LAW OF CONTRACT, 1872

This Act may be called THE INDIAN

CONTRACT ACT, 1872
It came into force on 1st September 1872

LAW OF CONTRACT -I
CONT

: OFFER + ACCEPTANCE
CONT : CONSIDERATION
CONT : CAPACITY AND LEGALITY
CONT : FREE CONSENT
CONT : VOIDABLE , VOID
AGREEMENTS
CONT : CONTINGENT CONTRACT
CONT : PERFORMANCE OF CONT.
CONT : DISCHARGE OF CONT.
CONT : BREACH OF CONTRACT
CONT : QUASI CONTRACT &

LAW OF CONTRACT -II

CONT:
CONT:
CONT:
CONT:

GUARATEE & INDEMNITY

BAILMENT
PLEDGES
AGENCY

LAW OF CONTRACT
Contract is creation of rights and
obligations of the parties. E.g. A buys
a car from B for Rs 50,000/ All agreements are not contract but all
contracts are agreements.
Difference between agreement and
contract
Agreement = offer + acceptance
Contract = agreement + enforceability
at law

OFFER

The person making the proposal is called the

promisor and the person accepting the proposal
is called the promisee.
When one person signifies to another his
willingness to do or to abstain from doing
something, with a view to obtain the accent of the
other, he is said to be making a proposal.
E.g., A tender notice does not amount to an offer, it
is merely an invitation to contractors for making
offers.
An offer is an expression of willingness to contract
made with the intention that it shall become binding
on the offeror as soon as it is accepted by the
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offeree.

OFFER

Characteristics of offer- communicationcreate legal relations- certainty

Signify- Communicates to
1. Particular person
2. Class of persons
3. World at large
An offer is different from what is known as an
"invitation to offer" i.e., where a party is
merely invites offers, which he is then free to
accept or reject. E.g., Things displayed in a
Mall
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OFFER
The following are examples of
invitations to offer:
Auction
Tenders
Display of goods
Advertisements
Catalogues

ACCEPTANCE
An acceptance is a final and unqualified
acceptance of the terms of an offer. To
make a binding contract the acceptance
must exactly match the offer. The offeree
must accept all the terms of the offer.

ACCEPTANCE
Acceptance has to be final, unqualified
and absolute, otherwise it becomes a
1. Counter offers
2. Conditional acceptance
E.g.,
I offer my car for sale to you for Rs.
50,000/You agree to buy the car from me for Rs.
45,000/It is counter offer.

ACCEPTANCE

If you offer to buy the car from me only

if I purchase your scooter, it becomes
a conditional acceptance.

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COMMUNICATION

The general rule is that an acceptance must be

communicated to the offeror. Until and unless the acceptance
is so communicated, no contract comes into existence:
Mental acceptance is no acceptance express or implied
If Shahid Kapoor offers to marry Priyanka, Priyanka agrees in
her mind, but does not say so to Shahid, can a marriage take
place ?
The acceptance must be communicated by the offeree or
someone authorized by the offeree. If someone accepts on
behalf of the offeree, without authorization, this will not be a
valid acceptance:
Powell v Lee (1908) 99 LT 284.
The offeror cannot impose a contract on the offeree against
his wishes by deeming that his silence should amount to an
acceptance:
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CONSIDERATION
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
promise to do or to abstain from doing,
something,
such act or abstinence or promise is
called consideration for the promise.

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WHAT AGREEMENTS ARE

CONTRACTS? S.10
All agreements are contracts
if they are made by the free consent
of parties competent to contract,
for a lawful consideration and
with a lawful object, and are
not hereby expressly declared to be
void.

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FREE CONSENT

Consent is said to be free when it is not

caused byCoercion/ duress = improper pressure
Undue influence= dominate the will of
other
Fraud = suggetio false false suggestion
Misrepresentation=the person making it,
of that which is not true, though he
believes it to be true.
Mistake= Bilateral Unilateral - Mutual
mistakes
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coercion
Coercion" is the committing, or
threatening to commit, any act forbidden
by the Indian Penal Code (45 of 1860).
Illustration
A, on board an English ship on the
high seas, causes B to enter into an
agreement by an act amounting to
criminal intimidation under the Indian
Penal Code (45 of 1860).
A has employed coercion.

