INDIAN CONTRACT ACT

1872
SOURCES OF LAW
 INTRODUCTION TO LAW AND INDIAN CONTRACT ACT

• Introduction and essential elements of a contract

• Types of contract , Breach of Contract

• Law of Indemnity and Guarantee, Bailment and Pledge, Law of

Agency
 SYLLABUS
• Classification of Law

• Natural Justice

• History of Indian Judicial System

• Indian Contract Act 1872 : Definition (Sec 2)

• Essential elements of a contract – Offer, Acceptance, competency to enter in

contracts (Sec 11 & 12)

• Consent – Free consent, coercion, undue influence, fraud, misrepresentation,

mistake (Sec 13 -23)
• Legality of object & consideration

• Types of contract

• Performance of contracts

• Void Agreement (Sec 24 – 30)

• Quasi Contracts, Discharge of contracts

• Consequences of breach of contract (Sec 73 – 75)

• Bailment (S. 148 – S. 171 & S. 180)

• Salient features of e- contract, formation of e-contract and types

• Indian Contract Act 1872: Definition (Sec 2); Essential
elements of a contract -offer, acceptance, considerations;
Competency to enter in contracts (Sec 11 &12); Consent- free
consent, coercion, undue influence, fraud, misrepresentation,
mistake (Sec 13-23); Legality of object & consideration; Types
of contracts; Performance of contracts; Void agreement (Sec
24-30); Quasi contracts, discharges of contracts;
Consequences of breach of contract (Sec 73-75)
• Bailment(S.148 - S.171 & S.180 & S.181) Pledge (S.173 -
S.179)- Indemnity & Guarantee(S.124, 125 128 - 147)
Distinguish Indemnity & Guarantee Laws Of Agency
• The law relating to contracts in India is
contained in the Indian contract Act
1872.The Act comprises of 10 chapters
and divided into two parts.
 Part 1 (6 Chapters)- deals with general
principles pertaining to contracts ie,
formation of contracts, essential elements,
performance of contracts, breach of contract
and remedies of breach of contract
 Part2 (4 chapters) – deals with some special
contracts ie, indemnity and guarantee,
bailment and pledge and law of agency.
 Definition of contract
• The word contract is derived from the Latin
word ‘contractum’ which means ‘ Drawn
together’
• Sec 2 (h) of the Indian contract Act defines the
term contract as “ An agreement enforceable
at law is a contract”.
• Contract = Agreement + Enforceability at law
 Contract
Proposal
when accepted
Promise
Along with
Consideration
Agreement

Vitiating elements
Enforceable
by Law.
Contract
 Essential elements (vitiating elements)

• Acc to Sec 10 All agreements are contracts if

they are made by the free consent of parties
competent to contract, for a lawful
consideration and with a lawful object and
are not hereby expressly declared to be void
• Agreement
• Lawful consideration
• Capacity of parties
• Lawful object
• Free consent
• Not expressly declared void
• All contracts are agreements but all
agreements are not contracts.
 Agreement
Offer& Acceptance
 Agreement
• There must be an agreement between the
parties.
• An agreement involves a valid offer by one
party and a valid acceptance by the other
party.
• Agreement= Offer+acceptance
 Offer (Sec2a)
• The word offer is an English word
• Indian law is using the term “ Proposal”
• Proposal means an expression of willingness
 Definition
• According to Sec 2(a) of the contract Act “
When one person signifies to another his
willingness to do or abstain from doing
anything, with a view to obtaining the assent
of that other to such act he is said to make a
proposal”
 Parties to offer
• 1 . Offeror
or proposor – The person
making offer

• 2 .Offeree or proposee - The person

to whom the offer is made
 Essential characteristics of valid offer
• 1 . The terms of offer must be clear and certain.
• 2 . Offer must be communicated to the offeree.
• 3 . An offer must be made with an intention of
creating legal obligations.
• 4 . An invitation to offer is not an offer.
• 5 . An offer may be to an individual or to the
public at large
• 6. Offer may be express or implied
 The terms of offer must be clear
• The terms of offer must be clear.
• It must be definite certain and clear
• In Taylor V. Portington
• B agreed to decorate the room according to
“present style." The court held that present
style is a vague and uncertain term and
therefore promise could not be enforced.
Offer must be communicated to the offeree

• An offer must came to the knowledge of the

other party.
In Fitch V. Snedakar
A person gave information about a murder
without knowing that an award was offered
for it, and claimed the award subsequently. It
was held that he was not entitled to the award
as he was not aware of the same.
 An offer must be made with an intention of
creating legal obligations.
• The offer must create a legal obligation upon
the parties. It must impose a legal duty upon
the parties.
• Eg An offer to perform a social act does not
create a legal obligation.
• A invited B to a dinner. When B went to A’s
house , A was not available there. Here B
cannot enforce it against A, hence it is a social
agreement.
 Invitation to offer is not an offer
• Invitation to offer is not an offer
• Eg Cataloge of goods, advertisements etc….
 Offer may be express or implied
• An Express offer is one which may be made by
words spoken or written
• An implied offer is inferred from the conduct
of the party. Eg ….
 An offer may be to an individual or to the
public
• To an individual – Specific offer
• To the public _ General offer
• General offer is also a valid offer
• Carlil V. Carbolic smoke ball company
• A company made a reward of $100 to anybody
contracting influenza after using a smoke ball of
Co according to their direction. Mrs Carlil used
this ,still had an attack of influenza. It was held
that it is general offer& she entitled to reward.
 Type of offer
• Specific offer
• General offer
• Standing offer
• Counter offer
• Cross offer
 Specific offer
• Made to definite individuals
 General offer
• Made to public at large
 Standing offer
• An offer for a continuous sppply of certain
article at a certain rate over a definite period
Eg….A agrees to supply certain raw materials
to B at a fixed price for one year .
 Counter offer
• Rejecting original offer and making a new
offer. Eg A offers to sell his house for Rs 2
lakhs. B accepts to purchase it for Rs 1 lakh
 Cross offer
• When two parties make identical offer to each
other in ignorance of each others such offers
are called cross offers.
• Eg A by letter offers to sell his car to B for Rs
50000 . At the same time B by a letter offers to
buy that car for Rs 50000.
 Lapses of offer
(When does a offer come to an end?)
• Revocation by communication of notice.
• Death of offeror
• Insanity of offeror
• By lapse of prescribed time
• Non fulfillment of conditions
• Rejection by a counter offer
 Acceptance
• Sec 2(b) Contract Act
“ When the person to whom the proposal
is made signifies his assent the proposal is said
to be accepted”
 Essentials of a valid acceptance
• An acceptance must be absolute-Accept all
the terms of offer .If any variations it will
become a counter offer.
• Acceptance must be communicated.
• Acceptance must be made within reasonable
time.
• Acceptance may be express or implied.
• Acceptance must be made by the offeree.
Consideration
 Importance of Consideration
According to Sec 10 of the contract act lawful
consideration is required for giving
enforceability to an agreement.

