Indian Contract Act 1872

Cases and Concepts

Submitted By:
Mayank Goel G022
 The Indian Contract Act, 1872 codifies the legal principles that govern such ‘contracts’.
The Act basically identifies the ingredients of a legally enforceable valid contract in addition to dealing with certain
special type of contractual relationships like indemnity, guarantee, bailment, pledge, quasi contracts, contingent
contracts etc.
Objective of the Contract Act Present Contract Act* Extent and Commencement

The objective of the Contract Act is to Basic Principles of Contract It extends to the whole of India
ensure that the rights and obligations
(Sections 1 to 75) except the State of Jammu and
arising out of a contract are honoured
and that legal remedies are made Indemnity and Guarantee Kashmir
available to an aggrieved party against
(Sections 124 to 147) It came into force on the first day of
the party failing to honour his part of
agreement. The Indian Contract Act Bailment (Sections 148 to 181) September, 1872.
makes it obligatory that this is done and
Agency (Sections 182 to 238)
compels the defaulters to honour their
commitments.

Sec 2(h) “An agreement enforceable by law is a contract”

*The sale of Goods was repealed from this Indian Contract Act in 1930. Contracts relating to partnership were repealed in 1932.
 Agreement Legal Obligation C
• Plurality of Party • Intention to create O
• Proposal/Offer Legal Relation
N
• Acceptance • Consideration
• Communication • Capacity of Parties T
• Consensus-Ad-Idem • Free Consent R
• Lawful Object A
• Certainty
• Not Expressly C
Declared Void T
Offer and acceptance
• OFFER
• An offer is the starting point in the making of an agreement.
• An offer is also called ‘proposal’
• Sec 2(a) – “ A person is said to have made the proposal when he
signifies to another his willingness to do or to abstain from doing
anything with a view to obtaining the assent of that offer to such
act or abstinence.”

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OFFER
• An offer involves the following essential elements;
• It must be made by one person to another person
• Offeror – The person making the proposal is called the ‘offeror’ or ‘proposer’.
• Offeree – The person to whom the proposal is made is called the ‘offeree’ or the
‘proposee’.
• It must be an expression of readiness or willingness to do (i.e., a positive
act) or to abstain from doing something (i.e., a negative act)
• It must be made with a view to obtain the consent of that other person to
proposed Act or abstinence

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 Types of offer
• General offer – When the offer is made to the world at
large
• Specific offer – When the offer is made to a definite
person
• Implied offer – An offer may be implied from the
conduct of the parties or the circumstances of the case.

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 Cases
• General offer
• Carlil vs Carbolic Smoke ball Co (1893) 1 QB 258
• the defendant a sole proprietary concern manufacturing a medicine which
was a carbolic ball whose smoke could be inhaled through the nose to cure
influenza, cold and other connected ailments issued an advertisement for
sale of this medicine. The advertisement also included a reward of $100 to
any person who contracted influenza, after using the medicine (which was
described as ‘carbolic smoke ball’). Mrs. Carlill bought these smoke balls
and used them as directed but contracted influenza.
• It was held that Mrs Carlill was entitled to a reward of $100 as anyone
performing the conditions of the offer can be considered to have accepted
the offer.

• Harbhajan lal vs Harcharan lal (AIR All 539)

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Legal rules as to offer
Certain and
Intention to create Different from an
unambiguous
legal relationship invitation to offer
terms

No term of non-
Proper compliance of Communication of
communication which amount to special terms
acceptance

Different from a
mere declaration
of an intention
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 Contd-
• Intention to create legal relationship
• An offer must be such that when it is accepted it will create a legal relationship
• Balfour vs Balfour [(1919) 2 K.B. 571]
• A husband promised to pay maintenance allowance every month to his wife, so long
as they remain separate. When he failed to perform this promise, she brought an
action to enforce it. As it is an agreement of domestic nature, it was held that it does
not contemplate to create any legal obligation

• Certain and unambiguous terms

• If the terms of the offer are vague or indefinite, its acceptance cannot create any
contractual relationship.
• G. Scammell and Nephew Ltd. v HC & JG Ouston [1941] 1 AC 251

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 Contd -
• Different from a mere declaration of intention
• Mere declaration of intention indicates that an offer will be made
or invited in the future

• A declaration of intention by a person does not give right of action

to another.
• Case: Harrison vs Nickerson LR 8 QB 286
• An auctioneer advertised in a newspaper that a sale of office furniture would
be held. A broker came from a distant place to attend that auction, but all the
furniture was withdrawn. The broker thereupon sued the auctioneer for his
loss of time and expenses.
• Held - A declaration of intention to do a thing did not create a binding
contract with those who acted upon it, so that the broker could not recover.
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 Contd -
• Different from an invitation to offer
• In an invitation to offer the person making an invitation invites others to make an offer to him
• It is prelude to an offer inviting negotiations or preliminary discussions

• Case: Pharmaceutical Society of Great Britian vs Boots cash chemists Ltd (1953) 1 QB 401
• The Court held that the display of a product in a store with a price attached is
not sufficient to be considered an offer, but rather is an invitation to treat.
• Harvey vs faceey

• Counter Offer
• Case: Hyde v. Wrench, [1840] 3 Bea 334; 49 ER 132.
• Wrench (D) offered to sell his estate to Hyde for 1200 pounds and Hyde (P) declined. Wrench
then made a final offer to sell the farm for 1000 pounds. Hyde in turn offered to purchase the
property for 950 pounds and Wrench replied that he would consider the offer and give an
answer within approximately two weeks. Wrench ultimately rejected the offer and the plaintiff
immediately replied that he accepted Wrench’s earlier offer to sell the real estate for 1000
pounds.
• Held that a counteroffer negates the original offer.
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Contd-
• Offer must be communicated
• An offer must be communicated to the person to whom it is made.
• An offer is complete only when it is communicated to the offeree
• Acceptance is not possible unless offer is brought to the knowledge of the offeree.
i.e., One can accept the offer only when he knows about it.
• Acceptance in ignorance of offer confers no right. i.e., An offer accepted
without its knowledge does not confer any legal rights on the acceptor.
Case: Lalman Shukla vs Gauri Dutt (1913) 11 ALJ 489
• Gauridutt sent his servant lalman to find his lost nephew. when the servant had left,
Gauridutt announced reward to anyone, who will trace the boy. Lalman found the boy and
brought him home .when lalman came to know he claimed for reward.
• Lalman’s plea was cancelled on the grounds that he can not accept the offer unless he is
not aware of it.
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 Contd -
• No term of non-compliance of which amounts to acceptance
• The offer must not contain a term, the non-compliance of which amount to
acceptance
• Ex: A offers by post to sell his horse to B for Rs 2000. He writes, “ If you do
not reply, I shall assume you have accepted the offer.” There would be no
contract even if B does not reply
• While making the offer, the offeror cannot say that if the offer is not
accepted before a certain date, it will be presumed to have been accepted
• Communication of special terms or standard terms of contract
• Special terms of the offer must also be communicated along with the offer.
• If the special terms of the offer are not communicated, the offeree will not
be bound by those terms.
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Acceptance
• Acceptance means giving consent to the offer.
• It is an expression by the offeree of his willingness to be bound by the
terms of the offer.
• Sec 2(b) – “ A proposal is said to be accepted when the person to whom
the proposal is made signifies his assent thereto. A proposal when
accepted becomes a promise.”
• Acceptance is the consent given to offer.

