BUSINESS

LAW
WHAT IS LAW
Law in simple words mean the body of rules whether
proceeding from formal enactment or from customs,
which a particular state or community recognize as
binding on its subjects or members.
IMPORTANT ELEMENTS OR
CHARACTERISTICS OF LAW
 Law is a body of rules
 Law is imposed

 Law is enforced by executives

 The State

 Content of Law

 Purpose

 Law is for guidance or conduct of person

DIFFERENT MEANING FOR DIFFERRENT
INDIVIDUALS
The word “law’ is a general term and has
different connotations for different people, e.g.
1) A citizen may think of law as a set of rules which
he must obey.
2) A lawyer who practices law may think of law as
a vocation.
3) A legislator may look at law as something
created by him.
4) A judge may think of law as guiding principles
to be applied in making decisions.
CLASSIFICATION OF LAW
 Public Law
 Private Law

 Criminal Law

 Civil Law

 International Law

 Municipal Law
SOURCES OF LAW
Primary Source
 Customs

 Judicial Precedents

 Statue

 Personal Law

Secondary Source
 English Law

 Equity and Good Conscience

NATURE OF MERCANTILE LAW
 The term ‘Mercantile law’ is used to denote that branch of law
which is concerned with such matters as are usually the
subject of what may be called mercantile transactions, i.e. it
deals with contractual situations and the right and obligations
arising out of mercantile transactions between mercantile
persons.
SOURCES OF MERCANTILE
LAW
 English Mercantile Law
a) Common Law
b) Equity
c) Statute Law
d) Law Merchant / Maritime Usages
e) Roman Law
f) Case Law
 Statute Law
 Judicial Decisions
 Customs and Usages
CLASSIFICATION OF
CONTRACTS IN ENGLISH
LAW

FORMAL SIMPLE
CONTRACTS CONTRACTS
CLASSIFICATION OF
CONTRACTS
VALIDITY FORMATION PERFORMANCE

VOIDABLE EXPRESS EXECUTED

CONTRACT CONTRACT CONTRACT

VOID IMPLIED EXECUTORY

CONTRACT CONTRACT CONTRACT

VALID QUASI UNILATERAL

CONTRACT CONTRACT CONTRACT

UNENFORCEABLE
ECOMMERCE BILATERAL
CONTRACT OR
ILLEGAL CONTRACT CONTRACT
MATTER VOID CONTRACT VOIDABLE CONTRACT

DEFINITION Ceases to be enforceable Enforceable by law, by one

or more parties

SECTION

NATURE Valid when made but Remains voidable untill

becomes unenforceable cancelled by parties

RIGHTS No legal right Party has the right to cancel

the contract

PERFORMANCE Party cannot demand If not cancelled within a

performance reasonable time,
performance can be
demanded
REASON Due to change in law or If concent is not obtained
circumstances then it is regarded as a
voidable contract
DAMAGES Cannot claim damages Can claim damages in
certain cases
 INDIAN
CONTRACT ACT,
1872
THE INDIAN CONTRACT ACT
 Thelaw relating to contracts is contained in the Indian
Contract Act, 1872. The Act deals with,
a) The general principles of the law of contract (Sec 1
to 75)
b) Some special contacts only (Sec 124 to 238)
DEFINITION OF CONTRACT
 A Contract is an agreement made between two or more
parties which the law will enforce.

 Section 2 (h) defines a contract as “an agreement

enforceable by law”.
 ENFORCEABI
AGREEMENT CONTRACT
LITY AT LAW
AGREEMENT AND ITS
ENFORCEABILITY
 An Agreement is defined as ‘every promise and every set of
promises, forming consideration for each other.’ Section 2 (e)
 A Promise is defined thus: ‘When the person to whom the
proposal is made signifies his assent there to, the proposal is said
to be accepted. A Proposal, when accepted, becomes a promise.’
Section 2 (b)
 A contract as already observed emerges from the acceptance of
an offer. Section 2(h) states that “ a proposal when accepted
becomes a promise” and define acceptance as “when the person
to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted. Thus acceptance is the
manifestation by the offeree of his assent to the term of the offer”.
 A
G
R
E
OFFER E ACCEPTANCE
M
E
N
T
AGREEMENT CONSENSUS AD
IDEM
Same sense at the same time of the
subject matter

Obligation that can have legal tie

ELEMENTS OR CHARACTERISTICS
OF AN AGREEMENT

Plurality
of person(two or more)
Consensus ad idem
TYPES OF AGREEMENT

Social Agreement

Legal Agreement
ESSENTIAL ELEMENTS OF A
VALID CONTRACT
 Offer & Acceptance
 Intention to create legal relationship

