. Ref Sec 2.2.1
33. Ref Sec 2.4.1
5 Marks Questions
1. (Refer sec 1.2)
2. (Refer sec 1.4)
3. (Refer sec 1.7)
4. (Refer sec 1.9)
5. (Refer sec 1.10)
6. (Refer sec 1.10)
7. (Refer sec 1.11)
8. ( Refer sec 1.12)
9. (Refer sec1.13)

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11. Ref Sec 2.1.3

12. Ref Sec 2.3.4
13. Ref Sec 2.3.3
14. Ref Sec 2.2.4
15. Ref Sec 2.2.3
16. Ref Sec 2.4.5
17. Ref Sec 2.4.4
18. Ref Sec 2.4.3
14 Marks Questions
1. (Refer sec 1.7)
2. (Refer sec 1.9)
3. (Refer sec 1.10)
4. (Refer sec 1.12)
5. (Refer sec 1.13)
6. (Refer sec 1.14)
7. Ref Sec 2.1.3
8. Ref Sec 2.3.4
9. Ref Sec 2.3.3
10. Ref Sec 2.2.4
11. Ref Sec 2.2.3
12. Ref Sec 2.4.5
13. Ref Sec 2.4.4
14. Ref Sec 2.4.3
15. Ref Sec 2.1.3
16. Ref Sec 2.3.4
17. Ref Sec 2.3.3
18. Ref Sec 2.2.4
19. Ref Sec 2.2.3
20. Ref Sec 2.4.5
21. Ref Sec 2.4.4
22. Ref Sec 2.4.3
23. Ref Sec 2.1.4
24. Ref Sec 2.3.5
25. Ref Sec 2.2.1 & 2.2.2
26. Ref Sec 2.4.3
References:
1. N.D.Kapoor; Business Laws – Sultan Chand & Sons
2. K.Venkataramana, N.Krishna Reddy; Business Laws – Seven Hills Book Publications
3. Appanaiah & Reddy; Business Laws – Himalaya Publishing House.

Business law
Module 2
Sale of Goods Act 1930
Structure:
2.1 Introduction
2.2 Meaning of Contract of sale
2.3 Essential elements of a contract of sale

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2.4 Goods, types of goods

2.5 Differences between the sale of goods & Agreement to sale and other aspects.
2.6 Conditions & warranties
2.7 Rights of Unpaid seller.
2.8 Performance of Contract
2.9 Summary
2.10 Self-Assessment Questions
2.11 Terminal Questions
2.12 Answers
Learning Objectives
 To understand the various aspects of the sale of goods act.
 To understand the vital elements of a sale contract
 To understand the procedures of the Performance of a contract.
2.1 Introduction:
Originally, the law relating to the sale of goods was contained in chapter VII of the Indian
contract act, 1872. The same was repealed and re-enacted by the sale of goods act 1930. The act
came into force on 1st July 1930. The Indian sale of goods act closely follows the English sale of
goods act, 1893. It extends to the whole of India, except Jammu and Kashmir. It does not affect
rights, interests, obligations, and titles required or which accrued before the commencement of
the Act.
2.2 Meaning of Contract of Sale:
According to section 4, A contract of sale of goods is a contract whereby the seller;

1. Transfers the property in goods or
2. Agrees to transfer the property in goods, to the buyer,
3. For money/consideration called the price.
It shows that the expression “Contract of sale” includes both a sale where the seller transfers the
ownership of the goods to the buyer and an agreement to sell where the ownership of goods is to
be transferred at a future time or subject to some conditions to be fulfilled later on.
2.3 Essential elements of Contract of sale:
i. Bi-lateral contract – In this case of a contract or sale of goods, there is a contract which
has to be bi-lateral i.e. a minimum of 2 people must be existing to enter into the contract
i.e. the seller & the buyer. Both the parties in a contract of sale or complimentary but not
competitive.

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A buyer is a person who buys or agrees to buy. A seller is a person who sells or agrees to
sell.
Example; X is the owner of certain goods, but he does not know, A pretends to be the
owner of the goods and sells them to X. There is no sale, for X cannot buy the goods
which are already his own.
ii. Price – The buyer must on his part, consider the form of a price only, i.e. ‘money’. When
goods are exchanged for goods, it is not a sale but a barter system. However, for the sale
of goods, the buyer must tender consideration only in the form of a price i.e. money
which may not be adequate but it must be real.
iii. Goods – The seller must sell goods only. By goods means “movable property”.
Immovable property is not governed under this act.
iv. Transfer of general property – in this case of sale of goods, the seller must be in a
position to transfer the goods immediately. In case of an agreement to sell, the seller
should be in a position to transfer the goods subject to the conditions.
v. Mode-Acc to sec 5(2) subject to the provisions of any other law for the time being in
force, the contract of sale may be either in writing or by word of mouth or may be
implied from the conduct of the parties.
vi. Formation- Contract of sale may be made in any one of the following modes
 There must be an immediate delivery of goods,
 There must be an immediate payment of price but the delivery may be agreed to
be made at some point in time in the future.
 There must be immediate payment of the price and immediate delivery of goods.
 It may be agreed that the delivery or the payment or both may be made in future
time.
 It may be agreed that the delivery or payment or both may be made in particular
installments.
2.4 Goods:
According to section 2(7) “Goods” means every kind of movable property, other than actionable
claims & money and includes stock & shares, growing crops, grass & things attached to, or
forming part of the land which are agreed to be severed(cut off) before the sale or under a
contract of sale.
Thus, goods include every kind of moveable property other than actionable claims or money.
Things like goodwill, copyright, trademark, patents, water, gas, electricity, are all goods and
maybe the subject matter of the contract of sale. Although, in general, it is only moveable, i.e.,
things which can be carried from one place to another that form ‘goods”; all such things which
are part of the land itself but are agreed to be severed from the land under the contract, are
considered as goods. Thus, when trees were sold, to be cut and then taken away by the buyer, it
was held that there was a contract for the sale of moveable property.

Business law
Actionable claims are things that a person cannot make use of, but which can be claimed by him
through legal action, e.g., a debt.
Classification of goods
Goods
Existing goods future goods
Specific / ascertained goods unascertained/generic goods
Goods can be classified broadly as existing goods & future goods.

 Existing goods are goods that are either owned or possessed by the seller at the time of
contract. Sale of goods possessed but not owned by the seller would be by an agent or
pledge
Existing goods can be further classified as specific or ascertained&generic or unascertained

goods.
a) Specific goods are those which can be ascertained or identified at the time of contract of
sale.
b) Unascertained goods can be described but cannot be identified at the time of contract of
sale.
E.g. 5 kg of sugar out of 100 kg pack sold to the buyer is ascertained goods until the 5 kg are
separated from the main 100 kg pack.
1. Future goods are those which are not in existence at a time of contract of sale. However,
these goods will be manufactured or fabricated in the future after the contract of sale.
Example: An agreement to sell future crops of a particular filed implies all agreements to sell
future goods.
2. Contingent goods: Where there is a contract for the sale of goods the acquisition of which
by the seller depends upon a contingency which may or may not happen- such goods are
known as contingent goods. Contingent goods fall within the class of future goods.
Example: When A agrees to sell B a certain painting only if C, its present owner, sells it to him,
A. The painting is classified as contingent goods.
2.5 Sale and Agreement to sale:
Where the property in the goods is transferred from the seller to the buyer, the contract is a
‘sale’. A sale is an executed contract.
Example: A sells his motorcycle to B for Rs.10,000. It is a sale since the ownership of the
motorcycle has been transferred from A to B.

Business law
Where the transfer of property in the goods is to take place at a future time or subject to some
condition thereafter to be fulfilled the contract is called ‘an agreement to sell’
Example: A agrees to sell certain goods to B. The goods are on their way from London to
Bombay in a ship. This is an agreement to sell because the property in goods will pass to the
buyer when the goods come and the agreement is subject to the condition that the ship arrives in
the port with the goods.
The distinction between Sale and Agreement to sell

Basis Sale Agreement to sell
Type of contract executed contract executory contract
Where the general property is In this case, both the parties to the
already to the buyer i.e. one of the Contract have yet to perform their
parties has already performed his parts of the contract.
part of the contract. It is executed
contract
Agreement + The conveyance of property i.e. The conveyance or transfer of
conveyance ownership has already taken place general property or ownership in
at the time of agreement itself. the goods is yet to be transferred to
the buyer
Passing of risk of The risk in the goods passes along The seller who still has the
goods with the owner to the buyer who ownership in the goods shall be
shall suffer the loss in case the responsible for the goods unless
goods are destroyed even if the expressly otherwise contracted
possession of the goods was with between the parties.
the seller at the time of
destruction unless the contract
between the seller and the buyer
expressly states that the person in
possession shall suffer.
Remedy against In case the seller refuses to part In this case, the remedy against the
the seller with the goods, since the buyer is seller is a claim for compensation
already the owner he can enforce against the seller.
specific delivery of the goods.
Even if the seller has wrongfully
sold the goods to a third party, the
original buyer can enforce the
recovery of the goods from such
3rd party.
Claim for The seller may sue for recovering The unpaid seller can exercise his
damages the price. Also if the unpaid seller right to claim damages.
is still enjoying possession, he
can exercise a right of lien,
stoppage in transit & finally the
right to resell.

