Indian Contracts Act, 1872 – CMA Inter Business Laws and Ethics Study Material is designed strictly as per the latest syllabus and exam pattern.
Indian Contracts Act, 1872 – CMA Inter Law and Ethics Study Material
Contract Basic Concepts – CMA Inter Law and Ethics Study Material
Question 1.
Write short Notes. Lawful consideration (Dec 2012, 4 marks)
Answer: .
Lawful consideration The consideration or object of an agreement is lawful unless:
- It is forbidden by law; or
- Is of such a nature that if permitted, it would defeat the provisions of any Law or any rule for the time being in force in India; or
- Is Fraudulent; or
- It involves or implies injury to the person or property of another; or
- The Court regards it as immoral or opposed to public policy.
In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.
Question 2.
Write short note on the following:
(a) E-Contracts (June 2017, 5 marks)
Answer:
E-Contracts
Electronic contracts are paperless contracts. It is in electronic form. It is the change of technology and legal requirements lead the contract to be in electronic form. E-contract is a contract modeled, specified, executed, and deployed by a software system. They are conceptually very similar to traditional commercial contracts. E-contract also requires the basic elements of a contract. The following are ingredients of the e-contracts:
An otter is to be made;
Otter is to be accepted;
- There shall be a lawful consideration;
- There shall an intention to create legal relations;
- The parties must be competent to contract;
- There must be free and genuine consent;
- The object of the contract must be lawful;
- There must be certainty and possibility of performance.
Question 3.
Write short note on out of the following term:
(a) Undue Influence. (June 2018, 5 marks)
Answer:
Undue Influence:
When two parties enter into contract with each other and 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 party, such contract is said to be induced by ‘undue influence’.
If a person having a dominant position over another person and he enters into contract with such person then the burden of proof that the contract was not done under undue influence, is on the person holding the dominant position.
A person is said to be having a dominant position if.
- He makes contract with a person who is not of sound mind because of age, illness, mental instability or bodily distress, etc.
- He holds some control over the other person
- He holds some monetary obligation over the other person.
Question 4.
Write short flotes on:
(a) E-Contracts – (Dec 2018, 5 marks)
Answer:
E-Contracts
Electronic contracts are paperless contracts. It is in electronic form. It is the change of technology and legal requirements lead the contract to be in electronic form. E-contract is a contract modeled, specified, executed, and deployed by a software system. They are conceptually very similar to traditional commercial contracts. E-contract also requires the basic elements of a contract. The following are ingredients of the e-contracts:
- An otter is to be made;
- Otter is to be accepted;
- There shall be a lawful consideration;
- There shall an intention to create legal relations;
- The parties must be competent to contract;
- There must be free and genuine consent;
- The object of the contract must be lawful;
- There must be certainty and possibility of performance.
Question 5.
Write short notes on:
(a) Agreement without consideration (June 2019, 5 marks)
Answer:
Agreement without consideration:
Section 25 provides that an agreement made without consideration is void unless:
1. It is in writing and registered: It is expressed in writing and registered under the law for the time being in force for the registration of documents and is made on account of natural love and affection between parties standing in a near relation to each other; or unless
2. If is a promise to compensate for something done: It is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do; or unless
3. It is a promise to pay a debt, barred by limitation law: It is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits. In any of these cases, such an agreement is a contract.
Question 6.
Write short note on the following term:
(a) Misrepresentation. (Dec 2019, 5 marks)
Answer:
Misrepresentation: (Section 18 of the Indian Contract Act, 1872) Where a person asserts something which is not true, though he believes it to be true, his assertion amounts to misrepresentation. Misrepresentation may be either innocent or without reasonable grounds.
Misrepresentation means and includes:
1. The positive assertion, in a manner not warranted by the information of the person making it, of that which ¡s not true, though he believes it to be true;
2. Any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or anyone claiming under him, by misleading another to his prejudice or to the prejudice of anyone 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.
Question 7.
Write Short Notes on Coercion (Dec 2021, 3 marks)
Answer: .
COERCION: The term “Coercion” has been defined in Section 15 of the Indian Contact Act, 1872 as the committing or threatening to commit, any act forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.
Explanation: it is immaterial whether the Indian Penal Code is or is not in force in the place where the coercion is employed. From the above definition of coercion given in section 15, consent is said to be caused by coercion, when it is obtained by any one of the following;
- Committing or threatening to commit any act forbidden by Indian Penal Code;
- Unlawful detaining or threatening to detain the property of another person. Coercion may come from a person party to the contract or even third person not connected with the contract directly.
Question 8.
Write short note on following terms:
(a) Doctrine of Privity of Contract (Dec 2022, 5 marks)
Question 9.
A deceit which does not deceive ¡s not fraud. Comment. (Dec 2012, 2 marks)
Answer:
Fraud should actually exist for taking action against it. If no one is deceived, there is no case of fraud. An attempt to fraud is not a fraud unless the party is actually deceived.
Question 10.
While discussing, Rajib told his friends that Contracts need not be performed under certain circumstances. Deepak objected to it. State the correct position. (Dec 2012, 4 marks)
Answer:
Yes, it is possible. Sections 62 to 67 of the Contract Act are listed under the heading “Contracts which need not be performed”. The relevant provisions are as follows:
- If by mutual agreement there is Novation, Rescission or Alteration, the original contract need not be performed (Sec. 62).
- Where the promisee waives or remits the performance of promise made to him, wholly or in part or extends the time of performance or accepts any other satisfaction for it (Sec. 63).
- When a voidable contract is rescinded, the other party need not to perform his promise (Sec. 64).
- If the promisee neglects or refuses to afford the promisor reasonable facilities of the performance of his promise, the promisor is excused by such neglect or refusal as to any non-performance caused thereby (Sec. 67).
Under the Law of Contract, the following agreements need not be performed.
- Unlawful consideration and object – Sec. 23.
- Where the performance is unlawful or illegal – Sec. 56.
- When performance become impossible.
Question 11.
A patient in a lunatic asylum can also enter into a valid contract. State the position based on legal provision. (2 marks)
Answer: .
A person having a sound mind can enter into a valid contract. If a person is usually of unsound mind, who is at intervals of sound mind, may contract during those intervals when he is of sound mind.
Question 12.
(i) Does silence amount to fraud? (Dec 2013, 3 marks)
Answer:
When a party to contract maintains silence over some of the facts relating to contract, such silence may or may not amount to fraud depending upon the circumstances and facts of each case.
Explanation to Section 17 of the Indian Contract Act, 1872, provides that mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud unless the circumstances of case are such that having regard to them it is the duty of the person keeping silence to speak or unless silence itself is equivalent to speech.
When the circumstances of contract are such that a person should speak and he does not speak but keeps silence then such silence will be treated as fraud.
Exceptions to the General Rule:
The general rule that silence does not amount to fraud has the following exceptions: (In the following cases silence will amount to fraud)
- When the parties stand in fiduciary relationship (i.e., relationship of faith and trust, parent and child, etc.) ‘
- Where silence is equivalent to speech.
- Half Truth – It is worse than a blatant lie. Partial truthful disclosures may easily deceive the other party.
Question 13.
(ii) X buys from Y a painting which both believe to be work of an old masterpiece and for which X pays a high price. The painting turns out to be only a modern copy. Discuss the validity of the contract. (June 2014, 2 marks)
Answer:
The Contract is absolutely void as there is a mutual mistake of both the parties as to the substance or quality of the subject matter going to be the very root of the contract. In case of bilateral mistake of essential fact, the agreement is void ab initio, as per Section 20 of the indian Contract Act, 1872.
Question 14.
Answer the question:
(a) (i) What are essential elements of a valid acceptance? (June 2016, 8 marks)
Answer:
(a) Acceptance must be absolute and unqualified; ¡t must conform to the offer As per Section 7 in order to convert a proposal into a promise, the acceptance must:
1. Be absolute and unqualified: If the parties are not adamant on all matters concerning the offer and acceptance, there is no contract. An invitation with variation is no acceptance, it is simply a counter-proposal, which must be accepted by the original proposer before any contract is made.
2. Be expressed In some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such a manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but If he fails to do so, he accepts the acceptance.
In Surender Nath Vs Kedar Nath AIR 1936 Cal 87 the Calcutta High Court held that where an offeror requires that the acceptance should be sent to a particular person in writing, Section 7 was not violated when the offeree instead of writing to the particular person, sent his agent in person to communicate the acceptance.
(b) Specific offer can be accepted by the person to whom It is made:
Whereas as general offer can be accepted by anyone competent to contract and meeting the conditions of offer. It was held in Boulton Vs Jones (1857)27 U ex 117 case that a specific offer can be accepted only by the person to whom ¡t ¡s made. A general offer can be accepted by anyone as held in case of Carill vs Carbolic Smoke Ball Co, and Harbars Lai Vs Harbanslal, already discussed earlier in this study note.
(c) Acceptance may be expressed or Implied:
As per Section 9 in so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied. It can be inferred from the conduct of the parties. When a person boards Metro Rail it is an implied acceptance.
(d) Acceptance should be of the whole proposal and not in part Acceptor should accept the whole proposal in total and not in parts. Part acceptance is no acceptance binding upon the proposer.
(e) Acceptance should be according to the mode prescribed be usual and reasonable mode:
Acceptor cannot accept the proposal in a manner different from the manner prescribed in the offer. If no such mode is prescribed it should reasonable mode. Silence cannot or usual and be a mode of acceptance.
In SurenderNath Vs Kedarnath, AIR 1936 ca 87, the Calcutta High Court held that where an offer or requires that the acceptance should be sent in writing to a particular person, Section 7 of the contract act is not violated when the offeree instead of writing to particular person, sent his agent in person to communicate the acceptance.
(f) Communication of acceptance is must:
A mental determination to accept unaccompanied by any external indication will not be sufficient acceptance. To constitute an acceptance such acceptance must be communicated to the offeror or his authorized agent.
(g) Acceptance must be given before Its lapse:
Acceptance must be given before the offer lapses by expiry of time fixed or by expiry of reasonable time if no time is so fixed or before it is withdrawn or revoked by the offer or.
In Rama’s gate Victoria Hotel co. Vs. Monte Foire (1866)LR 1 Exch 109 it was held
that a person who applied for shares in a company in June was not bound by any allotment made in November.
Question 15.
Does silence amount to fraud? Explain with exceptions and types of silence amount to fraud. (June 2017, 9 marks)
Answer:
Fraud: [Sec. 17]
Explanation to Section 17 of the Indian Contract Act provides that mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud unless the circumstances of case are such that having regard to them it is the duty of the person keeping silence to speak or unless silence itself is equivalent to speech.
Thus we can say that there is exception to the rule that mere silence does not amount to fraud. These two exceptions are provided in explanation to Section 17 as under which we have already discussed above.
- When there is a duty to speak.
- Where silence is equivalent to speech.
However, in the following two types of cases, silence amounts to fraud, as held by the courts in various cases:
(a) Where there Is change In circumstances: A representation may be true when made but with the passage of time or changed circumstances it may become false. Accordingly, this must be communicated to other party otherwise it amount to fraud.
(b) When there is halt-truth: Thus even when a person is not bound to disclose a fact he may be held guilty of fraud if he volunteers to disclose a state of fact partly. This is so when the undisclosed part renders the disclosed part false.
Question 16.
What are the position of Minor’s agreement and effect thereof? (Dec 2017, 10 marks)
Answer:
The position of Minor’s agreement and effect thereof is as under:
1. An agreement with a minor is void ab initio.
2. The law of estoppel does not apply against a minor. It means a minor can always plead his minority despite earlier misrepresenting to be a major. In other words, he cannot be held liable on an agreement on the ground that since earlier he had asserted that he had attained majority.
3. Doctnne of Restitution does not apply against a minor. In India the rules of restitution by minors are similar to those found in English laws. The scope of restitution of contract by minor was examined by the Privy Council in Mohiri Bibi case when it has held that the restitution of money under section 64 of the Indian Contract Act cannot be granted under section 65 because a minor’s agreement is not voidable but absolutely void ab-into. Similarly, no relief can be granted under section 65 as this section is applicable where the agreement is discovered to be void or the contract becomes void.
4. No Ratification on Attaining Majority – Ratification means approval or confirmation A minor cannot confirm an agreement made by him during minority on attaining majority. If he wants to ratify the agreement, a fresh agreement and fresh consideration for the new agreement is required.
