contract act 1872 pakistan

8/12/2019 Contract Act 1872 Pakistan

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THE CONTRACT ACT 1872

Contract and Agreement:

Section 2(e) defines as ever !romises and ever set of !romises forming t"e

consideration for eac" ot"er is an agreement#

Section 2" defines contract as an agreement enforcea$%e $ %a& is a contract#

Section 2a when one person signifies to another his willingness to do or to abstain from

doing any thing, with a view to obtaining the assent of that other to such act or

abstinence, he is said to make a proposal.

Section 2$ &"en t"e !erson to &"om t"e !ro!osa% is made signifies "is assent

t"ereto' t"e !ro!osa% is said to $e acce!ted# A !ro!osa% &"en acce!ted $ecomes a

!romise#

Consenss ad idem:

A contract shall be validly formed only when there is consensus of parties of the same

thing i.e. their minds are meeting in the same sense that they understand the same thing in

the same sense.

*ifference $et&een Contract and agreement:

A contract is an agreement between parties that will be legally enforceable.

A simple agreement is an arrangement between the parties which may or may notcontain the necessary elements to be enforceable before a court of law.

Sec# 1+ of t"e Contract Act 1872 defines &"at agreements are contracts, A%%

agreements are contracts if t"e are made $ t"e free consent of !arties com!etent

to contract for a %a&f% consideration and &it" a %a&f% o$-ect and are not "ere$

e.!ress% dec%ared to $e void#

A valid contract must contain the seven valid elements which are:

. Agreement

2. !egal "elationship

#. $ree %onsent, #, &

&. %apacity of 'arties ,sec

(. !awful %onsideration ,sec 2#


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$orbidden by law, defeats any provision of law, fraudulent, involves in)ury to

person property, immoral, opposed to public policy.

*. !awful +b)ect, sec 2#

. -ot epressly declared void

"estraint of marriage 2*, trade 2 , legal proceeding 2/, wagering #0

/. !egal $ormalities

1. %ertainty, sec 21 ,

Agreement ,the meaning of which is not certain or capable of being made certain is

void.

0. 'ossibility of performance . , sec (*

+"

An agreement is essentially an echange of promises between two or more parties. A

contract is a written agreement that demonstrates that all parties bound to the agreement

have consented to their respective responsibilities as to the agreement.

n other words, an agreement is an arrangement between parties regarding a course ofaction. And a contractis a written epression of that agreement which, when eecuted

by signature or epressed in other forms of acknowledgement and legally binds the

parties to that agreement.

+r

A contract is an echange of promises between two or more parties to do, or refrain from

doing, an act which is enforceable in a court of law. t is binding legal agreement.

t is where an un3ualified offer meets a 3ualified acceptance and the parties reach

consensus ad idem.

4he parties must have the necessary capacity to contract and the contract must no be

trif%ing indeterminate im!ossi$%e or i%%ega%#

C/ASS00CAT0ON O CONTRACTS

1# According to a%idit or Enforcea$i%it:


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a. 5alid

b. 5oidable

c. 5oid

d. 6nenforceable

2# According to ormation or Creation:

a. 7press

b. mplied

c. 8uasi

3# According to 4erformance:

a. 7ecuted

b. 7ecutory

c. 6nilateral

d. 9ilateral

a%id Contract:

5alid contract is one which if fully operative in accordance with the intention of parties

and the law.

A valid contract is one which is fully enforceable by law. t must have all the essential

elements re3uired by law. f one or more of these elements are missing then contract iseither 5oidable or illegal or unenforceable.

A valid contract may become unenforceable if some rule of law renders it incapable of

proof e.g. promissory note not stamped at all or insufficiently stamped shall not be

enforceable.

oida$%e Contract:

Section 2i defines oida$%e Contract is an agreement which is unenforceable by law at

the option of the one or more; of the parties thereto but not at the option of the other

parties.

t means that the contract is binding one the parties unless set aside on the ground that the

transaction was vitiated by:


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. Absence of free consent < undue influence see section 1 < 1a; fraud

section ; or misrepresentation section /;, or any other circumstances

entitling a party to a contract to void it.

2. prevention of performance section (#;

#. failure to perform in time section ((;

$or eample a contract falling under section 2#* is a 5oidable contract i.e. a person

representing as an agent while he actually was no an agent.

oid agreements:

2g an agreement not enforceable by law is said to be void=

$or eample an agreement with a minor is void.

oid contracts'

2) a contract which ceases to be enforceable by law becomes void when it ceases to be

enforceable.

A void contract also known as a void agreement is not actually a contract and does not

create rights.

A void contract cannot be enforceable by law. 5oid contracts are different from 5oidable

contracts, which are contracts that may be but not necessarily will be; nullified.

So a contract that:. s illegal inherently void; from the moment it is made.

2. s legal but declared null having no legal effect; by the courts because it violates a

fundamental principle such as fairness, or is contrary to public policy>

#. 9ecomes void due to change in law or in government policy, or

&. ?as been fully performed. !ack of capacity to contract being an infant or minor,

intoicated, or insane; automatically makes a contract void.

An agreement to carry out an illegal act is an eample of a void contract or void

agreement. $or eample, a contract between drug dealers and buyers is a void contract

simply because the terms of the contract are illegal.

Another eample of this can given if a man goes through the form of making a contract

with A through 9 as A@s agent, and 9 is not in fact the agent of A, there is no contract


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because there is only one party. 4he promise offered to A has not been accepted by him,

and no consideration has moved from him.

Effect of oid contract:

n such a case, neither party can go to court to enforce the contract. A void contract is

void ab intito i.e. from the beginning while a 5oidable contract can be 5oidable by any

of the parties to it.

Section 35 of t"e contract act 1872 !rovides t"at agreements contingent on

im!ossi$%e events are void6contingent agreements to do or not to do anything, if an

impossible event happens, are void, whether the impossibility of the event is known or

not to the parties to the agreement at the time when it is made.

0%%strations:

a. A agrees to pay 9 ,000 rupees if two straight lines should enclose a space. 4his

agreement is void.

b. A agrees to pay 9 ,000 rupees if 9 will marry A@s daughter %. % was dead at the

time of the agreement. 4he agreement is void.

oid oida$%e and enforcea$%e agreements:

4here can be three different ways in which contracts can be set aside. A contract may be

deemed 5oid@, 5oidable@ or [email protected] implies that a contract never came into eistence. 5oidability implies that one

both parties may declare a contract ineffective at their wish. 6nenforceability implies that

neither party may have recourse to a court for a remedy. "escission is a term which

means to take a contract back.

4he conditions re3uired for an agreement being enforceable by law are contained in

section 0, below where it will also be seen that absence of any such condition makes an

agreement void, and certain defects will make a contract 5oidable.

4he duties of parties to a contract are set forth in chap. 5 of the act. 4he manner in

which contract are, it necessary, enforced belongs to %ivil procedure.

Sec# 1+ of t"e Contract Act 1872 defines &"at agreements are contracts, All

agreements are contracts if they are made by the free consent of parties competent to


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contract, for a lawful consideration and with a lawful ob)ect, and are not hereby epressly

declared to be void.

0%%ega% Agreement:

An illegal agreement is that the ob)ect of which are not permissible by law or are

prohibited by law.

nenforcea$%e Contract:

6nenforceable contract is one which can not be enforced in the court because of some

technical defect or lace of evidence such as absence of writing, non registration of

document or being time barred.

E.!ress Contracts:

See section 1 an epress contract is one in which the parties have made oral or written

declaration of their intention to agree on terms and conditions of the transaction.

0m!%ied Contracts:

Again see section 1 an implied contract is that the terms of which are inferred from the

conduct of the parties or from the circumstances of the case or course of dealings

between the parties.

asi Contract:

A contract which is implied in law or created by law is also called a 3uasi contractbecause it is not in fact a contract rather, it is a means for the courts to remedy situations

in which one party would be un)ustly enriched were he or she not re3uired to compensate

the other.

$or eample, a plumber accidentally installs a sprinkler system in the lawn of the wrong

house. 4he owner of the house had learned the previous day that his neighbor was getting

new sprinklers. 4hat morning, he sees the plumber installing them in his lawn. 'leased at

the mistake, he says nothing, and then refuses to pay when the plumber delivers the bill.

Bill the man be held liable for payment>

E.ected Contract:

s one which has been completely performed by both the parties>

E.ector Contract:


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s one which is composed of undertaking in which both the parties are under an

obligation to do or not to do certain things.

ni%atera% Contract:

n one in which only one party has to perform his part of the obligation at the time of the

formation of the contract. t is also called a one sided contract. n this consideration is

eecuted.