 Lawful consideration

 Capacity of parties- competency

 Free and genuine consent

 Lawful object

 Agreement not declared void

 Certainty

 Possibility of performance

 Legal formalities
OFFER
 Prposal and offer are synonymous and are used
interchangeably. Section 2(a) defines prposal as
“ 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”
 The person making the offer is known as the
offeror, proposer or promisor and the person to
whom it is made is called offeree or prposee.
When the offeree accepts the offer he is called
the acceptor or promisee.Section 2(c)
HOW AN OFFER IS MADE ?
 Anoffer may be made by express words, spoken or
written. This is known as express offer.

 An offer may also be implied from the conduct of the

parties or the circumstances of the case. This is known as
an implied offer.

 When an offer is made to a definite person, it is called a

specific offer.

 When an offer is made to the world at large, it is called

general offer
WHAT CONSTITUTES AN
OFFER?
 The offer must show an obvious intention on the
part of the offerer to be bound by it.

 The offerer must make the offer with a view to

obtaining the assent of the offeree to such act or
abstinence.

 The offer must be definite.

 It must be communicated to the offeree.

LEGAL RULES AS TO OFFER
 Offer must be such as in law is capable of being accepted and
giving rise to legal relationship.
 Terms of offer must be definite, unambiguous and certain and not
loose and vague.
 Offer must be communicated.

 Offer must be made with a view to obtaining the assent.

 Offer should not contain a term the non-compliance of which

may be assumed to amount to acceptance.
 A statement of price is not offer.

 An offer must be distinguished from:-

a) A declaration of intention and announcement.

b) An initiative to make an offer or do business

ACCEPTANCE
 A contract emerges from the acceptance of an offer.
Acceptance is the act of assenting by the offeree to an
offer. In other words it is the manifestation by the offeree
his willingness to be bound by the terms of the offer.
Acceptance may be express or implied. It is express when
it is communicated by words, spoken or written or by
doing some required act. It is implied when it is to be
gathered from the surrounding circumstances or the
conduct of the parties.
 LEGAL RULES AS TO
ACCEPTANCE
 It must be absolute.
 It must be unqualified.

 It must be communicated to the offeror.

 It must be according to the mode prescribed or usual and reasonable

mode.
 It must be given within a reasonable time.

 It cannot precede an offer

 It must show an intention on the acceptor to fulfill terms of the

promise.
 It must be given by the party or parties to whom the offer is made.

 It must be given before the offer lapses or before the offer is

withdrawn.
 It cannot be implied from silence.
 WHEN DOES AN OFFER
COME TO AN END?
REVOCATION OR LAPSE OF OFFER-
 By communication of notice of revocation by the offeror at any
time before its acceptance is complete as against him, Section 6(1)
 By lapse of time if it is not accepted within the prescribed time,
Section 6(2)
 By non-fulfillment by the offeree of a condition precedent to
acceptance, Section 6(3)
 By death or insanity of the offeror provided the offeree comes to
know of it before acceptance, Section 6(4)
 If a counter –offer is made to it

 If an offer is not accepted according to the prescribed or usual

mode, Section 7(2)
 If the law is changed.
REJECTION OF OFFER
Express Rejection
Implied Rejection

a) Counter Offer
b) Conditional Acceptance
 CONSIDERATION
 Consideration is a technical term used in the sense of quid pro
quo (i.e. something in return)
 When a party to an agreement promises to do something, he
must get, “something” in return.
 This something is defined as consideration.

 Section 2(d) defines consideration as follows: “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.”
 Consideration, if we analyse this definition, may be:

a) An act, i.e, doing of something. In this sense consideration

is in affirmative form.
b) An abstinence or forbearance, i.e abstaining or refraining
from doing something.
c) A return promise.
 LEGAL RULES AS TO
CONSIDERATION
o It must move at the desire of the promisor.
o It may move from the promisee or any other person.
o It may be an act, abstinence or forbearance or a return
promise.
o It may be past, present or future.
o It need not be adequate.
o It must be real and not illusory.
o It is not something which the promisor id already
bound to do.
o It must not be illegal, immoral or opposed to public
policy.
A CONTRACT WITHOUT
CONSIDERATION IS VOID-
EXCEPTIONS
 Love and affection {Section 25(1)}