5. Contract beneficial to Minor – A minor is entitled to enforce a contract which is of some benefit to him. Minority is a personal privilege and a minor can take advantage of it and bind other parties.
6. Minor as an agent – A minor can be appointed an agent, but he is not personally liable for any of his acts.
7. Minor’s liability for necessities – If somebody has supplied a minor or his dependents with necessities, minor’s property is liable but a minor cannot be held personally liable.
8. A minor cannot be adjudged insolvent as he is incapable of entering into a contract.
9. Where a minor and an adult jointly enter into an agreement with another person the minor is not liable and the contract can be enforced against the major person.
Question 17.
Discuss the différent modes of terminating contractual relationships between the parties. (Dec 2019, 10 marks)
Answer:
When the rights and obligations created by a contract comes to an end, the contract is said to be discharged. Discharge of contract means termination of contractual relationship between the parties. The following are the different methods by which a contract is discharged:
1. Discharge by performance:
Performance is the usual mode of discharge of a contract. Performance may be (i) actual performance (ii) attempted performance. Actual performance is the fulfillment of the obligations arising from a contract by the parties to it, in accordance with the terms of the contract. Offer of performance is called attempted performance or tender of performance. A valid tender of performance is equivalent to performance.
2. Discharge by agreement:
The parties may agree to terminate the existence of the contract by any of the following ways:
(i) Novation: Substitution of a new contract in place of the existing contract is known as theovation of Contract”. It discharges the original contract. The new contract may be between the same parties or between different parties. Novation can take place only with the consent of all the parties.
(ii) Alteration: Alteration means change in one or more of the terms of the contract. In case of novation there may be a change of the parties, while in the case of alteration, the parties remain the same.
(iii) Rescission: Rescission means “cancellation”. All or some of the terms of a contract may be cancelled. Rescission results in the discharge of the contract.
(iv) Remission: Remission means acceptance of a lesser performance that what is actually due under the contract. There is no need of any consideration for remission.
(v) Waiver: Waiver means giving up or foregoing certain rights. When a party agrees to give up its rights, the contract is discharged.
3. Discharge by lapse of time:
Every contract must be performed within a fixed or reasonable period. Lapse of time discharges the contract. The Indian Limitation Act has prescribed the period within which the existing rights can be enforced in courts of law.
4. Discharge by operation of law:
A contract may be discharged by operation of law in the following cases:
- Death: In contracts involving personal Skill or ability, death terminates the contracts. In other cases, the rights and liabilities of the deceased person will pass on to his legal representatives.
- Insolvency: The insolvency of the promisor discharges the contract. The promisor is discharged from all liabilities incurred prior to his adjudication.
- Unauthorized material alteration: Material alteration in the terms of the contract without the consent of the other party discharges the contract. Changes in the amount of money to be paid, date of payment, place of payment, etc. are examples of material alteration.
- Merger: When inferior rights of a person under a contract merge with superior rights under a new contract, the contract with interior rights will come to an end.
5. Discharge by impossibility of performance:
Impossibility of performance results in the discharge of the contract. An agreement which is impossible is void because law does not compel to do impossible things.
6. Discharge by breach:
Breach means failure of a party to perform his obligations under a contract. Breach brings an end to the obligations created by a contract.
Instance: X and Y wanted to marry each other. Before the time fixed for marriage, A goes mad. The contract becomes void.
Termination of Contract:
The proper way, in which the agreement could have been terminated by issuing of a notice to the plaintiff, calling upon to complete the transaction within a particular time, tailing which the contract will be treated as cancelled.
That this is the proper way of terminating the contract is cleared from what has been observed in “Narayana Swami Pillai V. Dhanakodi Ammal”, that when the contract is for the sale of immovable property the vendor must given reasonable notice requiring the performance within a certain time.
Question 18.
Discuss the remedies available to buyer against seller for breach of contract. (Dec 2021, 6 marks)
Answer:
Remedies available to buyer against seller for breach of contract (Section 57 to 60).
These are as under:
1. Suit for Damages for Non-Delivery: When the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery.
2. Suit for price: Where the buyer has paid the price and the goods are not delivered to hum, he can recover the amount paid.
3. Suit for specific performance: When the goods are specific or ascertained, a buyer may sue the seller for specific performance of the contract and compel him to deliver the same goods.
4. Suit for Breach of Warranty: Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat the breach of condition as breach of warranty; the buyer cannot reject the goods.
The buyer may – (a) set up the breach of warranty in extinction or diminution of the price payable by him, or (b) sue the seller for the damages for breach of warranty.
5. Repudiation of contract before the due date: Section 60 provides that where either party to a contract of sale repudiates the contract before the date of delivery and the other may either treat the contract as subsisting or wait till the date of delivery or he may treat the contract as rescinded and sue for damages for the breach.
6. Suit for interest: The buyer may recover such interest or special damages, as may be recoverable by law. He may also recover the money paid where the consideration for the payment of it has failed.
Question 19.
Comment on the following based on legal provisions:
(a) Mr. Menon offered on 1 December 2012 to sell his house to Mr. Poison at INR Thirty Five Lakhs. Mr. Poison accepted by email on 2 December, 2012 at 8 A.M. At 10 A.M. Mr. Poison sent a Fax revoking the acceptance. Both email (i.e. acceptance) and Fax (i.e. revocation) reached Menon at the same time. Hence this was valid. (Dec 2012, 2 marks)
Answer:
When the letter of acceptance and letter of revocation of acceptance reach the person at the same time, the effective letter will be that letter which the receiver opens first. In the given case, if Menon opens the letter of acceptance first, the contract would be treated as accepted. If Menon opens the letter of revocation (cancellation) first the contract would be treated as revoked (cancelled).
Question 20.
Comment on the following based on legal provisions:
(a) Mr. A offers to buy Mr. B’s house on certain terms. Acceptance was to be sent by ‘B’ within 6 (six) weeks. B within one week sent a letter accepting the offer with an alteration of one term. A then withdrew his offer. B writes again within three weeks accepting the terms originally proposed by ‘A’. Hence this is a valid contract. (June 2013, 2 marks)
Answer:
The original proposal of A was altered by B. This amounts to death of original proposal. B’s proposal is a counter offer which is to be treated as a fresh proposal. This is not a valid contract even if B agrees to accept the original terms because the original contract was dead when its terms were first altered.
Question 21.
Referring to a quarrel and disagreement between husband and wife, the husband agreed to execute and register a document in favour of his wife to transfer one of his properties to his wife. Later on husband refused. Whether wife can enforce? (June 2013, 3 marks)
Answer:
The wife will not succeed because the contract is without consideration. If the transfer is without consideration but there is an existence of mutual love and affection, such transfer is valid in the eyes of law. In the present case, the transfer is due to quarrels and arguments and is without consideration, this does not fulfill the essentials of a valid contract.
Question 22.
Arun, Varun and Tarun are partners of software business and jointly promise to pay INR 60,000 to Karun. Over a period of time, Varun becomes insolvent, but his assets are sufficient to pay one-fourth of his debts. Tarun ¡s compelleç to pay the whole. Decide whether Tarun is required to pay whole amount to Karun In discharging joint promise? (Dec 2013, 3 marks)
Answer:
According to Section 43 of Indian Contract Act,1 872 when two or more persons make a joint promise, promisee may, in absence of express agreement to the contrary compel any one or more for such joint promisors to perform the whole of the promise. Further, if any one of two or more joint promisors makes default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares. Therefore, in this case, Tarun is entitled to receive INR 5000 (one-fourth of Varun’s share of debt) from Varun’s assets and balance INR 27500 from Arun.
Question 23.
(ii) W offered to sell hs house to M for ₹ 40 lakhs. M replied purporting to accept the offer and enclosed a cheque for ₹ 20 lakhs. He also promised to pay the balance amount in twenty equal installments. Examine the validity of the contract. (June 2014, 2 marks)
Answer:
Conditional acceptance is no acceptance at all. Acceptance of an otter must be absolute and unqualified i.e., it must conform to the offer. An acceptance, in order to be binding, must be absolute and unqualified [Sec. 7(1)] ¡n respect of all terms of the otter, whether material or immaterial, major or minor. In the case provided, the acceptance is a qualified acceptance; hence ¡t would not result in a valid contract.
Question 24.
W, the wife of H, who is lunatic, purchases a diamond set of ₹ 10 lacs from a jeweller on credit. Referring to the provisions of the Indian Contract Act, 1872, decide whether the jeweler is entitled to claim the above amount from the property of H. (Dec 2014, 4 marks)
Answer:
The problem relates to the provisions of quasicontract. It is to be noted that minors, persons of unsound mind or lunatics and other disqualified persons are incompetent to contract.
But, under the provisions of Section 68 of Indian Contract Act, 1872 “if necessaries are supplied to a person, who is incompetent to contract, the supplier is entitled to claim the reimbursement from the estate of such person”.
A supplier would also be entitled to recover the price of necessaries supplied to wives or minor child of the incompetent person, as he is legally bound to support them.
Also necessaries would mean ‘goods suitable to the condition in the life of such person’ and not luxuries. Again person liability is not accrued for minors and lunatics; it is only their estate that would be liable. If there is no property nothing would be realizable.
To establish his claim the supplier must prove not only that the goods were supplied to the person who was a minor or a lunatic, but also that they were suitable to his requirement at the time of sale and delivery.
It is also to be noted that a person of unsound mind, who has intervals of sound mind can enter into a contract during such period.
Thus the burden to prove that H is lunatic and he was of unsound mind when entered into the contract lies on the seller. In the given problem, the jeweler would not be entitled for the claim, as a diamond set worth ₹ 10 lakhs for the wife of H, is not a necessity and is surely a luxury.
Question 25.
Answer the questions:
(b) (i) Abhay, UG degree student was induced by his lecturer to sell his brand new car to the later at less the purchase price to secure more marks in the University examination. Accordingly, the car was sold. However, the father of Abhay persuaded him to sue his lecturer. State whether Abhay can sue against the lecturer? (June 2015, 3 marks)
(d) (i) Anita and Binita are friends, and Binita treats Anita during Anita’s illness. Binita does not accept payment from Anita for treatment and Anita promises Sinita’s son Sunit to pay him ₹ 12,000. Anita being in poor circumstances is unable to pay. Sunit sues Anita for the money. Can Sunit recover? (June 2015, 3 marks)
(e) (i) Arvinda took a bet of ₹ 20,000 with Bannerjee that a certain horse would win the race. Arvinda and Bannerjee both residents of Kolkata. Arvinda borrowed ₹ 20,000 from his friend Chatterjee for this purpose.
Arvinda lost the bet and paid ₹ 20,000 to Bannerjee. Can Chatterjee recover the loan amount from Arvinda? Give reasons. What would have been the difference had the transaction took place in Ahmedabad between’ the parties residing there? (June 2015, 3 marks)
Answer:
(b) (i) Yes, Abhay can sue against his lecturer on the ground of influence under the provisions of the Indian Contract Act, 1872.
A contract brought as a result of coercion, undue influence, fraud, misrepresentation would be voidable at the option of the person whose consent was caused.
As per Sec. 19-A when consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused.
Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit there-under, upon such terms and conditions as the Court may seem just.
(d) (I) No, Sunit cannot recover the money from Anita. The agreement between Sunit and Anita is not a contract in the absence of consideration. In his case, Sunita’s mother, Binita, voluntarily treats Anita during her illness.
Apparently, it is not a valid consideration because it is voluntary whereas consideration to be valid must be given at the desire of the promisor void Section 2(d).
The question now is whether this case ¡s covered by the exception given in Section 25(2) which inter-a/ia provides.
“If it is a promise to compensate a person who has already voluntarily done something for the promisor …………….. “
Thus as per the exception, the promise must be to compensate a person who has himself done something for the promisor and not to a person who has done nothing for the promiser.
As Binita’s son, Sunitto whom the promise was made, did nothing for Anita, So Anita’s promise is not enforceable even under the exception.
(e) (i) Yes, Chatterjee can recover the loan amount from Arvinda. The transaction between Arvinda and Chatterjee is a collateral transaction which is valid, though the main transaction between Arvinda and Bannerjee is void, being a wager.
Had the transaction took place in Ahmedabad, Chatterjee could not have recovered the loan as in Ahmedabad the wager transactions are illegal and a transaction collateral to it is also void on the ground of illegality.
Question 26.
