THE CONTRACT ACT 1872 Contract and Agreement: Sect Se ctio ion n 2( 2(e) e) de defi fine ness as ev ever er !r !rom omis ises es an and d ev ever er se sett of !r !rom omis ises es fo form rmin ing g t" t"ee consideration for eac" ot"er is an agreement# Section 2" defines contract as an agreement enforcea$%e $ %a& is a contract#
Section 2a when one person signifies to another his willingness to do or to abstain from doin do ing g any any thin thing, g, with with a view view to ob obta tain inin ing g the the asse assent nt of that that othe otherr to such such act act or abstinence, he is said to make a proposal. Section 2$ &"en t"e !erson to &"om t"e !ro!osa% is made signifies "is assent t"ereto' t"e !ro!osa% is said to $e acce!ted# A !ro!osa% &"en acce!ted $ecomes a !romise# Consenss ad idem:
A contract shall be validly formed only when there is consensus of parties of the same thing i.e. their minds are meeting in the same sense that they understand the same thing in the same sense. *ifference $et&een Contract and agreement:
A contract is an agreement between parties that will be legally enforceable. A simple “agreement” is an arrangement between the parties which may or may not contain the necessary elements to be enforceable before a court of law. Sec## 1+ of t"e Con Sec Contra tract ct Act Act 187 1872 2 def define iness &"a &"att agr agreem eement entss are con contra tracts cts, , A%% agreements are contracts if t"e are made $ t"e free consent of !arties com!etent to contract for a %a&f% consideration and &it" a %a&f% o$-ect and are not "ere$ e.!ress% dec%ared to $e void#
A valid contract must contain the seven valid elements which are: . Agre Agreem emeent 2. !ega !egall "ela "elati tion onsh ship ip #. $ree $ree %on %onse sent nt,, #, #, & &. %apaci %apacity ty of of 'arti 'arties es ,sec ,sec (. !awful !awful %ons %onside iderat ration ion ,sec ,sec 2#
$orbidden by law, defeats any provision of law, fraudulent, involves in)ury to person property, property, immoral, opposed opposed to public policy. policy. *. !awf !awful ul +b) +b)ec ect, t, sec sec 2# 2# . -ot epres epressly sly declar declared ed void void "estraint of marriage marriage 2*, trade 2 , legal proceeding proceeding 2/, wagering #0 /. !ega !egall $orm $ormal alit itie iess 1. %ert %ertai aint nty, y, sec sec 21 21 , Agreement ,the meaning of which is not certain or capable of being made made certain is void. 0. 'ossibility of performance . , sec (*
+" An agreement agreement is essentiall essentially y an echange of promises promises between two or more parties. parties. A contract is a written agreement that demonstrates that all parties bound to the agreement have consented to their respective responsibilities as to the agreement. n other words, an agreement is an arrangement between parties regarding a course of action. And a contract is a written written epression epression of that agreement agreement which, which, when eecuted eecuted by signature or epressed in other forms of acknowledgement acknowledgement and legally binds the parties to that agreement. agreement. +r A contract is an echange of promises between betw een two or more parties to do, or refrain from doing, an act which is enforceable in a court of law. t is binding legal agreement. t is where an un3ualified offer meets a 3ualified acceptance and the parties reach consensus ad idem. 4he parties must have the necessary capacity to contract and the contract must no be trif%ing indeterminate indeterminate im!ossi$%e or i%%ega%# C/ASS00CAT0ON O CONTRACTS 1# Accordin According g to a%idi a%idit t or Enforcea$ Enforcea$i%it i%it::
a. 5alid b. 5oidable c. 5oid d. 6nen 6nenfo forc rcea eabl blee 2# According to ormation or Creation:
a. 7press b. mplied c. 8uasi 3# According to 4erformance:
a. 7ecuted b. 7ecutory c. 6nil nilate ateral ral d. 9ila 9ilattera eral a%id Contract:
5alid contract is one which if fully operative in accordance with the intention of parties and the law. A valid contract is one which is fully enforceable by law. t must have all the essential elements re3uired by law. f one or more of these elements are missing then contract is either 5oidable or illegal or unenforceable. A valid contract may become unenforceable if some rule of law renders it incapable of proof e.g. promissory note not stamped at all or insufficiently stamped shall not be enforceable. oida$%e Contract: Section 2i defines oida$%e Contract i s an agreement which is unenforceable by law at
the option of the one or more; of the parties thereto but not at the option of the other parties. t means that the contract is binding one the parties unless set aside on the ground that the transaction was vitiated by:
. Abse Absenc ncee of free free cons consen entt < un undu duee infl influe uenc ncee see see sect sectio ion n 1 < 1 1a; a; fraud fraud secti section on ; or misre misrepre presen sentat tation ion secti section on /;, /;, or any other other circum circumsta stance ncess entitling a party to a contract to void it. 2. preventio prevention n of performa performance nce secti section on (#; (#; #. failure failure to to perfor perform m in time section section ((; ((; $or eample a contract falling under section 2#* is a 5oidable contract i.e. a person representing as an agent while he actually was no an agent. oid agreements:
2g an agreement not enforceable by law is said to be void= $or eample an agreement with a minor is void. oid contracts'
2) a contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. A void contract also known as a void agreement is not actually a contract and does not create rights. A void contract cannot be enforceable by law. 5oid contracts are different from 5oidable 5oidable contracts, which are contracts that may be but not necessarily will be; nullified. So a contract that: . s illegal inherently void; from the moment it is made. 2. s legal but declared null having no legal effect; by the courts because it violates a fundamental
principle such as fairness, or is contrary to public policy>
#. 9ecomes void due to change in law or in government policy, or &. ?as been fully performed. !ack of capacity to contract being an infant or minor, intoicated, or insane; automatically makes a contract void. An agreement to carry out an illegal act is an eample of a void contract or void agreement. $or eample, “a contract between drug dealers and buyers is a void contract simply because the terms of the contract are illegal.” Another eample of this can given “if a man goes through the form of making a contract with A through 9 as A@s agent, and 9 is not in fact the agent of A, there is no contract
because there is only one party. 4he promise offered to A has not been accepted by him, and no consideration has moved from him.” Effect of oid contract:
n such a case, neither party can go to court to enforce the contract. A void contract is void ab intito i.e. from the beginning while a 5oidable contract can be 5oidable by any of the parties to it. Sect Se ctio ion n 35 of t"e t"e cont contra ract ct act act 1872 1872 !r !rov ovid ides es t"at t"at agre agreem emen ents ts cont contin inge gent nt on im!ossi$%e events are void6contingent agreements to do or not to do anything, if an
impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made. 0%%strations:
a. A agrees agrees to pay 9 ,000 rupee rupeess if two straig straight ht lines lines should should enclose enclose a space. space. 4his agreement is void. b. A agrees to pay 9 ,000 rupees if 9 will marry A@s daughter %. % was dead at the time of the agreement. 4he agreement is void. oid oida$%e and enforcea$%e agreements:
4here can be three different ways in which contracts can be set aside. A contract may be deemed 5oid@, 5oidable@ or unenforceable@. unenforceable@. 5oidness implies that a contract never came into eistence. 5oidability implies that one both parties may declare declare a contract ineffective ineffective at their wish. 6nenforceability 6nenforceability implies that neither party may have recourse to a court for a remedy. "escission is a term which means to take a contract back. 4he conditions re3uired for an agreement being enforceable by law are contained in section 0, below where it will also be seen that absence of any such condition makes an agreement void, and certain defects will make a contract 5oidable. 4he duties of parties to a contract are set forth in chap. 5 of the act. 4he manner in which contract are, it necessary, enforced belongs to %ivil procedure. Sec## 1+ of t"e Contra Sec Contract ct Act Act 1872 1872 def define iness &"at &"at agreem agreement entss are contra contracts cts, , 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 ob)ect, and are not hereby epressly declared to be void. 0%%ega% Agreement:
An illegal agreement is that the ob)ect of which are not permissible by law or are prohibited by law. nenforcea$%e Contract:
6nenforceable contract is one which can not be enforced in the court because of some technical defect or lace of evidence such as absence of writing, non registration of document or being time barred. E.!ress Contracts:
See section 1 an epress contract is one in which the parties have made oral or written declaration of their intention to agree on terms and conditions of the transaction. 0m!%ied Contracts:
Again see section 1 an implied contract is that the terms of which are inferred from the conduct of the parties or from the circumstances of the case or course of dealings between the parties. asi Contract:
A contract which is implied in law or created by law is also called a 3uasi contract, because it is not in fact a contract rather, it is a means for the courts to remedy situations in which one party would be un)ustly enriched were he or she not re3uired to compensate the other. $or eample, a plumber accidentally installs a sprinkler system in the lawn of the wrong house. 4he owner of the house had learned the previous day that his neighbor was getting new sprinklers. 4hat morning, he sees the plumber installing them in his lawn. 'leased at the mistake, he says nothing, and then refuses to pay when the plumber delivers the bill. Bill the man be held liable for payment> E.ected Contract:
s one which has been completely performed by both the parties> E.ector Contract:
s one which is composed of undertaking in which both the parties are under an obligation to do or not to do certain things. ni%atera% Contract:
n one in which only one party has to perform his part of the obligation at the time of the formation of the contract. t is also called a one sided contract. n this consideration is eecuted. 9i%atera% contract:
s one in which the obligation on the part of both the parties to the contract are outstanding at the time of formation of the contract. E%ements ingredients essentia%s of va%id contract:
n common law systems, the five key re3uirements for the creation of a contract are: . offer and acceptance agreement;. 2. %onsideration. #. An intention to create legal relations. &. !egal capacity. (. $ormalities. 4ro!osa%: acce!tance and revocation: Offer 4ro!osa%; section 2 a when one person signifies to another his willingness to do
or abstain from doing anything, with a view to obtaining the assent of that to such act or abstinence, he is said to make a proposal. An offer can be made by epress words, spoken or written. An offer can also be made by conduct of parties. As an offer can be made to a specific person or group of persons or to the public at large. E.am!%e: A says to 9 “will you buy my house for "s. 20,000,000> ?ere A is making an
offer to 9 by signifying his willingness to sell his house to 9 "s. 20,000,000 with a view to obtaining assent of 9. Acce!tance:
Section 2b 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. E.am!%e: if b above agrees to buy A@s house for "s. 20,000,000, he can be said to have
accepted A@s offer. T!es of offer:
7press +ffer: $ace to face offerC.written offer
mplied +ffer: 4hrough conduct of the offeror i.e. bus company, rail service etc. Specific +ffer: +ffer to a particular person Deneral +ffer: +ffer made to public at large. Standing +ffer: %ontinuous offer. 7.g. mobile phone packages %ross +ffer: +ffer made by two different persons to each other. %ounter +ffer: Acceptance of offer but sub)ect to some terms and conditions. Essentia%s of an Offer:
+ffer must be: i.