The principle is expressed in a Latin maxim “Ex

nudo pacto non oritur actio”.i e, a promise
without consideration is not binding on the
parties.
 Meaning of consideration
• Consideration means ‘something in
return’.
 Essentials of a consideration
• 1 . Consideration must move at the desire
of the promisor-
It must move at the desire of the promisor
not at the request of promissee.
• 2. Consideration may be provided by the
promisee or any other person-
• It may proceed from the promisee or from
any other person on behalf of promisee.It is
not important as to who provides it . The
promisee or any other person can furnish the
consideration.
• 3 . Consideration may be past present or
future
• Past Consideration
• When a person received the consideration from the
other for a past performance it is called past
consideration
• Eg A’ son was rescued from drowning by B on 15th
August at the request of A. Subsequently on 17t A
promised to pay Rs 50000 for the service rendered in
the past . Here A’s consideration is a past consideration
• Under English law past consideration is not recognised.
• Present consideration
• When the person receives consideration from
the other simultaneously with the promise it is
called present consideration.
• Eg A agrees to sell his horse for Rs 50000 to
B .Accordingly A gives the horse and B pay
price immediately.
• Future Consideration
• When the person has to receive
consideration in future for his promise ,it is
called future consideration.
• Eg A agrees to give Rs 1 lakh to B if B supply
certain goods at a future date to A.
• 4 . Consideration need not adequate
Consideration need not adequate to the
promise. What is required is that there should
be some consideration for the promise.It does
not insist upon the quantom of consideration.
Eg A agrees to sell his horse worth Rs 25000 to B
for Rs 1000.The contract is valid provided A’s
consent was freely obtained.
• 5 . Consideration must be real .

• Consideration is said to be unreal

•
1) The act forming consideration is legally or physically
impossible. 2) the consideration is uncertain.
• Eg A promised to shift a mountain from one place to
another if B pays Rs 100000.
• Eg A engages B for doing a certain work and promises
to pay reasonable sum.
• 6. Consideration must be lawful
• Consideration is said to be unlawful in cases
like -
• 1. It is forbidden by law
2. It is fraudulent
3. It involves injury to person and property
of another
4 It is regarded by court as criminal
 Privity of Consideration
• Under Indian contract Act consideration for a
contract may move from the promise or any
other third person. So a stranger to the
consideration can also enforce the contract.
 Chinayya V. Ramayya
• In india the consideration may move from a
stranger.The law was established in the above case.
• An old lady Laxmi Rani gifted her property to her
daughter Ramayya,with a direction to pay a certain
sum of money annually to Chinnayya her maternal
uncle. Ramayya executed an agreement with
Chinayya. Later she refused to honour the agreement
on the ground that there is no
consideration.Chinnayya sued for the money.Court
held that there was sufficient consideration ie , the
property given to her by the sister of Chinnayya.
 Privity of Contract
• It is a general law of contract that a person
who is not a party to the contract cannot sue
upon it. A stranger to a contract cannot sue in
England as well as in India. A stranger to
contract does not acquire any rights under the
contract. ‘Privity of contract’ states that the
contract confers right and obligation on
contracting parties only. Therefore stranger to
a contract cannot sue on contract.
 Exceptions to the Rule
• Under Indian law there are certain exceptions
to the above rule ie under certain
circumstances even a stranger to a contract
can sue .They are……..
• Trust
In case of trust ,the beneficiary may enforce
the contract even though he is stranger to the
contract.
Eg A agrees to transfer certain properties to B
as trustee for the benefit of C,C can enforce
the agreement even though C is a stranger to
the contract. In this case C is the beneficiary.
• 2 .Contract through an agent
Contracts which are entered into through an
agent can be enforced by his principal
Eg A is the principal and B is the agent . B
enters into a contract with C for purchasing
goods on behalf of his principal A. Now A even
though he is a stranger to the contract can
enforce the contract against C.
• 3. Partition or other family arrangements
In joint family system if any family member
enter into a contract which is against the
interest of others . So they can sue for their
right.
• 4 . Aknowledgement or estoppel
In some cases , one party may acknowledge by
words or by conduct the liability of another
party. If he has thus acknowledged it, he is
prevented or estopped from going back his
word. In such cases the person thus
acknowledged will be liable.
• 5 .Covenants running with land.

