INDIAN

CONTRACT ACT, 1872

(Act 9 OF 1872, 1st Sept )

Prof. (Dr) P.K.Pattnaik

POST GRADUATE DEPARTMENT OF LAW
Utkal University
Orissa
 PROPOSAL
COMMUNICATION
ACCEPTANCE
PROMISE
CONSIDERATION
AGREEMENT
 Contract

PROPOSAL
COMMUNICATION
ACCEPTANCE
PROMISE
CONSIDERATION
AGREEMENT
 ESSENTIAL ELEMENTS OF A VALID
CONTRACT
1. Agreement.
2. Intention to create legal relationship.
3. Free and genuine consent.
4. Parties competent to contract.
5. Lawful consideration.
6. Lawful object.
7. Agreements not declared void or illegal.
8. Certainty of meaning.
9. Possibility of performance.
10. Necessary Legal Formalities.
 What is Contract
• "A promise or set of promises which the
law will enforce". Sir Frederick Pollock:
• An agreement enforceable by law is a
contract. Section 2(h)
• The person making the proposal is called
the “promisor”,
• and the person accepting the proposal is
called the “promisee”:Section 2(c)
Classification/Types of Contracts
• 1. From the point of view of enforceability
• (a) Valid contracts
• (b) Voidable contracts 2(i)
• (c) Void contracts or agreements
• (d) Illegal agreements
• (e) Unenforceable Agreements (Certain contracts must be in
writing)
• 2. According to Mode of Formation
• (a) Express contract
• (b) Implied contract
• (c) Quasi-contracts
• 3. According to Performance
• (a) Executed
• (b) Executory
• (c) Uni-lateral
• (d) Bi-lateral
 Applied Forms of Contract
• DGS & D Rate Contract. The Director
General of Supplies and Disposals DGS & D)
constitutes the central purchasing organization of
the Govt. of India.
• Rate Contract. It is a contract for the supply of
store at a specified rate during the period of
contract. No quantity is mentioned and the
contractor is bound to accept any order, which
may be placed on him.
• AMC/Repair Contracts.
• Based On The Scope Of Work Required To Be
Executed:
• Works Contract:
• Supply Contract:
• Erection Contract:
• Service Contract:
• Running Contract.
• Based on the method of execution
• (a) Lump sum contract: Specific time and content
• (b) Schedule rate contract: carryout a work or effect
supply specified and within a given period, at the fixed
unit rates or the prices for each of the various items
comprising such work or supply.
 E-Contracts
• Generally the basic forms of "E-Contracts" that a
person comes across if he is computer savvy are:
• The Click-wrap or Web-wrap Agreements. 
• The Shrink-wrap Agreements.
• Specht v. Netscape Communications Corp., 150 F. Supp. 2d 585
(S.D.N.Y.2001),
• The Electronic Data Interchange or (EDI).
• There are four major sets of EDI standards:
• The UN-recommended UN/EDIFACT is the only international standard and is
predominant outside of North America.
• The US standard ANSI ASC X12 (X12) is predominant in North America.
• The TRADACOMS standard developed by the ANA (Article Numbering
Association) is predominant in the UK retail industry.
• The ODETTE standard used within the European automotive industry
• THE CONSUMER PROTECTION (DISTANCE SELLING)
REGULATIONS 2000 UK
• The cooling-off period and cancellations
• When selling to consumers by mail order, phone, fax, Internet
or digital TV you must give them a cooling-off period during
which they have an unconditional right to cancel the contract.
• In the case of services, the cooling-off period normally ends
seven working days after the day the order was made - or after
written confirmation is received.
• In the case of goods, the cooling-off period normally ends
seven working days after the day the goods are received.
• Consumers must inform Expressly
• Consumers' money should be reimbursed (Max 30 days)
• Your contract with the consumer should also specify who pays
any postage necessary to return unwanted goods.
• Exception: Perishable/ time specific items
 Offer
• 2(a)When one person signifies to another his
willingness to do or to abstain from doing
anything, with a view to obtaining the assent of
that other to such act or abstinence, he is said
to make a proposal:
• Balfour v. Balfour (1919) 2 KB 571( Intention to form
contract)
• Upton Rural district Council v. Powell (Implied Offer)
• Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256.
(Unilateral Offer
 Types of Offer
• General Offer: Lalman v. Gauri Dutt(1913)1
QB256
• General Offer of continuing nature: Carlill v
Carbolic Smoke Ball Co [1893] AC552
• Specific Offer:
• Cross Offer: Tinn v Hoffman (1873) 29 LT 271.
Cross-offers do not make a binding contract.
• Invitation to offer/Treat:
• Impossible/Unenforceable Offer:
 Invitation to Offer/treat

