Department of Management Studies: Sri Vidya Mandir Arts and Science College (Autonomous)

Sri Vidya Mandir Arts and Science College
(Autonomous)
Katteri – 636 902, Uthangarai, Krishnagiri District, Tamil Nadu
(An Autonomous College Affiliated to Periyar University, Salem)
(Recognized under Status 2(f) & 12(B) of the UGC Act 1956)
(Accredited by NAAC with ‘A’ Grade [3.27/4.00])
Department of Management Studies
Business Law
Study Material
Prepared by
Dr.N.Ramesh Kumar
Assistant Professor
Department of Management Studies
Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

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SVM Arts And Science College
CORE IX - BUSINESS LAW
UNIT - I
Business Law – Meaning, Objectives – Sources – law of contract – meaning – types – essential
elements of a valid contract.
UNIT - II
Discharge of contract – remedies for breach of contract – agreement not declared void –
agreement
expressly declared void – wagering agreements.
UNIT – III
Bailment – rights and duties of bailor and bailee - pledge – indemnity – guarantee – mortgage.
UNIT- IV
Law of sale of goods – sale and agreements to sale – their distinctions – types of goods –
conditions
and warranties – CAVEATEMPTOR– transfer of property – sale by non – owners – performance
–remedies for breach – unpaid seller – auction sale.
UNIT-V
Law of agency – creation of agency – classification of agents – duties and rights of an agent and
principal – termination of an agency.
TEST BOOK:
1. Kapoor N.D, Business Law, Sultan Chand &Sons
REFERENCE BOOKS
1. RSN Pillai, Bagavathi, Business Law, S.Chand.
2. Shukla M.C., Mercantile Law, S. Chand.
3. P.C. Tulsian, Business Law,TMH

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UNIT - I
Business Law – Meaning, Objectives – Sources – law of contract – meaning – types –
essential elements of a valid contract
Meaning of Law
The word ‘Law’ has been derived from the Teutonic word ‘Lag, which means ‘definite’.
On this basis Law can be defined as a definite rule of conduct and human relations. It also means
a uniform rule of conduct which is applicable equally to all the people of the State. Law
prescribes and regulates general conditions of human activity in the state.
“A law is a rule of conduct imposed and enforced by the sovereign.” – Austin
“LA” Law is the body of principles recognised and applied by the state in the administration of
justice.” – Salmond
Introduction to Business Law

Business law encompasses all of the laws that dictate how to form and run a business. This
includes all of the laws that govern how to start, buy, manage and close or sell any type of
business. Business laws establish the rules that all businesses should follow.
What is Business Law?

Business Law is also known as Commercial law or corporate law, is the body of law that applies
to the rights, relations, and conduct of persons and businesses engaged in commerce,
merchandising, trade, and sales.
According S.R. Davar, Mercantile law means that branch of law which is applicable to or
concerned with trade and commerce in connection with various mercantile or business
transactions.
Sources of Business Law

A source of Business Law means an origin, place, cause, resource or institution from where
Business Law emanates and derives its force and validity. Major source of Nepalese Business
law is British and Indian Mercantile law it is because India remains British Colony for Hundreds
of Years and she enacted a number of laws, rules and regulation for Indian.
Hence the source of Nepalese Business Law can be summarized as follows:
1. English Business Law: English Business Law is a major source of Nepalese and Indian
Business Law. The following things comes under British Business Law:
a. Common Law of England: The combination form of custom and usages is called
Common Law of England which is established in England as a lawyer at the
beginning of the 12th Century. Generally, courts in England are recognizing
Common Law and it is one of the major sources in England.
b. Law of Merchant: Since the beginning the of 14th century, Merchants in
England have started to develop Mercantile Law and usages on the basis of
mutual conduct and also started to develop Tribunals to settle the disputes on the
basis of mutual understanding. Hence, the Law of Merchant is a set of principles
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established by Courts during course of the settlement of Disputes in the court and
collection of rules made by the Merchants during the course of Business Conduct.
It is also one of the major sources of Business Law.
c. Principle of Equity: Equity is principle of justice outside Common Law or Statue
Law. It is used to correct laws when it would apply unfairly in special
circumstances by the judge. Principle of Equity comes into existence when the
Judges have started to deliver justice on the basis of Good Conscience to the
person or victims who do not get justice on the basis of Common or Statute Law.
Generally, Judges delivers justice on the basis of Good Conscience when there is
vacuum of law. So, it is also important source of law. It is also one of the major
sources of law.
d. Statue of Legislature: The laws enacted by parliament are also one of the major
sources of Business law. Parliament can repeal old and enact new law.
2. Custom and Usages: The custom is the habit or conduct of people established by long
usage from time immemorial and recognized as a law by the particular locality or society.
In fact, large part of Nepalese Business Law is derived from Custom and Usages. In
ancient time there were no appropriate rules to regulate the Business. So, people made
some rules suitable and convenient to them. For example: rules for lending and
borrowing of money, buying and selling of goods and properties, transportation of goods
from one place to another, providing indemnity and guarantee, Bailment and Pledge of
Goods etc.
3. Statutory or Legislative Acts: The Law made by competent authority or parliament or
legislature of the state is called Statutory Act. Legislative Acts are regarded as one of the
most important sources of Business Law because firstly it involves laying down of legal
rules by legislatures which the state recognizes as law and secondly it has the force and
authority of the state.
4. Judicial Decision or Precedent: A precedent refers to the Judicial Decision made by a
court according to the principles of Justice, Equity and good Conscience which contains
in itself a principle. Such principle created in the course of verdict of the Business Cases,
which fulfill the vacuum of law. Such principles is regarded the law for cases of the same
nature and is binding to the subordinate courts. Precedent is also called Judge Made Law
or Case Law. Such precedent is also taken as another important source of Business Law.
5. Writings and Opinions of Scholars: Writings and Opinion of Experts or Jurists are also
called Juristic Law because Juristic writings have played important role in the
development of Business Law.
6. Commercial Contracts, Agreements & Conventions: The Contracts, Bilateral and
Multilateral Agreements signed between the countries as well as Conventions of the
Business Communities for the regulation of their business is also regarded one of the
important sources of Modern Business Law. For example: Indo-Nepal Treaty of Transit,
BIPPA, WTO, GATT, WTO, EU, SAFTA etc. It determines the right, duty and liabilities
of the parties concerned and the Courts give legal recognition to it is as much significant
as the Statutory Act.
The Indian Contract Act 1872

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The law of contract in India contained in Indian Contract Act 1872, which is based on English
common Law. It extends to whole of India except the state of Jammu and Kashmir. It came into
force on the first Sep. 1872. The Act lays down general principles governing all contracts, but
not the rights and duties of the parties. The rights and duties are decided by the parties
themselves.
Scheme of the Act: -
The scheme can be divided into two main groups:
1. General principles of the law of contract.
2. Specific kinds of contracts -
a. Indemnity and Guarantee
b. Contracts of Bailment and Pledge
c. Contract of Agency.
Meaning and Definition of an Agreement:

An Agreement consists of an offer by one party and its acceptance by other. In other words, an
agreement comes into existence only when one party makes a proposal to the other party and that
other party gives acceptance.
Agreement = Proposal + Acceptance of proposal
According to Section 2(e) of Indian Contract Act 1872 “Every promise and every set of
promises,
forming the consideration for each other is an obligation.”
Meaning and Definition of a Contract:

A contract is a promise or set of promises for the breach of which the law gives a remedy or the
performance of which the law in some way recognize as duty. In other words, a contract is an
agreement the object of which is to create a legal obligation.
The contract consists of two elements:
1. An agreement and
2. Legal Obligation i.e., enforceability by law.
Contract = an Agreement + enforceability by law.
According to Section 2(h) of the Indian Contract Act 1872 “An agreement enforceable by law is
a
contract.”
Essential Elements of a valid Contract:

1. Offer and Acceptance: There must be a “lawful offer” and a “lawful acceptance” of
the offer, thus, resulting in an agreement.
2. Intention to create legal relation: There must be an intention among the parties that
the agreement should be attached by legal consequences and create legal obligations.
Social agreements do not contemplate legal relations, and so they do not give rise to a
contract.
3. Lawful Considerations: An agreement is legally enforceable only when each of the
parties to it, give something and get something. This something is the price for the
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promise and is called “Consideration”. Only those considerations are valid which
‘Lawful’
4. Capacity of parties: The parties to an agreement must be competent to contract,
otherwise it cannot be enforced by a court. To be competent, the parties must be on
majority age and of sound mind and must not be disqualified from contracting by any
law to which they are subject.
5. Free Consent: “Consent “means that the parties must have agreed upon the same
thing in the same sense. Consent is not enough for making a contract. That to must be
free. It is said to be free when it is not caused by1. Coercion, or (i) undue influence,
or (iii) fraud, or (IV) misrepresentation, or (v) mistake
6. Lawful object: For the formation of a valid contract, it is also necessary that the
parties to an agreement must agree for a lawful object. The object must not be fraud
or illegal or immoral or must not imply injury to the person or property of other.
7. Writing and Registration: Generally, the contracts may be oral or written. But in
special cases, it lays down that the agreement must be in writing or registered to be
valid.
8. Certainty: Any agreement can be enforced if its meaning is certain or capable of
being made certain agreements the meaning of which is not certain, are void.
9. Possibility of performance: The terms of the agreement must also be capable of
performance physically as well as legally.
10. Not expressly declared void: The agreement must not have been expressly declared
void under the act. There are some types of agreements which have been expressly
declared to be void.
Kinds or classification of Contracts

A. On the basis of Enforceability
1. Valid Contract: A valid contract is an agreement enforceable by law. An agreement
becomes enforceable by law when all the essential elements of a valid contract (as per
section 10 of the act) are present.
2. Voidable Contract: “An agreement which is enforceable by law at the option of one or
more of the parties, but not at the option of one or more of the other, is a voidable
contract.”
3. Void Contract: Void means not binding in law. It is valid at the time of making it but
becomes void subsequently due to change in circumstances. Void Agreement:” An
agreement not enforceable by law is said to be void” Thus a void agreement does not give
rise to any legal consequences and is void ab initio.
4. Unenforceable contract: It is one which is valid in it, but is not capable of being
enforced in a court of law because of some technical defect such as absence of writing,
registration requisite stamp.
5. Illegal or unlawful contract: An agreement which is expressly or impliedly prohibited
or forbidden by law. It is void ab initio.
B. On the basis of Creation:
1. Express Contract: It is one in which parties make oral written declaration of the terms
and conditions of the contract.

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2. Implied Contract: It is one in which evidence of contract is gathered from acts and
conduct of the parties and not from written or spoken words of parties.
3. Constructive or Quasi Contract: It is not a contract made intentionally by the parties by
exchange of promises. It is a contract imposed by the law. The basis of this contract is
that no one can be allowed to enrich himself at the cost of the other.
C. On the basis of Execution
1. Executed Contract: When both the parties to a contract have completely performed their
share of obligations and nothing remains to be done by either party under the contract.
2. Executory Contract: When either parties have still to perform their share of obligation
in to or there remains something to be done under the contract on both sides.
D. On the basis of performance in relation to parties
1. Unilateral Contract: When one party has to perform his obligation, and the other party
has performed his obligation at the time of formation of the contract or before it. This is
why it is also called one-sided contract.
2. Bilateral Contract: When the obligations of both the parties are outstanding at the time
of formation of contract. it is similar to Executory contract. It is also called contract with
executory consideration.
Introduction to Offer and Acceptance
Introduction
Contracts play an important role in our everyday life ranging from insurance policies to
employment contracts. In Fact, we enter into contracts even without thinking for example while
buying a movie ticket or downloading an app. Contracts are oral or written agreements between
two or more parties. Parties entering into a contract might include individual people, companies,
non-profits or government agencies. The whole process of entering into a contract starts with an
offer by one party, an acceptance by another party, and an exchange of consideration (something
of value). Let us take a look at the definition of an offer and the essentials of a valid offer.
Definition of an offer
According to Section 2(A) of the Indian Contracts Act, 1872, When a person expresses his
willingness to another person to do or to abstain from doing something and also obtain the
consent of such expression, it is called an offer.
The person who makes an offer is called “Offerer” or “Promiser” and the person to whom the
offer is made is called the “Offeree” or “Promisee”.
Illustration- Mr. A says to Mr. B, “Will you purchase my car for Rs.1,00,000?” In this case, Mr.
A is making an offer to Mr. B. Here A is the offeror and B is the offeree.
The element of a valid offer

