Special Contracts

Basic Elements of Law Relating to Agency, Guarantee and Pledge

Contract of indemnity Sec124

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, is called a ‘contract of indem nity’.
Illustration - A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a
certain sum of 200 rupees. This is a contract of indemnity.

Contract of guarantee sec126

A “contract of guarantee” is a contract to perform the promise, or discharge the liability, of a third person in case of his default.
The person who gives the guarantee is called the “surety”; [Person giving guarantee is also called as ‘guarantor’. However, Contract
Act uses the word ‘surety’ which is same as ‘guarantor’].
The person in respect of whose default the guarantee is given is called the “principal debtor”,
The person to whom the guarantee is given is called the “creditor”.

RULES
1-A guarantee may be either oral or written.
2-Three parties are involved in contract of guarantee. Contract between any two of them is not a ‘contract of guarantee’.
3-Primary liability is of the principal debtor. Liability of surety is secondary and arises when Principal Debtor fails to fulfill his
commitments. However, this is so when surety gives guarantee at the request of principal debtor. If the surety gives guarantee on
his own, then it will be contract of indemnity. In such case, surety has all primary liabilities.
CONSIDERATION FOR GUARANTEE
Anything done, or any promise made, for the benefit of the principal debtor, may be sufficient consideration to the surety for giving
the guarantee.
Illustrations
(a) B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of
the goods. C promises to guarantee the payment in consideration of A’s promise to deliver the goods. This is sufficient consideration
for C’s promise.
(b) A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the debt for a year, and promises that if he does
so, C will pay for them in default of payment by B. A agrees to forbear as requested. This is a sufficient considera tion for C’s
promise.
(c) A sells and delivers goods to B. C afterwards, without consideration, agrees to pay for them in default of B. The agree ment is
void.
Bailment sec148
Bailment is another type of special contract. Since it is a ‘contract’, naturally all basic requirements of contract are applicable. - -
Bailment means act of delivering goods for a specified purpose on trust. The goods are to be returned after the purpose is over. In
bailment, possession of goods is transferred, but property i.e. ownership is not transferred.
A “bailment” is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose
is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. Bailment can be
only of ‘goods’.
As per Sale of Goods Act, ‘goods’ means every kind of movable property other than money and actionable claim. - - Thus, keeping
money in bank account is not ‘bailment’. Asking a person to look after your house or farm during your absence is not ‘bailment’, as
house or farm is not a movable property
Bailment of pledges
Pledge is special kind of bailment, where delivery of goods is for purpose of security for payment of a debt or performance of a
promise. Pledge is bailment for security.
Common example is keeping gold with bank/money lender to obtain loan. Since pledge is bailment, all provisions applicable to
bailment apply to pledge also. In addition, some specific provisions apply to pledge. The bailment of goods as security for payment
of a debt or performance of a promise is called “pledge”.
The bailor is in this case called the “pawnor”. The bailee is called the “pawnee” sec172
Contract of Agency -
Agency is a special type of contract. The concept of agency was developed as one man cannot possibly do every transaction himself.
Hence, he should have opportunity or facility to transact business through others like an agent.
The principles of contract of agency are –
(a) Excepting matters of a personal nature, what a person can do himself, he can also do it through agent (e.g. a person cannot
marry through an agent, as it is a matter of personal nature)
(b) A person acting through an agent is acting himself, i.e. act of agent is act of Principal. - - Since agency is a contract, all usual
requirements of a valid contract are applicable to agency contract also, except to the extent excluded in the Act. One important
distinction is that, no consideration is necessary to create an agency.
contd
AGENT AND PRINCIPAL DEFINED - An “agent” is a person employed to do any act for another or to represent another in dealings
with third persons. The person for whom such act is done, or who is so represented, is called the “principal” [section 182].
WHO MAY EMPLOY AGENT - Any person who is of the age of majority according to the law to which he is subject, and who is of
sound mind, may employ an agent. [section 183]. - - Thus, any person competent to contract can appoint an agent.
WHO MAY 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 majority 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. [section 184]. - -
The significance is that a Principal can appoint a minor or person of unsound mind as agent. In such case, the Principal will be
responsible to third parties. However, the agent, who is a minor or of unsound mind, cannot be responsible to Principal. Thus,
Principal will be liable to third parties for acts done by Agent, but agent will not be responsible to Principal for his (i.e. Agent’s)
acts.
CONSIDERATION NOT NECESSARY - No consideration is necessary to create an agency. [section 185]. Thus, payment of agency
commission is not essential to hold appointment of Agent as valid.
DUTIES OF AGENT
AGENT’S DUTY TO PRINCIPAL - An agent has following duties towards principal. *
1. Conducting principal’s business as per his directions
2. Carry out work with normal skill and diligence
3. Render proper accounts
4. Agent’s duty to communicate with principal
5. Not to deal on his own account, in business of agency
6. Agent’s duty to pay sums received for principal
7. Agent’s duty on termination of agency by principal’s death or insanity
REMUNERATION TO AGENT - Consideration is not necessary for creation of agency. However, if there is an agreement, an agent is
entitled to get remuneration as per contract.
RIGHTS & DUTIES OF PRINCIPAL
RIGHTS OF PRINCIPAL –
1. Recover damages from agent if he disregards directions of Principal
2. Obtain accounts from Agent
3. Recover moneys collected by Agent on behalf of Principal
4. Obtain details of secret profit made by agent and recover it from him
5.Forfeit remuneration of Agent if he misconducts the business.
DUTIES OF PRINCIPAL –
1. Pay remuneration to agent as agreed
2. Indemnify agent for lawful acts done by him as agent
3. Indemnify Agent for all acts done by him in good faith
4. Indemnify agent if he suffers loss due to neglect or lack of skill of Principal.
TERMINATION OF AGENCY
1. An agency is terminated by the principal revoking his au thority;
2. or by the agent renouncing the business of the agency;
3. or by the business of the agency being completed;
4. or by either the principal or agent dying or becoming of unsound mind;
5. or by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of
insolvent debtors.
In following cases, an agency cannot be revoked –
1. Agency coupled with interest
2. Agent has already exercised his authority
3. Agent has incurred personal liability.