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Who can accept??
• In case of a specific offer –
• To be accepted by that definite person or that particular
group of persons to whom it has been made and non
else.
• In case of general offer –
• An offer made to the world at large or public in general
can be accepted by any person having the knowledge of
the offer by fulfilling the terms of the offer.

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 Contd -
• How to make acceptance –
• Express acceptance –
• An express acceptance is one in which is made by
words spoken or written
• Implied acceptance –
• An implied acceptance is one which is made otherwise
than in words.
• It is inferred from the conduct of the parties or the
circumstances of a particular case

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 Legal rules of valid acceptance
• Absolute and unqualified
• Manner
• Communication
• By whom
• To whom
• Before the lapse of the offer

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 Communication of offer and acceptance
• Must be complete so as to bind the concerned parties
because as soon as the communication is complete
the parties loose the right of withdrawal or
revocation.
• (a) Communication of offer – It is complete when it comes
of the knowledge of the person to whom it is made.

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 Contd -
• Communication of acceptance –
• As against the proposer –
• When it is put in a course of transmission to him, so
as to be out of the power of the acceptor.
• As against the acceptor
• When it comes to the knowledge of the proposer.

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 Revocation of offer and acceptance
• Taking back, withdrawal (sec 5)
• Time for revocation of proposal – A proposal may be
revoked at any time before the communication of its
acceptance is complete as against the proposer, but
not afterwards.

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 Contd -
• Time for revocation of acceptance – An acceptance
may be revoked at any time before the
communication of the acceptance is complete as
against the acceptor, but not afterwards.

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Consensus-Ad-Idem

Meeting Of The Minds between the parties where all understand and have accepted
the contractual commitments made by each other, respectively.

SAME THING IN THE SAME SENSE

Example: If ‘A’ who owns 2 cars x and y wishes to sell car ‘x’ for Rs. 30,000. ‘B’, an
acquaintance of ‘A’ does not know that ‘A’ owns car ‘x’ also. He thinks that ‘A’ owns only
car ‘y’ and is offering to sell the same for the stated price. He gives his acceptance to buy
the same. There is no contract because the contracting parties have not agreed on the
same thing at the same time, ‘A’ offering to sell his car ‘x’ and ‘B’ agreeing to buy car ‘y’.
There is no consensus-ad-idem.
The life blood of every contract !
CONSIDERATION ….Definition
• Section 2 (d) Indian contract act…
“ When at the desire of the promisor, the promisee or any other person
has done or abstain from doing, or does or abstain from doing, or promises
to do or abstain from doing, something, such act or abstinence or promise
is called consideration”

Consideration May be :
• An act - means doing of something.
• An abstinence – promising not to do something .
• A promise – the promise of each party is the consideration for each other
ESSENTIALS OF VALID CONSIDERATION
• Must move at the desire of the promisor – X’s house catches fire, and Y
helps in extinguishing it without being requested to do so by X. Y cannot
demand any payment for his voluntary service.

• It must move from promisee or any other person – For making a valid
contract consideration must be there, it is immaterial who furnishes it.

• It must be something to which the law attaches a value.

 A stranger to consideration can sue, provided he is a party to
contract…
• X pays Rs. 50000 to Y directing him to build a house for Z. Y agrees to do so. Hence, Z
is a party to a contract but stranger to consideration & he can enforce the contract.

“ No consideration, No contract” – Exceptions to the rule

• Natural love & affection . [Sec 25(2)] – is valid if it satisfies the following conditions
• It is in writing
• It is registered under law
• It is between parties standing in a near relation to each other.

X promises his son to give Rs. 1000 in writing & get it registered.
CHAPPELL & CO. LTD. V. NESTLE CO. LTD.

FACTS:

C were owners of copyright of a tune called ‘Rocking Shoes’ and N were manufacturers of
chocolate who were selling to the public these records in return for 1 shilling and three wrappers
of chocolate bars manufactured by N. Under the statutory provision then in force, N were required
to pay certain percentage of ‘ordinary retail selling’ price to C. C contended that N couldn’t rely on
statute for it contemplated price consisting of money alone, whereas in this case consideration for
records included three chocolate wrappers also.

ISSUE:

Whether chocolate wrappers formed a part of consideration?

Answer??
CAPACITY TO CONTRACT

Meaning & Definition…

• According to section 11 of the contract act:
“ Every person is competent to contract who is of the age of majority
according to the law to which he is subject, & who is of sound mind,
and is not disqualified from contracting by any law to which he is
subject.”
Persons disqualified from entering into the
contract…
• Minors, who are not of the age of majority.
• Persons of unsound mind, and
• Persons disqualified to contract by any law ( Insolvents )
MINOR
• Who is a minor – Acc. To sec 3 of Indian majority act, 1875, a minor
is a person who has not attained the age of 18 years.

• First rule- Law protects minors against their own

inexperience & against the possible improper designs of
those more experienced
• Second rule-The law should not cause unnecessary
hardship to persons who deal with minors
Minor’s Agreements
1. Agreement is void ab initio:
Case Mohori vs. Dharmodas Ghose – Dharmodas , a minor executed a mortgage for
Rs. 20000 declaring himself major & received Rs. 8000 from Mohori , a mortgagee. The
minor wanted to set aside the mortgage. The mortgagee wanted the refund of Rs
8000. It was held that the agreement with the minor was absolutely void & question of
refunding money does not arise.