At the time of transfer of immovable property

if the owner of land is bound to certain
obligations created by an agreement relating
to land, new purchaser will be bound by them
though he was not a party to the original
covenant.
• Tulk V. Moxay- A purchased a land knowing
that the previous owner was bound by certain
duties created by an agreement affecting the
land. It was held that A will be bound by that
agreement even though he was not party to it.
Such agreements pass on to the new owner
along with the land.
 Exception to the rule “No consideration No
contract’’
• Consideration being one of the essential
elements of a valid contract the general rule is
that “an agreement made
without consideration is void. But there are a
few exceptions to the rule, where an
agreement without consideration will be
perfectly valid and binding.
• 1. Agreement based upon love and affection.
• Where an agreement is expressed in writing
and registered and is made on account of
mutual love and affection between parties
standing in a near relation to each other, it is
valid and enforceable even though it is not
supported by consideration.
• 2. Agreement to pay compensation for past
voluntary services
• If a person has voluntarily done something for the
promisor and the promisor agrees to compensate
later the agreement is valid eventhough it is made
without consideration
• Eg A find B’purse and hands it over to him. B in
return promises to give A Rs 50. It is a valid contract.
• 3. Time- barred debt
Where a debtor promises by way of writing to pay a
time barred debt the agreement is valid even though
it is not supported by consideration.
Eg A borrows Rs 500 from B. Under limitation Act B
must take steps to recover the amount within 3 years
.But B did not did so. Hence the debt became time
barred. After 3 years A promises B by way of writing
to repay the amount. It is a valid contract.
• 4. Completed Gifts
The rule shall not affect validity of any gifts
made between the donor and donee.
• 5. Agency
No consideration is needed to create an
agency.
CAPACITY OF PARTIES
• Competency to contract implies the legal
ability of a person to enter into a valid
contract
 Section 11
• Acc to this clause “Every person is competent
who is of the age of majority and who is of
sound mind, and is not disqualified from
contracting by any law to which he is subject”
• Thus the section declares 3 classes of persons
to be incompetent to contract. They are-
• Minors
• Persons of unsound mind
• Persons disqualified by law
 A. Minor
• A person who has not attained the age
majority is a minor. A person attains majority
on completing his 18th year of age
 Law regarding minors agreement
• 1 An agreement by or with a minor is void
Contract act is silent on the question whether
minors contract is valid. But it was declared by
void by the court in Mohori bibi V. Dharmodas
ghose
 Facts of the case
• X a minor borrowed Rs 8000 and executed a mortgage deed
in favour of Y who was aware of X’s minority. Y argued that
the contract is valid and that the sum actually borrowed must
be refunded. But the court held that minors contract itself is
void and no question of refunding the money could arise.
• 2. Minor is not bound to return the benefits
received
Acc to Sec 65 of contract act a person who has
obtained a benefit under a void contract must
return the benefit when the contract
becomes void. But in case of a minor if he
received any benefit under a void agreement
he cannot be asked to compensate or refund
it.
• 3. A minor cannot ratify his act Since a
contract by a minor is void it cannot be ratified
by him even after he becomes major.
ie ,money lended during minority cannot claim
during majority.
• 4. Restitution of property from a minor in
case of fraud.
When a minor has obtained any property by
making false representation that he is major
then the minor is liable to return the
property.This is called restitution of fraud
5. A minor is liable for necessaries supplied.
If a minor is entered into a contract with any
other person for the supply of necessaries
such contracts are valid and binding on them.
Necessaries are those without which an
individual cannot exist .
Eg food , clothing , shelter etc.
• 6. Minor as agent
• A minor can be appointed as agent. He can
act for his principal. But he cannot appoint an
agent and become a principal.
• Minor as shareholder
A minor cannot be a shareholder of a company.
• Minor as a partner
A minor cannot be a partner. But in certain
circumstances a minor may be admitted to the
partnership with the consent of other
partners.
 B. Unsound Mind
• Inorder to be competent to contract, a person
must be of sound mind.
• A person is said to be sound mind for the
pupose of making a contract when he is
capable of understanding it.
 Persons of unsound mind
• Idiots
• Lunatics
• Drunken person
 C. Person disqualified by law
• 1 . Foreign Sovereigns & Ambassadors.
• They are representatives of foreign state. For
instituting a suit against them special sanction
of central govt is required.
• 2 . Alien enemies.
• An alien enemy cannot enter into a contract
with Indian citizens.
• 3. Convicts
• A convict cannot contract while undergoing
sentence. He can contract after the period of
sentence.
• 4. Corporations.
• Legal person .It can enter into a contract only
if memorandum of association permits.
• 5. Insolvents or bankrupts (a person who has
incurred debts more than assets)
An insolvent can contract only after he is
discharged of his insolvency.
Free Consent
• Sec 10 of the contract act lays down that
agreements made by the free consent of the
parties are only contracts.
 Free consent
• Free consent is defined in Sec 14 of the
contract Act as “Consent is said to be free
when it is not caused by
• Coercion (Sec 15)
• Undue influence (Sec 16)
• Fraud (Sec 17)
• Misrepresentation (Sec 18)
• Mistake ( Sec 19)
 Coercion
• When a person obtains consent of the other
party by force or under fear caused by threats
of bodily violence and imprisonment he is said
to use coercion.
 Ranganayagamma V. Alwar Chetty
• Facts of the case
Husband of a young girl of 13 years old had died and his body
was about to be removed for cremation. The relatives of the
deceased husband threatened the girl that unless she gave
her consent to adopt a boy to her husband, his body could not
be removed for cremation. The young girl had no other option
but to give her consent. Subsequently she filed a suit to
cancel the adoption on the ground that the consent was
obtained from her by coercion. The court held that consent
was not free but obtained by coercion and set aside adoption.
 Effect of coercion
• If the consent to an agreement is obtained by
coercion the contract is voidable at the option
of the party whose consent is so obtained.
 Undue influence
• When the relationship between the parties of
a contract is such that one of the parties can
dominate the will of the other and uses the
position to claim an unfair advantage over the
other the contract is caused by undue
influence.
 Relationship where undue influence is
presumed.
• A . When he holds a real and apparent
authority.
ie a person holding higher authority
Eg Master and servant
Doctor and patient
Superior and subordinate
• B. Where he stands in a fiduciary relation to
the other
Fiduciary relation means a relation of trust
and confidence upon each other
Eg Advocate and Client
Parent and child
Husband and wife
Landlord and tenent
C. Where he makes a contract with a person in
physical or mental distress.
Capacity is temporarily or permanently
affected by reason of age, illness or mental or
bodily distress.
 Allcard V. Skinner
 Miss Allcard joined a religious sisterhood where miss Skinner
was the religious superiour.During the period Allcard made
several gifts and transferred bulk of her properties to the
sisterhood due to the influence of Skinner. Later Allcard left
the sisterhood and after 6 years she filed a suit against
Skinner for recovery of properties on the ground of undue
influence by Skinner. Court held that the relationship between
Allcard and Skinner was such a nature to raise undue
influence. But in this case Allcard kept silent for 6 years
without taking any action, which shows that she had
confirmed the gifts made by her to Skinner and thus she was
not entitled to recover the gifts.
 Effects of Undue influence
• If the consent to an agreement is caused by
undue influence the contract is voidable at the
option of the other party.
 Fraud
• Fraud is the intentional misstatement of facts
made by a party to a contract with the
intention to deceive the other party and
inducing the party to enter into a contract.
 Essentials
• A false suggestion as to a fact known to be
false.
• Concealment of any fact
• A promise made without any intention of
performing it
• Any other act to deceive
• Any fraudulent act prohibited by law
 Effect of fraud
• The party affected can avoid the contract.
• He can file a suit for damages.
 Mere silence is not fraud
• Mere silence of a party as to certain facts does
not amount to fraud . A party to the contract
is under no obligation to disclose the whole
truth to the other party. But if the
circumstances creates a duty on the person,
the person has to disclose whole truth.
 Misrepresentation
• Misrepresentation is an untrue statement
made by one party to other which will induce
the other party to enter into a contract.
Misrepresentation may be innocent or
fraudulent. Innocent misrepresentation is a
false statement made by a person without any
desire to cheat others.Fraudelent
representation is making with an intention of
cheating the other party.
 Effects of misrepresentation
• The contract is voidable
• The contract may be recinded
• Suit for damages
• Misrepresentation • Fraud
• No intention to deceive • Intention to deceive
• The aggrieved party can • Aggrieved party can
recind the contract.But claim damages in
there can be no suit for addition to his right to
damages in case of rescind the contract.
innocent misrep
 Mistake
• Mistake means ‘Error’.
 Definition of mistake
• “Where both the parties to an agreement are
under a mistake as to a matter of fact
essential to the agreement , the agreement is
void.”
 Classification of mistake
• Mistake may be
• Mistake of Fact & Mistake of Law
 Mistake of fact
• Mistake of fact -- Error relating to any
fact.That may be
A. Bilateral mistake
B. unilateral mistake
Bilateral mistake-Mistake to both the parties
The contract is void.
• Eg A agrees to sell his house to B. A is having
two houses ,one at Kollam and one at Ekm. A
is actually offering his house at Ekm. But B
knows of A’s house at kollam hence accepted
the offer.
Unilateral mistake-Mistake committed by one
party.
Eg A proposes to sell his car to B . A offer it for Rs 1
lakh. Actually it has a market value of 2lakh.Only
after the acceptance of B, that came to the
knowledge of A.A cannot avoid the contract on
the ground of mistake.
The contract is not voidable, but valid.
 Mistake of Law
• A . Mistake as to Indian law
• B . Mistake as to foreign law
• Mistake as to Indian law
• Every citizen is presumed to know the law of
country. There is a maxim ignoantia juris no
excusat –ignorance of law is not an excuse. A
person cannot escape from law saying that he
is ignorant of law and he cannot avoid
contract on such ground
• Mistake as to foreign law
• As regards to foreign law maxim is not
applicable. No one is expected to know
foreign law. So if a person pleads ignorance of
F L the contract will be void..
LAWFUL OBJECT
• If an agreement is to be enforced in a court of
law ,both the consideration as well as object
of the agreement must be lawful
 Unlawful object
• Under the following circumstances the object
of the agreement is said to be unlawful
• It is forbidden by law
• It would defeat the provisions of law
• It is fraudulent
• It causes any injury either to person or
property of another
• It is immoral or opposed to public policy
 Forbidden by law
• If the object or consideration of an agreement
is forbidden by law the agreement is void.
• X agrees to sell certain goods to Y after
knowing very well the goods are smuggled.
Here the object is forbidden by law.
 Defeating the provisions of law
• If the agreement is of such a nature that it
would defeat the provisions of any law which
is in force , the agreement is void.
• Eg a public company with 5 members
 Fraudulent Act
• If the object of the agreement is fraudulent
the agreement is void.
• E.g. A agrees to transfer his property to his
near relation B for a certain sum with a view
to cheat his creditor C. It is a fraudulent act
 Injury to person and property
• If the object of an agreement involves injury
to person or property of another the
agreement is void.
• E g An agreement to commit a murder
 Immoral agreements and agreements
opposed to public policy
• Agreements which are contrary to good
morals are illegal and void. Similarly an
agreement which is injurious to the welfare of
society is void.
Not hereby expressly declared to be void