Eade with a view to obtain acceptance. section 2a;
ii.
Bith the intention of creating legal relations. A social invitation even if accepted does not create legal relations as the offeror does not intend to create legal relations. 7ample: an agreement to go together to picture or for a walk is not an offer, agreements between husband and wife living together are of social nature.
iii.
%lear, unambiguous, definite and certain and must not be loose, vague or ambiguous section 21;.
iv.
Fistinguished from a; mere declaration of intention b; an invitation to offer or to treat. nvitation to offer is merely a circulation of information by a person of his willingness to treat with any person who on such information is willing to open negotiation with him and is not an offer. 7.g. 'rospectus for admission, display of goods in shelf with price tags, catalogue, 3uotation, price list, advertisement, invitation to tenders etc.
v.
$ree from stress as offer under stress is no offer.
vi.
Announcement on speaker
vii.
Shelf prices are not offer.
viii.
%ommunicated to the offeree.
i.
Eade with terms and conditions on which the offer is being made.
.
n the nature of re3uest.
Acce!tance:
%ontract is formed when one party makes an offer for an arrangement and another acce!ts# 4his can be called “concurrence of wills” or “ ad idem< meeting of the minds;
of two or more parties. Acceptance is the epression by the offeree of his willingness to be bound by terms of the offer. Section 2b states: when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted, become a promise. Consenss ad idem:
A contract shall be validly formed only when there is consensus of parties on the same thing i.e. their minds are meeting in the same sense that they understand the same thing in the same sense. Acce!tance "o& made:
+ffer and acceptance does not always need to be epressed orally or in writing. Any mode which can epress an intention to agree would be sufficient e.g. by saying yes, ok, node of head, by performing the act called for etc. Acce!tance E.!ress or 0m!%ied:
Acceptance is epress when it is communicated by words spoken or written and is implied when gathered from conduct. E.am!%e:
a. Acceptance by conduct: A trader receives an order from a customer and eecutes the order by sending the goods. 4his is acceptance through conduct. 4his can take two forms. A contract which is implied in facts is one in which the circumstances imply that parties have reached an agreement even though they have not done so epressly. $or eample, by going to a doctor for a checkup, a patient agrees that he will pay a fair price for the service. f one refuses to pay after being eamined, the patient has breached a contract implied in fact. b. mplied Acceptance: A enters a bus for traveling to his destination and takes a seat. 4his is implied acceptance on the part of A.
c. Surrounding circumstances: A@s car goes out of order, 9 starts repairing the car and A lets him do that. ="o can acce!t offer,
a. only specific person to whom offer is made. b. Bhen offer is not made to a specific person rather to general public then any member of public may accept the offer. c. Bhere a product in large 3uantities is advertised in a newspaper or on a poster, it is as an offer, however, if the person who is to buy the advertised product is of importance, for instance because of his personality, etc., when buying land, it is regarded merely as an invitation to treat. Essentia%s of va%id Acce!tance:
. Acceptance must be absolute and 3ualified. Section , and without any variation. 'ossession date varied. 2. Acceptance must be communicated to offeror. #. acceptance must be in prescribed manner. Section , 2. &. As per the mode prescribed or stated in the offer. (. Acceptance should be within the time prescribed. *. Acceptance can not precede offer i.e. acceptance must be in response to offer. . Acceptance must show intention to fulfill promise. /. Acceptance can not be implied from silence. 7.g. sale of car if do not hear you in seven days, acceptance shall be presumed. Commnication Acce!tance and Revocation: Section 3# Commnication acce!tance and revocation of !ro!osa%s# 4he
communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking, by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it. or a a%id Offer Acce!tance and Revocation
t is a must that:
a; +ffer is communicated to offeree b; Acceptance is communicated to offeror c; "evocation of offer must be communicated by the offeror to offeree. d; "evocation of acceptance must be communicated by the offeree. Commnication of offer; section ># Commnication &"en com!%ete# 4he
communication of a proposal is complete when it comes to the knowledge of a person to whom it is made. Commnication of Acce!tance ? 4he communication of an acceptance is complete, as against t"e !ro!oser when it is put in a course of transmission to him, so as to be
out of the power of the acceptor, as against t"e acce!tor when it comes to the knowledge of the proposer. 4he communication of a revocation is complete, as against t"e !erson &"o ma@es it when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it, as against t"e !erson to &"om it is made when it comes to his knowledge. 0%%stration:
a; A, proposes, by letter, to sell a house to 9. at a certain price. 4he communication of the proposal is complete when 9 receives the letter. b; 9 accepts A@s proposals by a letter sent by post. 4he communication of the acceptance is complete, as against A, when the letter is posted, as against 9, when the letter is received by A. c; A revokes his proposal by telegram. 4he revocation is complete as against A, when the telegram is dispatched. d; t is complete as against 9, when 9 receives it. e; 9, revokes his acceptance by telegram. 9@s revocation is complete as against 9, when the telegram is dispatched and as against A, when it reaches him. Revocation of Offer Acce!tance ? Section B stipulate that a proposal may be revoked
at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.
An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards. Revocation "o& made:
'ursuant to section *, a proposal is revoked:G . by the communication of notice of revocation by the proposer to the other party. 2. by the lapse of time prescribed in such proposal for its acceptance or if no time is so prescribed, by the lapse of a reasonable time without communication of the acceptance. #. by the failure of the acceptor to fulfill a condition precedent to the acceptance. &. by the death or insanity of the proposer if the fact of his death or insanity comes to knowledge of the acceptor before acceptance. "evocation in contracts made over telephones does not arise. Consideration
%ontract is made with intention to derive or confer some benefit +" promises are echanged in return of something in return. 4hat something can be a benefit, right, interest, profit or it may also be some forbearance, detriment, loss or responsibility upon other party. 4o%%oc@ defines %onsideration as C “consideration is the price for which promise is given and promise for value is enforceable”.
7ample: A lends his book to 9, who promises to return it after eaminations, this results in a benefit to 9 and a detriment to A, which is consideration in return of 9@s promise to return the book. 7ample: Abdul Aziz v. Masum Ali (1914) A promised to subscribe "s. (00 for rebuilding of a mos3ue but later refused. Secretary of mos3ue sues A for recovery of "s. (00. ?eld the promise to pay was not backed by any consideration on the part of mos3ue. So not enforceable. Section 2 (d) defines %onsideration Bhen, at the desire of the promisor, the promisee or any other person i; has done or abstained from doing or ii; does or abstains from doing, or iii; promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.
%onsideration is known as Hthe price of a promiseH and is a controversial re3uirement for contracts under common law.
t is not necessary in all common law or civil law systems, and is considered by some to be unnecessary as the re3uirement of intention to create legal relations by both parties meets the same re3uirement under contract. 4he idea is that both parties to a contract must bring something to the bargain, that both parties must confer some benefit or detriment for eample, money, however in some cases money will not suffice as consideration G eg when one party agrees to make part payment of a debt in echange for being released from the full amount;. 4his can be either conferring an advantage on the other party, or incurring some kind of detriment or inconvenience towards oneself. 4hree rules govern consideration:G •
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%onsideration must be real, but need not be ade3uate but must be lawful. $or instance, agreeing to buy a car for a penny may constitute a binding contract. %onsideration must not be from the past. $or instance, in Eastwood v. Kenyon , the guardian of a young girl obtained a loan to educate the girl and to improve her marriage prospects. After her marriage, her husband promised to pay off the loan. t was held that the guardian could not enforce the promise because taking out the loan to raise and educate the girl was past consideration. %onsideration must move from the promisee at the desire of promisor. $or instance, it is good consideration for person A to pay person % in return for services rendered by person 9. f there are )oint promisees, then consideration need only to move from one of the promisees.
CA4AC0T TO CONTRACT
Denerally, every person is competent to contract and if any one claims to be incompetent to enter into contract, he must prove such incapacity. ="o is com!etent to contract,
4he conditions re3uired for an agreement being enforceable by law are contained in Section 0, below, where it will also be seen that the absence of any such condition makes an agreement void, and certain defects will make a contract voidable. Sec 10 of the Contract Act, 1!" defines #hat a$reements are contracts , All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful ob)ect, and are not hereby epressly declared to be void.
