THE INDIAN CONTACT ACT, 1872

Transcription

1 Chapter-I THE INDIAN CONTACT ACT, 1872 The laws relating to contract is contend in the Indian Contract Act, 1872 Definition I. Contract: Contract S.2 (h) - Contract is an agreement enforceable by law. So every agreement enforceable by law is contract. Contract = Agreement + Legal enforceability II. Agreement S.2 (e) Every set of promises forming consideration for each other. Agreement = Offer + Acceptance III. Essential element of a valid contract S.10 enunciates elements of a valid contract which are as follows:- 1. Offer and Acceptance There must be two parties to an agreement i.e., One party making an offer and the other party accepting it. 2. Intention to create a legal relationship- in commercial and business agreements, the presumption is usually that the parties intended to create legal relationship. When two parties enter into an agreement there intention must be to create legal relationship between them. So agreements of a social or domestic nature are not contracts. 3. Lawful consideration- consideration means an advantage or benefit moving from one party to the other. It is the essence of contract. It need not be necessarily be cash or kind. It may be an act or abstinence; it must be real and lawful to form a valid contract. 4. Capacities of the parties-competency (S.11) - The parties to an agreement must be capable of entering into a valid contract. Every person is competent to contract. If he (a) is of the age of 1

2 majority (b) is of sound mind (c) is not disqualified from contracting by law. 5. Free and genuine consent (S.13-22) - The consent of the parties is said to be free when they are of the same mind on all material terms of contract. The parties must be at ad idem. Consent is said to be free when it is not caused by (1) coercion (2) undue influence (3) fraud (4) mispresentation (5) mistake. 6. Lawful object (S.23) - A contract must not only be based upon mutual assent of competent parties but must have lawful object. Otherwise the agreement is unenforceable. The object is lawful when it is not (a) illegal (b) Immoral (c) opposed to public policy. 7. Agreement not declared void (SS , S.56) - The agreement must not have been declared void expressly by any law in force in the country. A void agreement is one which is not legally enforceable. 8. Certainty and possibility of performance (S.29) - The agreement must be certain and not vague or indefinite (S.29). If it is vague and it is not possible to ascertain its meaning, it cannot be enforced. 9. Legal formalities- A contract may be made by words spoken or written. As regards the legal effects there is no difference between the two. It is however in the interest of the parties that the contract should be in writing. In some cases the document in which the agreement is incorporated must be stamped and registered. 2

3 CHAPTER-II OFFER AND ACCEPTANCE Offer Definition: - S.2 (a) - offer is the willingness of one person to do or to abstain from doing anything, with a view to obtaining the assent of the other to such act or abstinence. So offer is a proposal. Example: A says to B will you purchase my horse for Rs.1000/- Who makes the offer is called offerer or proposer. To whom offer is made is called offeree or proposee. When the offeree accepts the offer the offerer becomes the promisor and the offeree becomes the promisee. HOW AN OFFER IS MADE Express offer : By express words, spoken or written. Implied offer: By the conduct of parties or circumstances of the case. TYPES OF OFFER 1. Specific Offer When the offer is made to a definite person, it is called a specific offer. It can be accepted only by the person to whom it is made. 2. General Offer When the offer is made to the whole world at large it is called general offer.where an offer is made to the whole world at large any persons or person of offer may come forward and accept the offer. (Carlill vs. Carbolic Smoke Ball Co) Legal Rules as to offer 1. It must give rise to legal relation: Offer must be such as in law is capable of being accepted and give rise to legal relation. A social invitation is not an offer. 3

4 2. The terms of offer must be definite, unambiguous and certain: Example A says to B I will sell you a car A owns 3 different cars.the offer is not definite. 3. Declaration of intention or announcement is not an offer: A declaration by a person that he intends to do something is not legally enforceable e.g., an advertisement for concert. 4. An invitation to offer is no offer: A News paper advertisement except reward advertisement, display of goods, tender, catalogues, quotation, auction sales are not offer but an invitation to offer. They invite the public to make an offer. (Case law Pharmaceutical society of Great Britain v. Boots Cash Chemist) 5. Offer must be communicated: An offer to be complete must be communicated to the person to who it is made. An offer must be communicated to the offree by the offeror or by his duly authorized agent for acceptance. An acceptance of an offer is ignorance of the offer is no acceptance and does not confer any right on the acceptor. (Fitch v. Snedaker) 6. Offer must be made with a view to obtaining the assent: The offer to do or not to do something must be made with a view to obtaining the assent of offree. 7. Offer should not contain a term the non-compliance of which may be assumed amount to acceptance- The offer cannot say that its acceptance is not communicated by a certain time, the offer should be considered as accepted. e.g., A writs to B I will sell you my horse for Rs.5000/- and if you do not reply, I shall assume you have accepted the offer. 8. A statement of price is not an offer: A mere statement of price or quotation of the lowest price is not an offer (Harvey v. Facey). 9. Special terms of contract must be mentioned at the time of the offer: Special terms which are to be included in a contract there must be a duly brought to the notice of the offree at the time when the proposal is made. If it is not done and the contract is 4