1. A negotiable instrument is a special type of contract. It differs from a regular

contract because
the rights contained in a negotiable instrument cannot be transferred
from one person to another.
the rights contained in a negotiable instrument are always subject to the
equities.
a negotiable instrument is only enforceable in equity and not in law.

a negotiable instrument can be enforced by a stranger who did not

have privity to the original agreement.
none of the above

2. Which of the following statements is TRUE with respect to the comparison

between the Sale of Goods Act and the Bills of Exchange Act?
The Sale of Goods Act codified judge-made rules, but the Bills of
Exchange Act did not.
 There are many Sale of Goods Acts in Canada, but there is only
one Bills of Exchange Act.
The Sale of Goods Act is longer and more complicated than the Bills of
Exchange Act.
The statutes reflect the fact that a sale of goods usually involves more
parties than does a bill of exchange.
all of the above

3. Wolfgang bought a piano from Elvira. He paid for it with a cheque. His
chequing account is at the Vancouver branch of the Bank of Salzburg. Which
of the following statements is TRUE?
Wolfgang is the drawee, Elvira is the payee, and the Bank of Salzburg is
the drawer
Wolfgang is the payee, Elvira is the drawer, and the Bank of Salzburg is
the drawee
the facts reveal three different contracts: the sales contract between
Wolfgang and Elvira, the cheque between Wolfgang and Elvira, and the
banking contract between Wolfgang and the Bank of Salzburg
the cheque creates a contract between Elvira and the Bank of Salzburg

none of the above

4. On June 1, Frederic bought a piece of art called Nocturne from Tristesse. The
price was $150 000. Frederic paid with a bill of exchange that was drawn on
the Edmonton branch of the Bank of Poland. That bill was due on December
31. Which of the following statements is TRUE?
Fredric was the drawer, Tristesse was the promissor, and the Bank of
Poland was the drawee.
Tristesse was not entitled to present the bill to the Bank of Poland for
acceptance until December 31.
The Bank of Poland is entitled to honour the bill any time before
December 31, but not after that date.
Tristesse can sue the Bank of Poland if it refuses to accept the bill.

none of the above

5. On May 1, Ludwig bought a locket from Elise. The price was $20 000. He
offered to pay with a promissory note. The proposed arrangement would
require Ludwig to pay in ten monthly installments of $2000 beginning on June
1. Which of the following statements is TRUE?
To protect himself, Ludwig should insist upon the insertion of an
acceleration clause.
 The Bills of Exchange Act prohibits a promissory note from requiring the
payment of interest.
The note is not a contract because it is not supported by consideration.

Ludwig is the drawer and Elise is the drawee.

To protect himself, Ludwig should require Elise to provide a receipt on

the note itself every time that he pays an installment.

6. Which of the following statements is TRUE with respect to methods of

negotiation? A negotiable instrument
that is in bearer form can be negotiated only by delivery and
endorsement.
is payable to the bearer only if it names the person who is entitled to
payment.
that is payable to order can be negotiated by delivery alone.

is payable to the bearer if the payee is a fictitious person.

is payable to order if the name of the payee is left blank.

7. Which of the following statements is TRUE with respect to liability?

A person who uses simple delivery to transfer a negotiable instrument
that is in bearer form generally cannot be held liable to subsequent
parties.
The concept of notice of dishonour is important only if a negotiable
instrument was in bearer form.
The only person who can be liable on a negotiable instrument is the
person who created it.
Unlike a regular contract, a negotiable instrument guarantees that the
payee will receive payment in cash from someone.
The person who creates a negotiable instrument is relieved of all liability
once another person endorses that instrument.

8. Which of the following statements is TRUE with respect to endorsements?

A person who adds an identifying endorsement is liable only if that
identification is correct.
A person who endorses a negotiable instrument is always liable.

A special endorsement is the same as a blank endorsement.

 By stating that his or her endorsement is “without recourse,” a person
creates a conditional endorsement.
none of the above

9. Which of the following statements is TRUE with respect to defences?

A person cannot be a holder in due course unless he or she participated
in the original creation of the negotiable instrument.
A person can be a holder in due course only if he or she personally
gave consideration for the negotiable instrument.
An immediate party can be defeated by a personal defence or a defect
in title defence, but not a real defence.
A holder in due course can only be defeated by a defect in title defence.

A holder can be defeated by a real defence or a defect in title defence,

but not a personal defence.

10 Which of the following statements is TRUE with respect to consumer bills and
. notes?
The sections in the Bills of Exchange Act on consumer bills and notes
do not apply if a business created a negotiable instrument to pay
another business.
The sections in the Bills of Exchange Act on consumer bills and notes
were included in the Act to protect businesses from consumers who
refused to pay their debts.
The Bills of Exchange Act included sections in consumer bills and notes
when it was first enacted.
The sections in the Bills of Exchange Act on consumer bills and notes
do not apply if a negotiable instrument was used for credit purposes.
none of the above

Section 14. Limitation Of Liability By Special Contract

The right of a common carrier to limit his liability by special contract is much broader. The only limitation upon such right is that the
limitation shall not be illegal or unreasonable and that no unfair advantage be taken of the shipper. In the United States the courts have
held, in the great majority of cases, that when a shipper accepts a bill of lading containing provisions for a limitation of the common law
liability of the carrier, such provision is binding upon him.15 A common carrier cannot exempt himself from liability for losses caused by
his own negligence. Such a contract is clearly against public policy. This question was discussed by the Supreme Court of the United
States, in the case of Liverpool Steam Co. vs. Phenix Ins. Co.,16 in the following words: "The employment of a common carrier is a
public one, charging him with the duty of accommodating the public in the line of his employment. A common carrier is such by virtue of
his occupation, not by virtue of the responsibilities under which he rests. Even if the extent of these responsibilities is restricted by law or
by contract, the nature of his occupation makes him a common carrier still. A common carrier may become a private carrier, or a bailee
for hire, when, as a matter of accommodation or special engagement, he undertakes to carry something which it is not his business to
carry. But when a carrier has a regularly established business for carrying all or certain articles, and especially if that carrier is a
corporation created for the purpose of the carrying trade, and the carriage of the articles is embraced within the scope of its
chartered powers, it is a common carrier, and a special contract about its responsibility does not divest it of that character.
14 American and Eng. Ency. of Law, Vol. V, p. 289; Southern Express Co. vs. Newby, 36 Ga., 635.
15 Michigan Cent. R. Co. vs. Mineral Springs Mfg. Co., 16 Wall. (U. S.), 329; Levering vs. Union Transp., etc., Co., 42 Mo., 88, 97 Am.
Dec, 320.
"The fundamental principle, upon which the law of common carriers was established, was to secure the utmost care and diligence in the
performance of their duties. That end was effected in regard to goods, by charging the common carrier as an insurer, and in regard
to passengers by exacting the highest degree of carefulness and diligence. A carrier who stipulates not to be bound to the exercise of
care and diligence, seeks to put off the essential duties of his employment.
16 129 U. S., 397.
"Special contracts between the carrier or the customer, the terms of which are just and reasonable and not contrary to public policy, are
upheld; such as those exempting the carrier from responsibility for losses happening from accident, or from dangers of navigation that
no human skill or diligence can guard against; or for money or other valuable articles, liable to be stolen or damaged - unless informed
of their character and value; or for perishable articles or live animals, when injured without default or negligence of the carrier. But the
law does not allow a public carrier to abandon altogether his obligations to the public, and to stipulate for exemptions which are
unreasonable and improper, amounting to an abnegation of the essential duties of his employment.
"It being against the policy of the law to allow stipulations which will relieve the railroad company from the exercise of care and
diligence, or which in other words, will excuse it for negligence in the performance of its duty the company remains liable for such
negligence.
"This analysis of the opinion in Railroad Co. vs. Lockwood shows that it affirms and rests upon the doctrine that an express stipulation
by any common carrier for hire, in a contract of carriage, that he shall be exempt from liability for losses caused by the negligence of
himself or his servants is unreasonable and contrary to the public policy, and consequently void. And such has always been the
understanding of this court, expressed in several later cases. Express Co. vs. Caldwell, 21 Wall, 264, 268 (210); Railroad Co. vs. Pratt,
22 Wall., 123, 134; Bank of Kentucky vs. Adams Express Co., 93 U. S., 174, 183; Railway Co. vs. Stevens, 95 U. S., 655; Hart vs.
Pennsylvania Railroad, 112 U. S., 331, 338; Phoenix Ins. Co. vs. Erie Transportation Co., 117 U. S., 312, 322; Inman vs. South Carolina
Railway, ante (129 U. S.), 128." Section 15. Liability of Connecting Carriers. "By joint arrangementbetween carriers operating
connecting lines, a partnership relation may arise by which each is liable for breach of the duty of carrier by any one of them in the
course of the transportation, and suit may be brought against any one for the loss. But mere joint traffic arrangements, and an
agreement, for division of freight, will not in themselves constitute such a partnership.17 The joint arrangement between the connecting
lines may be such as to make each the agent for the other in undertaking the continuous transportation of goods.18 On the other hand,
where the initial carrier undertakes the entire transportation, the connecting carriers through whose hands the goods pass in
the performance of the contract are agents of the initial carrier in the performance of its contract, and a suit for breach of the contract
should be brought against the carrier with whom the contract is made." 19