2.No Ratification – minor cannot ratify the agreement on attaining the age of majority
which he has entered into in the age of minority.

3.Minor’s Liability for necessaries – Minor is liable to pay a reasonable price for the
necessaries supplied to him…. His property is liable but he is not personally liable.
 Cases!
 Clare was of age 17, a minor in her state, when she bought a week’s worth of groceries at the
local supermarket. Later she discovered she spent too much money and was going to be over
her weekly budget. So she took the groceries back and asked for her money back. If she sues,
will she get her money back?
 No, Clare purchased necessaries so she cannot disaffirm.

 While still a minor, Beach bought a stereo system on credit from McReam’s Electonic Cloud for
$500. Beach paid $100 down and promised to pay $50 a month on the unpaid balance until
the debt was paid. After making four payments, two of which were made after he reached the
age of majority. Beach decided to disaffirm the contract and return the equipment.

 The two payments made after he reached majority would be

considered a ratification of the contract. Therefore Beach cannot
disaffirm.
 Chapple v Cooper (1844)

• A minor whose husband had recently died contracted with undertakers for
his funeral. She later refused to pay the cost of the funeral, claiming her
incapacity to contract. The court held her liable to pay the bill.

• The funeral was for her private benefit and was a necessary as she had an
obvious obligation to bury her dead husband.

‘Necessary’ does not mean ‘Necessity’

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Persons of UNSOUND MIND…
• Acc to sec 12:
“ 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 understanding it & of forming a rational
judgment as to its effect upon his interest.”

Persons disqualified from contracting

• Alien enemy
• Foreign sovereign (prior sanction of central govt)
• Corporations – contract is ultra vires if not in MOA)
• Insolvents- all property in hand of Official assignee. He can enter into contract when court passes an order of
discharge
• Convicts – persons who are sentenced to imprisonment cannot enter into contract during that period).
 Free Consent
According to Section 13 two or more persons are said to consent when they agree upon the same thing in the
same sense.
This means that there should be perfect identity of mind (consensus ad idem) regarding the subject matter of
the contract.

Meaning of Free Consent

• To make a contract valid not only consent is necessary but the consent should also be free.
• Section 13 says the consent is said to be free when it is not caused by any of the following :
(a) Coercion - sec 15
(b) Undue influence - sec 16
(c) Fraud
(d) Misrepresentation - sec 17,18
(e) Mistake –sec 20,21
 Types of Not free Consent

Flaw in consent

Misrepresentatio
Coercion Undue influence Mistake
n
(sec15) (sec 16) (sec 20,21)
(sec 17,18)

Faudulent or Innocent or
Mistake of fact Mistake of law
wilful Unintentional
(sec 20) (sec 21)
(sec 17) (sec 18)
1.Coercion
 Coercion is 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,
whatsoever with the intention of causing any person to enter into an agreement .

Effects of Coercion
 When the consent of a party to an agreement is obtained by coercion, the contract becomes
voidable at the option of the party ,whose consent is so obtained
 The burden of proving that the consent was obtained through coercion shall be upon the party
who wants to set aside the contract on the plea of contract.

Examples of Effects of Coercion

 A executes a transfer bond for the house under fear of assault .It will be a contract voidable at the
option of A since his consent was obtained by coercion..
 A railway company refuses to deliver certain goods to the consignee, except upon the payment of
an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He
is entitled to recover so much of the charge as was illegally excessive.
2. UNDUE INFLUENCE
 Undue influence is the improper use of any power possessed over the mind of the contracting party.
According to section 16 a contract is said to be affected by undue influence when:
 The relations subsisting between the parties are such that one of the parties is in a position to
dominate the will of other uses that position to obtain an unfair advantage over the other.
Examples of parties that can be affected by undue influence
 Doctor and patient
 Lawyer and client
 Guardian and ward
 Trustee and beneficiary
 Teacher and student

Decided case on undue influence

 In Karnal Distillery Co. ltd V. Ladli prasad .1958 Punj 190,confirmed by the supreme court in 1963
S.C 1279,the elder brother was shown to have exercised undue influence over his younger brother
in respect of a compromise arrangement, the transaction was held to be voidable at the instance
of the younger brother.
 Difference between coercion and undue influence
Coercion Undue Influence

The consent of the aggrieved party The consent of the aggrieved party
is taken by committing or is obtained by dominating the
threatening to commit an act party by taking an unfair advantage
forbidden by Indian penal code. of his position.

Physical force is exercised Moral force is used in undue

influence

Some sort of relationship must

Relationship between the promisor exist between the two parties to
and the promisee is not necessary the contract
3.Fraud
 Misrepresentation of facts may be intentional or innocent. Intentional misrepresentation has been
termed as Fraud and innocent misrepresentation has been termed simply as ‘misrepresentation’ in the
contract act.

Definition under law section 17

 According to section 17 fraud means and includes any of the following acts
 Committed by a party to a contract or by any one with his connivance or by his agent with intent to deceive another party thereto or
his agent or to induce him to enter into contract:
 (a) A suggestion as to fact of that which is not true by one who does not believe it to be true
 (b) An active concealment of a fact by one having knowledge or belief of the fact.
 (c) Any other act fitted to deceive
 (d) A promise made without any intention of performing it

Essential of fraud
 There must be a representation and it must be false. (Peek vs Gurney(1873) L.R 6 H .L 377)
 The representation must relate to material fact (Bisset vs Wilkinson (1972) A.C 177)
 The representation must have been made before the conclusion of the contract with the intention of inducing the other party to act upon it.
 The other party must have been induced to act upon the representation
 The other party must have relied upon the representation and must have been deceived. (Horsefull vs thomas , (1862) 1 H & C 90)
 Examples of Fraud
 Mayank was induced to buy shares in a company on account of a false
statement made by a stranger. It was held that he could not get out of
the bargains because false statement was not made by the company
or its agent.
 Kapil says to Deepika his coat is made of pure wool ,though he knows
that it is untrue .Deepika purchases the coat believing Kapil’s
statement to be true ,It is a fraud by Kapil and therefore contract is
voidable at deepika’s option.