Section 10 “ All agreements are contracts if

they are made by the free consent of parties
competent to contract, for a lawful
consideration and with a lawful object, and are
not hereby expressly declared to be void.
 VOID AGREEMENTS
• 1. Agreements in Restraint of Marriage
• 2. Agreements in Restraint of a Trade
• 3. Agreements in Restraint of Legal Proceedings
• 4. Uncertain Agreements
• 5. Agreements By Way Wager
• 6. Impossible Act
 Agreements in Restraint of Marriage

• Every agreement in restraint of the marriage of

any person is void. Restrictive agreement
means an agreement restricting marriage.
• Lowe v. Peers, (1768) : Mr. Peers promised.
Catherine Lowe, that he would not marry
anyone other than Lowe and promised further
to pay, Mrs. Lowe, 2000 pounds on default.
Agreements in Restraint of a Trade
• Every agreement by which anyone is restrained
from exercising a lawful profession, trade or
business of any kind, is to that extent void.
• The agreements which restrict trade business or
profession are called agreements in restraint of
trade. One citizen cannot restrict lawful business
of the other.
• Eg A makes an agreement with B restricting B to
sell goods to anybody other than A
 Agreements in Restraint of Legal
Proceedings
•Every agreement, by which any party is restricted
absolutely from enforcing his rights under or in
respect of any contract is void .
 Uncertain

• According to Agreements, the meaning of which

is not certain, or capable of being made certain,
are void.
• Eg A agrees to sell B "a hundred tons of oil".
There is nothing whatever to show what kind of
oil was intended. The agreement is void for
uncertainty.
 Wagering Agreements
• Section 30 states that, agreements by way of
wager are void;
• No suit shall be brought for recovering
anything alleged to be won on any wager, or
entrusted to any person to abide the result of
any game or other uncertain event on which
any wager is made.
 Wagering Agreements

Essentials of a wagering agreement

• (1) Opposite views about an uncertain event
• (2) Chances of gain or loss to the parties
• (3) No other interest in the event except the
amount of bet.
• Eg horse race, lottery etc
 Impossible Event/Act
• An agreement to do an act impossible in itself is
void.
• Contract to do act afterwards becoming impossible
or unlawful: A contract to do an act which, after the
contract is made, becomes impossible or, by reason
of some event which the promisor could not
prevent, unlawful, becomes void when the act
becomes impossible or unlawful.
• Eg destruction of subject matter
PERFORMANCE OF
CONTRACT
 Performance of contract
• After the formation of contract the next stage
is the performance of contract. Performance
of contract, denotes fulfillment of the terms of
the contract.
• Sec 37 Contract Act
• States that “the parties to a contract must
either perform or offer to perform ,their
respective promises.”
Who may perform the contract
• Promisor Sec 40
• The promise must be performed by the
promisor himself especially if it involves the
exercise of personal skill and qualifications of
the promisor. In such cases in case of death of
such promisor his heirs are not liable to
perform the contract.
• Eg A promises to paint a picture for B. A has to
perform the contract personally.
• Agents
• Contracts which are not of personal nature
may be performed by an agent appointed by
the promisor for the purpose.
• A is the principal. B is the agent of A. If A is
entering into a contract with C, B on behalf of
A can perform the contract.
• The legal representative
• If the promisor dies before the performance of
the contract his legal representatives who
inherited the property of the deceased
promisor are bound to perform it.
• Third person
• The performance of contract by a third
person is also effective , if the promisee
accepts the same. Once the promisee accepts
the performance from a third person, then he
cannot compel the promisor to perform the
contract again
 Time and place of performance
• A person who is bound to perform a contract
must be ready to perform it at the time when
he has undertaken to do the same.
 Rules
• 1. Where time is not fixed –Must be
performed within a reasonable time. Sec46
• 2. Where the time is fixed – In case any time
is fixed for performance it must be performed
within that time . Sec 47
• 3. Place of performance– If the contract
mentions a place the contract must be
performed at the place mentioned in the
contract.
 Performance of joint promise
• When two or more individuals are bound to
perform a contract together, it is called a joint
promise.
• In case of joint promise the liability of each
promisor is always joint and several, one is not
entitled to discharge only his share of liability.
• Eg If X,Y and Z execute a pronote in favour of P,
all are jointly and severally liable.
• Right of contribution
• In case of joint promise if one person paid the entire
amount he can get contribution from others.
• In the above Eg if P recovers the entire amt from X ,
X can claim contribution from Y &Z.
DISCHARGE OF CONTRACTS
 Discharge of contract
• Discharge of contract means termination of
the contractual relationship between the
parties. When a contract is discharged , all the
rights and liabilities of the parties comes to an
end.
 Various modes of discharge
• By performance
• By agreement
• By lapse of time
• By operation of law
• By impossibility of performance
• By committing breach of contract
 A. Performance
• This is the usual mode of discharge of
contract. When the parties to a contract
perform their obligations it is called ‘discharge
by performance’. In such case contract comes
to an end.
 B. Agreement
• A contract may be discharged by agreement in
the following ways….
• 1. By novation
Sometimes the contracting parties may agree to
substitute a new contract between themselves and
different parties. The substitution of new contract is
called ‘Novation’. Thus novation creates a new
contract and discharges the original contract.
Eg A ows Rs 10000 to B. Later is agreed between A, B
& C that C will repay the amount to B.Thus by
substituting a new contract between B &C the old
contract between A& B is discharged.
• 2. By alteration
• By mutual agreement ,parties to a contract
can alter one or more of the terms of the
contract. By such alteration original contract is
discharged.
• A enters into a contract with B for the supply
of 100 bags of sugar. Subsequently they
altered the terms since B is in need of 200
bags of sugar.
• 3. By recession
• Recession means cancellation of old contract
by the contracting parties. In such case
contract need not be performed.
• In case of novation old contract is cancelled
and a new one is substituting. but in this case
no new contract is forming.
• 4. By remission
• Remission means acceptance of a lesser
performance than what was actually due
under the contract.
• Eg X ows Rs 50000 to Y. Y accept a lesser sum
Rs 30000 instead of Rs 50000
• 5. By waiver
• When both the parties ,by mutual consent,
agree of abandon their respective rights, the
contract need not be performed and the same
time it is discharged.
• Eg A agrees to supply 10 bags of rice.B in return
agree to supply 10 bags of wheat. Subsequently
they agreed to abandon their rights.Accordingly
A need not supply rice and B need not supply
wheat. Now contract is discharged.
 C. Discharge by lapse of time.
Every contract must be performed within specified
period and it is called period of limitation. If the
contract is not performed and the promisee fails to
take any action within the period of limitation,then
the contract is terminated or discharged by lapse of
time.
• Eg A borrows Rs 50000 from B through a pronote.If
A does not pay the amount B must file a suit to
recover the amt within 3years.If not it will be barred
by limitation.
 D. Discharge by operation of law
• Law itself discharge the contract in the
following cases..
• A By Death
• B By insolvency
E. Discharge by impossibility of performance