Here are some essentials which make the offer valid
1. There must be two parties: There have to be at least two parties a person making the
proposal and the other person agreeing to it. All the persons are included i.e, Legal
persons as well as artificial persons.
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2. Every proposal must be communicated: Communication of the proposal is mandatory.
An offer is valid if it is conveyed to the offeree. The communication can either be express
or implied. It can be communicated by terms such as word of mouth, messenger,
telegram, etc. Section 4 of the Indian Contract Act says that the communication of a
proposal is complete when it comes to the awareness of the person to whom it is made.
Example: ‘A’ proposes, to sell a car to ‘B’ at a certain price. Once ‘B’ receives the
letter, the proposal communication is complete.
3. It must create Legal Relations: An offer must be such that when accepted it will result
in a valid contract. A mere social invitation cannot be regarded as an offer, because if
such an invitation is accepted it will not give rise to any legal relationship.
Example: ‘A’ invited ‘B’ to dinner and ‘B’ accepted the invitation. It is a mere social
invitation. And ‘A’ will not be liable if he fails to provide dinner to B.
4. It must be certain and definite: The terms of the offer must be certain and clear in order
to create a valid contract; it must not be ambiguous.
5. It may be specific or general: The specific offer is an offer that is accepted by any
specific or particular person or by any group to whom it is made. Whereas, The general
offers are accepted by any person.
Classification of offer
Some types of offers can be based on the design, timing, purpose, etc. Let us look at the offer’s
classification.
1. Express Offer: An offer may be made by express words, spoken or written. This is
known as Express offer.
Example: When ‘A’ says to ‘B’, “will you purchase my car for Rs 2,00,000”?
2. Implied Offer: An offer may be derived from the actions or circumstances of the parties.
This is known as Implied offer.
Example: There is an implied offer by the transport company to carry passengers for a
certain fare when a transport company operates a bus on a particular route.
3. General Offer: A general offer is not made by any specified party. It is one that is made
by the public at large. Any member of the public can, therefore, accept the offer and have
the right to the rewards/consideration.
Example: ‘A’ advertises in the newspaper that whosoever finds his missing son would be
rewarded with 2 lakhs. ‘B’ reads it and after finding the boy, he calls ‘A’ to inform about
his missing son. Now ‘A’ is entitled to pay 2 lakhs to ‘B’ for his reward.
4. Specific Offer: It is the offer made to a specific person or group of persons and can be
accepted by the same, not anyone else.
Example: ‘A’ offers to sell his house to ‘B’. Thus, a specific offer is made to a specific
person, and only ‘B’ can accept the offer.
Definition of Acceptance

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The Indian Contract Act 1872 defines acceptance in Section 2 (b) as “When the person to whom
the proposal has been made signifies his assent thereto, the offer is said to be accepted. Thus the
proposal when accepted becomes a promise.”
Therefore once an offer is accepted it cannot be revoked because it has become a promise which
creates a legal obligation between the parties.
Example -Anita offers to buy Priya’s car for Rs.10 lakhs and Priya accepts such an offer. Now,
this has become a promise.
Essentials of a valid acceptance

Section 7 of The Indian Contract Act,1872 lays down two essentials of a valid acceptance.
1. Must be unconditional and absolute: Conditional Acceptance will not be a valid
acceptance as it would amount to a counter offer which would nullify the original offer.
Example. Anita offers to sell her bag to Priya for 3000/-. Priya says she accepts if Anita
will sell it for 1500/-. This does not amount to the offer being accepted and it will count
as a counteroffer.
2. Must be expressed in some usual and reasonable manner: If the offeror does not
describe any prescribed manner, then it must be expressed in the normal and reasonable
manner, i.e. as it would be in the normal course of business.
Types of Acceptance
1. Expressed Acceptance: If the acceptance is written or oral, it becomes an Expressed
Acceptance.
Example: ‘A’ offers to sell his phone to ‘B’ over an email. ‘B’ respond to that email
saying he accepts the offer to buy.
2. Implied Acceptance: If the acceptance is shown by conduct, It thus becomes an Implied
acceptance.
Example: The Arts Museum holds an auction to sell a historical book to collect charity
funds. In the media, they advertise the same. This says that a Mere Invitation to an Offer
as per Indian Contract Act, 1872.
3. Conditional Acceptance: A conditional acceptance also referred to as an eligible
acceptance, occurs when a person to whom an offer has been made tells the offeror that
he or she is willing to accept the offer provided that certain changes are made to the
condition of the offer. This form of acceptance operates as a counter-offer. The original
offeror must consider a counter-offer before a contract can be established between the
parties.

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UNIT - II
Discharge of contract – remedies for breach of contract – agreement not declared
void – agreement expressly declared void – wagering agreements.
Discharge of a Contract
Meaning of a Contract
A verbal agreement or a written agreement, particularly one concerning business, deals, or tenure
that is planned to be enforceable by law, is called a contract.
Definition of a Contract:
Contract, in the least complex definition, is a guarantee that is enforceable by law. The guarantee
or promise might be to accomplish something or to shun accomplishing something. The creation
of an agreement requires the common consent of at least two people, one of them usually making
a proposition and another accepting the contract.
Discharge of Contract
Introduction
The discharge of a contract is characterised as the end of an agreement or an arrangement made
by a couple of parties, which results in the failure in performing or playing out the obligations
referenced at the hour of making a contract with the acknowledgment of all the parties with free
consent. Subsequently, the commitments might be legal or contractual or performance, or even
operational.
Meaning
The term discharge of contract means ending of the contractual relationship between the parties.
A contract is said to have been discharged when it ceases to operate i.e., when the rights and
obligations created by the parties came to an end. A contract can be discharged if the parties
mutually agree to terminate the contract. Also, there are different methods through which
contracts can be discharged. In this article, we will discuss the different methods of discharge of
contracts.
Discharge of Contract Method

A contract is said to be discharged using the following methods:
 Discharge by Performance
 Discharge by Agreement or Consent
 Discharge by Impossibility of Performance
 Discharge by Lapse of Time
 Discharge by Operation of Law
 Discharge by Breach of Contract
Let us understand the discharge of contract methods in brief

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1. Discharge by Performance: Performing means doing all those things which are required by
a contract. Discharge of performance occurs when the parties to the contract fulfill their
obligations set out under the contract within the specified time and in the manner prescribed.
In such a case, parties are discharged and contracts come to an end. But if only one of the
party performs, he alone is discharged. Such a party gets the right of action against the other
party who is guilty. Discharge of Performance may be:
a. Actual Performance
b. Attempted Performance
a. Actual Performance: When both the parties perform their performance, then the
contract is said to be discharged. Performance should be complete and precise according
to the terms of the agreement. Majority of the contracts are discharged by performance in
this manner.
b. Attempted Performance: Attempted performance is only an offer to perform the
obligation under the contract. When the promisor agrees to perform the contract but the
promisee refuses to accept the performance, then in such case, it is termed as discharge of
contract by attempted performance or tender.
2. Discharge by Agreement or Consent
a. Novation: The term novation means the substitution of the new contract by the
original one. The new agreement may be with the same parties or with the new
parties. For a contract to be valid and effective, the consent of all the parties including
the new one if any is necessary. Moreover, the second party must be capable of
enforcement of law, the consideration for which is the exchange of promise not to
carry out the original contract.
b. Alteration: This refers to change in one or more terms of a contract with the consent
of all the parties entered in the contract. Alteration leads to formation of new
contracts but the parties to it remain the same.
c. Remission: This means the acceptance by the Promisee of a lesser sum than what
was mentioned in the contract, or a lesser fulfillment of the promise made. According
to the section 63, every promise may:
i. ay remit or give up with it
ii. Extend the performance time
iii. Accept any other satisfaction rather than performance
d. Recession: The term recession refers to cancellation of all or some of the material
terms of the contract. If the parties entered into the contract, mutually agreed to do so,
then in such case the respective contractual agreement of the parties gets terminated.
Ex: Renu an actor and Kavi is a producer enter into a contract to make a film. After
sometime, both find the story outdated. They may rescind the contract by mutual
contract.
e. Waiver: The term waiver means abandonment of rights. When one party deliberately
abandons his right under the contract, the other party is released of his obligations,
else binding upon it.

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3. Discharge by Impossibility of Performance: If it is impossible for any of the parties
entered in the contract to perform their obligations, then the impossibility of performance of
contract leads to discharge of contract. If the impossibility of performing the contract exists
from the start, then it is termed as impossibility by ab-initio. However, impossibility of
performing the contract may also arise later due to:
a. An unforeseen change in the law
b. Destruction of subject-matter of the contract
c. Non-existence or Non-occurrence of a particular state of things.
d. Outbreak of War
Example: John enters into the contract with this friend Tom to marry his sister within 6
months. Howbere, John met with an accident and became insane. This impossibility of
performance leads to discharge of contract.
4. Discharge of Contract by a Lapse of a Time: According to The Limitation Act, 1963, there
is a specific time period for the performance of a contract. If the promisor failed to perform
his duties and the promisee failed to take action within this specified period, then the
promisee in such a case cannot be deprived of his remedy through law. Here, the contract is
said to be discharged due to the lapse of time. For example: John takes a loan from one of his
friends and agrees to pay him installments every month for the next five years. However, he
does not pay even a single installment. His friend calls him several times but then gets busy
and takes no action. After three years, he approaches the court to help him recover his
money. However, the court rejects his complaint because he has crossed the time-limit of
three years to recover his debts.
5. Discharge of Contract by Operation of Law: A contract can be discharged by the
operation of law in the following circumstance:
a. Unauthorized Material Alteration of Written Document: A party can discharge
the contract i.e., from his side if the other party changes the terms such as price or
quantity of contract without taking any permission from the former.
b. By Insolvency
c. By Death
6. Discharge by Breach of Contract: A contract is obliged to perform according to its terms.
But when a promisor fails to perform a contract according to the terms of the contract, then
he is said to have committed a breach of contract. The breach of contract is of two types
a. Actual Breach
b. Anticipated Breach
a. Actual Breach: Actual breach of contract refers to failure to perform the obligation when
the performance is due. For example, if a seller fails to deliver the goods by the appointed
time, or the goods are delivered but not up to the mark in terms of quality or quantity
specified in the contract.
b. Anticipatory Breach: Anticipatory Breach, also known as Breach by Contradiction,
takes place when one party before the arrival of the fixed date for performance states that
it cannot or will not able to perform material part of the contractual obligation on the

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specified date or it aims to perform the contract in a way that is inconsistent with the
deeds specified in the contract at the initiation.
Remedies for Breach of Contract

According to Section 73 of the Indian Contract Act, 1872, damages are the monetary
compensation allowed by a Court of Law to the aggrieved party for the loss/injury sustained by
him on account of breach of contract by the other party.
Breach of contract takes place when a party to a contract fails to fulfil his obligations arising
under it.
When a breach of contract takes place, the plaintiff or the affected party becomes entitled to
certain remedies. These are,
 Recession
 Damages
 Quantum meruit
 Specific performance and
 Injunction
1. Recession: When one party to a contract commits a breach, the other party may treat the
contract as rescind or cancelled and there by relieve himself of his obligations.
Ex: Suji agrees to supply a bag of rice to Banu on a specific date and Banu agrees to pay
for if upon delivery. Suji fails to supply. Banu is relieved of his obligation to pay.
2. Damages: Damages are nothing but the monetary compensation awarded to the affected
party by the court for the loss suffered by him in view of the breach of a contract.
a. Ordinary Damages: The damages that arise naturally in the usual course of
things from the breach, of a contract called ordinary damages.
Ex: Logu, a supplier of cement agrees to supply 50 bags of cement @ Rs. 150
per bag to Siva a building contractor, on a certain date. Siva is to pay the price
upon delivery. Logy fails to supply on the date and the open market of cement
on that date is Rs. 165 per bag. Siva can claim damages @ Rs. 15 per bags.
b. Special Damages: The damages that the parties to the contract know, when
they make the contract to be likely to result from the breach, are called special
damages.
c. Vindictive Damages: These are also known as ‘exemplary damages’ or ‘ex-
ordinary damages. Damages of a vindictive nature, that is tending to take
revenge, can be claimed only under the following two circumstances.
i. Breach of promise to marry and,
ii. Wrongful dishonor of a cheque by a banker that is when the customer has
sufficient funds in his account.
Nominal Damages: These are damages awarded to the affected party who has
not actually suffered any loss due to the breach of contract by the other party,
such damages, when awarded may give the plaintiff the satisfaction that he has
proved his point & won.

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d. Damages for Inconvenience & Discomfort: Such damages are awarded to the
aggrieved person for the physical inconvenience & discomfort caused to him.
e. Damages for Loss of Reputation: The credit worthiness of a businessman is
something that is very important for him to stay in business & to sustain its
reputation.
Ex: When a cheque issued by a businessman gets dishonored, his business image
is bound to suffer.
3. Quantum Merit: It means “as much as merited” or “as much as earned”. It simple
term, it means payment in proportion to the amount of work done.
4. Specific Performance: Payment of damages to the aggrieved or affected party, in case
of breach of contract, may not always be an adequate remedy. In certain cases, the court
may direct the party committing the breach to fulfil his obligation according to the terms
of the contract.
5. Injunction: ‘Injunction’ is an order of the court preventing a person from doing a
particular act. It is also known as stay order.
Ex: Nandhu, a film actress, agreed to work exclusively for Gaja and for no one else for a
period of one year. But during the year she signed a contract to work for Vivek. It was
held that she could be restrained by injunction from doing so.
Expressly Declared Void Agreements

There are certain essential elements of a valid contract. And if those elements are not present, the
contract would then be void or voidable. However, there are certain agreements that are
expressly
void agreements. This means these agreements that are declared void by the law itself.
Expressly Void Agreements.