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Right in rem or A sale deed creates a ‘right in An agreement to sell creates a right
personam rem’. This right is a right on the in personam i.e. ‘a right only
goods against the whole world against the person’ for committing
default & no rights against the
goods.
Insolvency of Since the general property or The buyer is only entitled to claim
seller ownership is already transferred ‘ratable dividend’ or ‘ratable claim’
to the buyer, he is entitled to of the above paid by the buyer to
recover the goods from the seller. the seller.
Insolvency of In this case, the seller can only The seller may refuse to deliver the
buyer recover a ratable claim or goods unless the full price has been
dividend on goods. paid to him.
Differences between Sale and Hire purchase

Sale Hire purchase
Ownership is transferred from the seller to Ownership is transferred only when a certain
the buyer as soon as the contract is made. greed number of installments are paid.
The position of the buyer is of that of the The position of the hirer is that of the bailee.
owner.
The buyer has no right to terminate the The hirer has the option to terminate the
contract and is consequently is bound to pay contract at any stage and consequently is not
the price of the goods. bound to pay the remaining installments.
In case the sale is made on an installment The installments paid by the hirer are treated
basis the seller can recover the amount of the as hire charges and not considered payment
installment amount in arrears but he cannot towards the price of goods until he purchases
do anything with the goods. the goods.
2.6 Conditions and warranties:
The parties are at liberty to enter into a contract with any terms they please. As a rule, before a
contract of sale is concluded, certain statements are made by parties to each other. The statement
may amount to a stipulation, forming part of the contract or a mere expression of opinion, which
is no part of the contract. If it is a statement by the seller on the reliance on which the buyer
makes the contract, it will amount to stipulation. If it is a mere recommendation by the seller of
his goods, it does not amount to a stipulation and does not give rise of action.
The stipulation may either be a condition or a warranty
Condition Sec 12(2) – It is a stipulation essential to the main purpose of the contract, the breach
of which gives rise to a right to treat the contract as repudiated (cancel)
Warranty Sec12(3) – It is a stipulation collateral to the main purpose of the contract, the breach
of which gives rise to a right to claim damages, but not to reject the goods or to treat the contract
as repudiated.

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In every contract, there may be several stipulations. Some stipulations are essential for the
performance of the contract. If these stipulations are not abided by, the contract could not be said
to be materialized. Such stipulations are conditions. A breach of such a stipulation would,
therefore, entitle the aggrieved party to cancel or repudiate the contract.
However, if the stipulations are only incidental to the contract, then a breach of such stipulation
does not entitle the aggrieved party to cancel the contract. It shall allow him to claim
compensation.
It is not possible to define in absolute terms a stipulation to be a condition or a stipulation to be a

warranty. A condition in one case could be a warranty in any other case. Whether the stipulation
is condition or warranty depends upon each case individually to be judged upon the merits.
Condition to be treated as a warranty

A condition if a committed breach of, the other party has a right to repudiate the contract. But he
may also treat it as a warranty in the following situations:-
a) Waiver – If there is a breach of the condition by the seller, the buyer may waive the
condition. But, only he allows the waiver of the condition, he can’t afterward insist on the
fulfillment of a condition. However, he can claim compensation for the breach of such a
condition. The waiver may either be an express waiver or implied waiver.
b) The buyer elects to treat the condition as warranty - In case of a breach of condition by
the seller, the buyer formally treats to elect such breach as a breach of warranty & claim
compensation.
c) Contract not severable & acceptance of goods or a part thereof already done- If a
contract is not severable & the buyer has accepted the goods wholly or in part, he can’t
repudiate the contract as, by his act of acceptance, he has converted the condition into a
warranty & can now only claim compensation.
The distinction between Condition and Warranty

Conditions Warranties
A condition is a stipulation which is essential A warranty is a stipulation which is only
to the main purpose of the contract. collateral or subsidiary to the main purpose
of the contract.
A breach of the condition gives the aggrieved A breach of warranty gives only the right to
party a right to sue for damages as well as the sue for damages. The contract cannot be
right to repudiate the contract. repudiated.
A breach of condition may be treated as a A breach of warranty cannot be treated as a
breach of the warranty in certain breach of condition.
circumstances.
Expressed and Implied conditions and Warranties.

Conditions and warranties may be either express or implied.

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They are said to be express when the terms of the contract expressly provided for them. These
may be of any kind that the parties may choose to agree upon, e.g., it may be agreed that the
buyer will not sell the goods below a certain price; that the delivery shall be made or taken
before a certain date. Similarly, in the contract of sale of a car, express warranty as to its
soundness may be incorporated.
They are said to be implied when the law deems their existence in the contract even without
their having been put in the contract. The following are the implied conditions
1. Implied conditions as to title – In a contract of sale, unless it is otherwise expressed showing

a different intention, there is an implied condition on the part of the seller that –
 In the case of a sale, he has immediate right & title to sell the goods and
 In the case of an “agreement to sell,” he will have a right to sell the goods at the
time or before the sale takes place.
In case there is a breach, the buyer may repudiate the contract.
2. Implied condition as to description – If the seller had described the goods to the buyer and
sold the goods by description there is an implied condition that the goods shall correspond with
the description.
Sale of goods by description may be in the following situation –

a. Where the buyer hasn’t seen the goods but has relied on the description given by the seller and
bought the goods.
b. Even where the buyer has seen the goods if he realize not what he has seen but on what has
been described to him and the deviation or change or the difference isn’t visible as a difference
between the goods and description.
In case there is a breach of the implied condition, the buyer may repudiate the contract.
3. Implied condition in a sale by sample – In case of a contract of sale by sample, there is an

implied condition
 The bulk shall correspond with the sample in quality.
 The buyer shall have a reasonable opportunity to compare the bulk with the sample.
 The goods shall be free from any defect rendering them unmerchantable which would not
be apparent on a reasonable examination of the sample.
a. Implied condition in a sale by description and sample – If a sale is by sample as well as by

description, the bulk of goods must correspond with the both.
b. Implied condition as to quality or fitness – Where the buyer has impliedly made known to
seller the ‘particular purpose’ for which goods are required and the buyer relies on skills and
judgment of seller and goods are of a nature in which the seller usually deals then there is an
implied condition that the goods shall have the necessary quality or fitness for such purpose. This
is applicable where -
 The goods are ordered for a specific purpose
 Such purpose is made known to the seller

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 The buyer relies on skill or judgment of the seller

 The goods are such that their seller usually deals in such goods.
 The quality or fitness is established by the frequent usage of such goods and the goods
are of merchantable quality.
c. Implied condition as to merchantable quality – Where goods are sold by description there is
an implied condition as to its merchantable quality. Merchantable quality means
 If goods are purchased for resale, they should be marketable under the name and
description by which they are sold.
 They must be reasonably fit for the purpose for which they are used.
d. Implied condition to wholesomeness – In case of edible goods, in addition to merchantability

there is an implied condition that goods shall be wholesome. Any breach and buyer can repudiate
the contract.
Implied Warranty
1. Implied warranty as to ‘quiet possession’ – In a contract of sale, there is an implied
warranty given by the seller that buyer shall ‘have and enjoy quiet possession’ of the goods sold.
If the buyer is in any way, disturbed lawfully in the enjoyment of goods due to the seller’s
‘defective title’, then the buyer can claim compensation or damages from the seller for whatever
loss he suffers.
2. Implied warranty as to ‘free from encumbrances’ – There is an implied warranty that

goods sold do not have any part liability or encumbrance that has not been declared by the seller
(or disclosed). If there is a breach, the buyer can claim compensation or damages for whatever
loss he suffers from breach of such warranty.
3.7 Rights of unpaid seller:
An unpaid seller of goods is a person who has not been paid the whole of the price or to whom
the whole of the price has not been tendered.
The seller of goods is deemed to be an “unpaid seller” when –
a. The whole of the price hasn’t been paid or tendered or
b. A bill of exchange, promissory note, or a cheque ‘negotiable instrument’ has been
received by him as conditional payment and such an instrument has been dishonoured.

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Rights of Unpaid seller
when the property in

goods has passed
Right of lien
Right of stoppage og
goods in transit
Right of resale
Against goods
When the property of

goods has not passed
Rights of unpain seller
With holding the delivery
Other rights
Suit for price

Against buyer personally Suit for damages
Suit for repeatetion of
contract
Suit for interest.
Rights of an unpaid seller can be divided into two parts: -

1. Rights against goods
2. Rights against buyer
Rights against goods can be further classified into two parts: -

1) Where the property in the goods is passed to the buyer (sale) –
In this case, the owner is already transferred to the buyer. However, the possession of the goods
or special property is still with the unpaid seller. In such a case, he has the following rights.
Right of lien – A right of lien is a right to retain or detain the possession of the goods even
against the loss of owner until the lawful charges are paid off by the buyer.
The right of lien may be exercised.

 Where the goods have been sold without any credit facility OR
 The goods have been sold on credit & the term of credit has expired OR
 The buyer has become insolvent
Where the unpaid seller has already delivered a part of the goods, he may still exercise the right
of lien on the remainder of goods unless the agreement indicates expressly “part delivery
amounts to a waiver of lien.”
The right of lien is extinguished where the unpaid seller –

 Delivers the goods to a carrier without reserving ‘rights of disposal’ or

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 The buyer has obtained the possession of goods.
2) Right to stoppages in transit –

When the buyer becomes insolvent and the unpaid seller has parted with the possession he can
still exercise his “rights of stoppage in transit”.
These rights can be exercised if –

a) The buyer has become insolvent.
b) The unpaid seller has lost possession of goods.
c) The buyer hasn’t received possession.
d) The goods are in transit.
In such a case, the unpaid seller may exercise the rights of stoppage in transit & instruct the
carrier to return the goods to the unpaid seller. When the goods are returned, the unpaid seller
once again receives possession and can then once again exercise his right of lien over such
goods, and also they give a notice to ‘resell’ the goods to the buyer.
3) Right to resell –
The unpaid seller gets a right to resell the goods if the buyer still fails to pay within the notice
period to any other party. If he sells at a lesser price than originally agreed by the first buyer
then he can claim the balance from the original buyer but if he happens to get a surplus
amount then the original buyer cannot claim the surplus amount.
In this case, the ownership is still with the unpaid seller in case he also has possession of the
goods then following are the rights:
a) Right of withholding goods:-
The unpaid seller who has the possession as well as the ownership in the goods may
‘withhold’ the goods until lawful charges are paid. Besides, he may also give notice
of resale.
b) Rights against the buyer personally:-
Following are the rights –
i. Rights to sue for the price – When the ownership has been transferred to the buyer and the
seller remains unpaid he may sue for the full price of the goods. This is a right against the buyer
personally.
ii. Rights to sue for damages for non-acceptance of goods – If the buyer wrongfully neglects
to accept the goods & pay for the price. The unpaid seller may sue for the price & also may sue
the buyer personally for the ‘non-acceptance’ of goods.
iii. Right to sue for the damages or compensation for repudiation of contract – Where the
buyer wrongfully repudiates the contract, thereby causing loss to the unpaid seller, the seller may
sue for compensation all damages or ‘repudiation of the contract’ by the buyer.
iv. Right to sue for interest – Finally, the unpaid seller may sue the buyer for interest on the
unpaid amount on the balance of the price.
2.8 Performance of the Contract:

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The seller must deliver the goods and of the buyer to accept and pay for them, by the terms of the
contract of sale.
– Sec. 31, The Sale of Goods Act, 1930
The performance of the contract is a simple transaction where the seller delivers the goods and
the buyer pays. If there is something more complex, then this is stated in the contract as special
terms.
 Seller Delivers goods and receives consideration.
 Buyer Accepts and pays for the goods.
 Terms Contract can have terms of delivery and payment.
Delivery of Goods (Sections 33-39):

Delivery is the voluntary transfer of possession from one person to another. Delivery may be
actual, constructive, or symbolic. Actual or physical delivery takes place where the goods are
handed over by the seller to the buyer or his agent authorized to take possession of the goods.
Constructive delivery takes place when the person in possession of the goods acknowledges that
he holds the goods on behalf of and at the disposal of the buyer.
For example, where the seller, after having sold the goods, may hold them as bailee for the buyer,
there is constructive delivery. Symbolic delivery is made by indicating or giving a symbol. Here
the goods themselves are not delivered. but the "means of obtaining possession" of goods are
delivered, e.g, by delivering the key of the warehouse where the goods are stored, bill of lading
which will entitle the holder to receive the goods on the arrival of the ship.
Rules as to delivery:
The following rules apply regarding the delivery of goods:
(a) Delivery should have the effect of putting the buyer in possession.
(b) The seller must deliver the goods according to the contract.
(c) The seller is to deliver the goods when the buyer applies for delivery; it is the duty of the
buyer to claim delivery.
(d) Where the goods at the time of the sale are in the possession of a third person, there will be
delivered only when that person acknowledges to the buyer that he holds the goods on his behalf.
(e) The seller should tender delivery so that the buyer can take the goods. It is no duty of the
seller to send or carry the goods to the buyer unless the contract so provides. But the goods must
be in a deliverable state at the time of delivery or tender of delivery. If by the contract the seller
is bound to send the goods to the buyer, but no time is fixed, the seller is bound to send them
within a reasonable time.
(f) The place of delivery is usually stated in the contract. Where it is so stated, the goods must be
delivered at the specified place during working hours on a working day. Where no place is
mentioned, the goods are to be delivered at a place at which they happen to be at the time of the
contract. of sale and if not then in existence, they are to be delivered at the price they are
produced.
(g) The seller has to bear the cost of delivery unless the contract otherwise provides. While the
cost of obtaining delivery is said to be of the buyer, the cost of putting the goods into a
deliverable state must be borne by the seller. In other words, in the absence of an agreement to
the contrary, the expenses of and incidental to making delivery of the goods must be borne by the

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seller, the expenses of and incidental to receiving the delivery must be borne by the buyer.
(h) If the goods are to be delivered at a place other than where they are, the risk of deterioration
in transit will, unless otherwise agreed, be borne by the buyer.
(i) Unless otherwise agreed, the buyer is not bound to accept delivery in installments.
Delivery of goods may be defined as a voluntary transfer of possession of goods from the seller
to the buyer.
It is distinguished in three ways as presented in Figure below:
The above concepts have a clear definition in law.
Actual delivery: The goods are handed over by the seller to the buyer or his authorized agent; it
has the effect of putting the goods in the possession of the buyer: Sec. 33.
Symbolic delivery: The goods are too bulky and unwieldy such as large machinery, where a
symbolic passing of documents or keys and the like demonstrate the transfer of goods.
Constructive or delivery by attornment: A third party (bailee) who has the goods of the seller
at the time of sale acknowledges to the buyer that he holds the goods on his behalf: Sec. 36(3).

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Delivery of goods and payment of the price are concurrent conditions. But in the world of seller-
buyer interaction, it adjusts itself to the prevailing conditions.
2.9 Summary:
 Sale of goods act came into existence from 1st July 1930.
 Applicable in whole in India except for the state of Jammu and Kashmir.
 A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a price.
 When the ownership in goods is transferred from the seller to buy it is called a sale.
 When the transfer of property in goods is to take place at a future date or subject to some
condition, it is called as agreement to sale.
 Goods mean every kind of movable property other than actionable claims and money.
 Goods are classified into Existing, future, and contingent goods.
 A condition is a stipulation which is essential to the main purpose of the contract.
 A warranty is a stipulation which is only collateral or subsidiary to the main purpose of the
contract.
 Implied conditions include right to sale by title, right to sale by sample, condition to
description, right to quality, and fitness.
 An unpaid seller is one who has not been paid the whole of the price or to whom the whole of
the price has not been tendered.
 The unpaid seller has right against goods and right against the buyer personally.
Section A (Self-assessment Questions)

1. Define Sale.
2. Define goods
3. Explain any two essentials of contract of sale.
4. Give any two differences between sale and agreement to sale.
5. What are specific goods?
6. What are contingent goods?
7. What are future goods?
8. What is Agreement to a sale?
9. What are the conditions?
10. What are Warranties?
11. Explain the condition as to Title.
12. Explain the condition as to sale by description.
13. Explain the condition as to sale by sample.
14. Explain the two implied warranties.
15. Who is an unpaid seller?
16. What is the right to lien?
17. What are the rights of the unpaid seller against the buyer personally?
18. Distinguish between conditions and warranties.

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Section B (5 marks and 12 Marks Questions)

1. Distinguish between Sale and agreement to sale.
2. Define goods and explain the classification of goods.
3. Explain the various Implied conditions.
4. Explain the essentials of Sale of goods.
5. Explain the rights of an Unpaid seller.
2.11 Terminal Answers:
Section A (Self-Assessment Questions)

1. Refer sec 2.2
2. Refer sec 2.4
3. Refer sec 2.3
4. Refer sec 2.5
5. Refer sec 2.4
6. Refer sec 2.4
7. Refer sec 2.4
8. Refer sec 2.2
9. Refer sec 2.6
10. Refer sec 2.6
11. Refer sec 2.6
12. Refer sec 2.6
13. Refer sec 2.6
14. Refer sec 2.6
15. Refer sec 2.7
16. Refer sec 2.7
17. Refer sec 2.7
18. Refer sec 2.6
Section B (5 marks and 12 Marks Questions)

1. Refer sec 2.5
2. Refer sec 2.4
3. Refer sec 2.6
4. Refer sec 2.3
5. Refer sec 2.7
References
2. S.S. Gulshan, G.K.Kapoor; Business law including Company law
3. V.Rama Krishna Raju; Business laws and Economic legislations
5. Appanaiah& Reddy; Business Laws – Himalaya Publishing House

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Module -3
Competition law 2003
Structure:
3.1 Introduction
3.2 Definitions
3.3 Competition Commission of India
3.4 Duties and Powers of CCI
3.5 Director general
3.6 Penalties
3.7 Terminal questions
Learning objectives:
After studying this module you should be able to understand
1. The framework of the establishment of competition law
2. Promotion of competition in the market
3. Efficient operation of competition law in the market
3.1 Introduction
The monopolies and restrictive trade practices (MRTP) had become obsolete and was choking
the economy. The competition Act 2002, as amended bt the completion ( Amendment )act 2007,
follows the philosophy of modern competition laws.
An act to provide, keeping because of the economic development of the country for the
establishment of a commission, to and for matters connected therewith or incidental thereto.
The objectives of the act are
 To prevent practices harming competition

 To promote and sustain competition in markets.
 To protect the interests of consumer and
 To ensure freedom of trade carried on by other participants in markets in India.

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3.2 Definitions
In this act unless the context otherwise requires ---
(a) “acquisition” means directly or indirectly acquiring or agreeing to acquire—(i) shares,

voting right or assets of any enterprise; or (ii) control over management or control over
assets of any enterprise;
(b) “agreement” includes any agreement or understanding or action in concert—(i) whether
or not, such arrangement, understanding or action is intended to be enforceable by legal
proceedings.
(c) “cartel” includes an association of producers, sellers, distributors, traders or service
providers who, by agreement amongst themselves, limit control or attempt to control the
production, distribution, sale or price of, or, trade in goods or provision of service;
(d) “consumer” means any person who---
i. Buys any goods for a consideration which has been paid or promised or partly
paid and partly promised or under any system of deferred payment and includes
any user of such goods other than the person who buys such goods for
consideration paid or partly paid or partly promised or under any system of
deferred payment when such use is made with the approval of such person,
whether such purchase of goods is for sale or any commercial purpose for
personal use;
ii. Hires or avails of any services for a consideration which has been paid or
promised or partly paid and partly promised or under any system of deferred
payment and includes any benefit of such services other than the person who hires
or avails of the services for consideration paid or promised, or partly paid and
partly promised, or under any system of deferred payment when such services are
availed of with the approval of the first-mentioned person whether such hiring or
availing of services is for any commercial purpose or personal use;
(e) “enterprise” means a person or a department of the government who or which is or has
been engaged in any activity, relating to the production, storage, supply, distribution,
acquisition or control of articles or goods, or the provision of services, of any kind, or in
investment, or in the business of acquiring, holding, underwriting or dealing with shares,
debentures or other securities of any other body corporate, either directly or through one
or more of its units or divisions or subsidiaries, whether such unit or division or
subsidiary is located at the same place where the enterprise is located or at a different
place or different places, but does not include any activity of the government relatable to
the sovereign functions of the government including all activities carried on by the
departments of the central government dealing with atomic energy, currency, defense,
and space.
(f) “practice” includes any practice relating to the carrying on of any trade by a person or an
enterprise;

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(g) “price” concerning the sale of the performance of any services, includes every valuable
consideration, whether directly or indirectly, or deferred, and includes any consideration
which in effect relates to the sale of any goods or the performance of any services
although ostensibly relating to any other matter or thing.
(h) “relevant market” means the market which may be determined by the commission
concerning the relevant product market or the relevant geographic market or about both
the markets.
(i) “statutory authority” means any authority, board, corporation, council, institute,
university or any other body corporate, established by or under any central, state or
provision of any services or markets thereof or any matter connected therewith or
incidental thereto;
(j) “trade” means any trade, business, industry, profession, or occupation relating to the
production, supply, distribution, storage control of goods and includes the provision of
any services.
3.3 Competition Commission of India :
The objective of the act is sought to be achieved through the competition commission of India
(CCI) which has been established by the central government with effect from 14 October 2003.
CCI consists of a chairperson and 6 members appointed by the central government.
The commission shall be a body corporate by the name competition commission of India having
perpetual succession and a common seal. The head of the office of the commission shall be at
such place as the central government may decide from time to time.
3.4 Duties and Powers of CCI:
1. It shall be the duty of CCI to sustain competition in the markets, protect freedom of trade
and interests of consumers in the market.
2. To sustain competition in the market, CCI has the power to make inquiries in case of any
certain agreement, abuse of dominant position, or any combination by any persons or
body corporate on its own or receipt of a complaint by the consumer or by reference of
government or any authority.
3. The CCI has powers to inquire into any of the facts outside India that cause adverse
impacts on competition within India.
4. The chairperson shall constitute benches to exercise powers of CCI and a bench shall
consist of at least2 members include at least 1 judicial member (qualified to be a judge of
high court). The bench where chairperson presides is known as principal bench and
others are known as additional benches.