5 subsequently entered into, the offeree will not be bound by them. Also this term should be presented in such a manner that a reasonable man can become aware of them before he enters into the contract. (e.g., Railway tickets contain the conditions on its back). Acceptance According to S.2 (b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise. Effects of Acceptance: The offeror is not bound thereby until acceptance. As soon as the proposal is accepted the parties becomes bound by the terms of offer. Lord Anson Acceptance to an offer what a lighted match to a train of gun powder. It produces something which cannot be recalled or undone. LEGAL RULES AS TO THE ACCEPTANCE OR ESSENTIAL OF VALIED ACCEPTANCE: 1. It must be absolute and unqualified: It must conform to the offer in terms of all material or immaterial, major of minor terms. e.g., A says to B, I offer to sell my car for Rs.50, 000/- B replies I will purchase it for Rs.45, 000/- This is no acceptance and amounts to a cross offer. 2. It must be communicated to the offeror: Acceptance must be communicated in some perceptible form. A mere resolve or mental acceptance is no acceptance. 3. It must be according to the mode prescribed or usual and reasonable mode: When the mode is prescribed the acceptance must be made with the prescribed mode if no mode is prescribed it must be made in usual or reasonable mode. 4. It must be given within specified time limit: When the time is prescribed acceptance must be made within the prescribed 5

6 period. If no time limit is prescribed acceptance must be made within a reasonable period of time. 5. It cannot precede an offer: If the acceptance precedes an offer it is not a valid acceptance and does not result in a contract. 6. It must show an intention on the part of the acceptor to fulfill terms of promise: If no such intention is present, the acceptance is not valid. 7. It must be given before the offer lapses of before the offer is withdraw 8. It cannot be implied from salience: The acceptance of an offer cannot be implied from silence of the offeree or his failure to answer. (Harvey V. Facey). 6

7 CHAPTER-III CONSIDERATION Introduction: Consideration is one of the essential elements to support a contract. An agreement made without consideration is a nudum pactum (a nude contract) and it void. Technically consideration means something in return. Pollock s defined Consideration to be a price for which a promise is bought. Definition S.2 (d): When at the desire of the promisor, the promise or any other person has done or abstained from doing or does or abstains from doing, or promises to do or to abstain from doing, something such act or abstinence or promise is called a consideration. e.g., A agrees to sell his horse to B for Rs.5000/-. Here horse is the consideration for B and price is the consideration for A. Why consideration is essential or need for consideration: The reason why the law enforces only those promises which are made for consideration is that gratuitous or voluntary promises are often made rashly and without due deliberation something for nothing has no validity under the eye of law. It supplies no means nor affords any remedy to compel the performance of an agreement made without sufficient consideration. Legal rules as to consideration 1. It must move at the desire of the promisor: It is essential that the consideration must have given at the desire or request of the promisor, rather than merely voluntary or at the instance of some third party. 2. It must move from the promisee or any other person: Under the Indian law, consideration may move form the promisee or any other person i.e., even a stranger. This means that as long as there is consideration for a promise it is immaterial who has furnished it. But stranger cannot sue. (Chinnaya V. Ramayya). 7

8 3. It may be an act, abstinence or forbearance or a return promise: (i) an act i.e. doing of something in this sense consideration is in an affirmative form. (ii) An abstinence abstaining or refraining from doing something. In this sense consideration is a negative form. They are as follows- I. Forbearance to sue: It is a good consideration e.g., A promises B not to file a suit against him if he pays him Rs. 500/-. The abstinence of A is the consideration for B. II. Compromise of a disputed claim: Compromise is a kind of forbearance provided the claim should be reasonable and the person claiming should honestly believe that it is a valid claim. He should also act bona-fied. III. Composition with the creditor: A debtor who is financially embarrassed may call a meeting of his creditors and request them to accept a lesser amount. If the creditors agree, the agreement is bound upon them. 4. It may be past present or future: I. Past consideration: When the consideration by a party for a present promise was given in the past, i.e., before the date of the promise, it is said to be past consideration. A past consideration is a good consideration under the Indian Contract Act. Example: A render some service to B at latter s desire. After a month B promises to compensate A for the services rendered to him. II. Present or executed consideration: When a consideration is given simultaneously to the promise that is at the time of the promise, it is said to be present consideration. Example: sell of goods for cash. III. Future or executory consideration: when the consideration from one party to the other is to pas subsequently to the making of the contract it is future or executory consideration. 8

9 Example: D promises to deliver certain goods to P after a week P promises to pay the pries after a fortnight. 5. It need not be adequate: Consideration means Something in return. It must have some value in the eye of law. It need not be equal in value to the promise made. It is for the parties to see its adequacy. Example- A agrees to sell a horse worth Rs.10000/- for Rs.100/- A s consent to the agreement was freely given. 6. It must be real and not illusory: There is no real consideration if it is impossible to perform physically, legally or if it is uncertain and illusory. 7. It must be something which the promisor is not already bound to do: So it cannot be (i) The promise to perform an already existing contractual duty or, (ii) Pre existing legal duty or public duty by a public servant. 8. It must not be illegal immoral or opposed to public policy S.23: The consideration given for an agreement must not be unlawful. If will be unlawful when it is illegal, immoral or opposed to public policy. 9