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Undue Influence

A contract is said to be induced by

"undue influence" 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
an unfair advantage over the other.

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ILLUSTRATIONS
a) A having advanced money to his son, B, during his
minority, upon B's coming of age obtains, by misuse of
parental influence a bond from B for a greater amount
then the sum due in respect of the advance. A employs
undue influence.
(b) A, a man enfeebled by disease of age, is induced
by B's influence over him as his medical attendant, to
agree to pay B an unreasonable sum for his professional
services, B employs undue influence.
(c) A, being in debt to B, the money-lender of his
village, contracts a fresh loan on terms which appear to
be unconscionable, It lies on B to prove that the contract
was not induced by undue influence.

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FRAUD
"Fraud" means and includes any of the following
acts committed by a party to a contract, or with his
connivance, or by his agents , with intent to deceive
another party thereto or his agent, or to induce him
to enter into the contract:
(1) the suggestion as a fact, of that which is not
true, by one who does not believe it to be true;
(2) the active concealment of a fact by one having
knowledge or belief of the fact;
(3) a promise made without any intention of
performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially
declares to be fraudulent.

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ILLUSTRATIONS
(a) A sells, by auction, to B, a horse which A knows
to be unsound. A says nothing to B about the horse's
unsoundness. This is not fraud in A.
(B) B says to A- "If you do not deny it, I shall
assume that the horse is sound". A says nothing.
Here, A's silence is equivalent to speech.
(C) A and B, being traders, enter upon a contract, A
has private information of a change in prices which
would affect B's willingness to proceed with the
contract. A is not bound to inform B.

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MISREPRESENTATION
"Misrepresentation" means and includes(1) 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 and advantage to the person
committing it, or any one claiming under him; by
misleading another to his prejudice, or to the
prejudice of any one claiming under him;
(3) causing, however innocently, a party to an
agreement, to make a mistake as to the substance
of the thing which is the subject of the agreement.

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MISTAKE

Where both the parties to an

agreement are under a mistake as
to a matter of fact essential to the
agreement, the agreement, the
agreement is void.

21

ILLUSTRATIONS
(a) A agrees to sell to B a specific cargo of goods
supposed to be on its way from England to
Bombay. It turns out that, before the day of the
bargain in the ship conveying the cargo had been
cast away and the goods lost. Neither party was
aware of these facts. The agreement is void.
(b) A agrees to buy from B a certain horse. It turns
out that the horse was dead at the time of bargain,
though neither party was aware of the fact. The
agreement is void.
(c) A, being entitled to an estate of the life of B,
agrees to sell it to C, B was dead at the time of the
agreement, but both parties were ignorant of the
fact. The agreement is void.
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MISTAKE
COMMON MISTAKE- A common
mistake is one when both parties
make the same error relating to
fundamental fact.
RES EXTINCTA = non-existence of
subject matter
RES SUA = Subject matter belongs to
one self
Mistake as quality

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MISTAKE
UNILATERAL MISTAKE- the case of
unilateral mistake is where only one
party is mistaken
E.g. mistake as to the terms of the
contract
Mistake as to identity
Contract made inter-absentes
Contract made inter-praesentes (face
to face)

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MISTAKE
MUTUAL MISTAKE A mutual
mistake is one where both parties fail
to understand each other.
No- consensum ad idem = consent is
not same
Non-est factum= it is not my deal
Mistake relating to document

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CAPACITY AND LEGALITY

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.
E.g. contract by minor is void abinitio.
Mohiri Bibi vs. Dharmadas Ghose,
1903, Calcutta.

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What considerations and

objects are unlawful and what
are not, S. 23
1. If it is forbidden by law: Where the
object of a contract is forbidden by
law, the agreement shall be void.
E.g., A and B agreed to deal in
smuggled goods. It is forbidden by law
and therefore void.