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5. The CCI has the power to make an inquiry (either suo motto or on request of any person,
consumer or trade association)and pass an order for any certain agreements, abuse of
dominant position, or any combination that harms competition within India. Etc.
3.5 Director-General
The central government may, by notification, appoint a Director-General to assess the

commission in conducting an inquiry into contravention of any of the provisions of this act and
for performing such other functions as are or may be, provided by or under this act.
Duties of Director-General
1. The Director-General shall when so directed by the commission assists the commission in
investigating into any contravention of the provisions of the Act or any rules or
regulations made thereunder.
2. The director-general shall have all the powers as are conferred upon the commission
under subsection (2) of section 36
3. Without prejudice to the provisions of sub-sections(2),sections240 and 240 A of the
companies act, 1956 (1 of 1956) so far as may be, shall apply to an investigation made by
the director-general or any other person investigating under his authority, as they apply to
an inspector appointed under that act.
3.6 Penalties
1. If any enterprise or person does not comply with any order of CCI shall liable for
punishment of imprisonment up to 1 year or /and fine which shall not be more than 10
lakh.
2. If any person fails to comply with any direction given by CCI or director-general such as
ignore summons etc. shall be liable for a penalty of Rs. 1 lakh per day during such failure
continues.
3. If any person or enterprise ( party to a combination ) provides any false information or
hide any considerable information shall liable for a penalty of not less than 50 lakhs and
may be extended up to 1 crore.
4. Also, every person of an enterprise (contravenes any provisions of the act) who was
responsible to the company for the conduct of particular business shall be tried and
punished as may be determined by CCI
Terminal questions:

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2 marks
1. State any two objectives of the competition act 2002.

2. Give the meaning of the term acquisition.
3. What is an agreement according to the competition act 2002?
4. Define cartel.
5. State the meaning of the term consumer.
6. What is an enterprise?
7. Give the meaning of the term practice.
8. What is price according to competition act 2002?
9. What is the relevant market
10. Who is a statutory authority?
11. Define trade.
12. State any 2 duties of CCI.
13. State any 2 powers of CCI
14. Who is a Director-General?
15. State any two penalties imposed by CCI.
4 marks and 10 marks
1. Write a note on the Competition act 2002.

2. Discuss the objectives of the competition act 2002.
3. Elaborate on the duties and powers of CCI
4. Explain the duties of the director-general.
5. Discuss the penalties imposed by CCI
Terminal answers:
2 marks:
1. Refer 3.1
2. Refer 3.2
3. Refer 3.2
4. Refer 3.2
5. Refer 3.2
6. Refer 3.2
7. Refer 3.2
8. Refer 3.2
9. Refer 3.2
10. Refer 3.2

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11. Refer 3.2

12. Refer 3.4
13. Refer 3.4
14. Refer 3.5
15. Refer 3.6
4 marks and 10 marks:
1. Refer 3.1
2. Refer 3.1
3. Refer 3.4
4. Refer 3.5
5. Refer3.6
References

Business law
Module 4
Consumer Protection Act (COPRA) 1986
“Consumer is the king of the market, but he is the most neglected and exploited person”.
Structure:
4.1 Background and Introduction
4.2 Definitions
4.3 Consumer Redressal Agencies
4.4 Summary
4.5 Terminal Questions
4.6 Answers
Learning objectives
After studying this chapter, you should be able to understand
 Background
 Definitions of consumer, consumer dispute, complaint, deficiency, consumer protection
council, unfair trade practices
 Consumer redressal agencies
o District forum
o State commission
o National commission
4.1 Background and Introduction:
“The consumer is the king of the market “is no doubt a very attractive slogan but he is the most
neglected and exploited person. The importance of the consumer to business though recognized
in theory is not yet fully recognized in practice. He is being exploited in many ways like short-
weights and measures, deceptive packaging, etc. There have been several laws enacted by the
government to safeguard the interest of consumers like The Prevention of Food Adulteration
Commodities Act etc. However, much of the provision of these laws have never been proved
adequate.
The Consumer Protection Act 1986 is one of the benevolent social legislation intended to protect
the large body of consumers from exploitation. The act has come as a panacea for consumers all
over the country and has assumed the shape of practically the most important legislation enacted
in the country during the last few years. The COPRA 1986 marks the growth of the enlightened
consumer movement in the country.

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Introduction
The Consumer Protection Act, 1986 was enacted to provide for better protection of the interest of
the consumers and for the purpose to make provisions for the establishment of Consumer
Councils and other authorities in the settlement of consumer disputes and matters connected
therewith. It seeks, inter-alia, to promote and to protect the rights of consumers such as
protection against the marketing of goods which are hazardous to life and property, the right to
be informed about the quality, quantity, potency, purity, standard and price of goods to protect
the consumer against unfair trade practices, the right to be assured, wherever possible, access to a
variety of goods at competitive prices, the right to be heard and to be assured that the interest of
consumers will receive due consideration at appropriate forums, the right to seek redressal
against unfair trade practices or unscrupulous exploitation of consumers and right to consumer
education.
The object is also to provide speedy and simple redressal to consumer disputes-quasi judicial
machinery that is sought to be set up at District, State, and Central Levels. These quasi-judicial
bodies are to observe principles of natural justice and have been empowered to give relief of
specific nature and to award, wherever appropriate, compensation to consumers. Penalties for
non-compliance with orders given by quasi-judicial bodies have also been provided.
4.2 Definitions:
Consumer
“Consumer” means any person who buys goods for a consideration
1) Which has been paid or promised or partly paid and partly promised or
2) Under any system of deferred payment. “Consumer” also includes any user of such goods
other than the buyer himself. The use of such goods must be made with the approval of
the buyer. “Consumer” does not include a person who obtains goods for resale or any
commercial purpose”.
“Commercial purpose” does not include use by consumer goods bought and used by him
exclusively to earn his livelihood through self-employment.
3) Hires or avails of any services for a consideration which has been paid or promised or
partly paid and partly promised or under any system deferred payment. The consumer
also includes any beneficiary of such services. Such services must be availed of by the
beneficiary with the approval of the hirer.
Consumer dispute
It means a dispute where the person against whom the complaint has been made denies or
disputes the allegations contained in the complaint.
Complaint
It means any allegation in the writing made by a complainant. The allegation in writing must be
that an unfair trade practice or a restrictive trade practice or a restrictive trade practice has been
adopted by any trader. The goods bought by him or agreed to be bought by him suffer from one
or more defects.

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The services hired or availed of or agreed to be hired or availed of by him suffer from a
deficiency in any respect.
A trader has charged for the goods mentioned in the complaint a price over the price fixed.
Goods that will be hazardous to life and safety when used are being offered for sale to the public
in contravention of the provisions requiring traders to display information regarding the contents,
manner, and effect of the use of such goods.
Deficiency:
It means any faulty imperfection, shortcoming or inadequacy in the quality, nature, and manner
of performance which
1) Is required to be maintained by or under any law for the time being in force or
2) Has been undertaken to be performed by a person in pursuance of a contract or
otherwise about service.
Consumer Protection Council:

Consumer protection councils aim at essentially educating the consumer.
Initially, the consumer protection councils were set up at state and national levels only. Now as
per the amendment in 2002, they are set up at the district level also.
It is mainly formed to settle consumer disputes and they promote and protect the rights of the
consumers.
Unfair trade practices:

The unfair method or unfair or deceptive practice adopted for promoting the sale. Use or supply
of any goods for the provision of any services.
It includes
 Misleading advertisements and false representations
 Falsely represents that the services are of a particular standard, quality, or grade a
particular standard, quality, quantity, grade, composition, style, or model.
 Falsely represents any rebuilt, second hand, renovated, reconditioned, or old goods as new
goods, etc.
Restrictive trade practices

It means any trade practice which renders a consumer to buy, hire, or avail of any goods or
services as a condition precedent for buying, hiring, or availing of other goods or services.
Consumer Protection Councils:
The Consumer Protection Act postulates the establishment of Consumer Protection Councils at
the Central and State levels to spread consumer awareness. The objects of the Councils, as per
the Act, shall be to promote and protect the rights of the consumers such as:
 The right to be protected against the marketing of goods and services which are hazardous to
life and property
 The right to be informed about the quality, quantity, potency, purity, standard and price of
goods or services, as the case may be to protect the consumer against unfair trade practices;
 The right to be assured, wherever possible, access to a variety of goods and services at
competitive prices;

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 The right to be heard and to be assured that consumer's interests will receive due
consideration at appropriate forums
 The right to seek redressal against unfair trade practices or restrictive trade practices or
unscrupulous exploitation of consumers and
 The right to consumer education.
Central Consumer Protection Council:

The Consumer Protection Act empowers the Central Government to establish a Central
Consumer Protection Council consisting of the Minister in charge of consumer affairs in the
Central Government as its Chairman and a such number of other official and non-official
members representing such interests as may be prescribed. Under the Consumer Protection
Council Rules 1987, the membership of the Council is restricted to 150 members including the
Central Minister in charge of Consumer Affairs as the Chairman. The term of the Council is
three years. To monitor the implementation of the recommendations of the Council, the Central
Government may constitute a standing working group from amongst the members of the council
under the Chairmanship of the Member Secretary of the Council. The Council shall meet as and
when necessary, but at least one meeting of the Council shall be held at such time and place as
the Chairman may think fit.
State Consumer Protection Council:

The Consumer Protection Act provides for the establishment of State Consumer Protection
Councils by the State Governments. The State Council shall consist of a Minister in charge of
consumer affairs in the State Government as its Chairman and a such number of other official or
non-official members representing such interests as may be prescribed by the State Government
and ten nominees of the Central Government. The State Council shall meet as and when
necessary but not less than two meetings shall be held every year at such time and place as the
Chairman may think fit.
District Consumer Protection Council:

To promote and protect the rights of consumers, within the district, the Consumer Protection Act
provides for the establishment of a District Consumer Protection Council in every district. It
shall consist of the Collector of the district as its Chairman and a such number of other official
and non-official members representing such interests as may be prescribed by the State
Government. It shall meet as and when necessary but not less than two meetings shall be held
every year. The Chairman shall decide the time and place of the meeting.
4.3 Consumer Redressal Agencies:
When a consumer has some disputes to be redressed, there are agencies, which can be of
use to him. These consumer dispute redressal agencies are
1) District forum
2) State Commission
3) National commission
4.3.1District Forum:

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It shall consist of a person who is or has been or is qualified to be a district judge as its president.
Two other members one of whom shall be a woman possessing a bachelor’s degree from a
recognized university, be a person of ability, integrity, and standing and have adequate
knowledge and experience in economics, law, commerce, industry, public affairs or
administration, etc.
Every member of the district shall hold office for a term of 5 years or up to the age of 65 years
whichever is earlier
a) Appointment of members
Every appointment is by the state government on the recommendation of a selection committee
consisting of (i) the president of state commission-chairman (ii) Secretary, Law Department of
state-member (iii) Secretary in charge of the department dealing with current affairs in the state
member if the president is unable to act as chairman, the State Government may refer the matter
to the chief justice of the high court for nominating a sitting judge of that high court to act as
chairman.
It shall have jurisdiction to entertain complaints where the value of the goods or services and the
compensation if any claimed does not exceed Rs.20 lakhs.
b) Remedies Granted and Function:

 To remove the defects pointed out by the appropriate laboratory from goods in question.
 To replace the goods with new goods of similar description which shall be free from any
defect
 To return to the complainant the price or as the case may be the charges paid by the
complainant.
 Compensation for loss of negligence on part of the consumer
 To remove the defects or deficiencies in the services in question.
c) Powers:
The district forum shall have the same powers as vested in a civil court under the code of civil
procedure 1908 while trying a suit in respect of the following matters namely:
a) The summoning and enforcing the attendance of any defendant or witness and examining
the witness on oath
b) The discovery and production of any document or other material object producible as
evidence.
c) The reception of evidence on affidavits
d) The requisitioning of the report of the concerned analysis or test from the appropriate
laboratory or any other source.
e) Issuing of any commission for the examination of any witness and
f) Any other matter which may be prescribed
The district forum as well as the state commission and the national commission shall have the
powers of a judicial magistrate of the first class for the trial offenses under this act.
Every proceeding before the district forum shall be deemed to be a judicial proceeding.
Additional powers
The district forum has the following additional powers.

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a) To require any person to produce before and allow any books, accounts, documents, or
commodities to be examined.
b) To furnish the required information
c) Power of entry and search premises if necessary
d) To discontinue the unfair trade practice or the restrictive trade practice or not to repeat
them.
e) Not to offer hazardous goods for sale
f) To cease from the manufacturing of hazardous goods
g) Loss of injury of consumer
h) Issue of corrective advertisement
i) Provision of adequate costs to parties
j) To ensure protection to consumers
k) To create awareness amongst consumers about their rights and duties.
4.3.2 State commission:

It is established by the state government by notification
It shall have jurisdiction to entertain complaints where the value of the goods or services and
compensation if any claimed exceeds Rs.20 lakhs but does not exceed 1 crore and appeals
against the orders of any district forum within the state members to hold office for 5 years or up
to 67 years whichever is earlier.
(a) Members
The State Commission shall consist of a person who is or has been a judge of a high court
appointed by the State Government after consultation with the Chief Justice of the High Court.
Not less than 2 other members and not more than the prescribed number (one of whom shall be a
woman). That person should be a person of ability, integrity, and standing and have adequate
knowledge and experience in Economic, Law, Commerce, Industry, Public affairs or
Administration, etc
(b) Appointment of members – same as district forum
(c) Powers – same as district forum
(d) Remedies granted and functions – Same as district forum
4.3.3 National commission:

Members: The National Commission shall consist of a person who is or has been a judge of the
Supreme Court as its president. Not less than 4 and not more than a such number of members as
may be prescribed and one of whom shall be a woman with similar qualifications as required in
the case of appointment as a member to a District Forum or a State Commission.
Every member of the National Commission shall hold office for a term of 5 years or up to the
age of 70 years whichever is earlier. It shall have jurisdiction to entertain complaints where the
value of the goods or the services and compensation if any, the claim exceeds Rs.1 crore and
appeals against the orders of any State Commission.
Appointment of members

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The members are appointed by the Central Government after consultation with the Chief Justice
of India on the recommendation of a selection committee consisting of the following
a. A person who is a judge of the Supreme Court (to be nominated by the Chief Justice of India-
Chairman
b. The secretary in the department of legal affairs in the Government of India –member
c. Secretary of the department dealing with consumer affairs in the Government of India –
member
Powers -Same as District forum
Remedies granted and functions – Same as district forum
4.4 Summary:
The Consumer Protection Act is a revolutionary piece of legislation that has grown into an
important tool for development. The Act seeks to provide for better protection of the interests of
consumers for this purpose it makes provision for the establishment of consumer councils and
other authorities for the settlement of consumer disputes. The biggest help in this direction has
come from the government. The innocent consumer has been safeguarded. So the slogan
continues that “CONSUMER IS THE KING”.
2 Marks Questions
1. What is COPRA?
2. Define the term consumer
3. Giver the meanings of consumer dispute
4. Define complaint
5. What do you understand by deficiency?
6. Give any two examples of unfair trade practices
7. Write any two functions of District Forum
5 Marks Questions
1. Discuss the relied available to consumers with examples.
2. Write any six powers of the state commission.
3. Write a note on the members of the National Commission.
4. Write a brief note on the District Forum
5. Why COPRA Act has been enacted in brief?
6. Write the objectives of consumer protection Councils.
14 Marks Questions
1. Discuss in detail the District Forum
2. Discuss in detail the State Commission
3. Discuss in detail the National Commission
4. Bring out the background of COPRA and what was the need for COPRA?
4.6 Answers:

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2 Marks Questions
1. Consumer Protection Act of 1986
2. Refer 4.2
3. Refer 4.2
4. Refer 4.2
5. Refer 4.2
6. Refer 4.2
7. Refer 4.3.1
5 Marks Questions
4.3.1
1. 4.3.2
2. 4.3.3
3. 4.3.1
4. 4.1
14 Marks Questions
1. 4.3.1
2. 4.3.2
3. 4.3.3
4. 4.1
References

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MODULE 5
Cyber Law (Information Technology Act, 2000)
Structure:
 Introduction- Need for Cyber Law - Jurisprudence of Indian Cyber Law

 Evolution of Cyber Crime -Cyber Crimes & Legal Framework
 Introduction to Cyber Crimes - Cyber Crimes Vs. Conventional Crime
 Reasons for cyber-crimes and cybercriminals
 Cyber Crimes against Individuals, Institution, and State
 Right to Privacy and Data Protection on the Internet
 Different offenses under IT Act, 2000
 Digital signature and Electronic Signature
Learning objectives:
 To introduce the cyber world and cyber law in general

 To discuss the cyber law about IT act
 To introduce the concepts of cyber crimes
5.1 Introduction:
The primary source of cyber law in India is the Information Technology Act, 2000 (IT Act)
which came into force on 17 October 2000. The primary purpose of the Act is to provide legal
recognition to electronic commerce and to facilitate the filing of electronic records with the
Government. Cyberlaw can also be described as a branch of law that deals with legal issues
related to the use of inter-networked information technology. Cyberlaw is the law governing
computers and the internet. • The growth of Electronic Commerce has propelled the need for
vibrant and effective regulatory mechanisms which would further strengthen the legal
infrastructure, so crucial to the success of Electronic Commerce.
5.2 What is Cyber Law?