Hands vs Simpson, fawcett & co ltd (1928) 44T LR

Mere silence without any legal 295
Duty to speak will not amount Hands a commercial traveller, obtained an
to fraud except where : employment with Simpson. S regarded driving
(a) The circumstances of the case as an essential part of H’s duties but he did not
are such that with regard to specifically ask H if he is qualified to drive a car.
them ,it is the duty of the H kept quiet about his disqualification to drive a
Person keeping silence to speak car. S contended that H’s silence is
(b)Silence in itself will be equivalent misrepresentation. But it was held that H was
to speech under no duty to volunteer the information and
there was no misrepresentation.
4.Misrepresentation
 Misrepresentation - SECTION 18 means and includes :
 the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be
true
 any breach, of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him, by
misleading another to his prejudice or to the prejudice of any one claiming under him;
 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.

Difference between fraud and misrepresentation

Misrepresentation Fraud
There is no intention to In fraud the false statement is made deliberately
deceive or to gain any with a clear intention of deceiving the other party
undue advantage

It makes the other contract In fraud the injured party besides avoiding the
only voidable at the option contract may also claim the damages.
of the party whose consent
has been so caused
There must be false representation
Peek vs Gurney(1873) L.R 6 H .L 377

The prospectus of a company did not refer to the existence of a document disclosing
liabilities. This gave the impression that the company was prosperous. If the
existence of the document had been disclosed the impression would have been
quite different. Held, non disclosure amounted to fraud and anyone who
purchased shares on the faith of this prospectus could avoid the contract.

The representation must relate to material fact

Bisset vs Wilkinson (1972) A.C 177

The vendor of a piece of land told a prospective purchaser that, in his

opinion the land would carry 2000 sheep. In fact the land could carry
only a number less than this. Held there was no misrepresentation as
the statement was one of opinion which was honestly held.
5.Mistake
Two types :
 Mistake of law
 Mistake of fact
Mistake of Fact
 Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is
void.
 Explanation.- An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement is not to be
deemed a mistake as to a matter of fact.

Examples
(a) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the
day of the bargain, the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of the facts. The
agreement is void.
(b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was
aware of the fact. The agreement is void.
(c) A, being entitled to an estate for the life of B, agrees to sell it to C. B was dead at the time of the agreement, but both parties
were ignorant of the fact. The agreement is void.
Types of Mistake of Facts
 Bilateral - Section 20 states that were both the parties to an agreement are under a mistake as to a matter of fact, essential to
the agreement shall be void. The mistake shall be termed as bilateral mistake of fact only when both of the following conditions
are satisfied
(a) it should be committed by both the parties
(b) it should relate to a matter of fact essential to the agreement.
 Unilateral
(c) A, being entitled to an estate for the life of B, agrees to sell it to C. B was dead at the time of the agreement, but both parties
were ignorant of the fact. The agreement is void.

Mistake of Law

 A contract is not voidable because it was caused by a mistake as to any law in force in India; but a mistake as to a law not in force in
[India] has the same effect as a mistake of fact.
 Example
A and B make a contract grounded on the erroneous belief that a particular debt is barred by the Indian Law of Limitation: the
contract is not voidable.
Lawful Object
The object of an agreement must be valid. Object has nothing to do with
consideration. It means the purpose or design of the contract. Thus, when one
hires a house for use as a gambling house, the object of the contract is to run a
gambling house.

The Object is said to be unlawful if-

(a) it is forbidden by law;

(b) it is of such nature that if permitted it would defeat the provision of any law;
(c) it is fraudulent;
(d) it involves an injury to the person or property of any other;
(e) the court regards it as immoral or opposed to public policy.
 Types Of Contracts

Enforceabilty Method of Extent of Obligation to

Formation performance perform

Valid
Formal Executed Unilateral

Voidable
Simple Executory Bilateral

Void
On Record Under Seal
unenforceable

Illegal Express Implied Quasi Standard

Contingent
Form
BY ENFORCEABILITY

Valid Valid Contract: A valid contract is

an agreement duly enforceable by
law with all the essential elements
of the contract which are:
•Agreement
Illegal Void •Consideration
•Contractual Capacity
•Legality

Unenforceable Voidable
BY ENFORCEABILITY
Void Contract: A contract becomes void when it ceases to be legally valid or enforced by
law.
A valid contract becomes void on account of:
•Subsequent illegality
•Party/parties in contract lack the capacity to enter in a contract because he is a minor or
mentally incapacitated
•Mistake of identity or subject matter
•No meeting of minds
Voidable Contract: A contract which ceases to be enforceable by law at the option of one
of the parties, i.e. the aggrieved party.
A contract becomes voidable in which consent of one of the parties is obtained by:
•Coercion
•Undue Influence
•Misrepresentation or Fraud
Court Case: Shogun Finance Ltd. Vs Hudson
BY ENFORCEABILITY

Unenforceable Contract: A contract which is valid but not capable of being enforced by the
courts.
A contract is unenforceable when it is:
•Incapable of proof due to lapse of time
•Unsigned

Illegal Contract: A contract is illegal when either the consideration or the object is illegal or
fraudulent.

Court Case: Anderson Vs. Daniel

BY METHOD OF FORMATION
Formal Contract: Contracts
Record
wherein consideration is not
Formal essential.
Under Seal •Contracts of Record:
Contracts declared and
Adjudicated by a court
Express
Method of Formation having jurisdiction or which
is entered of record in
Implied obedience to the judgments
of a court.
•Contracts Under Seal:
Simple Quasi Contracts created by a
sealed document. It must be
Standard Form a document in print or in
writing and must be signed,
sealed and delivered to the
Contingent concerned party.
BY METHOD OF FORMATION
Simple Contract: Contracts which are not formal.
They may be in writing, or made orally, or they may be implied from the conduct of the
parties. All simple contract must be supported by consideration.
•Express Contract: Contract where the terms of contract are expressly agreed upon
(whether by words spoken or written) at the time of formation of the contract
•Implied Contract: Contracts which come into existence by the acts or conducts of the
parties.
•Quasi Contract: Contract which is created by the law. It is an obligation which law
creates in absence of an agreement based upon the principle of equity, which means
that no person should be allowed to unjustly enrich himself at the cost to another.
•Standard Form Contract: Contract between two parties, where the terms and
conditions of the contract are set by one of the parties, and the other party has little or
no ability to negotiate more favorable terms and is thus placed in a "take it or leave it"
position.
•Contingent Contract: Contract to do or not to do something contingent to the
happening or not happening of some event.
BY EXTENT OF PERFORMANCE

Extent of
Performance

Executed Executory
Contract Contract
Executed Contract: Contract in which both the parties to the contract have completely
performed their share of obligation and nothing remains to be done by either of the
parties.
Promises are made and completed immediately.