The impossibility may arise –

• At the time of formation of contract –The contract
is impossible to perform at the time of formation .
• Subsequent to the contract- Impossibility
subsequent to the formation. There may be some
case in which non performance of the contract may
be due to some events beyond the control of the
parties. In such cases performance of the contract
will be discharged .
• Eg Declaration of war, Destruction of subject
matter.
 F. Discharge by breach of contract
• Breach means failure of a party to perform his
obligation under a contract. Breach of contract
is of two kinds
• A Actual breach of contract
• B Anticipatory breach of contract
 Actual breach of contract
• Actual breach of contract may take place
either at the time when the performance is
due or during the performance of contract. It
occurs when one party fails or refuses to
perform his obligation.
• A agrees to supply B 10 bags of sugar on 1st
March.In this case performance is due on 1st
March.On that day A fails to supply sugar.It is a
actual breach of contract.
 Anticipatory breach of contract
• When a party to a contract refuses to perform
his obligation before the due date of
performance it is called anticipatory breach of
contract
 Remedies for breach of contract
• Breach of contract confers a right of action to
the party injured .This right of action is the
remedy available for the injured against the
party committing breach of contract.
 Remedies
The various remedies available to an injured
are
• Recession of the contract
• Suit for damages
• Suit for specific performance
• Suit for injunction
• Suit upon quantum meruit
• 1. Recission of a contract
• Where one of the parties to a contract commits
breach , other party may treat the contract is
rescinded. By which aggrieved party is
discharged from all obligations under the
contract.
• Eg A promises to supply certain goods to B.A
does not supply goods. B is discharged from his
liability to pay the price.
• 2. Suit for damages.
• The term damage means monitory
compensation payable by the defaulting party
to the aggrieved party in the event of the
breach of contract for the loss suffered by
him. The object of awarding damages is to put
the aggrieved party in the same financial
position, had the contract been performed.
• 3 Suit for specific performance
• In certain situations damages will not be an
adequate remedy for breach of contract. In such
cases the court may at the suit of aggrieved
party direct the other party to carry out the
promise as per the terms of the contract.
• Eg A agreed to sell some old stamps of pre-
independence to B for Rs 1000.But subsequently
A refused to sell it. In this case B may file a suit
against A for the specific performance of
contract. Court will direct A to sell stamps to B.
• 4. Suit for Injunction
Another remedy for breach of contract is an
injunction which is an order of the court
restraining or preventing a person from doing a
particular act.
A Contracted to sing only at B’s theatre and no
where else for a certain period. After that A
contracted with C to sing at C’s theatre. B can
get the order of injunction restraining A from
singing elsewhere for the specific period.
• 5. Suit upon Quantum Merit
• In legal sense it means payment in proportion to the work
done. When a person has done some work under a contract
and the other party repudiates the contract or some event
happens which makes the further performance of the
contract impossible ,then the party who has performed the
work can claim remuneration for the work he has already
done. This is called doctrine of Quantum merit.
• Eg A agrees to do certain work for B forRs10000. When 50% of
the work completed B repudiates the contract. A can claim
quantum merit. ie Rs 5000.
 Kinds of contract
• On the basis of

• Validity- valid, void, voidable, unenforceable,

illegal

• Formation- Express, implied

• Performance-Bilateral, unilateral,Excuted,Excutory
 Validity
• Valid contract- enforceable by law
• Void contract – Not valid, not enforceable by
law
• Voidable contract- agreement enforceable
only at the option of parties.
• Unenforceable contract- not enforceable due
to some technical defect such as absence of
proper stamp etc
• Illegal contract- criminal or immoral nature
 Formation
• Express – terms expressly agreed
• Implied – inferred from the circumstances
 Performance
• Unilateral – One party fulfilled the obligation
• A directs a coolie to put his luggage to a
carriage
• Bilateral- obligation on the part of both the
parties to the contract are outstanding
• A promises to pay Rs 1000 to B if B paints a
picture for B
• Executed contract- if both the parties of a
contract have performed their respective
obligations contract is known as executed
contract.
• Executory- An executory contract is one in
which both the parties have not yet
performed their obligations.
QUASI CONTRACTS
Group 9

Abhishek Dwivedi PGPM508_09

Ajit Kumar PGPM508_20
Gautam Pradhan PGPM508_32
Gagan Seth PGPM508_44
Chandra M Verma PGPM508_56
• Sections 68 to 72 deals with "certain relations
resembling those created by contract" under
Indian contract act, 1872 which is termed as
quasi contrats.
• Even though a contract is the result of an
agreement enforceable by law, but under certain
special circumstances, obligations resembling
those created by a contract are imposed by law
although the parties have never entered into a
contract.