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2. If it would defeat the provisions of

any other law
3. Fraudulent
4. Injury to the person or property of
another
5. Immoral or opposed to public
policy
E.g., trading with enemy, suicide, etc.
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ILLUSTRATIONS
(a) A agrees to sell his house to B for 10,000
rupees. Here, B's promise to pay the sum of
10,000 rupees is the consideration for A's
promise to sell the house and A's promises to sell
the house is the consideration for B's promise to
pay the 10,000 rupees. These are lawful
considerations.
(b) A promises to pay 10,000 rupees at the end
of six months, if C, who owes that sum to B, fails
to pay it, B promises to grant time to C
accordingly. Here, the promises of each party is
the consideration for the promises of the other
party, and they are lawful considerations.

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CONTINUE
c) A promises, for a certain sum paid to him by
B, to make goods to B the value of his ship of it
is wrecked on a certain voyage. Here, A's
promises is the consideration for B's payment
and B's payment is the consideration for A's
promise, and these are lawful considerations.
(d) A promises to maintain B's child, and B
promises to pay A 1,000 rupees yearly for the
purpose. Here, the promise of each party is the
consideration for the promise of the other party.
They are lawful considerations.

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CONTINUE
e) A, B and C enter into an agreement
for the division among them of gains
acquired or to be acquired, by them by
fraud. The agreement is void, as its
object is unlawful.
(f) A promises to obtain for B an
employment in the public service and B
promises to pay 1,000 rupees to A. The
agreement is void, as the consideration
for it is unlawful.

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CONTINUE
(g) A, being agent for a landed proprietor,
agrees for money, without the knowledge
of his principal, to obtain for B a lease of
land belonging to his principal. The
agreement between A and B is void, as it
implies a fraud by concealment, by A, on
his principal.
(h) A promises B to drop a prosecution
which he has instituted against B for
robbery, and B promises to restore the
value of the things taken. The agreement is
void, as its object is unlawful.

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CONTINUE
A, who is B's mukhtar, promises to
exercise his influence, as such, with B in
favor of C, and C promises to pay 1,000
rupees to A. The agreement is void,
because it is immoral.
(k) A agrees to let her daughter to hire to
B for concubinage. The agreement is void,
because it is immoral, though the letting
may not be punishable under the Indian
Penal Code (45 of 1860).

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VOID AGREEMENTS

1. Agreements void, if considerations and

objects are unlawful in part
2.Agreement without consideration, void
Except love and affection
3. Agreement in restraint of marriage, void
4. Agreement in restraint of trade, void
5. Agreements in restraint of legal
proceedings, void
6.Agreements void for uncertainty
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VOID AGREEMENTS
7. Agreement by way of wager, void.
8. Agreements contingent on impossible
events, void.
E.g. A agrees to pay B, Rs 1000/-if two straight
lines should enclose a space. The agreement
is void.
9. Agreement to do impossible act, void.
E.g., A and B contract to marry each other.
Before the time fixed for the marriage, A goes
mad. Contract becomes void.
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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.
Enforcement of contracts contingent
on an event happening.
Enforcement of contracts contingent
on an event not happening.

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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 to B Rs. 10,000 if
B's house is burnt. This is a contingent
contract.

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CONTINUE
a) A makes a contract with B to buy B's horse if A
survives C. This contract cannot be enforced by the
law unless and until B dies in A's lifetime.
(b) A makes a contract with B to sell a horse to B
at a specified price, if C, to whom the horse has
been offered, refuse to buy him. The contract
cannot be enforced by law unless and until C
refuses to buy the horse.
(c) A contracts to pay B a sum of money when B
marries C. C dies without being married to B. The
contract becomes void.

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CONTINUE
A agrees to pay B a sum of money if a
certain ship does not return. The ship is
sunk. The contract can be enforced
when the ship sinks.

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CONTINUE
S. 34. When event on which contract is
contingent to be deemed impossible, if
it is the future conduct of a living
person

A agrees to pay B a sum of money if B

marries C. C marries D. The marriage of B
to C must now be considered impossible,
although it is possible that D may die and
that C may afterwards marry B.