Sec declares following persons as incompetent to enter into %ontracts: a;
Einor I Section 3 of t"e Da-orit Act 187B defines minor as a person who has not completed / years of age. %ontracts entered into by minors are void.
b;
c;
Any such document can not be ratified by minor even after attaining age of ma)ority i.e. 2 years because the original agreement is void ab initio. Einor is not liable to return benefit. A Einor can always plead minority. -o specific performance can be enforced against minor. Einor can not be a partner. Einor can not be insolvent. 'erson of unsound mind I Section 2 provides the tests to determine a sound mind. “A person is said to be of unsound mind for the purpose of making a contract, if at the time when he makes it, he is incapable of understanding it, and of forming a rational )udgment as to its effect upon his interest”. 'ersons dis3ualified by any law to which they are sub)ect
%a&s in ca!acit
Sometimes the capacity of either natural or artificial persons to either enforce contracts, or have contracts enforced against them is restricted. $or instance, very small children may not be held to bargains they have made, or delin3uent employees or directors may be prevented from contracting for their company, because they have acted ultra vires beyond their power;. Another eample might be people who are mentally incapacitated, either by disability or drunkenness. Bhen the law limits or bars a person from engaging in specified activities, any agreements or contracts to do so are either voidable or void for incapacity. 4he law on capacity can serve either a protective function or can be a way of restraining people who act as agents for others.
Consent Section 13 defines %onsent as “%onsent means that two or more persons agree upon the same thing in the same sense”. Eeaning thereby %onsensus ad idem is present i.e. meeting of minds is there. A$sence of Consent
Absence of meeting of minds i.e. absence of ad item means there is no agreement because %onsent is absent. 7ample: A agrees to sell ?ouse -o. to 9, whereas 9 thinks that A is proposing to sell ?ouse -o. 2. So there is no meeting of mind as consent on same item is missing. n the case of %ala &evi v. S. Ma'umdar (19) an illiterate woman signed a document to manage assets whereas it was originally a deed of gift which was never read or eplained to her. ?eld: the deed was void and inoperative as there was no consent hence no contract. ree Consent
'ursuant to Section 1> %onsent is free when it is not caused by: a; %oercion b;6ndue nfluence c; $raud d;Eisrepresentation e; Eistake sub)ect to provisions of Section 20, 2, 22 %onsent will not be free if it is given or procured because of above items. Coercion J *ress Section 1B Fefines %oercion as “%ommitting, or threatening to commit, any act forbidden by the 'akistan 'enal %ode or the unlawful detaining, or threatening to detain, any property, to the pre)udice of any person whatever, with the intention of causing any person to enter into an agreement”.
%oercion J Furess has been defined as a Kthreat of harm made to compel a person to do something against his or her will or )udgment= especially, a wrongful threat made by one person to compel an appearance of seeming assent by another person to a transaction without real volition.K
An eample is in %arton v. Armstron$ , a decision of the 'rivy %ouncil. Armstrong threatened to kill 9arton if he did not sign a contract, so the court set the contract aside. 9rden of 4roof
An innocent party wishing to set aside a contract for duress to the person need only to prove that the threat was made and that it was a reason for entry into the contract= the burden of proof then shifts to the other party to prove that the threat had no effect in causing the party to enter into the contract. 4here can also be duress to goods and sometimes, the concept of Heconomic duressH is used to vitiate contracts. nde 0nf%ence
Section 15 defines 6ndue nfluence. 6ndue nfluence means, “t eists where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain unfair advantage over the other”.
6ndue influence is an e3uitable doctrine that involves one person taking advantage of a position of power over another person. Bhenever consent to an agreement is caused due to 6ndue influence, the agreement is voidable at the option of the party whose consent is caused due to 6ndue influence Section 1;A;. 4he law presumes that in certain classes of special relationship, such as between parent and child, or lawyer and client etc., there will be a special risk of one party unduly influencing their conduct and motives for contracting. As an e3uitable doctrine, the court has the discretion to vitiate such a contract. Bhen no special relationship eists, the general rule is whether there was a relationship of such trust and confidence that it should give rise to such a presumption. See *dorizzi v. %loomfield School &istrict . 4resm!tions of nde 0nf%ence &"en arises •
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4osition to dominate : where one is in a position to dominate will of the other party. Mannu Sin$h v. +madat ande- (190) where spiritual guru forced his follower to gift his property to Duru. 6nfair advantage: Fominating party actually uses position to obtain unfair advantage. "eal and apparent authority: EasterGServant, FoctorG'atient, ncome 4a +fficerG Assessee etc.
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$iduciary relationship: A relationship of trust and confidence. 7.g $atherGSon, DuardianGBard, !awyerG%lient, 4rusteeG9eneficiary, 'romoterG%ompany Eental distress : ncapacity due to age, illness, mental or bodily distress.
*istingis" Coercion and nde 0nf%ence, (*O NOT 9E SR4R0SE* 0TS O =HO NEE* TO DAFE OR O=N NOTES ON TH0S)# 0 s"a%% c"ec@ or @no&%edge on t"is dring %ectres# rad Section 17 defines $raud “$raud means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contractL
; 4he suggestion, as to a fact, of that which is not true, by one who does not believe it to be true 2; 4he active concealment of a fact by one having knowledge or belief of the fact #; A promise made without any intention of performing it &; Any other act fitted to deceive (; Any such act or omission which the law specifically declares to be fraudulent $raud is an untrue statement made knowingly, or without belief in its truth, or recklessly, carelessly whether it be true or false, with intent to deceive. &err- v. ee (19) Essentia%s of rad
; $alse misrepresentation= 2; "epresentation must be of fact= #; "epresentation before contract= &; "epresentation with knowledge of falsehood= (; "epresentation must induce other= *; "epresentation must in fact deceive= ; $raud must damage party misled. 4here are two types of misrepresentation in contract law, fraud in the factum and fraud in inducement. $raud in the factum focuses on whether the party in 3uestion knew they were creating a contract. f the party did not know that they were entering into a contract, there is no meeting of the minds, and the contract is void.
$raud in inducement focuses on misrepresentation attempting to get the party to enter into the contract. Eisrepresentation of a material fact if the party knew the truth that party would not have entered into the contract; makes a contract voidable. According to Gordon v. Selico it is possible to make a misrepresentation either by words or by conduct, although not everything said or done is capable of constituting a misrepresentation. Denerally, statements of opinion or intention are not statements of fact in the contet of misrepresentation. f one party claims specialist knowledge on the topic discussed, then it is more likely for the courts to hold a statement of opinion by that party as a statement of fact. Disre!resentation
Eisrepresentation means a false statement of fact made by one party to another party and has the effect of inducing that party into the contract Section 18;. n dealing with it the first 3uestion which arises is whether the representation is, or is not, part of the contract. f the contract is in writing and the representation is set out on the face of the paper, it may be material or immaterial, but the effect of its untruth will be determined on much the same principles as govern the failure to perform a promise on the same side. $or eample, under certain circumstances, false statements or promises made by a seller of goods regarding the 3uality or nature of the product that the seller has may constitute misrepresentation. A finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation. Eisrepresentation includes:G ; the positive assertion in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true 2; any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him by misleading another to his pre)udice or to the pre)udice of any one claiming under him #; %ausing, however, innocently, a party to any agreement to make a mistake as to substance of the thing which is the sub)ect of the agreement. Dista@e
A mistake is an incorrect understanding by one or more parties to a contract and may be used as grounds to invalidate the agreement. %ommon law has identified three different types of mistake in contract: unilateral mistake, mutual mistake, and common mistake. A common mistake is where both parties hold the same mistaken belief of the facts essential to the agreement= the agreement is void Section 2+;. •
llustration: A agrees to buy from 9 a horse. t turns out the horse was dead at the time of making of the bargain, but both the parties were unaware of this fact. 4he agreement is void as both the parties are on mistake of fact essential to the agreement. 4his was demonstrated in the case of %ell v. /ever %rothers /td. which established that common mistake can only void a contract if the mistake of the sub)ectGmatter was sufficiently fundamental to render its identity different from what was contracted, making the performance of the contract impossible. •
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A mutual mistake is when both parties of a contract are mistaken as to the terms. 7ach believes they are contracting to something different. 4he court usually tries to uphold such a mistake if a reasonable interpretation of the terms can be found. ?owever, a contract based on a mutual mistake in )udgment does not cause the contract to be voidable by the party that is adversely affected. See affles v. ichelhaus# A unilateral mistake is where only one party to a contract is mistaken as to the terms or sub)ectGmatter and the contract will not be voidable because of mistake of one party to a matter of fact Section 22;. 4he courts will uphold such a contract unless it was determined that the nonG mistaken party was aware of the mistake and tried to take advantage of the mistake. t is also possible for a contract to be void if there was a mistake in the identity of the contracting party. An eample is in /e#is v. Aver- where !ord Fenning E" held that the contract can only be avoided if the plaintiff can show that, at the time of agreement, the plaintiff believed the other partyHs identity was of vital importance. A mere mistaken belief as to the credibility of the other party is not sufficient.
Contingent contracts
Section 21. of the Contract Act, 1!" defines 3Contin$ent contract3 as A Kcontingent contractK is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. llustration51
A contracts to pay 9 "s. 0,000 if 9Hs house is burnt. 4his is a contingent contract. llustration5"
if offer a reward for the recovery of lost goods, there is not a contingent contract= there is no contract at all unless and until some one, acting on the offer, finds the goods and brings them to me. 678lanation A promise is said to be absolute or unconditional when the promisor binds himself to performance in any event, conditional when performance is due only on the happening of some uncertain event.
All contracts of insurance and indemnity are obviously contingent. %ontingent contracts are enforced on happening of an event Section #2;. %ontingent contracts are not enforced on an event not happening Section ##;. Contin$enc- basicall- is de8endent on act of 8art- #
4ERORDANCE O CONTRACTS Contracts &"ic" mst $e !erformed
Eost contracts only need to contain two elements to be legally valid: •
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All parties must be in agreement after an offer has been made by one party and accepted by the other;. Something of value must be echanged GG such as cash, services, or goods or a promise to echange such an item; GG for something else of value.
Section 2! 8rovides for *bli$ation of 8arties to contracts#;;;4he parties to a contract must either perform or offer to perform, their respective promise, unless such performance is dispensed with or ecused under the provisions of this Act, or of any other law.