• AUCTIONS
• DISPLAY OF GOODS
• ADVERTISEMENTS
• TENDERS
• COMPANY PROSPECTUS
• Payne v Cave (1789) 3 Term Rep 148
• Fisher v Bell [1960] 3 All ER 731 Partridge v Crittenden [1968] 2 All
ER 421.
• Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256.
• Blackpool Aero Club v Blackpool Borough Council [1990] 3 All ER 25.
 Rules of Offer
• 1. Must be made with a view to obtain
acceptance.
• 2. Must be made with the intention of creating
legal relations. [Balfour v. Balfour (1919) 2 K.B. 571.]
• 3. Terms of offer must be definite,
unambiguous and certain or capable of being
made certain. Harvey v. Facie, Bumper Hall Pen Case
• 4. It must be distinguished from mere
declaration of intention or an invitation to offer.
• 5. It must be communicated to the offeree.
[Lalman Shukla v. Gauri Dutt,II, A.L.J. 489].
• 6. The offer must not contain a term the non-
compliance of which may be assumed to
amount to acceptance.
• 7. A tender is an offer as it is in response to an
invitation to offer.
• 8. The Special terms, forming part of the offer,
must be duly brought to the notice of the
offeree at the time the offer is made. [Parker v. South
Eastern Rly. Co. (1877) 2 C.P.D. 416]. Henderson v. Stevenson (1875) 2
H.L.S.C. 470].

• 9. Two identical cross-offers do not make a

contract.
 Mode of Making Offer
• EXPRESS
• Or
• IMPLIED
• REASONABLE COMMUNICATION MODE
AND MEDIUM
Communication, Acceptance and
Revocation of Proposals.
• Section 3. The communication of
proposals, the acceptance of proposals,
and the revocation of proposals and
acceptances, respectively, are deemed to
be made by any act or omission of the
party proposing, accepting or revoking, by
which he intends to communicate such
proposal, acceptance or revocation, or
which has the effect of communicating it.
Communication When Complete.
• SEC 4. The communication of a proposal is complete
when it comes to the knowledge of the person to
whom it is made.
• The communication of an acceptance is complete,—
• as against the proposer, when it is put in a course of
transmission to him, so as to be out of the power of
the acceptor;
• as against the acceptor, when it comes to the
knowledge of the proposer.
• The communication of a revocation is complete,—
as against the person who makes it, when it is put into
a course of transmission to the person to whom it is
made, so as to be out of the power of the person who
makes it;
 Essentials of a Valid Acceptance
• 1. Acceptance must be absolute and unqualified.
S:7[Union of India v. Babulal, A.I.R. 1968 Bombay 294]. House Purchase Case

• 2. It must be communicated.
• 3. It must be according to the mode prescribed.
• 4. It must be given within the time specified or
within reasonable time.
• 5. It must be in response to offer.
• 6. It must be made before the offer lapses.
• 7. It must be given by the person to whom the
offer is made.
 Revocation of Proposals and
Acceptances