9i%atera% contract:

s one in which the obligation on the part of both the parties to the contract are

outstanding at the time of formation of the contract.

E%ements ingredients essentia%s of va%id contract:

n common law systems, the five key re3uirements for the creation of a contract are: .

offer and acceptance agreement;. 2. %onsideration. #. An intention to create legal

relations. &. !egal capacity. (. $ormalities.

4ro!osa%: acce!tance and revocation:

Offer 4ro!osa%; section 2 a when one person signifies to another his willingness to do

or abstain from doing anything, with a view to obtaining the assent of that to such act or

abstinence, he is said to make a proposal.

An offer can be made by epress words, spoken or written.An offer can also be made by conduct of parties.

As an offer can be made to a specific person or group of persons or to the public at large.

E.am!%e:A says to 9 will you buy my house for "s. 20,000,000> ?ere A is making an

offer to 9 by signifying his willingness to sell his house to 9 "s. 20,000,000 with a view

to obtaining assent of 9.

Acce!tance:

Section 2b when the person to whom the proposal is made signifies his assent thereto, the

proposal is said to be accepted. A proposal, when accepted, becomes a promise.

E.am!%e: if b above agrees to buy A@s house for "s. 20,000,000, he can be said to have

accepted A@s offer.

T!es of offer:

7press +ffer: $ace to face offerC.written offer


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mplied +ffer: 4hrough conduct of the offeror i.e. bus company, rail service etc.

Specific +ffer: +ffer to a particular person

Deneral +ffer: +ffer made to public at large.

Standing +ffer: %ontinuous offer. 7.g. mobile phone packages

%ross +ffer: +ffer made by two different persons to each other.

%ounter +ffer: Acceptance of offer but sub)ect to some terms and conditions.

Essentia%s of an Offer:

+ffer must be:

i. Eade with a view to obtain acceptance. section 2a;

ii. Bith the intention of creating legal relations. A social invitation even if accepted

does not create legal relations as the offeror does not intend to create legal

relations. 7ample: an agreement to go together to picture or for a walk is not an

offer, agreements between husband and wife living together are of social nature.

iii. %lear, unambiguous, definite and certain and must not be loose, vague or

ambiguous section 21;.

iv. Fistinguished from a; mere declaration of intention b; an invitation to offer or to

treat.

nvitation to offer is merely a circulation of information by a person of hiswillingness to treat with any person who on such information is willing to open

negotiation with him and is not an offer. 7.g. 'rospectus for admission, display of

goods in shelf with price tags, catalogue, 3uotation, price list, advertisement

invitation to tenders etc.

v. $ree from stress as offer under stress is no offer.

vi. Announcement on speaker

vii. Shelf prices are not offer.

viii. %ommunicated to the offeree.

i. Eade with terms and conditions on which the offer is being made.

. n the nature of re3uest.

Acce!tance:


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%ontract is formed when one party makes an offer for an arrangement and another

acce!ts#4his can be called concurrence of wills or ad idem


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c. Surrounding circumstances: A@s car goes out of order, 9 starts repairing the car

and A lets him do that.

="o can acce!t offer,

a. only specific person to whom offer is made.

b. Bhen offer is not made to a specific person rather to general public then any

member of public may accept the offer.

c. Bhere a product in large 3uantities is advertised in a newspaper or on a poster, it is

as an offer, however, if the person who is to buy the advertised product is of

importance, for instance because of his personality, etc., when buying land, it is

regarded merely as an invitation to treat.

Essentia%s of va%id Acce!tance:

. Acceptance must be absolute and 3ualified. Section , and without any variation.

'ossession date varied.

2. Acceptance must be communicated to offeror.

#. acceptance must be in prescribed manner. Section , 2.

&. As per the mode prescribed or stated in the offer.

(. Acceptance should be within the time prescribed.

*. Acceptance can not precede offer i.e. acceptance must be in response to offer.. Acceptance must show intention to fulfill promise.

/. Acceptance can not be implied from silence. 7.g. sale of car if do not hear you in

seven days, acceptance shall be presumed.

Commnication Acce!tance and Revocation:

Section 3# Commnication acce!tance and revocation of !ro!osa%s# 4he

communication of proposals, the acceptance of proposals, and the revocation of

proposals and acceptances, respectively, are deemed to be made by any act or

omission of the party proposing, accepting or revoking, by which he intends to

communicate such proposal, acceptance or revocation, or which has the effect of

communicating it.

or a a%id Offer Acce!tance and Revocation

t is a must that:


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a; +ffer is communicated to offeree

b; Acceptance is communicated to offeror

c; "evocation of offer must be communicated by the offeror to offeree.

d; "evocation of acceptance must be communicated by the offeree.

Commnication of offer; section ># Commnication &"en com!%ete# 4he

communication of a proposal is complete when it comes to the knowledge of a person

to whom it is made.

Commnication of Acce!tance ? 4he communication of an acceptance is complete,

as against t"e !ro!oser when it is put in a course of transmission to him, so as to be

out of the power of the acceptor, as against t"e acce!tor when it comes to the

knowledge of the proposer.

4he communication of a revocation is complete, as against t"e !erson &"o ma@es it

when it is put into a course of transmission to the person to whom it is made, so as to be

out of the power of the person who makes it, as against t"e !erson to &"om it is made

when it comes to his knowledge.

0%%stration:

a; A, proposes, by letter, to sell a house to 9. at a certain price. 4he communication

of the proposal is complete when 9 receives the letter.b; 9 accepts A@s proposals by a letter sent by post. 4he communication of the

acceptance is complete, as against A, when the letter is posted, as against 9, when

the letter is received by A.

c; A revokes his proposal by telegram. 4he revocation is complete as against A, when

the telegram is dispatched.

d; t is complete as against 9, when 9 receives it.

e; 9, revokes his acceptance by telegram. 9@s revocation is complete as against 9,

when the telegram is dispatched and as against A, when it reaches him.

Revocation of Offer Acce!tance ? Section B stipulate that a proposal may be revoked

at any time before the communication of its acceptance is complete as against the

proposer, but not afterwards.


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An acceptance may be revoked at any time before the communication of the acceptance

is complete as against the acceptor, but not afterwards.

Revocation "o& made:

'ursuant to section *, a proposal is revoked:G

. by the communication of notice of revocation by the proposer to the other party.

2. by the lapse of time prescribed in such proposal for its acceptance or if no time is

so prescribed, by the lapse of a reasonable time without communication of the

acceptance.

#. by the failure of the acceptor to fulfill a condition precedent to the acceptance.

&. by the death or insanity of the proposer if the fact of his death or insanity comes to

knowledge of the acceptor before acceptance.

"evocation in contracts made over telephones does not arise.

Consideration

%ontract is made with intention to derive or confer some benefit +" promises areechanged in return of something in return. 4hat something can be a benefit, right,interest, profit or it may also be some forbearance, detriment, loss or responsibility uponother party.

4o%%oc@ defines %onsideration as C consideration is the price for which promise is

given and promise for value is enforceable.

7ample: A lends his book to 9, who promises to return it after eaminations, this resultsin a benefit to 9 and a detriment to A, which is consideration in return of 9@s promise toreturn the book.

7ample: Abdul Aziz v. Masum Ali (1914) A promised to subscribe "s. (00 forrebuilding of a mos3ue but later refused. Secretary of mos3ue sues A for recovery of "s.(00. ?eld the promise to pay was not backed by any consideration on the part of mos3ue.

So not enforceable.

Section 2 (d)defines %onsideration Bhen, at the desire of the promisor, the promisee orany other person i; has done or abstained from doing or ii; does or abstains from doing,or iii; promises to do or to abstain from doing, something, such act or abstinence or

promise is called a consideration for the promise.

%onsiderationis known as Hthe price of a promiseH and is a controversial re3uirement forcontracts under common law.
http://en.wikipedia.org/wiki/Considerationhttp://en.wikipedia.org/wiki/Common_lawhttp://en.wikipedia.org/wiki/Considerationhttp://en.wikipedia.org/wiki/Common_law


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t is not necessary in all common law or civil lawsystems, and is considered by some tobe unnecessary as the re3uirement of intention to create legal relations by both partiesmeets the same re3uirement under contract.

4he idea is that both parties to a contract must bring something to the bargain, that bothparties must confer some benefit or detriment for eample, money, however in somecases money will not suffice as consideration G eg when one party agrees to make part

payment of a debt in echange for being released from the full amount;. 4his can beeither conferring an advantage on the other party, or incurring some kind of detriment orinconvenience towards oneself.