• Such obligations imposed by law are referred to as

‘Quasi-Contracts’ or ‘Constructive Contracts’ under
the English law, and ‘certain relations resembling
those created by contracts’ under the Indian law.
• ‘Quasi’ means ‘almost’ or ‘apparently but not
really’ or ‘as if it were’

• A quasi contract is a contract that exists by

order of a court, not by agreement of the
parties.
• Quasi-contract rests upon the equitable
‘doctrine of unjust enrichment’ which declares
that a person shall not be allowed to enrich
himself unjustly at the expense of another.

• It may be noted that a suit for damages for

the breach of the contract can be filed in the
case of a quasi-contract in the same way as in
the case of a completed contract (Sec. 73).
Differences…
Contract Quasi Contract
Contracts results from the will of  Quasi Contract is not a
the parties expressed with a view contract at all but merely a legal
to create an obligation fiction.
 It cannot be used when full-
fledged contract exists
Contract is an agreement There is no agreement

It has certain essential elements Essentials for formation of a

contract are absent

It is a full fledged contract and is It is not a full fledged contract

binding
 TYPES OF QUASI CONTRACT
• Supply of necessaries (section 68)

• Payment by interested person (section 69)

• Liability to pay gratuitous act (section 70)

• Finder of goods (section 71)

• Payment by mistake or coercion (section 72)

 Supply of necessaries (section 68)

Necessaries:
Things suited to the conditions of incompetent
parties
Includes articles required to maintain a particular
person in the state and degree in the life in which
he is
Articles without which an individual cannot
reasonable exist
A supplies B, minor with necessaries suitable to
his condition of life is entitled to be reimbursed
from B’s property
 Payment by interested person (section 69)

A person who is interested in the payment of

money which any other is bound by law to pay
and who therefore pays it is entitled to be
reimbursed by the other.
A is the tenant and he is cultivating the land
belonging to B who is the landlord. B Fails to pay
land taxes to the govt and A pays it and saves his
landlord. In such cases A is entitled to recover it
from B even though there was no contract
Liability to pay a non-gratuitous act (section 70)

“ Obligation of a person enjoying benefits of

non-gratuitous act” – the person enjoyed the
benefit is bound to make compensation to the
former in respect of or to restore the things so
done or delivered.
• Person lawfully does anything for another
person
• Delivers anything to him non-gratuitously
• Latter is bound to make compensation or
restore the thing so done or delivered
• The thing must be done lawfully
• The person for whom the act is done must
enjoy the benefit of it
A, a tradesman, leaves goods at B’s house by
mistake. B treats the goods his own and enjoy
the benefit . He is bound to pay for them
Section 71 - Responsibility of finder of
goods
“A person who finds goods belonging to
another and takes them into his custody, is
subject to the same responsibility as a bailee.
The finder’s position, therefore, has been
considered along with bailment”
A picked up a diamond on the floor of B’s shop and
handed it over to B to keep it till the owner appeared
True owner could not be searched. After the lapse of
some weeks, A requested him to return the diamond
to him . B refused to do so
 But B must return the diamond to A as he was
entitled to retain the goods as against everybody
except the true owner (Hollins Vs Fowler)
Section 72 – payment by mistake or
coercion
A person to whom money is paid, or any
thing delivered by mistake or under coercion
must repay or return it”
A and B jointly owe Rs. 1,000 to C. A alone pays
the amount to C and B not knowing this fact,
pays Rs. 1,000 over again to C. C is bound to
repay the amount to B.
SPECIAL CONTRACTS

INDEMNITY & GUARANTEE

BAILMENT & PLEDGE

LAW OF AGENCY
 Indemnity & Guarantee
• Indemnity & guarantee ,being species of
contract, are subject to all the rules of
contract. The principles relating to them are
contained in chapter VIII, Sec 124 to 147 of
the Indian contract Act.
 Contract of Indemnity
• To indemnify means to compensate or make
good the loss.
 Essentials
• 1. One party must promise to save the other
from loss caused to other.
• 2. The loss must have been caused to him by
the conduct of the promisor himself.
• 3. Or the loss must have been caused by the
conduct of any other third person.
 Parties to the contract of indemnity
• Indemnifier – The person who promises to
save the other from loss is called indemnifier.
• Indemnified – The person to whom the
promise is made or the person whose loss is
to be made good is called indemnified.
 Different kinds of indemnity
• A. Express contract of indemnity
• B. Implied contract of indemnity
• Where the terms of the contract of indemnity
are either in oral or written form it is called an
express contract of indemnity.
• Eg policy of insurance
• Where the contract of indemnity can be
inferred from the circumstances of the case or
from the relationship of the parties it is called
implied contract of indemnity.
 Requirement of all essentials of contract