The Indian Contract Act 1872 defines a void agreement as “an agreement that is not enforceable
by law”. And there can be many times of void agreements, some of which we have covered in
the
previous articles as sec 11,20,23,24 and 25. But the contract states certain agreements that are
expressly declared as void agreements.
1. Agreement in Restraint of Marriage (sec 26): Any agreement that restrains the
marriage of a major (adult) is a void agreement. This does not apply to minors. But if an
adult agrees for some consideration not to marry, such an agreement is expressly a void
agreement according to the contract act.
Example: - A agrees that if B pays him 50,000/- he will not marry such an agreement is
a void agreement.
2. Agreement in Restraint of Trade (sec 27): An agreement by which any person is
restrained from plying a trade or practicing a legal profession or exercising a business of
any kind is an expressly void agreement. Such an agreement violates the constitutional
rights of a person. However, there are a few exceptions to this rule. If a person sells his
business along with the goodwill, then the buyer can ask the seller to refrain from
practicing the same business at the local limits.
Example: - The case of physician A who employs B as his assistant for three years. For

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this duration of three years, B agrees not to practice medicine anywhere else. This is a
valid agreement even though it is in restraint of trade.
3. Agreement in Restraint of Legal Proceedings (sec 28): An agreement that prevents one
party from enforcing his legal rights under a contract through the legal process (of courts,
arbitration, etc) then such an agreement is expressly void agreement.
4. An Agreement Whose Meaning is Uncertain (sec 29): An agreement whose meaning is
uncertain cannot be a valid agreement, it is a void agreement. If the essential meaning of
the contract is not assured, obviously the contract cannot go ahead. But if such
uncertainty can be removed, then the contract becomes valid.
Example: - A agrees to sell to B 100 kg of fruit. This is a void contract since what type of
fruit is not mentioned. But if A exclusively sells only oranges, then the agreement would
be valid because the meaning would now be certain.
5. Wagering Agreements (sec 30): According to the Indian Contract Act, an agreement to
wager is a void agreement. The basis of a wager is that the agreement depends on the
happening or non-happening of an uncertain event. Here each side would either win or
lose money depending on the outcome of such an uncertain event.
The essentials of a wagering agreement are as follows. If all elements are met then
the agreement will be void.
a. Must contain a promise to pay money or money’s worth
b. Is conditional on the happening or non-happening of a certain event
c. The event must be uncertain. Neither party can have any control over it
d. Must be the common intention to bet at the time of making the agreement
e. Parties should have no other interest other than the stake of the bet
The following agreements are not considered wagering agreements,
a. Chit Fund
b. Commercial Transactions, i.e., Transactions of the Share Market
c. Athletic Competition and Competitions involving Skills
d. Insurance Contracts
6. Agreement Contingent on Impossible Events (sec 36): “Contingent agreements to do
or not to do anything if an impossible event happens are void, whether the impossibility
of the event is known on not to the parties to the agreement at the time when it is made.”
Examples: -
a. A agrees to pay B Rs.1000 (as a loan) if two straight line should enclose a space.
The agreement is void.
b. A agrees to pay B Rs.1000 (as a loan) if B will marry A’s daughter, C. C was
dead at the time of the agreement, the agreement is void.
7. Agreements to do Impossible Act (sec 56): “An agreement to do an act impossible in
itself is void.”
Examples: -
a. A agrees with B to discover treasure by magic. The agreement is void.
b. A agrees with B to run with a speed of 100 Kilometer per hour. The agreement is
void.

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Wagering Agreements
Introduction
According to section 30[1], “Agreement by way of wager is void; and no suit shall be brought
for recovering anything alleged to be won for any wager, or entrusted to any person to abide by
the result of any game or other uncertain event on which any wager is made.
This section represents the whole law of wagering agreement or contract now in forced in India,
supplemented in Bombay State by the Act for Avoiding Wagers (Amendments) Act, 1865 which
amended the Act for Avoiding Wager, 1848. Before the Act of 1848, the law relating to wagers
in force in British India was the Common Law of England.
What is a Wagering Agreement?

Agreements entered into between parties under the condition that money is payable by the first
party to the second party on the happening of a future uncertain event, and the second party to
the first party when the event does not happen, are called Wagering Agreements or Wager.
Illustration
A Teacher and Student agree with each other that if the student clears his Judiciary Exam, the
teacher will pay Rs. 10000 to the student and if he is unable to do so, the student will pay the
teacher Rs. 5000. Such an agreement is a wagering agreement.
Characteristics of a Wagering Agreement
 The consideration for the promise under a wagering agreement is to pay or get money.
 The cash is payable on the happening or the non-happening of an Event.
 The agreement depends on a future and unsure event.
 The essence of gaming and wagering is that one party will win and the other party will
lose.
 In a wagering agreement, no party has control over the event.
 Commercial transactions are valid, but to pay the price differences during the wagering
agreement is void.
Essentials of a Wager
1. Dependence on Uncertain Event: One of the important essentials of a wagering
agreement is that it must depend upon an uncertain event. Event may be past, present or
future, but the parties must be unaware of its future or the time of its results or the time of
its happening.
Example: A football match between team A and team B is to start at Mumbai on 30th
June 2016. C and D enter into an agreement that C will pay Rs. 500 to D if team A wins,
and if team B wins, D will pay Rs. 500 to C. This is a wagering agreement and is void.
2. Mutual Chance of Gain or Loss: Another element of wagering agreement is that each
party to the agreement should stand to win or lose as per the result of the uncertain event.

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Example: A cricket match is to start at Hyderabad between India and South Africa. If
India wins the match, A agrees to pay B Rs. 500, whereas if South Africa wins the match,
B agrees to pay Rs. 500 to A. This is a wagering agreement. In this case. each party has
the chances to win or lose. Here the gain of one party will be the loss of the other and
vice versa.
3. No Other Interest in the Event: Neither party should have any interest in happening or
non-happening of the event other than the sum he will win or lose. If either party has
some other interest other than the sum he will win or lose, it will not be a wager.
Example: A, a owner of a house, insures his house against fire with GIC. A has to pay an
insurance premium of Rs. 50 per month as per the terms of contract. If the house is
destroyed by fire, GIC will pay the actual amount of loss suffered by him. Here A has
interest in his house. Further on the happening of the event i.e. fire, A will not gain
anything. Hence, it is not a wager.
4. No Control Over the Event: The parties to the contract should not have any control over
the happening of the event one way or the other. If one party has the events in his hands,
the transaction will not be a wager.
Example: A and B enter into an agreement that if A resigns his job, B will pay Rs. 500 to
A and A will pay Rs. 500 to B if he does not resign his job. Here A has the event under
his control. Hence not a wager.
5. Promise to Pay Money or Money’s Worth: The wagering agreement must contain a
promise to pay money or money’s worth

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Discharge of a Contract MCQ
1. Ordinary damages will be awarded in cases where _________.
(a) The loss naturally flows from the breach of contract
(b) The loss is remotely connected with the breach of contract
(c) The loss is unusual and arises out of special circumstances peculiar to the contract
(d) None of these
Answer: (a) The loss naturally flows from the breach of contract
2. Where the parties to a contract have agreed that a certain sum of money would be paid in case
of breach of contract, the Court will ensure that _________.
(a) The exact amount mentioned in the contract is paid to the injured party
(b) An amount not exceeding the stipulated amount is awarded
(c) Reasonable compensation not exceeding the amount stipulated is awarded
(d) A sum exceeding the amount stipulated is awarded
Answer: (c) Reasonable compensation not exceeding the amount stipulated is awarded
3. The word ‘impossible’ in section 56 connotes _________.
(a) Physical impossibility
(b) Literal impossibility
(c) Commercial impossibility
(d) Impracticability of performance
Answer: (d) Impracticability of performance
4. In the case of wrongful dishonor of a cheque by a banker the damages awarded will be
_________.
(a) Nominal
(b) Special
(c) Exemplary
(d) Ordinary
Answer: (c) Exemplary
5. If loss or damage arose naturally and directly in the usual course of things from a breach of
contract, the aggrieved party would be eligible for _________.
(a) Special damages
(b) Nominal damages
(c) Ordinary damages
(d) Exemplary damages
Answer: (c) Ordinary damages
6. Anticipatory breach of contract takes place when there is _________.
(a) Breach of contract when performance is actually due
(b) Breach of contract in the course of performance of the contract
(c) Breach of contract prior to the date of performance
(d) None of the above
Answer: (c) Breach of contract prior to the date of performance
7. Impossibility of performance occurs due to:
(a) Strike
(b) Lock-out
(c) Partial failure of object
(d) Destruction of subject-matter.
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Answer: (d) Destruction of subject-matter.
8. Object of granting damages is:
(a) to penalize the party,
(b) to monetarily compensate the party,
(c) to set an example before the society,
(d) none of the above.
Answer: (b) to monetarily compensate the party,
9. Specific performance is ordered where:
(a) the contract is of personal nature,
(b) monetary compensation is an adequate remedy,
(c) monetary compensation is not an adequate remedy,
(d) performance is illegal.
Answer: (c) monetary compensation is not an adequate remedy,
10. An injunction order is granted by the Court in case:
(a) specific performance of the contract is possible.
(b) specific performance of the contract is impossible.
(c) the Court wants to restrain a party from committing a breach of contract.
(d) the contract is against public interest.
Answer: (c) the Court wants to restrain a party from committing a breach of contract.
11. In the Indian Contract Act, Novation means _________.
(a) Substitution of an existing contract with a new one
(b) No frustration of executed contracts
(c) Frustration due to change of circumstances
(d) Impossibility does not mean mere commercial difficulty
Answer: (a) Substitution of an existing contract with a new one
12. Hadley v. Baxendale case is a leading case on _________.
(a) Breach of implied term
(b) Anticipatory breach
(c) Law of damages
(d) None of these
Answer: (c) Law of damages
13. The remedies open to a person, suffering from breach of contract are _________.
(a) Damages
(b) Injunction
(c) Quantum Meruit
(d) All of the above
Answer: (d) All of the above
14. Where the parties to a contract agree to substitute a new contract for it, it is known as
_________.
(a) Injunction
(b) Novation
(c) Rescission
(d) Alteration
Answer: (b) Novation

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15. A party to a contract committing breach, is liable to pay compensation in respect of
_________.
(a) The direct consequences flowing from the breach
(b) Loss or damage caused indirectly
(c) Losses caused whether directly or indirectly
(d) Losses caused remotely
Answer: (a) The direct consequences flowing from the breach
16. A borrows ₹ 10,000 from B with interest at 12 per cent per annum, with a stipulation that in
case of default A shall be liable to pay interest at 75 per cent from the date of default. A commit
the default. B is entitled to recover from A _________.
(a) 12% interest
(b) 75% interest
(c) 8796 interest
(d) Such compensation as the Court considers reasonable
Answer: (d) Such compensation as the Court considers reasonable
State Whether the Following are True or False:

1. A claim for Quantum Meruit cannot succeed when an indivisible contract for a lump sum is
partly performed.
2. Nominal damages are never granted by way of compensation for loss.
3. Penalty can be recovered under the Indian Contract Act.
4. A person who himself is guilty of breach of contract cannot get compensation under the
doctrine of quantum meruit.
5. The order for injunction and specific performances are simultaneously issued by the court.
6. The aggrieved party is always entitled to compensation no matter whether he has suffered
some loss or not.
7. Special damages are recoverable only when the parties knew about them.
8. The aggrieved party is not responsible to mitigate the loss caused by the breach.
9. The measure of ordinary damages is the difference between the contract price and the market
price.
10. The claim for quantum meruit can be made only when the original contract has been
discharged.
11. Commercial impossibility is not a valid excuse for the non performance of a contract.
12. For the default in the repayment of loan on the agreed date, interest can be increased
retrospectively from the date of lending.
13. Commercial impossibility does not make the contract void.
14. Cancellation of a contract by mutual consent of the parties is called waiver.
Answer:
1. True 8. False
2. True 9. True
3. False 10. True
4. True 11. True
5. False 12. False
6. False 13. True
7. True 14. False
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21
UNIT – III
Bailment – rights and duties of bailor and bailee - pledge – indemnity – guarantee –
mortgage.
Bailment
Meaning
The word ‘bailment’, is derived from ‘bailler’, a French word which means ‘to deliver’.
Bailment represents a legal relationship wherein the physical possession of a chattel or personal
property is transferred from one individual to another individual who will subsequently get the
property’s possession but not the entire ownership
Definition
According to Indian Contract Act, 1872 under the Section of 148, Bailment involves the delivery
of goods from one person to another for a specific purpose and upon a contract, when the
purpose is fulfilled, the good has to be returned or dealt with on the direction of the person who
has delivered the goods.
Examples:
 X lends his bike to y to be returned after a week. there is a contract of bailment between
X and y.
 A give a piece of cloth to B, a tailor, to be stitched into a shirt. there is a contract of
bailment between A and B.
 M entrusts N with certain valuables and requests N to take vare of same for a month
when M is not in station. This results in a contract of bailment between M and N.
Parties to the contract of Bailment

There are generally two parties to the contract of Bailment. The person who is the owner and
delivers the good is called ‘bailor’ while the person to whom the goods are delivered is called
‘bailee’.
General rules relating to Bailment are mentioned in Chapter IX (Section 148-181) of the Indian
Contract Act, 1872. Bailment is a type of a special contract, so all essential elements of a valid
contract like consent, competency, etc. are required for it to be valid. But a valid bailment can
arise even without a valid contract between the two parties, for example, a lost good finder
becomes a bailee and has the responsibility to return it to its owner, the bailer, even if no contract
exists between them.
Classification of Bailment
Bailment can be broadly categorized into two types:
1. On the basis of Remuneration
a. Gratuitous Bailment: When a bailment is made without any consideration of benefit to
the bailor or to the bailee, it is referred to as gratuitous bailment. In simple terms, it is a
bailment without any consideration.
For example, when one lends a book to a friend free of cost.