4hree rules govern consideration:G

%onsideration must be real, but need not be ade3uate but must be lawful. $orinstance, agreeing to buy a car for a penny may constitute a binding contract.

%onsideration must not be from the past. $or instance, inEastwood v. Kenyon, theguardian of a young girl obtained a loan to educate the girl and to improve hermarriage prospects. After her marriage, her husband promised to pay off the loant was held that the guardian could not enforce the promise because taking out theloan to raise and educate the girl was past consideration.

%onsideration must move from the promisee at the desire of promisor. $orinstance, it is good consideration for person A to pay person % in return forservices rendered by person 9. f there are )oint promisees, then consideration needonly to move from one of the promisees.

CA4AC0T TO CONTRACT

Denerally, every person is competent to contract and if any one claims to be incompetentto enter into contract, he must prove such incapacity.

="o is com!etent to contract,

4he conditions re3uired for an agreement being enforceable by law are contained inSection 0, below, where it will also be seen that the absence of any such conditionmakes an agreement void, and certain defects will make a contract voidable.

Sec 10 of the Contract Act, 1!" defines #hat a$reements are contracts, Allagreements are contracts if they are made by the free consent of parties competent tocontract, for a lawful consideration and with a lawful ob)ect, and are not hereby epresslydeclared to be void.

Sec declares following persons as incompetent to enter into %ontracts:

a; Einor I Section 3 of t"e Da-orit Act 187Bdefines minor as a person whohas not completed / years of age. %ontracts entered into by minors are void.
http://en.wikipedia.org/wiki/Civil_law_(legal_system)http://en.wikipedia.org/w/index.php?title=Eastwood_v._Kenyon&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Promisee&action=edit&redlink=1http://en.wikipedia.org/wiki/Civil_law_(legal_system)http://en.wikipedia.org/w/index.php?title=Eastwood_v._Kenyon&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Promisee&action=edit&redlink=1


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Any such document can not be ratified by minor even after attaining age ofma)ority i.e. 2 years because the original agreement is void ab initio. Einor isnot liable to return benefit. A Einor can always plead minority. -o specific

performance can be enforced against minor. Einor can not be a partner. Einorcan not be insolvent.

b; 'erson of unsound mind I Section 2 provides the tests to determine a soundmind. A person is said to be of unsound mind for the purpose of making a

contract, if at the time when he makes it, he is incapable of understanding it,and of forming a rational )udgment as to its effect upon his interest.

c; 'ersons dis3ualified by any law to which they are sub)ect

%a&s in ca!acit

Sometimes the capacity of either naturalor artificialpersons to either enforce contractsor have contracts enforced against them is restricted. $or instance, very small childrenmay not be held to bargains they have made, or delin3uent employees or directors may be

prevented from contracting for their company, because they have acted ultra viresbeyond their power;.

Another eample might be people who are mentally incapacitated, either by disability ordrunkenness.

Bhen the law limits or bars a person from engaging in specified activities, anyagreementsor contracts to do so are either voidable or void for incapacity.

4he law on capacity can serve either a protective function or can be a way of restrainingpeople who act as agents for others.
http://en.wikipedia.org/wiki/Natural_personhttp://en.wikipedia.org/wiki/Artificial_personhttp://en.wikipedia.org/wiki/Ultra_vireshttp://en.wikipedia.org/wiki/Lawhttp://en.wikipedia.org/wiki/Agreementhttp://en.wikipedia.org/wiki/Natural_personhttp://en.wikipedia.org/wiki/Artificial_personhttp://en.wikipedia.org/wiki/Ultra_vireshttp://en.wikipedia.org/wiki/Lawhttp://en.wikipedia.org/wiki/Agreement


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Consent

Section 13defines %onsent as %onsent means that two or more persons agree upon thesame thing in the same sense. Eeaning thereby %onsensus ad idem is present i.emeeting of minds is there.

A$sence of Consent

Absence of meeting of minds i.e. absence of ad item means there is no agreementbecause %onsent is absent.

7ample: A agrees to sell ?ouse -o. to 9, whereas 9 thinks that A is proposing to sell?ouse -o. 2. So there is no meeting of mind as consent on same item is missing.

n the case of%ala &evi v. S. Ma'umdar (19)an illiterate woman signed a document tomanage assets whereas it was originally a deed of gift which was never read or eplained

to her.

?eld: the deed was void and inoperative as there was no consent hence no contract.

ree Consent

'ursuant to Section 1>%onsent is free when it is not caused by:

a; %oercionb;6ndue nfluence

c; $raudd;Eisrepresentatione; Eistake sub)ect to provisions of Section 20, 2, 22

%onsent will not be free if it is given or procured because of above items.

Coercion J *ress

Section 1B Fefines %oercion as %ommitting, or threatening to commit, any act

forbidden by the 'akistan 'enal %ode or the unlawful detaining, or threatening to detain,any property, to the pre)udice of any person whatever, with the intention of causing any

person to enter into an agreement.

%oercion J Furess has been defined as a Kthreat of harm made to compel a person to dosomething against his or her will or )udgment= especially, a wrongful threat made by one

person to compel an appearance of seeming assent by another person to a transactionwithout real volition.K


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An eample is in %arton v. Armstron$, a decision of the 'rivy %ouncil. Armstrongthreatened to kill 9arton if he did not sign a contract, so the court set the contract aside.

9rden of 4roof

An innocent party wishing to set aside a contract for duress to the person need only toprove that the threat was made and that it was a reason for entry into the contract= the

burden of proof then shifts to the other party to prove that the threat had no effect incausing the party to enter into the contract.

4here can also be duress to goods and sometimes, the concept of Heconomic duressH isused to vitiate contracts.

nde 0nf%ence

Section 15 defines 6ndue nfluence. 6ndue nfluence means, t eists where therelations subsisting between the parties are such that one of the parties is in a position todominate the will of the other and uses that position to obtain unfair advantage over theother.

6ndue influence is an e3uitable doctrine that involves one person taking advantage of aposition of power over another person. Bhenever consent to an agreement is caused dueto 6ndue influence, the agreement is voidable at the option of the party whose consent iscaused due to 6ndue influence Section 1;A;.

4he law presumes that in certain classes of special relationship, such as between parentand child, or lawyer and client etc., there will be a special risk of one party undulyinfluencing their conduct and motives for contracting.

As an e3uitable doctrine, the court has the discretion to vitiate such a contract. Bhen nospecial relationship eists, the general rule is whether there was a relationship of suchtrust and confidence that it should give rise to such a presumption. See *dorizzi v.

%loomfield School &istrict.

4resm!tions of nde 0nf%ence &"en arises

4osition to dominate: where one is in a position to dominate will of the otherparty. Mannu Sin$h v. +madat ande- (190) where spiritual guru forced hisfollower to gift his property to Duru.

6nfair advantage : Fominating party actually uses position to obtain unfairadvantage.

"eal and apparent authority : EasterGServant, FoctorG'atient, ncome 4a +fficerGAssessee etc.
http://en.wikipedia.org/wiki/Burden_of_proofhttp://en.wikipedia.org/wiki/Burden_of_proof


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$iduciary relationship : A relationship of trust and confidence. 7.g $atherGSonDuardianGBard, !awyerG%lient, 4rusteeG9eneficiary, 'romoterG%ompany

Eental distress : ncapacity due to age, illness, mental or bodily distress.

*istingis" Coercion and nde 0nf%ence,

(*O NOT 9E SR4R0SE* 0TS O =HO NEE* TO DAFE OR O=N

NOTES ON TH0S)# 0 s"a%% c"ec@ or @no&%edge on t"is dring %ectres#

rad

Section 17defines $raud $raud means and includes any of the following acts committedby a party to a contract, or with his connivance, or by his agent, with intent to deceiveanother party thereto or his agent, or to induce him to enter into the contractL

; 4he suggestion, as to a fact, of that which is not true, by one who does not believe

it to be true2; 4he active concealment of a fact by one having knowledge or belief of the fact#; A promise made without any intention of performing it&; Any other act fitted to deceive(; Any such act or omission which the law specifically declares to be fraudulent

$raud is an untrue statement made knowingly, or without belief in its truth, or recklessly,carelessly whether it be true or false, with intent to deceive.&err- v. ee (19)

Essentia%s of rad

; $alse misrepresentation=2; "epresentation must be of fact=#; "epresentation before contract=&; "epresentation with knowledge of falsehood=(; "epresentation must induce other=*; "epresentation must in fact deceive=; $raud must damage party misled.

4here are two types of misrepresentation in contract law, fraud in the factum and fraud ininducement.