(i) The father of a minor girl, Anu, entered into an agreement for her marriage with Vishal. Afterwards, Vishal refused to marry Anu. On attaining majority, Anu filed a suit against Vishal for damages for breach of promises to marry. Vishal contended that Anu cannot enforce the contract as she was not a party to the agreement between him and Anu’s father. Is Vishar’s contention valid? (Dec 2015, 3 marks)
Answer:
An agreement is made in connection with marriage partition or other family arrangements, and a provision is made for the benefit of some person. In such cases, a person, for whose benefit the provision is made in such family arrangements, can enforce the agreement even if he is not a party to it.
It may, however, be noted that provision must be made for the benefit of the person who wants to enforce such marriage arrangements. No, Vishal’s consent is not valid. The marriage agreement or other family arrangements where a provision is made for the benefit of some person can be enforced by the beneficiary even if he is not a party to the same.
Question 27.
Answer the question:
(i) X Father promised to pay his son Y a sum of ₹ One lakh it Y (son of X) passed CMA examination in the first attempt. Y passed the CMA examination in his first attempt, but X failed to pay the amount as promised. Y files a suit for recovery of the said amount. State along with reasons whether Y can recover the amount under the Indian Contract Act, 1872. (June 2016, 5 marks)
Answer:
Problem asked in the question is based on the provisions of the Indian Contract Act, 1872 as contained in Section 10.
According to the provisions, there should be an intention to create legal relationship between the parties. Agreements of a social nature or domestic nature do not contemplate legal relationships and as such are not contracts, which can be enforced. This principle has been laid down in the case of Balfour Vs. Balfour. Accordingly, applying the provisions and the ease decision, in the case Y cannot recover the amount of Rupees one lakh from X for the reasons explained above.
Question 28.
Answer the question:
A, aged 16 years, was studying in an engineering college. On 1 June, 2015 he took a loan of ₹ 2 Lakhs from B for the payment of his college fee and agreed to pay by 31 July 2016. A possesses assets worth ₹ 20 Lakhs. On due date, A fails to pay back the loan to B; B flow wants to recover the loan from A out of his assets. Whether B would succeed? Decide, referring to the provisions of the Indian Contract
Act, 1872. (Dec 2016, 5 marks)
Answer:
The problem in question is covered under the exceptions. As per Section 68 of the Indian Contract Act 1872 though a minor is not personally liable to pay the price of necessaries supplied to him or money lent for the purpose, this supplier or lender will be entitled to claim the money/price of goods or services which are necessaries suited to his condition of life provided that the minor has a property. The liability of minor is only to the extent of the minors property. This type of contract is called a Quasi-contract and the right of the supplier/tender is based on the principle of equity. Hence, in the given case B will be entitled to recover the amount of loan given to A for payment of college fees from the property of A, the minor.
Question 29.
A agreed to become an assistant for five years to B who was a doctor practicing at Chennai. It was also agreed that during the term of agreement, A will not practice on his own account In Chennai. At the end of one year, A left the assistantship of B and began to practice on his own account. Referring to the provisions of the Indian Contract Act, 1872, decide whether A could be restrained from doing so. (Dec 2017, 5 marks)
Answer:
According to the provisions of the Indian Contract Act, 1872, as contained – Section 27 any agreement through which a person is restrained from exercising a lawful profession or trade/business is void.
But an agreement of service by which a person binds himself during the term ot the agreement not to take service with anyone else directly or indirectly to promote any business in direct competition with that of his employer ¡s not in restraint of trade. Therefore, ‘A’ cannot be restrained by an injunction from doing so.
Question 30.
C is the wife of A. She purchased some sarees on credit from B. B demanded the amount from A. A refused. B filed a suit against A for the said amount. Decide in the light of provisions of the Indian Contract Act, 1872, whether B would succeed. (Dec 2018, 5 marks)
Answer:
Agency may be created by a legal presumption; in a case of cohabitation by a married woman (i.e. wife Is considered as an implied married agent, of her husband). If wife lives with her husband, there ¡s a legal presumption that a wife has authority to pledge her husband’s credit for necessities.
But the legal presumption can be rebutted in the following cases:
- Where the goods purchased on credit are not necessary.
- Where the wife is given sufficient money for purchasing necessaries.
- Where the wife is forbidden from purchasing anything on credit or contracting debts.
- Where the trader has been expressly warned not to give credit to his wife.
if the wife lives apart for no fault on her part, wife has authority to pledge her husband’s credit for necessities. This legal presumption can be rebutted only in cases (iii) and (iv).
In the Present Case: ‘B’ will succeed. He can recover the said amount from ‘A’ if sarees purchased by ‘C’ are necessaries for her.
Question 31.
Sunil, aged 16 years, was studying in a Medical College. On 1st March, 2017 he took a loan of ₹ 3 lakhs from Anil for the payment of his college fee and agreed to pay by 31st May, 2018. Sunil possesses assets worth ₹ 15 lakhs. On due date Sunil fails to pay back the loan to Anil. Anhl now wants to recover the loan from Sunil out of his assets. Whether Anil would succeed? Decide, referring to the provisloìs of the Indian Contract Act, 1872. (Jun 2019, 6 marks)
Answer:
(a) According to Section 11 of the Indian Contract Act, 1872, a person who is of the ego of majority to the law to which he is subject is competent to enter into any contract. A person who has completed the age of 18 years Is a major and otherwise, he will be treated as minor.
Thus, Sunil who is a minor is Incompetent to contract and any agreement with him is void (Mohori Bibi Vs Dha rmodas Ghase 1903, 30 Cal, 539 (PC)]. Section 68 of the Indian Contract Act, 1872 however, prescribes the liability of a minor for the supply of the things which are the necessaries of life to him.
It says that though minor is flat personally liable to pay the price of necessaries supplied to him or money lent for the purpose, the supplier or lender will be entitled to claim the money/price of goods or services which are necessaries suited to his condition of life provided that the minor has a property:
The liability of minor is only to the extent of the minor’s property. This type of contract is called a Quasi-contract and the right of the supplier/lender is based on the principle of equity. Hence, according to the above provision, Anil will be entitled to recover the amount of loan given to Sunil for payment of the college fees from the property of the minor.
(b) Essential elements of a contract of bailment:
1. Contract: The first condition is that there must be a contract between the two parties for the delivery of goods. Such contract may be express or implied written or oral.
2. Delivery of Goods: This contract is for the delivery of some movable goods from one person (bailor) to another person (bailee) or to his authorized agent. It the goods are immovable the contract will not be a contract of bailment.
3. Change of Possession: The possession of goods must be affected by such contract. Mere custody without possession is not a contract of bailment.
4. Purpose of Delivery: The delivery of the goods is for temporary purposes. It may be for safe-custodý, repair, carriage, or for gratuitous use by the bailee.
5. Number of Parties: There is two parties tender such contract e.g., the bailor and bailee. The person delivering the goods is called the bailor and the person to whom the goods are bailed Is called the bailee.
6. Right of Ownership: In a contract of bailment, the right of ownership remains with an owner (bailor) and is not changed. If the ownership is transferred, the contract will be a contract of sale and is not of bailment.
7. Change of Form: If the goods balled are altered in form by the bailee, such as cloth is converted into a shirt still, the contract is one of bailment.
8. Goods in Possession of Bailee: The delivery of the goods is not essential if the goods are already in the possession of the person who enters into the contract as bailee.
9. Redelivery of Goods: Under such contract, the goods are redelivered to the bailar or according to his directions upon the fulfillment of the purpose by the bailee.
10. Right of Reward: In a contract of bailment, both the parties bailor and the bailee can get a reward but it depends on the nature of the transaction.
Question 32.
Anita and Sonali are friends, Sonali treats Anita during Anita’s illness. Sonali does not accept payment from Anita for treatment and Anita promises Sonali’s daughter Tania to pay her ₹ 75,000. Anita being in poor circumstances is unable to pay. Tania sues Anita for the money. Can Tania recover? Offer your views based on provisions of the Indian Contracts Act, 1872. (Dec 2019, 5 marks)
Answer:
No, Tania cannot recover the money from Anita. The agreement between Tania and Anita is not a contract in the absence of consideration. In this case, Tania’s mother Sonali, voluntarily treats Anita during her illness. Apparently, it is not a valid consideration because it is voluntary whereas consideration to be valid must be given at the desire of the promisor-void Section 2(d).
The question now ¡s whether this case is covered by the exception given in Section 25(2) which inter-alla provides. “If it is a promise to compensate a person who has already voluntarily done something for the promisor….”
Hence as per the exception, the promise must be to compensate a person who has himself done something for the promisor and not to a person who has done nothing for the promisor.
As Sonali’s daughter, Tania to whom the promise was made, did nothing for Anita, therefore Anita’s promise is not enforceable even under the exception.
Question 33.
Mr. Ajay is unconscious of his mind when he enters into an agreement with Mr. Vijay on 15th July 2022, in the evening, to sell his office space to him within 15th October 2022. Next day Mr. Ajay declares that he was not well and conscious last night and now he is not willing to transfer the office space to Mr. Vijay. Now, Mr. Vijay is arguing that as Mr. Ajay has already signed the agreement he will have to transfer the property in his name. Decide whether the contract is valid. (Dec 2022, 5 marks)
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Contract: Quasi, Contingent, Discharge, Termination – CMA Inter Law and Ethics Study Material
Question 1.
Write short flotes on:
(i) Quasi contract (June 2013, 4 marks)
(v) Discharge of contract (June 2013, 4 marks)
Answer:
(i) Quasi Contract:
Quasi contract is a fictitious contract in which the concerned parties do not intend to create a contract between them. In such contract, there is no regular offer and acceptance and no agreement between the parties, even then there exists a contract which is imposed by Court of law. Even in the absence of a contract, social relationships require certain duties to be performed by a certain persons. If a person finds some goods belonging to another person, he is required to return those goods to the actual owner even though there is no contract between the owner of goods and finder of goods. This is an example of quasi contract.
Quasi contract creates the same obligation (duty, responsibility, commitment) as the regular contract, Quasi-contracts are based on the principles of equity, justice and good conscience. Quasi-contracts are also called Constructive contracts or Implied-in-law contracts.
The basic principle lying behind quasi-contract is that no person should be allowed to gain something at the expense of some other person. This type of contract is desrgned to remedy the cases of unjust enrichment or unjust benefits.
Features of Quasi contract:
- It is imposed by law. It does not arise by offer, acceptance, and agreement.
- It is based on the duty of a party and not the promise of that party.
- It is a right which is available not against the whole world, but against a particular person or persons only. In this respect, it is similar to a regular contract.
- It can be sued in a Court of law. This way it is also similar to regular contract.
(v) Discharge of Contracts: A contract can be discharged or terminated by any of the following eight ways:
1. By Performance or by Completion
The contract is completed on terms and conditions as stipulated in the agreement and it comes to an end after successful execution of all the items of contract. This is also called discharge by performance.
2. By Mutual Consent
When the parties to the contract mutually agree to
- by novation i.e. to substitute a new contract or
- to withdraw and cancel it or
- to alter or modify it
- by remission i.e. reduction in performance required.
3. By Doctrine of Frustration:
When a contract becomes impossible to be Frustration performed at a future date after the agreement, it is called supervening impossibility or Doctrine of Frustration.
If the impossibility existed at the time of agreement, it falls under the category of impossibility of performance and the contract is void ab initio. Subsequent to agreement, the impossibility of performance may be due to the following reasons:
- Non-existence or non-occurrence of a particular state of things;
- Breaking out of war;
- Illegality of performance at a subsequent date; e.g. insolvency etc
- By death or disablement of parties.
- Destruction of subject matter e.g. A house is to be let out as per agreement and that house is destroyed in fire or earthquake.
4. By Breach of contract:
When there is a default on the part of one party regarding its performance in the contract, there is a breach of contract. It can be actual breach or anticipatory breach. When one party leaves the contract before its due date of completion, it is called anticipatory breach. The suffering party is entitled to compensation for damage.
5. By Lapse of time
Contract should be completed before the application of Law of limitation which states that the contract should be performed before the expiry time limit set for it. In other words the contract should be performed before it is barred by law of limitation. In such a case there is no remedy is left for the contractor (promisee).
6. By Operation of law
When the client dies or goes insolvent, there is discharge by operation of law.
7. On the ground of accord and satisfaction
Any party is satisfied in any manner by the other party, in lieu of contract, this is called discharge by accord and satisfaction.
8. By non-cooperation of client
If the client does not provide reasonable facilities or opportunities for performance to the contractor, the contract is assumed to be discharged.
