CONTRACT ACT, 1872 | INDIAN CONTRACT ACT
1. For the Statement of Objects and Reasons for the Bill which was based on a a report of Her Majesty's Commissioners appointed to prepare a body of substantive law for India, dated 6th July, 1866, see Gazette of India, 1867 Extraordinary, p. 34; for the Report of the Select Committee, see ibid., Extraordinary, dated 28th March, 1872; for discussions in Council, see ibid., 1867, Supplement, p. 1064; ibid., 1871, p. 313, and ibid., 1872, p. 527. It has been amended in C.P. by C.P. Act 1 of 1915 and in C.P. and Berar by C.P. and Berar Act 15 of 1938.
The Chapters and sections of the Transfer of Property Act, 1882 (4 of 1882), which relate to contracts are, in places in which that Act is in force, to be taken as part of this Act-see Act 4 of 1882, a. 4.
This Act has been extended to Berar by the Berar Laws Act, 1941 (4 of 1941) to Dadra and
The Preliminary section of the Indian Contract Act, 1872, sets the foundation for the law of contracts in India. It defines key terms, establishes the scope and applicability of the Act, and lays down basic principles governing agreements that are enforceable by law. This section is crucial for understanding the framework within which contractual obligations are created, performed, and enforced.
Section 2 of the Indian Contract Act, 1872, contains the interpretation clause, defining essential terms such as "proposal," "acceptance," "contract," "agreement," "lawful consideration," and "competent parties." It clarifies the scope of the Act, indicating that it applies to all agreements enforceable by law, and specifies the conditions under which a proposal becomes a promise and a promise becomes a contract.
The essential ingredients derived from the Preliminary section include:- Proposal (Offer): An expression of willingness to enter into a contract, with the intention that it shall become binding upon acceptance.- Acceptance: Unconditional agreement to the proposal.- Lawful Consideration: Something of value exchanged between parties, lawful in nature.- Legal Capacity: Parties must be competent to contract (not minors, lunatics, or persons disqualified by law).- Lawful Object and Purpose: The object of the agreement must not be unlawful or opposed to public policy.- Free Consent: Consent must be free from coercion, undue influence, fraud, misrepresentation, or mistake.
The scope of the Preliminary section is wide, covering all agreements that are intended to create legal obligations. It excludes certain agreements like those made by persons disqualified by law, agreements without consideration, or those opposed to public policy. The section emphasizes that only those agreements that meet the criteria of legality and capacity are enforceable as contracts.
The Preliminary section itself does not prescribe any punishment. Instead, it provides the interpretative framework for the entire Act. Violations of the principles laid down—such as entering into contracts with minors or persons of unsound mind—render the agreement void or voidable, and legal consequences follow accordingly.
In summary, the Preliminary section of the Indian Contract Act, 1872, establishes the essential legal principles and scope of contractual obligations in India, emphasizing the importance of legality, capacity, free consent, and lawful consideration. It forms the bedrock upon which the entire law of contracts is built, ensuring clarity, certainty, and enforceability of agreements that meet the statutory criteria.
This Act may be called the Indian Contract Act, 1872.
Extent, Commencement.-It extends to the whole of India 1[except the State of Jammu and Kashmir]; and it shall come into force on the first day of September, 1872.
Saving-2*** Nothing herein contained shall affect the provisions of any Statute, Act or Regulation not hereby expressly repealed, nor any usage or custom of trade, nor any incident of any contract, not inconsistent with the provisions of this Act.
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1. Subs. by Act 3 of 1951, s. 3 and Sch., for "except Part B States."
2. The words "The enactments mentioned in the Schedule hereto are repealed to the extent specified in the third column thereof,
Section 1 of the Indian Contract Act, 1872, establishes the short title, extent, and commencement of the Act, laying the foundational scope for the entire legal framework governing contracts in India. It signifies the formal beginning of the legislation that regulates contractual relationships, emphasizing its applicability across the country with specific exclusions.
Note: The references are based on the provided sources, primarily , which contain general information about the Indian Contract Act, 1872, including its scope and commencement.
In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context:-
(a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal;
(b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise;
(c) The person making the proposal is called the "promisor", and the person accepting the proposal is called the "promisee";
(d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains f
Section 2 of the Indian Contract Act, 1872, serves as the interpretation clause that defines key terms used throughout the Act, notably "agreement," "contract," "offer," "acceptance," "consideration," and related concepts. It provides the foundational legal framework for understanding the essential elements necessary for the formation and enforceability of contracts under Indian law.
Section 2 of the Indian Contract Act, 1872, primarily comprises several interpretative clauses:- Section 2(a): Defines a proposal or offer as when one person signifies his willingness to do or abstain from doing something to obtain another's assent.- Section 2(b): Acceptance occurs when the proposal is signified by the other party, converting it into a promise.- Section 2(c): The person making the proposal is called the "promisor," and the person accepting is the "promisee."- Section 2(d): Consideration is the act, abstinence, or promise done at the desire of the promisor, which forms the basis of the promise.- Section 2(e): An agreement is a set of promises forming consideration for each other.- Section 2(f): Reciprocal promises are promises which form consideration for each other.- Section 2(g): An agreement not enforceable by law is void.- Section 2(h): An agreement enforceable by law is a contract.- Section 2(i): A voidable contract is one that can be annulled at the option of one or more parties.- Section 2(j): A contract that ceases to be enforceable becomes void.