• Section 5.
• A proposal may be revoked at any time before
the communication of its acceptance is
complete as against the proposer, but not
afterwards.
 General Rules of Communication
• The general rule is that an acceptance must be communicated
to the offeror. Until and unless the acceptance is so
communicated, no contract comes into existence: Lord Denning
in Entores v Miles Far East Corp. [1955] 2 All ER 493.
• The acceptance must be communicated by the offeree or
someone authorised by the offeree. If someone accepts on
behalf of the offeree, without authorisation, this will not be a
valid acceptance: Powell v Lee (1908) 99 LT 284.
• The offeror cannot impose a contract on the offeree against his
wishes by deeming that his silence should amount to an
acceptance: Felthouse v Bindley (1862) 11 CBNS 869.
• Where an instantaneous method of communication is used, eg
telex, it will take effect when and where it is received. See:
• Entores v Miles Far East Corp [1955] 2 QB 327 The Brimnes
[1975] QB 929 ,Brinkibon v Stahag Stahl [1983] 2 AC 34.
 EXCEPTIONS TO THE COMMUNICATION RULE
• a) In unilateral contracts: Compliance is sufficient
• b) The offeror may expressly or impliedly waive the
need for communication of acceptance by the offeree,
• c) The Postal Rule - Adams v Lindsell (1818) 1 B &
Ald 681.
• (d) The postal rule applies to communications of
acceptance by cable, including telegram, but not to
instantaneous modes such as telephone, telex and
fax. The postal rule will not apply:
• (i) Where the letter of acceptance has not been
properly posted, as in Re London and Northern Bank
(1900),
• (iii) Where the express terms of the offer exclude the
postal rule, In Holwell Securities v Hughes (1974, ),
 Revocation of Posted Acceptance.
• Can an offeree withdraw his acceptance, after it has
been posted, by a later communication, which
reaches the offeror before the acceptance? There is
no clear authority in English law.
• The Scottish case of Dunmore v Alexander (1830)
appears to permit such a revocation but it is an
unclear decision. A strict application of the postal rule
would not permit such withdrawal.
• This view is supported by decisions in: New Zealand
in Wenkheim v Arndt (1873) and South Africa in A-Z
Bazaars v Ministry of Agriculture (1974). However,
such an approach is regarded as inflexible
 TERMINATION OF THE OFFER
• 1. ACCEPTANCE
• 2. REJECTION
• 3. REVOCATION Unless and until the revocation is so
communicated, it is ineffective. See: Byrne v Van Tienhoven
(1880) 5 CPD 344.
• 4. COUNTER OFFER
• See above for Hyde v Wrench (1840).
• 5. LAPSE OF TIME Ramsgate Victoria Hotel v Montefiore
(1866) LR 1 Ex 109.
• 6. FAILURE OF A CONDITION
• See: Financings Ltd v Stimson [1962] 3 All ER 386.
• 7. DEATH The offeree cannot accept an offer after notice of the
offeror's death. However, if the offeree does not know of the
offeror's death, and there is no personal element involved, then
he may accept the offer. See: Bradbury v Morgan (1862) 1 H&C
249.
 Instances of void Agreements
• (a) Agreements entered into through a mutual mistake of fact
between the parties (Section 20).
• (b) Agreements, the object or consideration of which is unlawful
(Section 23).
• (c) Agreements, part of the consideration or object of which is
unlawful (Section 21).
• (d) Agreements made without consideration (Section 25).
• (e) Agreements in restraint of marriage (Section 26).
• (f) Agreements in restraint or trade (Section 27).
• (g) Agreements in restraint of legal proceedings (Section 28).
• (h) Uncertain agreements (Section 29).
• (i) Wagering agreements (Section 30).
• (j) Impossible agreements (Section 56).
• (k) An agreement to enter into an agreement in the future.
 Consideration: Sec 2(d)
• Currie v. Misa (1875)LR 10 Ex 153
• “A valuable consideration in the sense of
law may either consist some right, interest,
profit or benefit accruing to one party,or
some forebearance, detriment, loss or
responsibility given, suffered or
undertaken by the other.”
• It is the price of the contract- Pollock
• Sec 2 ( d) When, at the desire of the promisor,
• the promisee or any other person has