 Compensation for voluntary services {Section 25(2)}

 Promise to pay a time barred debt {Section 25(3)}

 Completed gift {Expl 1 to Section 25}

 Agency {Section 185}

 Charitable subscription
 CAPACITY TO CONTRACT
 The parties who enter into a contract must have the capacity to do so.
‘Capacity’ here means competence of the parties to enter into a valid
contract.
 According to Section 10, an agreement becomes a contract if it is
entered into between the parties who are competent to contract.
 According to Section 11, every person is competent to contract who
(a) is of the age of majority according to the law to which he is
subject, (b) is of sound mind, and (c) is not disqualified from
contracting by any law to which he is subject.
 Thus section 11 declares the following persons to be incompetent to
contract:
a. Minors

b. Persons of unsound mind

c. Persons disqualified by any law to which they are subject.

 MINORS
 According to Section 3 of the Indian Majority Act,
1875, a minor is a person who has not completed 18
years of age.
 In the following two cases, he attains majority after 21
years of age:
a) Where a guardian of a minor’s person or property has
been appointed under the Guardian’s and Ward Act,
1890, or
b) Where the superintendence of a minor’s property is
assumed by a Court of Wards.
 MINOR’S AGREEMENT
 An agreement with or by a minor is void and inoperative ab initio
 He can be a promisee or a beneficiary.

 His agreement cannot be ratified by him on attaining the age of majority

 If he has received any benefit under a void agreement, he cannot be

asked to compensate or pay for it
 He can always plead minority

 There can be no specific performance of the agreements entered into by

him as they are void ab initio
 He cannot enter into a contract of partnership

 He cannot be adjusted insolvent

 He is liable for ‘necessaries’ supplied or necessary services

 He can be an agent.

 His parents/guardian are/is not liable for the contract entered into by him

 A minor is liable in tort (a civil wrong)

PERSONS OF UNSOUND MIND
 A personis said to be of sound mind for the purpose of
making a contract if, at the time when he makes it, he is
capable of understanding it and of forming a rational
judgment as to its effect upon his interests.

 A person who is usually of unsound mind but

occasionally of sound mind, may make a contract when
he is of sound mind.

 A personwho is usually of sound mind, but occasionally

of unsound mind, may not make a contract when is of
unsound mind.
CONTRACTS OF PERSONS OF
UNSOUND MIND
 Lunatics

 Idiots

 Drunken or intoxicated persons

AGREEMENTS ENTERED
INTO PERSONS OF UNSOUND
MIND ARE VOID
OTHER PERSONS
 Allien enemies

a) Contracts during the war

b) Contracts made before the war

 Foreign sovereigns

 Corporations

 Insolvents

 Convicts
FREE CONSENT
 Consent means acquiescence or act of assenting to an
offer. Two or more persons are said to consent when
they agree upon the same thing in the same sense.’
(Sec 13)
 Free Consent is consent said to be free when it is not
caused by-
A. Coercion (Sec 15)

B. Undue influence (Sec 16)

C. Fraud (Sec 17)

D. Misrepresentation (Sec 18)

E. Mistake (Sec 14)

COERCION
 Consent is said to be caused by coercion when it is
caused by:
1. Committing or threatening to commit any act
forbidden by the Indian Penal Code, 1860.
2. Unlawful detaining or threatening to detain any
property.
 UNDUE INFLUENCE
 Sec 16(1) defines ‘Undue influence’ as “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”
 A person is deemed to be in a position to dominate the will of
another:
1. Where he holds a real or apparent authority over the other, e.g.,
the relationship between the master and servant, doctor &
patient.
2. Where he stands in a fiduciary relation to the other.

3. Where he makes a contract with a person whose mental

capacity is temporarily affected by reason of age, illness or
mental or bodily distress.
MATTER COERCION UNDUE INFLUENCE