The key ingredients for a valid contract under Section 2 are:- Offer and Acceptance: Clear proposal and its unambiguous acceptance.- Free Consent: Consent must be free from coercion, undue influence, fraud, misrepresentation, or mistake.- Lawful Consideration and Object: Consideration must be lawful, and the object of the contract must be lawful.- Capacity of Parties: Parties must be competent to contract (of sound mind, not minors, etc.).- Legal Formalities: Certain contracts require specific formalities, such as registration.
Section 2's scope is broad, covering:- The definitions of essential elements of a contract.- Clarifications on when an agreement becomes enforceable or void.- The distinction between void, voidable, and valid contracts.- The interpretation of contractual terms, facilitating legal analysis of agreements.- It underpins the entire legal framework for contractual relationships in India.
Section 2 itself does not prescribe punishment; it is interpretative. Penalties or punishments for breach of contracts are governed by other sections of the Act, such as Sections 73 (compensation for breach), 74 (penalty for failure to discharge obligation), and relevant provisions in the Indian Penal Code or other statutes.
This comprehensive overview encapsulates the core legal principles and interpretative nuances of Section 2 of the Indian Contract Act, 1872, as reflected in various judicial decisions and legal commentaries.
The communication of proposals the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it.
Section 3 of the Indian Contract Act, 1872, primarily deals with the communication, acceptance, and revocation of proposals, forming the foundation of contractual agreements in India. It establishes the essential procedures and rules for the formation of valid contracts, emphasizing the importance of clear communication between parties.
Section 3 states that the communication of proposals, acceptance of proposals, and revocation of proposals and acceptances are deemed to be made by any act or omission of the party proposing, accepting, or revoking, by which he intends to communicate such proposal, acceptance, or revocation, or which has the effect of doing so.
In essence, this section codifies the modes and effects of communication in the process of contract formation, ensuring that the act of communication is recognized as the moment when an offer, acceptance, or revocation is effectively made.
Section 3 itself does not prescribe any punishment. It is a procedural provision that defines how communication, acceptance, and revocation are to be understood legally. Any violation or misinterpretation may lead to disputes, but penalties or punishments are governed by other sections of the Indian Contract Act or relevant laws.
This concise commentary highlights the core aspects, scope, and legal significance of Section 3 of the Indian Contract Act, 1872, supported by references to judicial interpretations and legal principles.
The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
The communication of an acceptance is complete,-
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.
The communication of a revocation is complete,-
as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it;
as against the person to whom it is made, when it comes to his knowledge.
&
A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.
An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.
Illustrations
A proposes, by a letter sent by post, to sell his house to B.
B accepts the proposal by a letter sent by post.
A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards.
B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards.
A proposal is revoked-
(1) by the communication of notice of revocation by the proposer to the other party;
(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance;
(3) by the failure of the acceptor to fulfil a condition precedent to acceptance; or
(4) by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.
In order to convert a proposal into a promise, the acceptance must-
(1) be absolute and unqualified;
(2) be expressed in some usual and reasonable manner, unless the proposal 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 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.
Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.
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.
All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.
Nothing herein contained shall affect any law in force in 1[India] and not hereby expressly repealed by which any contract is required to be made in writing2 or in the presence of witnesses, or any law relating to the registration of documents.
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1. Subs. by Act 3 of 1951, s. 3 and Sch., for "Part A States and Part C States" which had been subs. by the A.O. 1950, for "the Provinces".
2. See e.g., s. 25, infra; the Copyright Act, 1957 (14 of 1957), s. 19; the Carriers Act, 1865 (3 of 1865) ss. 6 and 7; th
Section 10 of the Indian Contract Act, 1872, serves as a foundational provision in contract law in India. It delineates the essential elements that must be present for an agreement to be recognized as a legally enforceable contract. This section emphasizes the necessity of free consent, competency of parties, lawful consideration, and lawful object.
Section 10 states: "All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object." This provision establishes the criteria under which agreements become enforceable contracts.
The scope of Section 10 extends to all types of agreements that meet the criteria outlined above. It applies to both written and oral contracts, provided they fulfill the essential ingredients. The section is crucial in determining the validity of contracts in various contexts, including commercial transactions, property agreements, and personal contracts.
Section 10 does not prescribe specific punishments or penalties. Instead, it outlines the conditions under which an agreement is considered void or enforceable. If an agreement fails to meet the criteria, it may be deemed void, and parties may not have legal recourse for enforcement.
This commentary provides a comprehensive overview of Section 10 of the Indian Contract Act, 1872, highlighting its significance in contract law and its implications for agreements in various contexts.