'romises bind the representatives of the promisors in case of the death of such promises before performances unless a contrary intention appears from the contract. llustrations
a; A promises to deliver goods to 9, on a certain day on payment of "s. ,000. A dies before that day. AHs representatives are bound to deliver the goods to 9, and 9 is bound to pay the "s. ,000 to AHs representatives. b; A promises to paint a picture for 9 by a certain day, at a certain price. A dies before the day. 4he contract cannot be enforced either by AHs representatives or by 9. A contract, being an agreement enforceable by law Section 2,; creates a legal obligation, which subsists until discharged. Sections *2G*; eplain K%ontracts which need not be performed.K Time and !%ace for !erformance Section 4 8rovides for :ime for 8erformance of 8romise #here no a88lication is to be made and no time is s8ecified #;;; Bhere, by the contract, a promisor is to perform his promise without application by the promisee, and no time for performance is specified, the engagement must be performed within a reasonable time. 678lanation :;;;4he 3uestion Kwhat is a reasonable timeK is, in each particular case, a 3uestion of fact. 36n$a$ement #G;;;4he word KengagementK is constantly used instead of KagreementK or Kpromise.K ?ere it is synonymous with KpromiseK. easonable time#;;;t is always a 3uestion of fact. Bhere the defendants agreed to supply coal to the plaintiffs from time to time, as re3uired by the plaintiffs, on reasonable notice given to them, a notice given by the plaintiffs on the 22nd Muly, /1/, for the supply of 2,*&/ tons of coal on or before #st August, /1/, was held not to be reasonable. Section 4! la-s do#n :ime and 8lace for 8erformance of 8romise #here time is s8ecified and no a88lication to be made #;;;Bhen a promise is to be performed on a certain day, and the promisor has underGtaken to perform it without application by the promisee, the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed. llustration
A promises to deliver goods at 9Hs warehouse on the st Manuary. +n that day A brings the goods to 9Hs warehouse but after the usual hour for closing it, and they are not received. A has not performed his promise. Common /a# rule#;;;4his section, with the illustration, simplifies the rule. K9, is not bound to be at the warehouse to receive the goods after the usual hours of business, and if he is not there A has not performed his promise. f 9 is there and could receive the goods before midnight, butH refuses to do so, A has performed his promise.K
Question of fact GGG8uestion whether there was a concluded contract, is a 3uestion of fact and has to be inferred from evidence led and documents produced by parties.
Absence of timeGGGEere absence of time in fulfillment of contract, does not rob contract of its basic characteristics. 4ime cannot be made essence of contract by unilateral actionGGGBhenever time is made essence of contract, court, looks into circumstances of time proposed by one or other party reasonable one and particularly higher duty devolves where sub)ectGmatter is substantial and very valuable. 4ime essence of contractGGn cases of sale of land, a party can make time essence of contract but only by giving a notice of it; other side, in case that other side is guilty of undue delay in performance of contract in a reasonable time. 4. A88lication for 8erformance on certain da- to be at 8ro8er time and 8lace #;;;;Bhen a promise is to be performed on a certain day, and the promisor has not undertaken to perform it without application by the promisee, it is the duty of the promisee to apply for performance at a proper place and within the usual hours of business.
Explanation.GGG4he 3uestion Kwhat is a proper time and placeK is, in each particular case, a 3uestion of fact. C*MM6;:S
4he proper place will, of course, be the place named in the contract, if any. Bhere more than one place is named, Kit is for the person to whom payment is to be made to fi the place at which he will be paid= until he has selected the place at which he will be paid there can be no default.K 4he 7nglish decision from which we 3uote would presumably be followed here. Agreement to sell immovable property within stipulated timeGGGn case of nonGeecution of sale deed within stipulated time, option is given to promisee purchaser; to rescind contractGGG'romisor vendor; does not have choice of rescinding contract in such case.
49. lace for 8erformance of 8romise #here no a88lication to be made and no 8lace fi7ed for 8erformance#;;;Bhen a promise is to be performed without application by the promisee, and no place is fied for the performance of it, it is the duty of the promisor to apply to the promisee to appoint a reasonable place for the performance of the promise, and to perform it at such place. llustration
A undertakes to deliver a thousand maunds of )ute to 9 on a fied day. A must apply to 9 to appoint a reasonable place for the purpose of receiving it, and must deliver it to him at such place. B+# 4erformance in manner or at time !rescri$ed or sanctioned $ !romisee#;;; 4he performance of any promise may be made in any manner, or at any time which the promisee prescribes or sanctions. llustrations
a; 9 owes A, 2,000 rupees. A desires 9 to pay the amount to AHs account with %, a banker. 9, who also banks with %, orders the amount to be transferred from his account to AHs credit, and this is done by % Afterwards, and before A knows of the transfer, % fails. 4here has been a good payment by 9. b; A and 9 are mutually indebted, A and 9 settle an account by setting off one item against another, and 9 pays A to balance found to be due from him upon such settlement. 4his amounts to a payment by A and 9, respectively, of the sums which they owed to each other. c; A, owes 9 2,000 rupees. 9 accepts some of AHs goods in deduction of the debt. 4he delivery of the goods operates as a part payment. d; A desires 9, who owes him "s. 00, to send him a note for "s: 00 by post. 4he debt is discharged as soon as 9 puts into the post a letter containing the note duly addressed to A. 4erformance of reci!roca% !romises
Section 2 f; provides for 'romises which form the consideration or part of the consideration for each other are called reciprocal promises: Section 1 8rovides that 8romisor is not bound to 8erform unless reci8rocal 8romisee read- and #illin$ to 8erform.555 Bhen a contract consists of reciprocal promises to be simultaneously performed no promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal promise. llustrations
a;
A and 9 contract that A shall deliver goods to 9 to be paid for by 9 on delivery. A need not deliver the goods unless 9 is ready and willing to pay for the goods on delivery. 9 need not pay for the goods unless A is ready and willing to deliver them on payment.
b;
A and 9 contract that A shall deliver goods to 9 at a price to be paid by installments, the first installment to be paid on delivery. A need not deliver unless 9, is ready and willing to pay the first installment on delivery. 9 need not pay the first installment unless A is ready and willing to deliver the goods on payment of the first installment. n a contract by mutual promises the promises on either side are the consideration and the only consideration for one another. 9ut the terms of a promise may epress or imply conditions of many kinds and the other partyHs performance of the reciprocal promise or at least readiness and willingness to perform it may be a condition. t is obviously immaterial whether it is called a condition or not, if in substance it has that effect.
eadiness and #illin$ness#;;;n the case of a contract for the sale of shares in a company it is not necessary, in order to prove that a vendor was ready and willing to perform his part of the agreement, that he should be the beneficial owner of the shares, or that he should tender to the purchaser the final documents of title to the shares. t is enough that he should be able and willing to constitute the purchaser the legal owner of the shares agreed to be sold. 4hus, where the vendor tendered to the purchaser share allotment and receipt papers, and together with each a transfer paper and an application paper, both signed in blank by the original allottee, it was held that the vendor was ready and willing to perform his promise.
Section " deals #ith the order of 8erformance of reci8rocal 8romises #;;;Bhere the order in which reciprocal promises are to be performed is epressly fied by the contract, they shall be performed in that order= and, where the order is not epressly fied by the contract, they shall be performed in that order which that nature of the transaction re3uires. llustrations
a; A and 9 contract that A should build a house for 9 at a fied price. A@s promise to build the house must be performed before 9Hs promise to pay for it. b; A, and 9, contract that A shall make over his stock in trade to 9 at a fied price= and 9. promises to give security for the payment of money. AHs promise need not be performed until the security is given, for the nature of the transaction re3uires that A should have security before he delivers up his stock.
A!!ro!riation of !aments Sections B to 51 dea%s &it" a!!ro!riation of !aments# ="ere de$tor intimates a!!ro!riation , then Section (1 provides for application of payment, where debt to be discharged is indicated then payment should be applied towards the discharge of that particular debt %roft v. !umley /(/;. f there is no epress intention on this, then surrounding circumstances will be looked upon by court.
7ample: f A pays to 9 "s. 0000 to settle a debt against a promissory note then "s. 0000 must be applied to settle the debt against the promissory note and not otherwise. ="ere de$t to $e disc"arged is not indicated then Section *0 provides that n that case the creditor may apply the payment at his discretion to any lawful debt actually due and payable to him from the debtor. !aw of limitation is not applicable. ="ere neit"er !art indicates or a!!ro!riates then Section 51 provides that the payment shall be applied in discharge of the earlier debt in order of time.
Bhere it is not stated that payment is to be applied for settlement of debt due or interest thereon, then the lender may apply the payment first towards the interest.