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b. Non-Gratuitous Bailment: When generally there is a consideration for bailment
between the bailor and the bailee then it is referred to as non-gratuitous bailment.
For example, when someone gets a book issued from a library in exchange for a fee.
2. On the basis of benefits to the parties
a. For the exclusive benefit of the bailor: In this case, the bailor delivers his/her good to
the bailee for safe custody. There is no benefit/benefit for the bailee.
For example, leaving a pet with a neighbour when going out.
b. For the exclusive benefit of the bailee: In this case, the bailor delivers a good for the
benefit of the bailee. For example, a friend borrowing our car for a week.
c. For the mutual benefit of them both: In this case, the bailor deliver his good to the
bailee for consideration and both the parties get benefit out of bailment,
For example, giving a bike for repair to a mechanic, for which the mechanic gets paid.
Essential Elements of Bailment

This following are the essential elements of bailment:
1. Contract: bailment is usually the result of an express contract between the bailor and the
bailee, sometimes it may be implied by law as between a finder of goods and the owner -
a quasi-contractual obligation are arises under section 71.
Example: A gives his car to B for repair, here A is the Bailor and B are the Bailee and
the purpose of the bailment is expressed by the A that he wants to repair the car by B.
2. Delivery of goods: delivery of goods by one person to another is important in bailment.
Delivery may be ' actual' or' constructive'.
a. Actual delivery means the act of physical delivery of goods. e.g., a may lend his
book to B and it is possible to physically hand it over to B.
Where physical delivery is not possible, e.g., when goods are bulky in nature, the bailor
has to resort to constructive delivery. in this case, delivery is made by doing anything that
has the effect of putting the goods in the possession of the intended bailee (section 149).
delivery of the warehouse receipt, for example, amounts to delivery of the good.
Delivery of goods must also be voluntary and not the result of coercion.
3. Transfer of possession only and not a title: In bailment, there is only a transfer of
possession of goods by the bailor to the bailee and there is no transfer of title (ownership
in respect of the goodsthe ). If title itself is transferred, it becomes a sale.
4. Some definite purpose: goods are delivered by the bailor to the bailee for some purpose,
e.g., for the bailee's use, to enable the bailee to carry out some work, safe custody etc. if
goods are delivered by mistake or under coercion, there is no bailment.
5. Return of specific goods: The goods, entrusted to the bailee, are to be returned to the
bailor once the purpose for which they have been entrusted has been fulfilled. The goods
may, in certain cases, be returned in an altered form, e.g., a bit of cloth given to a tailor is
stitched into a shirt.
6. Concerned only with movable property: Bailment is concerned only with goods. i.e.
movable property. It has nothing to do with immovable property like land and building.
7. Money payment or detriment suffered us consideration: Consideration, in a contract
of bailment, is usually in the form of money payment by the bailor or the bailee. the
detriment suffered by the bailor, in parting with possession of the goods, is also a
sufficient consideration to support the contract of bailment.
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Rights and Duties of Bailor and Bailee
Who is Bailor?
The person who is giving possession of his personal property to another person is called Bailor in
the bailment.
Who is Bailee?
The person who is taking possession of the property and gives back the property after the
fulfilment of the purpose of bailment is called Bailee.
Rights of the Bailor

The following are the rights of the bailor:
1. To claim damage if the bailee shows negligence (section152): If the bailee fails to take
care of the goods bailed as required under section151 and, as a result, there is any damage
to the goods, the bailor can claim compensation from the bailee.
2. To terminate the contract if the bailee's acts are inconsistent with the terms of
bailment: (section 153) The bailor can terminate the contract of bailment if the bailee
does any act with regard to the goods bailed. Inconsistent with the conditions of bailment.
Example: X lends his bike to Y 's use only for a period of one month. Y allows his friend
Z to use the bike. X can terminate the contract.
3. To claim compensation in case of unauthorized use (section 154): The bailor can
claim compensation for the bailee for any damage arising due to the unauthorised use of
th goods bailed.
4. To claim separation if the bailee, without consent, mixes up th goods bailed with his
own goods (section156): If the bailee, without the bailor's consent, mixes up the goods
bailed with his own goods, the bailor is entitled to have his goods separated where
separation is possible. the bailor can also require the bailee to bear the cost of separating.
5. To claim compensation if the goods mixed up by the bailee with his own goods
cannot be separated (section 157): If the bailee without the bailor's consent, mixes up
the goods bailed with his own goods, the bailor is entitled to claim compensation if
separation is ot possible.
6. To demand return of goods (section 160): The bailor is entitled to receive back his
goods once the purpose of bailment is served or the period of bailment has ended.
7. To claim any loss owing to unauthorized retention of goods by the bailee (section
161): The bailor can claim compensation from the bailee for any loss arising from the
unauthorised retention of the goods by him.
8. To claim any benefit accrued from out of the goods bailed (section 163): The bailor is
also entitled to receive from the bailee any benefit accrued from out of the goods bailed.
Rights of the Bailee

The rights of the bailee are as follows:
1. To claim damages (Section 150): If the bailor fails to disclose the faults in the goods
bailed to the bailee, the latter may sue the former for any damage arising directly from
such faults.
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2. To recover expenses incurred (Section158): In case of gratuitous bailment, the bailee is
entitled to recover all the necessary expenses incurred by him, under the contract, from
the bailor.
3. To claim compensation in case of premature termination of gratuitous bailment
(Section 159): In case of premature termination of gratuitous bailment by the bailor, if
the loss incurred by the bailee exceeds the benefits received by him, he can claim
compensation from the bailor.
4. To recover loss arising out of bailor's defective title (Section 164): The bailee is
entitled to recover from the bailor any loss sustained by him by reason of the bailor's
defective title to the goods bailed. the bailee can also recover from the bailor the expenses
of custody where the bailor fails to receive back the goods after the terms of bailment has
expired or after the purpose of bailment has been fulfill.
5. Not liable if the bailor has no title to the goods (Section 166): If the bailor has no title
to the goods, and the bailee, in good faith, delivers them back to or according to the
directions to, the bailor, the bailee is nor responsible to the owner in respect of such
delivery.
6. To apply to the court to decide the title (Section 167): If person, other than the bailor,
claims the goods bailed, the bailee may apply to the court to stop delivery of the goods to
the bailor, and to decide the title to the goods.
7. To bring an action against a wrong-doer (Section 180): If a third person wrongful
deprives the bailee of the use or possession of the goods bailed to him, he has the right to
bring an action against such a person.
8. To exercise the right of a particular lien (section170): Where the bailee has rendered
some service involving the exercise of labor or sill in respect the goods bailed, he has the
right to retain the goods until he receives due remuneration for the services he has
rendered.
Duties of the Bailor

The duties of the bailor, in the contract of bailment, are as follows,
1. To disclose faults in goods bailed (Section 150): The bailor is bound to disclose, at the
time of bailment, the known faults in the goods to the bailee. if he does not make such
disclosure, he is responsible for damage arising to the bailee directly from such faults.
Example: X lends his bike to Y but fails to disclose that the brake system is faulty. Y
suffers injury in a road accident due to brake failure. X is liable.
2. To bear the risk of loss (Section 152): If in spite of the precaution taken by the bailee,
there is loss, destruction, or deterioration of the thing bailed, the bailor cannot hold the
bailee liable. in such a case, the bailor has to bear the loss himself.
3. To repay the bailee the necessary expenses incurred by him (Section158): In case the
bailment to for the benefit of the bailor, the shale repays the bailee all the necessary
expenses incurred by the latter for the protection and preservation of what has been
delivered to him.
Example: M Leaves his care with N a friend, to be taken care of by N for a period of
months when M is not in station. N assigns his servant the additional work of washing
the care once in three days and pays him Rs. 75 per month for doing the job. M shall
repay this amount to N.
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4. To indemnify the bailee in case of premature termination of gratuitous bailment
(Section 159): The bailor may terminate a gratuitous bailment at any time even if the
bailment is for a specified time or purpose. but he may have to indemnify the a Bailee in
case loss accruing to the bailee form such premature termination exceeds the benefit he
has actually derived out of the bailment.
5. To receive back the goods (Section 164): If, after the expiry of the term of bailment or
the accomplishment of its purpose, the bailor does not receive back the goods, the bailee
can claim compensation for the expenses of custody.
Example: R delivers his TV set to S for carrying our certain repairs. He fails to receive
back the TV, after service, even after the expiry of 3 months. S can recover the expenses
of custody from R.
6. To indemnify the bailee (Section 164): Where, owing to the bailor's defective title
(ownership), in respect of the goods bailed, the bailee suffers, the former shall indemnify
the letter.
Example: X lends Y's cycle to Z for two days. Y on coming to know of this, beats up Z.X
has to indemnify Z.
Duties of the Bailee

The bailee's duties, in a contract of bailment, are given below:
1. To take care of the goods bailed (Section 151): 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 own goods of the same bulk, quantity and value as the goods
bailed.
Example: X leaves his dog with Y for safe custody for the two weeks when X is not in
station, the doge falls sick and Y fails to give the necessary medical treatment. as a
result, the dog dies, Y is liable to X.
2. Not to make an unauthorized use of the goods (Section 154): If the bailee makes use
of the goods bailed in a manner inconsistent with the terms of the contract, he is liable to
the bailor for damages.
Example: R lends his bike to S for S'S use only for a week S lets his brother T, who is not
good in riding, to ride the bike. T meets with an accident and escapes unhurt. But the
dike suffers extensive damages, S is liable to R for the loss.
3. Not to mix the goods bailed with his own goods: If the bailee mixes the goods bailed to
him with his own goods: -
a. With the consent of the bailor, both shall have a proportionate share of the
mixture produced (section 155)
b. Without the consent of the bailor and the goods can be separated or divided, the
bailee is bound to bear the expenses of separated and also any damage arising
from the mixture (section 156).
Example: X bails 100 bags of 'Basmati' rice to Y. without X's consent, Y keeps these in
his godowns mixed with hundreds of rice bags containing ordinary variety of rice. Y is
bound to arrange for separating the rice bags of X and also beat the cost of separation.
4. To return the goods (Section 160): It is the duty of the bailee to return the goods bailed
with our demand as soon as the time of bailsmen expires or to the bailor for any loss,
destruction or deterioration of the goods from that time (section 161).
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5. To return any benefit accrued from out of the goods bailed (section 163): The bailee
shall return to the bailor not only what has been bailed to him but also any benefit that
has accrued from out of the goods bailed.
Example: X leaves his cow in the custody of Y to be taken care of. The cow has a calf. Y
is bound to return the cow as well as the calf to X.
Pledge
Concept of Pledge
In the pledge, the pawnor transfer/bailed his goods to the Pawnee as security against the amount
he takes from the Pawnee. The pawnor has a duty to pay the amount back to the Pawnee and the
Pawnee has a duty to return the goods after the pawnor pays the amount. The Pawnee should not
make unauthorized use of the goods bailed to him if he does, he will be liable to pay
compensation to the pawnor. The Pawnee has a right to sell the goods after giving prior notice to
the pawnor if he fails to pay the amount back.
Definition
Section 172 to 181 of the Indian Contract Act,1872 deals with pledges.
According to section172, the bailment of goods as security for payment of a debt or performance
of a promise is called a' pledge'. The bailor, in this case, the bailor is called the 'pawnor' and the
bailee is called the Pawnee.
Ex. X borrows Rs.2,000 from Y & keeps his gold ring as security for the payment of the debt. X is
the pawnor& Y is the Pawnee.
Rights of Pawnee
The right of the Pawnee is discussed as under:
1. Right to retain the goods (Sec.173): The Pawnee has the right to retain the pledged
article, not just for the repayment of the loan advanced or fulfillment of the obligation,
but also for the interest accrued and all the relevant expenses incurred in connection to
the possession and safekeeping of the article.
2. Right to the retention for a subsequent loan (Sec.174): The Pawnee can also retain the
goods pledged towards the further amount lent to the pawnor. Nevertheless, it is required
to be specifically stated in the contract.
3. Right in connection to additional expenses borne (Sec.175): Any expenses made by
the Pawnee for the safekeeping of the goods pledged are to be recovered from the
pawnor.
4. Right in case of default (Sec.176): When the pawnor makes a default in the repayment
of the amount lent or in the performance of the obligation within the stated time, the
Pawnee can file a suit against the pawnor and retain the goods pledged, or he/she has the
right to sell the property pledged, after giving reasonable notice of the sale to the pawnor.
Rights of Pawnor
The rights of the pawnor are explained in the points below:
1. Right to redeem: When there is a time specified for the repayment of loan or
performance of the obligation and the pawnor does not realize the dues within that time,