WAR ECONOMY

SPECIAL CONTRACTS FOR SHIPBUILDING AND REPAIR

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Special Contracts for Shipbuilding and Repair

As with defence construction work, special types of wartime
contract were soon in use for shipbuilding and repair. Excessive
pressure of work on this small industry1 made it difficult to obtain
competitive tenders, and uncertainties about important items of
cost prevented agreement being reached on prices before
contracts were signed.

Prior to the war the Marine Department's engineers could

estimate fairly accurately in advance the cost of most jobs, but
after war broke out labour and material costs were so uncertain
that accurate estimation became difficult, both in shipbuilding
and in ship repairs. This led to the adoption of the ‘cost-plus’
system of charging, and its near relative the ‘time-and-line’
method. Firms were no longer willing to submit competitive
tenders and began to ask that repairs and ship construction
should be paid for on the basis of the cost of labour and materials,
a percentage of the labour cost for overhead, and 10 per cent on
all these items for profit. Although there was at first some
reluctance on the part of the Navy and the Treasury to adopt this
system, it came to be used, with only a few minor exceptions, for
all shipbuilding and repair work.

The basis of the ‘time-and-line’ method was that all materials

used were paid for at gross cost, the trade and cash discounts
going to the contractor, and labour was paid for at ‘schedule’
rates, which included the award rate for those employed plus an
extra 40 to 50 per cent to cover the administrative costs,
overhead and profit of the contractor.

As with defence construction contracts, uncertainties and

suspicions of overcharging soon arose with regard to shipbuilding
and repair work. For shipbuilding an attempt was made to
improve the situation by fixing target prices and by trying to write
terms into the contracts which would give firms a profit incentive
to keep within the target prices.