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CONTINUE
S. 36 Agreements contingent on impossible events,
void
Contingent 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.
Illustrations
(a) A agrees to pay B 1,000 rupees if two straight lines
should enclose a space. The agreement is void.
(b) A agrees to pay B 1,000 rupees if B will marry A's
daughter C. C was dead at the time of the agreement. The
agreement is void.

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PERFORMANCE OF CONTRACT
The performance of contract
Time and place of performance
The performance of reciprocal
promises
The appropriation of payment
The contracts which need not to be
performed
The modes of discharge of contract

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PERFORMANCE OF CONTRACT
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 death of such
promisors before performance, unless a
contrary intention appears from the

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PERFORMANCE OF
CONTRACT

A promises to deliver goods to B on a certain

day on payment of Rs. 1,000. A dies before
the day he supposed to deliver the goods.
Whether As representatives are bound to
deliver the goods to B, and B is responsible
to pay Rs. 1,000 to As representatives?

A promises to paint a picture for B by a

certain day, at a certain price. A dies before
the day he has agreed to print a picture.
Whether The contract can be enforced either
by As representative.

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BY WHOM CONTRACTS MUST

BE PERFORMED

Section 40 specifies that if it appears

from the nature of the case that it was
the intention of the parties to any
contract that any promise contained in
it should be performed by the promisor
himself, such promise must be
performed by the promisor. In other
cases,
the
promisor
or
his
representatives
may
employ
a
competent person to perform it.
45

TIME AND PLACE FOR

PERFORMANCE

Time for performance of promise,

where no application is to be made
and no time is specified, Where, 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.
46

PERFORMANCE OF
RECIPROCAL PROMISES

Promisor not bound to perform, unless

reciprocal promisee ready and willing to
perform.
Section 51, When a contract consists of
reciprocal promises to be simultaneously
performed, no promisor need to perform
his promise unless the promisee is ready
and willing to perform his reciprocal
promise.
E.g., Agreement for sale and purchase,
price against delivery of goods, in pari
pasu
47

DOCTRINE OF FRUSTRATION
An agreement to do impossible act in
itself is void. A contract to do an act
which, after the contract is made,
becomes impossible, or, by reason of
some event which the promisor could
not prevent, unlawful, becomes void
when the act becomes impossible or
unlawful.
E.g., A agrees with B to discover
treasure by magic. The agreement is
void.

48

Continue
X agrees to sell his horse to Y. unknown to
both parties, the horse was dead at the time
making the agreement. This agreement is
void.
A music hall was rented out for a series of
concerts on certain days. The hall caught fire
before the date of first concert. It was held,
the contract become void on ground of
supervening impossibility.
X agreed to sing on a specified day. X fell
seriously ill and could not perform on the day.
The contract was discharged because it
depends upon personal skill.

49

continue
X contracts to take in cargo for Y at
foreign
port.
Xs
Government
afterwards declares war against the
country in which the port is situated.
The contract becomes void when the
war is declared.
X agreed to sell his land to Y. after the
formation of the contract, the
government issued a notification and
acquired the land. The contract was
discharged.

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DISCHARGE OF A CONTRACT

Discharge of a contract means

termination of the contractual relations
between the parties to a contract. A
contract is said to be discharged when
the rights and obligations of the parties
under the contract come to an end.

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MODES OF DISCHARGE OF
CONTRACTS
A contract may be discharged in various modes
:
Discharge by Performance
Discharged by mutual agreements
Discharged by impossibility of performance
Discharged by lapse of time
Discharged by breach of contract
Discharged by novation
Discharged by operation of law
e.g., merger, bankruptcy, alteration or cancellation
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QUASI CONTRACT
Obligation created by law for reasons of
justice and fairness. The doctrine of quasi
contract is based upon the principle that a
party must pay for a benefit he desired and
received under circumstances that render it
inequitable for him to retain it without making
compensation.
e.g., a car owner brings his car in for brake
repairs. The mechanic fixes the brakes and in
doing so he also fixes a separate part of the
axle that has a direct relationship to the car's
ability to brake correctly. Although the axle
repair was not specifically contracted for, a
quasi contract is implied for which the owner
must pay the mechanic.
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UNJUST ENRICHMENT