• A contract of indemnity is a species of general

contract. Hence it must have all the essential
elements of a valid contract namely
consideration, competence of parties, free
consent, lawful object etc.
 Contract of guarantee
• Where a person gives a guarantee to another
person, either to a) performing a promise b)
discharging the liability of a third person
,there arise a contract of Guarantee.
 Definition
• Sec 126 of the contract Act
A contract of guarantee is a contract to
perform the promise or to discharge the
liability of a third person in case of his default.
 Parties to a contract of guarantee
• Three parties
• The person who gives guarantee is called the surety.
• The person in respect of whose default the guarantee is given
is called the principal debtor.
• The person to whom the guarantee is given is called the
creditor.
• Eg A lends Rs 500 to B on C’ s promise to pay the same if B
fails to pay within a year.
• Here C is the surety. B is the principal debtor and A is the
creditor.
 Essentials of contract of guarantee
• 1. Three parties – There must be three parties
in a contract of guarantee.
• 2. Identity of mind-
• 3. Liability in existence- There should be a
liability in existence, a liability which is
enforceable at law. If that liability does not
exist there cannot be a contract of guarantee.
 .
• 4. Primary liability and second liability. – The
primary liability lies with the principal debtor.
The liability of surety is only secondary. ie his
liability arises only when the principal debtor
fails to pay his debt.
• 5. Express or oral- Contract of guarantee may
be oral or in writing. Under English law a
contract of guarantee must always be in
writing.
• 6. Essential element of contract- All the
essential element of contract must be present.
Difference between indemnity and guarantee
Indemnity Guarantee
1. Two parties 1. Three parties
2. One contract 2. Three contract
3. The liability of
indemnifier is primary 3. The liability of surety
&independent is collateral or
4. It is for reimbursement secondary
of loss 4. It provides surety to
the creditor
 Kinds of guarantee
• There are two kinds of guarantee
1. Specific guarantee
2. Continuing guarantee
 Specific guarantee
• Where a guarantee is given for a single and
particular transaction or debt it is called
specific guarantee.
 Continuing guarantee
• Where a contract of guarantee extends to a
series of transactions, it is said to be a
continuing guarantee.
BAILMENT & PLEDGE
 Meaning
• The term bailment is originated from a French
word ‘bailer’ which means to deliver. It is a
delivery of goods on condition to redeliver
them when condition is satisfied.
 Definition
• Sec 148 contract act
• “ A bailment is the delivery of goods by one person
to another for some purpose, upon a contract that
they shall, when the, purpose is accomplished be
returned or otherwise disposed of according to the
person delivering them.”
• Egs Delivery of a radio for repair, delivery of gold to
be made into an ornament etc….
 Parties
• Bailor- The person who delivered the goods is
called bailor
• Bailee-The person to whom they are delivered
is called bailee
• The transaction is called bailment
 Essentials of bailment
• 1.Delivery of possession
`Bailor must transfer possession of goods to
bailee.
2. Delivery of goods must be for a specific
purpose.
`Where goods are delivered by mistake to a
person there is no bailment.
• 3. Contract
Bailment is based on a contract between the bailor
and bailee.
4. Return of goods
Goods shall be returned to the bailor when the
purpose of bailment is over.
5. Ownership is not trasferred
In bailment ownership is retained with the bailor.
 Kinds of bailment
• Gratuitous bailment-Here no remuneration is
given to the bailee
Eg A lends his book to B on a condition to return
it after two days
Non Gratuitous bailment- Here bailee gets
remuneration
Eg A gives his radio to B for repairs and pays
acertain amount later.
 Duties & Rights of Bailee
• Duties
• 1. To take reasonable care of the goods bailed
• 2. Not to make any unauthorized use of goods
bailed.-If does so bailor can claim damages. Eg A
lends a horse to B for his own riding. B allows C to
ride it and in an accident horse injured. B is liable to
compensate A for the injury of his horse.
• 3.Not to mix the goods bailed with his own
goods-If bailee mix the goods without the
consent of the bailor and the goods are
inseperable, the bailee should compensate
the bailor for the loss of goods.
• 4. Not to set up adverse title-The bailee is
prevented from denying the title of bailor.
• 5. To return the goods- the bailee has to
return the goods according to bailors
directions.
• 6. To return additions
• The bailee must return any increase or profits
which have accured from the goods bailed.
 Rights of bailee
• 1. Right to enforce duties of bailor.
• 2. Right of lien
Where bailee has rendered any service
involving labor or skill in respect of the goods bailed
in accordance with the purpose of bailment, he has a
lien over such goods for receiving due remuneration
of his services. His right of lien entitles him to retain
goods with him until he receives due remuneration.
• Right to reimbursement- it is the duty of the
bailor to disclose known fault in the goods. If
bailee suffers any loss due to that he is
entitled to reimburse that.
• Right to sue
• Right to remmuneration
 Duties of bailor
• 1. To disclose faults in the goods bailed- Bailor
is bound to disclose to the bailee the known
defects in the goods bailed.
• 2. To bear extra-ordinary expenses-It is the
duty of the bailer to bear the extra ordinary
expenses made by the bailee for the purpose
of bailment
• 3. Duty to indemnify bailee
If the title of the bailor to the goods is defective
and as a consequence if the bailee suffers ,it is the
bailers duty to indemnify ie, compensate the bailee
for the loss suffered by him.
4. To receive back the goods
It is the duty of bailor to receive the goods back
when they are returned by the bailee on the expiry
of the term of bailment or on the fulfillment of the
purpose of bailment.
 Rights of bailor
• 1. Entitled to get back the goods.
2. Entitled increase in value or profits.
3.Contract void able at his option if bailee
defaults.
4. To enforce the duties of bailee.
 Termination of bailment
1. When the object is achieved-If the bailment
is for a specific purpose, it is terminated as
soon as the purpose is achieved.
2. When the time fixed for bailment expires-If
the bailment is for a particular period it is
terminated on the expiry of that period.
3. When the goods bailed are used against the
terms of contract- Voidable at the option of
bailor and bailment is terminated.
4. When the subject matter is destroyed.
5. When the bailor or bailee dies.
 Pledge
Pledge or Pawn is a special kind of bailment
where a thing is delivered as security for the
repayment of debt.
 Definition
• Sec 172 of contract act
“The bailment of goods as security for payment
of a debt or performance of promise is called
Pledge’’.
The bailor in this case is called pledger or
pawner and bailee is called pledgee or
pawnee.
• Eg A borrows Rs 5000 from B and delivers his
gold chain to B as security for repayment of
debt. Here A is the pawner and B is the
pawnee
• Any kind of movable may be pledged not
immovable properties. In other words actual
transfer of possession should take place.
 Rights and Duties of Pawner &Pawnee