H.1 RELEASE, PUBLICATION, AND USE OF GOVERNMENT

FURNISHED DATA
No contractor shall have the right to use, release to others, reproduce, distribute, or
publish any government furnished data first produced or specifically used by the
contractor in the performance of this contract with prior written permissions from
the Library of Congress.
H.2 INTERPRETATION OF CONTRACT REQUIREMENTS
No interpretation of any provisions of this contract, including applicable
specifications, shall be binding on the Library of Congress unless furnished or
agreed to in writing by the Contracting Officer.
H.3 CONTRACTOR COMMITMENTS, WARRANTIES,
REPRESENTATIONS
Any written commitment by the Contractor within the scope of this contract shall
be binding upon the Contractor. Failure of the Contractor to fulfill any such
commitment shall render the Contractor liable under the default provisions for
damages due to the Library of Congress under the terms of this contract. For the
purpose of this contract, a written commitment by the Contractor is limited to the
proposal submitted by the Contractor, and to specific written amendments to its
proposal. Written commitment by the Contractor are further defined as including
(1) any warranty or representation made by the Contractor in a proposal as to
performance, (2) any warranty or representation made by the Contractor described
in (1) above, made in any literature descriptions, drawings, or specifications
accompanying or referred to in a proposal, and (3) any modification of or
affirmation or representation as to the above which is made by the Contractor in or
during the course of negotiations, whether or not incorporated into a formal
amendment to the proposal.
H.4 USE OF LIBRARY OF CONGRESS NAME OR CONTRACTUAL
RELATIONSHIPS IN ADVERTISING
The Contractor agrees not to refer to awards from or contracts with the Library of
Congress in commercial advertising in such a manner as to state or imply that the
product or service provided is endorsed or preferred by the Library or is superior to
other products or services. The Contractor also agrees not to distribute or release
any information which states or implies that the Library of Congress endorses,
uses, or distributes the Contractor's product or service.
H.5 NEWS RELEASE
No news release pertaining to this contract will be made without prior agency
approval, as appropriate, and then only in coordination with the Contracting
Officer.
H.6 CONTRACTING OFFICER'S TECHNICAL REPRESENTATIVE
(COTR)
The Contracting Officer will designate, in writing, an authorized representative(s)
to discharge such duties and responsibilities as may be delegated to him. The
representative (s) will not have authority to change or alter any of the terms and
conditions of the contract. The Contracting Officer is the sole authority to make
changes in the contract. The contractor will be furnished a copy of the COTR
delegation.
H.7 KEY PERSONNEL REQUIREMENTS
(A) Certain skilled experienced professional and/or technical personnel are
essential for successful contractor accomplishment of the work to be
performed under this contract. These are defined as "Key Personnel" and are
those persons whose resumes were submitted for evaluation of the proposal.
The contractor agrees that such personnel shall not be removed from the
contract work or replaced without compliance with paragraphs (b) and (c)
hereof.
(B) If one or more of the key personnel for whatever reason becomes, or is
expected to become, unavailable for work under this contract for a
continuous period exceeding thirty (30) work days, or is expected to devote
substantially less effort to the work than indicated in the proposal or initially
anticipated, the contractor shall immediately notify the Contracting Officer
and shall, subject to the concurrence of the Contracting Officer or his
authorized representative, promptly replace such personnel with personnel
of at least substantially equal ability and qualifications.
(C) All requests for approval of substitutions hereunder must be in writing
and provide a detailed explanation of the circumstances necessitating the
proposed substitutions. They must contain a complete resume for the
 proposed substitute, and any other information requested by the Contracting
Officer or needed by him to approve or disapprove the proposed
substitution. The Contracting Officer or his authorized representative will
evaluate such requests and promptly notify the contractor of his approval or
disapproval thereof in writing.
(D) If the Contracting Officer determines that suitable and timely
replacement of key personnel who have been reassigned, terminated or have
otherwise become unavailable for the contract work is not reasonably
forthcoming or that the resultant reduction of productive effort would be so
substantial as to impair the successful completion of the contract or the
services ordered, the contract may be terminated by the Contracting Officer
for default or for the convenience of the Government, as appropriate, or, at
the discretion of the Contracting Officer if he finds the contractor at fault for
the condition, the contract price or fixed fee may be equitably adjusted
downward to compensate the Government for any resultant delay, loss, or
damage.
H.8 REPRESENTATIONS AND CERTIFICATIONS
In accordance with FAR 15.406-1(b), "Representations, Certifications, and Other
Statement of Offerors" (as executed by the Contractor and included in its response
to the Library's Request for Proposal), are incorporated and made a part of this
contract.
H.9 REQUIREMENT FOR CONTRACTOR EMPLOYEES WHOSE WORK
ON THIS PROJECT REQUIRES ACCESS TO LIBRARY BUILDINGS
Personnel provided under this contract shall not be under pending charges, shall
have not been convicted of any felony within the last 10 years, or any
misdemeanor within 5 years, excepting minor motor vehicle infractions for which
the individual paid a fine or posted collateral in the amount of $300 or less. Note
that the term "conviction" would include a disposition of "probation" or "probation
before judgement." Should any person employed by the contractor to perform work
under this contract be convicted of any of the aforesaid offenses, the contractor
agrees to remove the individual from the contract performance and return all
Library building and stack passes issued to the individual. The contractor also
agrees to remove from the contract performance any individual under pending
charges for any felony or misdemeanor with the exceptions noted above until such
time as the final disposition is known. Upon request of the Library, the contractor
shall identify personnel to be assigned to work under the contract and submit a FD-
258 (contractor fingerprint chart) and any other necessary administrative forms
provided by the Library so that a background check may be conducted. The parties
agree that the Library has final authority to determine the suitability of contractor
personnel who perform work under this contract. Nevertheless, the fact that the
Library may conduct background checks on assigned contractor personnel does not
relieve the contractor of the responsibility to provide qualified, reliable personnel
of sound character and conduct.
We enter into contracts so many times in a day that ‘contract’ has
become an indispensable part of our life. When you purchase milk or
newspaper in the morning or go to movie in the evening, you are
entering into a contract. Indian Contract Act really codifies the way we
enter into a contract, execute a contract, implement provisions of a
contract and effects of breach of a contract. Basically, a person is free
to contract on any terms he chooses. The Contract Act consists of
limiting factors subject to which contract may be entered into,
executed and breach enforced. It only provides a framework of rules
and regulations which govern formation and performance of contract.
The rights and duties of parties and terms of agreement are decided by
the contracting parties themselves. The court of law acts to enforce
agreement, in case of non-performance.
Section 1 of Contract Act provides that any usage or custom or trade or
any incident of contract is not affected as long as it is not inconsistent
with provisions of the Act. In other words, provision of Contract Act will
prevail over any usage or custom or trade. However, any usage,
custom or trade will be valid as long as it is not inconsistent with
provisions of Contract Act. The Act extends to the whole of India except
the State of Jammu and Kashmir; and came into effect on 1-9-1872.
It must be noted that contract need not be in writing, unless there is specific
provision in law that the contract should be in writing. [e.g. * contract for sale of
immovable property must be in writing, stamped and registered. * Contracts
which need registration should be in writing * Bill of Exchange or Promissory Note
must be in writing. * Trust should be created in writing * Promise to pay a time
barred loan should be in writing, as per Limitation Act * Contract made without
consideration on account of natural love and affection should be in writing ]. A
verbal contract is equally enforceable, if it can be proved.. A contract can be
enforced or compensation/damages for breach of contract can be obtained
through Civil Court
Essential Ingredients of a contract - As per Contract Act, an
agreement enforceable by law is a contract. [section 2(h)]. Hence, we have to understand
first what is ‘agreement’.
Every promise and every set of promises, forming the consideration for each other, is an
agreement. [section 2(e)]. - - A person makes a proposal (offer). When it is accepted by
other, it becomes a promise. However, promise cannot be one sided. Only a mutual
promise forming consideration for each other is ‘agreement’. - - For example, A agrees to
pay Rs 100 to B and B agrees to give him a book which is priced at Rs 100. This is set of
promises which form consideration for each other. However, if A agrees to pay Rs 100 to
B, but B does not promise anything, it is not ‘set of promises forming consideration for
each other’ and hence not an agreement.
It should be noted that the term ‘agreement’ as defined in Contract Act requires mutual
consideration. - - Thus, if A invites B to dinner and B agrees to come, it is not an
‘agreement’ as defined in Contract Act.
MEANING OF ‘PROPOSAL’ - When one person signifies to another his willingness to
do or to abstain from doing anything, with a view to obtaining the assent of that other to
such act or abstinence, he is said to make a proposal. [section 2(a)].- - Thus, a ‘proposal’
can be to do a positive act or abstinence from act (i.e. negative act). [English Act uses the
word ‘offer’, while Indian Contract Act uses the word ‘proposal’. Generally, both words
are used inter-changeably. This is not technically correct, as the word ‘offer’ is not used
in Contract Act].
MEANING OF ‘PROMISE’ - When the person to whom the proposal is made signifies
his assent thereto, the proposal is said to be accepted. A pro posal, when accepted,
becomes a promise. [section 2(b)]. - - Thus, when a proposal (offer) is accepted, it
becomes a ‘promise’. As is clear from the definition, only person to whom proposal is
made can signify his assent. Other person cannot accept a proposal.
PROMISOR AND PROMISEE - The person making the proposal is called the
“promisor”, and the person accepting the proposal is called the “promisee”. [section 2(c)].
RECIPROCAL PROMISES - Promises which form the consideration or part of the
consideration for each other are called reciprocal promises. [section 2(f)].
Consideration for promise – The definition of ‘agreement’ itself states that the mutual
promises should form consideration of each other. Thus, ‘consideration’ is essential for
an agreement. A promise without consideration is not ‘agreement’ and hence naturally, it
is not a ‘contract’.
DEFINITION OF ‘CONSIDERATION’ - When, at the desire of the promisor, the
promisee or any other person has done or abstained from doing, or does or abstains from
doing, or promises to do or to abstain from doing, something, such act or abstinence or
promise is called a consid eration for the promise. [section 2(d)].
Steps involved in contract - The steps involved in the contract are – * proposal and its
communication * acceptance of proposal and its communication * Agreement by mutual
promises * Contract * Performance of Contract. - - All agreements are not contract. Only
those agreements which are enforceable by law are ‘contracts’. Following are essential
requirements of a valid contract.