Every person is competent to contract who is of the age of majority according to the law to which he is subject1, and who is of sound mind and is not disqualified from contracting by any law to which he is subject.
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1. See the Indian Majority Act, 1875 (9 of 1875).
Section 11 of the Indian Contract Act, 1872, delineates the criteria for determining the competency of individuals to enter into contracts. It establishes that only those who have attained the age of majority, are of sound mind, and are not disqualified by any law can enter into legally binding agreements.
Section 11 states: "Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject."
There are no specific punishments outlined in Section 11 for entering into contracts without competency. However, contracts entered into by minors or individuals of unsound mind are void ab initio, meaning they are treated as if they never existed.
This commentary provides a detailed overview of Section 11 of the Indian Contract Act, 1872, highlighting its significance in contract law and the protection it offers to minors and individuals of unsound mind.
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 and of forming a rational judgment as to its effect upon his interests.
A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.
A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.
Illustrations
(a) A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals.
(b) A sane man, who is delirious from fever or who is so drunk that he cannot understand the terms of a contract, or form a rational j
Two or more persons are said to consent when they agree upon the same thing in the same sense.
Consent is said to be free when it is not caused by-
(1) coercion, as defined in section 15, or
(2) undue influence, as defined in section 16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined in section 18, or
(5) mistake, subject to the provisions of sections 20, 21 and 22.
Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake.
"Coercion" is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (45 of 1860) 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 (45 of 1860) is or is not in force in the place where the coercion is employed.
Illustration
A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code. (45 of 1860).
A afterwards sues B for breach of contract at Calcutta.
A has employed coercion, although his act is n
(1) A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.
(2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another-
(a) where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or
(b) where 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.
(3) Where a person who is in a position to dominate t
Section 16 of the Indian Contract Act, 1872, addresses the concept of undue influence in the context of contractual relations. It provides the legal framework to identify, prove, and declare contracts obtained through undue influence as voidable, thereby protecting parties from unfair exploitation and ensuring free consent in contractual dealings.
Section 16 defines undue influence as a situation where one party, owing to a position of power or influence over the other, induces the latter to enter into a contract, which may be voidable at the option of the influenced party. It emphasizes that relations subsisting between parties—such as fiduciary, familial, or confidential—create a presumption of undue influence if undue advantage is taken.
Section 16 does not prescribe punishment per se but provides remedies through the annulment or rescission of contracts obtained by undue influence. The affected party can seek rescission, and courts may declare such contracts as voidable, thereby preventing unfair transactions.
Definition of undue influence - Section 16(1) clarifies that undue influence involves a situation where relations of trust or dominance are exploited to induce a contract, making it voidable at the influenced party's option. [Source: "Andalammal VS Rajeswari Vedachalarn"]
Presumption of undue influence - When a fiduciary or dominant relationship exists, courts presume undue influence unless the dominant party proves the absence of such influence. [Source: "Mannankatti Ammal VS Vaiyapuri Udayar"]
Burden of proof - The onus shifts to the party in a position of influence to prove that undue influence was not exercised, as per Section 16(3). [Source: "M. A. Abdul Malick Saheb VS T. P. Muhammad Yousuf Sahib"]
Relation subsisting between parties - Fiduciary, confidential, or familial relations create a presumption of undue influence, especially when one party is significantly weaker or dependent. [Source: "THRIVIKRAMAN GOMATHY VS KESAVAN NEELAKANTAN"]
Contracts induced by undue influence are voidable - Such contracts are not automatically void but can be rescinded at the option of the influenced party, emphasizing the protection of free consent. [Source: "VIDHYAWATI VERMA VS AMITA SRIVASTAVA"]
Relation of influence in gift transactions - Gifts made under undue influence, especially to close relatives like parents or dependents, are presumed to be involuntary unless proven otherwise. [Source: "M. A. Abdul Malick Saheb VS T. P. Muhammad Yousuf Sahib"]
Undue influence in settlement deeds - Courts scrutinize settlement deeds where one party is in a fiduciary position, and undue influence is presumed in the absence of proof to the contrary. [Source: "Mannankatti Ammal VS Vaiyapuri Udayar"]
Impact of relationship on burden of proof - The existence of a relationship of influence shifts the burden to the dominant party to prove the absence of undue influence, as per Section 16(3). [Source: "Josekutty VS Tom Sojan"]
Contracts obtained by undue influence are voidable - The law recognizes the potential for exploitation and provides remedies such as rescission, reinforcing the principle of free consent. [Source: "PALANISAMY VS MARAPPAN"]
Undue influence and mental capacity - If the influenced party is mentally incapacitated or illiterate, the likelihood of undue influence increases, and courts scrutinize such transactions carefully. [Source: "New India Assurance Co. Ltd. , Th. its Managing Director, Dr. Mahesh Kuriyal VS Combined Medical Institute Private Ltd. , Through Its Branch Manager"]