10 CHAPTER-IV FREE CONSENT Introduction It is essential to the creation of a contact because the parties are ad idem, i.e., they agree upon the same thing in the same sense at the same time and there consent is free and real. So free consent is an essential element of contract. Free consent S.14: Consent is said to be free when it is not caused by I. Coercion (S.15) II. Undue influence (S.16) III. Fraud (S.17) IV. Misrepresentation (S.18) V. Mistake (S.20, 21 &22) When there is no consent, there is no contract. I. Coercion: When a person is compelled to enter into a contract by the other under: a. Threat b. Fear c. Physical compulsion d. Detaining of goods or property Coercion is said to be employed. Generally these acts are forbidden by IPC, Threat to commit suicide is also coercion. Example: A forced B to sign a promissory note at the point of pistol. II. Undue influence: In special kinds of relationship where one party is capable to dominate the will of another party due to his position, undue influence is said to be exercised. The relationships are: 10

11 1. Authoritarian position: Master and servant 2. Fiduciary relation: It is the relation of trust and confidence. Example: a. Father and son b. Solicitor and client c. Spiritual advisor and disciple. 3. Mental capacity affected due to reason of age, illness or mental distress. Example: Medical attendant and patient. III. FRAUD A false representation is made: a. Knowingly or b. Without believe in its truth or c. Recklessly d. By active concealment of material facts with the intention to deceive the other party is called fraud. Essential of fraud There must be a representation or assertion and it must be false The representation must be relates to material facts. The representation must have been made before the conclusion of the contract. The statement must have been made knowingly without believing in its truth. The other party must have been must have been induced to act upon it. The other party must have been relied upon the representation. The other party by acting upon it must have suffered some loss. IV. Misrepresentation: A representation when wrongly made innocently or unintentionally is misrepresentation. Requirements: 11

12 1. It must be a representation of mental fact 2. It must be made before the conclusion of contact. 3. It must actually have been acted upon. 4. It must be wrong but the person who made it honestly believed it to be true. 5. It need not be made directly to the plaintiff. A wrong statement of fact made to a third person with the intention of communicating it to the plaintiff, also amount to misrepresentation. Example: A, while selling his horse to B, tells him that the horse is sound. A genuinely believes that the horse is sound. Later B finds the horse to be unsound. The representation made by A is misrepresentation. V. MISTAKE: Mistake may be defined as an erroneous belief about something. Mistake is of following types Mistake facts Mistake of law Mistake of Unilateral mistake Bilateral mistake Example: A agreed to purchase B s motor car which was lying in B s garage unknown to either party, the car and the garage were completely destroyed then the agreement is void. 12

13 CHAPTER-V LEGALITY OF OBJECT AND CONSIDERATION: One of the essential of a valid contract is that the consideration and the objects should be lawful. Every agreement of which the object or consideration is unlawful is void. When the consideration or object is unlawful (S.23): 1. If it is forbidden by law: An Act is forbidden by law when it is punishable by the criminal law of the country or when it is prohibited by special legislation or negotiation. 2. If it is defeats any provision of law. Example: An agreement by a debtor not to raise the plea of limitation is void. 3. If it is fraudulent: An agreement which is made for fraudulent purpose is void. Example: A, B and C enter into an agreement for the division among them the gains acquired, by them by fraud. 4. If it involves or implies injury to the person or property of another: injury means wrong, harm, or damage. Person means one s body. Property includes both immovable and movable property. Example: Proprietors of a newspaper agreed with the printers to indemnify the later against consequences arising from libels printed in newspaper. The agreement is void. 5. If the court regards it as immoral. Example: Agreement of future separation between husband and wife. Sexual immoralities. Furtherance of sexual immoralities. 6. When it is opposed to public policy: An agreement is said to be opposed to public policy when it is harmful to the public welfare, public good or public interest. These are i. Agreements of trading with enemy. 13

14 ii. agreement which interferes with the administration of justice (a) Stifling prosecution (b) bribery or influencing judge (c) maintenance and champerty iii. Agreement in restraint of parental right. iv. Agreement in restraint of legal proceedings.(s28) v. Agreement in restricting the personal liberty. vi. Agreement in restraint of marriage. vii. Agreement in restraint of trade.(s27) Agreement in restraint of trade [S.27] Every agreement, by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Public policy requires that every man should be at liberty to engage him in any lawful trade or profession and should not be deprived from the trait of his labour, skill talent by any agreement he enter into. It is also in the interest of the community that every man should be at liberty to engage himself in any trade, profession, or business and use his skill to the best of his capacity consistent with the good of the community, so an agreement in restraint of trade is void to that extent. Exceptions: However some reasonable restriction is justified, if it is in interest of public. 1. Sales of goodwill: A seller of goodwill of a business may be restrained from carrying on (i) Similar business (ii) within specified local limits. 2. Partner s agreement: a. A partner shall not carry on any business other than that of the firm while he is a partner. S. [11 (2) of The Indian Partnership Act] b. An outgoing partner may agree with his partners not to carry on any business other than that of the firm within a specified period or within a specified local limits S36(2). 14