Offer and its acceptance

Free consent of both parties

Mutual and lawful consideration for agreement

It should be enforceable by law. Hence, intention should be to create legal

relationship. Agreements of social or domestic nature are not contracts

Parties should be competent to contract

Object should be lawful

Certainty and possibility of performance

Contract should not have been declared as void under Contract Act or any
other law

Communication, acceptance and revocation of

proposals - Communication of proposal/ revocation/acceptance are
vital to decide validity of a contract. A ‘communication’ is complete
only when other party receives it.
ACCEPTANCE MUST BE ABSOLUTE - In order to convert a proposal into a promise,
the acceptance must - (1) be absolute and unqualified; (2) be expressed in some usual and
reasonable manner, unless the proposal prescribed the manner in which it is to be
accepted. If the proposal prescribes a manner in which it is to be accepted, and the
acceptance is not made in such a manner, the proposer may, within a reasonable time
after the acceptance is communicated to him, insist that his proposal shall be accepted in
the prescribed manner, and not otherwise; but if he fails to do so, he accepts the
acceptance. [section 7].
Acceptance of offer is complete only when it is absolute and unconditional. Conditional
acceptance or qualified acceptance is no acceptance.
PROMISES, EXPRESS OR IMPLIED - Insofar as the proposal or acceptance of any
promise is made in words, the promise is said to be express. Insofar as such proposal or
acceptance is made otherwise than in words, the prom ise is said to be implied. [section
9]. - - For example, if a person enters a bus, there is implied promise that he will pay the
bus fair.
VOIDABLE CONTRACT - An agreement which is enforceable by law at the option of
one or more of the parties thereto, but not at the option of the other or others, is a voidable
contract. [section 2(i)]. - - (a) When consent is obtained by coercion, undue influence,
misrepresentation or fraud is voidable at the option of aggrieved party i.e. party whose
consent was obtained by coercion/fraud etc. However, other party cannot avoid the
contract. (b) When a contract contains reciprocal promises and one party to contract
prevents the other from performing his promise, the contract becomes voidable at the
option of the party to prevented. (section 53). Obvious principle is that a person cannot
take advantage of his own wrong (c) When time is essence of contract and party fails to
perform in time, it is voidable at the option of other party (section 55). A person who
himself delayed the contract cannot avoid the contract on account of (his own) delay.
VOID CONTRACT - A contract which ceases to be enforceable by law be comes void
when it ceases to be enforceable. [section 2(j)]. - - Thus, initially a contract cannot be
void, i.e. a contract cannot be void ab initio. The simple reason is that in such a case, it is
not a contract at all to begin with. Hence, only a valid contract can become void contract
due to some subsequent events. e.g. the person dies or property is destroyed or
Government imposes a ban etc. - - A void agreement is void ab initio. It never becomes a
contract. It is nullity and cannot create any legal rights.
What agreements are contracts - All agreements are contracts if
they are made by the free consent of parties competent to contract, for
a lawful considera tion and with a lawful object, and are not hereby
expressly declared to be void. Nothing herein contained shall effect
any law in force in India and not hereby expressly repealed, by which
any contract is required to be made in writing or in the presence of
witnesses, or any law relating to the registration of documents.
[section 10].
Who are competent to contract - Every person is competent to
contract who is of the age of majority according to the law to which he
is subject, and who is of sound mind, and is not disqualified from
contracting by any law to which he is subject. [section 11].
Free consent – Consent of both parties must be free. Consent obtained through coercion,
undue influence, fraud, misrepresentation or mistake is not a ‘free consent’. - -Two or
more persons are said to consent when they agree upon the same
thing in the same sense. [section 13]. - - Consent is said to be free when it is
not caused by - (1) coercion, as defined in section 15, or (2) undue influence, as defined
in section 16, or (3) fraud, as defined in section 17, or (4) misrepresentation, as defined in
section 18, or (5) mistake, subject to the provisions of sections 20, 21 and 22. -
- Consent is said to be so caused when it would not have been given
but for the existence of such coercion, undue influence, fraud,
misrepresentation or mistake. [section 14].
Void agreements - An agreement not enforceable by law is said to be void.
[section 2(g)]. - - Note that it is not ‘void contract’, as an agreement which is not
enforceable by law does not become ‘contract’ at all. Following are void
agreements - * Both parties under mistake of fact (section 20) * Unlawful object
or consideration (section 24) * Agreement without consideration (section 25) *
Agreement in restraint of marriage (section 26) * Agreement in restraint of trade
(section 27) * Agreement in restraint of legal proceedings (section 28) * Uncertain
agreement (section 29) * Wagering agreement (section 29) * Agreement to do an
impossible Act (section 56). - - These are discussed below.
Obligation of person who has received advantage under void agree ment or contract
that becomes void - When an agreement is discovered to be void, or when a con tract
becomes void, any person who has received any advantage under such agreement or
contract is bound to restore it, or to make compensation for it, to the person from whom
he received it.
Contingent contract - A “contingent contract” is a contract to do or not to do
something, if some event, collateral to such contract, does or does not
happen. Illustration - A contracts to pay B Rs. 10,000 if B’s house is burnt. This is
a contingent contract. [section 31].
Contracts which must be performed - The parties to a contract must either perform, or
offer to perform, their respective promises, unless such performance is dispensed with or
excused under the provisions of this Act, or of any other law. Promises bind the
representatives of the promisors in case of the death of such promisors before
performance, unless a contrary intention appears from the contract. - - Illustrations - (a)
A promises to deliver goods to B on a certain day on payment of Rs. 1,000. A dies before
that day. A’s representatives are bound to deliver the goods to B, and B is bound to pay
Rs. 1,000 to A’s representatives. (b) A promises to paint a picture for B by a certain day,
at a certain price. A dies before the day. The contract cannot be enforced either by A’s