• Rights and duties of pawner and pawnee are

almost similar to bailor and bailee.
 Differences
• Bailment • Pledge
1 The purposes are several 1 Specific purpose,for the
repayment of a debt
2 Bailee can only retain 2 Pledgee can even sell
the goods the goods if the amt
due to him has not paid.
LAW OF AGENCY
 Importance
• Due to the complexity of modern business it is
impossible to run a business without the help of the
others. He has to delegate some of the powers to
another. Such another person is called the agent and
the person who appoint the agent is called the
principal. The contract which creates the relationship
of principal and agent is called an agency.
• Sec 182 of the Indian contract Act defines an
“agent” “and principal”.
• An agent is a person employed to do any act
for another or to represent another in
dealings with third parties. The person for
whom such act is done ,or who is so
represented, is called the principal
 Essentials of agency.
• The principal should be competent to contract
Any person who is major and of sound
mind can employ an agent. So a lunatic or
minor or a drunken person cannot employ an
agent, because they cannot act as principal.
• Any person may become an agent
An agent only brings contractual relationship
between his principal and a third person . He has no
personal liability while contracting for his principal,
so any person can become an agent including a
minor. So capability of parties is not mandatory. But
a principal can hold an agent liable for his
misconduct only if he is capable of entering into a
contract.
• No consideration is necessary to create an
agency.
Consideration is an essential for every
contract, but no consideration is immediately
necessary at the time of creating an agency.
Generally an agent is remunerated by way of
commission for the service rendered.
 Creation of agency
• An agency may be created in the following
ways.
• A. Agency by express agreement
• B. Agency by implied agreement
• C. Agency by estoppel
• D. Agency by holding out
• E. Agency by necessity
• F. Agency by ratification
 Agent by express agreement
• Where a principal appoints an agent either by
word of mouth or by an agreement in writing
it is called an express agency.
 Agency by implied agreement
• Agency inferred from the nature of the
business, the circumstances of the cases and
the conduct of the parties.
 Agency by estoppel
• When a person by his conduct or by
statement, willfully leads others to believe
that a particular person is his agent, he is
estopped from denying subsequently that
person is not his agent.
 Agency by holding out
• It is similar to agency by estoppel, but
something more than estoppel. In this case
some affirmative conduct by the principal is
necessary
• Eg A sends his servant B, habitually to
purchase goods, on credit fromC.
Thus by a course of conduct, A holds out B as
his agent.
 Agency by necessity
• Sometimes extra ordinary circumstances require that
a person who is not really an agent should act as an
agent of another. Law recognizes such authority on
account of the necessity that had arisen.
• Eg A goes out locking his house and house catches
fire. B his neighbor engages a number of servants to
extinguish fire. Here B is acting as the agent of
necessity. A is liable to pay wages to the servants
engaged by B.
 Agency by ratification
• Ratification means subsequent acceptance by the
principal in respect of an act done by the agent
without authority. ie sometimes the agent may act
without the authority of the principal and if the
principal accepts or ratifies subsequently the act of
agent ,he is said to have ratified that act. This is
known as agency by ratification or otherwise known
as ‘ex post facto agency.’
 Termination of agency
• It may be terminated
• A. By the act of parties.
• B. By operation of law.
 A. By the act of parties
• 1.Agreement-it may be terminated by a
mutual agreement between the parties.
• 2.By revocation by the principal-It can be
revoked by the principal by giving reasonable
notice.
• 3. By renunciation of the agent-It can be
renounced by the agent at any time by
showing the reason.
 By operation of law
• 1.On completion of the business of agency.
• 2. By expiry of time
• 3. By the destruction of the subject matter of
the agency. Eg if it is for the sale of a horse &
in case the horse dies.
• 4.Insolvency of the principal or agent
• 5. Death of principal or agent
 Classification of agent
1. Special agents.
2. General agents.
3. Universal agents.
4. Commercial or mercantile agents.
5. Non commercial or non mercantile agents.
 Special agents
• A special agent is appointed for a particular
purpose and he has only authority to act in a
particular transaction.
• Eg Agent appointed to sell a house.
Thus a special agent has only a limited
authority and if he does anything beyond his
power it will not bind his principal.
 General agent
• General agents have full authority to act in all
matters concerning a trade or profession. Eg
manager of a firm has the authority to do all
acts on behalf of his principal for running the
business.
 Universal agents
• An universal agent is a person whose authority
is unlimited and he can do anything for his
principal, which is. legal and agreeable to the
law of land
 Commercial or mercantile agent
• He is a person having authority to sell goods or raise
money on the security of goods. They are of several
kinds
• A) Auctioneers- An auctioneer is one who is
authorized to sell goods of his principal by auction.
• B) Brokers)-He is an agent appointed to buy or sell
goods for a commission called brokerage.
• C. Factors-A factor is an agent who is entrusted with
the possession of goods for the purpose of sale. He
usually sells goods in his own name without
disclosing that of his principal.
• D. Del credere agent –A del credre agent is a person
who in consideration of an extra commission
guarantees his principal that if the buyer to whom
the goods of his principal are sold fails to pay the
price, the agent promises to pay the price. So he
occupies the position of surety& an agent.
 Non mercantile agent
• Non mercantile agents mainly deals with sale
&purchase of immovable properties.
 Delegation of authority
• There is a Latin maxim regarding this point ie,
‘Delegatus Non Potest Delegare’ which means that a
delegte cannot further delegate his authority. ie an
agent should not delegate his powers and duties to
another without the consent of the principal. This is
mainly because a contract of agency is fiduciary in
nature. Sec 190 of the contract act lays down that an
agent cannot lawfully appoint a subagent.
 Exceptions to the maxim
1 Where the custom or the trade permits the
appointment of a sub-agent .
2 Where the nature of work is such that further
delegation is essential.
3 Where the principal knows that the agent intends to
delegate his authority and does not forbid
delegation.
4 Where the act is purely ministerial not involving any
skill or confidence.
5 Where unforeseen emergency arises.
 Sub agent& Substituted agent
• Sub agent-Sec 191 of contract act
A sub agent is a person employed by, and
acting under the control of the original agent
in the business of agency. When a sub agent is
improperly appointed the principal is not
bound by the act of subagent.
• Substituted agent.
A co agent or substituted agent is a person
who is appointed by the agent to act for the
principal in the business of agency with the
consent of the principal. He is acting under the
control and directions of principal.
• Rights, and duties and
liabilities of agents
 Rights
1. Right to remuneration- Agreed remuneration for
the service rendered
2. Right of retainer-Right to retain the principal ‘s
money until his remuneration has been paid.
3. Right of lien- Right to retain the goods until his
commission has been paid, but no right to sell the
goods.
4 Right to be indemnified-in case of any loss to
the agent.
5 Right of compensation-if any injury suffers
due to the negligence of principal.
 Duties
• 1. Duty to follow instructions
• 2. Duty to follow customs in the absence
of instructions
• 3. Duty to exercise skill and diligence
• 4. Duty to render accounts
• 5. Duty to communicate
• 6. Duty to pay overall money
• 7. Duty not to make any secret profit.
• 8. Duty not to set up adverse title.
• 9. Duty not to delegate his authority.
• 10. Duty not to disclose confidential
information.
• 11. Duty to protect interest of principal.
 Liabilities
• Normally an agent is not personally liable for
contracts entered into by him on behalf of his
principal. But in the following cases it is presumed
that the agent is personally liable-
• 1. Where the agent acts for a foreign principal-In
case principal is residing abroad agent will be
personally liable.
• 2.Where the agent acts for a undisclosed principal
• 3 Where the agent act for an incompetent
principal.
• 4. Where the agent acts for non existing
principal. Eg promoters or shareholders acting
for the company.
• 5.Where an agent receives or pays money by
mistake or fraud.
• 6.Where the contract expressly so provides.
• 7.Where the agent sign the negotiable
instruments in his own name.
• 8.Where the agent in contract exceeds his
authority.
• 9.Pretended agent-a person who is pretending
to be the agent of another actually he is not,
he will be personally liable for his acts.
• 10. Where acting for a principal who cannot
sued. Eg foreign sovereign, ambassadors etc.
Rights , duties and liabilities of principal
 Rights
• 1. The principal is entitled to proper accounts from
his agent.
• 2. He is entitled to get any profit made by the agent
made on his behalf.
• 3. He can instruct the agent to use reasonable skill
and diligence whenever necessary.
• 4. He has the right to give necessary directions for
the conduct of his business.
• 5. He is entitled to all the sums received by the agent
on his behalf.
• 6. The principal can revoke the authority of the agent
under certain circumstances.
• 7.The principal is entitled to compensation for any
breach of duty by the agent.
• 8. The principal can recover secret profits made by
the agent out of the agency.
 Duties
• 1. The principal has to indemnify the agent for
any loss due to him, while exercising his duty.
• 2.The principal must make compensation if
any injury caused to the agent by the
principal's neglect.
• 3. The principal must pay to the agent the
commission or other remuneration agreed.
 Liabilities
• 1. Bound by all the acts of the agent done within his
authority.
• 2. Bound by misrepresentation or fraud of the agent
if it is within the scope of his authority.
• 3. Bound by information obtained by the agent.
• 4. Responsibility of principal even where the agent is
personally liable.
• 5. Liability by estoppel- in case of an unauthorized
act