SECTION 15 16

KIND OF FORCE Physical force Moral/mental force

INTENTION To obtain consent for To obtain unfair advantage

contract from weak party

PUNISHMENT Criminally liable-IPC No criminal liability

PARTIES By the parties or outsider By the party

RELATIONSHIP Relations between parties Relations between parties

are immaterial are material

CONSEQUENCES Contract is voidable at the Contract is voidable or

option of aggrived party court may set it aside on
application of party
 MISREPRESENTATION
A representation, when wrongly made, either innocently or unintentionally, is a
misrepresentation.
Misrepresentation may be-
An innocent or unintentional misrepresentation
It must be a representation of a material fact.
It must be made before the conclusion of the contract with a view to inducing the other
party to enter into the contract.
It must be made with the intention that it should be acted upon by the person to whom it is
addressed.
It must actually have been acted upon and must have induced the contract. It must be
wrong but the person who made it honestly believed it to be true.
It must be made without any intention to deceive the other party.
It need not be made directly to the plaintiff.
FRAUD
 Fraud exists when it is shown that-
a) A false representation has been made
b) Knowingly
c) Without belief in its truth
d) Recklessly
 According to section 17, ‘fraud’ means and includes
any of the following acts committed by a party to a
contract, or with his connivance or by its agent with
intent to deceive or to induce a person to enter into a
contract:
i. The suggestion that a fact is true when it is not true
and the person making suggestions does not believe it
to be true.
ii. The active concealment of a fact by a person having
knowledge or belief of the fact.
iii. A promise made without any intention of performing
it
iv. Any other act fitted to deceive

v. Any such act or omission as the law specially declares

to be fraudulent.
 ESSENTIALS
 There must be a representation or assertion and it must be false
 The representation must relate to a material fact which exists
now or existed in the past.
 The representation must have been made before the conclusion
of the contract with the intention of inducing the other party to
act upon it.
 The representation or statement must have been made with a
knowledge of its falsity or without belief in its truth or recklessly
 The other party must have been induced to act upon the
representation or assertion.
 The other party must have relied upon the representation and
must have been deceived.
 The other party acting on the representation or assertion, must
have subsequently suffered some loss.
MATTER FRAUD MISREPRESENTATION

SECTION 17 18

MEANING Deliberate mis-statement or Non- deliberate false

active concealment of the statement
fact
PARTY MAKING Do not believe Believe
STATEMENT BELIEVE IN
TRUTH

INTENTION TO DECEIVE To deceive other party Do not deceive other party

ACTION Party can avoid contract and Party can avoid contract but
recover damages cannot ask for damages

MEANS FOR DISCOVERY Contract is voidable if party Contract is not voidable if

OF TRUTH has means of discovering the party has means of
truth with normal effort discovering the truth with
normal effort
 MISTAKE
 Mistake may be defined as an erroneous belief about
something. It may be a mistake of law or a mistake of
fact.
 Mistake of law may be –

A. Mistake of law of the country- Ignoranlia juris non

excusa, i.e., ignorance of law is no excuse, is a well
settled rule of law.
B. Mistake of law of a foreign country. Such a mistake
is treated as mistake of fact and the agreement in such
a case is void. (Sec 21)
 MISTAKE OF FACT
 Bilateral mistake- the following two conditions must be
fulfilled for the application of Sec 20:
1. The mistake must be mutual, i.e., both the parties
should misunderstood each other and should be at
cross purposes.
2. The mistake must relate to a matter of fact essential to
the agreement.
The various cases which fall under bilateral mistakes
are as follows:
 Mistake as to the subject matter

a) Mistake as to the existence of the subject matter

b) Mistake as to the identity of the subject matter.

a) Mistake as to the quantity of the subject matter.
b) Mistake as to the title of the subject matter.
c) Mistake as to the price of the subject matter.

 Mistake as to the possibility of performing the contract.

a) Physical impossibility
b) Legal impossibility

 Unilateral mistake - When in a contract only one of

the parties is mistaken regarding the subject matter or
in expressing or understanding the terms or the legal
effect of the agreement, the mistake is unilateral
mistake.
 EXCEPTIONS
 Mistake as to the identity of the person contracted
with.
 Mistake as to the nature of contract.
MATTER UNILATERAL MISTAKE BILATERAL MISTAKE

SECTION 22 20

MEANING One party is at mistake Both the parties to

contract is at mistake

EFFECT Contract is not void or Both the parties to an

voidable agreement are under
mistake of facts,
agreement is void
LEGALITY OF OBJECT
 Sec23 declares that the ‘object’ or the ‘consideration’
of an agreement is not lawful in certain cases. The
words ‘object’ or the ‘consideration’ in Sec 23 are not
used synonymously. They are distinct in meaning. The
word ‘object’ means purpose or design. In some cases,
consideration for an agreement may be lawful but the
purpose for which the agreement is entered into may
be unlawful. In such cases the agreement is void. As
such both the object and the consideration of an
agreement must be lawful, otherwise the agreement is
void.
WHEN CONSIDERATION OR
OBJECT IS UNLAWFUL (SEC
23)
 If it is forbidden by law
 If it is of such a nature that, if permitted, it would defeat the
provisions of any law.
 If it involves or implies injury to the person or property of another.