representative or by B [section 37]. The performance can be ‘actual performance’ or
‘attempted performance’, i.e. ‘offer to perform’.
Performance of reciprocal promises - Promises which form the consideration
or part of the consideration for each other are called reciprocal promises. [section
2(f)]. A mutual promise can be of following types – (a) Mutual and independent –
Where each party must perform his promise independently and irrespective of
whether the other party has performed or willing to perform e.g. Seller agrees to
deliver on 5th and Buyer agrees to pay on 15th. (b) Conditional and dependent –
Performance of promise by one party depends on prior performance of promise
by other party. e.g. Buyer agrees to pay for goods 15 days after delivery. Hence,
unless seller delivers goods, buyer’s liability does not arise. (c) Mutual and
concurrent – Where the promises of both parties must be performed
simultaneously. e.g. buyer agrees to pay immediately on delivery of goods i.e.
cash payment.
Contracts which need not be performed - Normally, a contract is expected to be
performed. The performance my be actual or by way of tender, i.e. attempted
performance. However, in certain situations as stated below, the contract need not be
performed. * Novation, rescission and alteration of contract * Promisee may dispense
with or remit performance of promise * Effect of neglect of promisee to afford
promisor reasonable facilities for performance * Merger of superior rights
with inferior right under contract. This is usually termed as ‘discharge of contract’.
Quasi Contracts - ‘Quasi’ means ‘almost’ or ‘apparently but not really’ or ‘as if it
were’. This term is used when one subject resembles another in certain
characteristics but there are intrinsic differences between the two.
‘Quasi contract’ is not a ‘contract’. It is an obligation which law created in absence
of any agreement. It is based on equity. There are certain relations resembling
those created by contract. These are termed as ‘quasi contracts’. These are –
(a) Supply of necessaries (section 68) (b) Payment of lawful dues by interested
person (section 69) (c) Person enjoying benefit of a gratuitous act (section 70) (d)
Finder of goods (section 71) (d) Goods or anything delivered by mistake or
coercion (section 72).
Consequences of Breach of Contract - Compensation is payable for breach of
contract. Penalty is also payable if provided in contract. Breach of contract may
be actual or anticipatory.
Summary of principles of compensation and damages - Following points are
important - * Compensation for loss or damage is payable. Since the word used
is ‘compensation’, punitive damages cannot be awarded. * These should be in
usual course or known to parties i.e. both parties must be aware * No
compensation for remote and indirect loss or damage * Same principle applies
to quasi contract also.
GENERAL DAMAGES – General damages are those which result from ‘direct
and proximate’ consequences from breach of contract. Normally, what can be
awarded is compensation for loss or damage which can be directly or proximately
attributed to the breach of contract. One way of assessing damages is the
difference between the contract price and the market price on date of breach of
contract, plus reasonable expenses incurred by him on account of the breach
plus cost of suit in court of law.
CONSEQUENTIAL LOSS OR SPECIAL DAMAGE – Special damages or
consequential damages arise due to existence of special circumstances. Such
damages can be awarded only in cases where the special circumstances were
foreseeable by the party committing the breach or were specifically known to the
party. Consequential losses like loss of profit due to breach, which may occur
indirectly due to breach cannot be normally awarded unless there are special
circumstances which parties were aware. Loss of profit can be awarded only in
cases where seller could have foreseen those losses and arose directly as result
of breach.
PROMISEE SHOULD TAKE STEPS TO MITIGATE THE LOSS OR DAMAGE –
Explanation to section 73 specifically provides that in estimating loss or damage,
the means available for remedying the inconvenience caused by breach of
contract shall be taken into account. Thus, promisee should take all reasonable
steps to mitigate the losses e.g. if promisor does not supply goods, he should
make efforts to procure from alternate sources may be even at higher price, to
reduce his losses arising out of breach of contract.
VINDICTIVE OR EXEMPLARY DAMAGES – Vindictive or exemplary damages
cannot be awarded under Contract Act. However, these may be awarded by
Court under tort under special circumstances e.g. * Dishonour of cheque by Bank
when there was balance in account, as it causes loss of reputation of credit
worthiness of person issuing cheque * Breach of contract to marry, as it hurts
both feelings and reputation.
Quantum Meruit – ‘Quantum meruit’ means ‘as much as earned’. A
contract may come to end by * breach of contract * contract becoming
void or * Voidable contract avoided by party. In such case, if a party
has executed part of contract, he is entitled to get a proportionate
amount i.e. ‘as much as earned by him’. This is not by way of
‘damages’ or ‘compensation for loss’. - - The principle is that even
when contract comes to a premature end, the party should get amount
proportional to the work done/services provided/goods supplied by one
party. One party should not get enriched at the cost of other.
Contract of indemnity - A contract by which one party promises to
save the other from loss caused to him by the conduct of the promisor
himself, or by the conduct of any other person, is called a ‘contract of
indem nity’. - - Illustration - A contracts to indemnify B against the
consequences of any proceedings which C may take against B in
respect of a certain sum of 200 rupees. This is a contract of indemnity.
[section 124].
Contract of guarantee - A “contract of guarantee” is a contract to
perform the promise, or discharge the liability, of a third person in case
of his default. The person who gives the guarantee is called the
“surety”; the person in respect of whose default the guarantee is given
is called the “principal debtor”, and the person to whom the guarantee
is given is called the “creditor”. A guarantee may be either oral or
written. [section 126]. - - [Person giving guarantee is also called as
‘guarantor’. However, Contract Act uses the word ‘surety’ which is
same as ‘guarantor’]. - - Three parties are involved in contract of
guarantee. Contract between any two of them is not a ‘contract of
guarantee’. It may be contract of indemnity. Primary liability is of the
principal debtor. Liability of surety is secondary and arises when
Principal Debtor fails to fulfill his commitments. However, this is so
when surety gives guarantee at the request of principal debtor. If the
surety gives guarantee on his own, then it will be contract of
indemnity. In such case, surety has all primary liabilities.