15 c. Partners may, upon or in anticipation of the dissolution of the firm, make an agreement that some or all of them will not carry on a business similar to that of the firm within a specified period or within specified period or within specified local limit. [S.54 Indian Partnership Act, 1932]. d. Any partner may, upon the sale of goodwill of a firm, make an agreement with the buyer that such partner will not carry or any business similar to that of the firm within a specified period or within specified local limits,. S.55 (3). In case of (b), (c), and (e), the court will enforce such agreement only if the restrictions imposed are reasonable. 3. Trade combination or trade regulation: Traders and manufactures in the same line of business normally form association to regulate business or to fix prices. The regulation are regarding the (i) opening and closing of market (ii) licensing of traders (ii) supervision and control of dealers (iv) mode of dealing ae not unlawful even it they are in restraint of trade. But a combination which tends to create monopoly and w2hich is against public interest is void. 4. Service contracts: sometimes an employee, by the terms of his service agreement is prevented from accepting: I. Any other engagement during his employment. II. A similar engagement after the termination of service if the restraint is intended to protect an employer against an employee making use of trade secrets learned by him in the course of his employment. These agreements are valid in the eye of law. 15

16 Chapter-VI DISCHARGE OF CONTRACT Discharge of contract means termination of the contractual relationship: A contract is said to be discharged, when it ceases to operate, i.e., when the rights and obligation created by it come to an end. Various ways of discharge of contracts: 1) Discharge by performance 2) Discharge by mutual consent 3) Discharge by impossibility of performance 4) Discharge by operation of law 5) Discharge by breach of contract. 6) Discharge by Novation, rescission, and alternation. 1. Discharge by performance: If parties to the contract perform their respective obligation according to the term of the contract, within time and in the manner prescribed the contract is discharged. Performance of contract is the most usual mode of its discharge. It is of two type (i) Actual performance and (ii) Anticipatory performance. Actual performance: When both the parties perform their promises, the contract is discharged. Attempted performance or tender: Tender is not actual performance but is only an offer to perform, the obligation under the contact. Where the promisor offers to perform his obligation, but the promise refuses to accept the performance, tender is equivalent to actual performance except in tender of money. 2. By mutual agreement or consent: As it is the agreement or consent of the parties which bind them, so by the further agreement or consent the contract may be terminated. The rule of law is a thing may be destroyed in the same manner in which it is constituted. 3. By impossibility of performance: I.Initial impossibility: It is the impossibility existing at the time of contract. An agreement to do an impossible act is void. So parties are discharged from performance. 16

17 II. Subsequent or supervening impossibility: These are the impossibility which arises subsequent to the formation contract. It is also called post-contractual impossibility. In such case the contract becomes void impossibility of performance of contract, as a general rule, is no excuse for the no performance of contract, but where this impossibility is caused by the circumstances beyond the control of the parties, the parties ore discharged form further performance of the obligation arising under contract. Circumstances of supervening impossibilities: a. Destruction of the subject matter. b. Charge in the state of a thing c. Outbreak of war. Exception: Commercial difficulties, failure of third person or whose works the promisor relied, strikes, lock-out are not included in impossibility of performance. So the contract is not discharged. 4. Discharge by operation of law: I. By death: The man life being the implied condition of contract, by his death, the contract is discharged. II. By merger: Merger takes place when an inferior right accruing to a party under contract merger into a superior right accruing to the same party under the same or other contract. III. By insolvency: when a person is adjudged insolvent, he is discharged from all liabilities incurred prior to his adjudication. 5. Discharge by breach of contract or repudiation: When a party having duty to perform a contract fails to do that or does an act whereby the performance of the contract by him becomes impossible of he refuses to perform the contract that is said to a breach of contract. On the breach of contract by one party, the other party, is discharged form his obligation to perform his part of contract. He also 17

18 gets a right to sue the party, making the breach of contract for damages for the loss occasioned to him due to the breach. Breach is at two types: I. Actual breach: Non-performance of contract on the due date of performance. II. Anticipatory breach: Before the due date of performance [Forst vs. Knight] 6. Discharge by Novation, recession, alternation, remission Discharge by Novation: Novation takes place when a new contract is substituted for an existing one between the same parties. Then the parties are discharged from the performance of the previous contract. Novation would take place before the expiry of the time of the performance of the time of the performance of the original contract. Rescission: Recession of contract takes place when all or same of the terms of the contract are cancelled, then the contract is discharged. Example: A promises to supply contain goals to B six months after date. By that time, the goods go out of fashioned. A and B may rescind the contract. Remission: Remission means acceptance of a lesser fulfillment of promise made e.g., acceptance of a lesser sum than what is contractual for. Example: A owes B Rs.5000/- A Pays to B and B accepts Rs.2000/- in satisfaction of the whole debt at the prescribed time and place. The whole debt is discharged. 18