The quasi-contractual obligations are based on the

principle that law as well as justice should try to
prevent unjust enrichment means enrichment of one
person at the cost of another or to prevent a man from
retaining the money of, or some benefits derived from,
another, which it is against conscience that he should
keep.
Thus the principle of unjust enrichment requires:
1st that the defendant has been 'enriched' by the
receipt of a benefit
2nd that this enrichment is at the expense of the
plaintiff
3rd that the retention of unjust of the enrichment is
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unjust

Necessities
(a) A supplies B, a lunatic, with
necessaries suitable to his condition in life.
Is A entitled to be reimbursed from Bs
property?

(b) A supplies the wife and children of B,

a lunatic, with necessaries suitable to their
condition in life. Is A entitled to be
reimbursed from Bs property?

55

Reimbursement of person paying money due by

another, in payment of which he is interested
B holds land in Bengal, on a lease granted by A,
the zamindar. The revenue payable by A to the
Government being in arrear, his land is advertised
for sale by the Government. Under the revenue law,
the consequence of such sale will be the annulment
of Bs lease. B to prevent the sale and the
consequent annulment of his own lease, pays the
Government the sum due from A.

Is A bound to make good to B the amount so paid?

56

71. Responsibility of finder of goods

A person who finds goods belonging to
another, and takes them into his custody, is
subject to the same responsibility as a
bailee.

57

72. Liability of person to whom money is paid, or thing

delivered, by mistake or under coercion-

A person to whom money has been paid,

or anything delivered, by mistake or under
coercion, must repay or return it.

(a) A and B jointly owe 100 rupees to C, A

alone pays the amount to C, and B, not
knowing this fact, pays 100 rupees over
again to C. C is bound to repay the amount
to B.

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(b) A railway company refuses to deliver

up certain goods to the consignee except
upon the payment of an illegal charge for
carriage. The consignee pays the sum
charged in order to obtain the goods. He is
entitled to recover so much of the charge as
was illegal and excessive.

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NOVATION OF CONTRACT

THIS AGREEMENT made on this day of ................. between

AB son of.......the one part and CD son of...........of the other
part.
WITNESSES as follows :
1. AB and CD the parties hereto entered into an agreement in
writing for (mention subject) on the.................day of.
2. AB and CD the parties hereto have agreed.
(a) to substitute the present agreement in place of the said
agreement dated.....................
3. Accordingly it is hereby agreed between the parties hereto
that the said agreement dated..............shall come to an end
and the parties hereto are hereby discharged from all
obligations thereunder and shall henceforth be governed by
the present agreement.

60

BREACH OF CONTRACT
A breach occurs where a party
repudiates, or fails to perform his
obligation under a contract. A breach
of contract may take anyone of the
three forms, namely, 1. where a party fails to perform his
obligation upon the date fixed for the
performance of the contract; as buyer
wrongfully refuses to accept goods.

61

BREACH OF CONTRACT
2. where a party expressly repudiates
the contract;
3. where a party disables himself from
performing his obligations; as where a
buyer does not secure a licence for
exporting the goods.

62

Illustrations
(a) A contracts to sell and deliver 50 maunds of
saltpetre to B, at a certain price to be paid on
delivery. A breaks his promise. B 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 B might have
obtained 50 maunds of saltpetre of like quality
at the time when the saltpetre ought to have
been delivered.
63

continue
(b) A hires Bs ship to go to Bombay, and there
takes on board, on the first of January, a cargo,
which A is to provide, and to bring it to Calcutta, the
freight to be paid when earned. Bs ship does not go
to Bombay, but A has opportunities of procuring
suitable conveyance for the cargo upon terms as
advantageous as those on which he had chartered
the ship. A avails himself of those opportunities, but
is put to trouble and expense in doing so. A is
entitled to receive compensation from B in respect
of such trouble and expense.