Burden of proof in cases of undue influence - The party alleging undue influence must prove the existence of relations of influence and the exercise of undue pressure, especially when the relationship is fiduciary. [Source: "01800029302"]
Legal presumption in fiduciary relationships - The law presumes undue influence in relationships like attorney-client, doctor-patient, or guardian-ward, unless the influence is disproved. [Source: "Meena Rajpoot VS Ram Bharose Katiyar"]
Contracts influenced by undue influence are voidable - This legal safeguard ensures that parties are not coerced into contracts against their free will. [Source: "Kali Prosonno Bhattacharyya VS Protap Singh Pattar"]
Undue influence in mortgage transactions - Transactions like mortgage under influence, especially with vulnerable persons, are presumed to be involuntary unless the lender proves the absence of influence. [Source: "Badiatannessa Bibee VS Ambika Charan Ghosh"]
Undue influence and unfair trade practices - Courts have held that unfair trade practices involving undue influence violate principles of fair dealing and can be challenged under consumer protection laws. [Source: "PREM PRAKASH PANIGRAHI VS BANKA JEWELLERS"]
Legal remedies - The influenced party can seek rescission, damages, or injunctions depending on the nature of the influence and the contract involved. [Source: "Jambagalakshmi Krishnan VS P. C. Martin"]
Undue influence and undue advantage - The law aims to prevent the exercise of undue influence that results in unconscionable or unfair transactions, especially where the weaker party is vulnerable. [Source: "Dr. Kantesh Khetani VS State of Rajasthan"]
Legal standard for undue influence - The courts assess whether the influence was such that the weaker party's will was overpowered, and the contract was not entered into freely. [Source: "Lalchand Sharma, S/o N.R. Sharma vs R. Chandramurthy, S/o A. ramaiah"]
Burden of proof in undue influence cases - The initial burden rests on the party alleging undue influence, but once relations of influence are established, the burden shifts to the other party to prove the absence of undue influence. [Source: "VIDHYAWATI VERMA VS AMITA SRIVASTAVA"]
Legal significance - Section 16 underscores the importance of free consent in contracts, and the law provides mechanisms to protect parties from coercion, undue influence, and exploitation.
This concise legal commentary synthesizes the scope, provisions, and judicial interpretations of Section 16 of the Indian Contract Act, 1872, emphasizing the importance of free consent and the legal protections against undue influence in contractual relations.
"Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent1, with intent to deceive another party thereto of his agent, or to induce him to enter into the contract:-
(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.
Explanation.-Mere silence as to facts likely to affect the willingness of a
Section 17 of the Indian Contract Act, 1872, provides a comprehensive legal definition of fraud, highlighting acts committed with the intent to deceive or induce a party into a contract. It plays a crucial role in determining the validity of agreements and the remedies available in cases of fraudulent conduct. Understanding this section is essential for analyzing the legal consequences of fraudulent acts in contractual relationships.
Section 17 defines 'fraud' as including any act committed by a party to a contract, or with his connivance, or by his agent, with the intent to deceive another party or to induce them to enter into a contract. It explicitly enumerates acts such as false suggestion, active concealment of a fact, and promises made without any intention of performing. The section clarifies that acts of fraud render the contract voidable at the option of the defrauded party.
Section 17 applies broadly to all contracts and transactions, including sales, leases, or any agreement where deception influences consent. It covers acts of active concealment, misrepresentation, or false statements, whether intentional or reckless. The section also extends to acts by agents or parties acting in concert to perpetrate fraud. It is applicable in civil as well as criminal proceedings, especially in cases where fraud vitiates consent or nullifies contracts.
While Section 17 itself does not prescribe punishment, acts of fraud under this section can lead to:- Civil remedies: Rescission of the contract, damages, or restitution.- Criminal penalties: Under the Indian Penal Code (e.g., Section 420 for cheating), acts of fraud may attract criminal prosecution, including imprisonment and fines, depending on the severity and nature of the act.
In summary, Section 17 of the Indian Contract Act, 1872, delineates the scope of fraud comprehensively, emphasizing acts of active concealment, false suggestion, and promises made without intent to perform, all of which influence the validity of contracts and the remedies available to aggrieved parties.
"Misrepresentation" means and includes-
(1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;
(2) any breach of duty which, without an intent to deceive, gains 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;
(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.
Section 18 of the Indian Contract Act, 1872, deals with the concept of misrepresentation, which is a significant ground for voidability of contracts. It aims to ensure that contracts are entered into based on truthful and accurate representations, thereby safeguarding parties from deceptive practices that could lead to unjust obligations.
Section 18 defines misrepresentation as a positive assertion, in a manner not warranted by the information of the person making it, of that which is not true. It encompasses false statements made innocently or negligently, which induce another party to enter into a contract. The section also clarifies that misrepresentation can be a ground for the contract to be voidable at the option of the party misled.
Section 18 itself does not prescribe any punishment or penal consequences. Instead, it provides a remedy through the doctrine of voidability, allowing the injured party to rescind the contract. The remedy is equitable, aimed at restoring parties to their pre-contractual position if misrepresentation is proved.