19 CHAPTER-VII CONTRACT OF INDEMNITY AND GUARANTEE What is the contract of indemnity and how it differs form the contract of guarantee? INTRODUCTION: Contract of indemnity is a species of general contract. It must as such have all the essential elements of a valid contract laid down under S10 of Indian contract Act DEFINITION: S.124: A contract, by which one party promises to save the other party from a loss caused to him by the conduct of the promisor himself or by the conduct of any other person, is called the contract of indemnity. ESSENTIAL INGREDIENTS: 1. The person who promises to make good the loss: Indemnifier (Promisor) 2. The person whose loss is to be made goods: indemnified or indemnity holder (promisee) 3. Occurrence of loss: may be by the conduct of the promisor or third party. 4. Loss must be caused to the promisee. The primary objectives of the contract of indemnify is to protect the promise against anticipated loss. It is a direct engagement between two parties. The definition of indemnity. Under Indian Contract Act, 1872 deals with a particular kind of indemnity which is used in a narrow sense. The intentions of legislature are strictly interpreted here. In only includes (i) Express promises to indemnify, (ii) cases where the loss is caused by the conduct of the promisor or any other person. 19

20 It does not include: a. Implied promises to indemnify and b. Loss caused by accident. So contract of insurance is out of the preview of this definition. Contract of indemnity in English law: Promises to save another harmless from the loss caused as a result of transaction entered at the instance of the promisor. It includes both express and implied promises. Example of contract of indemnity: A and B went into a shop. B Said to the shopkeeper Let A have the goods, I will see you paid. [Goulston Discount Co.Ltd vs. Clark] Contact of guarantee: S.126 A contract of guarantee is a Contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee: surety The person to whom guarantee is given: creditor The person in whose fault guarantee is given: Principal debtor Essential features: 1. Concurrence: A contract of guarantee requires the concurrence of all the three parties to it, principal debtor, the creditors and the surety. A person cannot become a surety without the consent of the principal debtor. 2. Primary labiality: The primary liability in a contact of guarantee is that of principal debtor. The liability of surety is secondary. 20

21 3. Essentials elements of a valid contract: All the essential elements of valid contract are there. Consideration of surety is anything done, or promise made for the benefit of the principal debtor S.127. It must not result necessarily some benefit for him. 4. It may be oral or written or implied: Example: S and P go into a shop. S says to the shopkeeper C, Let P have the goods and if he does not pay, I will pay. [Birkmyr vs. Darnell] Difference between contact of indemnity and contract of Guarantee. CONTACT OF INDEMNITY CONTACT OF GUARANTEE 1. S.124 & S.125 of Indian Contact Act, 1872 explained the provisions of contact of indemnity. 2. It is an agreement between two parties i.e., indemnifier or indemnified. 3. Only one contact is involved. 4. The liability of the indemnifier is primary and independent. It is an original obligation. 5. The debt in indemnity is anticipatory. The liability of indemnifier arises only on the happening of a 1. S.126 to 147 explains the provision of contact of guarantee. 2. It is a tripartite agreement (between three parties) i.e., the creditor, the debtor and the surety. 3. There are three contacts. 4. The liability of the surety is collateral and secondary. The obligation of surety arises only after the default of principal debtor. 5. The debt is an existing one. 6. A surety on discharging 21

22 contingency. 6. The indemnifier cannot sue the third party in his own name because there are no privities of contact. 7. Under Indian Contact Act, the contact of indemnity is only an expressed contact. the debt due by the principal debtor, steps into the shoes of the creditor. He can proceed against the Principal debtor in his own name 7. It is both expressed and implied. 22

23 CHAPTER-VIII BAILMENT AND PLEDGE (SECTION 148 TO 181) Contract of bailment and pledge are a special class of contracts. However they do not deal with all types of bailment. There are separate acts, e.g., The Carrier s Act, 1865, The Railway Act, 1890, The Carriage of Goods by Sea Act, 1925, which deals with special types of bailment. Bailment: The word Bailment is derived form the French word Baillier means delivers.etymologically it means any kind of handing over. In legal sense, it involves change of possession of goods from one person to another for some specific purpose. Definition S.148 defines Bailment as the delivery of goods from one person to another for some purpose, upon a contract, that they shall, when the purpose is accomplished, be returned on otherwise disposed off according to the direction of the person delivering them. The person delivering the goods- bailor The person to whom it is delivered-bailee Example: A delivers a piece of cloth to B, a tailor, to be stitched into suit. There is a contract of bailment Between A and B. Requisites of bailment: 1. Contract: A bailment is usually created by agreement between the bailor and bailee. The agreement may be expressed or implied Bailment is implied n case of finder of goods and the owner even without contact. 23