Question 2.
Write short note on the following term:
(a) Contingent Contract (Dec 2017, 5 marks)
Answer:
Section 31 defines ‘contingent contract’ as a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. The following are the essentials of contingent contract-
- Uncertainty and futurity of the event to which it is related;
- Uncertain future event must be collateral to the contract.
An agreement to sell unspecified half share in the property is not contingent contract as held in ‘Harbakhash Singh Gill V. Ram Rattan’ AIR 1988 P&H 60. In ‘Bhairon Prasad Chauraslya V. Smf. Tara Devi’ – AIR 1980 All. 36 it was held that an agreement to sell a house is by no means a ‘contingent contract’. An agreement to purchase a property is neither a contingent contract nor can ¡t be characterized as a mere possible right or interest.
It was contended that the contract is a ‘contingent contract’ because of either of the parties to the contract may refuse to perform his part on the contract. The Court held that the argument is fallacious. Such a contingency would not be a collateral to a contract. An agreement to purchase a property is neither a ‘contingent contract’ nor can it be characterized as a mere possible right of interest. Reciprocal promises are not contingent contracts as they cannot be said to be collateral to each other.
The law allows the enforcement of a contingent contract after the event upon which it was contingent has happened. The contingency which is the essence of a condition must be distinguished from mere futurity. An obligation is not to be classified as conditional because its performance is not yet due.
A contingent contract need not necessarily be independent on any external event. It may be conditional on the voluntary act or the future conduct of one of the parties or a third person.
Descriptive Questions
Question 3.
Explain the meaning of Quasi-Contracts’. State the circumstances which are identified as quasi-contracts by the Indian Contract Act, 1872. (Dec 2018, 10 marks).
Answer:
Even in the absence of a contract, certain social relationships give rise to certain specific obligations to be performed by certain persons. These are called as – quasi-contracts as they create some obligations as in the case of regular contracts. Quasi-contracts are based on the principles of equity, justice, and good conscience.
The salient features of quasi-contracts are:
Firstly, such a right is always a right to money and generally, though not always, to a liquidated sum of money Secondly, it does not arise from any agreement between the parties concerned but the obligation is imposed by law and Thirdly, the rights available are not against all the world but against a particular person or persons only, so in this respect it resembles to a contractual right.
Circumstances identified as quasi-contracts:
1. Claim for necessaries supplied to persons Incapable of contracting (Sec.-68): Any person supplying necessaries of lite to persons who are incapable of contracting is entitled to claim the price from the other person’s property. Similarly, where money is paid to such persons for purchase of necessaries, reimbursement can be claimed.
2. Right to recover money paid for another person (Sec.-69):
A person who has paid a sum of money which another person is obliged to pay, is entitled to be reimbursed by that other person provided that the payment has been made by him to protect his own interest.
3. Obligation of person enjoying benefits of non-gratuitous Act (Sec.-70):
Where a person lawfully does anything for another person or delivers anything to him not intending to do so gratuitously and such other person enjoys the benefit thereof, the latter is bound to pay compensation to the former in respect of, or to restore, the thing so done or delivered.
4. Responsibility of finder of goods (Sec.-71):
A person who finds goods belonging to another person and takes them into his custody is subject to same responsibility as if he were a bailee.
5. Liability for money paid or thing delivered by mistake or by coercion (Sec.-72):
A person to whom money has been paid or anything delivered by mistake or under coercion, must repay or return it. In all of the above cases contractual liability arises without any agreement between the parties.
Question 4.
Describe the different ways under which a contract may be discharged? (Dec 2022, 10 marks)
Practical Questions
Question 5.
X agrees to pay Y a sum of money if Y marries Z. Z however marries F, who died subsequently. After the death of F, Z marries Y. Whether X is legally bound to pay the agreed sum of money to Y? Comment. (June 2013, 2 marks)
Answer:
Any contract of restraining the marriage is invalid. The original contract was dead at the time when Z married F. X is not legally bound to pay any sum to Y.
Question 6.
Mr. P and Mr. Q bet as to whether there would be rain on a particular day of December. Mr. P promises to pay ₹ 5,000 to Mr. Q if there is rain on that day and Mr. Q promises an equal amount to Mr. P if there is no rain on the day. Suppose, there is no rain on that specific day of December and Mr. Q filed a suit for recovery of ₹ 5,000 from Mr. P. Can Mr. Q recover the amount under Indian Contract Act, 1872? (June 2017, 6 marks)
Answer:
In this case Mr. P bet with Mr. Q on the possibility of having rain on a specific day of December. Section 30 provides that agreements by way of wager are void and no suit shall be brought for recovering anything alleged to be won on any wager or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made. Therefore, the agreement between Mr. P and Mr. Q is of wagering nature and hence void.
Thus, despite of no rain on specific day at December, Mr. Q cannot recover the amount of ₹ 5,000 from Mr. P for the reason of entering into an agreement of a wagering nature.
Question 7.
Mr. X, a businessman has been fighting a long-drawn litigation with Mr. Y, another businessman. To support his legal campaign Mr. X enlists the services of Mr. Z, a legal expert, stating that an amount of ₹ 10 lakhs would be paid, if Mr. Z does not take up the brief of Mr. Y. Mr. Z agrees, but at the end of the litigation Mr. X refuses to pay. Decide whether Mr. Z can recover the amount promised by Mr. X under the provisions of the Indian Contract Act, 1872. (June 2018, 5 marks)
Answer:
The problem as asked in the question is based on one of the essentials of a valid contract. Accordingly, one of the essential elements of a valid contract is that the agreement must not be one which the law declares to be either illegal or void. Further Contract Act specifies that any agreements in restraint of trade, marriage, legal proceedings etc. are void agreements. Thus Mr, Z cannot recover the amount of ₹ 10 lakhs promised by Mr. X because it is an illegal agreement and cannot be enforced by law.
Indemnity And Guarantee – CMA Inter Law and Ethics Study Material
Question 1.
Comment on the following based on legal provisions:
(f) A surety is discharged from his liability where there is failure of Consideration between the Creditor and the Principal Debtor in a Contract of Guarantee. (Dec 2012, 2 marks)
Answer:
According to the Indian Contract Act, 1872, consideration is an essential element of any contract. If there is no consideration there is no contract. In the present case, there is a failure of consideration between the creditor and the principal debtor, hence the surety has no responsibility towards such contract because it is no contract at all. In such case the surety is discharged.
Question 2.
(ii) In a contract of Guarantee, A surety is discharged from his liability where there is a failure of consideration between the creditor and the principal debtors. Comment. (June 2014, 2 marks)
Answer:
According to the provisions of the Indian Contract Act,1872, presence of a lawful consideration is an essential element for a valid contract. Therefore, where in a contract of guarantee, there is a failure of consideration between the creditor and the Principal Debtor, the surety is discharged.
Question 3.
(i) State the circumstances in which surety is not discharged. (Dec 2014, 3 marks)
Answer:
As per provisions of Indian Contract Act, 1872 Surety is not discharged in following circumstances
(a) When Agreements made with third person to give time to principal debtor (Section 136) Where a contract to give time to the principal debtor is made by the creditor with a third person and not with the principal debtor, the surety is not discharged.
(b) Creditors Forbearance to Sue (Section 137)
Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him does not, in the absence of any provision in the guarantee to the contrary, discharge the surety.
(c) Release of One Co-Surety (Section 138)
Where there are co-sureties, a release by the creditor of one of them does not discharge the others: neither does it free the surety so released from his responsibility to the other sureties.
Practical Questions
Question 4.
Mr. A, Mr. B & Mr. C are Sureties to Mr. D for the sum of INR 6000 lent to Mr E. Mr E failed to repay on due date. Mr A one of the sureties, disagreed to Pay. Advise whether ‘A’ is right. (Dec 2012, 2 marks)
Answer:
All sureties are equally responsible for the debt. As the debt was for INR 6000, and there are three sureties each surety will be responsible for one-third of the amount i.e. for INR 2000. Any surety cannot escape from this responsibility.
Question 5.
Mr. Mitra guarantees payment to Mr. Basu to the extent of INR 50,000 for the time-to-time supply of paper by Mr..asu tö Mr. Chandan. Basu supplies paper to Chandan more than the value of INR 50,000 and Mr. Chandan pays. Later on Mr. Basu, at the request of Chandan, supplies paper valued INR 60,000. This time Chandan fails to pay. What action Basu can take against Mitra? (June 2013, 2 marks)
Answer:
In this case, guarantee given by Mr. Mitra is a continuing guarantee (Sec.129), and accordingly Mr. Mitra being guarantor of INR 50,000, he is liable to Mr. Basu to the extent of INR 50,000 only. Mr. Basu can recover the balance amount from Chandan.
Question 6.
(i) ‘A’ contracts with ‘B’ for a fixed price to construct a house for ‘B’ within stipulated time. ‘B’ would supply the necessary material to be used in the construction. ‘C’ guarantees A’s performance of the contract. ‘B’ does not supply the material as per the agreement. Is ‘C’ discharged from his liability? (June 2014, 2 marks)
Answer:
In this case C is surety for A’s performance. Performance of A depends on the supply of material by B. B does not supply the required material which makes A unable to perform his part of contract.
According to the Section 134 of the Indian Contract Act, 1872, 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. In the given case, B omits to supply the necessary material.
Hence, C is discharged from his liability.
Bailment – CMA Inter Law and Ethics Study Material
Question 1.
Goods seized by Customs Authority is a case of bailment under Indian Contract Act-offer your views. (Dec 2012, 2 marks)
Answer:
When the goods are transferred to any person, the person having the possession is responsible for such goods as it is a case of bailment. In this case the possession of goods is with the customs authority, therefore bailment exists as per the Indian Contract Act, 1872.
Question 2.
(i) Deposit of money in a bank does not constitute bailment. Justify. (June 2014, 2 marks)
Answer:
Bailment is concerned with only moveable goods. Money is not included in the category in moveable goods. As such deposit of money is not bailment.
Question 3.
Answer the question:
(i) What are the rights of a tinder of goods under the Indian Contract Act, 1872? (Dec 2016, 4 marks)
Answer:
A finder of goods has the following rights under the Indian Contract Act, 1872:
1. Right of lien
The finder of goods has a right of lien over the goods for his expenses. As such he can retain the goods against the owner until he receives compensation for trouble and expenses incurred in preserving the goods and finding out the owner. But he has no right to sue the owner for any such compensation (Section 168).
2. Right to sue for reward
The finder can sue for any specific reward which the owner has offered for the return of the goods. He may also retain the goods until he receives the reward. (Section 168).
3. Right of resale
The finder has a right to sell the goods In the following cases:
- where the goods found is in danger of perishing;
- where the owner cannot, with reasonable diligence, be found out;
- where the owner is found out, but he refuses to pay the lawful charges of the finder; and
- where the lawful charges of the finder, in respect of the goods found, amount to 2/3rd of its value.
Question 4.
Question State the essential elements of a contract of bailment. Distinguish between the contract of bailment and contract of pledge. (June 2019, 9 marks)
Answer:
Difference between contract of bailment and contract of pledge:
1. Right of sale: In case of pledge, the pawnee (pledgee) can sell the goods and recover his debt, if pawnor (pledger) does not pay while in bailment the baitee can retain the goods and sue for damages, but he has no authority to sell the goods.
2. Purpose: Pledge is specifically for securing a debt, while bailment may be for any purpose e.g. for repairs, safe custody etc.
3. Right to use the goods: In case of pledge, pawnee cannot use the goods pledged but bailee can use the bailed goods it contract so provides.
Question 5.
What do you mean by bailment? Mention the duties of a bailor in this respect. (Dec 2021, 6 marks)
Answer:
As per Section 148 of the Indian Contract Act defines the term ‘bailment’ as the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.
Duties of the Bailor:
- It is the duty of the bailor to disclose to the bailee faults in the goods bailed, of which the bailor is aware, and which materially interference with the use of them, or expose the bailee to extraordinary risks;
- If the bailor does not make such disclosure and some loss or damage results, he ¡s responsible for so much of it as arises to the bailee directly from such faults;
- If the goods are bailed for hire, the bailor is responsible for damage arising to the bailee directly from such faults, whether he was or was not aware of the existence of such faults in the goods bailed.
Practical Questions
Question 6.