CONSIDERATION FOR GUARANTEE - Anything done, or any promise made, for the
benefit of the principal debtor, may be sufficient consideration to the surety for giving the
guarantee. - - Illustrations - (a) B requests A to sell and deliver to him goods on cred it. A
agrees to do so, provided C will guarantee the payment of the price of the goods. C
promises to guarantee the payment in consideration of A’s promise to deliver the goods.
This is sufficient consideration for C’s promise. (b) A selms and delivers goods to B. C
afterwards requests A to gorbear to sue B for the debt for a year, and promises that if xe
does so,`C will pay for them in default of payment by B. A agrees to forbear as requested.
This is a sufficient considera tion for C’s promise. (c) A sells and delivers goods to B. C
afterwards, without consideration, agrees to pay for them in default of B. The agree ment
is void. [section 127].
Bailment - Bailment is another type of special contract. Since it is a ‘contract’, naturally
all basic requirements of contract are applicable. - - Bailment means act of delivering
goods for a specified purpose on trust. The goods are to be returned after the purpose is
over. In bailment, possession of goods is transferred, but property i.e. ownership is not
transferred. A “bailment” is the delivery of goods by one person to
another for some purpose, upon a contract that they shall, when the
purpose is accomplished, be returned or otherwise disposed of
according to the directions of the person delivering them. The person
delivering the goods is called the “bailor”. The person to whom they
are delivered is called the “bailee”. - - Explanation : If a person already
in possession of the goods of another, contracts to hold them as a
bailee, he thereby becomes the bailee, and owner becomes the bailor,
of such goods, although they may not have been delivered by way of
bailment. [section 148]. [Thus, initial possession of goods may be for
other purpose, and subsequently, it may be converted into a contract
of bailment, e.g. seller of goods will become bailee if goods continue in
his possession after sale is complete].
Bailment can be only of ‘goods’. As per section 2(7) of Sale of Goods
Act, ‘goods’ means every kind of movable property other than money
and actionable claim. - - Thus, keeping money in bank account is not
‘bailment’. Asking a person to look after your house or farm during
your absence is not ‘bailment’, as house or farm is not a movable
property.
Bailment of pledges - Pledge is special kind of bailment, where delivery of goods is for
purpose of security for payment of a debt or performance of a promise. Pledge is
bailment for security. Common example is keeping gold with bank/money lender to
obtain loan. Since pledge is bailment, all provisions applicable to bailment apply to
pledge also. In addition, some specific provisions apply to pledge. The bailment of
goods as security for payment of a debt or performance of a promise is
called “pledge”. The bailor is in this case called the “pawnor”. The
bailee is called the “pawnee”. [section 172].
Contract of Agency - Agency is a special type of contract. The concept of
agency was developed as one man cannot possibly do every transaction himself.
Hence, he should have opportunity or facility to transact business through others
like an agent. The principles of contract of agency are – (a) Excepting matters of
a personal nature, what a person can do himself, he can also do it through agent
(e.g. a person cannot marry through an agent, as it is a matter of personal
nature) (b) A person acting through an agent is acting himself, i.e. act of agent is
act of Principal. - - Since agency is a contract, all usual requirements of a valid
contract are applicable to agency contract also, except to the extent excluded in
the Act. One important distinction is that as per section 185, no consideration is
necessary to create an agency.
AGENT AND PRINCIPAL DEFINED - An “agent” is a person employed to
do any act for another or to represent another in dealings with third
persons. The person for whom such act is done, or who is so
represented, is called the “principal” [section 182].
WHO MAY EMPLOY AGENT - Any person who is of the age of majority
according to the law to which he is subject, and who is of sound mind,
may employ an agent. [section 183]. - - Thus, any person competent to
contract can appoint an agent.
WHO MAY 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 majority 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. [section 184]. - - The significance is that a Principal
can appoint a minor or person of unsound mind as agent. In such case,
the Principal will be responsible to third parties. However, the agent,
who is a minor or of unsound mind, cannot be responsible to Principal.
Thus, Principal will be liable to third parties for acts done by Agent, but
agent will not be responsible to Principal for his (i.e. Agent’s) acts.
CONSIDERATION NOT NECESSARY - No consideration is necessary to
create an agency. [section 185]. Thus, payment of agency commission
is not essential to hold appointment of Agent as valid.
Authority of agent – An agent can act on behalf of Principal and can
bind the Principal.
AGENT’S DUTY TO PRINCIPAL - An agent has following duties towards
principal. * Conducting principal’s business as per his directions * Carry out work with
normal skill and diligence * Render proper accounts [section 213]. *
Agent’s duty to communicate with principal [section 214] * Not to deal on
his own account, in business of agency [section 215]. * Agent’s duty to pay sums
received for principal [section 218] * Agent’s duty on termination of
agency by principal’s death or insanity - [section 209].
REMUNERATION TO AGENT - Consideration is not necessary for creation of
agency. However, if there is an agreement, an agent is entitled to get
remuneration as per contract.
RIGHTS OF PRINCIPAL - * Recover damages from agent if he disregards directions of
Principal * Obtain accounts from Agent * Recover moneys collected by Agent on behalf
of Principal * Obtain details of secret profit made by agent and recover it from him *
Forfeit remuneration of Agent if he misconducts the business.
DUTIES OF PRINCIPAL - * Pay remuneration to agent as agreed * Indemnify agent for
lawful acts done by him as agent * Indemnify Agent for all acts done by him in good faith
* Indemnify agent if he suffers loss due to neglect or lack of skill of Principal.
TERMINATION OF AGENCY - An agency is terminated by the principal revoking
his au thority; 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 adjudicated an insolvent
under the provisions of any Act for the time being in force for the relief of insol
vent debtors. [section 201]. - - In following cases, an agency cannot be revoked –
* Agency coupled with interest (section 202) * Agent has already exercised his
authority (section 203) * Agent has incurred personal liability.