• done or abstained from doing, or

• does or abstains from doing, or
• promises to do or to abstain from doing,
something,
• such Act or abstinence or promise
• is called a consideration for the promise :
 Rules of Consideration
1. It must move at the desire of the promisor
Durga Prasad v. Baldeo (1880) All 221
2. It may move from the promisee or any other person
Chinnaya v. Ramaya (1882) 4 Mad 137
3. It may be act ,obstinence or forbearance or return
promise
• forbearance to sue
• Compromise of disputed claims
• Composition with creditors
4. It may be past, present, or future
5. It need not be adequate
Sec 25 expl 2 inadequecy of consideration
6. It must be real and not illusory
• Physical impossiblity
• Legal Impossibility
• Uncertain consideration
• Illusory consideration
7 It must be some thing which the promisor is not already
bound to do
8. It must not be illegal, immoral or opposed to public policy
Agreement without consideration is void
Exceptions
• Gift Sec 25 (1)
• Compensation for voluntary services Sec 25 (2)
• Promise to pay time barred debt Sec 25 (3)
• Agency Sec 185
What Agreements are Contracts

• All agreements are contracts if they are made

by
• the free consent of parties
• competent to contract,
• for a lawful consideration and
• with a lawful object, and are not hereby
expressly declared to be void. [section 10].
• Consent is said to be free when it is not caused
by –
• (1) coercion, as defined in section 15, or
• (2) undue influence, as defined in section 16, or
• (3) fraud, as defined in section 17, or
• (4) misrepresentation, as defined in section 18, or
• (5) mistake, subject to the provisions of sections 20, 21
and 22. - -
• Consent is said to be so caused when it would not have
been given but for the existence of such coercion, undue
influence, fraud, misrepresentation or mistake. [section
14].
 Who are competent to contract
• Every person is competent to contract who is of the
age of majority according to the law to which he is
subject, and who is of sound mind, and is not
disqualified from contracting by any law to which he is
subject. [Section 11].
• Minor
• Persons of Unsound mind
• Alien enemies
• Foreign sovereigns
• Corporations
• Insolvents
• Convict
• Minority (Sec3 Indian Majority Act 1875)
1. An Agreement with minor is void ab initio
2. He can be a promisee or beneficiary
3. His Agreement can not be ratified on
attainment of majority
4. If he has received any benefit under void
agreement he shall not indemnify
5. He can always claim minority
6. No specific performance of contract
7. Can not enter in to contract of Partnership
8. Can not be declared as Insolvent
9. Parents are not liable for minor’s contract
10. Minors are liable for necessities
 Free Consent
• Consent of both parties must be free.
• Consent obtained through coercion, undue
influence, fraud, misrepresentation or mistake
is not a ‘free consent’.
• Two or more persons are said to consent when
they agree upon the same thing in the same
sense. [section 13]
• Consensus ad idem
 Coercion (Section15)
• When a person is compelled to enter in to
a contract by use of force by the other
party or under threat “coercion” is said to
be employed
 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 is in a position to dominate the will of the other and uses
that position to obtain an unfair advantage over the other.
• (2) In particular and without prejudice to the generality of the
foregoing principle, 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 or
where he stands in a fiduciary relation to the other; or
• (b) where he makes a contract with a person whose mental
capacity is temporarily or permanently affected by reason of age,
illness, or mental or bodily distress.
 Legality of Object
• In the following circumstances consideration or object is
unlawful
1. Forbidden bylaw
2. Defeat the provisions of law (Nandlal v. Thomas 171 IC948)
3. If it is fraudulent
4. If it involves or implies injury to the person or property of
another( Gherulal Parakh v. Mahadeo Dass, AIR 1959)
SC781
5. If the Court regards it as immoral(Baivavijili v. Nansa Nagar ,
1885 Bom 152)
6. Court considers it as opposed to public policy
Trading with Enemy, commit crime , stifling of prosecution,
sale of public office, In restraint of trade, parental and marital
rights
 Contingent Contract
• A contingent contract, is a contract to do or not to do
something, if some event, collateral to such contract does or
does not happen.( Sec 31)
• Contracts of Insurance, Indemnity and Guarantee are some
examples of contingent contracts.
• A contract may be absolute or contingent
Essentials of a Contingent Contract
• 1. The performance of a contingent contract is made dependent
upon the happening or non-happening of some event.
• 2. The event on which the performance is made to depend, is
an event collateral to the contract, i.e., it does not form part of
the reciprocal promises which constitute the contract.
• 3. The contingent event should not be the mere will of the
promisor.
 Rules of Contingent Contract
1. It depends upon the happening of the future
uncertain event . So, the contract can be
enforced only if the uncertain event has
happened and if it becomes impossible it is
void (Section 32).
2. It depends upon the non happening of the
future uncertain event. So, the contract can be
enforced only if the happening of the future
uncertain event becomes impossible as that
event can not happen (Section 33).
4. It depends upon the happening of a specified
uncertain event within a fixed time . So, the contract
can be enforced only if the uncertain event happens
within the fixed time (Section 35 para 1).
5. It depends upon the non happening of a specified
uncertain event within a fixed time So, the contract
can be enforced only if the uncertain event
impossiblewithin the fixed time as that event can not
happen (Section 35 para II).
6. Contingent agreements to do or not to do anything, if
an impossible event happens, are void, whether the
impossibility of the event is known or not to the
parties to the agreement at the time when it is made.
If the contract is Contracts If a contract is
contingent upon contingent upon contingent upon