In conclusion, Section 18 of the Indian Contract Act, 1872, plays a crucial role in maintaining honesty and fairness in contractual relations by providing that misrepresentation, whether innocent or negligent, can render a contract voidable. It underscores the importance of truthful statements and acts as a safeguard against deceptive practices that could otherwise lead to unjust enrichment or hardship.
**- Lawctopus- LawBhoomi- Scribd- Supreme Court judgments and legal commentaries
When consent to an agreement is caused by coercion, 1*** fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.
A party to a contract whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true.
Exception.-If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.
Explanation.-A fraud or misrepresentation which did not cause the consent to a contract of the part
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 thereunder, upon such terms and conditions as to the Court may seem just.
Illustrations
(a) A's son has forged B's name to a promissory note. B under threat of prosecuting A's son, obtains a bond from A for the amount of the forged note. If B sues on this bond, the Court may set the bond aside.
(b) A, a money-lender, advances Rs. 100 to B, an agriculturist, and, by undue influence, induces B to execute a bond for Rs. 200 with interest at 6 per cent. per month. The Court may set
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.
Illustrations
(a) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of the these facts. The agreement is void.
(b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of bargain, though neither party was aware of the fact. The agreem
A contract is not voidable because it was caused by a mistake as to any law in force in 1[India]; but a mistake as to a law not in force in 1[India] has the same effect as a mistake of fact.
2* * * * *
Illustration
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.
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1. The original words "British India" have successively been amended by the A.O. 1948 and the A.O. 1950 to read as above.
2. Paragraph 2, ins. by the A.O. 1937, and as amended by the A. O. 1948 was Rep. by th
A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.
The consideration or object of an agreement is lawful, unless-
it is forbidden by law1; or
is of such a nature that, if permitted, it would defeat the provisions of any law; or
is fraudulent ; or
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.
Illustrations
(a) A agrees to sell his house to B for 10,000 rupees. Here B's promise
Section 23 of the Indian Contract Act, 1872, delineates the principles governing lawful and unlawful objects and considerations in contracts. It aims to uphold public policy by declaring certain agreements void if their objects or considerations are illegal, fraudulent, or opposed to law or morality.
Section 23 states that the consideration or object of an agreement is unlawful if it is:- Forbidden by law;- Defeats the provisions of any law;- Is fraudulent;- Causes injury to person or property;- Is opposed to public policy.
Any agreement having such unlawful consideration or object is void.
While Section 23 itself does not prescribe punishment, agreements deemed unlawful are void and unenforceable, and parties may face legal consequences under other statutes for engaging in illegal activities, such as gambling, fraud, or criminal conspiracy.
In conclusion, Section 23 acts as a safeguard ensuring that contracts do not promote illegal, fraudulent, or immoral activities, thereby maintaining the integrity of the legal system and public morality. Any contract violating these principles is deemed void and unenforceable, reinforcing the importance of legality and public policy considerations in contractual agreements.
If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void.
Illustration
A promises to superintend, on behalf of B, a legal manufacture of indigo, and an illegal traffic in other articles. B promises to pay to A salary of 10,000 rupees a year. The agreement is void, the object of A's promise, and the consideration for B's promise, being in part unlawful.
An agreement made without consideration is void, unless-
(1) it is expressed in writing and registered under the law for the time being in force for the registration of 1[documents], and is made on account of natural love and affection between parties standing in a near relation to each other ; or unless
(2) 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, 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.
Section 25 of the Indian Contract Act, 1872, lays down the fundamental principle that agreements made without consideration are generally void. However, it provides specific exceptions where such agreements can be valid, especially in cases involving natural love and affection, past consideration, or promises to pay a debt barred by limitation. This section plays a crucial role in understanding the enforceability of promises and agreements that lack consideration, particularly in the context of acknowledgment of debts and promissory promises under the law.
Section 25 states that:
"Agreement without consideration is void, unless—(a) it is expressed in writing and registered under the law for the time being in force for the registration of documents;(b) it is a promise to compensate for something done, or(c) it is a promise to pay a debt barred by limitation law."
The section emphasizes the importance of consideration for a valid contract but also recognizes specific circumstances where agreements without consideration are enforceable.
Section 25 itself does not prescribe any punishment. It is a substantive provision that determines the validity of agreements. Violations or contraventions are dealt with under other provisions, such as those relating to breach of contract or criminal breach of trust. The section primarily affects the enforceability of agreements rather than prescribing penalties.
Section 25 of the Indian Contract Act, 1872, underscores the principle that consideration is essential for the validity of contracts. Nonetheless, it carves out important exceptions that uphold the enforceability of certain promises and agreements, especially those involving natural love and affection, past consideration, or promises to pay debts barred by limitation law. Judicial interpretations have clarified that written acknowledgment or promise can revive or validate such agreements, thereby influencing the enforceability of debts and contractual obligations under Indian law.