 If the court regards it as immortal

1) Where the consideration is an act of sexual immortality e.g.,

illicit cohabitation or prostitution
2) Where the object o the agreement is the furtherance of sexual
immortality, e.g., lending money to a prostitute to help her in her
trade.
 Where the court regards it as opposed to public policy
UNLAWFUL AND ILLEGAL
AGREEMENTS
 An unlawful agreement is one which, like a void
agreement, is not enforceable by law. It is void ab
initio and is destitute of legal effects altogether. It
affects only the immediate parties and has no further
consequences.
 An illegal agreement, is not only void as between
immediate parties but has this further effect that the
collateral transactions to it also becomes tainted with
illegality.
 Every illegal agreement is unlawful, but every
unlawful agreement is not necessarily illegal.
UNLAWFUL

ILLEGAL
 AGREEMENTS OPPOSED TO
PUBLIC POLICY
 An agreement is said to be opposed to public policy when it is
harmful to the public welfare. Public policy is that principle of
law which holds that no subject can lawfully do that which has a
mischievous tendency to be injurious to the interests of the
public, or which is against the public good or public welfare.
 Some of the agreements are as follows:

1. Agreements of trading with enemy.

2. Agreement to commit a crime.

3. Agreements which interfere with administration of justice.

4. Interference with the course of justice.

5. Stifling prosecution.

6. Maintenance and champerty.

 Agreements in restraint of legal proceedings
1) Agreements restricting enforcements of rights.

2) Agreements curtailing period of limitation.

 Trafficking in public offices and titles

 Agreements tending to create interest opposed to duty.

 Agreements in restraint of parental rights.

 Agreements restricting personal liberty.

 Agreements in restraint of marriage.

 Marriage brokerage or brocage agreements.

 Agreements interfering with marital duties.

 Agreements to defraud creditors or revenue authorities.

 Agreements in restraint of trade.

 VOID AGREEMENTS
 Agreements by complete parties, Section 11
 Agreements made under a mutual mistake of fact,
Section 20
 Agreements the consideration or object of which is
unlawful, Section 23
 Agreements the consideration or object of which is
unlawful in part, Section 24
 Agreements made without consideration, Section 25

 Agreements in restraint of marriage, Section 26

 Agreements in restraint of trade, Section 27

 Agreements in restraint of legal proceedings, Section
28
 Agreements the meaning of which is uncertain, Section
29
 Agreements by way of wager, Section 30

 Agreements contingent on impossible events, Section

36
 Agreements to do impossible acts, Section 56

 In case of reciprocal promises to do things legal and

also other things illegal, the second set of reciprocal
promises is a void agreement, Section 57
MATTER VOID AGREEMENT VOID CONTRACT

MEANING Not enforceable by law Ceases to be enforceable by

law

STATUS AT THE TIME All essentials of the All essentials of the

OF FORMATION contract are not satisfied contract are not satisfied at
the time of formation

RESTITUTION Not allowed Allowed

LEGAL OBLIGATION Does not create Comes to an end

subsequently
 MATTER VOID AGREEMENT ILLEGAL AGREEMENT

WHAT Not prohibited by law Prohibited by law

SECTION

EFFECT ON Collateral to the void Collateral to illegal

COLLATERAL agreement is enforceable agreement is not
TRANSACTION enforceable

PUNISHMENT Not punishable Punishable

VOID AB INITIO May not void ab initio Always void ab initio

PERFORMANCE OF CONTRACT
 Performance of a contract takes place when the
parties to the contract fulfill their obligation arising
under the contract within the time and in the manner
prescribed. Section 37 (Para 1) lays down that the
parties to a contract must either perform or offer to
perform, their respective promises, unless such
performance is dispensed with or excused.
BY WHOM MUST CONTRACTS
BE PERFORMED?
 Promisor himself
 Agent
 Legal representatives
 Third persons
 Joint promisors
DISCHARGE OF CONTRACT
 Discharge of contract means termination of the
contractual relationship between the parties. A
contract is said to be discharged when it ceases to
operate, i.e., the rights and obligations created by it
comes to an end.
 Discharge of Contract
By By agreement or By impossibility By By operation of By breach of
performance consent of performance lapse law contract
1. Actual 1. By express 1. Known to of time 1. Death
2. Attempted consent parties 2. Merger
2. By implied 2. Unknown to 3. Insolvency
consent parties 4. Unauthori
sed
a) Novation 3. Supervening
alteration
b) Rescission impossibility
of terms of
c) Alteration contract
d) Remission 5. Rights and
e) Waiver liabilities
f) merger vesting in
the same
An excuse Not on excuse person
a) Destruction of a) Difficulty of
subject-matter performance
b) Non-existence of b) Commercial
a state of things impossibility Actual Anticipatory
c) Death or c) Faliure of third party 1. At the time of the 1. By an act of the promisor
d) Strikes, lock-outs and performance making performance
incapacity for
civil disturbance 2. During the impossible, i.e., implied
personal services
e) Failure of one of the performance
repudiation
d) Change of law 2. By renunciation of the
object
e) Outbreak of law obligation, i.e., express
repudiation
BREACH OF CONTRACT
 Breach of Contract means breaking of the obligation
which a contract impose. It occurs when a party to the
contract without lawful excuse does not fulfill his
contractual obligation or by his own act makes it
impossible that he should perform his obligation under
it. It confers a right of action for damages on the injured
party.
BREACH OF CONTRACT
ACTUAL BREACH OF ANTICIPATORY BREACH
CONTRACT OF CONTRACT