$raud in the factum focuses on whether the party in 3uestion knew they were creating acontract. f the party did not know that they were entering into a contract, there is nomeeting of the minds, and the contract is void.


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$raud in inducement focuses on misrepresentation attempting to get the party to enterinto the contract. Eisrepresentation of a material fact if the party knew the truth that

party would not have entered into the contract; makes a contract voidable.

According to Gordon v. Selicoit is possible to make a misrepresentation either by wordsor by conduct, although not everything said or done is capable of constituting amisrepresentation.

Denerally, statements of opinion or intention are not statements of fact in the contet ofmisrepresentation.

f one party claims specialist knowledge on the topic discussed, then it is more likely forthe courts to hold a statement of opinion by that party as a statement of fact.

Disre!resentation

Eisrepresentation means a false statement of fact made by one party to another party andhas the effect of inducing that party into the contract Section 18;.

n dealing with it the first 3uestion which arises is whether the representation is, or is not,part of the contract.

f the contract is in writing and the representation is set out on the face of the paper, itmay be material or immaterial, but the effect of its untruth will be determined on muchthe same principles as govern the failure to perform a promise on the same side.

$or eample, under certain circumstances, false statements or promises made by a sellerof goods regarding the 3uality or nature of the product that the seller has may constitutemisrepresentation.

A finding of misrepresentation allows for a remedy of rescission and sometimes damagesdepending on the type of misrepresentation.

Eisrepresentation includes:G

; the positive assertion in a manner not warranted by the information of the personmaking it, of that which is not true, though he believes it to be true

2; any breach of duty which, without an intent to deceive, gains an advantage to theperson committing it, or any one claiming under him by misleading anotherto his pre)udice or to the pre)udice of any one claiming under him

#; %ausing, however, innocently, a party to any agreement to make a mistake as tosubstance of the thing which is the sub)ect of the agreement.

Dista@e
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A mistake is an incorrect understanding by one or more parties to a contract and may beused as grounds to invalidate the agreement.

%ommon law has identified three different types of mistake in contract: unilateralmistake, mutual mistake, and common mistake.

A common mistake is where both parties hold the same mistaken belief of the facts

essential to the agreement= the agreement is void Section 2+;.

llustration: A agrees to buy from 9 a horse. t turns out the horse was dead at thetime of making of the bargain, but both the parties were unaware of this fact. 4heagreement is void as both the parties are on mistake of fact essential to theagreement.

4his was demonstrated in the case of %ell v. /ever %rothers /td. whichestablished that common mistake can only void a contract if the mistake of thesub)ectGmatter was sufficiently fundamental to render its identity different fromwhat was contracted, making the performance of the contract impossible.

A mutual mistake is when both parties of a contract are mistaken as to the terms7ach believes they are contracting to something different. 4he court usually tries touphold such a mistake if a reasonable interpretation of the terms can be found.?owever, a contract based on a mutual mistake in )udgment does not cause thecontract to be voidable by the party that is adversely affected. See affles v.ichelhaus#

A unilateral mistake is where only one party to a contract is mistaken as to the

terms or sub)ectGmatter and the contract will not be voidable because of mistake ofone party to a matter of fact Section 22;.

4he courts will uphold such a contract unless it was determined that the nonGmistaken party was aware of the mistake and tried to take advantage of themistake.

t is also possible for a contract to be void if there was a mistake in the identity ofthe contracting party.

An eample is in/e#is v. Aver-where !ord Fenning E"held that the contractcan only be avoided if the plaintiff can show that, at the time of agreement, the

plaintiff believed the other partyHs identity was of vital importance. A meremistaken belief as to the credibility of the other party is not sufficient.

Contingent contracts
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Section 21. of the Contract Act, 1!" defines 3Contin$ent contract3 asA KcontingentcontractK is a contract to do or not to do something, if some event, collateral to suchcontract, does or does not happen.

llustration51

A contracts to pay 9 "s. 0,000 if 9Hs house is burnt. 4his is a contingent contract.

llustration5"

if offer a reward for the recovery of lost goods, there is not a contingent contract= thereis no contract at all unless and until some one, acting on the offer, finds the goods and

brings them to me.

678lanationA promise is said to be absolute or unconditional when the promisor bindshimself to performance in any event, conditional when performance is due only on thehappening of some uncertain event.

All contracts of insurance and indemnity are obviously contingent.

%ontingent contracts are enforced on happening of an event Section #2;.

%ontingent contracts are not enforced on an event not happening Section ##;.

Contin$enc- basicall- is de8endent on act of 8art-#

4ERORDANCE O CONTRACTS

Contracts &"ic" mst $e !erformed

Eost contracts only need to contain two elements to be legally valid:

All parties must be in agreement after an offer has been made by one party andaccepted by the other;.

Something of value must be echanged GG such as cash, services, or goods or apromise to echange such an item; GG for something else of value.

Section 2! 8rovides for *bli$ation of 8arties to contracts#;;;4he parties to a contractmust either perform or offer to perform, their respective promise, unless such

performance is dispensed with or ecused under the provisions of this Act, or of anyother law.


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'romises bind the representatives of the promisors in case of the death of such promisesbefore performances unless a contrary intention appears from the contract.

llustrations

a; A promises to deliver goods to 9, on a certain day on payment of "s. ,000. A diesbefore that day. AHs representatives are bound to deliver the goods to 9, and 9 is bound to

pay the "s. ,000 to AHs representatives.

b; A promises to paint a picture for 9 by a certain day, at a certain price. A dies beforethe day. 4he contract cannot be enforced either by AHs representatives or by 9.

A contract, being an agreement enforceable by law Section 2,; creates a legal obligationwhich subsists until discharged.

Sections *2G*; eplain K%ontracts which need not be performed.K

Time and !%ace for !erformance

Section 4 8rovides for :ime for 8erformance of 8romise #here no a88lication is to be

made and no time is s8ecified#;;;Bhere, by the contract, a promisor is to perform hispromise without application by the promisee, and no time for performance is specifiedthe engagement must be performed within a reasonable time.

678lanation :;;;4he 3uestion Kwhat is a reasonable timeK is, in each particular case, a3uestion of fact.

36n$a$ement#G;;;4he word KengagementK is constantly used instead of KagreementK orKpromise.K ?ere it is synonymous with KpromiseK.

easonable time#;;;t is always a 3uestion of fact. Bhere the defendants agreed to supplycoal to the plaintiffs from time to time, as re3uired by the plaintiffs, on reasonable noticegiven to them, a notice given by the plaintiffs on the 22nd Muly, /1/, for the supply of2,*&/ tons of coal on or before #st August, /1/, was held not to bereasonable.

Section 4! la-s do#n :ime and 8lace for 8erformance of 8romise #here time is

s8ecified and no a88lication to be made#;;;Bhen a promise is to be performed on acertain day, and the promisor has underGtaken to perform it without application by the

promisee, the promisor may perform it at any time during the usual hours of business onsuch day and at the place at which the promise ought to be performed.

llustration
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A promises to deliver goods at 9Hs warehouse on the st Manuary. +n that day A bringsthe goods to 9Hs warehouse but after the usual hour for closing it, and they are notreceived. A has not performed his promise.

Common /a# rule#;;;4his section, with the illustration, simplifies the rule. K9, is notbound to be at the warehouse to receive the goods after the usual hours of business, and ifhe is not there A has not performed his promise. f 9 is there and could receive the goods

before midnight, butH refuses to do so, A has performed his promise.K

Question of factGGG8uestion whether there was a concluded contract, is a 3uestion of factand has to be inferred from evidence led and documents produced by parties.

Absence of timeGGGEere absence of time in fulfillment of contract, does not rob contractof its basic characteristics

4ime cannot be made essence of contract by unilateral actionGGGBhenever time is made

essence of contract, court, looks into circumstances of time proposed by one or otherparty reasonable one and particularly higher duty devolves where sub)ectGmatter issubstantial and very valuable.

4ime essence of contractGGn cases of sale of land, a party can make time essence ofcontract but only by giving a notice of it; other side, in case that other side is guilty ofundue delay in performance of contract in a reasonable time.

4. A88lication for 8erformance on certain da- to be at 8ro8er time and 8lace#;;;;Bhena promise is to be performed on a certain day, and the promisor has not undertaken to

perform it without application by the promisee,it is the duty of the promisee to apply forperformance at a proper place and within the usual hours of business

Explanation.GGG4he 3uestion Kwhat is a proper time and placeK is, in each particular case,a 3uestion of fact.