24 2. Bailment is concerned only with goods: goods here mean every kind of movable property other than actionable claim and money [S.2 (7) Sales of Goods Act]. 3. Delivery of possession: A Bailment necessarily involves delivery of possession of goods by bailor to bailee. The basic features of possession are control and an intention to exclude others. It is not the mere custody of goods. Delivery of possession may be actual or constructive. Actual delivery: May be made physically handing over the goods to the Bailee. Constructive delivery: the possession is transferred without actually handing over the goods. 4. For some purpose: The delivery of goods from bailor to bailee is for some purpose. 5. Return of specific goods: It is agreed between the bailor and the baiilee that as soon the purpose is achieved, the goods shall be returned or disposal of according to the directions of the bailor. If the goods are not to be specifically returned, there is no bailment. But there is a bailment even if the good bailed are, in the meantime, attended in form e.g., when a peace of cloth it stitch into a suit. Types of bailment or classification of bailment: Bailment may be classified according to the benefit derived by the parties: 1. For exclusive benefit of the bailor: the delivery of some valuables to a neighbor for safe custody without any charge. 2. For the exclusive benefit of the bailee- As the lending of the bicycle to a friend for use, without any charge. 3. For the mutual benefit of the bailor and bailee Giving a watch for repair, a suit for stitch and acceptance of article by post office as a value payable parcel. Bailment may be classified into: Gratuitous bailment: It is a bailment where no consideration passes between the bailee and bailor bicycle 24

25 Example: A lending of bicycle to your friend without any charges. Non-gratuitous bailment: It is a bailment where consideration posses between bailor and bailee. Example: A hiring of bicycle. DUTIES AND RIGHTS OF BAILOR Duties of bailor 1. To disclose known faults: It is the first and foremost duty of the bailor is to disclose the known faults about the goods to the bailee. If he does not make such disclosure, he is responsible for any damage caused to the bailee directly any from such faults (S.150). I. In gratuitous bailment the bailor is responsible only for those faults which are known to him. Example: A lends a horse to B, which he knows to be vicious and does not disclose it. The horse rungs away and B is thrown and injured. A is responsible to B for damage sustained. II. In non gratuitous bailment, the bailor is responsible for the damage caused by both the known at unknown faults. Example: A hires a carriage of B the carriage is unsafe, though B is not aware of this and A is injured. B is responsible for the damage. (Read vs. Dean). 2. To bear the extraordinary expenses of bailment: The bailee is bound to bear the ordinary and reasonable expenses of the bailment. But for any extra ordinary expenses the bailor is responsible. Example: A lends his horse to B, a friend for 2 days. The feeding charge is to be paid by B. But if the horse gets sick, A will bear the medical expenses. 3. To indemnify the bailee for loss in case of premature termination of contract: A gratuitous bailment can be terminated by the bailor at any time even though the bailment is for a specified time or purpose. But in such case the loss occurring to the bailee from such premature termination should not exceed the benefit he has derived out of the 25

26 bailment. If the loss exceeds the benefit he has derived out of the bailment the bailor shall have to indemnify the bailee. 4. To receive back the goods: It is the duty of the bailor to receive back the goods from the bailee when the bailee returns them after the expiry of the term of the bailment or the purpose of the bailment is achieved. 5. To indemnify the bailee: Where the title of the bailor to the goods is defective and the bailee suffers as a consequence, the bailor is responsible to the bailee for any loss which the bailee may sustain. Rights of the bailor 1. Enforcement of the rights: The bailor can enforce by suit all the liabilities or duties of the bailee as his rights. 2. Avoidance of contract: The bailor can terminate the bailment if the bailee does with regard to the goods bailed, any act which is consistent with the terms of the bailment. Example: A lets a horse to B for his own riding only. B uses the horse with a carriage. A can terminate the bailment. 3. Return of goods lent gratuitously: When the goods are lent gratuitously, the bailor can demand there return whenever he pleases even though he lend them for a specified time or purpose. 4. Compensation for wrong doers: If a third person wrongfully deprives the bailee of the use or possession of the goods bailed or does them any injury the bailor or bailee may bring a suit against the third person for such deprivation or injury. (S.180) Duties of the Bailee 1. To take reasonable care of the goods bailed: In all cases of the bailment the bailee is bound to take as much care of the goods bailed to him as man of ordinary prudence would under similar circumstance take of his own goods U/S.151. Example: M was admitted to a hospital where her jewellery was handed over to the hospital official for the safe custody. The jewellery was stolen, held the hospital officials were the bailee s and was liable for the loss. (Martin v. London County council) 26

27 2. Not to make an unauthorized use of goods: If the bailee uses the goods in a manner which is inconsistent with the terms of the contract, he shall be liable for any loss even though he is not guilty of negligence even if the damage is the result of an accident. Example: A lends a horse to B for riding only, B allows C a member of his family to ride the horse. C rides with care, but horse accidentally falls and is injured. B is liable to make the compensation to A for the injury caused to horse. 3. Not to mix with the goods bailed with his own goods: The bailee must not mix with the goods of the bailor with his own goods, but must keep them separate from his own goods. 4. Not to set up an adverse title: The bailee must hold the goods on behalf of and for the bailor. He cannot denied the right of the bailor to bail the goods and receive them back if he delivers the goods bailed to a person other than the bailor, he may prove that the such person had a right against the bailor. 5. To return any accretion to the goods: In the absence of the contract to the contract the bailee is bound to deliver to the bailor, or according to his direction, any increase or profit which may have accrued from the goods bailed (S.163). Example: A leaves a cow at the custody of the B to be taken care of. The Caw has a calf. B is bound to deliver the calf along with caw. 6. To return the goods: It is the duty of the bailee to return or deliver the goods according to the bailor s directions as soon as the time for which they were bailed has expired or the purpose is accomplished (S.160). Rights of the Bailee 1. Enforcement of the rights: The duties of the bailor is the right of the bailee as such the bailee can by suit enforce the duties of the bailor. 2. Delivery of the goods to one of several joint bailor of the goods: If several joint owners of the goods bailed them the bailee may delivered them to back or to according to the direction, one joint owner without the consent of all. In the absence of any agreement to the contrary (S.165) 27