Cyber Law is the law governing cyberspace. Cyberspace is a very wide term and includes
computers, networks, software, data storage devices (such as hard disks, USB disks, etc), the
Internet, websites, emails and even electronic devices such as cell phones, ATMs, etc.
Law encompasses the rules of conduct:
1. that has been approved by the government, and

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2. which are in force over a certain territory, and

3. which must be obeyed by all persons on that territory. Violation of these rules could lead to
government action such as imprisonment or fine or an order to pay compensation.
5.2.1Cyber law encompasses laws relating to:

1. Cyber Crimes
2. Electronic and Digital Signatures
3. Intellectual Property
4. Data Protection and Privacy
5.2.2 Cybercrimes are unlawful acts where the computer is used either as a tool or a target or
both. The enormous growth in electronic commerce (e-commerce) and online share trading has
led to a phenomenal spurt in incidents of cybercrime. These crimes are discussed in detail further
in this chapter. A comprehensive discussion on the Indian law relating to cybercrimes and digital
evidence is provided in the ASCL publication titled “Cyber Crimes & Digital Evidence –
Indian Perspective”.
5.2.3 Electronic signatures are used to authenticate electronic records. Digital signatures are
one type of electronic signature. Digital signatures satisfy three major legal requirements – signer
authentication, message authentication, and message integrity. The technology and efficiency of
digital signatures make them more trustworthy than handwritten signatures. These issues are
discussed in detail in the ASCL publication titled “Ecommerce – Legal Issues”.
5.2.4 Intellectual property is referred to creations of the human mind e.g. a story, a song, a
painting, a design, etc. The facets of intellectual property that relate to cyberspace are covered
by cyber law.
These include:
• copyright law concerning computer software, computer source code, websites, cell phone
content, etc,
• software and source code licenses
• trademark law with relation to domain names, meta tags, mirroring, framing, linking, etc
• semiconductor law which relates to the protection of semiconductor integrated circuits design
and layouts,
• patent law about computer hardware and software. These issues are discussed in detail in the
ASCL publication titled “IPR & Cyberspace - the Indian Perspective”.
5.2.5 Data protection and privacy laws aim to achieve a fair balance between the privacy rights
of the individual and the interests of data controllers such as banks, hospitals, email service
providers, etc. These laws seek to address the challenges to privacy caused by collecting, storing,
and transmitting data using new technologies.
5.3 Need for cyber law:
There are various reasons why it is extremely difficult for conventional law to cope with
cyberspace. Some of these are discussed below.

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1. Cyberspace is an intangible dimension that is impossible to govern and regulate using

conventional law.
2. Cyberspace has complete disrespect for jurisdictional boundaries. A person in India could
break into a bank’s electronic vault hosted on a computer in the USA and transfer millions of
Rupees to another bank in Switzerland, all within minutes. All he would need is a laptop
computer and a cell phone.
3. Cyberspace handles gigantic traffic volumes every second. Billions of emails are crisscrossing
the globe even as we read this, millions of websites are being accessed every minute and billions
of dollars are electronically transferred around the world
by banks every day.
4. Cyberspace is open to participation by all. A ten year- old in Bhutan can have a live chat
session with an eight-year-old in Bali without any regard for the distance or the
anonymity between them.
5. Cyberspace offers enormous potential for anonymity to its members. Readily available
encryption software and steganographic tools that seamlessly hide information within image and
sound files ensure the confidentiality of information exchanged between cyber-citizens.
6. Cyberspace offers never-seen-before economic efficiency. Billions of dollars worth of
software can be traded over the Internet without the need for any government licenses, shipping
and handling charges and without paying any customs duty.
7. Electronic information has become the main object of cybercrime. It is characterized by
extreme mobility, which exceeds by far the mobility of persons, goods, or other services.
International computer networks can transfer huge amounts of data around the globe in a matter
of seconds.
8. A software source code worth crores of rupees or a movie can be pirated across the globe
within hours of their release.
9. Theft of corporeal information (e.g. books, papers, CD ROMs, floppy disks) is easily covered
by traditional penal provisions. However, the problem begins when electronic records are copied
quickly, inconspicuously, and often via telecommunication facilities. Here the “original”
information, so to say, remains in the “possession” of the “owner” and yet information gets
stolen.
5.4 Jurisprudence of Indian Cyber Law
The primary source of cyber law in India is the Information Technology Act, 2000 (IT
Act)which came into force on 17 October 2000. The primary purpose of the Act is to provide
legal recognition to electronic commerce and to facilitate the filing of electronic records with the
Government.
The IT Act also penalizes various cyber crimes and provides strict punishments (imprisonment
terms up to 10years and compensation up to Rs 1 crore).An Executive Order dated 12 September
2002 contained instructions relating provisions of the Act concerning protected systems and
application for the issue of a Digital Signature Certificate. Minor errors in the Act were rectified
by the Information Technology (Removal of Difficulties) Order, 2002 which was passed on 19
September 2002.
The IT Act was amended by the Negotiable Instruments (Amendments and Miscellaneous
Provisions) Act, 2002. This introduced the concept of electronic cheques and truncated cheques.

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Information Technology (Use of Electronic Records and Digital Signatures) Rules, 2004 has
provided the necessary legal framework for filing of documents with the
Government as well as the issue of licenses by the Government. It also provides for payment and
receipt of fees to the Government bodies. On the same day, the Information Technology
(Certifying Authorities) Rules, 2000 also came into force. These rules prescribe the eligibility,
appointment, and working of Certifying Authorities (CA). These rules also lay
down the technical standards, procedures, and security methods to be used by a CA.
These rules were amended in 2003, 2004, and 2006.
.
Information Technology (Certifying Authority) Regulations, 2001 came into force on 9 July
2001. They provide further technical standards and procedures to be used by a CA. Two
important guidelines relating to CAs were issued. The first is the Guidelines for submission of
application for a license to operate as a Certifying Authority under the IT Act. These guidelines
were issued on 9th July 2001. Next were the Guidelines for submission of certificates and
certificate revocation lists to the Controller of Certifying Authorities for publishing in the
National Repository of Digital Certificates. These were issued on 16th December 2002.
The Cyber Regulations Appellate Tribunal (Procedure) Rules, 2000 also came into force on 17th
October 2000. These rules prescribe the appointment and working of the Cyber Regulations
Appellate Tribunal (CRAT) whose primary role is to hear appeals against orders of the
Adjudicating Officers. The Cyber Regulations Appellate Tribunal (Salary, Allowances, and other
terms and conditions of service of Presiding Officer) Rules, 2003 prescribe the salary,
allowances and other terms for the Presiding Officer of the CRAT.
Information Technology (Other powers of Civil Court vested in Cyber Appellate Tribunal) Rules
2003 provided some additional powers to the CRAT. On 17th March 2003, Information
Technology (Qualification and Experience of Adjudicating Officers and Manner of Holding
Enquiry) Rules, 2003 were passed. These rules prescribe the qualifications required for
Adjudicating Officers. Their chief responsibility under the IT Act is to adjudicate cases such as
unauthorized access, unauthorized copying of data, the spread of viruses, denial of service
attacks, disruption of computers, computer manipulation, etc. These rules also prescribe the
manner and mode of inquiry and adjudication by these officers.
The appointment of adjudicating officers to decide the fate of multi-crore cybercrime cases in
India was the result of the public interest litigation filed by students of Asian School of Cyber
Laws (ASCL). The Government had not appointed the Adjudicating Officers or the
Cyber Regulations Appellate Tribunal for almost 2 years after the passage of the IT Act. This
prompted ASCL students to file a Public Interest Litigation (PIL) in the Bombay High Court
asking for a speedy appointment of Adjudicating officers. The Bombay High Court, in its order
dated 9th October 2002, directed the Central Government to announce the appointment of
adjudicating officers in the public media to make people aware of the appointments. The division
bench of the Mumbai High Court consisting of Hon’ble Justice A.P. Shah and Hon’ble Justice
Ranjana Desai also ordered that the Cyber Regulations Appellate Tribunal be constituted within
a reasonable time frame.
Following this, the Central Government passed an order dated 23rd March 2003 appointing the
“Secretary of Department of Information Technology of each of the States or Union Territories”
of India as the adjudicating officers.

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The Information Technology (Security Procedure) Rules, 2004 came into force on 29th October
2004. They prescribe provisions relating to secure digital signatures and secure electronic
records. Also relevant are the Information Technology (Other Standards) Rules, 2003. An
important order relating to the blocking of websites was passed on 27th February 2003.
Computer Emergency Response Team (CERT-IND) can instruct the Department of
Telecommunications (DOT) to block a website.
The Indian Penal Code (as amended by the IT Act) penalizes several cybercrimes. These include
forgery of electronic records, cyber frauds, destroying electronic evidence, etc. Digital Evidence
is to be collected and proven in court as per the provisions of the Indian Evidence Act (as
amended by the IT Act). In the case of bank records, the provisions of the Bankers’ Book
Evidence Act (as amended by the IT Act) are relevant. Investigation and adjudication of
cybercrimes are done by the provisions of the Code of Criminal Procedure and the IT Act.
The Reserve Bank of India Act was also amended by the IT Act.
5.5 Evolution of cybercrime:
By its very nature, cybercrime must evolve to survive. Not only are cybersecurity experts
constantly working to close hacking loopholes and prevent zero-day events, but technology itself
is always evolving. This means cybercriminals are constantly creating new attacks to fit new
trends while tweaking existing attacks to avoid detection. To understand how cybercrime might
evolve in the future, we look back to understand how it emerged in the past.
Cybercrime’s origins are rooted in telecommunications, with “hacker” culture as we know it
today originates from “phone phreaking,” which peaked in the 1970s. Phreaking was the practice
of exploiting hardware and frequency vulnerabilities in a telephone network, often to receive free
or reduced telephone rates. As landline networks became more security savvy—and then fell out
of favor—phone phreaking became less and less common. But it hasn’t been phased out
completely. In 2018, a phone phreaker staged a series of creepy attacks in New York
City WiFi kiosks, reminding us that the phreaks may have been forgotten, but they are certainly
not gone.
Cybercrime as we currently think of it began on November 2, 1988, when Robert Tappan Morris
unleashed the Morris Worm upon the world. Much like Dr. Frankenstein, Morris did not
understand what his creation was capable of. This type of self-replicating program had never
been seen before outside of a research lab, and the worm quickly transformed itself into the
world’s first large-scale distributed denial of service (DDoS) attack. Computers worldwide were
overwhelmed by the program and servers ground to a halt. Although Morris quickly released the
protocol for shutting the program down, the damage had been done. In 1989, Morris was the first
to be prosecuted and charged in violation of the Computer Fraud and Abuse Act.
At the turn of this century, we began to see a new era of malware emerge as email gave hackers a
fresh access point. The infamous ILOVEYOU worm infected 50 million computers in 2000,
corrupting data and self-propagating by exploiting a user’s email contacts. Given that the
infected emails were coming from an otherwise trusted source, it forced many consumers to gain
perspective on cybersecurity for the very first time. With antivirus software becoming a must-
have for all computer owners, cybercriminals had to get inventive once again.
5.6 Cybercrimes(top 5):