Comment on the following based on legal provisions:
(c) On 01.11.2012 Mr. Barun kept his cow under the custody of Mr. Tarun for one month and paid INR 1000 for maintenance. On 15.11.2012, the cow gave birth of a calf. On 30.11.12 Tarun returned the cow retaining the calf. (Dec 2012, 2 marks)
Answer:
According to Indian Contract Act, The goods given as bailment still belongs to giver (bailor) and any profit or income arising out of goods belongs to the bailor Barun.
Hence bailee (with whom the goods are kept) should not only give the cow but also the calf. He (Tarun) should not keep the calf with him.
Question 7.
(ii) Arvind hires a carriage of Govind and agrees to pay INA 500 as hire charges. The carriage is unsafe though Govind is unaware of it. Arvind is injured and claims compensation for injuries suffered by him. Govind refuses to pay. Discuss the liability of Govind. (Dec 2013, 3 marks)
Answer:
Problem asked in the question is based on the provisions of the Indian Contract Act, 1872, as contained in the Section of 150. The section provides that if the goods are bailed for hire, the bailer is responsible for such damage, whether he was or was not aware of the existence of such faults in the goods bailed.
Accordingly, applying above provisions in the given case Govind is responsible to compensate Arvind for the Injuries sustained even if he was not aware of the defects in the carriage.
Question 8.
Answer the question:
(ii) Mr Jatin found a wristwatch in shopping mall. He made all efforts to trace the true owner of the wristwatch but could not find him. He sold the same to Nitin, who buys without any knowledge that Jatin is merely a finder. Is sale by Jatin to Nitin valid? Decide. (June 2015, 3 marks)
Answer:
When thing which is commonly the subject of sale is lost, if the owner cannot with reasonable diligence be found, or if he refuses upon demand, to pay the lawful charges of the finder, the finder may sell it:
The finder of goods can sefl the goods only in the circumstances permitted under section 169 of the Indian Contract Act, 1872 which are as under:
- If the goods are in danger of perishing or losing the greater part of their value, the finder can sell the goods.
- If the lawful charges of the finder in respect of the goods amount to a minimum of two-thirds of the value then the firier can sell the goods. In the present case, the sale by the finder will not be valid as it does not seem to fall in any of the above-stated circumstances. Hence, the sale by Jatin to Nitin is invalid.
Pledge – CMA Inter Law and Ethics Study Material
Question 1.
Comment on the following based on legal provisions:
On expiry of stipulated period, the pledgee can sell the pledged goods to any person. (June 2013, 2 marks)
Answer:
Pawnee/Pledgee cannot sell. Pawnee/Pledgee is to give notice to pawner indicating his intention to sell. Notice of sale is essential even where the agreement specifically excludes it (Sec. 176). Hence, this is void and unenforceable.
Practical Questions
Question 2.
Answer the question:
(i) Nishant lends a sum of ₹ 8,000 to Prashant on the security often shares of XYZ Ltd. on 1 Jan, 2015. On 25” March, 2015, XYZ Ltd. has issued one Bonus share. Prashant returned the loan amount of ₹ 8,000 with interest to Nishant. But Nishant returned only ten shares which were pledged and refused to give one bonus share. Advise, Prashant in the light of the provisions of the Indian Contract Act, 1872. (2015 – June 3 marks)
Answer:
As per the provisions of Section 163(4) of the Indian Contract Act, 1872 “in the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions any increase or profit which may have accrued from the goods bailed”.
Applying the provisions to the instant case, the bonus share is an increase on the shares pledged by Prashant to Nishant.
So Nishant is liable to return the shares along with bonus share and hence Prashant the bailor, is entitled to receive the bonus share also from Nishant (Motilal Vs Bal Mani).
Question 3.
Answer question:
(a) (i) Kaita falsely representing herself as the wife of a millionaire, takes a necklace from a jeweler’s shop for the approval of her husband. She pledges if with a pawn broker who in good faith and without notice of the fraud pays her ₹ 1,00,000. Can the jeweller recover the necklace from the pawnbroker? (Dec 2015,3 marks)
Answer:
- The necklace cannot be recovered from the pawnbroker.
- The jeweller intended to contract with the person present before him.
- He was not mistaken about his identity but only about his attributes.
- His intention was to sell to the person present i.e., there was consent, but it was vitiated by fraud.
- Hence the contract is voidable and not void.
- In case of a voidable contract, before it is repudiated, one can pass a good title to the pledgee or purchaser in good faith.
- Thus, in the instant case, the pledge is valid.
- It may be noted that in the given case if Kavita would have falsely represented herself as the wife of a certain well-known millionaire, it would have been a case of mistake as to the identity of person contracted with, rendering the agreement void ab initio, thereby enabling the jeweller to recover the necklace from the pawn broker.
Law Of Agency – CMA Inter Law and Ethics Study Material
Question 1.
State the circumstances when an agent is personally liable for the contracts entered into by him on behalf of the principal? (June 2018, 10 marks)
Answer:
The general rule of the Indian Contracts Act, 1872 states that:
- Only the principal can enforce and can be held liable on a contract entered into by an agent.
- The agent is not personally liable on a contract entered into by him on behalf of the principal.
The following are the exceptions to the above rule:
- Foreign Principal: When agent acts for sale or purchase of goods for a principal resident abroad i.e., foreign principal.
- Personal liability by agreement: Where it is expressly provided in the contract that the agent shall be personally liable.
- Undisclosed principal: Where agent does not disclose the name/identity of the principal.
- Principal cannot be sued: Where the principal is disclosed but cannot be sued, e.g., foreign sovereigns, ambassadors etc.
- Non-existence of Principal: When the principal is not in existence at the time when the act was done, i.e., the agent acted for a non-existent principal.
- Agent’s liability: When the agent exceeds his authority or commits a breach of warranty of authority.
- Pretended Agent: When he acts as a pretended’ agent.
- Mistake or Fraud: When he receives or pays money by mistake or fraud.
- Agent signs an agreement without mentioning that he is an agent: Where an agent signs a negotiable instrument without mentioning that he is signing as an agent.
- Trade or customs: Where the usage of trade or customs makes an agent personally liable.
Practical Questions
Question 2.
Answer question:
(i) Bimal at Durgapur under instruction from Amal of Kolkata contracts with Kamal to deliver electric oven to him. Ama) does not send the oven to Bimal and Kamal sues Bimal for breach of contract. Bimal informs Amal of the suit and as per Amal’s advice, Bimal defends the suit. Bimal compelled to pay damages, costs and incurs expenses Amal refuses. Advise Bimal. (Dec 2015, 3 marks)
Answer:
As per Section 222 of the Indian Contract Act, 1872, the principal is bound to indemnify an Agent against the consequences of all Lawful acts done by the agent in exercise of authority conferred upon him. Sec. 223 further provides where one person employs another to do an act, and the agent does the act in good faith, the employer is liable to indemnify the agent against the consequences of that act, though it causes an injury to the rights of third persons. In view of above, Amal is liable to Bimal for such damage, cost & expenses.
Contract Basic Concepts CMA Inter Law and Ethics Notes
1. Meaning of Contract
Sec. 2(h) of Indian Contract Act defines contract as:
- “An agreement enforceable by law.”
- Contract Agreement + enforceability by law
- Contract is made by acceptance of one party of an offer made to him by the other party, to do or abstain from doing some act.
- Contract = Agreement + Obligation
2. Meaning of Agreement and Promise
Sec. 2(e) of Indian Contract Act defines it as, Every’ promise or every act of promises forming consideration for each other.”
It has two characteristics:
- Two or more persons are required to make an agreement.
- Both parties must agree to same thing in same sense. (Consensus – ad- idem).
- Sec. 2(b) of Indian Contract defines promise as, “A proposal when accepted becomes a promise”.
- Agreement = Promise
= Accepted Proposal
= Offer + Acceptance
3. Essential elements of a valid contract
Sec. 10 of Indian Contract Act says, “All, agreements are contracts, if they are made
- by free consent of parties, competent to contract,
- for a lawful consideration,
- with a lawful object, and
- not hereby expressly declared to be void.
It includes:
- Offer and Acceptance,
- Intention to create legal relationship
- Lawful consideration
- Capacity to contract
- Free consent
- Lawful object
- Agreement not expressly declared void.
- Consensus -ad-idem i.e. meeting of minds
- Certainty of meaning
- Possibility of performance
- Legal formalities.
4. Offer or Proposal
→ It refers to a proposal by one party to another to enter into a legally binding agreement with him.
→ Sec. 2(a) of the Act defines it as- “When one person signifies to another his willingness to do or abstain from doing anything, with a view to obtain the assent of that other to such act or abstinence, he is said to make a proposal.”
→ Offer or Promisor: The party making an offer.
Offeree or Promisee: The party to whom offer is made.
5. Rules relating to offer
→ It must be capable of creating legal relations
→ It must be certain, definite and not vague
→ It may be expressed or implied
→ It must be distinguished from an invitation to offer
→ It may be specific or general
→ It must be communicated
→ It must be made with a view to obtain the consent of the offeree
→ It may be conditional
→ It should not contain a term non-compliance of which would amount to acceptance.
6. Types of offer
General; Specific, Cross, Counter, Open etc.
General and Specific offer:
→ Offer made to public at large with or without any time limit is general offer.
→ Offer macle to a particular and specified person! persons and that can be accepted by that specific person! persons only is specific otter.
Cross offer:
→ It occurs when two persons make identical offers to each other, in ignorance of each other’s offer.
→ It Leads to termination of the original offer.
Counteroffer:
→ Upon receipt of an offer from an offeror, if the offeree instead of accepting it straightaway, modifies or varies the offer, he is said to make a counteroffer.
→ It leads to rejection of original offer.
Standing/Continuing / Open Offer:
→ Offer which is made to public at large and kept open for public acceptance for a certain time period.
→ It refers to a tender to supply goods as and when required.
→ Each successive order given creates a separate contract.
→ It does not binds either party unless and until such orders are given.
Offer and Invitation to offer:
→ Offer is made to get the consent of other party.
→ Invitation to offer is made to initiate the offer according to the invitation.
→ Offer is made with an object to make a contract.
→ Invitation to offer does not results in any contract formation.
7. Acceptance:
→ It means giving consent to the offer.
→ Sec. 2(b) of the Contract Act, defines it as- “A proposal is said to be accepted, when the person to whom the proposal is made signifies his assent there to.”
8. Essentials of a valid acceptance:
→ It must be absolute and unqualified.
→ It must be communicated to offeror.
→ It must be in the mode prescribed.
→ It must be given within reasonable time.
→ Mere silence is not acceptance offeror can prescribe the mode of acceptance but not the mode of rejection.
→ It must be given before the offer lapses or is revoked.
→ It must emanate from offer.
9. Rules of a valid Consideration:
→ It must move at the desire of the promisor.
→ It may be done by promisee himself or by any other person.
→ It may be past, present or future.
→ It must be real and not vague.
→ It must be legal.
→ It need not be adequate. (But if not adequate then consent must be free)
→ It must be something more than the promisee is already bound to do for the promisor.
10. Kinds of Consideration
→ Past Consideration – It refers to something wholly done, forgone or suffered before making of agreement.
→ Under English law, “Past consideration is no consideration.”
→ The consideration which is completed or performed at the time of contract is called present consideration.
→ But past consideration is a consideration as per the Indian Law.
→ Present or Executed Consideration – It moves simultaneously with promise. The consideration which is completed or performed at the time of contract is called present consideration.
→ Future or Executory Consideration – It is to be moved at a future date i.e promise is to be performed in future.,
11. Exceptions to the Rules, “No consideration, No contract”
→ An agreement made is valid if
→ expressed in writing and registered under law,
→ made on account of natural love and affection,
→ between parties standing in near relation to each other.
→ A promise is valid if-
– It is a promise to compensate wholly or in part, a person who has already voluntarily done something for the promisor.
– Something which the promisor was legally compellable to do.
→ A promise to pay, wholly or in part, a debt, which is barred by law of limitation can be enforced if-
-it is in writing, ‘
-it is signed by the debtor or his authorized agent.
→ It does not applies to completed gifts i.e. gift given and accepted.
→ Consideration is not required to effect a valid bailment of goods i.e. gratuitous bailment.
→ Not required to create an agency.
→ If a person promised to contribute anything to a charity and on his faith, the promisee undertakes a liability to that extent, the contract shall be valid.
12. Doctrine of Privity of Contract
→ It means that only those persons, who are parties to a contract, can sue and be sued upon the contract.