64

continue
c) A contracts to buy Bs ship for 60,000
rupees, but breaks his promise. A must pay
to B, by way of compensation, the excess, if
any, of the contract price over the price
which B can obtain for the ship at the time
of the breach of promise.

65

continue
d) A contracts to repair Bs house in a
certain manner, and receives payment in
advance. A repairs the house, but not
according to contract. B is entitled to
recover from A the cost of making the
repairs conform to the contract.

66

continue
A contracts to let his ship to B for a year,
from the first of January, for a certain price.
Freights rise, and, on the first of January, the
hire obtainable for the ship is higher than the
contract price. A breaks his promise. He must
pay to B, by way of compensation, a sum equal
to the difference between the contract price
and the price for which B could hire a similar
ship for a year on and from the first of January.

67

continue

A contracts to sell and deliver 500 bales

of cotton to B on a fixed day. A knows
nothing of Bs mode of conducting his
business. A breaks his promise, and B,
having no cotton, is obliged to close his
mill. A is not responsible to B for the loss
caused to B by closing of the mill.

68

REMEDIES
Compensation for loss or damage caused
by breach of contract- damages, to prove
that loss caused by breach; quantum
meruit,
Specific performance of contract,
Temporary injunctions
Permanent injunctions,
Rescission of contracts,

69

Damages
1. The different types of damages.
2. Measures of damages for breach of
different types of contracts.
3. The difference between liquidated
damages and penalties.
4. Equitable remedies and when they
are granted.
5. The doctrine of election of
remedies.

70

LAW OF INDEMINTY
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
indemnity.
Illustration:
A contracts to indemnify B against the
consequences of any proceedings which
C may take against B in respect of
certain sum of 200 rupees. Is this a

71

continue
Acknowledgement of debt by principal
debtor binds the guarantor in all respects as
if he had given express consent; United
Commercial Bank v. B. M. Mahadev Babu,
AIR 1992 Kant 294.

72

LAW 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
The person to whom the guarantee is given
is called the creditor.

73

continue
Per Lord Abort in Brotherton vs.
barber, The great principle of marine
insurance is that it is a contract of
indemnity. The underwriter does not
stipulate, under any circumstances, to
the purchaser of the subject matter
insured; it is not supposed to be in his
contemplation, he is to indemnify
only.
(1816) 5 m& s 418 page 425

74

Consideration for guarantee

(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 As promise to
deliver the goods. This is a sufficient
consideration for Cs promise.

75

continue
(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 consideration
for Cs promise.

76

continue
(c) A sells and delivers goods to B. C
afterwards, without consideration, agrees
to pay for them in default of B. The
agreement is void.

77

128. Suretys liability

The liability of the surety is co-extensive with
that of the principal debtor, unless it is
otherwise provided by the contract.

A guarantees to B the payment of a bill of

exchange by C, the acceptor. The bill is
dishonoured by C. A is liable, not only for the
amount of the bill, but also for any interest and
charges which may have become due on it.

78

continue
134. Discharge of surety by release or
discharge of principal debtor
The surety is discharged by any contract
between the creditor and the principal
debtor, by which the principal debtor is
released, or by any act or omission of the
creditor, the legal consequence of which is
the discharge of the principal debtor.

79

Illustrations
(a) A gives a guarantee to C for goods to be
supplied by C to B. C supplies goods to B, and
afterwards B becomes embarrassed and
contracts with his creditors (including C) to
assign to them his property in consideration of
their releasing him from their demands. Here B
is released from his debt by the contract with
C, and A is discharged from his suretyship.

80

continue
(b) A contracts with B to grow a crop of
indigo on As land and to deliver it to B at a
fixed rate, and C guarantees As
performance of this contract. B diverts a
stream of water which is necessary for
irrigation of As land, and thereby prevents
him from raising the indigo. C is no longer
liable on his guarantee.

81

continue
(c) A contracts with B for a fixed price to
build a house for B within a stipulated time.
B supplying the necessary timber. C
guarantees As performance of the contract.
B omits to supply the timber. C is discharged
from his suretyship.