Executory Contract: Contract where both or any one of the parties is yet to perform its
obligation.
Promises are not fully performed immediately.
BY OBLIGATION TO PERFORM

Obligation to
Perform

Unilateral Bilateral
Unilateral Contract: Contract in which any one party to the contract has to still perform its
share of obligation.

Bilateral Contract: Contract in which both the parties to the contract have to still perform
their share of obligation.
Discharge Of Contract
DISCHARGE OF CONTRACT
When an agreement, which was binding on the parties to
it, ceases to bind them, the contact is said to be
discharged. A contract may be discharged in the following
ways:
1. By Performance of the contract ;
2. By breach of the contract ;
3. By Agreement/Novation ;
4. By impossibility of performance ;
Breach Of Contract

Breach is When a party does By his own act makes it

said to not fulfill his impossible to discharge
contractual his obligation
occur when obligation

Types of Breach : Actual breach of contract OR

Anticipatory/Constructive Breach
Actual Breach and Its Consequences : An actual breach
of contract on the due date or during performance
enables the other i.e. the aggrieved party to obtain a
right of action against the other party

In Case of Anticipatory Breach where the promisor

declares his intention of not performing the contract
even before the time stipulated for performance, In
such a case, the other party may end the contract or
may opt to wait till the due date….....
Remedies for Breach of a Contract :
 Novation

 Rescission

 Suit for Injunction

 Suit for Specific Performances

 Suit for Quantum Merit

 Novation : Two parties agree to resolve their
differences and amend the contract into a new one

 Rescission: When one party breaches the contract ,

it absolves the other party of his obligations and
entitles him to charge damages as compensation

 Suit for damages : Damages are monetary

compensation allowed for loss suffered by the
aggrieved party. This is contingent on compensation
and not punishment
 Suit for specific performances: This is with regard to
immovable property. It implies seeking a court order
asking for the promise specified in the contract to be
carried out. In such cases actual damages are
indeterminate and monetary compensation is
inadequate

 Quantum Merit : When the actions of a certain party

prevent the other party from fulfilling his obligations,
he is entitled to be compensated for the losses
suffered in the course of his actions
o Case: De Bernardy Vs. Harding, (1853)
o the defendant, who was to erect and le seats to view the funeral of the Duke of
Wellington, appointed the plaintiff as his agent to advertise and sell tickets for
the seats. The plaintiff was to be paid commission on the tickets sold by him.
The plaintiff incurred some expense in advertising for the tickets but before
any tickets were actually sold by him his authority to sell tickets was wrongfully
revoked by the defendant.
o It was held that the plaintiff was entitled to recover the expenses already
incurred by him under an action for quantum meruit.
Damages are essentially compensation for breach of
contracts or for the nonperformance of the same.
The 5 types of Damages are :

 Ordinary
 Special
 Exemplary
 Liquidated
 Nominal
 Ordinary damages : Compensation suffered for
loss in the normal course of events, based on the
premise of opportunity cost

 Special Damages : Damages contingent on special

circumstances which go beyond the purview of
ordinary losses.Eg- Hadley vs Baxendale

 Exemplary Damages : Damages awarded to

compensate for humiliation or loss of reputation
suffered. Eg- Breach of promise to marry or
wrongful dishonour of a cheque
Eg- Western vs Olathe State Bank( cheque dishonored)

Liquidated Damages : Damages specified in the

drawing of the contract itself , i.e. the contract
contains a quantitative specification of who is to pay
whom how much in the instance of a breach.
Specification may be one or many depending on the
contract drawn up between the parties. Indian law
does not differentiate between penalties and
liquidated damages
 Nominal Damages : Damages awarded as a token.
Costs incurred are often insignificant and the
difference between nominal and ordinary damages lies
in the availability of evidence of loss.
Eg- Union of India vs Tribhuwan Dasji Patel
Doctrine Of Frustration

 Sec 57 (2) 0f the MCA 1950 provides for the doctrine

of frustration:
 “A contract to do an act which, after the contract is
made, becomes impossible or by reason of some
event which the promisor could not prevent,
unlawful, becomes void when the act becomes
impossible or unlawful.”

 The section envisages 2 main instances of

frustration, namely:
(a) Impossibility of performance; and
(b) Unlawful to perform
 IMPOSSIBILITY
impossibility existing at the time of agreement impossibility arising subsequent to the
/ pre-contractual impossibility formation of contract / Supervening impossibil
A. Known to the parties Post- contractual impossibility
B. Unknown to the parties A. Destruction of subject matter of the contract.
B. Non-existence or non-occurrence of a particular state
things .
C. Death or incapacity of personal skill.
D. Change of law/ war, etc
If an agreement contains an undertaking to perform an impossibility, it is void ab initio
Rule
1. lex non cognit ad impossibilia i.e. the law does not recognise what is impossible
2. impossibilium nulla obligato i.e. what is impossible does not create an obligation.
INSTANCES OF FRUSTRATION
Instance Case
1. Outbreak of War HA Berney v Tronoh Mines
2. Destruction of the Subject matter Taylor v Caldwell
Appleby v Myers
3. Non-occurrence of a particular event *Krell v Henry
*Chandler v Webster
4. Death or incapacity for personal service *Nga Sheau Sheau v United Merchant
Finance Bhd
*Condor v Barron Knight Ltd [1966] 1 WLR
87
5. Statutory Prohibition Metropolitan Water Board v Dick, Kerr & Co
Ltd [1918] AC 119
6. Inability of Promisor to Obtain License *Yong Ung Kai v Enting
*Ho Weng Leong v Ng Kee Chin
7. Grant of an injunction *Standard Chartered Bank v Kuala Lumpur
Sdn Bhd
8. Seizure of compulsory acquisition by the Public Finance Bhd v Ehwan bin Saring
government Re Shipton
INSTANCES OF NO FRUSTRATION
Instances Case
1. Event causing carriage of goods by Tsakiroglu &Co. Ltd v Noblee Thorl GmbH [1962]
sea more expensive AC 93

2. Financial crisis Sentul Raya Sdn Bhd v Hariram a/l Jayaram [2008]
4 MLJ 852
3. Shortage of labour and materials in Davis Contractor Ltd v Fareham UDC [1959] AC
building contracts 696,

4. Occurrence of bad weather *Kwan Sun Ming v Chak Chee Hing, [1965] 1 MLJ
236
*Khoo Than Sui v Chan Chiau Hee [1976] 1 MLJ 25
5. Compulsory acquisition by the Wong Siew Choong Sdn Bhd v Anvest Corp Sdn
government of small part of the Bhd [1999] 3 MLJ 577
land
6. Difficulty in interpreting the terms Pacific Forest Industries Sdn Bhd v Lin Wen-Chih,
of the contract [2009] 6 MLJ 293
• Case: Taylor v Caldwell (1863)
• In this case plaintiff ( P) Taylor entered into a contract with defendant (D)
Caldwell, where the P would pay D 100 pounds/day to use D’s music hall for a
concert. The agreement was made but before the first performance, the music
hall was destroyed, neither of the party was at fault in the fire.
• The Court held that subject to an implied condition the parties shall be excused
in case, the performance becomes impossible due to the perishing of thing
without fault of the contractors.