Note: The references are based on the provided sources, and the analysis synthesizes legal principles from those extracts to present a comprehensive commentary on Section 25.
Every agreement in restraint of the marriage of any person, other than a minor, is void.
Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.
Exception 1.-Saving of agreement not to carry on business of which good-will is sold.-One who sells the good-will of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the good-will from him, carries on a like business therein, provided that such limits appear to the Court reasonable, regard being had to the nature of the business.
1* * * * *
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1. Exceptions 2 and 3 rep. by Act 9 of 1932, s. 73 and Sch. II.
1[Every agreement,-
(a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or
(b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights,
is void to the extent.]
Exception 1.-Saving of contract to refer to arbitration dispute that may arise.-This section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any
Agreements, the meaning of which is not certain, or capable of being made certain, are void.
Illustrations
(a) A agrees to sell to B "a hundred tons of oil". There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty.
(b) A agrees to sell to B one hundred tons of oil of a specified description, known as an article of commerce. There is no uncertainty here to make the agreement void.
(c) A, who is a dealer in cocoanut-oil only, agrees to sell to B "one hundred tons of oil". The nature of A's trade affords an indication of the meaning of the words, and A has entered into a contract for the sale of one hundred tons of cocoanut-oil.
(d) A agrees to sell to B "all th
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.
Exception in favour of certain prizes for horse-racing.-This section shall not be deemed to render unlawful a subscription or contribution, or agreement to subscribe or contribute, made or entered into for or toward any plate, prize or sum of money, of the value or amount of five hundred rupees or upwards, to be awarded to the winner or winners of any horse-race.
Section 294A of the Indian Penal Code not affected.-Nothing in this section shall be deemed to legalize any transaction connected with horse-racing, to which the provisions of section 294A of the Indian Penal Code (45 of 1860) apply.
A "contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.
Illustration
A contracts to pay B Rs. 10,000 if B's house is burnt. This is a contingent contract.
Contingent contracts to do or not to do anything if an uncertain future event happens cannot be enforced by law unless and until that event has happened.
If the event becomes impossible, such contracts become void.
Illustrations
(a) A makes a contract with B to buy B's horse if A survives C. This contract cannot be enforced by law unless and until C dies in A's lifetime.
(b) A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse has been offered, refuses to buy him. The contract cannot be enforced by law unless and until C refuses to buy the horse.
(c) A contracts to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void.
Contingent contracts to do or not to do anything if an uncertain future event does not happen can be enforced when the happening of that event becomes impossible, and not before.
Illustration
A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.
If the future event on which a contract is contingent is the way in which a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies.
Illustration
A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B to C must now be considered impossible, although it is possible that D may die and that C may afterwards marry B.
Contingent contracts to do or not to do anything if a specified uncertain event happens within a fixed time become void if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event becomes impossible.
When contracts may be enforced, which are contingent on specified event not happening within fixed time.-Contingent contracts to do or not to do anything, if a specified uncertain event does not happen within a fixed time may be enforced by law when the time fixed has expired and such event has not happened or, before the time fixed has expired, if it becomes certain that such event will not happen.
Illustrations
(a) A promises to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within
Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made.
Illustrations
(a) A agrees to pay B 1,000 rupees if two straight lines should enclose a space. The agreement is void.
(b) A agrees to pay B 1,000 rupees if B will marry A's daughter C. C was dead at the time of the agreement. The agreement is void.
The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law.
Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract.
Illustrations
(a) A promises to deliver goods to B on a certain day on payment of Rs. 1,000. A dies before that day. A's representatives are bound to deliver the goods to B, and B is bound to pay the Rs. 1,000 to A's representatives.
(b) A promises to paint a picture for B by a certain day, at a certain price. A dies before the day. The contract cannot be enforced either by A's representa
Section 37 of the Indian Contract Act, 1872 establishes the obligation of parties to a contract to perform their respective promises. This section is fundamental in contract law as it outlines the expectations and responsibilities of contracting parties, ensuring that agreements are honored unless legally excused.
Section 37 states: "The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law." This provision emphasizes that both parties are bound to fulfill their contractual obligations.
The scope of Section 37 extends to all contracts governed by the Indian Contract Act. It applies to both bilateral and unilateral contracts, ensuring that parties cannot unilaterally withdraw from their obligations without legal justification.
While Section 37 itself does not prescribe punishment, failure to comply with its provisions can lead to legal consequences, including claims for damages or specific performance under other sections of the Act.
This commentary provides a comprehensive overview of Section 37 of the Indian Contract Act, 1872, highlighting its significance in contract law and the obligations it imposes on parties.
Where a promisor has made an offer of performance to the promisee, and the offer has not been accepted, the promisor is not responsible for non-performance, nor does he thereby lose his rights under the contract.