28 3. Delivery of the goods to the bailor without title: If the bailor has no title to the goods, and the bailee in good faith, delivers them back to the bailor, the bailee is not responsible to the owner in respect of such delivery.(s.166) 4. Right to apply to the court to stop delivery: If a person, other than the bailor claims goods bailed, the bailee may apply to the court to stop delivery and to decide the title to the goods. (S.167) 5. Right of action against the trespasser: If a third person wrongfully deprives the bailee use or the possession of the goods bailed, he has the right to bring an action against that party (S.180) 6. Bailee s lien: Where the lawful charges of the bailee in respect of the goods bailed are not paid, he may retain the goods. This right of the bailee to retain goods is known as particular lien. PLEDGE A pledge is the bailment for security. It is a special kind of contract. Definition: According to S.172 bailment of goods as security for payment of debt or performance of promise is called pledge. The bailor is called The Pledger or Pawner and the bailee is called The Pawnee or pledgee. Example: A borrows Rs.200/- from B and keeps his watch as security for payment of the debt. The bailment of watch is a pledge. Any kind of movable property i.e., goods, documents or valuables may be pledge. Even a saving bank passbook may be pledged. [J & K Bank vs. Tek Chand] The delivery of goods may be Actual delivery Constructive delivery 28

29 Difference between Bailment and Pledge PLEDGE I. Pledge is the bailment of the goods as a security for the performance of the specific promise, i.e., the payment of debt or performance of a promise. BAILMENT I. Bailment on the other hand is for the purpose of any kind. II. In the default by the pawner to repay the debt, the Pawnee may after giving notice to the pawnor sell the goods pledged with him. III. In case of pledge the pawnee has no right to use the goods pledge with him. II. The Bailee may either retain the goods or sue for his charges. III. In case of bailment, the bailee may do so if the terms of the bailment so provide. Right of the Pawnee: 1. Right of retainer: The Pawnee may retain the goods pledged until his dues are paid. He may retain tem not only for the payment of the debt or performance of the promise. For (a) the interest due on the debt, and (b) all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged.a173. He can however exercise only a particular lien over the goods. 29

30 2. Right of retainer for subsequent advances: When the Pawnee lends money to the same pawnor after the date of the pledge, it is presumed that the right of retainer over the pledged goods extends to subsequent advances also.this presumption can be rebutted only by a contract to the contrary.a Right of extraordinary expenses: The Pawnee is entitled to receive from the Pawnor extraordinary expenses incurred by him for the preservation of the goods pledged A175. For such expenses, he has no right to retain the goods, he can recover by suit. 4. Right against true owner, when the Pawner s title is defective: When the Pawnor has obtained possession of the goods pledged by him under a void able contract (i.e., by fraud, undue influence, coercion, etc.) but the contact has not been rescinded at the time of the pledge, the pawnee acquires a goods title to the goods, provided he act in goods faith and without notice of the pawnor s defect of title (S.178A). 5. Pawnee s rights where pawnor makes default (S.176): Where the pawnor fails to redeem his pledge, the pawnee can exercise the following rights: He may file a suit against the pawnor upon the debt or promise and may retain the goods pledged as a collateral security. He may sell the goods pledged after giving the pawnor a reasonable notice of the sale. Of these two rights, while the right to retain or sell the pawned goods are not concurrent, the right to sue and sell are concurrent right, i.e., he pawnee may sue and at the same time retain the goods as concurrent security or sell them after giving reasonable notice of the sale to the pawnor [Haridas Mundra v. National & Grindlays Bank Ltd.] He can recover from the pawnor any deficiency arising on the sale of the goods by him. But he shall have to hand over the surplus, if any realized on the sale of the goods to the pawnor. 30

31 Right of Pawner 1. Right to get back goods: on the performance of promise or repayment of loan and interest, if any, the pawnor is entitled to get back the goods pledged. 2. Right to redeem debt: Quite often a time is stipulated for the payment of the debt, or performance of the promise, for which the pledge payment of the debt, or performance of the promise, for which the pledge is made. In such a case if the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may still redeem the goods pledged at any subsequent time before the actual sale of them; but he must, in that case, pay, in addition, any expenses which have arisen form his default (S.177). 3. Preservation and maintenance of the goods: The pawnor has a right to see that the Pawnee, like bailee, preserves the goods pledged and property maintains them. 4. Right of an ordinary debtor: The pawnor has in addition to the above rights, the rights of an ordinary debtor which are conferred on him by various statutes mean for the protection of debtors. 31