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1. Phishing scams. Phishing is a practice of a cybercriminal or hacker attempting to obtain sensitive

or personal information from a computer user. ...
2. Identity Theft scams. ...
3. Online Harassment. ...
4. Cyberstalking. ...
5. Invasion of privacy.
5.7 Legal framework of cybercrime:
Digital Signature and Electronic Signature-
Digital signature means authentication of any electronic record through an electronic method or
procedure as provided under Sec 3 of the Act.
A subscriber can authenticate any electronic record or identification by electronic signature or

electronic authentication. An Amendment to the IT Act in 2008 introduced the term electronic
signatures.
 E-Governance- Electronic Governance is dealt with under Sections 4 to 10A of the IT

Act, 2000. It provides for legal recognition of electronic records and Electronic
signature and also provides for legal recognition of contracts formed through
electronic means.
Filing of any form, application, issue or grant of any license or payment in Government offices
and its agencies may be done through the means of an electronic form.
1. Regulation of Certifying Authorities- The IT Act provides for the Controller of

Certifying Authorities (CCA) to provide license and regulate Certifying Authorities.
The Certifying Authorities (CAs) issue digital signature certificates for electronic
authentication of subscribers. The CCA certifies the public keys of CAs using its
private key, which enables users in the cyberspace to verify that a given certificate is
issued by a licensed CA.
2. Duties of Subscribers- Duties of subscribers are mentioned in Chapter VIII under
Sections 40-42. Subscriber means a person in whose name the electronic signature

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certificate is issued. A subscriber is in a way a customer or a buyer. Duties of

subscribers are as followed:
 Sec 40: The subscriber has to generate public key pair by applying the security
procedure when any Digital Signature Certificate has been accepted by a subscriber,
the public key of which (Digital Signature Certificate) corresponds to the private key
the subscriber which is to be listed in the Digital Signature Certificate.
 Sec 41(1): He shall demonstrate acceptance of the digital signature certificate
generated by the certifying authority- to one or more persons, in a repository or
otherwise.
 Sec 41(2): He shall provide correct information.
 Sec 42(1): He shall take reasonable care to retain control of the private key
corresponding to the public key listed in his Digital Signature Certificate and shall
prevent its disclosure.
 Sec 42(2): If the private key corresponding to the public key listed in the Digital
Signature Certificate has been compromised, then, the subscriber shall communicate
the same without any delay to the Certifying Authority.
 He shall use the certificate only for the authorized purposes as specified in the
certifying authority’s CPS.
 He shall notify any changes in the information without any delay.
 He shall terminate the use of the certificate if the information in the certificate is
found to be incorrect and misleading.
 Penalties and Adjudications: Penalties and adjudication are provided under Chapter
IX from Sec 43-47.
5.8 Introduction to cybercrime
Cybercrime, or computer-oriented crime, is a crime that involves a computer and a network.

The computer may have been used in the commission of a crime, or it may be the
target. Cybercrime may threaten a person or a nation's security and financial health.
There are many privacy concerns surrounding cybercrime when confidential information is
intercepted or disclosed, lawfully, or otherwise. Debarati Halder and K. Jaishankar further define
cybercrime from the perspective of gender and defined 'cybercrime against women' as "Crimes
targeted against women with a motive to intentionally harm the victim psychologically and
physically, using modern telecommunication networks such as internet and mobile
phones". Internationally, both governmental and non-state actors engage in cybercrimes,

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including espionage, financial theft, and other cross-border crimes. Cybercrimes crossing
international borders and involving the actions of at least one nation-state is sometimes referred
to as cyberwarfare.
A report (sponsored by McAfee), published in 2014, estimated that the annual damage to the
global economy was $445 billion. Approximately $1.5 billion was lost in 2012 to online credit
and debit card fraud in the US. In 2018, a study by the Center for Strategic and International
Studies (CSIS), in partnership with McAfee, concludes that close to $600 billion, nearly one
percent of global GDP, is lost to cybercrime each year.
5.9 Cybercrime v/s conventional crime
The Scale: Attacks can be conducted on a scale not possible in the physical world. A traditional
bank robber may only be able to hit one or two banks a week, a cyber-attack can target 100’s if
not 1000’s of sites at once.
The Reach: Attacks can be performed from anywhere in the world; they can be performed
anonymously and within jurisdictions where the consequences of those actions may not, or
cannot, be addressed by the criminal justice system. Attackers are also able to extract far more
data digitally than would ever be possible in the physical world. For example, 1 gigabyte of data
is approximately 4,500 paperback books. Think of how many gigabytes of data is held on a
system, hackers can extract this within a matter of minutes.
The Speed: Attacks are conducted at machine speed; a criminal can write a piece of code that
can target multiple sites in minutes.
Perception and media effect: There is another part of the cyber threat to be considered, the
public and media perception of cybercrime. When large financial institutions have been hacked
the media has often wholly apportioned blame to the organizations rather than the criminals, this
would not be the case in a physical bank robbery.
5.10 Reasons for cybercrimes and cybercriminals:
1. Capacity to store data in comparatively small space-
The computer has a unique characteristic of storing data in a very small space. This affords
to remove or derive information either through physical or virtual medium makes it much
easier.
2. Easy to access-
The problem encountered in guarding a computer system against unauthorized access is that
there is every possibility of breach not due to human error but due to the complex
technology. By secretly implanted logic bomb, key loggers that can steal access codes,
advanced voice recorders; retina imagers, etc. that can fool biometric systems and bypass
firewalls can be utilized to get past many a security system.

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3. Complex-
The computers work on operating systems and these operating systems in turn are composed
of millions of codes. The human mind is fallible and there might be a lapse at any stage.
Cybercriminals take advantage of these lacunas and penetrate the computer system.
4. Negligence-
Negligence is very closely connected with human conduct. It is therefore very probable that
while protecting the computer system there might be any negligence, which in turn provides
a cybercriminal to gain access and control over the computer system.
5. Loss of evidence-
Loss of evidence is a very common & obvious problem as all the data are routinely
destroyed. A further collection of data outside the territorial extent also paralyzes this system
of crime investigation.
5.11 Cybercrimes against an individual, institution, and state:
Individuals:
The cybercrime against an individual involves the actions that are taken to theft personal
information and to harm an individual by making misuse of that information. Different types of
cybercrime attacks against an individual are:
1. Email spoofing
2. Cyberstalking
3. Spamming
4. Hacking
5. Virus Dissemination
Institutions:
Financial institutions are greatly affected in the event of a cyber attack.

Account takeovers: Cybercriminals have demonstrated their ability to exploit the internet of
things, especially the online interface between financial and market systems, such as automated
clearing house (ACH) systems, card payments, and market trades.
Payment systems: Fraudulent monetary transfers and counterfeiting of stored value cards are
one of the most common cyber-attacks against financial institutions, payment processors, and
merchants.
ATM skimming: ATM skimming is a common cyber-crime in India, similar to other countries.
In this crime, a criminal installs a skimming device on an ATM to collect card numbers and
personal identification number (PIN) codes. Point of sale terminals: Point of sale (POS)

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terminals in India are a prime target for cybercriminals in India. Credit and debit cards from
many financial institutions were affected by cyber-attack events that target POS terminals.
Mobile banking exploitation: As more mobile devices are being introduced in personal,
business, or government networks, they are many instances of PIN thefts. Cybercriminals have
successfully used man-in-the-middle attacks against mobile phones using malware. It is a
technique where the attacker secretly relays and alters the communication between two parties
who believe they are communicating with each other.
State: A crime against the government is also known as cyber terrorism.

Government cybercrime includes hacking government websites, military websites, or
distributing propaganda. These criminals are usually terrorists or enemy governments of other
nations.
5.12 Right to Privacy and Data Protection on the Internet
Article 21 of the Indian Constitution is a fundamental right that guarantees protection of life and
personal liberty. On August 24th, 2017, the Supreme Court in the decision of Justice K.S.
Puttaswamy (retd.) &Anr vs. Union of India and Ors held that privacy is a constitutionally
protected right that arises out of Article 21 of the Indian Constitution. The protection under
Article 21 is not absolute and is subject to certain restrictions. For instance, the right could be
restricted if there is a law created by the legislature to restrict the same (such law should promote
a legitimate state interest, should not be arbitrary and should be proportionate to the object of the
law). A draft Personal Data Protection Bill is presently under consideration. As on date, the
current framework for data protection is set out in the Information Technology, 2000 ("IT Act")
and the rules issued thereunder, most importantly the Information Technology (Reasonable
Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 ("IT
Rules").
5.13 Different offenses under IT act 2000:
The offenses included in the IT Act 2000 are as follows:
1. Tampering with the computer source documents.

2. Hacking with the computer system.
3. Publishing of information which is obscene in electronic form.
4. Power of Controller to give directions
5. Directions of Controller to a subscriber to extend facilities to decrypt information
6. Protected system
7. Penalty for misrepresentation
8. Penalty for breach of confidentiality and privacy.
9. Penalty for publishing Digital Signature Certificate false in certain particulars

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10. Publication for a fraudulent purpose

11. Act to apply for offense or contravention committed outside India
12. Confiscation
13. Penalties or confiscation not to interfere with other punishments.
14. Power to investigate offenses.
5.14 Digital signature and electronic signature:
• A digital code (generated and authenticated by public-key encryption) which is attached

to an electronically transmitted document to verify its contents and the sender's identity.
• Digital signatures work because public key cryptography depends on two mutually
authenticating cryptographic keys. The individual who is creating the digital
signature uses their private key to encrypt signature-related data; the only way to decrypt
that data is with the signer's public key.
Electronic signature:
An electronic signature, or e-signature, refers to data in electronic form, which is
logically associated with other data in electronic form and which is used by
the signatory to sign. This type of signature provides the same legal standing as a
handwritten signature as long as it adheres to the requirements of the specific regulation
under which it was created (e.g., eIDAS in the European Union, NIST-DSS in
the USA or ZertES in Switzerland).
Electronic signatures are a legal concept distinct from digital signatures, a cryptographic
mechanism often used to implement electronic signatures. While an electronic signature
can be as simple as a name entered in an electronic document, digital signatures are
increasingly used in e-commerce and in regulatory filings to implement electronic
signatures in a cryptographically protected way. Standardization agencies
like NIST or ETSI provide standards for their implementation (e.g., NIST-DSS, XAdES,
or PAdES). The concept itself is not new, with common law jurisdictions having
recognized telegraph signatures as far back as the mid-19th century and faxed signatures
since the 1980s.
Case laws
State of Tamil Nadu Vs Suhas Katti (2004)
The case was related to the posting of obscene and defamatory messages about a divorcee
woman in a Yahoo messenger group. The accused said to be a family friend of the victim,
wanted to marry her. But she ended up marrying someone else, much to his dismay. After
she got divorced, he tried to woo her again, only to be rebuffed. Incensed, he started
harassing her and posting her number on messenger groups, which led to plenty of lewd and
annoying phone calls to the victim. Finally, the victim decided to file a complaint under the
Information Technology Act.