Happening of a non-happening of an as to how a person

uncertain future uncertain future event will act at an
event unspecified time,

It canot be enforced can be enforced when the event shall be considered

unless that event the happening of that to become impossible when
event becomes such person does anything,
happened impossible, and not which renders it impossible
before. that he should so act within
any definite time, or otherwise
If it becomes than under further
impossible it is void contingencies
(Section 32). (Section 33) (Section 34)
If the contract is Contracts Agreement s are
contingent upon contingent upon void when

the happening of a the non-happening of a

specified event within a fixed They are contingent
specified uncertain on impossible
time may be enforced by law
event within a fixed events,
time become void if

when the time fixed has Whether or not the fact is

at the expiration of the
expired and such event known to the parties at the
time fixed, such event has
has not happened, or, time of making the contract
not happened or
before the time fixed
if, before the time fixed,
expired, if it becomes
such event becomes
certain that such
impossible
event will not happen
(Section 35 para II)
(Section 35 para I)
 QUASI CONTRACTS
(Certain Relations resembling those created by contracts)
[Sections 68–72]

‘Quasi Contracts’ are so called because the

obligations associated with such transactions
could neither be referred as tortious nor
contractual, but are still recognised as
enforceable, like contracts, in Courts.
According to Dr. Jenks, Quasi-contract is “a
situation in which law imposes upon one
person, on grounds of natural justice, an
obligation similar to that which arises from a
true contract, although no contract, express or
implied, has in fact been entered into by them.”
• Kinds of Quasi Contract

• Supply of Necessities ( section 68)

• Payment by an Interested Person( section 69)
• Obligation to pay for Non-gratuitous acts( section 70)
• Responsibility of Finder of Goods ( section 71)
• Mistake or Coercion( section 72)
• Doctrine of Quantum Meruit ( as much as Merited)
 Quantum Meruit
‘ Quantum meruit’ means ‘as much as earned or as much
earned’.
A contract may come to end by
• breach of contract
• contract becoming void or
• Voidable contract avoided by party.
In such case, if a party has executed part of contract, he is
entitled to get a proportionate amount i.e. ‘as much as earned
by him’.
This is not by way of ‘damages’ or ‘compensation for loss’. - -
The principle is that even when contract comes to a premature
end, the party should get amount proportional to the work
done/services provided/goods supplied by one party.  One
party should not get enriched at the cost of other.
 Performance of Contract