32 CHAPTER-IX CONTRACT OF AGENCY Introduction: The complexities of modern business are such that it is not public for any man to transact all his business by himself. He cannot personally attend to all in which it is necessary for him to be brought into legal relations with other people of necessity. He has to depend on the services of other persons in order run his day to day business affairs. Such other persons are called agents. Definition: According to S.182 an agent is a person employed to do any act for another, or to represent another in dealing with third person. The person for whom such act is done or who is represented is called principal. The function of an agent is to bring his principal into a contractual relation with a third person this means that an agent is merely a connecting link between the principal and third parties. Essential of agency: 1. Agreement between the principle and the agent: Agency depends on the but not necessarily on the contact. Again, no consideration is necessary to create an agency S Intention of the agent to act on behalf of the principle: Whether a person does intend to act on behalf of another is a question of fact. Rule of agency 1. Whatever a person can do personally he can do through an agent. Exceptions: (i) The acts to be perform in personal in nature or (ii) if it annexed to public office. 2. He, who does an act through another, does it by himself: This in other wards many that the acts of an agent subject to certain conditions are act of the principal it has the same legal consequence as if it has been done by the principal. 32

33 Who can employ an agent? Any person who is of age of majority according to the law to which he is subject is of sound mind, not lunatic or drunken may employ an agent.(s.183) Who may be an agent? Any person who is authorized to act as such may be an agent. He may not have the capacity to contract but no person who is of minor and of unsound mind is responsible to his principal. (S.184). It is therefore in the interest of the principal that the agent should have contractual capacity. Duties of agent 1. To carry out the work undertaken according to the direction given by the principal: If any direction is not provided he may act according to the prevalent customs in doing the business of same kind. If he acts otherwise he is liable for the loss incurred. 2. To carry out the work with reasonable care skill and diligence: an agent is bound to conduct the business of the agency with as much skill as us generally possessed by person engaged in similar business. He is liable to the principal in respect of the direct consequence of his neglect, want of skill and misconduct. 3. To render proper account proper accounts to the principal U/S Communicate with the principal in case of difficulty: in difficult situation the agent must use all reasonable diligence in communicating with the principal to obtain instruction S Not to deal his on his own account: The agent must not deal on his own account in the business of agency without the consent of the principal. If he does so the principal has the option to repudiate the transaction or claim from the agent any benefit which may have resulted to him from the transaction. 33

34 6. to pay sums received for the principal: An agent is bound to pay to the principal all sums received on his account after deducting the expense incurred, advances made at money due to him. 7. To protect and preserve the interests of the principal in case of his death or insolvency: When an agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take unsound mind, the agent is bound to take reasonable care on behalf of the representative of his late principal. 8. Not to use information obtained in course of the agency against the principal: It is the duty of the agent to pass on any information which eh receives in the curse of agency to principal. If he uses any information against the interest of the principal, he is bound to compensate the loss. 9. Not to make secret profit from agency: An agent occupies fiduciary position i.e., the position of trust and confidence. He must not make any profit beyond the agreed commission or remuneration without the principal s knowledge. 10. Not to set up adverse title: The agent must not setup his own title or title of the third person to the goods or property he receives from the principal as agent. 11. Not to put himself in a position where personal interest and duty conflict: In such cases he must make full disclosure of his interest to his principal. 12. Not to delegate authority: An agent must not as a general rule, depute another person to do what he has himself undertaken to do. 34

35 CHAPTER-X SALES OF GOODS ACT.1930 Contract of sales: A contact of sales of goods is a contact whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price S.4 (1). It includes both sale and agreement to sell. Essential of contract of sales: 1. Two parties: There must be two distinct parties, i.e., a buyer and seller to effect the contract of sale and must be competent to contract. Buyer: Person who buys or agrees to buy goods [S.2 (1)] Seller: Person who sells or agrees to sell goods [S.2 (13)] 2. Goods: It is the subject matter of the contract. Here goods mean every kind of movable property other then actionable claim and money. It includes stocks and shares, growing crops, grass and things attached to or forcing part of the land which are agreed to be several before sale. Trade work, copy rights, patent right, goodwill, electricity, water, gas ae all goods. 3. Price: The consideration for the contract of sale is always in terms of money. It can be partly money and partly goods. 4. Transfer of general property: There must be a transfer of general property in goods from seller to buyer. 5. All the essential element of the valid contract: 35

36 Difference between sales and agreement to sell: SALES 1. Transfer of property a. Property in the goods posses from the seller to the buyer immediately. b. So seller is no more the owner. 2. Types of contracts: Executed contract. 3. Risk of loss: If the goods are destroyed, the loss falls on the buyer, even if the goods are in posses on of the seller. 4. Consequences of breach: If the buyers breach the contract, the seller as sue him for the price of the goods, if unpaid. 5. Right to resale: The seller cannot resell the goods. The subsequent buyer does not acquire titles to the goods. 6. Right created: Jus in remgives right to the buyer to AGREEMENT TO SELL 1. Transfer of property a. Transfer of property is the goods is to take place at future time or subject to certain condition. b. The seller is the owner. 2. Types of contracts: Executory contact. 3. Risk of loss: Loss falls on the seller even if goods are in possession at the buyer. 4. Consequences of breach: The seller can only sue for damages and not for the price. 5. Right to resale: Subsequent buyer by a good title. Original buyer can only the for damages. 36