C*MM6;:S

4he proper place will, of course, be the place named in the contract, if any. Bhere morethan one place is named, Kit is for the person to whom payment is to be made to fi the

place at which he will be paid= until he has selected the place at which he will be paidthere can be no default.K 4he 7nglish decision from which we 3uote would presumably

be followed here

Agreement to sell immovable property within stipulated timeGGGn case of nonGeecutionof sale deed within stipulated time, option is given to promisee purchaser; to rescindcontractGGG'romisor vendor; does not have choice of rescindingcontract in such case.
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49. lace for 8erformance of 8romise #here no a88lication to be made and no 8lace

fi7ed for 8erformance#;;;Bhen a promise is to be performed without application by thepromisee, and no place is fied for the performance of it, it is the duty of the promisor toapply to the promisee to appoint a reasonable place for the performance of the promise,and to perform it at such place.

llustration

A undertakes to deliver a thousand maunds of )ute to 9 on a fied day. A must apply to 9to appoint a reasonable place for the purpose of receiving it, and must deliver it to him atsuch place.

B+# 4erformance in manner or at time !rescri$ed or sanctioned $ !romisee#;;;4heperformance of any promise may be made in any manner, or at any time which thepromisee prescribes or sanctions.

llustrations

a; 9 owes A, 2,000 rupees. A desires 9 to pay the amount to AHs account with %, abanker. 9, who also banks with %, orders the amount to be transferred from his accountto AHs credit, and this is done by % Afterwards, and before A knows of the transfer, %fails. 4here has been a good payment by 9

b; A and 9 are mutually indebted, A and 9 settle an account by setting off one itemagainst another, and 9 pays A to balance found to be due from him upon such settlement4his amounts to a payment by A and 9, respectively, of the sums which they owed to

each other.

c; A, owes 9 2,000 rupees. 9 accepts some of AHs goods in deduction of the debt. 4hedelivery of the goods operates as a part payment.

d; A desires 9, who owes him "s. 00, to send him a note for "s: 00 by post. 4he debtis discharged as soon as 9 puts into the post a letter containing the note duly addressed toA.

4erformance of reci!roca% !romises

Section 2 f; provides for 'romises which form the consideration or part of theconsideration for each other are called reciprocal promises:

Section 1 8rovides that 8romisor is not bound to 8erform unless reci8rocal 8romisee

read- and #illin$ to 8erform.555Bhen a contract consists of reciprocal promises to besimultaneously performed no promisor need perform his promise unless the promisee isready and willing to perform his reciprocal promise.

llustrations


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a; A and 9 contract that A shall deliver goods to 9 to be paid for by 9 on delivery.

A need not deliver the goods unless 9 is ready and willing to pay for the goodson delivery.

9 need not pay for the goods unless A is ready and willing to deliver them onpayment.

b; A and 9 contract that A shall deliver goods to 9 at a price to be paid byinstallments, the first installment to be paid on delivery.

A need not deliver unless 9, is ready and willing to pay the first installment ondelivery.

9 need not pay the first installment unless A is ready and willing to deliver thegoods on payment of the first installment.

n a contract by mutual promises the promises on either side are theconsideration and the only consideration for one another.

9ut the terms of a promise may epress or imply conditions of many kinds andthe other partyHs performance of the reciprocal promise or at least readiness andwillingness to perform it may be a condition.

t is obviously immaterial whether it is called a condition or not, if in substanceit has that effect.

eadiness and #illin$ness#;;;n the case of a contract for the sale of shares in a companyit is not necessary, in order to prove that a vendor was ready and willing to perform his

part of the agreement, that he should be the beneficial owner of the shares, or that heshould tender to the purchaser the final documents of title to the shares. t is enough thathe should be able and willing to constitute the purchaser the legal owner of the sharesagreed to be sold. 4hus, where the vendor tendered to the purchaser share allotment andreceipt papers, and together with each a transfer paper and an application paper, bothsigned in blank by the original allottee, it was held that the vendor was ready and willingtoperform his promise.

Section " deals #ith the order of 8erformance of reci8rocal 8romises#;;;Bhere theorder in which reciprocal promises are to be performed is epressly fied by the contract,they shall be performed in that order= and, where the order is not epressly fied by thecontract, they shall be performed in that order which that nature of the transactionre3uires.

llustrations
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a; A and 9 contract that A should build a house for 9 at a fied price. A@s promise tobuild the house must be performed before 9Hs promise to pay for it

b; A, and 9, contract that A shall make over his stock in trade to 9 at a fied price= and9. promises to give security for the payment of money. AHs promise need not be

performed until the security is given, for the nature of the transaction re3uires that Ashould have security before he delivers up his stock.

A!!ro!riation of !aments

Sections B to 51 dea%s &it" a!!ro!riation of !aments#

="ere de$tor intimates a!!ro!riation, then Section (1 provides for application ofpayment, where debt to be discharged is indicated then payment should be appliedtowards the discharge of that particular debt %roft v. !umley /(/;. f there is no

epress intention on this, then surrounding circumstances will be looked upon by court.

7ample: f A pays to 9 "s. 0000 to settle a debt against a promissory note then "s.0000 must be applied to settle the debt against the promissory note and not otherwise.

="ere de$t to $e disc"arged is not indicated then Section*0 provides thatn that casethe creditor may apply the payment at his discretion to any lawful debt actually due and

payable to him from the debtor. !aw of limitation is not applicable.

="ere neit"er !art indicates or a!!ro!riates then Section 51 provides that the

payment shall be applied in discharge of the earlier debt in order of time.

Bhere it is not stated that payment is to be applied for settlement of debt due or interestthereon, then the lender may apply the payment first towards the interest.

Contracts &"ic" need not $e !erformed

'erformance of a contract may be avoided under the following circumstances:G

. Bhen performance of contract becomes impossible. 7ample: an agreement todouble the currency through magic is void and impossibility.

2. Section *2 deals with effect of novation, rescission and alteration of contract.f theparties to a contract agree to substitute a contract with a new one then the oldcontract need not be performed.

#. Section *# provides that a 'romisee may dispense with or remit performance ofpromise made to him or may etend the time for such performance. 7ample: A
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engages 9 to paint a picture for A, Afterwards A forbids 9 to paint the picture= 9need not perform the contract.

&. Section *& allows for non performance of voidable contract which are rescinded atoption of a party then the other party need not perform the contract.

(. Section *( provides that when an agreement is discovered to be void any personwho has received advantage under void agreement or contract that becomes voidis

bound to restore the same to the person from whom he received it.

f the terms of the contract are uncertain or incomplete, the parties cannot have reachedan agreement in the eyes of the law. An agreement to agreedoes not constitute a contractand an inability to agree on key issues, which may include such things as priceor safetymay cause the entire contract to fail.

A contract is voidif it is based on an illegal purpose or contrary topublic policy.

+ne eample, from %anada, iso-al %an of Canada v. ;e#ell. A woman forged herhusbandHs signature on &0 checks, totalling over N(/,000. 4o protect her from

prosecution, her husband signed a letter of intent prepared by the bank in which he agreedto assume Kall liability and responsibilityK for the forged checks. ?owever, the agreementwas unenforceable, and struck down by the courts because of its essential goal, whichwas to Kstifle a criminal prosecution.K 9ecause of the contractHs illegality, and as a resultvoided status, the bank was forced to return the payments made by the husband.

n the 6.S., one unusual type of unenforceable contract is a personal employmentcontract to work as a spy or secret agent.

4his is because the very secrecy of the contract is a condition of the contract in order tomaintain plausible deniability;. f the spy subse3uently sues the government on thecontract over issues like salary or benefits, then the spy has breached the contract byrevealing its eistence. t is thus unenforceable on that ground, as well as the public

policy of maintaining national securitysince a disgruntled agent might try to reveal allthe governmentHs secrets during hisJher lawsuit;.

+ther types of unenforceable employment contracts include contracts agreeing to workfor less than minimum wageand forfeiting the right to workmanHs compensationin caseswhere workmanHs compensation is due.

Antici!ator $reac" of contract

t occurs when a party to a contract repudiates the contract before the stipulated time forperformance +r when a party disables himself from performing the contract by doingsome act.
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Bhenever you have a contract that re3uires completing something, and a person informsyou before they begin your pro)ect that it will not be completed, this is referred to asanticipatory breach.

7amples:

A promised to marry 9 as soon as A@s father dies. ?owever, A refused to marry 9 during

the life time of A@s father.


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A breach of contract is failure to perform as stated in the contract. Bhere a contract isbreached, the in)ured party becomes entitled to remedies. 4here are many ways to remedya breached contract assuming it has not been waived.

"escission of the contract.

4ypically, the remedy forbreach of contractis a suit and conse3uential award of

money damages.