→ It refers to the relationship between parties who have entered into the contracts.
→ The third party cannot sue upon it, even though the contract may be for his benefit.
→ Thus, “a stranger to the contract” cannot bring a valid suit under the contract.
→ It is different from ” Stanger to consideration”.
13. Legal Agreement
An agreement which can be enforced legally.
Illegal Agreements:
→It goes beyond the basic public policy, thus are not enforceable by law.
→ It is not only void as between immediate parties but the collateral transactions also become illegal.
Its consequences:
→ Entirely void
→ No action can be brought by or against any party.
→ Money paid or property transferred under it cannot be recovered
→ If its two parts legal and illegal are separable, only legal part can be enforced by the courts
→ Agreement collateral to it are also illegal.
14. Void Agreement
→ Agreements not enforceable by law are void.
→ They are not always illegal and its collateral transactions are legal.
→ It cannot give rise to any legal consequence
→ It is void -ab- initio (i.e- void from very beginning)
→ Eg minor’s contract
15. Void Contracts
→ It is not a contract at all as it is without any legal effect.
→ Section 2(i) of Indian Contract Act, 1872, defines it as “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.”
16. Voidable Contracts
→ It is an agreement which is binding and enforceable but due to lack of one or more of the essentials of a valid contract, it may be repudiated.
→ Section 2(i) of the Indian Contract Act 1872 defines it as “All agreements which are enforceable at the option of any one of the parties, and other party has no such option, are known as voidable contracts.”
17. Competency/Capacity of Parties to Contract
→ It means that parties to the agreement must have capacity to enter into a valid contract.
→ Person’s may be either natural or artificial.
→ Natural persons means human beings.
→ Artificial persons means corporations.
18. Position of minor’s agreement
- An agreement entered into by a minor is altogether void i.e. void ab initio.
- Minor can be a promisee or a beneficiary
- Minor can always plead minority
- Minor’s agreement cannot be ratified by him
- Contract by guardian is enforceable if-
→ It is within his competence and authority,
→ For the benefit of the minor.
- Minor’s property is liable for necessaries.
- Court can never direct specific performance of the contract
- Minor cannot be a partner in partnership firm. He can however be admitted to benefits of partnership firm.
- Minor can act as an agent and bind his principal without incurring any personal liability.
- Minor can never be adjudicated as an insolvent.
19. Lunatics Agreement
→ As per Section 12 of the Indian Contract Act,
→ “A person is said to be of sound mind for the purpose of making a contract if at the time when he makes it, he is capable of undertaking it and of forming a rational judgement as to its effects upon his interests.”
A person of unsound mind includes:
- Lunatics
- idiots,
- drunkards
→ Such agreement is void.
→ Lunatics estate will be liable for any necessaries supplied to him or his family.
→ A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind and he will be bound by it.
→ A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.
20. Persons disqualified by law from entering into contract
(i) Alien Enemy-
→ Alien is a person who is not an Indian citizen.
→ He becomes alien enemy on declaration of war between India and his country.
→ He cannot enter into a contract with an Indian subject.
(ii) Foreign Sovereigns and Ambassadors-
→ They enjoy certain special privileges due to which they cannot be legally proceeded against in Indian Courts.
→ If contracts are entered into through agents, then agents becomes personally responsible for the performance.
Convicts:
Cannot enter into a valid contract while undergoing sentence, nor he can sue.
21. Free Consent
→ As per the Indian Contract Act, “Two or more persons are said to consent when they agree upon the same thing in the same sense.” (Consensus-ad-idem)
→ Free consent means consent given by parties out of their free will on their own without any fear, without any force, without any compulsion or threat from the other party.
As per Section 14, consent is said to be free when it is not caused by
- Coercion
- Undue influence
- Fraud
- Misrepresentation
- Mistake
In the absence of free consent, contract is usually voidable at the option of the party whose consent is not free.
22. Coercion
“It is the committing, or threatening to commit, any act forbidden by the Indian Penal code (IPC), or the unlawful detaining, or threatening to detain any property, to the prejudice of any person, whatever, with the intention of causing any person to enter into an agreement.”
Exceptions of coercion:
The following threats are not coercion-
- Threat to file a suit,
- Consent given on the basis of legal obligations,.
- Threat by workers,
- Threat to detain property by mortgager.
Relevant Case Law:
Ram Chandra Vs. Bank of Kolhapur.
It may proceed from any person and may be directed against any person or goods.
23. 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 of the other.
It has following two elements:
- a dominant position,
- the use of it to obtain an unfair advantage.
A person is deemed to be dominate the will of another if
- he holds a real or apparent authority over the other,or
- he stands in a fiduciary relation to the other; or
- he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress.
Relationships that are presumed to have undue influence includes:
- Parent and Child
- Guardian and Ward
- Religious/Spiritual Guru and Discipline
- Doctor and Patient
- Solicitor and Client
- Trustee and Beneficiary
- Fiance and Fiancee
A relationship where dominant position is not presumed but has to be proved by the aggrieved party:
- Creditor and Debtor
- Landlord and Tenant
- Husband and Wife.
24. Fraud
Also known as wilful misrepresentation.
Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance or by his agent with intent to deceive another party thereto or his party, or to induce him to enter into the contract-
- The suggestion, as to fact, of that which is not true by one who does not believe it to be true,
- The active concealment of a fact by one having knowledge or belief of the fact,
- A promise made without any intention of performing
- Any other act fitted to deceive,
- Any such act or omission as to law specially declared to be fraudulent.
25. Misrepresentation
Where a person asserts something which is not true, though he believes it to be true, his assertion amounts to misrepresentation.
Misrepresentation made by a person may be either-
- innocent, or
- without any reasonable ground.
The aggrieved party can avoid the contract, but cannot sue for damages in normat circumstances.
Its damages can be obtained in following cases:
- from a director or promoter making innocent misrepresentation in company’s prospectus.
- from an agent committing breach of warranty of authority
- from a person who has made a certain statement in the Court, relying upon which a party has suffered damages, is stopped by the Court from denying it.
- negligent representation made by one person to another between whom there exits a confidential relationship.
26. Mistake
it refers to miscalculation or judgmental error by both or either of the parties.
→ It must be a vital operative mistake.
→ When both the parties to an agreement are under a mistake to a matter of fact essential to the agreement, the agreement is altogether void.
→ Unilateral mistake means mistake on part of only one party.
→ Unilateral Mistake is not void.
27. Mistake as to identity of person operates If
- Identity is for material importance to the contracts, and
- Mistake is known to the other person.
Following conditions need to be fulfilled, for mistake to be void:
- The fact is material to the agreement.
- There is mistake of fact.
- Both the parties are at mistake.
28. Transaction with pardanashin women
→ It means complete seclusion.
→ Women fixing and collecting rents from tenants and communicating business matters with men other than own family members is not a pardanashin women.
→ It is founded on equity and good conscience.
Person entering into a contract with pardanashin women has to prove that:
- no undue influence was used
- she had free and independent advice
- she fully understood the contents of the contract
- she exercised her free will
She has been given a special cloak of protection by law
29. Agreement Expressly Declared Void
→ Certain agreements have been expressly declared as void by Contract Act.
→ They are void a initio.
It includes:
(i) Consideration unlawful In part (Sec.24)
→ “If any part of a single consideration for one or more objects, or any one or any part of anyone of several considerations for a single object, is unlawful, the agreement is void.”
→ Where the legal part of an contract can be severed from the illegal part, the bad part may be rejected and the good one can be retained”
→ Where the illegal part cannot be severed, the contract is altogether void.
(ii) Agreement the meaning of which is uncertain (Sec. 29)
An agreement, the meaning of which is not certain, is void but where the meaning thereof is capable of being made certain, the agreement is valid.
(iii) Wagering Agreement (Sec. 30)
→ Wager means ‘bet’.
→ They are ordinary betting agreements.
→ It refers to an agreement between two parties by which one promises to pay money or money’s worth on the happening of some uncertain event in consideration of the other party’s promise to pay if the event does not happen.
→ Such an agreement is void.
→ ‘If one of the parties has control over the event, agreement is not a wager.
→ Though wagering contracts are void, transactions incidental to wagering transactions are not void.
Contract: Quasi, Contingent, Discharge, Termination CMA Inter Law and Ethics Notes
1. Quasi Contract.
An obligation is imposed by law upon a person for the benefit of another even in the absence of a contract. They are known as quasi-contracts. They are based on principles of equity, justice and good conscience. They are termed as certain relations resembling those created by contracts. It is also known as Law of Restitution.
It has following features:
- It does not arises from any agreement between the parties but is imposed by law.
- It is a right only available against a particular person or persons and not against the entire world.
2. Type of quasi-contract
Responsibility of finder of goods (Sec. 71)
→ “A person who finds goods belonging to another and takes them into custody, is subject to the same responsibility as a bailee”.
→ He should act like a man of ordinary prudence i.e.
(a) he shall take proper care of goods
(b) he must take reasonable steps to trace the owner
(c) he should sell the goods, if they are in deteriorating condition, and remit the proceeds to the corner.
→ He is entitled for the reward if any, offered by the owner.
→ He is also entitled for the refund of any expenses if incurred in protecting and preserving the property.
Person receiving goods or money by mistake (Sec. 72)
→ ‘A person to whom money has been paid,or anything delivered by mistake or under coercion, must repay or return it”
→ Mistake need not be unintentional, It may be even intentional.
Performance of Contracts (Sec. 37)
→ It is one of the modes of discharging the contract. It is the completion or fulfillment of obligations by the respective parties to a contract.
→ As per Sec. 37 of the Indian Contract Act, the parties to the contract must either-
1. Perform their respective promises, or
2. Offer to perform the same unless such performance is dispensed with or excused under the provision of any other law.
3. Contingent Contract (Sec. 31)
It refers a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.
E.g: Contracts of insurance, indemnity and guarantee etc.
4. Wagering Agreements
→ It is void.
→ It is a game of chance.
→ Future event is the primary factor.
→ Consists of reciprocal promises.
→ Every wager is essentially contingent in nature.
5. Contracts to be performed by whom.
Promisor himself – Sec. 40 states 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 needs to be performed by the promisor himself, such promise must be performed by the promisor. “Contracts involving the exercise of personal skill or diligence, or which are founded on the personal confidence between the parties need to be performed by promisor himself.
Agent: If the contract is not founded on the personal consideration, the promisor or his representative may employ a competent person to perform it.
Representatives: Contract involving the use of personal skill or founded on personal consideration comes to an end on the promisor’s death. In other cases1 the legal representatives of the deceased partner are bound to perform it unless the contrary intention appears from the contract; but their liability is limited to the value of the property they inherit from the deceased.
Third persons: As per Sec. 41, if the promisee accepts the performance of the promise by a third person, he cannot afterwards enforce If against the promisor.”
Joint promisors: In case of joint promise, promisee may compel or one more of the joint promisors in the absence of contract to the contrary. If any of them dies, his legal representatives must perform the promise jointly with the surviving promisors.
6. Who Can Demand Performance?
Promise: Only promisee can demand the performance of the promise irrespective of the fact that it is for the benefit the promisee or any other person.
Third party: In some cases, like trust, marriage settlements etc. third party can enforce the promise against the promisor even though he is not a party to the contract.
Representatives: In case of death of the promisee his representative may ask for the performance of the promise under a contract.
7. Types of Performance.
It is of following two types:
Actual Performance
The promisor makes all offers of the performance of the promise and the offer to perform is accepted by the promisee. Thus, when both the parties perform their respective obligations, the contract comes to an end.
Attempted Performance (Tender) (Sec. 38)
The promisor makes an offer of performance to the promisee, but the offer to perform is not accepted by the promisee.
8. Types of Tender
→ Tender of goods – attempted performance of promise to do something.
→ Tender of money – attempted performance of promise to pay something.
Essentials of a Valid Tender
→ Must be unconditional.
→ Must be for the whole obligation
→ Must be given at a proper time
→ Must be given at a proper place
→ Must give a reasonable opportunity of inspection
→ Party giving tender must be willing to perform his obligation
→ Must be made to the proper person
→ Must be made for the exact amount of money.
Effect of Refusal of party to perform promise (Sec. 39)
The aggrieved party can
- terminate the contract
- indicate by words or by conduct that he is interested in its continuance.
If promisee decides to continue the contract, he would not be entitled to put an end to the contract on this ground immediately. In both cases, promisee would be entitled to claim damages that he suffered as a result of breach.