Contracts &"ic" need not $e !erformed
'erformance of a contract may be avoided under the following circumstances:G . Bhen performance of contract becomes impossible. 7ample: an agreement to double the currency through magic is void and impossibility. 2. Section *2 deals with effect of novation, rescission and alteration of contract. f the parties to a contract agree to substitute a contract with a new one then the old contract need not be performed. #. Section *# provides that a 'romisee may dispense with or remit performance of promise made to him or may etend the time for such performance. 7ample: A
engages 9 to paint a picture for A, Afterwards A forbids 9 to paint the picture= 9 need not perform the contract. &. Section *& allows for non performance of voidable contract which are rescinded at option of a party then the other party need not perform the contract. (. Section *( provides that when an agreement is discovered to be void any person who has received advantage under void agreement or contract that becomes void is bound to restore the same to the person from whom he received it. f the terms of the contract are uncertain or incomplete, the parties cannot have reached an agreement in the eyes of the law. An agreement to agree does not constitute a contract, and an inability to agree on key issues, which may include such things as price or safety, may cause the entire contract to fail. A contract is void if it is based on an illegal purpose or contrary to public policy. +ne eample, from %anada, is o-al %an of Canada v. ;e#ell . A woman forged her husbandHs signature on &0 checks, totalling over N(/,000. 4o protect her from prosecution, her husband signed a letter of intent prepared by the bank in which he agreed to assume Kall liability and responsibilityK for the forged checks. ?owever, the agreement was unenforceable, and struck down by the courts because of its essential goal, which was to Kstifle a criminal prosecution.K 9ecause of the contractHs illegality, and as a result voided status, the bank was forced to return the payments made by the husband. n the 6.S., one unusual type of unenforceable contract is a personal employment contract to work as a spy or secret agent. 4his is because the very secrecy of the contract is a condition of the contract in order to maintain plausible deniability;. f the spy subse3uently sues the government on the contract over issues like salary or benefits, then the spy has breached the contract by revealing its eistence. t is thus unenforceable on that ground, as well as the public policy of maintaining national security since a disgruntled agent might try to reveal all the governmentHs secrets during hisJher lawsuit;. +ther types of unenforceable employment contracts include contracts agreeing to work for less than minimum wage and forfeiting the right to workmanHs compensation in cases where workmanHs compensation is due. Antici!ator $reac" of contract
t occurs when a party to a contract repudiates the contract before the stipulated time for performance +r when a party disables himself from performing the contract by doing some act.
Bhenever you have a contract that re3uires completing something, and a person informs you before they begin your pro)ect that it will not be completed, this is referred to as anticipatory breach. 7amples: A promised to marry 9 as soon as A@s father dies. ?owever, A refused to marry 9 during the life time of A@s father.
Actual breach can take place: a; At the time when performance is due I Bhere a party to a contract fails or refuses to perform his part of the obligation under the contract when the performance is due. 7ample: A fails to deliver to 9 000 bales of cotton on #0 Earch 200/. 4his is actual breach of contract. b;Furing the performance of the contract I Bhen during the performance one party either epressly or impliedly repudiates the contract. 4he party not in breach can treat the contract as no longer binding on him and sue for damages. Such breach can be either epress or implied. 7press breach occurs when one party communicates to the other about his intention either not to perform the contract or after accepting partly performance from the other party refuses to accept the remaining performance. Amber$ate etc. l-. Co 11; wherein, Ambergate was re3uired to supply #000 tons of railway chairs on installments to the "ailway %ompany. 9 after receiving / asked Ambergate not to supply remaining chairs. ?eld, Ambergate could bring an action for breach of contract. mplied breach occurs when completion of performance of contractual obligation is made impossible because of act of a party. n that case the other party is discharged from its obligations. *>;eil v. Armstron$ 19 ; wherein a 9ritish national was employed in a Mapanese ship. Bhen the Mapan declared war with %hina, he was asked to leave the ship. t was held, he was entitled to recover the agreed wages.
Remedies of $reac" of contract
A breach of contract is failure to perform as stated in the contract. Bhere a contract is breached, the in)ured party becomes entitled to remedies. 4here are many ways to remedy a breached contract assuming it has not been waived. •
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"escission of the contract. 4ypically, the remedy for breach of contract is a suit and conse3uential award of money damages.
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Bhen dealing with uni3ue sub)ect matter, specific performance may be ordered.
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Suit for in)unction can also be filed.
$ollowings are the Sections of %ontract law that provides for remedies for breach of %ontract. Section ( provides that a party rightfully rescinding contract is entitled to compensation. 7ample: A, a singer, contracts with 9 to sing at 9@s theatre for two nights during a week for two months for a price of "s. 000. A performs for five nights but fails to turn up on sith night. 9 rescinds the contract and is entitled to compensation. "escission can be refused where plaintiff epressly or impliedly ratifies the breach and contract, third party ac3uires rights for value and in good faith, Section # provides for compensation for loss or damage caused by breach of contract. Bhen a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. Com8ensation for failure to dischar$e obli$ation resemblin$ those created bcontract #;;;Bhen an obligation resembling those created by contract has been incurred and has not been discharged, any person in)ured by the failure to discharge is entitled to receive the same compensation from the party in default as if such person had contracted to discharge it and had broken his contract. 678lanation#;;;n estimating the loss or damage arising from a breach of contract, the
means which eisted of remedying the inconvenience caused by the nonGperformance of tile contract must be taken into account. llustrations
a; A contracts to sell and deliver (0 maunds of saltpetre to 9 at a certain price, to be paid on delivery. A, breaks his promise 9 is entitled to receive from A by way of compensation, the sum, if any, by which the contract price falls short of the price for which 9 might have obtained (0 maunds of saltpetre like 3uality at the time when the saltpetre ought to have been delivered. 4here are four different types of damages. •
Deneral Famages Deneral damages are those damages which naturally flow from a breach of contract. ?adle- v. %a7endale establishes general and conse3uential damages.
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%ompensatory damages which are given to the party which was damaged by the breach of contract. Bith compensatory damages, there are two kinds of damages, conse3uential damages and direct damages. %ompensatory damages are awarded to put the party in as good of a position as the party would have been in had the contract been performed as promised. 4here must be certainty, not estimates, of what the party could have benefited if the contract had been performed. %onse3uential damages are those damages which, although not naturally flowing from a breach, are naturally supposed by both parties at the time of contract formation. An eample would be when someone rents a car to get to a business meeting, but when that person arrives to pick up the car, it is not there. Deneral damages would be the cost of renting a different car. %onse3uential damages would be the lost business if that person was unable to get to the meeting, if both parties knew the reason the party was renting the car.
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7emplary damages which are used to make an eample of the party at fault to discourage similar crimes. $ines can be multiplied by factors of up to (0 for such damages.
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!i3uidated Famages which are damages paid for permission to breach the contract with no further obligations. !i3uidation damages must be epressly stated in the contract, and must be reasonable as determined by the courts;, depending on the nature of the contract.
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-ominal damages which include minimal dollar amounts often sought to obtain a legal record of who was at fault;.
'unitive damages which are used to punish the party at fault. 4hese are not usually given regarding contracts but possible in a fraudulent situation. Section #a provides for compensation for failure to discharge obligation resembling those created by contract. Section & provides for compensation for breach of contract where penalty is stipulated for within the terms of a contract. S!ecific 4erformance:
4here may be circumstances in which it would be un)ust to permit the defaulting party simply to compensate the in)ured party with damages. 4he court may make an order of what is called Kspecific performanceK, re3uiring that the contract be performed Section 1 of S!ecific Re%ief Act 1877 ;. $or eample where an art collector purchases a rare painting and the vendor refuses to deliver, the collectorHs damages would be e3ual to the sum paid. A specific performance is obtainable for the breach of a contract to sell land or real estate on such grounds that the property has a uni3ue value. A contract for the sale of real property is a notable eception. n most )urisdictions, the sale of real property is enforceable by specific performance. 7ven in this case the defenses to an action in e3uity such as laches, the bona fide purchaser rule, or unclean hands; may act as a bar to specific performance. 0n-nction:
n some circumstances a court will order a party to perform his or her promise an order of Kspecific performanceK; or issue an order, known as an Kin)unction,K that a party refrain from doing something that would breach the contract. 9oth an order for specific performance and an in)unction are discretionary remedies, originating for the most part in e3uity. -either is available as of right and in most circumstances a court will not normally order specific performance. "elated to orders for specific performance, an in)unction may be re3uested when the contract prohibits a certain action. Action for in)unction would prohibit the person from performing the act specified in the contract.
Restittion:
Bhen it is neither possible nor desirable to award damages measured in that way, a court may award money damages designed to restore the in)ured party to the economic position that he or she had occupied at the time the contract was entered known as the Kreliance measureK;, or designed to prevent the breaching party from being un)ustly enriched KrestitutionK;. *octrine of frstration
Bhere uncontemplated turn of events has occurred which makes further performance of a contract impossible or unlawful, the contract becomes frustrated at that point and parties are discharged from their obligations Section B5;. Foctrine of frustration makes it impossible to eecute a contract without the action of any party /& 190 SC 1"";. $rustration applies only to eecutory contracts and not to eecuted contracts.
t is not permissible for a %ourt of law to imply a term which is not consistent with the epress terms of the contract merely on the ground that parties being reasonable men must be deemed to have provided for a particular event. arios disc"arges of contracts
'arties to a contract may be discharged from their obligations under the contract in following circumstances: 1# 9 Agreement
a; =aiver I %ontracts may be discharged by mutual agreement. A party may agree to waive his rights and the other party is discharged from contract. b; Novation or S$stitte Agreement I Section 52 provides that parties to a contract may agree to substitute a new contract in place of an eisting contract, or to rescind it or to alter the original contract, which then need not be performed.