Every such offer must fulfil the following conditions:-
(1) it must be unconditional;
(2) it must be made at a proper time and place, and under such circumstances that the person to whom it is made may have a reasonable opportunity of ascertaining that the person by whom it is made is able and willing there and then to do the whole of what he is bound by his promise to do;
(3) if the offer is an offer to deliver anything to the promisee, the promisee must have a reasonable opportunity of seeing that the thing offered is the thing which the
When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.
Illustrations
(a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights in every week during the next two months, and B engages to pay her 100 rupees for each night's performance. On the sixth night A wilfully absents herself from the theatre. B is at liberty to put an end to the contract.
(b) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two night's in every week during the next two months, and B engages to pay her at the rate of 100 rupees for each night.
If it appears from the nature of the case that it was the intention of the parties to any contract that any promise contained in it should be performed by the promisor himself, such promise must be performed by the promisor. In other cases, the promisor or his representatives may employ a competent person to perform it.
Illustrations
(a) A promises to pay B a sum of money. A may perform this promise, either by personally paying the money to B or by causing it to be paid to B by another ; and, if A dies before the time appointed for payment, his representatives must perform the promise, or employ some proper person to do so.
(b) A promises to paint a picture for B. A must perform this promise personally.
When a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor.
When two or more persons have made a joint promise, then, unless a contrary intention appears by the contract, all such persons, during their joint lives, and, after the death of any of them, his representative jointly with the survivor or survivors, and, after the death of the last survivor, the representatives of all jointly, must fulfil the promise.
When two or more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any 1[one or more] of such joint promisors to perform the whole of the promise.
Each promisor may compel contribution.-Each of two or more joint promisors may compel every other joint promisor to contribute equally with himself to the performance of the promise, unless a contrary intention appears from the contract.
Sharing of loss by default in contribution.-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.
Explanation.-Nothing in this section shall prevent a surety from recovering from his principal, payments made by the surety on behalf of the princi
Where two or more persons have made a joint promise, a release of one of such joint promisors by the promisee does not discharge the other joint promisor or joint promisors neither does it free the joint promisors so released from responsibility to the other joint promisor or joint promisors.1
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1. See s. 138, infra.
When a person has made a promise to two or more persons jointly, then, unless a contrary intention appears from the contract, the right to claim performance rests, as between him and them, with them during their joint lives, and, after the death of any of them, with the representative of such deceased person jointly with the survivor or survivors, and, after the death of the last survivor, with the representatives of all jointly.1
Illustration
A, in consideration of 5,000 rupees, lent to him by B and C, promises B and C jointly to repay them that sum with interest on a day specified. B dies. The right to claim performance rests with B's representative jointly with C during C's life, and after the death of C with the representatives of B and C jointly.
Time and place for performance
&n
Where, by the contract, a promisor is to perform his promise without application by the promisee, and no time for performance is specified, the engagement must be performed within a reasonable time.
Explanation.-The question "what is a reasonable time" is, in each particular case, a question of fact.
When a promise is to be performed on a certain day, and the promisor has undertaken to perform it without application by the promisee, the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed.
Illustration
A promises to deliver goods at B's warehouse on the first January. On that day A brings the goods to B's warehouse, but after the usual hour for closing it, and they are not received. A has not performed his promise.
When a promise is to be performed on a certain day, and the promisor has not undertaken to perform it without application by the promisee, it is the duty of the, promisee to apply for performance at a proper place and within the usual hours of business.
Explanation.-The question "what is a proper time and place" is, in each particular case, a question of fact.
When a promise is to be performed without application by the promisee, and no place is fixed for the performance of it, it is the duty of the promisor to apply to the promisee to appoint a reasonable place for the performance of the promise, and to perform it at such place.
Illustration
A undertakes to deliver a thousand maunds of jute to B on a fixed day. A must apply to B to appoint a reasonable place for the purpose of receiving it, and must deliver it to him at such place.
The performance of any promise may be made in any manner, or at any time which the promisee prescribes or sanctions.
Illustrations
(a) B owes A 2,000 rupees. A desires B to pay the amount to A's account with C, a banker. B, who also banks with C, orders the amount to be transferred from his account to A's credit, and this is done by C. Afterwards, and before A knows of the transfer, C fails. There has been a good payment by B.
(b) A and B are mutually indebted. A and B settle an account by setting off one item against another, and B pays A the balance found to be due from him upon such settlement. This amounts to a payment by A and B, respectively, of the sums which they owed to each other.
(c) A owes B 2,000 rupees. B accepts some of A's goods in r
When a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal promise.
Illustrations
(a) A and B contract that A shall deliver goods to B to be paid for by B on delivery.
A need not deliver the goods, unless B is ready and willing to pay for the goods on delivery.
B need not pay for the goods, unless A is ready and willing to deliver them on payment.
(b) A and B contract that A shall deliver goods to B at a price to be paid by instalments, the first instalment to be paid on delivery.
A need not deliver, unless B is ready and willing to pay t
Where the order in which reciprocal promises are to be performed is expressly fixed by the contract, they shall be performed in that order; and where the order is not expressly fixed by the contract, they shall be performed in that order which the nature of the transaction requires.