Q1. I run a public carrier company in our business on some occasions the goods given to us
are lost. We also execute Agreements with our customers providing that we will not be liable
for loss of damage. If our customer files a case against us for loss of goods, what is our
liability?
A. A common carrier in India is not merely a bailee as we understand and his liability against the loss
or damage is more than what Sections 151, 152 and 161 of the Indian Contract Act 1872provide. He
is an insurer of the goods so to speak and in the absence of a special contract under Section 6 his
liability is absolute. By entering into a special contract under Section 6 of the Act, the common
carriers' liability may either be governed by the Indian Contract Act 1872 or by the English Common
Law.
Q2. I had dispatch certain articles on a passport company which were to be delivered to one of
the customers who had paid the amount for the same. The Transport Company lost goods and
it never reached our customers. After receiving amount from customer can I as owner sue the
Transport Company? Can our customer also file a case and on what basis?
A. The consignor is entitled to sue for the carrier either on the basis of title, if the property in the goods
has got passed from him or on the basis of the privity of contract between himself and the carrier for
the carriage of goods. If the true owner of the goods has failed to bring an action against the carrier
for the loss of or damages to the goods, the consignee is not without remedy. Courts have power to
circumnavigate technical hurdles to prevent miscarriage of justice. The consignor, though without title,
had privity of contract with the carrier for carriage of goods and so is allowed to sue on it.
Q3. We run a transport company and in our bills it is printed that we shall not be liable for any
loss or damage to the articles during transit. If somebody still sue us for such a lost what is
our liability?
A. Condition printed on the consignment note to the effect that the carrier company would stand
discharged from all liability for any loss or damage, does not result in absolving the carrier company of
the liability in absence of special contract signed by owner of goods.
Q4. I sent certain coolers through a transporters who seems to have sold them and did not
make delivery as we desired. What is my remedy against such a transporters and what do I
have to prove in such a case?
A. If a suit is brought against a common carrier for loss, damage or non-delivery of the goods
entrusted to it, it is not for the plaintiff to prove that the loss, damage or non-delivery was due to the
negligence of the carrier, his servants or agents. Negligence is presumed from loss of or injury to
goods.
Q5. I want to file a case against a party, which signed a contract with me for not following the
terms of that contract. The contract was signed in Bombay but I made the offer in Delhi. Can I
file the case in Delhi?
A. Suit on breach of contract may be filed at the place where it was made or at the place where it
should have been performed and the breach occurred. Mere making an offer does not constitute
cause of action in a suit for damages for breach of contract. But when it was accepted, suit may be
filed at the place of acceptance.
Q6. Can two parties orally agreed that a particular court will only the able to here any case a filed by
one of them?
A. Parties to a contract can orally select a court for the purpose of jurisdiction when more than one
courts have concurrent jurisdiction. Such a contract neither is opposed to public policy nor barred by
Section 20 of Indian Contract Act.
Q7. I had made an offer to the other party. The other party accepted my offer. However, before
the acceptance, which was sent by post, could reached me, I sent a letter to the other party
revoking the said offer. The other party challenged my revocation of the offer, saying that the
contract was completed. What is the correct legal position?
A. As soon as the acceptance is posted, the acceptance is completed and contract stand concluded in
terms of section 4 of the Indian Contact Act.
Q8. The government issued a tender notice. In response, I made an offer to the same. Later, before
communication of the offer, I desired to withdraw my offer. The government rejected the same, on the
ground that the tender notice contain a clause to the contrary. Am I not entitled to withdraw or modify
my offer?
A. You can withdraw or modify your offer before its communication. Merely because the government
has put a clause to the contrary in a tender notice, your right to offer cannot be taken away.
Q9. I entered into an agreement with a company. All the proposals made by me were accepted
though a formal contract is not yet concluded. Now the other party wants to change certain terms.
Can they do so?
A. No the other party cannot change the term of the contract as the proposals made by you had been
accepted. As such, the contract is completed even though the formal agreement has not been
concluded. Any unilateral change in the agreement without your prior consent, amounts to breach of
the terms of contract.
Q10. We have contracted with a foreign company to make computers. After the formal contract
was executed we came to know about their previous offer to the other Company. Can the
company be now sued for fraud because of concealment of information?
A. You cannot sue the Company as no fraud has been committed by the Company on account of non-
disclosure of information relating to previous offer or any past transaction. The Company is not
obliged to disclose such information relating to previous offer to any other company.
Q11. I want to enter into an agreement with a Firm whereby that Firm will not bid for a public auction
of the govt. Am I legally permissible to do so?
A. Section 27 of the contract Act, provides that any agreement in restrain of trade is void. In view of
this provision, you cannot legally enter into an agreement with a Firm whereby that Firm will not bid for
a public auction of the Govt.
Q12. I entered into an agreement to buy a Flat. The seller did not give the possession of the Flat
after the contract was concluded and earnest money paid. Am I now entitled to the money paid by me
to the seller?
A. You are entitle to the refund of money paid by you to the seller on account of his failure to perform
his part of the contract. In case the seller fails to refund the said amount, you can file a suit for
damages cause by breach of contract by the seller. You can also file a suit for specific performance of
the contract, if you want to take the flat.
Q13. My boy friend promised to marry me but he resiled from it. Is it breach of contract?
A. When there was promise to marry but the man resiled from it, it is a breach of promise and this
breach is actionable. You are entitled to award of damages.
Q14. I am a Banker working with the Bank I want to know what reasonable care should be
taken by a Banker while accepting a Customer. Is there any law relating to the same effect ?
A. As a general rule a banker before accepting a customer, must take reasonable care to satisfy
himself that the person in question is of good reputation; and if he fails to do so he will run the risk of
forfeiting the protection given by S.131 of the Negotiable Instrument Act but 'reasonable care' will
depend on the facts and circumstances of the case. The courts have tended to accept the practices
and procedures which bankers lay down for themselves, but that can by no means be decisive.
Q15. I had taken certain loan from my Bank and I defaulted in making payment of a couple of
installments. The Bank thereafter to refuse to give me services of their Bank on that ground.
Can the Bank stop operation of my current account or interfere in my day to day business
transaction ?
A. Subject to Bank's right to sue for arrears the customer concerned the bank is to allow the operation
of one current account, which will be free from the incidence of banker's lien so as to enable the party
to carry on its normal day to day business transactions, to obtain letters of credit at full margin and to
enable payment on several heads.
Q16. I instituted a divorce proceedings against my wife which is pending in the court. We had a
locker, which could be operated by both of us. During the continuance of the case my wife withdrew
all the contents of the locker. Is her action justified in law and what should I do ?
A. When a joint locker is operatable by both the spouses, removal of contents of locker by one spouse
during the pendency of a matrimonial proceeding between the parties is improper.
Q17. My father had pledged certain Gold ornaments with the State Bank against sudden loan taken
by him. My father has since died and I approach the Bank for release of the ornaments and offered
them to pay the amount. The Bank is however refusing to do the same what should I do ?
A. Gold ornaments pledged with a Bank as security for loan obtained do not fall within the term
"security" or "debt" and as such, bank cannot insist on a succession certificate when on the death of
pledgor his successor approaches the bank for release of ornaments on payment of all dues.
Q18. What are the duties of a Bank in payment of the amount where a confirmed letter of credit
is open with the Bank.
A. The opening of a confirmed letter of credit constitutes a bargain between the banker and the
vendor of goods which imposes on the banker an absolute obligation to pay. Duties of a bank under a
letter of credit are created by the document itself, but in any case it has the power and is subject to
the limitation which are given or imposed by it, in the absence of appropriate provisions in the letter of
credit. The banker owes a duty to the buyer to ensure that the documents tendered by the sellers
under a credit are complied with.
Q19. I paid to a lawyer by cheque to process my papers for Canadian immigration in 1996. As of
today he has not done anything, he does not reply to my registered letters, but tells me that he will
repay the amount very soon, when I called him numerous times from my residence in America where I
am staying for past two years. What is my remedy?
A. You can file suit for recovery and damages against the said Lawyer at Calcutta only. You can
also approach the Consumer Court at Calcutta for the recovery of the amount. The limitation for
recovery suit is three years from the date of payment. However, in Consumer Court, limitation is one
year from the last correspondence of refusal. That apart, you can also lodge a complaint with the Bar
Council of Calcutta against the said lawyer for his conduct and seek cancellation of his license.
Q20. We had got one car financed in the year 1996 for two years 1997-1988 -1999. The cost of
vehicle at the time of finance was Rs.10. We paid the Margin money of Rs. 5 to ABC by Bank
cheque and got the balance amount of Rs. 5 financed from the said ABC company. The monthly
installment we paid was Rs. 1. According to the cheques issued and the statement of records we
received from the finance company we came to know they have financed us Rs. 6 and the Margin
money they have received is 4. We informed the company the margin money we have paid is Rs. 5
and not 4 but they did not listen to us and kept on sending cheques for clearance in the bank. We
have never got any cheque dishonored or even never got any cheque delayed for clearance. We had
been sending reminders to the finance company to refund us Rs. 1, which they have financed us in
excess. But till today we have not received any reply from the finance co. Now even the case is
cleared almost 9 months have passed. We have been demanding for the money and also the
clearance certificate but they are not bothered at all and do not intent to send the clearance certificate.
Please give us an opinion as to what should we do?
A. You should file a complaint with Consumer Forum for recovery of the amount and amount and
damages for breach of contract and harassment. From the facts stated by you, if can be easily proved
that the company is trying to cheat you.
Q21. The bank has towed away a vehicle on account of default of 2 installments. The concerned party
has offered to pay the defaulted installment but the bankers have refused to return the vehicle and
have issued a letter saying that the vehicle has already being sold & are demanding payment of the
entire loan amount . Kindly advice the legal options available to the owner of the vehicle hypothecated
to the bank?
A. You can file the suit for recovery of car or in the alternative for damages you have suffered. The
bank has no right to sell the car without giving notice to you.