• Case: ROBINSON VS DAVISON

Singer unable to perform because of illness
Special Contracts
 Bailment and Pledge (Sections 148 to 181)

When a person
Delivers some goods to another person For some purpose

With the understanding that

Goods shall be either returned to Or disposed off

According to the instruction of the person delivering it

This is called Bailment

 EXAMPLES OF CONTRACT OF BAILMENT

Delivering old Handing over

Sending T.V. to
jewellary to goods to
service centre for
goldsmith for transporter for
repairing
polishing transportation

Hiring of taxi for Giving clothes for

tour purposes Dry Cleaning
 DUTIES OF BAILOR
• Duty to dispose faults: Bailor should disclose faults present in goods at the time of making delivery.
Faults are of two types namely ; Known faults and Un-known faults. On the other hand bailments also are
of two types namely Gratuitous bailment and Non-Gratuitous bailment. In case of gratuitous bailment,
bailer is liable to compensate for bailee injuries arising out of known faults. In Gratuitous bailment, bailer
is not answerable to un-known faults. In case of Non-Gratuitous bailment, bailer is answerable to both
known faults and Un-known faults
• Duty to contribute for expenses: Bailor should Contribute for expenses incurred by bailee. In case of
Gratuitous bailment, bailer need not contribute for ordinary expenses and extra ordinary expenses or to
the contributed by bailer. In case of Non-Gratuitous bailment, bailor should contribute for both ordinary
expenses and extra ordinary expenses
• Duty with regard to defective title: In case where bailor has delivered the goods with defective title, the
bailee may come across suffering from the side of true owner due to bailers defective title. In such a case
bailer with defective title should compensate bailee
• Duty to Indemnify: Principal of indemnity operates between bailor and bailee, where bailer becomes
implied indemnifier and bailee becomes implied indemnity holder. So bailer has duty to indemnify bailee
• Duty to take the Goods back: After fulfillment of purpose bailee returns the goods to bailer. Then bailer
should take them back. If bailer refuses to take the goods back, bailor has to compensate bailee
 RIGHTS OF A BAILOR
• Rights of taking back the goods bailed: The bailor has right to take back the goods bailed as soon as
the purpose of bailment is completed. If the bailee defaults in so returning, the bailor has right to
receive compensation
• Right in case of unauthorized use of goods: The bailor is entitled to terminate the contract of
bailment if the bailee makes the unauthorized use of the goods bailed
• Right to goods bailed before stated period: The bailor may get back his goods before the time stated
in the contract of bailment with the consent of the bailee
• Right to Dissolution of contract: The bailor may dissolve the contract if the conditions of bailment
are disobeyed by the bailee
• Right to Gratuitous goods: The bailor has right it terminate the contract of gratuitous bailment at
any time even before the specified time, subject to the limitation that where such a termination of
bailment causes loss in excess of benefit, the bailor must compensate the bailee
• Right in share of Profit: The bailor has share in the increase or profit gained from the goods bailed if
there is provision in the contract
 DUTIES OF A BAILEE
• To take care of goods bailed: The bailee is bound to take as much care of the goods entrusted to
him as a man of ordinary prudence
• To avoid the inconsistent act: A contract of bailment is voidable at the option of the bailor, if the
bailee does any act with regard to the goods bailed, inconsistent with the conditions of the
bailment
• The authorize use of goods: If the bailee makes any unauthorized use of the goods bailed, he is
liable to make compensation to the bailor for any damage arising to the goods from or during such
use of them
• Not to mix bailor’s goods: The bailee is bound to keep the goods of the bailor separate from his
own where the mixture without the consent of the bailor is inseparable, the bailor is entitled to be
compensated by the bailee for the loss of the goods
• To return the goods: It is the duty of the bailee to return, or deliver the goods bailed according to
the bailor’s directions
• Responsibility in case of default: If the goods are not returned, delivered or tendered due to
default of the bailee, he is responsible to the bailor for any loss of the goods from that time
• To return any profit from the goods: 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
 RIGHTS OF A BAILEE
• Right to recover damages: A bailee has right to recover damages from the bailor
if he suffers any loss due to defects of the goods bailed
• Right to receive compensation: A bailee is entitled to receive compensation from
the bailor for any loss resulting from the defect in the bailor’s title
• Right of Legal Action: A bailee may take necessary legal action against the person
who wrongfully deprives him of the use of goods bailed or does them any injury
• Right to recover Bailment Expenses: Bailee is entitled to be reimbursed for all
legitimate expenses incurred for any purpose of bailment
• Right of Lien: Where the bailee has rendered any service for the purpose of
bailment, he has right to retain such goods bailed until he receives due
remuneration for his services in absence of contract to the contrary
• Right of Indemnity: The bailee has right to receive the amount of indemnity from
bailor for any loss which he may sustain by reason that the bailor was not entitled
to make the bailment or to receive back the goods, or to give directions
respecting them
 RIGHTS OF FINDER OF GOODS
• Right to receive compensation: The finder of goods has right to recover compensation for the trouble and
expenses incurred in preserving
• Right of lien: He can exercise his right of lien and may retain the goods until he receive the expenses
incurred in preserving the property or for finding out the true owner
• Right to Sue: He can file a suit against the owner for any reward that might have been offered to give him
• Right of legal Action: The finder may take necessary legal action against third party who wrongfully deprives
him of the possession of the goods
• Right of Selling: The finder has a right to sell the thing of another found by him under the circumstances
given below :
a. The thing found is commonly the subject of sale.
b. The owner cannot be found with reasonable diligence.
c. The owner refuses to pay the lawful charges.
d. The thing is in danger of perishing or losing the greater part of the value or
e. When the lawful charges of the founder amount to two- third of the value of the thing found
 DUTIES OF THE FINDER OF GOODS
• Finding out the real owner: It is the duty of the finder of the goods to make possible effort in order to
find out the real owner of the goods. He may retain such goods until he finds true owner by
advertisement in case of costly thing
• Care to be taken by the finder: The finder is bound to take as much care of the goods lost as a man of
ordinary prudence would under similar circumstances take of his own goods of the same bulk, quality
and value as the goods lost
• Returning of goods: It is the duty of finder to return the lost goods to real owner when he receives
reasonable compensation for his services he has rendered in respect of them
 General Lien Particular Lien