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then he may redeem the item at any time before the goods are sold by the Pawnee.
However, the pawnor has to pay the expenses incurred to the Pawnee, due to his default.
2. Right to limited interest: When the pledge is made by the pawnor for limited interest,
then its validity will be limited to that extent only.
3. Rights in case of unauthorized sale: If the Pawnee sells the pledged item wrongfully,
without giving notice, the pawnor has the right to file suit against the pawnor for the
redemption of the item by depositing the amount and treating the sale as if it has never
taken place.
DISTINCTION BETWEEN BAILMENT & PLEDGE:

S.NO BAILMENT PLEDGE
1. Bailment of goods may be for any purpose Bailment of goods as security for the
E.g. For Bailee’s use, safe custody. Etc., payment of debt or performance of a
promise is called a pledge.
2. The Bailee can exercise the right of lien If the pawnor makes a default in
for recovering all charged due from the repaying the debt the Pawnee may
bailor in respect of goods bailed. after giving notice to the pawnor, sell
the goods pledged with him.
3. If the terms of the contract so provide, the The Pawnee has no right to issue the
Bailee can make use of the goods goods pledged to him.
delivered to him.
Essentials of Pledge
 Delivery of the good to be pledged: to constitute a valid contract of pledge, the primary
requirement is the delivery of the possession of a good. There must be an actual delivery
of possession of the identified chattel in pursuance of the contract. The property or any
other good pledged must be actually and constructively delivered to the creditor which in
this case is the Pawnee, the person to whom the pledge has been made.
 A valid contract: though a contract of pledge comes under the head of Special contracts
yet it is necessary that for it to be valid, there must be a contract with all the essentials as
mentioned in the provisions of the Indian Contract Act 1872.
 Right on the Pledge: another major ingredient of the pledge is that the Pawnee merely
possess possessory rights and not juristic rights over the pledge. The Pawnee only has the
special property while the general property stays with the pledger. When the pledge
comes to an end by way of repayment the special rights are also transferred back to the
pledger.
 Time of Delivery: Under a contract of pledge the delivery of possession and the payment
of money need not always be simultaneous. A pledge can even be given subsequently
after advance has been made.
Contract of Indemnity

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The Phrase Indemnity means “Security against loss or damages”.
Meaning
The word indemnity means security or protection against a financial liability. It typically occurs
in the form of a contractual agreement made between parties in which one party agrees to pay for
losses or damages suffered by the other party.
Definition
Section 124 of the Indian Contract Act’1872 defines Contract of Indemnity as a contract by
which one party guarantees to save the other person from loss caused to him by the action of the
guarantor himself, or by the action of any other person.
For, e.g. X can agree to stand as a guarantor for his son Y, a student so that if Y is unable to pay
his monthly expenses and rent to Z(a PG); X will be required to pay on behalf of Y, thereby
compensating for the losses that Z acquired because of action of Y.
Parties to the Contract of Indemnity
A contract of indemnity has two parties.

1. The promisor or indemnifier
2. The promisee or the indemnified or indemnity-holder
 The promisor or indemnifier: He is the person who promises to bear the loss.
E.g., P is the indemnifier or promisor as he promises to bear the loss of Q.
 The promisee or the indemnified or indemnity-holder: He is the person whose loss is
covered or who are compensated
E.g., Q is the promisee or the indemnified or indemnity-holder as his loss is covered by
P.
Essentials of Contract of Indemnity

a. Parties to a contract: There must be two parties, namely, promisor or indemnifier and
the promisee or indemnified or indemnity-holder.
b. Protection of loss: A contract of indemnity is entered into for the purpose of protecting
the promisee from the loss. The loss may be caused due to the conduct of the promisor or
any other person.
c. Express or implied: The contract of indemnity may be express (i.e. made by words
spoken or written) or implied (i.e. inferred from the conduct of the parties or
circumstances of the particular case).
d. Essentials of a valid contract: A contract of indemnity is a special kind of contract. The
principles of the general law of contract contained in Section 1 to 75 of the Indian
Contract Act, 1872 are applicable to them. Therefore, it must possess all the essentials of
a valid contract.
e. Number of contracts: In a contract of Indemnity, there is only one contract that is
between the Indemnifier and the Indemnified.
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Rights of Promisee/ the Indemnified/ Indemnity Holder
As per Section 125 of the Indian Contract Act, 1872 the following rights are available to the
promisee/ the indemnified/ indemnity holder against the promisor/ indemnifier, provided he has
acted within the scope of his authority.
a. Right to recover damages paid in a suit [section 125(1)]: an indemnity-holder has the
right to recover from the indemnifier all damages which he may be compelled to pay in
any suit in respect of any matter to which the contract of indemnity applies.
b. Right to recover costs incurred in defending a suit [section 125(2)]: An indemnity-
holder has the right to recover from the indemnifier all costs which he may be compelled
to pay in any such suit if, in bringing or defending it, he did not contravene the orders of
the promisor, and acted as it would have been prudent for him to act in the absence of any
contract of indemnity, or if the promisor authorized him to bring or defend the suit.
c. Right to recover sums paid under compromise [section 125(3)]: An indemnity-holder
also has the right to recover from the indemnifier all sums which he may have paid under
the terms of any compromise of any such suit, if the compromise was not contrary to the
orders of the promisor, and was one which it would have been prudent for the promisee
to make in the absence of any contract of indemnity, or if the promisor authorized him to
compromise the suit
d. Right to sue for specific performance- The indemnity holder is entitled to sue for
specific performance if he has incurred absolute liability and the contract covers such
liability.
Contract of Guarantee
According to sec 126, ‘A contract of guarantee is a contract to perform the promise made or
discharge the liability, of a third person in case of his default.’ A guarantee may be either oral or
written.
Parties to a contract of guarantee

 Creditor: The person to whom the guarantee is given is called the creditor.
 Surety: The person who gives the guarantee is called the surety.
 Principal debtor: The person for whom the guarantee is given is called the principal
debtor
In a contract of guarantee there are three separate agreements.
• One between the principal debtor and creditor
• The second between the creditor and the surety
• The third between the surety and the principal debtor
Essentials of a Contract of Guarantee

The following are the essential features of a valid contract of guarantee.
1. Tripartite agreement: contract of guarantee is a three-way agreement between the
principal debtor, creditor and surety
2. Consent of three parties: There must be consent of all three parties.

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3. It may be oral or in writing: A contract of guarantee may be either oral or in writing.
Whereas, as per English law, the guarantee must be in writing and signed by the party
who offers guarantee.
4. Existence of Liability: There must be an existing liability or a promise whose
performance is guaranteed and such liability must be enforceable by law. The exception
to this rule is a guarantee given for minor's debt. Though minor's debt is not enforceable
by law, yet the guarantee given for minor's debt is valid.
5. Essentials of a valid contract: All the essential of a valid contract must be present in a
contract of guarantee. However, the following points are worth noting in this regard.
a. The principal debtor need not be competent to contract and the surety would be
regarded as the principal debtor and would be personally liable to pay.
b. Surety need not be benefited. Anything done or any promise made, for the benefit
of the principal debtor, may be a sufficient consideration to the surety for giving
the guarantee.
6. Guarantee not to be obtained by misrepresentation: Any guarantee which has been
obtained by means of misrepresentation made by or with his knowledge and assent,
concerning a material part of the transaction is invalid.
7. The contract of guarantee must be supported by consideration: We have discussed
above that n contract of guarantee must have all the essential, valid contract. It will be
interesting to know that it is not necessary that there be direct consideration between the
surety and creditor. The law presumes that consideration received by the principal debtor
is the sufficient consideration for the surety.
8. The promise to pay must be conditional: It is another important essential element of a
contract of guarantee. There must be a conditional promise to be liable on the default of
the principal debtor.
9. There should be no concealment of fact: The creditor should disclose to the surety the
facts which are likely to affect the surety's liability. The guarantee obtained by the
concealment of such facts is invalid.
Kinds of Guarantee
Types of contracts of guarantee are:
1. Simple or specific guarantee (Sec 128): It is one in which guarantee is given for a
single specific debt (or) transaction. It comes to an end as soon as the liability under that
transaction ends. A specific guarantee once given is irrevocable.
Ex: Renu supplies 5 bags of wheat credit to Vivek. Kumar guarantees the payment of
Vivek. This guarantee by Kumar is a specific guarantee applicable only to this specific
transaction.
2. Continuing guarantee (Sec 129): A guarantee which extends to a series of transactions
is called a continuing guarantee. A surety's liability continues until the revocation of the
guarantee. A continuing guarantee may be given for a part of the entire debt or for the
entire debt subject to a limit.
Ex: Arun in consideration that Babu will employ Santhosh for collecting rent from
Babu’s tenants, guarantees to Babu the due collection of rent by Santhosh. This is a
continuing guarantee

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Mortgage meaning
A mortgage is a ‘legal agreement by which a bank or similar organisation lends you money to
buy a house, etc. and you pay the money back over a particular number of years; the sum of
money that you borrow’.
Section 58 (a) of the Transfer of Property Act, 1882, defines mortgages as ‘the transfer of an
interest in specific immovable property for the purpose of securing the payment of money by
way of loan, an existing or future debt, or the performance of an engagement which may give
rise to a pecuniary liability’.
Types of Mortgages
 Simple mortgage,
 Mortgage by conditional sale,
 Usufructuary mortgage,
 English mortgage,
 Mortgage by deposit of title deeds, and
 Anomalous mortgage
 These are described below;
1. Simple mortgage [Section 58(b)]: Without delivering possession of the mortgaged

property, the mortgagor binds himself personally to pay the mortgage money and agrees
expressly or impliedly that in the event of his failure to pay according to his contract, the
mortgagee shall have a right to cause the mortgaged property to be sold. The proceeds of
the sale to be applied so far may be necessary, m the payment of the mortgage money.
2. Mortgage by conditional sale [Section 58(c)]: Mortgage by conditional sale is one
where the mortgagor ostensibly sells the mortgaged property on the condition that –
a. On default of payment of the mortgage money on a certain date, the sale shall
become absolute, or
b. On such payment being made, the sale shall become void, or
c. On such payment being made, the buyer shall transfer the property to the seller.
3. Usufructuary mortgage [Section 58(d)]: A usufructuary mortgage is one where the
mortgagor delivers or agrees to deliver the possession of the mortgaged property to the
mortgagee and authorizes him –
a. To retain such possession until payment of the mortgage money,
b. To receive the whole or any part of the rents and profits accruing from the
property, and
c. To appropriate such rents or profits;
i. in lieu of interest, or
ii. in payment of the mortgage money, or
iii. partly in lieu of interest and partly in lieu of the mortgage money.
4. English Mortgage [Section 58(e)]:
English mortgage has the following characteristics:

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 The mortgagor makes a personal promise to repay the mortgage money on a certain
day.
 The property mortgaged is transferred to the mortgagee.
 The mortgagee, therefore, is entitled to take immediate possession of the property.
 The transfer is subject to this condition that the mortgagee will re-transfer the
property to the mortgagor upon making payment of the mortgage money as agreed.
5. Mortgage by deposit, of title deeds [Section 58(f)]: A person delivers to a creditor or
his/her agent documents of title to the immovable property to create a security thereon.
The transaction is called a mortgage by deposit of title deeds. This mortgage does not
require registration, and it is the most popular with banks.
6. Anomalous mortgage [Section 58(g)]: T.P. Act defines Anomalous Mortgage. It is
composite mortgage formed by combination of two or more of primary type of mortgage.
In this class of mortgage, the rights of the parties are governed by the terms of the
instrument.
Elements of a Mortgage
1. Two Parties are There: The person who actually mortgage the property is a mortgagor,
but a mortgagor includes a person deriving title under the original mortgagor, eg : Heirs,
executors who drive their title from the mortgagor.
2. Transfer of an Interest: Must be transfer of an interest in immovable property. It is not
transfer of ownership like in sale but only interest with a hope that in future the property
will be taken if repay the loan. A mortgage is transfer of an interest and create a right in
rem, but mere agreement to mortgage at a future time is not a mortgage.
3. Specific Immovable Property: In order to create a Mortgage, it is essential to specify
the immovable property. Otherwise, it would be void for vagueness. It is a security
against the loan and the property exist and there is no doubt in property.
4. Consideration of Mortgage: A mortgage must be supported by consideration, which
may be either money advanced by way of loan, or an existing or future debt, or the
performance of an engagement giving rise to pecuniary liability.