82

BAILMENT
A contract of bailment exists when a person
turns over an article of property for a particular
purpose or merely for safekeeping to another
person who accepts the property with the
understanding that it will be returned or kept until
reclaimed or otherwise disposed of in
accordance with the understanding of the parties.
Parties to a bailment contract are called the
bailor and bailee.
The bailor is the party who surrenders the
property and the bailee is the party who receives
the property.
For a bailment contract to exist the bailee must
be given physical possession and control over
the property.

83

WHAT IS LIEN?

A lien is the right of a creditor in

possession of goods, securities or any
other assets belonging to the debtor to
retain them until the debt is repaid,
provided that there is no contract
express or implied, to the contrary.
It is a right to retain possession of
specific goods or securities or other
movables of which the ownership vests
in some other person and the
possession can be retained till the owner
discharges the debt or obligation to the
possessor.
84

WHAT IS LIEN?
In Halsburys Laws of England, it is
stated: "Lien is, in its primary sense, a
right in one man to retain that which is
in his possession belonging to another
until certain demands of the person in
possession are satisfied. In its primary
sense, it is given by law and not by
contract."

85

VARIOUS TYPES OF LIEN

Particular lien under section 170 of
Indian Contract Act,1872,
General lien under section 171 of Indian
contract Act,1872,
Statutory lien is nothing but a particular
lien conferred by statues under sections
59 and 64 of the Major Port Trusts Act,
1963,
Possessory lien is a lien arising out of
the factum of possession of thing in
respect whereof services may have been
rendered,

86

S. 170 BAILEES PARTICULAR

LIEN
Where the bailee has, in accordance with
the purpose of the bailment, rendered any
service involving the exercise of labour or
skill in respect of the goods bailed he has in
the absence of a contract to the contrary, a
right to retain such goods until he receives
due remuneration for the services he has
rendered in respect of them.

87

ILLUSTRATION
(a) A delivers a rough diamond to B, a
jeweller, to be cut and polished, which is
accordingly done. B is entitled to retain the
stone till he is paid for the services he has
rendered.
(b) A gives cloth to B, a tailor, to make into a
coat. B promises A to deliver the coat as soon
as it is finished, and to give a three months
credit for the price. B is not entitled to retain
the coat until he is paid.

88

S. 171 GENERAL LIEN

Bankers, factor, wharfingers, attorneys of

a High Court and policy brokers may, in
the absence of a contract to the contrary,
retain as a security for a general balance
of account, any goods bailed to them; but
no other person have a right retain, as a
security for which balance, goods, bailed
to them, unless is an express contract to
that effect.
89

Bankers lien
In mercantile system the Bank has a general lien
over all forms of securities or negotiable
instruments deposited by or on behalf of the
customers in the ordinary course of banking
business. The Bank has the liberty to adjust from the
proceeds of the two FDRs towards the dues to the
Bank and if there is any balance left that would
belong to the depositor;

Syndicate Bank v. Vijay Kumar, AIR 1992 SC 1066.

90

Workmans lien for remuneration

The proposition that the bailee, who
exercises a lien, is not entitled to charge
rent for storage of goods can never apply to
a case where the lien is exercised for nonpayment of rent or storage charges; Om
Shankar Biyani v. Board of Trustees, Port of
Calcutta, (2002) 3 SCC 168.

91

172. Pledge, Pawnor, and Pawnee

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 pawnor. The bailee is
called pawnee.

92

S. 178. Pledge by mercantile agent

Where a mercantile agent is, with the consent

of the owner, in possession of goods or the
documents of title to goods, any pledge made
by him, when acting in the ordinary course of
business of a mercantile agent, shall be as valid
as if he were expressly authorised by the
owner of the goods to make the same;
provided that the pawnee acts in good faith
and has not at the time of the pledge notice
that the pawnor has not authority to pledge.
93

LAW OF AGENCY

Principal - the party who employs

another person to act on his or her
behalf
Agent - the party who agrees to act on
behalf of another
Agency - the principal/agent
relationship
Any person with the capacity to contract
can appoint an agent to act or his or her
behalf.
An agency relationship can only be
created to accomplish a lawful purpose.