• It is a right to detain/ retain • It is a right exercisable only

any goods of the bailor for on such goods in respect of
general balance of account which charges are due
outstanding
• It is not automatic
• It can be exercised against
goods even without
Vs • It is automatic
• It comes into play only
when some labour or skill is
involvement of labour or involved
skill
• Banker, factors, • Bailee, finder of goods,
wharfingers, policy brokers pledgee, unpaid seller,
are entitled to general lien agent, partner etc are
entitled to particular lien
 PLEDGE
• Pledge is a bailment of goods as security for payment of a debt or
performance of a promise
• Bailor of goods is called pawnor
• Bailee of the goods is called pawnee

ESSENTIAL OF CONTRACT OF PLEDGE

• There must be bailment for security for payment of debt/performance of a promise
• Goods must be the subject matter of the contract of pledge
• The goods pledged must be in existence
• There must be a delivery of goods from pawnor to pawnee
 RIGHTS OF A PAWNEE
• Right of retainer : Pawnee has right to retain the goods pledged not only for payment of debt or
performance of a promise but also for recovery of debts and all expenses incurred for preservation of
goods pledged. Where ‘M’ pledges stock of goods for certain loan from a bank, the bank has a right the
stock not only for adjustment of the loan but also for payment of interest
• Right to retention to subsequent debts : Pawnee has a right to retain the goods pledged towards
subsequent advances as well
• Right to seek reimbursement of extraordinary expenses : Pawnee has a right to seek reimbursement of
extraordinary expenses incurred. However his right to retain the goods shall not exceed to such
extraordinary expenses but is restricted to ordinary expenses
• Right to sue : In the event of pawnor failing to redeem the debt or perform the promise, the pawnee has a
right to sue the goods which he has retained
 RIGHTS OF A PAWNOR
• Right to redeem : Pawnor has a basic right to redeem the goods pledged by performing
his promise
• Right to sue : Pawnor has a right to sue, but within a period of 3 years in view of
provision of Limitation Act only in the event of pawnee refusing to return the goods
even after payment of debt etc
• Right to take care of the goods : Pawnor has a right to demand a pawnee to take all
reasonable care and preservation of the goods pledged
• Right to receive increase or profit from the goods : Pawnor is entitled to receive the
increase or profit from the goods if there is any increase/ profit relating to it during the
pledged period
PLEDGE BAILMENT
-Purpose : As security - Purpose : other
purposes like repair,
safe custody etc
-Sale of goods : Pledge has
a right of sale of pledge on
Vs - Sale of goods : no
right
default of pawnor
- Use of goods : Can
-Use of goods : No right use as per the terms
of the contract
 Contract of Indemnity and Guarantee (Sections 124 to 147)

(sec. 124 of Indian contract act)—A Contract by which one party promises to save the another from losses
caused to him by the conduct of the promisor himself or by the conduct of any other person , it is called a
contract of indemnity.
It is an agreement between the indemnifier (who promises to make up the loss) and indemnity-holder or
indemnified (whose loss is to be made).

Essential elements -
Essentials of a valid contract – enforceable/valid/consideration
1. There must be a loss- Contingency
2. The loss must be caused either by the promisor or by any other person.
3. Indemnifier is liable only for the loss.

Rights of indemnity holder-

1. Claim for damages
2. Claim for cost of suit
3. Recovery of sums paid under conditions of compromise
Real case : GAJAN MORESHWAR v. MORESHWAR MADAN 1942 BOM 302.

FACTS:
• G Moreshwar got a plot in Bombay for a long lease period.
• He transferred the lease to M Madan
• M Madan started construction over that plot and took supplies from Mohan Das.
• When asked for payment by Mohan Das, Madan couldn’t pay.
• Upon request of Madan, Gajan executed a mortgage deed in favor of Madan.
• Interest rate was decided for Madan to pay back Gajan
• Madan agreed to pay on a particular day, the principal interest. But when Madan dint pay anything, Gajan sued
him for indemnity

HELD:
Court dint accept Madan’s stance that Gajan had suffered no loss and thus couldn't claim. But court said that if
indemnity holder has incurred a liability and the liability is absolute, he can turn to the indemnifier to take care of
the liability and pay it off. Thus Gajan was indemnified by Madan against all liability under mortgage and deed of
charge.
Contract of guarantee - contract to perform the promise, or to discharge the liabilities of a third person in case
of his default.
The person who gives the guarantee is called Surety, the person in respect of whose default the guarantee is given
is called Principal Debtor, and the person to whom the guarantee is given is called Creditor.

3 contracts
Between Principal Debtor & Creditor
Between Principal Debtor & Surety
Between Surety& Creditor

Essential elements -
1. Existence of Creditor, Surety, and Principal Debtor
2. Distinct promise of surety – Explicit or implied
3. Liability must be legally enforceable
4. Consideration - "Any thing done or any promise made for the benefit of the principal debtor may be sufficient
consideration to the surety for giving the guarantee.“
5. It should be without mispresentation or concealment
Continuing Guarantee- As per section 129, a guarantee which extends to a series of transactions is called a
continuing guarantee.

Revocation of Continuing Guarantee

1. When surety notifies creditor

2. Death of surety

Rights of surety

Rights against creditor

Right against principal Debtor
1. Right of set off : If the creditor sues the
1. Right of subrogation: Surety get the rights
surety, the surety may have the benefit of
of the principal debtor
the set off, if any, that the principal debtor
2. Right to Indemnity: Every contract has an
had against the creditor
implied promise by the principal debtor to
2. Right to securities: A surety is entitled to
indemnify the surety, surety is entitled to
the benefit of every security which the
cover from principal debtor what paid
creditor has against the principal debtor
under guarantee
Real case : Kashiba v. Sripat (1894) I.L.R 19 Bom. 697

FACTS:
Laxmibai entered into a bond to secure payment to plaintiff for Rs 1000 and the interest, but at the time of the
bond she was a minor and her father joined in the bond as a surety and said under a contract that if she fail to pay,
he will pay the above mentioned amount personally , if it was not paid, they should get it paid off from his income.