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UNIT- IV
Law of sale of goods – sale and agreements to sale – their distinctions – types of goods –
conditions and warranties – CAVEATEMPTOR– transfer of property – sale by non –
owners – performance –remedies for breach – unpaid seller – auction sale.
Law of sale of goods
Definition
Section 4 of the Sales of Goods Act, 1930 defines a sale of goods as a “contract of sale whereby
the seller transfers or agrees to transfer the property in goods to the buyer for price”. The term
‘contract of sale’ includes both a sale and an agreement to sell.
A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such
offer by the other party. The contract may be oral or in writing. A contract of sale may be
absolute or conditional.
Formalities of a contract of sale

Section 5 of the Act specifically provides for the following three steps or formalities in a
contract of sale:
 Offer and Acceptance: A contract of sale is made by an offer to buy or sell the goods for
a price and acceptance of such offer.
 Delivery and Payment: It is not necessary that the payment for the goods to the seller
and delivery of goods to the buyer must be simultaneous. They can be made at different
times or in instalments – as per the contract.
 Express or Implied: The contract can be in writing, oral or implied. It can also be partly
oral and partly written.
Essential Elements
The five essential features of a contract of sale are as discussed below:
1) Two parties
2) Subject matter to be goods
3) Transfer of ownership of goods
4) Consideration is price.
5) Essential elements of a valid contract
1. Two parties: A sale has to be bilateral because the goods have to pass from one person to
another. There must be a buyer – a person who buys or agrees to buy the goods and a seller –
a person who sells or agrees to sell goods.
2. Subject matter to be goods: The term ‘goods’ is defined in Section 2(7). It states that
‘goods’ “means every kind of movable property other than actionable claims and money; and
includes stock and shares, growing crops, grass and things attached to or forming part of the
land which are agreed to be severed before sale or under the contract of sale”.
3. Transfer of ownership of Goods: There must be transfer of ownership or an agreement to
transfer the ownership of goods from the seller to the buyer – not the transfer of mere
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possession or limited interest as in the case of pledge, lease or hire purchase agreement). If
goods remain in possession of seller after sale transaction is over, the ‘possession’ is with
seller, but ‘ownership’ is with buyer. The Act uses the term ‘general property’ implying that
sale involves total ownership and not a specific right limited by conditions.
4. Consideration is Price: The consideration in a contract of sale has to be price i.e., money. If
goods are offered as the consideration for goods, it will not amount to sale. It will be barter.
If there is no consideration, it will be called gift. But where the goods are sold for definite
sum and the price is paid partly in kind and partly in cash, the transaction is a sale.
Classification of Goods
The goods may be of several types from a legal point of view which are as follows:
1. Future Goods (Section 2(6)): Future goods mean goods to be manufactured or produced
or acquired by the seller after the making of the contract of sale. There can be an
agreement to sale only. There can be no sale in respect of future goods because one
cannot sell what he does not possess.
2. Contingent Goods (Section 6(2)): These are the goods the acquisition of which by the
seller depends upon a contingency which may or may not happen.
3. Existing Goods (Section 6): Goods which are owned and possessed by the seller at the
time of sale are called existing goods. Existing goods may be classified under three
categories this classification is as follows:
a. Ascertained Goods: Goods are said to be ascertained when out of the mass of
unascertained goods, the quantity extracted for the identified and set aside for a
given contract. Thus, when part of the goods lying in bulk are identified and
earmarked for sale, such goods are termed as ascertained goods.
b. Unascertained Goods: These are the goods which are not identified and agreed
upon the time when a contract of sale is made e.g., goods in stock or lying-in lots.
c. Specific Goods (Section 2(14)): These are the goods which are identified and
agreed upon at the time when the contract of sale is made.
Agreement to Sell
An agreement to sell can be defined as the transfer of property in goods that is to take place in
future time or the transfer might take place depending on the fulfilment of certain conditions.
The same had been defined in section 4(3).
An agreement to sell also becomes a sale when the given time elapses or the conditions that are
needed for the transfer to happen gets fulfilled. Thus, an agreement to sell establishes the terms
and conditions of the offer of a property by the seller to the buyer.
These terms and conditions incorporate the sum at which it is to be sold and the future date of
payment. The concept of contingent contract as per section 31 of the Indian Contract Act 1872,
can also be brought into it. Thus, an agreement to sell is a contract, to do or not to do something
if some event collateral to such contract, does or does not happen.

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Main Differences between Sale and Agreement to Sell
Points of Agreement of sale Sale deed

difference
Transfer It implies the future transfer of the It signifies an immediate transfer of the
property property titles
Risk involved Risk/liabilities remain with the seller Risk is immediately transferred to the
until the property is transferred in new buyer
future
Contract It is an executory contract. An It is an executed contract
executory agreement is one which has
not been fully implemented
Violation Breach of sale may result in a suit for
Sale breach results in a legal complaint
damages as well as monetary compensation for
damages
Registration It is not mandatory to register It is mandatory to register a sale deed
agreement of sale. However, norms
may differ across States
Conditions and Warranties
Conditions: Meaning
A condition can be termed as one of the crucial terms in agreement of sale which is mention by
the buyer to the seller which can me implied or expressed.
The buyer can cancel the proposal in case of non- compliance with the condition mentioned by
the seller. Condition may be expressed or implied.
If there is a breach of conditions then there is a right to aggrieved party to treat the contract as
repudiated. In case if the buyer had paid, then he is also having the right to recover the price and
can also claim the damages for breach.
For ex. If the buyer expressly mentions that good should be delivered before stipulated date, then
that date will be taken as condition as buyer expressly mentioned it at the time of contract.
Types of Conditions
1. Expressed Condition: The term defines the statement as a condition which says that
something should be exist or should be there for the fulfillment of contract. These conditions
are generally imperative to the functioning and are done only when both the parties are
agreeing on the said or expressed condition.
2. Implied Condition: In this type of contract there are several conditions which are implied to
the parties in different kind of contracts of sale. The conditions exists even if they have not
been there in contracts.
The implied contracts come under the section 14 to 17 of Sale of Goods Act, 1930 which are
as follow:

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a. Implied Conditions as Title: Here are the several conditions which are implied at
the time of sale:
i. One should have the title to sell the goods. In case of selling, at the time of
performing contracts one will have the right to sell the contracts.
ii. And if the seller has no title to sell, he given good then the buyer can refuse to
take those goods and then he will entitle to recover full price paid by him.
b. Implied Condition as to Description:
In section 15, the section says that there must be confirm description about the good.
The buyer has the option either to accept or reject the good if the goods does not
match with the description given by seller. Example- if A buys a new car from B as he
believes its new and if it is not then A can reject the car.
In section 16 (2) the good should be of merchantable quality which means that the
goods offered by seller should of of quality which would be accept and satisfies
reasonable man.
For example- If A orders a bag of wheat from B and it got damage by rain the
condition of merchantability get break here by B as now its unfit to use. However, the
examination may not reveal the defect but it the goods will come out with defect then
he has a chance to repudiate the contract even if the goods are approved.
Warranties
As the term warranties is an additional stipulation over the main purpose of contract. If there is a
breach of warranty then the aggrieved or suffered party cannot repudiate the contract and claim
the contract. In other words, warranty is a stipulation which is not essential to the main purpose
of contract and if it will get breach then buyer can only claim the damages.
Kind Of Warranties
1. Expressed warranty: In this the warranty generally both the parties are interested in
contracts and warranty is accepted by both the parties expressly.
2. Implied warranty: In this type of warranty the parties generally assumes that the
warranties have been incorporated at the time of contract of sale. The warranties which
are implied are not specifically mentioned in the contracts.
There are the following implied warranties as follows:
a. Warranty as to undisturbed possession: In section 14(2) gives the information that
the buyer shall enjoy the uninterrupted possession of goods which comes under the
implied warranty. As a matter of fact, if the buyer having got possession of the goods,
is later disturbed at any point, he can sue the seller for the breach of warranty.
Example: P purchases second hand car from Q and he have no idea that the car
which he has purchased is stolen one. After he used the car, he was supposed to
return the car. In this P is entitle to sue Q for the breach of warranty.
b. Warranty as to freedom from Encumbrances: With reference to section 14(3), in
implied warranty the goods which are in favors of third party and is not known by
buyer then they shall be free from any charges and encumbrances. In case the buyer
come to know about the fact at the time of entering into the contract then he loses the
chance to entitle any claim.

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c. Implied warranty to disclose Dangerous nature of the goods sold: If someone sold
the goods which can be inherently dangerous or likely to be dangerous and the buyer
of the goods is unaware about it, then it will be consider as the breach of warranty and
seller will held liable. At the first place is the duty of seller to inform the buyer about
the danger in any circumstances.
Example- X purchases a horse from Y and the horse is lunatic then it's the duty of Y
to inform the X about the danger and whole scenario. While riding, the horse gets an
attack because of which X fell down and got fracture. in the Y is entitle to claim
damages to Y.
Difference Between Condition and Warranty:
Conditions Warranties
In this the stipulation can be consider as the In this the stipulations are additional to the
basis of contract main contracts
If the condition gets breach, then it leads to If the warranty got breach, then the injured
termination of contracts party will et the compensation only
If the buyer gets agree so the condition can be Warranty cannot be treated as condition
treated as warranty
The injured party can refuse to accept the Only damages can be claimed by injured
goods as well as claim damage in case of party in case of breach of warranty
breach of condition
CAVEATEMPTOR
What is Caveat Emptor?
Caveat emptor is a Latin phrase that is translated as “let the buyer beware.” The maxim means
that the buyer should take care of the quality of the goods before purchasing them but, section 16
of the Sale of Goods Act 1930.
According to the caveat emptor principle, a buyer is responsible for performing the necessary
due diligence before the purchase to ensure that a good is not defective and that it suits his/her
needs. If the buyer fails to perform the necessary actions, he or she will not be entitled to any
remedies for damages in case the purchased product shows significant defects.
Doctrine of Caveat Emptor

 So, the doctrine attempts to make the buyer more conscious of his choices.
 It is the duty of the buyer to check the quality and the usefulness of the product he is
purchasing.
 If the product turns out to be defective or does not live up to its potential the seller will
not be responsible for this.
Example: A bought a horse from B. A wanted to enter the horse in a race. Turns out the horse
was not capable of running a race on account of being lame. But A did not inform B of his

38
intentions. So, B will not be responsible for the defects of the horse. The Doctrine of Caveat
Emptor will apply.
Exceptions to the Doctrine of Caveat Emptor

1. Sale by description (Section 15): If the sale is done via a sample as well as a description
of the product, the buyer will not resemble the sample or the description. Then the
authority will fall directly on the seller. Where the goods are brought by sample as well
as the description and the bulk of goods do not correspond with the sample or with the
description. The buyer is entitled to reject the goods. the rule of caveat emptor shall not
apply in this case.
2. Goods purchased under brand name (Section 16(1)): When the buyer buys a product
under a trade name or a branded product the seller cannot be held responsible for the
usefulness or quality of the product. So, there is no implied circumstance that the goods
will be suitable for the cause the buyer intended.
3. Goods of merchantable quality: Section 16(2) of sales of goods act deals with the
exception of merchantable quality. The section states that the seller who is selling goods
by description has a duty to provide goods of merchantable quality, if the goods are not
marketable quality, then the buyer will not be responsible. However, if the buyer had a
reasonable chance to examine the product, then this exception will not apply.
4. Fitness for purpose (Section 16 (1a)): Where the buyer informs the seller the particular
purpose for which the goods are required and relies upon the seller’s skill or judgement
there is in that case, an implied condition that the goods shall be reasonable fit for the
purpose for which they are required.
5. Sale by sample (Section 15b): If the purchaser buys his goods after inspecting a
representative then the rule of doctrine of caveat emptor will not apply. If the rest of the
goods do not resemble the sample, the buyer cannot be held responsible the seller will be
the responsible person.
For example: A places an order for 50 cello pens with B. He checks one sample where
the pen is red. The rest of the pens turn out to be blue. Here the doctrine of caveat
emptor will not apply and B will be responsible.
6. Fraud and misrepresentation by the seller: This is an important exception. If the seller
acquires the agreement of the purchaser by fraud, then caveat emptor will not apply.
Also, if the seller hides any material influence of the goods which are behind time find on
closer examination, then existence the purchaser will not be accountable. In both cases,
the purchaser will be the guilty party.
7. Usage of trade (Section 16(3)): There is an implied condition or warranty about the
standard or the suitability of goods/products. But if a purchaser diverged from this then
the rules of caveat emptor end to apply. For example, A brought goods from B in a sale
of the contents of a ship. But B did not inform A that the contents were sea damaged, and
so the rules of the doctrine will not apply here.
Transfer of Property in Goods
Meaning of Transfer of Property

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Section 5 of the Transfer of Property Act, 1882 defines the term transfer of property. According
to this section, transfer of property means an act by which a living person conveys property, in
present or in future, to one or more other living persons, or to himself and other living persons.
Need for knowing the time of passing of property in goods

It is important to know the time of passing of property in goods from the seller to the buyer in
view of the following reasons:
1. Owner to bear the risk of loss: It is only the owner who has to bear the risk of loss of
goods arising from theft, fire accident ect. And not the person who has possession of the
goods.
2. Action against a third party: If a third party causes damage to the goods, it is only the
owner who can take action against such a person.
3. Seller’s Insolvency: In case the buyer becomes insolvent, the official Receiver can take
possession of the goods from the seller only if the ownership has been transferred to the
buyer.
4. Buyer’s Insolvency: In case the buyer becomes insolvent, the Official Receiver can take
possession of the goods from the seller only if the ownership has been transferred to the
buyer.
5. Suit for the price: The seller can sue the buyer for the price, only if the goods have
become the property of the buyer.
Kinds of Property Transfer under the Transfer of Property Act, 1882

1. Sale of Immovable Property: In the sale of immovable property, ownership is
transferred from the buyer to the seller in exchange for a certain amount.
2. Mortgage of Immovable Property: The immovable property is transferred from a
mortgagor to the mortgagee in mortgage form to secure the loan. The mortgagor has to
pay the principal amount with interest to release immovable property from the
mortgagee.
3. Leases of Immovable Property: The possession of the property is transferred from one
person to another at a fixed price. In this scenario, the ownership does not get transferred.
4. Exchange of Immovable Property: When two parties agree to exchange the immovable
property
5. Gift of Immovable Property: Gift refers to transfer or property from one person to
another without any consideration. In this, the donor transfers the rights on the property
to the donee who accepts it.
Sale by Non-Owners
Meaning:
The general rule is that ‘No one can give that which one has not got’ A person who is not the
owner of certain goods has no legal right to sell the same, certain exceptions he has the power to
selling the goods.
The general rule is: “No man can sell goods and give a good title unless he is the owner of the
goods”.