Parties to the contract must either perform or offer to

perform their respective promises, unless Such
performance is dispensed with or excused under the
provision of the law
• Attempted Performance or Tender
• It is an offer of performance by the promisor in
accordance with the terms of contract.
• If the promisee does not accept performance, the
promisor is not responsible for the non performance,
nor does he thereby lose his rights under the
contract.
• Valid Tender conditions
a) Unconditional
b) It must be in totality
c) It must be by the person in position and willing to
perform the promise
d) with in due time and place
e) Tender of Goods-reasonable time for inspection
f) Incase of money- valid legal tender
g) If there are multiple promisee- it can be made to any
one of them
Reciprocal promises:
Promises which form the consideration or part
of the consideration for each other are called
reciprocal promises.
Who can perform:
• Promisor,
• Agent
• By joint promisor
Who can demand performance
i) Promisee and on event of death his legal
representative
ii) Multiple promisee, all of them
• Time and Place of performance
• Time is the Essence of Contract
• Appropriation of Payment( section 59)
a) The debtor has, at the time of payment, the
right of appropriating the payment
b) In default of debtor, the creditor has the
option of election
c) In default of either, law will allow the
appropriation of debts in order of time
Rule in Clayton’s Case(1816) 1 Mer. 572
Rule in re Hallett’s Estate case
• ASSIGNMENT OF CONTRACTS
• Assignment means transfer. When a party to a
contract transfers his right, title and interest in
the contract to another person or other persons,
he is said to assign the contract.
• Assignment of a contract can take place by
operation of law or by an act of the parties.
 DISCHARGE OF CONTRACTS
(Sections 73-75)
• The cases in which a contract is discharged
may be classified as follows:
• A. By performance or tender.
• B. By mutual consent. (Novation, Rescission, Alteration, Remission, Accord
and Satisfaction, Merger, Waiver.)

• C. By subsequent impossibility.
• D. By operation of law.
• E. By breach.
• SUBSEQUENT IMPOSSIBILITY
• (When does Contract Become Void?)
• 1. By Destruction of subject matter of the contract.
• 2. By the death or disablement of the parties.
• 3. By subsequent illegality.
• 4. By declaration of war.
• 5. By non-existence or non occurrence of a particular state of
things.
• 6. Difficulty of performance does not amount to impossibility.
• 7. Commercial impossibility does not render a contract void.
• 8. Strikes, lock-outs and civil disturbances do not terminate
contracts unless provided for in
• the contract.
• 9. Failure of one of the objects does not terminate the contract.
• 10. Non-performance by the third party does not exonerate the
promisor from his liability.
 Consequences of Breach of
Contract
• Compensation is payable for breach of
contract.
• Penalty is also payable if provided in
contract.
• Breach of contract may be actual or
anticipatory.
Principles of Compensation and Damages

• Following points are important:

• Compensation for loss or damage is payable.
Since the word used is ‘compensation’, punitive
damages cannot be awarded.
• These should be in usual course or known to
parties i.e. both parties must be aware
• No compensation for remote and indirect loss or
damage
• Same principle applies to quasi contract also.
 GENERAL DAMAGES
• General damages are those which result from
‘direct and proximate’ consequences from
breach of contract. Normally, what can be
awarded is compensation for loss or damage
which can be directly or proximately attributed to
the breach of contract.
• One way of assessing damages is the difference
between the contract price and the market price
on date of breach of contract, plus reasonable
expenses incurred by him on account of the
breach plus cost of suit in court of law.
 CONSEQUENTIAL LOSS OR
SPECIAL DAMAGE
• Special damages or consequential damages arise due to
existence of special circumstances. Such damages can
be awarded only in cases where the special
circumstances were foreseeable by the party committing
the breach or were specifically known to the party.
Consequential losses like loss of profit due to breach,
which may occur  indirectly due to breach cannot be
normally awarded unless there are special
circumstances which parties were aware. Loss of profit
can be awarded only in cases where seller could have
foreseen those losses and arose directly as result of
breach.
PROMISEE SHOULD TAKE STEPS TO
MITIGATE THE LOSS OR DAMAGE
Explanation to section 73 specifically provides
that in estimating loss or damage, the means
available for remedying the inconvenience
caused by breach of contract shall be taken into
account.
Thus, promisee should take all reasonable steps
to mitigate the losses e.g. if promisor does not
supply goods, he should make efforts to procure
from alternate sources may be even at higher
price, to reduce his losses arising out of breach
of contract.
 Contract of Indemnity
A contract by which one party promises to save
the other from loss caused to him by the conduct
of the promisor himself, or by the conduct of any
other person, is called a ‘contract of indemnity’.
Illustration - A contracts to indemnify B against the
consequences of any proceedings which C may
take against B in respect of a certain sum of 200
rupees. This is a contract of indemnity. [section
124].
Promisor= Indemnifier Promisee= indemnity holder
Indemnity may be express or implied
 Contract of Guarantee
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.
[section 126]. - - [Person giving guarantee is also called
as ‘guarantor’. However, Contract Act uses the word
‘surety’ which is same as ‘guarantor’]. - - Three parties
are involved in contract of guarantee. Contract between
any two of them is not a ‘contract of guarantee’. It may
be contract of indemnity.
Essentials Characteristics of Guarantee
1 Concurrence of parties
2. Primary liability on some one
Kinds of Guarantee
a. Specific Guarantee
b. Continuing Guarantee
Rights of Surety
i) As against the creditor: Before payment of the
principal debt, a surety can file a suit for
declaration that the principal debtor shall be
the person liable to pay the amount.
ii) On payment of the principal debt, the surety steps in
to the shoe of the creditor
As Against debtor: The surety, upon payment or
performance of all that is liable for, is invested with all
the rights which the creditor has against the Principal
debtor ( Sec:145) He is also entitled to recover from
the principal debtor what ever sum he has rightfully
paid under gurantee, but not sums which he has paid
wrongfully.
As Against Co-sureties: Equality of burden and benefit
Discharge of Surety
By revocation
By invalidation of Contract
By conduct of creditor
 Bailment
• Bailment means act of delivering goods for a specified purpose
on trust.
• In bailment, possession of goods is transferred, but property i.e.
ownership is not transferred.
• 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 otherwise disposed of
according to the directions of the person delivering them.
• The person delivering the goods is called the “bailor”. The
person to whom they are delivered is called the “bailee”. - -
• Explanation : If a person already in possession of the goods of
another, contracts to hold them as a bailee, he thereby
becomes the bailee, and owner becomes the bailor, of such
goods, although they may not have been delivered by way of
bailment. [section 148].
 Pledges
Pledge is bailment for security. Common
example is keeping gold with bank/money
lender to obtain loan. Since pledge is
bailment, all provisions applicable to
bailment apply to pledge also. In addition,
some specific provisions apply to pledge.
The bailment of goods as security for
payment of a debt or performance of a
promise is called “pledge”. The bailor is in
this case called the “pawnor”. The bailee is
called the “pawnee”. [section 172].
 Contract of Agency
The principles of contract of agency are –
(a)Excepting matters of a personal nature, what a
person can do himself, he can also do it through
agent (e.g. a person cannot marry through an agent,
as it is a matter of personal nature)
(b)A person acting through an agent is acting himself,
i.e. act of agent is act of Principal.
Since agency is a contract, all usual requirements of
a valid contract are applicable to agency contract
also, except to the extent excluded in the Act. One
important distinction is that as per section 185, no
consideration is necessary to create an agency.
 Rights of Agent
• 1 Right to Retainer 217
• 2. Right to receive remuneration 219
• 3. Right to lien 221
• 4. Right to Indemnification 222
• 5. Right to compensation 225
• 6. Right to stoppage in transition