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Although the defense put a good cause, the Additional Chief Metropolitan Magistrate, based
on the available witnesses and the other relevant evidence held the accused guilty under
section 469 and 509 of the Indian penal code and section 67 of the Information Technology
Act 2000. The accused was convicted and sentenced.
Impact: The impact of the case was far-reaching. The internet had only started to emerge
hugely within the Indian context and the laws for it were hardly stringent. However, the IT
act and its implementation, in this case, helped both the courts and the public: it set a
benchmark for the courts, inspired people, and gave them the strength to lodge cases in case
they were harassed on the internet.
Syed Asifuddin and Ors. V. The State of AP. & Anr., 2005CriLJ4314
Tata Indicom employees were arrested for manipulation of the electronic 32-bit number
(ESN) programmed into cell phones that were exclusively franchised to Reliance
The court held that such manipulation amounted to tampering with computer source code as
envisaged by section 65 of the Information Technology Act, 2000.
Ritu Kohli case
One Mrs. Ritu Kohli complained to the police against a person who was using her identity to
chat over the Internet at the website www.mirc.com, mostly in the Delhi channel for four
consecutive days. Mrs. Kohli further complained that the person was chatting on the Net,
using her name and giving her address and was talking obscene language. The same person
was also deliberately giving her telephone number to other chatters encouraging them to call
Ritu Kohli at odd hours. Consequently, Mrs. Kohli received almost 40 calls in three days
mostly at odd hours from as far away as Kuwait, Cochin, Bombay, and Ahmedabad. The said
calls created havoc in the personal life and mental peace of Ritu Kohli who decided to report
the matter. The IP addresses were traced and the police investigated the entire matter and
ultimately arrested Manish Kathuria on the said complaint. Manish pleaded guilty and was
arrested. A case was registered under section 509, of the Indian Penal Code (IPC).
Summary:
 The primary purpose of the Act is to provide legal recognition to electronic commerce
and to facilitate the filing of electronic records with the Government
 Cyber Law is the law governing cyberspace. Cyberspace is a very wide term and includes
computers, networks, software, data storage devices (such as hard disks, USB disks, etc),
the Internet, websites, emails and even electronic devices such as cell phones, ATMs, etc.
 The primary source of cyber law in India is the Information Technology Act, 2000 (IT
Act)which came into force on 17 October 2000. The primary purpose of the Act is to
provide legal recognition to electronic commerce and to facilitate the filing of electronic
records with the Government.
 Cybercrime’s origins are rooted in telecommunications, with “hacker” culture as we
know it today originates from “phone phreaking,” which peaked in the 1970s. Phreaking

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was the practice of exploiting hardware and frequency vulnerabilities in a telephone

network, often to receive free or reduced telephone rates.
 The cybercrime against an individual involves the actions that are taken to theft personal
information and to harm an individual by making misuse of that information
 Financial institutions are greatly affected in the event of a cyber attack.
 Indian Constitution is a fundamental right that guarantees protection of life and personal
liberty. On August 24th, 2017, the Supreme Court in the decision of Justice K.S.
Puttaswamy (retd.) &Anr vs. Union of India and Ors held that privacy is a
constitutionally protected right that arises out of Article 21 of the Indian Constitution.
 The offenses included in the IT Act 2000 are as follows:
1. Tampering with the computer source documents.

2. Hacking with the computer system.
3. Publishing of information which is obscene in electronic form.
 A digital code (generated and authenticated by public-key encryption) which is attached

to an electronically transmitted document to verify its contents and the sender's identity
 An electronic signature, or e-signature, refers to data in electronic form, which is
logically associated with other data in electronic form and which is used by
the signatory to sign.
Terminal questions
2 marks:
1. What is cyber law?

2. What is cybercrime?
3. Define electronic signature.
4. Define digital signature.
5. What do you mean by intellectual property?
6. Give the meaning of data protection and privacy.
7. Give the meaning of :
 Copy right law
 Trademark law
8. Give the meaning of:
 Semiconductor law
 Patent law
9. Write any two needs of cyber law.
10. Mention any two cybercrimes.
11. What is a computer-oriented crime?
12. Give the meaning of conventional crime.
13. Who are the cybercriminals?
14. Mention any two offenses under IT act 2000.

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4 marks:
1. Write the introduction of cyber law in India.

2. What is cyber law? Which are the rules of conduct of cyber law?
3. Explain the laws relating to cyber law.
4. Explain any five cybercrimes.
5. Differentiate between cybercrime and conventional crime.
6. Discuss the reasons for cybercrime and cybercriminals.
7. Write a note on right to privacy and data protection on the internet.
10 marks:
1. Briefly explain the need for cyber law.

2. Write a note on the Jurisprudence of Indian cyber law.
3. Explain the evolution of cybercrime.
4. Briefly explain the legal framework of cybercrime.
5. Write a note on cybercrime against:
 Individuals
 Institution
 State
6. Discuss the different offenses under the IT Act 2000 in detail.
Terminal answer:
2 marks
1. Refer 5.2
2. Refer 5.2.1
3. Refer 5.2.2
4. Refer 5.2.3
5. Refer 5.2.4
6. Refer 5.2.5
7. Refer 5.2.3
8. Refer5.2.3
9. Refer 5.3
10. Refer 5.6
11. Refer 5.8
12. Refer 5.9
13. Refer 5.10
14. Refer 5.13
4 marks:

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1. Refer 5.1
2. Refer 5.2
3. Refer 5.2.1
4. Refer 5.6
5. Refer 5.9
6. Refer 5.10
7. Refer 5.12
10 marks:
1. Refer 5.3
2. Refer 5.4
3. Refer 5.5
4. Refer 5.7
5. Refer 5.11
6. Refer 5.13
References

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BUSINESS LAW
MODEL QUESTION PAPER
TIME 3 HRS TOTAL MARKS:70
SECTION A
1. Answer any eight of the following questions 2x8=16

a) Define business law.
b) Mention any two cybercrimes.
c) What is cybercrime?
d) What is bailment?
e) Who is an unpaid seller?
f) Distinguish between conditions and warranties.
g) What is competition law?
h) Define consumer.
i) Define price
j) Give any two examples of unfair trade practices.
k) Write any two functions of the district forum
SECTION B
2. Answer any six of the following questions 4x6=24

a) Who are the persons disqualified by law?
b) What are the different kinds of bailment?
c) Differentiate between a cybercrime and conventional crime.
d) Distinguish between sale and agreement to sell.
e) Explain the essentials of the sale of goods.
f) State the objectives of the competition law.
g) What are the offenses and penalties under the competition act?
h) Write a note on right to privacy and data protection on the internet.
SECTION C

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3. Answer any three of the following questions 3x10=30

a) Explain the various modes of discharge of a contract.
b) Explain the evolution of cybercrime.
c) Define pledge. What are the respective rights and duties of pledger and pledgee?
d) Explain the rules of delivery of goods.
e) Discuss in detail the district forum.

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1.1 Meaning and Definition of Business Law and its Scope:

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Scope of Business Law

1.2 Sources of Business Law:

The important sources of business law are:

2. Custom – A substantial part of business law is customary, notwithstanding advances made in

3. Case law- Popularly called ‘’precedent’’ by lawyers is a judgment of a superior court

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1.3 THE INDIAN CONTRACT ACT, 1872:

CONTRACT = AGREEMENT + ENFORCEMENT AT LAW

1.5 .Types of contracts:

Contracts can further be divided into three major categories.

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I. Classification according to the legal validity

Difference between Voidable and Void Contracts

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II. Classification according to Formation:

III. Classification according to Performance

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1.6 Essential Elements of a Valid Contract:

1. Offer & Acceptance

2. Intention to Create Legal Relationship

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9. Agreement not declared to be Void or Illegal

10. Legal Formalities

1.7 Offer & Acceptance –Essential elements

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An Offer may be express or implied.

3. Different from a declaration of intention or invitation to offer: Mere declaration of

4. Offer must be communicated: An offer to be complete must be communicated. Unless

6. Non-compliance of a condition not deemed to be acceptance: An offer must not contain a

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2. Communicated to offeror –Acceptance must be communicated to the offeror to create a

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1.8 Revocation of an Offer:

1. By communication of notice of revocation - An offer can be revoked at any time before

3. Non-fulfillment of condition precedent: If the offeree fails to fulfill a condition precedent

7. Law is changed – if the contemplated contract becomes illegal or incapable of

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Case: Kedarnath Vs. Gauri Mohamed - Commissioner of Howrah Municipality started a

Essential features of consideration:

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4. The consideration may be either positive or negative.

Present consideration: Consideration which moves simultaneously with the promise,

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“No Consideration, No Contract”

Contract without consideration is void – Exceptions thereto:

(1) Natural Love and Affection

(2) Voluntary Compensation.

(3) Promise to pay the time-barred debt:

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(4) Completed gift

(7) Contribution to charities. A promise to contribute to charity, though gratuitous, would be

1.10 Capacity to contract:

Persons not competent to contract:

Minors: Indian Majority Act, 1875 – Sec.3 specifies that –

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(1) a minor is a person who has not completed 18 years of age.

Rules regarding agreements with minors:

MohiriBibi Vs. DharmodasGhose - minor mortgaged his property to money-lender to secure