40
Definition:
According to section 27, defines, where goods are sold by a person who is not the owner there of
and who does not sell them under the authority or with the consent of the owner, the buyer
acquires no better title to the goods than what the seller had.
For example: ‘X’ stole a car and sold it to ‘Y’ bought it in good faith and without knowledge of
defective title of car. Held, ‘Y’ could not obtain title of goods.
Exceptions to the above rule:

For example, a thief cannot pass on better title to purchaser of the stolen goods. This is very
important principle. However, strict implementation of this principle will create some
difficulties. Some exceptions are provided, as discussed below.
1. Sale by a person not the owner (or) tittle by estoppel: (section 27) where the true
owner by his conduct, act (or) omission leads the buyer to believe that the seller has the
authority to sell and induces the buyer to buy the goods, he shall be estopped from
denying the fact of want of authority of the seller. The buyer in such a case get better
tittle than that of the seller.
2. Sale by mercantile agent: (section 27) A sale by mercantile agent shall pass a valid title
to the buyer even though such sale is not made as per the directions of the seller, if the
following conditions are satisfied.
The sale is made by a mercantile agent in the capacity of mercantile agent.
a. The goods came into his possession with the consent of the seller.
b. The sale is made by the mercantile agent acting in the ordinary course of business
c. The buyer buys the goods in good faith and for consideration.
3. Sale by one of several joint owners: (Section 28) A sale by one of the joint owners shall
pass a valid title to the buyer even though such sale is not made with the consent of the
other joint owners, if the following conditions are satisfied: -
a. The goods are in the sole possession of the joint owner.
b. The goods came into his possession with the consent other joint owners.
c. The buyer buys the goods in good faith and for consideration.
4. Sale by a person in possession under a voidable contract: (section 29) A re-sale of
goods by a buyer shall pass a valid title to the new buyer, if the following conditions are
satisfied: -
a. A person buys the goods under a voidable contract.
b. Such buyer resells the goods to a new buyer.
c. At the time of re-sale, the voidable contract has not been rescinded by the original
seller.
d. The new buyer buys the goods in good faith of want of authority of the seller. The
buyer in such a case shall get better title than that of the seller.
5. Sale by a seller in possession of goods after the sale: (section 30(1)) A seller, who has
the possession of the goods already sold by him, may re-sell such goods to the new buyer,
and the new buyer shall have a valid title to such goods, if the following conditions are
satisfied: -
a. The ownership of goods has been passed to the buyer.
b. The seller continues to be in possession of goods, even after their sale.
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c. The seller re-sells the goods to the new buyer.
d. The new buyer buys the goods in good faith (i.e.., the new buyer had no
knowledge of the fact that the goods being sold by the seller have already been
sold to some other buyer) and consideration.
6. Sale by the buyer in possession of goods: (section 30(2)) Where a person having
bought (or) agreed to buy goods, obtains, with the consent of the seller, possession of the
goods (or) document of title to the goods, the delivery (or) transfer by such person (or) a
mercantile agent acting for such person, of the goods (or) documents, will be valid and
effective, provided the person receiving the same, acted bonafide and without notice of
the seller’s lien, if any.
7. Sale by an unpaid seller: (Section 54 (3) where an unpaid seller who ha exercised his
right of lien (or) stoppage in transit re-sells the goods, the buyer acquires a good title to
the goods as against the original buyer.
Exceptions under other Acts:-
a. Sale by a finder of lost goods.
b. Sale by a Pawnee (or) pledge.
c. Sale by an official receiver (or) assignee (or) liquidator of companies.
d. Sale by Bank/ FI under Securitization Act, 2002. e) Holder in due course under
Negotiable instruments Act, 1887.
Performance of a Contract
It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, in
accordance with the terms of the contract of sale. Sec. 31, The Sale of Goods Act, 1930. The
performance of a contract is a simple transaction where the seller delivers the goods and the
buyer pays.
Delivery of Goods
The rules regarding the delivery of goods are contained in Sec. 33 to Sec. 39 of the Sale of
Goods Act. Delivery of goods may be defined as a voluntary transfer of possession of goods
from the seller to the buyer.
Delivery means voluntary transfer of possession of goods from one person to another
 Seller: Delivers goods and receives consideration.
 Buyer: Accepts and pays for the goods.
 Terms: Contract can have terms of delivery and payment.
Types of Delivery
1.Actual Delivery
2.Constructive or Delivery by Attornment
3.Symbolic Delivery
 Actual Delivery: The goods are handed over by the seller to the buyer or to his
authorized agent; it has the effect of putting the goods in the possession of the buyer: Sec.
33.
Example: Amar sold 10 tins of oil to Akbar and delivered the same to him. In this case,
there is the actual delivery of oil from Amar to Akbar.
42
 Constructive or Delivery by Attornment: A third party (bailee) who is in possession of
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).
Example: A sells to B 10 bags of wheat lying in C’s godown. A gives an order to C,
asking him to transfer the goods to B. C assents to such order and transfer the goods in
his books to B. this is delivery by attornment.
 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.
Rules for Delivery of Goods

1. Part delivery of goods Sec 34: Goods being delivered as part of the whole; if the part is
severed from the whole then the transfer is not of the whole but only partial.
2. Apply for delivery of goods – Sec 35: Unless the buyer places his demand there is no
sale of goods, unless there is a contract to that effect. It is a logical impossibility to
supply you something that you have not asked for.
3. Place for the delivery of goods – Sec 36: The place for the delivery of goods may be
specified in the contract itself. And where the place is so specified, the goods must be
delivered at the specified place during the business hours and on a working day. Where
there is no specific agreement as to the place of delivery, it shall be determined as per
Sec. 36(1)
4. Time for the delivery of goods – Sec 36(2): The transfer of goods happens in time The
contract of delivery has terms, e.g., forthwith, as soon as possible directly, immediately,
reasonable time, etc. Depending on your order you get the supply of cement: as you have
a particular schedule that is agreed upon.
5. Goods in the possession of the third party – Sec 36 (3): Sometimes, at the time of sale,
the goods are in the possession of a third person. In such cases, the effective delivery
takes place only when such a person acknowledges to the buyer, that he holds the goods
on his (buyer’s) behalf.
6. Cost of delivery of goods – Sec 36 (5): Seller pays till it is made deliverable; buyer pays
for obtaining delivery unless there is a specific agreement about delivery. Example: Your
company forwards coal as an export with the agreement of FOB, that is, you pay until it
is put on board; it implies that the buyer will pay for rest.
7. Delivery of wrong quantity – Sec 34: Seller is liable to deliver agreed quantity. Wrong
quantity is of three kinds:
a. Short delivery: quantity delivered less than what is agreed. Example: Short
delivery is when you get 50 bags of cement instead of 100.
b. Excess delivery: the delivered quantity is more than ordered. Example: Excess
delivery is when you get 120 bags of cement while your order is just for 100.
c. Delivery of mixed goods: apart from the goods of contracted description other
types too are included in the delivery. Example: Mixed delivery is when along
with your order for conventional cement of 100 bags, you get also white cement.

43
8. Delivery of goods by instalments – Sec 38: delivery of goods by instalments is not
considered as a proper delivery and the buyer is not bound to accept the goods delivered
to him by instalments unless otherwise agreed. The pattern of delivery shall be
determined by the contract.
9. Delivery to carrier or wharfinger – Sec 39: The seller is authorised or obliged as per
the contract to deliver goods to the carrier— surface, sea, or air transporter; there may
also exist a third person -wharfinger, for the safe custody goods.
Example: Your iron ore is loaded on board of a sea carrier by the seller and is also
insured for its safety.
Unpaid Seller
According to sec 45(1) of Sale of Goods Act, seller of the goods is deemed to be unpaid seller:
(A) When whole of the price has not been tendered or paid, or
(B) When bill of exchange or negotiable instrument has been received as a conditional payment.
AND the seller of goods can be deemed to be an unpaid seller:
1. if the price become due but they are not paid. He must have an immediate right of action
for the price.
2. A Bill of Exchange or negotiable instrument was received but was dishonored.
Rights of Unpaid Seller

1. Rights against the goods: can be discussed under two heads:
a. When property in goods has passed
b. When property in goods has not passed
When property in goods has passed: The following 3 rights are available
a. Right of lien: is the right to retain the goods until whole of the price of goods is
paid or tendered. Right of lien can be exercised: where goods have been sold
without any stipulation to credit. Where goods have been sold on credit but period
of credit has expired. Where buyer has become insolvent, even though the period
of credit has not yet expired
b. Right of stoppage in transit: is a right of stopping the goods in transit after the
unpaid seller has parted with the goods. If the goods are in transit, he has a right
to resume the possession of goods as long as they are in the course of transit. this
right is available to the unpaid seller only when the buyer become insolvent and
when the goods are in transit.
c. Right of Resale: unpaid seller can resell the goods if the goods are of perishable
nature if seller give the notice to buyer of his intention to resell and the buyer does
not pay within the reasonable time if on resale there is loss to seller he can recover
from the buyer and if profit must handover to the buyer
2. Rights against the buyer personally
a. Suit for Prices: Where property has passed, the seller can sue for the price
b. Suit for damages for non-acceptance: Where The buyer wrongfully refuses to
accept and pay for goods, seller may sue him for non-acceptance.
c. Repudiation of the contract before due date by buyer: the seller can treat the
contract as subsisting and wait till delivery or he may treat the contract as
rescinded and sue for damages
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d. Suit for interest: where there is a specific agreement between seller and buyer as
to interest on the price of the goods from the date the payment become due, seller
can recover the interest from the buyer.
Auction Sale
An auction sale is a public sale. The goods are sold to all members of the public at large who are
assembled in one place for the auction. Such interested buyers are the bidders.
The price they are offering for the goods is the bid. And the goods will be sold to the bidder with
the highest bid.
Rules of an Auction Sale

As we saw previously, the rules regarding an auction sale are found in the Sale of Goods Act.
Section 64 of the Act specifically deals with the rules governing an auction sale. Let us take a
brief look.
1. Goods Sold in Lots: In an auction sale, there can be many goods up for sale of many
kinds. If some particular goods are put up for sale in a lot, then each such lot will be
considered a separate subject of a separate contract of sale. So, each lot ill prima facie be
the subject of its own contract of sale.
2. Completion of Sale: The sale is complete when the auctioneer says it is complete. This
can be done by actions also – like the falling of the hammer, or any such customary
action. Till the auctioneer does not announce the completion of the sale the prospective
buyers can keep bidding.
3. Seller may Reserve Right to Bid: The seller may reserve his right to bid. To do so he
must expressly reserve such right to bid. In this case, the seller on any person on his
behalf can bid at the auction.
4. Sale Not Notified: If the seller has not notified of his right to bid, he may not do so under
any circumstances. Then neither the seller nor any person on his behalf can bid at the
auction. If done then it will be unlawful.
5. Reserve Price: An auction sale may be subject to a reserve price or an upset price. This
means the auctioneer will not sell the goods for any price below the said reserve price.
6. Pretend Bidding: But if the seller or any other person appointed by him employs pretend
bidding to raise the price of the goods, the sale is voidable at the option of the buyer. That
means the buyer can choose to honor the contract or he can choose to void it.
7. No Credit: The auctioneer cannot sell the goods on credit as per his wishes. He cannot
accept a bill of exchange either unless the seller is expressly fine with it.