An eisting contract is substituted with a new one between same parties or different parties against the consideration of mutually discharging of the old contract. 7ffect of -ovation is that the original contract need not be performed. "ules of -ovation include that parties to a contract may be same and substitute the old terms with new ones. 4erms may re3uire a new party may be added or substituted. Substituted contract or the old contract must be valid and enforceable. 2# 9 4erformance
A contract may be performed, thus resulting in fulfilling the obligations under a contract. 3# 9 9reac"
9reach of contractual terms discharges either party from performance of contractual terms, which may still be due from him. Fischarge by breach can be in the form of: discharge by renunciation before performance= mpossibility created by one party before performance becomes due= by reununciation in the course of performance for eample refusing to accept balance 3uantity of goods after receiving half of the delivery= by impossibility created by one party during the course of performance ># 0m!ossi$i%it
%ontract may become impossible to perform by reason of circumstances which discharge the parties from their respective obligations Section B5;. 4his includes agreements to do impossible acts. 7amples: %hange of law, destruction of thing contracted for, death of promisor in contract for services etc. B# rstration
f performance of contract becomes impossible by reason of some event which promisor could not prevent. 7ample: A promises to marry 9, and before marriage A goes mad.
war , strike, riot, crime, or act of Dod e.g., flooding, earth3uake, volcano;, prevents one or both parties from fulfilling their obligations under the contract. 5# 9 O!eration of %a&
4his means, some set of circumstances which brings about a discharge of contract. 7ample: A company goes bankrupt
9ai%ment
9ailment is the delivery of goods by one person to another for some purpose, which goods shall be returned upon completion of such purpose or disposed off according to the direction of person delivering such goods according to a contract between parties thereto. 4he person delivering the goods is called bailor and the person to whom goods are delivered is called bailee Section 1>8;. Dain c"aracteristics of 9ai%ment:
. Felivery of goods and delivery of possession is important Section 1>;. f there is a transfer of ownership, then it will be sale or echange but not bailment. 2. 9ailor must disclose faults in goods to 9ailee Section 1B+;. #. Felivery of possession is temporary but it is for some purpose. 9ailor has the right to reclaim the goods so delivered. &. Doods are handled, returned or disposed off according to instructions of 9ailor. (. +nly the movable property can be bailed. *ties of 9ai%ee
. 2. #. &. (.
t is the duty of 9ailee to take care of the goods entrusted to him Section 1B1;. -ot to make unauthoriOed use of goods Section 1B>;. -ot to mi the goods with his own goods Section 1BB;1B7;. -ot to set up a title in goods adverse to the title of the 9ailor. 4o return the goods upon completion of the purpose or time for which the goods are bailed to him.
*ties of 9ai%or
. Fisclose faults in goods to the 9ailee 2. 9ear any etraordinary epenses Section (/;. #. %ompensate or indemnify the 9ailee for any loss which 9ailee may suffer by reason that 9ailor was not entitled to make 9ailment Section 15>;.
Contract of indemnit
A contract of indemnity is a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person Section 12>;. 0%%stration: A contracts to indemnify 9 against the conse3uences of any proceedings which % may initiate against 9 in respect of a sum of "s. 200. 4his is a contract of indemnity. Anot"er e.am!%e is the case of @oulston &iscount Co /td. . Clar (19!) . $acts of the case are that A and 9 go into a shop. 9 says to shopkeeper, !et A have the goods, will see you paid. ?eld I 4he contract is of indemnity.
%ontracts of insurance are common eamples of %ontracts of indemnity. A contract of indemnity is a class of general contract and is sub)ect to all the rules of contract e.g. consent, lawful ob)ect etc. %ontract of indemnity can be epress or implied. 4arties in a contract of indemnit: 4here are two parties. +ne is indemnifier, who promises to make good the loss, and the other is indemnified or indemnity holder, the one whose loss is made good Section 12>;. Rig"ts of 0ndemnit Ho%der:
. Famages are paid I all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies. 2. %ost of suit I All costs which he may be compelled to pay brining or defending such suit. #. %ompromise payment I An indemnity holder can compromise a claim on the best term he can and then bring an action on the contract of indemnity Section 12B;. Rig"ts of indemnifier:
. "ights of the indemnifier are analogous to the rights of a surety under Section 1>1. 2. ndemnifier, on making good the indemnity, be entitled to succeed to all the ways and means by which the person indemnified might have protected himself against or reimbursed himself for the loss. %ontract of guarantee A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default.
E.am!%e: A re3uests 9 to lend "s. 000 to % and guarantees if % does not pay the amount, he will pay. 4his is contract of guarantee.
A and 9 go into a shop. A says to shopkeeper %, let 9 have the goods, if 9 does not pay, will pay. 9irkmyr v. Farnell 0&; ?eld I 4his is a contract of guarantee. 4arties to a contract of garantee
. Surety I 4he person who gives guarantee 2. %reditor I 4he person to whom guarantee is given #. 'rincipal Febtor I 4he person in respect of whose default the guarantee is given. Agreements &it"in Contract of arantee
%ontract of guarantee comprises of three collateral contracts: . 9etween creditor and principal debtor, there is a contract out of which the guaranteed debt arises. 2. 9etween surety and creditor, there is a contract by which surety guaranteed to pay to creditor, principal debtor@s debt in case of default. #. 9etween surety and principal debtor, there is a contract that principal debtor shall indemnify surety in case surety pays in the event of default by principal debtor. Essentia%s of Contract of arantee
. %oncurrence of all three parties is necessary and in the absence of consent of any of them no contract is made. 2. !iability must be legally enforceable. f the liability does not eist, there cannot be a contract of guarantee. 4hus a surety is not liable on a guarantee for the payment of a debt which is barred by the law of limitation. #. A contract of guarantee must meet all the re3uirements of a valid contract. 9ut if a principal debtor goes mad in that case surety is regarded as the principal debtor and is liable personally =ashiba v. Shri8at 19 ; and consideration must be received by the principal debtor which need not be of any benefit to the surety himself Section 127;. &. Briting is not necessary and it can be oral or written. ORSE/ 4RE4ARE ARANTEE<
NOTES
ON I*0ST0N0SH 0N*EDN0T
AN*
4rinci!a% and agent Section 182 defines GAgentG and G!rinci!a%G in fo%%o&ing &ords;;; An KagentK is a person employed to do any act for another or to represent another in dealings with third
persons. 4he person for whom such act is done, or who is so represented, is called the KprincipalK. 4he essential point about an agent@s position is his power of making the principal answerable to third persons. -o consideration is necessary to create an agency Section /(;. 0%%stration
A owns a shop in 8uetta, living himself in Parachi and visiting the shop occasionally. 4he shop is managed by 9, and he is in the habit of ordering goods from % in the name of A for the purposes of the shop, and of paying for them out of A@s funds with A@s knowledge. 9 has an implied authority from A to order goods from % in the name of A for the purposes of the shop. n order to determine whether a party stands in the relation of agent or principal in reference to the other contracting party, the nature of the agreement and the course of business have to be taken into account. 4he legal relation between a merchant in one country and a commission agent in other is that of principal and agent, and not seller and buyer. An agent may have, and often has, in fact, a large discretion, but he is bound in law to follow the principalHs instructions provided they do not involve anything unlawful. 4wo or more persons may be employed to act as agents )ointly or severally, or )ointly and severally. An agent who negligently omits to comply with the clear instructions of his principal must be regarded as guilty or gross negligence. ="o ma $e an agent,
Section /& provides for as to who can be an agent. As between the principal and third persons any person may become an agent, but no person who is not of the age of ma)ority and of sound mind can become an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained. Appointment of a Ksole agentK does not preclude the principal from acting himself in the business of the agency without being accountable to the agent. +nly an epress prohibition would have that effect. Creation of agenc E.!ress Agenc
4he authority of an agent may be epressed or implied /*;. 'rincipal impliedly ratifying acts of agent cannot disown liability arising there from. Sometimes an agency is created to represent a person in a particular formal deed of appointment drawn which is drawn up and signed by the principal. 0m!%ied Agenc An authority is said to be epress when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case= and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case Section /;. mplied agency arises from the conduct, situation of parties, necessities or circumstances of a case. E.am!%e: A < 9 are brothers. A resides at Parachi and 9 resides in ?yderabad. 9 with the knowledge of A, leases A@s agricultural land at ?yderabad. 9 realiOeO the rent and remits the same to A. 9 is agent of A, though not epressly appointed as such. Smith v. Moss (1940), wherein a woman allowed her son to drive a car for her, she paying all epenses of maintenance and operation. 4he son met an accident in)uring his wife. ?eld I Bife can not sue Eother as the son was implied agent of the mother. Agenc $ Esto!!e%
t is created where a person by his conduct or by words spoken or written, leads willfully another person to believe that a certain state of affairs eists and induces him to act on that behalf so as to alter his previous position, such person is then precluded from denying subse3uently the fact that state of affairs Section 2#;. 7ample: 9 is A@s agent and A instruct him to not to sell goods at a price lower that what A has fied. % ignorant of A@s instructions buys goods from 9 at a price lower than what A has fied. A is bound by the contract. Agenc $ "o%ding ot
Agency by holding out is created by some positive or affirmative act on the part of the principal. E.am!%e: f A habitually allows his servant 9 to purchase goods for him from % and paid % for the goods later on. +n one occasion A sent 9 with cash but 9 purchased goods on credit. ?eld I % can recover from A as he has held out his servant as his agent on prior occasions.
Agenc $ necessit
t is created by law, under circumstances, where there is no opportunity of communicating to one person with the other. E.am!%e: ?usbandGBife, wife forced to live separately can pledge her husband@s credit to buy all necessities of life according to position of her husband even against his wishes. Agenc $ ratification
t arises where a person acts on behalf of another without his knowledge or consent and who afterwards accepts such act. 7ample: A insures@ 9@s goods and 9 without his authority and 9 later on ratifies A@s act. "atification can be epress or implied. •
•
7ffects of ratification I effect of ratification is to render the acts of agent as binding on principal Section 15;. "e3uisites of ratification I . 2. #. &. (. *. . /. 1.
Agent must epressly act as agent for a principal who in contemplation and is identifiable at the time of contract. 'rincipal must eist at the time of contract. 'rincipal must have contractual capacity both at the time of contract and at the time of ratification. "atification must be with full knowledge of facts Section 18;. "atification must be within reasonable time. "atification must be for a lawful act. Bhole transaction must be ratified Section 11;. "atification must be communicated to the party who is liable by the act done by the agent. "atification must be of the acts which the principal had power to do.