9. Joint Promise:
When two or more persons enter into a joint agreement with one or more persons, it is known as joint promise.
Devolution
It means to pass on from one person to another – In case of joint promise, two problems arise-
- who‘s liable to perform the promise,
- who can demand such performance.
This problem is solved by devolution.
Liability of Joint Promisors
Sec. 42: If two or more persons have made a joint promise, ordinarily all of them during their lifetime must jointly fulfill the promise. After the death of any of them, his legal representative jointly with the survivor or survivors should do so.
Sec.43: .
- All the joint promisors are jointly and severally liable. However, the contract between the joint promisor may provide otherwise.
- A joint promisor may claim contributions from other joint promisors if he is compelled to perform the whole promise.
- A joint promisor may claim contribution from other joint promisors, it any other joint promisor makes a default in performance of his promise.
Sec. 44: Where one of the joint promisors is released, other joint promisors shall continue to be liable.
10. Rights of Joint Promises:
U/s Sec. 45:
→ When a person has made a promise to several pèrsons, then unless a contrary intention appears from the contract,the right to claim performance rests between him and them during their lifetime.
→ When one of the promisees dies, the right to claim performance rests with the legal representatives jointly with the surviving promisees.
→ When all the promises dies, the right to claim performance rests with their legal representatives jointly.
11. Assignment
→ Promisee may assign the rights and benefits of contract.
→ Assignee will be entitled to demand performance by the promisor.
→ It must be made by an instrument in writing.
→ Obligation or liability under a contract cannot be assigned.
Differences between succession and assignment
| Succession |
Assignment |
| 1. Transfer of rights and liabilities of a deceased person to his legal representative is called succession. |
Transfer of rights by a person to another person is called assignment. |
| 2. It takes place on death of a person. |
It takes places during the lifetime of a person. |
| 3. It is not a voluntary act. |
it is a voluntary act. |
| 4. It may take place even without a written document. |
It requires execution of assignment deed. |
| 5. All rights and liabilities of a person are transferred. |
Only rights of a person are transferred. |
| 6. No notice is required to be given to any person. |
Notice must be given to the creditor. |
| 7. No consideration is required. |
Consideration is required. |
12. Contracts which need not be performed Sec. 62:
If the parties to the contract agrees to
- Substitute a new contract for it, or
- rescind it, or
- alter it.
Sec. 63: If the promisee
- dispenses with or remits, wholly or in part, the performance of the promise made to him.
- extends the time for such performance
- accepts any satisfaction for it.
Sec. 64: If the person at whose option it is voidable rescinds the contract.
Sec. 64: If the promisee neglects or refuses to afford the promisor reasonable facilities for the performance of the promise.
13. Discharge of Contracts,
It means termination of contractual relations between the parties to a contract.
Modes of Discharge of Contract
1. By Performance: It occurs when the parties to the contract tuft il their obligations arising under the contract within the time and in prescribed manner. It may be –
- Actual performance.
- Attempted performance.
2. By Mutual Agreement: The parties may enter into a fresh agreement which provides for the extinguishment of their rights and liabilities of original contract. Important methods of discharge by a fresh contract –
- Novation: It occurs when an existing contract is substituted by a new one, either between same parties or between the new ones.
- Rescission: It occurs when only the old contract is cancelled and no new contract comes to exist in its place.
- Alteration: It occurs when the terms of contract are so changed by mutual agreement that have the effect of substituting a new contract for the old one.
- Remission: It refers to acceptance of lesser fulfillment of the terms of promise.
- Waiver: It refers to the abandonment of the rights by the party who is entitled to claim performance of the contract.
- Acceptance of any other satisfaction: It occurs when the party entitled to claim performance accepts any other satisfaction instead of the performance of the contract.
3. By Lapse of time: It occurs if a contract is not performed within a specified period as prescribed by the Limitation Act, 1963.
4. By Operation of law.
It occurs when the contract Is discharged by operation of law which includes –
- Material alteration: where it is done without the knowledge and consent of the other, contract can be avoided by other party.
- Insolvency: it can be done under certain particular circumstances.
- Death of a promisor: contracts involving personal skill or expertise of promise. When promisor dies, it cannot be performed by anyone else and hence comes to an end.
- Merger of rights: if an inferior right in a contract is merged into a superior right by the party.
By Inipossibility of performance/frustration (Sec. 56)
(i) Discharge by supervening impossibility is done in following ways-
- Death or personal incapacity
- Destruction of subject-matter
- Non-existence or non-occurrence of certain essential things
- Change of Law
- Declaration of war
(ii) Discharge by supervening illegality
If after making the contract, its performance becomes impossible due to alteration of law or act of any person, it is discharged.
(iii) Cases not covered by subsequent impossibility
- Partial impossibility
- Commercial impossibility
- Difficulty of performance
- Default of a third party.
- Strikes, lockouts, etc.
- It is also known as frustration under English law.
Indemnity And Guarantee CMA Inter Law and Ethics Notes
1. Contracts of Indemnity
As per Sec. 124, A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or the conduct of any person is called a contract of indemnity.
Contracts of Indemnity are a part of general class of contingent contacts and, thus are conditional.
Parties of Indemnity Contract
- Indemnification – The person who promises to make good the loss.
- Indemnified or Indemnity Holder – The person whose loss is to be made good.
It does not includes events or accidents. which do not depend upon the conduct of any person. Eg; Contract of insurance etc. (except life insurance)
Modes
2. Essential Elements of Contracts of Indemnity
- All essential elements of a valid contract must be present.
- A loss should be incurred or loss has become certain.
- Its purpose is to protect the indemnity holder against any loss.
- It must specify that the indemnity holder is protected from loss caused due to;
1. action of the promisor himself
2. action of any other person
3. any act, event or accident which is not in the control of parties.
3. Rights of Indemnity Holder (Sec. 125)
→ Right to recover damages
→ Right to recover costs
→ Right to recover sums paid
4. Contracts of Guarantee (Sec. 126)
It is a contract to perform the promise or discharge the liability incurred by a third person in case of his default.
Parties to the contract
- Surety- The person who gives the guarantee.
- Principle Debtor- The person in respect of whose default the guarantee is given.
- Creditor – The person to whom the guarantee is given.
5. Essential Elements of Contracts of Guarantee
(i) Must have all Essentials of a valid contract
Exceptions:
- Consideration received by the Principal Debtor is a sufficient consideration to the surety for giving the guarantee.
- Contract is valid even if the principal debtor is incompetent to contract.
(ii) The principal debtor is primarily liable.
(iii) Debt must be legally enforceable
(iv) Debt must not be a time-barred debt.
(v) Liability of surety is secondary and conditional
(vi) The creditor should disclose all the facts which are likely to affect the surety’s liability. ,
(vii) Contract may be either oral or written.
6. Nature and extent of Surety’s Liability (Sec. 128)
- Liability of surety is same as that of principal debtor.
- Where a debtor cannot be held liable on account of any defect in the document, the liability of the surety also ceases.
- Surety liability continues even if the principal debtor has not been sued or omitted to be sued. Thus, surety’s liability is separate on the guarantee.
7. Kinds of Guarantee
(i) Specific Guarantee
→ It is given for a single debt
→ it comes to an end when the debt guarantee has been paid.
(ii) Continuing Guarantee (Sec. 129)
→ It extends to a series of transactions.
→ Surety’s liability extends to all the transactions contemplated until the guarantees is revoked.
8. Revocation of Continuing Guarantee
→ It may be revoked at any time by the surety as to the future transactions by giving notice to creditors (Sec. 130)
→ Upon the death of surety, it is revoked for all the future transactions in the absence of the contract to the contrary. (Sec. 131)
9. Rights of Surety
(i) Against the principal debtor
- Right of Indemnity (Sec. 145): Surety is entitled to recover from principal debtor all payment properly made.
- Right of Subrogation (Sec. 140): It means substitution of one person for another. On payment of a debt, surety shall be entitled to all the rights which the creditor can claim against the principal debtor.
(ii) Against the creditor
- Right to claim securities (Sec. 141): Surety is entitled to benefit of every security, which creditor has against the principal debtor, whether surety knows of it or not. If creditor loses or parts with security without surety’s consent, surety is discharged to the extent of security’s value.
- Right to set off: Surety can ask the creditor to set off or adjust any claim which the debtor has against creditor.
- Right to share reduction: If the principal debtor becomes insolvent, surety may claim proportionate reduction in his liability.
(iii) Against Co – Sureties.
(a) Right to contribution (Sec. 146): All the co-sureties contribute equally except in following cases:
- Co-subreties may fix limits on their respective liabilities.
- Contract may provide co-sureties to contribute in some other proportion.’
10. Right to share benefit of securities
Discharge of a surety
→ Sec. 130: By giving notice to creditor for future transactions in casc of continuing guarantee.
→ Sec. 131: In absence of any contract to the contrary, continuing guarantee is revoked on death of surety.
→ Sec. 133: Where there is any variance in the term of contract between the principal debtor and creditor without surety’s consent, it would discharge the surety in respect of ail the transactions taking place subsequent to such variance.
→ Sec. 134: The surety is discharged, if the principal debtor is discharged by
- a contract
- any act or
- any omission, the result of which is the discharge of principal debtor.
→ Sec. 135: If the creditor makes an arrangement with the principal debtor for composition, for giving time or for not suing him without surety’s consent.
→ Sec. 139: If creditor does any act or omission, thereby impairing sureties eventual remedy.
→ Sec. 141: If the creditor loses or parts with security without surety’s consent, surety is discharged to the extent of security’s value.
Baliment CMA Inter Law and Ethics Notes
1. Contracts of Bailment
As per Sec. 148, Bailment is an act whereby the goods are delivered by one person to another for some purpose, on a contract, that the goods shall, when the purpose is accomplished be returned or otherwise disposed off according to the directions of the persons delivering them. It is a voluntary delivery of goods for a temporary purpose. Ownership of goods remains with the bailor. Goods should be movable goods.
Parties
1. Bailor- The person delivering the goods.
2. Bailee- The person to whom the goods are delivered.
2. Essential Elements of Contracts of Bailment
- There must be an expressed or implied contract between the parties.
- It can be made of goods only.
- There must be delivery of goods from one person to another.
- Goods must be delivered for some purpose express or implied.
- The delivery of goods must be conditional.
- The return of the goods may be in the original form or i.e. in an improved form as agreed between the bailor and bailee.
Modes
- Actual Delivery
- Symbolic Delivery
- Constructive Delivery.
Bailment may be gratuitous (without any remuneration or reward) or for reward. (for consideration)
3. Classification
Duties of Bailor
Sec. 150: Bailor must disclose all defects/faults in the goods bailed.
He is responsible for defects in the goods hired to bailee whether bailor was aware of such defects or not.
Sec. 158:
- Where the bailment is gratuitous, he must reimburse the baitee for any expenditure incurred in keeping the goods.
- He should reimburse any expense which bailee may incur by the way of loss in the process of returning the goods or complying with other directions for returning the goods.
- He must compensate the bailee for any loss or damage suffered by bailee in excess of benefit received.
- He is bound to accept the goods after the purpose is accomplished.
4. Rights of Bailor –
- Right to enforce the duties of the bailee.
- Right to terminate the contract if bailee does anything which is inconsistent with the conditions of bailment.
- In gratuitous bailment, he has a right to demand back goods even before expiry of bailment period.
- Right to claim the increase or profit from the goods bailed which may have occurred from value of goods.
5. Duties of Bailee
- Sec. 151: Duty to take reasonable care of goods.
- Sec. 152: If he takes care of goods as a man of ordinary prudence, he will not be liable for any loss or damage of goods bailed.
- Sec. 153: Duty not to make unauthorized use of goods.
- Sec. 154: If he makes any unauthorized use of goods, he will be liable to make good the loss.
Sec. 155-157:
(a) Duty not to mix the goods bailed with his own goods without the bailor’s consent. If he does so, he has to make good the loss.
(b) Duty not to set up an adverse title
Sec. 160: Duty to return the goods on expiration of the bailment period.
Sec. 161: If he fails to return, he will be responsible to the bailor for any loss, destruction or deterioration of goods thereafter.
Sec. 163:
- Duty to return any extra profit occurring from goods bailed.
- Duty not to do anything inconsistent with the bailment conditions.
6. Rights of Bailee
- Right to claim compensation for any loss arising from non-disclosure of known/unknown defects in goods.