45
UNIT-V
Law of agency – creation of agency – classification of agents – duties and rights of an agent
and principal – termination of an agency.
Law of Agency
Introduction: What is Agency?

When one party delegates some authority to another party whereby the latter performs his actions
in a more or less independent fashion, on behalf of the first party, the relationship between them
is called an agency.
Agency can be express or implied. Chapter X of the Indian Contract Act, 1872 deals with the
laws relating to Agency. It is important to know the law relating to agency because nearly all
business transactions worldwide are carried out through agency. All corporations, big or small,
carry their work out through agency. Therefore, laws relating to the agency are an important area
of Business Law. Relationships relating to principal and agent involve three main parties: The
Principal, the Agent, and a Third Party.
Who is an Agent?
The Indian Contract Act, 1872 defines an ‘Agent’ in Section 182 as a person employed to do any
act for another or to represent another in dealing with third persons.
Who is a principal?
According to Section 182, The person for whom such act is done, or who is so represented, is
called the “principal”. Therefore, the person who has delegated his authority will be the
principal.
Who can appoint an Agent?

According to Section 183, any person who has attained the age of majority and has a sound mind
can appoint an agent. In other words, any person capable of contracting can legally appoint an
agent. Minors and persons of unsound mind cannot appoint an agent.
Who may be an Agent?

In the same fashion, according to Section 184, the person who has attained the age of majority
and has a sound mind can become an agent. A sound mind and a mature age is a necessity
because an agent has to be answerable to the Principal.
Types of Agents
1. Special Agent: Agent appointed to do a singular specific act.
2. General Agent: Agent appointed to do all acts relating to a specific job.
3. Sub-Agent: An agent appointed by an agent.
4. Co-Agent: Agents together appointed to do an act jointly.
5. Factor: An agent who is remunerated by a commission (one who looks like the apparent
owner of the things concerned)
6. Broker: An agent whose job is to create a contractual relationship between two parties.
7. Auctioneer: An agent who acts a seller for the principal in an auction.
46
8. Commission Agent: An appointed to buy and sell goods (make the best purchase) for his
principal
9. Del Credere: An agent who acts as a salesperson, broker and guarantor for the principal.
He guarantees the credit extended to the buyer.
Rights of an Agent
An agent has the following 5 rights:
1. Right of retainer: An agent has the right to retain any remuneration or expenses incurred
by him while conducting the principal’s business.
2. Right to remuneration: An agent, when he has wholly carried out the business of the
agency has the right to be remunerated of any expenses suffered by him while conducting
the business.
3. Right of Lien on Principal’s property: The agent has the right to hold (keep with
himself) any movable or immovable property of the principal until his due remuneration
is paid to him by the principal.
4. Right to be Indemnified: The agent has the right to be indemnified against all the lawful
acts done by him during the course of conducting the principal’s business.
5. Right to Compensation: The Agent has the right to be compensated for any injury or
loss suffered by him due to the lack of skill and competency of the principal.
What are the legal duties of agents under the Law of Agency?
Agents are required to act up to the following duties and standards:
 Loyalty: An agent owes his principal-agent agreement by a general obligation of
allegiance. It stands that the agent must subordinate his or her interests to those of the
principal if they fall within the agency relationship in addition.
 Act by the terms and the conditions of a contract: It is essential to perform following
the words and the requirements provided in the agreement with reference.
 Care, competence and diligence: In this, the agent needs to take the proper amount of
care and steps which is required in any difficult situation.
 Ethical conduct: This requires that the agent act in a way that does not injure the critical
endeavor. The agent must take a reasonable attempt to provide the principal with the
relevant facts and the information.
 Lawful instruction: It is essential to act following the commitment to meet the
principal’s right instruction.
What are the legal duties of the Principal under the Law of Agency?
The principal also owes agents several duties:
 Contract: If the principal breaches his or her obligations, then the agent can recover
based on the breach of contract claim.
 Indemnify: In this case when the agent unknowingly did any act without his or her
knowledge, then the principal has to guarantee the agent for his or her liability.
 Good faith: The principal must refrain from taking actions that could result in the loss
for the agent when the agent has not done any fault.

47
Essential Elements of Contract of Agency under Indian Contract Act
1. Principal: To constitute Agency there must be Principal, who appoints another person as
agent to represent or work on his behalf.
2. Principal must be competent: According to Section 183 principal must be competent to
contract. Section 183 says that any person who is of the age of majority according to the
law to which he is subject, and who is of sound mind, may employ an agent.
3. There must be an Agent: In a Contract of agency under Indian Contract Act, Agent is a
person one who is appointed by Principal to work on his behalf. According to Section
184 any person may become an agent, but no person who is not of the age of majority
and sound mind can become an agent.
4. Consideration not Necessary: Section 185 of the Indian Contract Act 1872 says that, no
consideration is necessary to create an agency. It is exception to the general rule – a
contract without consideration is void. But as per this exception, it can be said that a
contract without consideration is valid.
Creation of Agency
An agency can be created by:
1. Agency by Express Agreement: This is the most obvious and simple method by which
the agency can be created. The express word implies directly and firmly. Thus, there is a
clear categorical statement of intention by both the parties, Principal as well as the Agent,
to enter into the relationship.
This leads to the express authority being vested in the agent. The authority of the agent
can be express and implied. The implied authority would be discussed later. The express
authority is given by words spoken or written. Hence, there come two types in which this
express agency can be created- Oral or Documentary.
2. Agency by operation of law: At times contract of agency comes into operation by virtue
of law.
For example: According to partnership act, every partner is agent of the firm as well as
other parties. It is implied agency. On account of such implied agency only a partner can
bind over firm as well as other partners, to his activities. In the same way according to
companies act promoters are regarded as agents to the company
3. Agency by Ratification: A principal may subsequently ratify an act done by a person
who acted on his behalf without his permission or knowledge. If the act is ratified, a
relationship of the agency will come into existence and it will be as if he had previously
authorized the person to act his agent. Ratification may be express (by speech or writing)
or implied (by act or conduct).
Illustration: Z bought apples on behalf of X, without his permission or knowledge. X
later sold those apples to another person. This act of X impliedly ratifies the purchase
made by Z.
Ratification is not allowed in the following cases:

48
a. When the person’s knowledge of the facts of the case is defective. That is, he only
half knows things that he is ratifying to.
b. An act done on behalf of another person which would have the effect of injuring
or harming the person or violating any of his rights if the act was done with his
authority.
4. Agency by implied authority: This type of agency comes into force by virtue of
relationship between parties or by conduct of parties.
For example: A and B are brothers, A has got settled in foreign country without any
request from A, B has handed over A`s agricultural land on these bases to a farmer and
B is collecting and remitting the amount of rent to A. Here automatically A becomes
principal and B becomes his agent.
Agency by implied authority is of three types as shown below.
a. Agency by Necessity
b. Agency by Estoppel
c. Agency by Holding out.
a. By Necessity: At times it may become necessary to a person to act as agent to the
other in emergency situation where the property or interest of another is in danger.
The conditions which enable a person to act as an agent of another in necessity are as
follows:
a. There should be a real necessity for acting on behalf of the principal.
b. It should be impossible to communicate with the principle within the time
available.
c. The alleged agent should act bonafide in the interest of the principal.
For example: A has handed over 200 bags of butter for transportation, to a road
transport company. Actually, it is bailment contract assume that in the transit all
vehicles have got stopped where it takes one week for further movement. So, the
transport company authorities have sold away the butter in those nearby villages.
Here agency by necessity can be seen.
b. By Estoppel: Where a person, by his conduct or words spoken or written, willfully
leads another to believe that a certain person is acting as his agent, he is estopped
later on from denying the truth of the fact that such a person is dealing as his agent.
Example: In presence of X, Y says to Z that he (Y) is X`s agent though it is not so
actually. X has not restricted Y from making such statement. It is agency by estoppel.
c. By Holding out: The principal is bound by the act of agent if on an earlier occasion
he has made others believe that other person doing some act on his behalf is doing
with his authority.
Example: A is B`s servant and A has made B accustomed to bring goods on credit
from C. On one occasion A has given amount to B to bring goods from C on cash. Z
bought goods on credit as usually and runs away with the money. This is agency by
holding out and therefore A is liable to pay amount to C.
Termination of Agency (S.201 to 210)
Meaning:
49
When the relationship between principal and his agent is ended. It is called termination of
Agency.
Mode of termination of Agency

Mode of termination of Agency are motioned in S. 201 of Contract Act An agency is
terminated by the principal revoking his authority or a by the agent renouncing the business,
or by the business of the agency being completed or by either the principal or agent dying or
becoming of unsound mind; or by the principal being adjudicated an insolvent under the
provisions of any Act for the time being in force for the relief of insolvent debtors.
S.201 which provides termination of agency is not exhaustive:

Termination of Agency may be
 By the Act of Parties and
 By the operation of law Termination of Agency
1. By the Act of the Parties: The agency can be terminated by the act of the Principal or
agent by any of the following mode:
(a) By agreement: By mutual agreement between Principal and Agent the agency
can be terminated at any time or any stage.
(b) Revocation by the Principal: Agency can be terminated by the Principal
revoking the Agent's authority. The Principal can revoke only his agent's authority
when it has not been exercised by the Agent Reasonable notice must be given for
such revocation. Revocation may be express or complied. For example – A

50
empowers B to let A's house. Afterwards A lets it himself. This is an implied
revocation of B's authority.
(c) Renunciation by Agent: Agency can be renunciated by the agent is the same
manner in which the principal can revoke the agent's authority.
i. Compensation for revocation by principal, or renunciation by agent
[S. 205]- Where there is an express or implied contract that the agency
should be continued for any period of time, the principal must make
compensation to the agent, or the agent to the principal, as the case may
be, for any previous revocation or renunciation of the agency without
sufficient cause.
ii. Notice of revocation or renunciation [S.206]- Reasonable notice must be
given of such revocation or renunciation otherwise the damage thereby
resulting to the principal or the agent, as the case may be, must be made
good to the one by the other.
2. Revocation Agency of Operation of Law

(a) Completion of Business or Expiry of time: When the business of agency is
completed, the relationship between Principal and agent also comes to an end
automatically. Similarly, where the agency has been created for a fixed time the
Agency is automatically terminated on the expiry of that time.
(b) Death of the Principal or Agent: When either the principal or the agent dies, the
agency relationship is automatically terminated.
(c) Insanity of Principal or agent: When either the principal or his agent becomes
unsound mind, the agency relationship is automatically terminated.
(d) Insolvency of the Principal: When the Principal is declared as an insolvent, the
agency relationship is terminated.
(e) Subsequent impossibility: Agency is also terminated when after the creation of
the agency. the subject matter of the agency business is destroyed:
(f) Business of the agency becomes lawful: When termination of agent's authority
takes effect as to agent, and as to third person [S.208]- The termination of the
authority of an agent does not, so far as regards the agent, take effect before it
becomes known to him, or, so far as regards third persons, before it becomes
known to them.
Examples:
(g) A, at Madras, by letter, directs B to sell for him some cotton lying in a warehouse
in Bombay, and afterwards, by letter, revokes his authority to sell, and directs B to
send the cotton to Madras. B, after receiving the second letter, into a contract with
C, who knows of the first letter, but not of the second, for the sale to him of the
cotton. C pays B the money, with which B absconds. C's payment is good as
against A.
(h) A directs B, his agent, to pay certain money to C. A dies, and D takes out probate
to his will. B, after A's death, but before hearing of it, pays the money to C. The
payment is goods as against D. the executor.

51

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Sri Vidya Mandir Arts and Science College

Department of Management Studies

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

“A law is a rule of conduct imposed and enforced by the sovereign.” – Austin

Introduction to Business Law

What is Business Law?

Sources of Business Law

The Indian Contract Act 1872

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Meaning and Definition of an Agreement:

Meaning and Definition of a Contract:

Essential Elements of a valid Contract:

Kinds or classification of Contracts

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Introduction to Offer and Acceptance

The element of a valid offer

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Essentials of a valid acceptance

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Discharge of Contract Method

Let us understand the discharge of contract methods in brief

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Remedies for Breach of Contract

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Expressly Declared Void Agreements

Expressly Void Agreements.

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

What is a Wagering Agreement?

Characteristics of a Wagering Agreement

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

State Whether the Following are True or False:

Parties to the contract of Bailment

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Essential Elements of Bailment

Rights of the Bailor

Rights of the Bailee

Duties of the Bailor

Duties of the Bailee

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

DISTINCTION BETWEEN BAILMENT & PLEDGE:

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Parties to the Contract of Indemnity

A contract of indemnity has two parties.

Essentials of Contract of Indemnity

Parties to a contract of guarantee

Essentials of a Contract of Guarantee

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

1. Simple mortgage [Section 58(b)]: Without delivering possession of the mortgaged

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Dr.N.Ramesh Kumar MBA., Ph.D., Assistant Professor, Department of Management Studies,

Law of sale of goods