C%assification of Agents •
Special agents
Special agent is one who is appointed to perform a particular act or to represent the principal in a particular transaction. •
Deneral Agents
Deneral agent is one who has authority to do all acts connected with a particular business. 6niversal agents •
6niversal agent is one whose authority to act for the principal is unlimited. Such agent has authority to bind his principal by any act which he does. Finds of agents actor I A factor is an agent who is entrusted with the possession of goods by his principal with authority to sell the same. Such agent is entitled to sell the goods of his principal in his own name without disclosing that of his principal. A factor is considered as Eercantile agent. Actioneer I An auctioneer is an agent both for seller as well as purchaser. ?e advertises and conducts the sale as agent of the seller. +n final call of the hammer he becomes the agent of the highest bidder i.e. the buyer. ?e is entitled to recover the price from such buyer by filing a suit in his own name. ?e has a particular lien on the goods in his possession. 9ro@er I A broker is an agent who buys and sells goods on behalf of another and receives commission for doing so. ?e procures contractual relations between the principal and a third party. ?e is not entrusted with possession of the goods in which he deals. Commission Agent I A commission agent is one who buys or sells in the market on behalf of his principal as per his instructions. ?e is liable for the failure of the other party to the agreement to carry out his part. ?e cannot charge a price higher to his principal than that which is charged to or by him. *e% Credere Agent I s one who in consideration of an etra commission, guarantees his principal that the person with whom he makes contracts on behalf of the principal shall perform their obligation.
Futies and rights of an agent 1# Carr ot &or@ according to instrctions &"ere no instrctions t"en as !er Cstom
An agent is bound to conduct the business of his principal according to the directions given by the principal, or, in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. Bhen the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and, if any profit accrues, he must account for it Section 211;.
0%%strations
a; An agent, instructed to warehouse goods at a particular place, warehouse a portion of them at another place, where they are destroyed, without negligence. ?e is liable to the principal for the value of the goods destroyed. b; A, an agent engaged in carrying on for 9, a business, in which it is the custom to invest from time to time, at interest, the moneys which may be in hand, omits to make such investments. A must make good to 9 the interest usually obtained by such investments. c; 9, a broker, in whose business it is not the custom to sell on credit, sells goods of A, on credit to %, whose credit at the time was very high. % before payment, becomes insolvent. 9 must make good the loss to A. 2# S@i%% and di%igence reJired from agent#
An agent is bound to conduct the business of the agency with as much skill as is generally possessed by persons engaged in similar business, unless the principal has notice of his want of skill. 4he agent is always bound to act with reasonable diligence, and to use such skill as he possesses= and to make compensation to his principal in respect of the direct conse3uence of his own neglect, want of skill or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill or misconduct Section 212). 0%%strations
a; A, a merchant in slamabad, has an agent, 9, in !ondon to whom a sum of money is paid on AHs account, with orders to remit. 9 retains the money for a considerable time. A, in conse3uence of not receiving the money, becomes insolvent. 9 is liable for the money and interest from the day on which it ought to have been paid, according to the usual rate, and for any further direct lossGGGas e.g., by variation of rate of echangeGGbut not further. b; A, an agent for the sale of goods, having authority to sell on credit, sells to 9 on credit, without making the proper and usual in3uiries as to the solvency of 9. 9, at the time of such sale, is insolvent. A must make compensation to his principal in respect of any loss thereby sustained. c; A, an insurance broker, employed by 9 to effect an insurance on a ship, omits to see that the usual clauses are inserted in the policy. 4he ship is afterwards lost. n conse3uence of the omission of the clauses nothing can be recovered from the underwriters. A is bound to make good the loss to 9. d; A, a merchant in 7ngland, directs 9, his agent at Parachi who accepts the agency, to
send him 00 bales of cotton by a certain ship. 9, having it in his power to send the cotton, omits to do so. 4he ship arrives safely in 7ngland. Soon after her arrival, the price of cotton rises. 9 is bound to make good to A, the profit which he might have made by the 00 bales of cotton at the time the ship arrived, but not any profit he might have made by the subse3uent rise. 3# Render !ro!er agentKs acconts
An agent is bound to render proper accounts to his principal on demand Section 213;. ># AgentKs dt to commnicate &it" !rinci!a%
t is the duty of an agent, in cases of difficulty, to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions Section 21>). B# Rig"t of !rinci!a% &"en agent dea%s on "is o&n accont in $siness of agenc &it"ot !rinci!a%Ks consent
f an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal, if agent does so, the principal may repudiate the transaction, if the case shows either that any material fact has been dishonestly concealed from principal Section 21B)# 0%%strations
a; A directs 9 to sell AHs estate. 9 buys the estate for himself in the name of %. A, on discovering that 9 has bought the estate for himself, may repudiate the sale, if he can show that 9 has dishonestly concealed any material fact, or that the sale has been disadvantageous to him. 5# 4rinci!a%Ks rig"t to $enefit gained $ agent dea%ing on "is o&n accont in $siness of agenc
t is the duty of an agent to remit any benefit which may have resulted to him from the transaction to his principal, provided an agent, without the knowledge of his principal, deals in the business of the agency on his own account instead of on account of his principal Section 215)# *. 'ay sums received for principal Sections 2 < 2/; . 'rotect and preserve principal@s interest in case of death or insanity /. -ot to use information obtained in the course of agency against the principal 1. -ot to make secret profits from Agency. 0.-ot to set up adverse title .-ot to conflict interest and duty. 2.-ot to delegate authority
Rig"ts of Agent
. AgentKs rig"t of retainer ot of sms received on !rinci!a%Ks accont ; An agent may retain, out of any sums received on account of the principal in the business of the agency, all moneys due to himself in respect of advances made or epenses properly incurred by him in conducting such business, and also such remuneration as may be payable to him for acting as agent. 2# Rig"t to receive remneration ; n the absence of any special contract, payment for the performance of any act is not due to the agent until the completion of such act= but an agent may detain moneys received by him on account of goods sold, although the whole of the goods consigned to him for sale may not have been sold, or although the sale may not be actually complete Section 21;.
#. AgentKs Rig"t of %ien on !rinci!a%Ks !ro!ert#;;; n the absence of any contract to the contrary an. agent is entitled to retain goods, papers and other property, whether moveable or immoveable, of the principal received by him, until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for to him Section 221;. &. AgentLs rig"t to $e indemnified against conseJences of %a&f% acts ; 4he employer of an agent is bound to indemnify him against the conse3uences of all lawful acts done by such agent in eercise of the authority conferred upon him Section 222;. 0%%strations
a; 9, at Singapore, under instructions from A, of 8uetta, contracts with % to deliver certain goods to him. A does not send the goods to 9 and % sues 9 for breach of contract. 9 informs A of the suit, and A authoriOes him to defend the suit. 9 defends the suit, and is compelled to pay damages and costs and incurs epenses. A is liable to 9 for such damages, costs, and epenses. b; 9, a broker at 8uetta by the orders of A, a merchant there, contracts with % for the purchase of 0 casks of oil for A. Afterwards A refuses to receive the oil, and % sues 9. 9 informs A, who repudiates the contracts altogether. 9 defends, but unsuccessfully and has to pay damages and costs, and incurs epenses. A is liable to 9 for such damages, costs, and epenses. Agent has a right to be indemnified for acts done in good faith Section 223;. ?owever, right to indemnification do not etend to acts which are criminal in nature Section 22>;. (. "ight of Com!ensation to agent for in-r cased $ !rinci!a%Ks neg%ect ; 4he principal must make compensation to his agent in respect of in)ury caused to such agent by the principalHs neglect or want of skill. 0%%stration
A employees 9 as a bricklayer in building a house, and puts up the scaffolding himself. 4he scaffolding is unskillfully put up, and 9 is in conse3uence hurt. A must make compensation to 9. *ties and rig"ts of !rinci!a% sco!e *ties 1# 0ndemnif Agent G 4he employer of an agent is bound to indemnify him against the conse3uences of all lawful acts done by such agent in eercise of the authority conferred upon him Section 222;. 0%%strations
a; 9, at Singapore, under instructions from A, of 8uetta, contracts with % to deliver certain goods to him. A does not send the goods to 9 and % sues 9 for breach of contract. 9 informs A of the suit, and A authorises him to defend the suit. 9 defends the suit, and is compelled to pay damages and costs and incurs epenses. A is liable to 9 for such damages, costs, and epenses. b; 9, a broker at 8uetta by the orders of A, a merchant there, contracts with % for the purchase of 0 casks of oil for A. Afterwards A refuses to receive the oil, and % sues 9. 9 informs A, who repudiates the contracts altogether. 9 defends, but unsuccessfully and has to pay damages and costs, and incurs epenses. A is liable to 9 for such damages, costs, and epenses. 2. Agent has a right to be indemnified for acts done in good faith Section 223;. #. ndemnify agent for in)ury caused by principal@s neglect G 4he principal must make compensation to his agent in respect of in)ury caused to such agent by the principalHs neglect or want of skill Section 22B;. &. 'ay any commission due to or agreed with agent. Rig"ts of 4rinci!a%
. 4o recover damages from agent if agent disregards the directions of principal or suffers loss due to lack of re3uisite skill, care or diligence on the part of his agent. 2. 4o recover secret profits made by agent and resist claim of agent for remuneration. #. "esist claim against indemnity where in any transaction the agent has acted as principal and not as agent.
&. 'rincipalHs right to benefit gained by agent dealing on his own account in business of agency. (. "ight of principal when agent deals, on his own account, in business of agency without principalHs consent f an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal, if agent does so, the principal may repudiate the transaction, if the case shows either that any material fact has been dishonestly concealed from principal Section 21B)#
E.tent and @inds of agentLs at"orit
Section 225 lays down the acts of an agent which fall within the scope of his authority which bind his principal # %ontracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal conse3uences as if the contracts had been entered into and the acts done by the principal in person. 0%%strations
a; A buys goods from 9 knowing that he is an agent for their sale, but not knowing who the principal is. 9Hs principal is the person entitled to claim from A the price of the goods, and A cannot, in a suit by the principal, set off against that claim a debt due to himself from 9. b; A being 9Hs agent, with authority to receive money on his behalf, receives from % a sum of money due to 9. % is discharged of his obligation to pay the sum in 3uestion to 9. Authority of agent to bind his principal may be: a. Actual or real authority b. Apparent or ostensible authority Acta% At"orit Section 185;.