Question:
Whether father was liable on this guarantee in view of Laxmibai herself not being liable because of her minority.

OUTCOME: Father was held liable and the court said that in cases like this, surety does not just work as a collateral
but becomes the principal debtor and is required to pay full amount.
Contract of Agency
(Sections 182 to 238)
 Agent Principal Agency
• a person employed to do • Is the person for whom • The contract which creates
any act for another or to such act is done, or who is relationship of ‘principal’
represent another in so represented and ‘agent’.
dealings with third persons

Basis: Principal is bound by the acts of the agent and is liable to the third party.

Consideration: The relationship is not necessarily supported with consideration.

Capacity to employ an agent: The principal must major and be of sound mind.

Capacity to be an agent: The agent must also be major and of sound mind in order to
enter into contract.
 Agency by actual authority: A contract of agency can be express or
MODES OF CREATION
implied spoken or written.
By holding out: if a person
Agency by ratification: When a person does something on behalf of holds himself as an agent
another without their knowledge, the act may be raified or disown by the of another and that
other person person does not deny it,
then it becomes agency
relationship.

Agency by ostensible authority

By Estoppel: if a person
permits other to act on
his behalf so that a
reasonable person would
Agency by operation of law: in certain cases, it is the law which creates
the relationship of agent and principal. believe it to be an
agency, then he would be
estopped from denying
Agency by necessity: Sometimes circumstances would compel and a agent’s authority.
relation of agency would fall in place. This is often out of necessity.
EXTENT OF AN AGENT’S AUTHORITY

• In normal circumstances:

An agent, having an authority to do an act, has authority to do every lawful thing which is necessary in
order to do such act.

• In an Emergency:

To do all such
As would be done by a
acts for the
An agent has person of ordinary
purpose of
authority, in an prudence, in his own
protecting his
emergency case under similar
principal from
circumstances.
loss
DUTIES OF AN AGENT

• Duty in conducting principal’s business: The agent should conduct the business of the principal as
per directions of the principal or in the absence of any directions as per the custom prevalent in the
business

• The agent is liable to the principal for any loss if he deviates from the above duty/ obligation where
he did not act according to instruction of the principal. It was held by the Supreme Court in a case
that the agent had to compensate the principal where the agent did not act according to the
instructions of the principal

• Requirements as to skill and diligence: Agent must act always as a person with diligence and skill
normally exercised in the trade. He would otherwise be responsible to compensate the principal for
any loss suffered by the principal for want of his skill.

• Agents duty to account: The agent has to maintain and render proper accounts to principal
whenever demanded. He is bound to pay the principal all sums received.

• Duty to communicate: The agent must in order to obtain instruction, communicate and contact the
principal as a man of ordinary diligence.
RIGHTS OF AN AGENT
• Right of lien on principal’s property: An agent is entitled to retain the goods, properties and books for any
remuneration, commission etc due to him. The possession of such property should be however lawful.

• Right of indemnification for lawful acts: The principal is bound to indemnify the agent against all
consequences of lawful acts done in exercise of his authority.

• Right of indemnification against acts done in good faith: Where the agent acts in good faith on the
instruction of principal, agent is entitled for indemnification of any loss or damage from the principal.
However the agent cannot claim any reimbursement or indemnification for any loss etc arising out of acts
done by him in violation of any penal laws of the country.

• Right of retention: The agent can retain, out of the sums received from the principal, such amounts towards
reimbursement of expenditure, remuneration and advances paid by him on account towards the business
and render accounts only for the balance.

• Right of remuneration: The agent in the normal course is entitled for remuneration as per the contract. In
the absence of any agreed amount of remuneration, he is entitled for usual remuneration which is customary
in the business. However he is not entitled for any remuneration for acts done through
misconduct/negligence.
PERSONAL LIABILITY OF AN AGENT

where the agent signs the negotiable

When the contract expressly provides for the
instrument without indicating that he is signing
agent’s liability
it for the principal

where the agent acts for a principal who cannot

where the agent works for a foreign principal
be sued viz Ambassador of a country

where the agency is coupled with interest. The

where according to usage in trade in certain ‘interest’ of the agent to come under this category
kinds of business agents are personally liable. should not be an ordinary ‘interest’ like towards
remuneration etc., but should be a special
interest.
PRINCIPAL’S LIABILITY FOR THE AGENT’S ACT TO THIRD PARTIES
Except in the case
• When the agent acts within the scope of his authority of specific
restrictions.

Except in the case

of frauds done by
• Principal is bound by the notice given to the agent agent.

Except where the

agent exceeds
the authority.
• In case of any misrepresentation or fraud by the agent within his authority

• Principal is bound by the doctrine of estoppel

Unless the agent
refuses to disclose
• In case the name of the principal is not unknown but the existence is known the identity.
to the third party
TERMINATION OF AGENCY Revocation of
authority by the
principal or
renunciation by
the agent

Death or insanity AN AGENCY

IS Completion of
of principal or the business
TERMINATED
agent BY cycle

Insolvency of
the principal
IRREVOCABLE AGENCY

The agent has interest in the subject

matter of the agency. It doesn’t come
to an end even in the case of death,
insanity or insolvency of the principal

The agency is irrevocable in The agent has incurred personal

where liability

Agent has partially exercised the

authority
SUB- AGENT
Sub agency refers to case where an agent appoints another agent. The appointment of sub agent is not
lawful, because the agent is a delegatee and a delegatee cannot further delegate.

The appointment of a sub agent would be valid if the terms of appointment originally contemplated it.

PRINCIPAL’S LIABILTY:

• When the sub-agent is properly appointed: The principal is bound by his acts and is therefore responsible
to third parties as if he were an agent originally appointed by the principal.
• When appointed without authority: The principal is not bound by the acts of sub agent.

SUBSTITUTED AGENT
Substituted agents are not sub agents. They are agents of the principal. Where the principal appoints an
agent and if that agent identifies another person to carry out the acts ordered by principal, than the second
person is not to be treated as a sub agent but only as an agent of the original principal.

 The agent while selecting substituted agent is expected to exercise same amount of diligence as an
ordinary man of prudence. If he does, he will not be responsible for negligence of substituted agent.
“Ubi Jus Ibi Remedium”