 At time when the  By expressly renouncing

performance is due. his obligation under the
 During the performance contract.
of the contract.  By doing some act so that
the performance of his
promise becomes
impossible.
 REMEDIES FOR BREACH
OF CONTRACT
 When a contract is broken, the injured party (i.e., the
party who is not in breach) has one or more of the
following remedies:
 Rescission of the contract

 Suit for damages

 Suit upon quantum meruit

 Suit for specific performance of the contract

 Suit for injunction

DAMAGES
 Damages arising naturally – ordinary damages
 Damages in contemplation of the parties – special
damages
 Vindictive or exemplary damages

 Nominal damages

 Damages for loss of reputation

 Damages for inconvenience and discomfort

 Mitigation of damages

 Difficulty of assessment

 Cost of decree

 Damages agreed upon in advance in case of breach

QUASI CONTRACTS
 A quasi contract rests on the ground of equity that a
person shall not be allowed to enrich himself unjustly
at the expenses of another. The principle of unjust
enrichment requires:
1. That the defendant has been ‘enriched’ by the receipt
of a ‘benefit’
2. That this enrichment is at the expense of the plaintiff

3. That the retention of the enrichment is unjust

KINDS OF QUASI CONTRACT
 Supply of necessaries, 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

 QUANTUM MERUIT
 “Quantum meruit “literally means “as much as earned” or
“as much as is merited”
 The claim for quantum meruit arises in the following cases:

1. When an agreement is discovered to be void, Section65

2. When something is done without any intention to do so

gratuitously, Section 70
3. When there is an expressed or implied contract to render
services but there is no agreement as to remuneration.
4. When the completion of the contract has been prevented
by the act of the other party to the contract
5. When a contract is divisible

6. When an indivisible contract is completely performed but

badly
 INDEMNITY & GUARANTEE
 Contracts of indemnity and guarantee are a species of
the general contract. As such the principles of the
general law of contract are applicable to them. The
special principles relating to them are contained in
Chapter VIII (Section 124 to 147) of the Indian
Contract Act, 1872
 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 person , is
called a ‘contract of indemnity’ (Section 124). The
person who promises to make good the loss is called the
indemnifier and the person whose loss is to be mage
good is called the indemnified or indemnity- holder. A
contract of indemnity is really a class of contingent
contracts.
RIGHTS OF INDEMNITY
HOLDER WHEN SUED
 Right of indemnity holder when sued, Section 125
1. All damages which he may be compelled to pay in
any suit in respect of any matter to which the
promise to indemnify applies
2. All costs which he may be compelled to pay in
bringing or defending such suits
3. All sums which he may have paid under the terms of
any compromise of any such suits.
 Rights of indemnifier
CONTRACTS 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 ‘creditor’. A
guarantee may be either oral or written (Section 126).
It may be express or implied and may even be inferred
from the course of conduct of the parties concerned.
ESSENTIAL FEATURES OF A
CONTRACT OF GUARANTEE
 Concurrence

 Primary liability in some person

 Essentials of a valid contract

 Writing not necessary(Sec 126)

 KINDS OF GUARANTEE
 The function of a contract of guarantee is to enable a
person to get a loan, or goods on credit, or an
employment. A guarantee may therefore be given for
(1) the repayment of a debt, or (2) the payment of the
price of the goods sold on credit, or (3) the good
conduct or honesty of a person employed in a particular
office. In the last case, the guarantee is called a
‘fidelity’ guarantee.
 A guarantee may be given for an existing, or a future,
debt or obligation. In the former case, it is called
‘retrospective’ guarantee and in the latter case,
‘prospective’ guarantee.
 Specific guarantee – when a guarantee extends to a
single transaction of debt, it is called a specific or
simple guarantee. It comes to an end when the
guaranteed debt is duly discharged or the promise is
duly performed.