Actual authority of an agent is the authority conferred on him by the principal. t may be epress, incidental or implied. a. 7press authority is that which is given by the principal by words spoken or written Section 187;. b. mplied authority is inferred from the relevant circumstances i.e. from an act done which was necessary for eecution of epress authority Section 188;.
A!!arent or Ostensi$%e At"orit
Apparent authority is that which is not real but the principal by his words or conduct reasonably leads a third party to believe that agent possesses such authority. -an v ilin$ton (199) where an estate agent was instructed by owners to find a purchaser for a property and accepted deposit as agent. He%d: although agent was not given authority to accept deposit yet, he acted within the scope of his ostensible authority. /ia$i%ities of !rinci!a% to t"ird !art /ia$i%it &"en !rinci!a% is named
. Acts of agents are acts of 4rinci!a% G %ontracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal conse3uences as if the contracts had been entered into and the acts done by the principal in person Section 225;. E.am!%e: A being 9Hs agent, with authority to receive money on his behalf, receives from % a sum of money due to 9. % is discharged of his obligation to pay the sum in 3uestion to 9.
2. ="en Agent e.ceeds at"orit G Bhen an agent does more than he is authoriOed to do, and when the part of what he does, which is within his authority, can be separated from the part which is beyond his authority, so much only of what he does as is within his authority is binding as between him and his principal. 0%%stration
A being owner of a ship and cargo, authoriOes 9 to procure an insurance for &,000 rupees on the ship. 9 procures a policy for &,000 rupees on the ship, and another for the like sum on the cargo. A is bound to pay the premium for the policy on the ship, but not the premium for the policy on the cargo. #. Notice given to Agent is notice given to 4rinci!a% G Any notice given to or information obtained by the agent, provided it be given or obtained in the course of the business transacted by him for the principal, shall, as between the principal and third parties, have the same legal conse3uences as if it had been given to or obtained by the principal. 0%%strations
a; A is employed by 9 to buy from % certain goods of which % is the apparent owner, and buys them accordingly. n the course of the treaty for the sale, A learns that the goods really belonged to 9, but 9 is ignorant of that fact. 9 is not entitled to set off a debt owing to him from % against the price of the goods. b; A is employed by 9 to buy from % goods of which % is the apparent owner. A was, before he was so employed, a servant of %, and then learnt that the goods really belonged to F, but 9 is ignorant of that fact. n spite of the knowledge of his agent, 9 may set off against the price of the goods a debt owing to him from %. &. Disre!resentation or rad of Agent G Eisrepresentation made, or frauds committed, by agents acting in the course of their business for their principals, have the same effect on agreements made by such agents as if such misrepresentations or fraud had been made or committed by the principals= but misrepresentations made, or frauds committed, by agents, in matter which do not fall within their authority, do not affect their principals. 0%%strations
a; A, being 9Hs agent for the sale of goods, iduces % to buy them by a misrepresentation, which he was not authorised by 9 to make. 4he contract is voidable as between 9 and % at the option of %. b; A, the captain of 9Hs ship, signs bills of lading without having received on board the goods mentioned therein. 4he bills of lading are void as between 9 and the pretended consignor.
/ia$i%it &"en !rinci!a% is nnamed
f agent contracts but does not discloses name of his principal, such principal is liable. f the third party is aware about eistence of principal, such third party cannot sue the principal. f Agent refuses to disclose the identity of principal then he becomes personally liable. /ia$i%it &"en 4rinci!a% is ndisc%osed
a; Rig"ts of !arties to a contract made $ agent not disc%osed (Section 231) ; f an agent makes a contract with a person who neither knows, nor has reason to suspect, that he is an agent, his principal may re3uire the performance of the contract= but the other contracting party has, as against the principal, the same rights as he would have had as against the agent if the agent had been principal. f the principal discloses himself before the contract is completed, the other contracting, party may refuse to fulfill the contract, if he can show that, if he had known who was the
principal in the contract, or if he had known that the agent was not a principal, he would not have entered into the contract. b; 4osition of agent I As between the principal and agent, an agent has all the rights of an agent as against the principal. 9ut as regards the third party, he is personally liable on the contract. 4he third party may sue the agent on the contract, and the agent has a right to sue the third party. c; 4osition of t"ird !arties I 4he third party on making a contract with an agent for an undisclosed principal may elect to sue either the principal or the agent or both of them. E.am!%e: A makes a contract with 9 for the sale of 00 bales of cotton yarn, where after A discovers that 9 is acting as agent for %. A may sue either % or 9 or both % < 9, for the price of goods. 4ersona% %ia$i%it of agent to t"ird !art
An agent is personally liable to third parties in the following cases: . ="en contract e.!ress% !rovides ; that a party while contracting with an agent may epressly stipulate that in case of breach of contract, he would hold the agent personally liable in case of breach of contract and if the agent agrees to it, he is personally liable. 2. ="en agent act for a foreign !rinci!a% ; Bhere the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad, agent is held personally liable Section 23+;. #. ="en agent acts for ndisc%osed !rinci!a% G Bhere the agent does not disclose the name of his principal, agent is held personally liable Section 23+;. &. ="en agent signs contract in "is o&n name I when an agent signs a contract in his own name without disclosing that he is acting as an agent, though known to be an agent is understood to have contracted personally. (. ="en agent acts for a non;e.istent !rinci!a% I Bhen the promoters act for a company yet to be registered, they are personally liable for all such acts. *. ="en agent is %ia$%e for $reac" of &arrant of at"orit I when a person acts as an agent but has no authority from the alleged principal, or eceeds the authority, he is personally liable. . ="en agent !as or receives mone $ mista@e or frad I he is personally liable to the third party.
/. ="en at"orit is co!%ed &it" interest I Bhen an agent has an interest in the sub)ect matter of the contract made by him with a third party, his authority is coupled with interest. ?e can sue and be sued to etent of his interest. 1. Bhen agent is personally liable under trade usage or customs. E.am!%e: A contracts with 9 to sell 00 Air conditioners. !ater on A discovers that 9 was acting as agent for %. A may sue 9 or % or both for the price of Air %onditioners. Termination of agenc
An Agency can be terminated by: . 2.
Act of parties +peration of law
. 4ermination of Agency by Act of 'arties: 4ermination of Agency by Act of 'arties can be through: a. b. c.
Agreement "evocation by the principal "evocation by the Agent
2. 4ermination of Agency by +peration of !aw 4ermination of Agency by +peration of !aw can be through: a#
4erformance of contract:
Bhere an agreement is for a particular purpose and when the purpose is accomplished the agreement automatically terminated or when the ob)ect of contract becomes impossible. Section 2+1 provides that “an agency is terminated by the principal revoking his authority= or by the agent renouncing the business of the agency= or by the business of the agency being completed= or by either the principal or agent dying or becoming of unsound mind= or by the principal being ad)udicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors”. $#
E.!ir of time
Bhere an agent has been appointed for a fied term, the epiration of the term puts an end to the agency, whether the purpose of the agency has been accomplished or not= conse3uently where an agency for sale has epired by epress limitation, a subse3uent eecution thereof is invalid, unless the term has been etended. c#
*eat" of eit"er of t"e !arties
An agency comes to an end by the death of either 'rincipal or Agent Section 20;. Bhere the 'rincipal dies, the agent must take on behalf of the representatives of his late principal all reasonable steps for the protection of the interest entrusted to him Section 201;. A power of attorney to an agent to present a document for registration is revoked by the death of the principal. d#
0nsanit of eit"er of t"e !arties
'ursuant to Section 20, either the principal or agent dying or becoming of unsound mind, agency shall come to an end. e#
0nso%venc of eit"er of t"e !arties *isso%tion of a Com!an
nsolvency of 'rincipal or Agent results in termination of Agency. $or eample, a power of attorney, eecuted by a firm, to sell immovable property stands terminated by the dissolution of the firm. f#
*estrction of t"e s$-ect matter
Bhen sub)ect matter of an agency agreement is destructed and agreement becomes impossibility then agency agreement stands terminated. 7ample: A is appointed an agent of 9 for a particular sale of a horse of 9. A enters into an agreement with % to sell 9@s horse. 9@s horse dies so performance of the contract becomes impossible and Agency agreement comes to an end. g#
4rinci!a% $ecoming an a%ien enem
f contract of agency is between principal and agent belonging to two different countries, it is valid as long as their countries are at peace otherwise the agreement stands terminated. "#
Termination of s$ agentLs at"orit
4he termination of the authority of an agent causes the termination sub)ect to the rules herein contained regarding the termination of an agent@s authority; of the authority of all subGagents appointed by him Section 20;. i#
4rinci!a% revo@es AgentLs at"orit
Agency agreement stands terminated if a principal revokes the authority given to his agent at any time before the authority has been eercised so as to bind the principal Section 20#;. n case of revocation of agency by 'rincipal or "enunciation of Agency by Agent, reasonable notice must be given of such revocation or renunciation= otherwise the damage thereby resulting to the principal or the agent, as the case may be, must be made good to the one by the other. Time from &"ic" revocation o!erates
"evocation by the act of the principal takes effect as to the agent from the time when the revocation is made known to him= and as to third persons when it is made known to them, and not before. estions to 4re!are for Contract Act
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dentify and eplain various aspects of contracts such as= • • • • • • •
communication, acceptance and revocation of proposals essentials of valid contract performance, discharge, breach of contract and damages for breach of contract contract of bailment
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describe how an agency is created
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differentiate between contract of ndemnity and Duarantee
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eplain the classes of agent and describe: • •
the agent@s duty to the principal and principal@s duty to agent