94

TYPES OF AGENCY
Express agency-an agency that occurs when a
principal and an agent expressly agree to enter into an
agency agreement with each other.
Implied agency-an agency that occurs when a
principal and an agent do not expressly create an
agency, but it is inferred from the conduct of the parties.
Apparent agency-an agency that arises when a
principal creates the appearance of an agency that in
actuality does not exist; the principal's actions, not the
agent's, create the agency.
Agency by ratification-an agency that occurs when a
person misrepresents him or herself as another's agent
when in fact he or she is not and the purported principal
ratifies the agency.

95

187. Definitions of express and implied -

An authority is said to be express 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.

96

Illustration

A owns a shop in Serampor, living himself in

Calcutta, and visiting the shop occasionally.
The shop is managed by B, and he is in the
habit of ordering goods from C in the name of
A for the purposes of the shop, and of paying
for them out of As funds with As knowledge. B
has an implied authority from A to order goods
from C in the name of A for the purposes of
the shop.

97

Illustrations- Extent of agents authority

(a) A is employed by B, residing in London, to

recover at Bombay a debt due to B. A may
adopt any legal process necessary for the
purpose of recovering the debt, and may give a
valid discharge for the same.

(b) A constitutes B his agent to carry on his

business of a ship-builder. B may purchase
timber and other materials, and hire workmen,
for the purpose of carrying on the business.

98

190. When agent cannot delegate

An agent cannot lawful employ another to
perform acts which he has expressly or
impliedly undertaken to perform personally,
unless by the ordinary custom of trade a
sub-agent may, or, from the nature or
agency, a sub-agent must, be employed.

99

191. Sub-agent defined -

A sub-agent is a person employed by,

and acting undue the control of, the original
agent in the business of the agency.

100

194. Relation between principal and person duly

appointed by agent to act in business of agency -

When an agent, holding an express or

implied authority to name another person
to act for the principal in the business of the
agency, has named another person
accordingly, such person is not a sub-agent,
but an agent of the principal for such part of
the business of the agency as is entrusted to
him.

101

Illustrations

(a) A directs B, his solicitor, to sell his estate

by auction, and to employ an auctioneer for
the purpose. B names C, an auctioneer, to
conduct the sale. C is not a sub-agent, but is As
agent for the conduct of the sale.
(b) A authorizes B, a merchant in Calcutta, to
recover the moneys due to A from C & Co. B
instructs D, a solicitor, to take legal proceedings
against C & Co. for the recovery of the money.
D is not a sub-agent, but is solicitor for A.

102

197. Ratification may be expressed or implied -

Ratification may be expressed or may be implied

in the conduct of the person on whose behalf the
acts are done.

(a) A, without authority, buys goods for B.

Afterwards B sells them to C on his own account; Bs
conduct implies a ratification of the purchase made
for him by A.

(b) A, without Bs authority, lends Bs money to C.

Afterwards B accepts interest on the money from C.
Bs conduct implies a ratification of the loan.

103

TERMINATION OF AGENCY BY
ACTS OF THE PARTIES

Mutual agreement

Lapse of time

Purpose achieved

Occurrence of a specified event

104

201. Termination of Agency

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 adjudicated an
insolvent under the provisions of any Act for
the time being in force for the relief of
insolvent debtors
105

TERMINATION OF AGENCY BY
OPERATION OF LAW
BY
Death of the principal or agent
Insanity of the principal or agent
Bankruptcy of the principal
Impossibility of performance
Change in circumstances
War between the principal's and
agent's countries

106

Illustrations--- effect of agency

(a) A, being Bs agent for the sale of goods,

induces C to buy them by a misrepresentation,
which he was not authorized by B to make. The
contract is voidable, as between B and C, at the
option of C.

(b) A, the captain of Bs ship, signs bills of lading

without having received on board the goods
mentioned therein. The bills of lading are void as
between B and the pretended consignor.

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108