 Continuing Guarantee – when a guarantee extends to a

series of transactions, it is called a continuing guarantee
(Section 129). The liability of the surety in case of a
continuing guarantee extends to all the transactions
contemplated until the revocation of the guarantee.
REVOCATION OF A CONTINUING GURANTEE
 By Notice
 By Death of Surety
 By Other Modes :-
1) By Novation, (Section 62)
2) By Variance in the terms of contract, (Section 133)
3) By Release or Discharge of the Principle Debtor, (Section
134)
4) By Compounding with the Principle Debtor ( Section 135)
5) By Creditor’s Act or Omission impairing surety’s eventual
remedy, (Section 139)
6) By Loss of Security(Section 141)
BASISBASIS CONTRACT OF CONTRACT OF
BBBBBB INDEMNITY GURANTEE
SECTION 124 126
NUMBER OF PARTIES 2 3

TYPE OF LIABILITY PRIMARY & SECONDARY OR

INDEPENDENT COLLATERAL
NUMBER OF 1 3
CONTRACT
REQUEST MADE IT IS NOT NECESSARY IT IS NECESSARY THAT
FOR THE INDEMNIFIER SURETY SHOULD GIVE
TO ACT AT THE THE GURANTEE AT
REQUEST OF THE THE REQUEST OF THE
INDEMNIFIED DEBTOR

LIABILITY ARISES HAPPENING OF A EXISTING DEBT OR

CONTIGENCY DUTY
SUEING AN INDEMNIFIER SURETY STEPS IN THE
CANNOT SUE THIRD SHOES OF
PARTY FOR LOSSES IN CREDIYOR.ON
HIS OWN NAME DISCHARGING DEBT
 DISCHARGE OF SURETY
BY THE CONDUCT
BY INVALIDATION
BY REVOCATION OF THE
OF CONTRACT
CREDITOR
Variance in terms of Guarantee obtained
Revocation by contract (Sec 133) by misrepresentation
surety (Sec 130)
(Sec 142)
Release or discharge of
principal debtor (Sec 134)
Guarantee obtained
Death of Surety
Computing by creditor by concealment
(Sec 131)
with principal debtor (Sec (Sec 143)
135)
Failure of a co-surety
Novation Creditor’s act or
to join a surety
(Sec 62) omission impairing
(Sec 144)
surety’s eventual remedy
(Sec 139)
Failure of
Loss of security
consideration
(Sec 141)
 RIGHTS OF SURETY

THE PRINCIPLE THE CO-

THE CREDITOR
DEBTOR SURETIES

BEFORE PAYMENT OF CO-SURTIES LIABLE

RIGHT TO BE RELIEVED
THE GURANTEED TO CONTRIBUTE
OF LIABILITY
DEBT EQUALLY
SECTION 146
RIGHT OF SET-OFF RIGHT TO INDEMNIFY LIABILITY OF CO-
SURETIES BOUND IN
DIFFERENT SUMS
ON PAYMENT OF THE SECTION 147
GURATEED
DEBT

RIGHT TO EQUITIES

RIGHT OF SUBROGATION
 BAILMENT
 The word ‘BAILMENT’ is derived from the French word
‘ballier’ which means ‘to deliver’. Etymologically, it means
ant kind of ‘handing over’. In legal sense, it involves change
of possession of goods from one person to another for some
specific purpose.
 (Section 148) defines ‘bailment’ as 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’ and the person to whom they are delivered
is called the ‘bailee’
REQUISITES OF BAILMENT
 Contract

 Delivery of possession
 For some purpose

 Return of specific goods

 Disposal
CLASSIFICATION OF
BAILMENTS
 For the exclusive benefit of the bailor, as the
delivery of some valuables to a neighbour for sale
custody, without charge.
 For the exclusive benefit of the bailee, as the lending
of a bicycle to a friend for this use, without charge.
 For the mutual benefit of the bailor and the bailee, as
the hiring of a bicycle or giving of a watch for
repair. In these cases, consideration passes between
the bailor and the bailee.
 CLASSIFICATION