Bhen dealing with uni3ue sub)ect matter, specific performance may be ordered.

Suit for in)unction can also be filed.

$ollowings are the Sections of %ontract law that provides for remedies for breach of%ontract.

Section ( provides that a party rightfully rescinding contract is entitled to compensation7ample: A, a singer, contracts with 9 to sing at 9@s theatre for two nights during a weekfor two months for a price of "s. 000. A performs for five nights but fails to turn up onsith night. 9 rescinds the contract and is entitled to compensation.

"escission can be refused where plaintiff epressly or impliedly ratifies the breach andcontract, third party ac3uires rights for value and in good faith,

Section # provides for compensation for loss or damage caused by breach of contract.

Bhen a contract has been broken, the party who suffers by such breach is entitled toreceive, from the party who has broken the contract, compensation for any loss ordamage caused to him thereby, which naturally arose in the usual course of things fromsuch breach, or which the parties knew, when they made the contract, to be likely toresult from the breach of it.

Such compensation is not to be given for any remote and indirect loss or damagesustained by reason of the breach

Com8ensation for failure to dischar$e obli$ation resemblin$ those created b-

contract#;;;Bhen an obligation resembling those created by contract has been incurredand has not been discharged, any person in)ured by the failure to discharge is entitled toreceive the same compensation from the party in default as if such person had contractedto discharge it and had broken his contract

678lanation#;;;n estimating the loss or damage arising from a breach of contract, the
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means which eisted of remedying the inconvenience caused by the nonGperformance oftile contract must be taken into account.

llustrations

a; A contracts to sell and deliver (0 maunds of saltpetre to 9 at a certain price, to be paidon delivery. A, breaks his promise 9 is entitled to receive from A by way of

compensation, the sum, if any, by which the contract price falls short of the price forwhich 9 might have obtained (0 maunds of saltpetre like 3uality at the time when thesaltpetre ought to have been delivered.

4here are four different types of damages.

Deneral Famages Deneral damages are those damages which naturally flow from abreach of contract.

?adle- v. %a7endaleestablishes general and conse3uential damages.

%ompensatory damages which are given to the party which was damaged by thebreach of contract. Bith compensatory damages, there are two kinds of damagesconse3uential damages and direct damages.

%ompensatory damages are awarded to put the party in as good of a position as theparty would have been in had the contract been performed as promised.

4here must be certainty, not estimates, of what the party could have benefited ifthe contract had been performed.

%onse3uential damages are those damages which, although not naturally flowingfrom a breach, are naturally supposed by both parties at the time of contractformation.

An eample would be when someone rents a car to get to a business meeting, butwhen that person arrives to pick up the car, it is not there. Deneral damages would

be the cost of renting a different car. %onse3uential damages would be the lostbusiness if that person was unable to get to the meeting, if both parties knew thereason the party was renting the car.

7emplary damages which are used to make an eample of the party at fault todiscourage similar crimes. $ines can be multiplied by factors of up to (0 for suchdamages.

!i3uidated Famages which are damages paid for permission to breach the contractwith no further obligations. !i3uidation damages must be epressly stated in thecontract, and must be reasonable as determined by the courts;, depending on thenature of the contract.
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-ominal damages which include minimal dollar amounts often sought to obtain alegal record of who was at fault;.

'unitive damages which are used to punish the party at fault. 4hese are not usually givenregarding contracts but possible in a fraudulent situation.

Section #a provides for compensation for failure to discharge obligation resembling

those created by contract.

Section & provides for compensation for breach of contract where penalty is stipulatedfor within the terms of a contract.

S!ecific 4erformance:

4here may be circumstances in which it would be un)ust to permit the defaulting partysimply to compensate the in)ured party with damages.

4he court may make an order of what is called Kspecific performanceK, re3uiring that thecontract be performed Section 1 of S!ecific Re%ief Act 1877;.

$or eample where an art collector purchases a rare painting and the vendor refuses todeliver, the collectorHs damages would be e3ual to the sum paid.

A specific performance is obtainable for the breach of a contract to sell land or real estateon such grounds that the property has a uni3ue value.

A contract for the sale of real property is a notable eception. n most )urisdictions, thesale of real property is enforceable by specific performance. 7ven in this case thedefenses to an action in e3uity such as laches, the bona fidepurchaser rule, or uncleanhands; may act as a bar to specific performance.

0n-nction:

n some circumstances a court will order a party to perform his or her promise an orderof Kspecific performanceK; or issue an order, known as an Kin)unction,K that a partyrefrain from doing something that would breach the contract.

9oth an order for specific performance and an in)unction are discretionary remediesoriginating for the most part in e3uity.

-either is available as of right and in most circumstances a court will not normally orderspecific performance.

"elated to orders for specific performance, an in)unction may be re3uested when thecontract prohibits a certain action. Action for in)unction would prohibit the person from

performing the act specified in the contract.
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Restittion:

Bhen it is neither possible nor desirable to award damages measured in that way, a courtmay award money damages designed to restore the in)ured party to the economic positionthat he or she had occupied at the time the contract was entered known as the KreliancemeasureK;, or designed to prevent the breaching party from being un)ustly enrichedKrestitutionK;.

*octrine of frstration

Bhere uncontemplated turn of events has occurred which makes further performance of acontract impossible or unlawful, the contract becomes frustrated at that point and partiesare discharged from their obligations Section B5;.

Foctrine of frustration makes it impossible to eecute a contract without the action of anyparty /& 190 SC 1"";.

$rustration applies only to eecutory contracts and not to eecuted contracts.


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An eisting contract is substituted with a new one between same parties ordifferent parties against the consideration of mutually discharging of the oldcontract.

7ffect of -ovation is that the original contract need not be performed.

"ules of -ovation include that parties to a contract may be same and substitute the

old terms with new ones. 4erms may re3uire a new party may be added orsubstituted. Substituted contract or the old contract must be valid and enforceable.

2# 9 4erformance

A contract may be performed, thus resulting in fulfilling the obligations under acontract.

3# 9 9reac"

9reach of contractual terms discharges either party from performance ofcontractual terms, which may still be due from him. Fischarge by breach can be inthe form of: discharge by renunciation before performance= mpossibility created

by one party before performance becomes due= by reununciation in the course ofperformance for eample refusing to accept balance 3uantity of goods afterreceiving half of the delivery= by impossibility created by one party during thecourse of performance

># 0m!ossi$i%it

%ontract may become impossible to perform by reason of circumstances whichdischarge the parties from their respective obligations Section B5;. 4his includesagreements to do impossible acts.

7amples: %hange of law, destruction of thing contracted for, death of promisor incontract for services etc.

B# rstration

f performance of contract becomes impossible by reason of some event whichpromisor could not prevent.

7ample: A promises to marry 9, and before marriage A goes mad.


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war, strike, riot, crime, or act of Dode.g., flooding, earth3uake, volcano;, preventsone or both parties from fulfilling their obligations under the contract.

5# 9 O!eration of %a&

4his means, some set of circumstances which brings about a discharge of contract.

7ample: A company goes bankrupt

9ai%ment

9ailment is the delivery of goods by one person to another for some purpose, whichgoods shall be returned upon completion of such purpose or disposed off according to thedirection of person delivering such goods according to a contract between parties thereto4he person delivering the goods is called bailor and the person to whom goods are

delivered is called bailee Section 1>8;.

Dain c"aracteristics of 9ai%ment:

. Felivery of goods and delivery of possession is important Section 1>;. f there isa transfer of ownership, then it will be sale or echange but not bailment.

2. 9ailor must disclose faults in goods to 9ailee Section 1B+;.#. Felivery of possession is temporary but it is for some purpose. 9ailor has the right

to reclaim the goods so delivered.&. Doods are handled, returned or disposed off according to instructions of 9ailor.

(. +nly the movable property can be bailed.

*ties of 9ai%ee

. t is the duty of 9ailee to take care of the goods entrusted to him Section 1B1;.2. -ot to make unauthoriOed use of goods Section 1B>;.#. -ot to mi the goods with his own goods Section 1BB;1B7;.&. -ot to set up a title in goods adverse to the title of the 9ailor.(. 4o return the goods upon completion of the purpose or time for which the goods

are bailed to him.