- Right to claim indemnification for any loss or damage as a result of defective title.
- Right to deliver back the goods to joint bailors as per the agreement.
- Right to deliver goods back to bailor whether has the right to the goods.
- Right to exercise his right of lien.
- Right to take action against third parties.
7. Termination of Bailment
Sec. 153: Where bailee makes unauthorized use of the goods bailment becomes voidable at bailors’ option.
Sec. 159: At bailor’s will –
- In non-gratuitous bailment, bailor has a right to take back the goods, after the purpose is over.
- In gratuitous bailment, he can take back the goods any time, provided in case of loss in excess of benefit, bailee must be compensated.
Sec. 160:
- When the period or purpose of bailment is over.
- Where the subject matter is destroyed or becomes illegal.
Sec. 162: A gratuitous bailment is terminated by the death of the bailor or bailee.
8. Lien
It refers to right of one person to retain the possession of some goods, belonging to other person, until some debt or liability, is discharged.
9. Types of Lien
Particular Lien:
- It is available only against those goods in respect of which bailee has exercised skill and labour.
- Bailee’s lien is a particular lien
- It is available to all.
Conditions for exercising Particular Lien.
- If Bailee has exercised his labour and skill on goods bailed.
- When work has been completed on time.
- If the payments due.
(b) General Lien
- It refers to the right of one person to retain the possession of any goods, belonging to another person, until some debt or liability is discharged.
- It is available to bankers, factors, warfingers, attorneys of High Court and policy brokers.
10. Finder of Goods
Refers to a person who finds the goods belonging to another person i.e. the goods lost by the true owner – he enjoys all the rights and carries all the responsibilities of a bailee. Though the finder has no right to sell the goods found in the normal course, he may sell the goods if the real owner cannot be found with reasonable efforts or if the owner refuses to pay the lawful changes subject to the following conditions:
- article is in danger of perishing and losing the greater part of the value,
- lawful charges of the finder amounts to two-thirds of the value of the article found.
Pledge CMA Inter Law and Ethics Notes
1. Meaning of Pledge/Pawn
→ As per Sec.172,
→ It refers “to the bailment of goods as security for payment of debt or performance of a promise.”
→ It refers to a contract where by an article is deposited with a money lender as a security for the loan repayment or for the performance of promise.
Parties
→ Pawnor – The person who pledges i.e. bailor incase of pledge
→ Pawnee- The bailee in case of pledge.
2. Essential Elements of Pledge
- There must be expressed implied contract between the parties
- It can be of goods only
- There must be delivery of goods from one person to another
- It must be for some purpose.
3. Duties of Pawner
- Repay the loan or perform the promise
- Pay expenses in cases of default
- Pay the deficit on sale
- Pay extraordinary expenses incurred for preserving the goods.
- Disclose faults in goods which are material for the use of goods or may put pawnee to extra-ordinary risks
- Indemnify pawnee if he suffers any loss due to defective title of the pawner.
4. Rights of Pawner
- Sec. 177: Redeem the goods pledged.
- Right to sue in the event of pawnee refusing to return the goods even after payment of debt etc.
- Receive any increase in goods.
- Receive notice of sale.
5. Duties of Pawnee
- Not to use the goods unless authorised by pawner
- Return the goods to pawner on payment of debt etc.
- Take reasonable care of the goods
- Not to mix the goods with his own goods
- Return any increase in goods pledged with him
- Return any surplus on sale.
6. Rights of Pawnee
Sec. 173: Retain the goods pledged only for
- the performance of promise,
- payment of debt, or
- interest on debt.
Sec. 174: Right of parttular lien.
Sec. 175: Seek reimbursement of extraordinary expenses.
Sec. 176: Right to sue the pawner in the event of pawner failing to redeem
the debt or perform the promise. He can sell the goods after giving a notice of sale.
7. Pledge by non-owners
A valid pledge can be created by following non-owners:
- Pledge by Estoppel.
- Pledge by a mercantile agent. (Sec. 178)
- Mercantile Agent means an agent of the seller who has been appointed to sell the goods belonging to the seller.
Conditions for pledging:
- Goods came into his possession with the consent of seller/owner of goods.
- Pledge is made by him in the ordinary course of business
- Pawnee acts in good faith.
(c) Pledge by a person ¡n possession under a voidable contract. (Sec. 178 A) Conditions –
- Person acquires goods under voidable contract
- Person who acquires the goods pledges such goods
- At the time of creation of pledge, voidable contract should not have rescinded
- Pledge is made in good faith.
(d) Sec. 179: Pledge by a person having limited interest in the goods.
If a person has a limited interest, he can make a valid pledge to the extent of that interest.
(e) Pledge by a co-owner in possession:
Consent of all joint owners is required, if the goods owned jointly are to be sold or pledged. Conditions for exception –
- Goods are in the sole possession of one joint owners.
- Goods came into his possession with consent of other joint owners.
- Pledge is made in good faith.
(f) Pledge by a seller in possession of goods after their sale.
Conditions –
- Ownership of goods has been passed to the buyer
- Seller continues to be in their possession, even after their sale
- Seller pledges the goods to some other person
- Pledge is made in good faith without any notice of the prior sale
(g) Pledge by a buyer who has obtained possession of goods under an agreement to sell.
Law Of Agency CMA Inter Law and Ethics Notes
1. Law of Agency
As per Sec. 182,
“An agent is a person employed –
- to do any act for another, or
- to represent in dealing with third persons.”
- Principal is a person for whom such act is done, or who is so represented.
- Agent acts as a mere connecting link between the principal and third party
It is based on two rules:
- A person can do through an agent, whatever he can do himself.
- The acts of the agent are the acts of the principal.
2. Essential elements
→ Two parties are required
→ Agreement between parties is necessary
→ No consideration is required.
3. Modes of creation of Agency
(a) Sec. 187: Express Agency.
→ It is created either by words spoken or in writing
→ Eg- Power of Attorney (it may be general or special)
(b) Implied Agency – Agency created by conduct of parties. It can be in the following terms:
→ Sec. 237: Agency by Estoppel
→ It a person by his conduct, words spoken or written leads another to believe that a certain person is acting as his agent, he is estoppel later on from denying such facts.
→ Eg.: Wife as an agent, where a married woman lives with her husband, there is a presumption that she has the authority to pledge his credit for necessaries.
This Presumption is not held where husband shows that
- he had expressly warned the tradesman not to supply goods to his wife on his credit,
- he had expressly forbidden the wife to pledge his goods,
- his wife was already supplied with sufficient articles
- She was supplied with sufficient allowance Wife as an agent
(c) Agency by Holding out
→ Under this the principal plays a positive role.
→ It occurs when anyone holds himself out as an agent of another
→ It happens through a wilful conduct = Eg. – In case of partnerships.
Sec. 189:
(d) Agency by necessity
In case of emergency, the agents can exceed their powers and can take all the steps to minimise his principal’s loss.
(e) Agency by ratification
(a) The principal is not bound by the act of agent if the agent acts:
→ On behalf of another without his consent or knowledge
→ exceeding his authority.
(b) The principal can create it by subsequent ratification.
(c) Also known as ex post facto agency i.e. agency arising after the event.
(d) Principal becomes bound.
4. Agency by ratification is possible if following conditions are satisfied
- The act must have been done on behalf of the named or identifiable principal.
- The principal must be in existence at the time of contract.
- The principal must be competent to contract at the time of making the contract.
- A principal must have full knowledge of the facts.
- A contract can be ratified only as a whole.
- It can be done of a lawful contract.
- It must be done within a reasonable time.
- It should not cause any damages to a third party.
5. Extent of Agent’s Authority
It is governed by two principles:
→ Sec. 188: Agents authority in normal circumstances.
→ Agent has the power and authority to do all the acts lawful and necessary in the normal circumstances in discharge of his functions.
→ Agent’s authority in emergency.
→ Agent has the authority in an emergency to do all such acts as a man of ordinary prudence for protecting his principal from losses under similar circumstances.
It includes:
- Actual / Real Authority.
- Ostensible/Apparent Authority.
6. Special Agent
→ Appointed to do any specific act or function
→ Does not have unlimited authority
→ Act outside its authority
→ Does not binds the principal.
7. General Agent
- Appointed for doing all transactions given by principal.
- Can be assumed to have Unlimited authority.
8. Other Types of Agents
(a) Sub-Agent
→ As per Sec. 190,
→ Sub-agent’s appointment is not lawful as the agent is a delegate are a delegatee cannot further delegate.
As per Sec. 191,
A sub-agent is a person
- employed by, and
- acting under the control of the original agent in the business of agency.
(b) Substituted Agent
As per Sec. 194,
Where the principal appoints an agent, and if that agent identifies another person to carry out the acts ordered by the principal, then the second person is not to be treated as a sub-agent but only as an agent of the original principal.
(c) Mercantile Agent
As per Sec. 2 (9) of the Sales of Goods Act, 1930 “Mercantile Agent is an agent having in the ordinary course of business as such an authority either –
- to sell goods, or
- consign goods for the purpose of sale, or
- to buy goods, or
- to raise money for the security of goods.
9. Bankers
Relationship of debtor and creditor with their customers.
→ Agent of customer when he buys or sell securities, collects bills, etc. on customer’s behalf.
→ Has general lien on all goods and securities in his possession.
10. Duties of Agent
- Sec. 21: To conduct principal’s business according to his directions.
- Sec. 212: He must always act as a person with skill and diligence.
- Sec. 213: He has to maintain and render proper accounts to the principal whenever demanded.
- Sec. 214: To communicate and obtain instructions in case of difficulty.
- Sec. 215: He must not deal on his own account.
- Sec. 216: Must not make any secret profit.
- Sec. 217 & 218: To account for money received for the principal. Not to use the information obtained in the course of agency against the principal.
Agent cannot delegate his authority to subagents generally. The general rule for this is delegates non protest delegate a delegatee cannot further delegate
11. Rights of an Agent
- Sec. 217: Rights of Retention.
- Sec. 219: Right to receive agreed remuneration.
- Sec. 221: Right of lien on principal’s property.
- Sec. 222: Right of indemnification for lawful acts.
- Sec. 223: Right of indemnification against acts done in good faith.
- Sec. 225: Right to be compensated for any injury caused due to principal’s negligence.
12. Principle’s liability for agent’s act to Third Parties
There are 3 circumstances in which an agent may contract namely –
- The agent acts for named principal (disclosed principal)
- The agent acts for an undisclosed principal
- The agent acts for a concealed principal
(a) Sec. 226: Acts within the scope of actual apparent authority., it bounds the principal.
(b) Sec. 227: Acts in excess of agent’s authority is separable, it bounds the principal.
(c) Sec. 228: Acts in excess of agent’s authority is not separable, principal is not bound by it.
(d) Sec. 229: Principal is bound by notice given to the principal.
(e) Sec. 238: Principal is bound for any fraud or misrepresentation committed by agent:
- During the business hours
- Within his authority
(f) Admission made by agent, is deemed to be admission made by the principal.
(g) Unnamed principal, principal becomes liable on being discovered.
13. Personal liability of the Agent
(a) It is also known as Doctrine of implied warr&ity of authority.
(b) It happens under following circumstances:
- where the agent signs the negotiable instrument without indicating that he is signing for the Principal.
- where the contract expressly provides so.
- where the agent works for foreign principal.
- where the agent acts for a Principal who cannot be sued.
- where a Government servant enters into a contract on behalf of Union of India.
- where according to usage in trade in certain kinds of business. agents are personally liable.
- where the agency is coupled with interest
- If the agent is working for undisclosed principal.
- If the amount is received or paid by agent under mistake or coercion.
14. Termination of Agency
→ Agreement between principal and agent
→ Performance of contract
→ Revocation of authority by principal
→ Expiration of period
→ Revocation of authority by agent
→ Death/insanity of principal or agent
→ Insolvency of principal
→ Dissolution of company
→ Destruction of the subject-matter
15. When Termination of Agency Takes Effect.
- Sec. 208: As regards agent, when it becomes known to him.
- As regards third parties, when it comes to their knowledge.
- Sec. 210: Termination of, the agent’s authority terminates the sub-agents authority
- Sec. 209: The agent has a duty to protect his principal’s interest where the principal dies or becomes of unsound mind.
16. Irrevocable Agency
Revocation of agency is not possible in following cases:
- Sec. 202: where agency is coupled with interest.
- Sec. 204: where the authority has been partly exercised.
- where the agency has incurred personal liability.