Non-Gratuitous
Gratuitous Bailment
Bailment
DUTIES OF BAILOR
1) To disclose known faults.
2) To bear extra-ordinary expenses of bailment.
3) To indemnify bailee for loss in case of
premature termination of gratuitous bailment.
4) To receive back the goods.
5) To indemnify the bailee.
DUTIES OF BAILEE
1) To take reasonable care of the goods bailed.
(Section 151 – 152)
2) Not to make any unauthorized use of goods.
(Section 154)
3) Not to mix the goods bailed with his own
goods. (Section 155 – 157)
4) Not to set up an adverse title. (Section 117)
5) To return any accretion to the goods. (Section
163)
6) To return the goods. (Section 160 – 161)
RIGHTS OF BAILOR
 Enforcement of rights
 Avoidance of Contract (Section 153)

 Return of goods lent gratuitously (Section 159)

 Compensation from a wrong doer (Section 180)

RIGHTS OF BAILOR
 Delivery of goods to one of several joint bailors
of goods. (Section 165)
 Delivery of goods to bailor without title. (Section
166)
 Right to apply to Court to stop delivery. (Section
167)
 Right of action against trespassers. (Section 180)

 Bailee’s lien
LIEN
 Lien means the right of a person to retain possession
of some goods belonging to another until some debt
or claim of the person in possession is satisfied. It
appertains to the person who has possession of the
goods which belong to another, entitling him to
retain them until the debt due to him has been paid.
 Possession is essential for exercising the right of lien
and in order to create a lien the possession must be
a) Rightful

b) Not for a particular purpose

c) Continuous
 TYPES OF LIEN
PARTICULAR LIEN GENERAL LIEN
 Is one which is available to the  Is a right to retain all the goods a or
bailee against only those goods in any property which is in possession
respect of which he has rendered of the holder of another until all the
some service involving the exercise claims of the holder are satisfied.
of labour or skills. Section 170 This is a right to retain the property
explains particular lien as “ Where of another on general balance of
the bailee has in accordance with account. Sec 171 tells it is available
the purpose of the bailment, to bankers, factors, wharfingers,
rendered any service involving the attorneys of a contract to the
exercise of labour or skills in contray, to retain possession of the
respect of the goods bailed, he in goods bailed to them as security
the absence of a contract to the until their claims are fully satisfied
contray, a right to retain such
goods until he receives due
remuneration for the services he
has rendered in respect of them”.
Particular lien is available to a
bailee only against those goods on
which some skills and lobour have
been expended by him.
DIFFERENCE BETWEEN PARTICULAR LIEN AND
GENERAL LIEN
PARTICULAR LIEN
 This right is available to a
bailee against only those
goods in respect of which
skill and labour have been
expended by him
 This is a right to retain the
goods only for a charge for
labour employed or
expenses incurred upon
the goods.
GENERAL LIEN
 This is a right to retain any
property belonging to the
other party in respect of
any payment lawfully due,
provided the property is in
the possession of the
person exercising the right.
 This is a right to retain any
property belonging to the
other party for a general
balance of account
TERMINATION OF BAILMENT
 On the expiry of the period
 On the achievement of the object

 Inconsistent use of goods (Section 154)

 Destruction of the subject matter

 Gratuitous bailment (Section 159)

 Death of the bailor or bailee (Section 162)

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 ‘pledger’ or ‘pawnor’
and the bailee is called the ‘pledgee’ or ‘pawnee’
(Section 172)

 A pledge is a bailment for security. It is a special kind of

bailment.
RIGHTS OF PAWNEE
 Right of retainer (Section 173)
 Right of retainer for subsequent advances
(Section 174)
 Right to extraordinary expenses (Section 175)

 Right against true owner, when the pawnor’s title

is defective (Section 178-A)
 Pawnee’s right where pawnor makes default
(Section 176)
RIGHTS OF PAWNOR
 Right to get back goods
 Right to redeem debt

 Preservation and maintenance of the gooods

 Right of an ordinary debtor

PLEDGE BY NON-OWNERS
 Pledge by merchantile agent.
 Pledge by seller or buyer in possession after sale.

 Pledge where pawnor has a limited interest.

 Pledge by a co-owner in possession.

 Pledge by person in possession under a voidable

contract.
ESSENTIALS OF
RELATIONSHIP OF AGENCY
 Agreement between the principal and the agent.
 Intention of the agent to act on behalf of the principal.

RULES OF AGENCY
 Whatever a person can do personally, he can do
through an agent.
 He who does an act through another does it by itself
(qui facit per alium facit per se)
CREATION OF AGENCY
 The relationship of principal and agent may arise-
1. By express agreement
2. By implied agreement
3. By ratification
4. By operation of law