*ties of 9ai%or

. Fisclose faults in goods to the 9ailee2. 9ear any etraordinary epenses Section (/;.#. %ompensate or indemnify the 9ailee for any loss which 9ailee may suffer by

reason that 9ailor was not entitled to make 9ailment Section 15>;.
http://en.wikipedia.org/wiki/Warhttp://en.wikipedia.org/wiki/Strike_actionhttp://en.wikipedia.org/wiki/Riothttp://en.wikipedia.org/wiki/Crimehttp://en.wikipedia.org/wiki/Act_of_Godhttp://en.wikipedia.org/wiki/Floodinghttp://en.wikipedia.org/wiki/Earthquakehttp://en.wikipedia.org/wiki/Volcanohttp://en.wikipedia.org/wiki/Warhttp://en.wikipedia.org/wiki/Strike_actionhttp://en.wikipedia.org/wiki/Riothttp://en.wikipedia.org/wiki/Crimehttp://en.wikipedia.org/wiki/Act_of_Godhttp://en.wikipedia.org/wiki/Floodinghttp://en.wikipedia.org/wiki/Earthquakehttp://en.wikipedia.org/wiki/Volcano


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Contract of indemnit

A contract of indemnity is a contract by which one party promises to save the other fromloss caused to him by the conduct of the promisor himself, or by the conduct of any other

person Section 12>;.

0%%stration:A contracts to indemnify 9 against the conse3uences of any proceedings

which % may initiate against 9 in respect of a sum of "s. 200. 4his is a contract ofindemnity.

Anot"er e.am!%eis the case of @oulston &iscount Co /td. . Clar (19!). $acts of thecase are that A and 9 go into a shop. 9 says to shopkeeper, !et A have the goods, willsee you paid. ?eld I 4he contract is of indemnity.

%ontracts of insurance are common eamples of %ontracts of indemnity.

A contract of indemnity is a class of general contract and is sub)ect to all the rules ofcontract e.g. consent, lawful ob)ect etc. %ontract of indemnity can be epress or implied.

4arties in a contract of indemnit: 4here are two parties. +ne is indemnifier, whopromises to make good the loss, and the other is indemnified or indemnity holder, the onewhose loss is made good Section 12>;.

Rig"ts of 0ndemnit Ho%der:

. Famages are paid I all damages which he may be compelled to pay in any suit in

respect of any matter to which the promise to indemnify applies.2. %ost of suit I All costs which he may be compelled to pay brining or defending

such suit.#. %ompromise payment I An indemnity holder can compromise a claim on the best

term he can and then bring an action on the contract of indemnity Section 12B;.

Rig"ts of indemnifier:

. "ights of the indemnifier are analogous to the rights of a surety under Section 1>1.

2. ndemnifier, on making good the indemnity, be entitled to succeed to all the waysand means by which the person indemnified might have protected himself againstor reimbursed himself for the loss.

%ontract of guarantee

A contract of guarantee is a contract to perform the promise or discharge the liability of athird person in case of his default.


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E.am!%e:A re3uests 9 to lend "s. 000 to % and guarantees if % does not pay theamount, he will pay. 4his is contract of guarantee.

A and 9 go into a shop. A says to shopkeeper %, let 9 have the goods, if 9 does not pay, will pay. 9irkmyr v. Farnell 0&; ?eld I 4his is a contract of guarantee.

4arties to a contract of garantee

. Surety I 4he person who gives guarantee2. %reditor I 4he person to whom guarantee is given#. 'rincipal Febtor I 4he person in respect of whose default the guarantee is given.

Agreements &it"in Contract of arantee

%ontract of guarantee comprises of three collateral contracts:

. 9etween creditor and principal debtor, there is a contract out of which theguaranteed debt arises.

2. 9etween surety and creditor, there is a contract by which surety guaranteed to payto creditor, principal debtor@s debt in case of default.

#. 9etween surety and principal debtor, there is a contract that principal debtor shallindemnify surety in case surety pays in the event of default by principal debtor.

Essentia%s of Contract of arantee

. %oncurrence of all three parties is necessary and in the absence of consent of any

of them no contract is made.2. !iability must be legally enforceable. f the liability does not eist, there cannot be

a contract of guarantee. 4hus a surety is not liable on a guarantee for the paymentof a debt which is barred by the law of limitation.

#. A contract of guarantee must meet all the re3uirements of a valid contract. 9ut if aprincipal debtor goes mad in that case surety is regarded as the principal debtor andis liable personally =ashiba v. Shri8at 19; and consideration must be received

by the principal debtor which need not be of any benefit to the surety himselfSection 127;.

&. Briting is not necessary and it can be oral or written.

ORSE/ 4RE4ARE NOTES ON I*0ST0N0SH 0N*EDN0T AN*

ARANTEE).

B# Rig"t of !rinci!a% &"en agent dea%s on "is o&n accont in $siness of agenc

&it"ot !rinci!a%Ks consent

f an agent deals on his own account in the business of the agency, without first obtainingthe consent of his principal, if agent does so, the principal may repudiate the transaction,if the case shows either that any material fact has been dishonestly concealed from

principal Section 21B)#

0%%strations

a; A directs 9 to sell AHs estate. 9 buys the estate for himself in the name of %. A, on

discovering that 9 has bought the estate for himself, may repudiate the sale, if he canshow that 9 has dishonestly concealed any material fact, or that the sale has beendisadvantageous to him.

5# 4rinci!a%Ks rig"t to $enefit gained $ agent dea%ing on "is o&n accont in $siness

of agenc

t is the duty of an agent to remit any benefit which may have resulted to him from thetransaction to his principal, provided an agent, without the knowledge of his principaldeals in the business of the agency on his own account instead of on account of his

principal Section 215)#

*. 'ay sums received for principal Sections 2 < 2/;. 'rotect and preserve principal@s interest in case of death or insanity/. -ot to use information obtained in the course of agency against the principal1. -ot to make secret profits from Agency.0.-ot to set up adverse title.-ot to conflict interest and duty.2.-ot to delegate authority


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Rig"ts of Agent

. AgentKs rig"t of retainer ot of sms received on !rinci!a%Ks accont ; An agentmay retain, out of any sums received on account of the principal in the business of theagency, all moneys due to himself in respect of advances made or epenses properlyincurred by him in conducting such business, and also such remuneration as may be

payable to him for acting as agent.

2# Rig"t to receive remneration ; n the absence of any special contract, payment forthe performance of any act is not due to the agent until the completion of such act= but anagent may detain moneys received by him on account of goods sold, although the wholeof the goods consigned to him for sale may not have been sold, or although the sale maynot be actually complete Section 21;.

#. AgentKs Rig"t of %ien on !rinci!a%Ks !ro!ert#;;;n the absence of any contract to thecontrary an. agent is entitled to retain goods, papers and other property, whethermoveable or immoveable, of the principal received by him, until the amount due tohimself for commission, disbursements and services in respect of the same has been paidor accounted for to him Section 221;.

&. AgentLs rig"t to $e indemnified against conseJences of %a&f% acts ; 4he employerof an agent is bound to indemnify him against the conse3uences of all lawful acts done bysuch agent in eercise of the authority conferred upon him Section 222;.

0%%strations

a; 9, at Singapore, under instructions from A, of 8uetta, contracts with % to delivercertain goods to him. A does not send the goods to 9 and % sues 9 for breach of contract.9 informs A of the suit, and A authoriOes him to defend the suit. 9 defends the suit, andis compelled to pay damages and costs and incurs epenses. A is liable to 9 for suchdamages, costs, and epenses.

b; 9, a broker at 8uetta by the orders of A, a merchant there, contracts with % for thepurchase of 0 casks of oil for A. Afterwards A refuses to receive the oil, and % sues 9. 9informs A, who repudiates the contracts altogether. 9 defends, but unsuccessfully and hasto pay damages and costs, and incurs epenses. A is liable to 9 for such damages, costs,

and epenses.

Agent has a right to be indemnified for acts done in good faith Section 223;. ?oweverright to indemnification do not etend to acts which are criminal in nature Section 22>;.

(. "ight of Com!ensation to agent for in-r cased $ !rinci!a%Ks neg%ect ; 4heprincipal must make compensation to his agent in respect of in)ury caused to such agentby the principalHs neglect or want of skill.

0%%stration


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A employees 9 as a bricklayer in building a house, and puts up the scaffolding himself4he scaffolding is unskillfully put up, and 9 is in conse3uence hurt. A must makecompensation to 9.

*ties and rig"ts of !rinci!a% sco!e

*ties

1# 0ndemnif AgentG 4he employer of an agent is bound to indemnify him against theconse3uences of all lawful acts done by such agent in eercise of the authority conferredupon him Section 222;.

0%%strations

a; 9, at Singapore, under instructions from A, of 8uetta, contracts with % todeliver certain goods to him. A does not send the goods to 9 and % sues 9 for

breach of contract. 9 informs A of the suit, and A authorises him to defend the suit9 defends the suit, and is compelled to pay damages and costs and incurs epensesA is liable to 9 for such damages, costs, and epenses

b; 9, a broker at 8uetta by the orders of A, a merchant there, contracts with % forthe purchase of 0 casks of oil for A. Afterwards A refuses to receive the oil, and %sues 9. 9 informs A, who repudiates the contracts altogether. 9 defends, butunsuccessfully and has to pay damages and costs, and incurs epenses. A is liableto 9 for such damages, costs, and epenses.

2. Agent has a right to be indemnified for acts done in good faith Section 223;.

#. ndemnify agent for in)ury caused by principal@s neglect G 4he principal must makecompensation to his agent in respect of in)ury caused to such agent by the principalHsneglect or want of skill Section 22B;.

&. 'ay any commission due to or agreed with agent.

Rig"ts of 4rinci!a%

. 4o recover damages from agent if agent disregards the directions of principal or suffersloss due to lack of re3uisite skill, care or diligence on the part of his agent.

2. 4o recover secret profits made by agent and resist claim of agent for remuneration.

#. "esist claim against indemnity where in any transaction the agent has acted asprincipal and not as agent.


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&. 'rincipalHs right to benefit gained by agent dealing on his own account in business ofagency.

(. "ight of principal when agent deals, on his own account, in business of agency withoutprincipalHs consent

f an agent deals on his own account in the business of the agency, without first obtaining

the consent of his principal, if agent does so, the principal may repudiate the transaction,if the case shows either that any material fact has been dishonestly concealed from

principal Section 21B)#

E.tent and @inds of agentLs at"orit

Section 225 lays down the acts of an agent which fall within the scope of his authoritywhich bind his principal# %ontracts entered into through an agent, and obligations arisingfrom acts done by an agent, may be enforced in the same manner, and will have the samelegal conse3uences as if the contracts had been entered into and the acts done by the

principal in person.

0%%strations

a; A buys goods from 9 knowing that he is an agent for their sale, but not knowing whothe principal is. 9Hs principal is the person entitled to claim from A the price of the goodsand A cannot, in a suit by the principal, set off against that claim a debt due to himself

from 9.

b; A being 9Hs agent, with authority to receive money on his behalf, receives from % asum of money due to 9. % is discharged of his obligation to pay the sum in 3uestion to 9.

Authority of agent to bind his principal may be:

a. Actual or real authorityb. Apparent or ostensible authority

Acta% At"oritSection 185;.

Actual authority of an agent is the authority conferred on him by the principal. t may beepress, incidental or implied.

a. 7press authority is that which is given by the principal by words spoken orwritten Section 187;.

b. mplied authority is inferred from the relevant circumstances i.e. from an act donewhich was necessary for eecution of epress authority Section 188;.


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A!!arent or Ostensi$%e At"orit

Apparent authority is that which is not real but the principal by his words or conductreasonably leads a third party to believe that agent possesses such authority.

-an v ilin$ton (199)where an estate agent was instructed by owners to find a

purchaser for a property and accepted deposit as agent. He%d:although agent was notgiven authority to accept deposit yet, he acted within the scope of his ostensible authority

/ia$i%ities of !rinci!a% to t"ird !art

/ia$i%it &"en !rinci!a% is named

. Acts of agents are acts of 4rinci!a%G %ontracts entered into through an agent,and obligations arising from acts done by an agent, may be enforced in the same

manner, and will have the same legal conse3uences as if the contracts had beenentered into and the acts done by the principal in person Section 225;.

E.am!%e: A being 9Hs agent, with authority to receive money on his behalf,receives from % a sum of money due to 9. % is discharged of his obligation to paythe sum in 3uestion to 9.

2. ="en Agent e.ceeds at"orit G Bhen an agent does more than he isauthoriOed to do, and when the part of what he does, which is within his authority

can be separated from the part which is beyond his authority, so much only of whathe does as is within his authority is binding as between him and his principal.

0%%stration

A being owner of a ship and cargo, authoriOes 9 to procure an insurance for &,000rupees on the ship. 9 procures a policy for &,000 rupees on the ship, and anotherfor the like sum on the cargo. A is bound to pay the premium for the policy on theship, but not the premium for the policy on the cargo.

#. Notice given to Agent is notice given to 4rinci!a%G Any notice given to orinformation obtained by the agent, provided it be given or obtained in the course ofthe business transacted by him for the principal, shall, as between the principal andthird parties, have the same legal conse3uences as if it had been given to orobtained by the principal.

0%%strations


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principal in the contract, or if he had known that the agent was not a principal, he wouldnot have entered into the contract.

b; 4osition of agentI As between the principal and agent, an agent has all the rights ofan agent as against the principal. 9ut as regards the third party, he is personally liable onthe contract. 4he third party may sue the agent on the contract, and the agent has a rightto sue the third party.

c; 4osition of t"ird !artiesI 4he third party on making a contract with an agent for anundisclosed principal may elect to sue either the principal or the agent or both of them.

E.am!%e:A makes a contract with 9 for the sale of 00 bales of cotton yarn, where afterA discovers that 9 is acting as agent for %. A may sue either % or 9 or both % < 9, forthe price of goods.

4ersona% %ia$i%it of agent to t"ird !art

An agent is personally liable to third parties in the following cases:

. ="en contract e.!ress% !rovides ;that a party while contracting with an agent mayepressly stipulate that in case of breach of contract, he would hold the agent personallyliable in case of breach of contract and if the agent agrees to it, he is personally liable.

2. ="en agent act for a foreign !rinci!a% ; Bhere the contract is made by an agent forthe sale or purchase of goods for a merchant resident abroad, agent is held personallyliable Section 23+;.

#. ="en agent acts for ndisc%osed !rinci!a%G Bhere the agent does not disclose thename of his principal, agent is held personally liable Section 23+;.

&. ="en agent signs contract in "is o&n nameI when an agent signs a contract in hisown name without disclosing that he is acting as an agent, though known to be an agent isunderstood to have contracted personally.

(. ="en agent acts for a non;e.istent !rinci!a% I Bhen the promoters act for a

company yet to be registered, they are personally liable for all such acts.

*. ="en agent is %ia$%e for $reac" of &arrant of at"oritI when a person acts as anagent but has no authority from the alleged principal, or eceeds the authority, he is

personally liable.

. ="en agent !as or receives mone $ mista@e or fradI he is personally liable tothe third party.


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/. ="en at"orit is co!%ed &it" interestI Bhen an agent has an interest in thesub)ect matter of the contract made by him with a third party, his authority is coupledwith interest. ?e can sue and be sued to etent of his interest.

1. Bhen agent is personally liable under trade usage or customs.

E.am!%e:A contracts with 9 to sell 00 Air conditioners. !ater on A discovers that 9

was acting as agent for %. A may sue 9 or % or both for the price of Air %onditioners.

Termination of agenc

An Agency can be terminated by:

. Act of parties2. +peration of law

. 4ermination of Agency by Act of 'arties:

4ermination of Agency by Act of 'arties can be through:

a. Agreementb. "evocation by the principalc. "evocation by the Agent

2. 4ermination of Agency by +peration of !aw

4ermination of Agency by +peration of !aw can be through:

a# 4erformance of contract:

Bhere an agreement is for a particular purpose and when the purpose isaccomplished the agreement automatically terminated or when the ob)ect ofcontract becomes impossible.

Section 2+1provides that an agency is terminated by the principal revoking

his authority= or by the agent renouncing the business of the agency= or by thebusiness of the agency being completed= or by either the principal or agentdying or becoming of unsound mind= or by the principal being ad)udicated aninsolvent under the provisions of any Act for the time being in force for therelief of insolvent debtors.

$# E.!ir of time


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Bhere an agent has been appointed for a fied term, the epiration of the termputs an end to the agency, whether the purpose of the agency has beenaccomplished or not= conse3uently where an agency for sale has epired byepress limitation, a subse3uent eecution thereof is invalid, unless the term has

been etended.

c# *eat" of eit"er of t"e !arties

An agency comes to an end by the death of either 'rincipal or Agent Section20;. Bhere the 'rincipal dies, the agent must take on behalf of therepresentatives of his late principal all reasonable steps for the protection of theinterest entrusted to him Section 201;.

A power of attorney to an agent to present a document for registration isrevoked by the death of the principal.

d# 0nsanit of eit"er of t"e !arties

'ursuant to Section 20, either the principal or agent dying or becoming ofunsound mind, agency shall come to an end.

e# 0nso%venc of eit"er of t"e !arties *isso%tion of a Com!an

contract act 1872 pakistan

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