Illustrations
(a) A and B contract that A shall build a house for B at a fixed price. A's promise to build the house must be performed before B's promise to pay for it.
(b) A and B contract that A shall make over his stock-in-trade to B at a fixed price, and B promises to give security for the payment of the money. A's promise need not be performed until the security is given, for the nature of the transaction requires that A should have security before he delivers up his stock.
When a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the party so prevented; and he is entitled to compensation 1from the other party for any loss which he may sustain in consequence of the non-performance of the contract.
Illustration
A and B contract that B shall execute certain work for A for a thousand rupees. B is ready and willing to execute the work accordingly, but A prevents him from doing so. The contract is voidable at the option of B; and, if he elects to rescind it, he is entitled to recover from A compensation for any loss which he has incurred by its non-performance.
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1. See s. 73,
When a contract consists of reciprocal promises, such that one of them cannot be performed, or that its performance cannot be claimed till the other has been performed, and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract.
Illustrations
(a) A hires B's ship to take in and convey, from Calcutta to the Mauritius, a cargo to be provided by A, B receiving a certain freight for its conveyance. A does not provide any cargo for the ship. A cannot claim the performance of B's promise, and must make compensation to B for the loss which B sustains by the non-performance of the contract.
&nbs
When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.
Effect of such failure when time is not essential.-If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure.
Effect of acceptance of performance at time other than that agreed upon.-If, in case of a cont
An agreement to do an act impossible in itself is void.
Contract to do an act afterwards becoming impossible or unlawful.-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.1
Compensation for loss through non-performance of act known to be impossible or unlawful.-Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise.
Illustrations
(a)
Where persons reciprocally promise, firstly, to do certain things which are legal, and, secondly, under specified circumstances, to do certain other things which are illegal, the first set of promises is a contract, but the second is a void agreement.
Illustration
A and B agree that A shall sell B a house for 10,000 rupees, but that, if B uses it as a gambling house, he shall pay A 50,000 rupees for it.
The first set of reciprocal promises, namely, to sell the house and to pay 10,000 rupees for it, is a contract.
The second set is for an unlawful object, namely, that B may use the house as a gambling house, and is a void agreement.
In the case of an alternative promise, one branch of which is legal and the other illegal, the legal branch alone can be enforced.
Illustration
A and B agree that A shall pay B 1,000 rupees, for which B shall afterwards deliver to A either rice or smuggled opium.
This is a valid contract to deliver rice, and a void agreement as to the opium.
Appropriation of payments
Where a debtor, owing several distinct debts to one person, makes a payment to him, either with express intimation, or under circumstances implying, that the payment is to be applied to the discharge of some particular debt, the payment, if accepted, must be applied accordingly.
Illustrations
(a) A owes B, among other debts, 1,000 rupees upon a promissory note which falls due on the first June. He owes B no other debt of that amount. On the first June, A pays to B 1,000 rupees. The payment is to be applied to the discharge of the promissory note.
(b) A owes to B, among other debts, the sum of 567 rupees. B writes to A and demands payment of this sum. A sends to B 567 rupees. This payment is to be applied to the discharge of the debt of which B had demanded payment.
Where the debtor has omitted to intimate and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits.
Where neither party makes any appropriation, the payment shall be applied in discharge of the debts in order of time, whether they are or are not barred by the law in force for the time being as to the limitation of suits. If the debts are of equal standing, the payment shall be applied in discharge of each proportionally.
Contracts which need not be performed.
If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract, need not be performed.
Illustrations
(a) A owes money to B under a contract. It is agreed between A, B and C, that B shall thenceforth accept C as his debtor, instead of A. The old debt of A to B is at an end, and a new debt from C to B has been contracted.
(b) A owes B 10,000 rupees. A enters into an arrangement with B, and gives B a mortgage of his (A's) estate for 5,000 rupees in place of the debt of 10,000 rupees. This is a new contract and extinguishes the old.
(c) A owes B 1,000 rupees under a contract. B owes C 1,000 rupees, B orders A to credit C with 1,000 rupees in his books, but C does not assent to the arrangement. B
Section 62 of the Indian Contract Act, 1872 addresses the concepts of novation, rescission, and alteration of contracts. It provides a legal framework for parties to a contract to substitute a new contract for an existing one, or to rescind or alter the terms of the original contract. This section is crucial in determining the enforceability of contracts and the rights and obligations of the parties involved.
Section 62 states: "If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed." This provision allows for flexibility in contractual agreements, enabling parties to modify their obligations as circumstances change.
The scope of Section 62 encompasses various scenarios, including:- Novation: Introducing a new party to the contract or changing the terms.- Rescission: Terminating the original contract.- Alteration: Modifying specific terms of the contract while keeping it in effect.
Section 62 does not prescribe specific punishments or penalties. Instead, it provides a legal basis for determining the validity of contracts and the consequences of their alteration or termination.
This commentary provides an overview of Section 62 of the Indian Contract Act, 1872, highlighting its significance in contract law and the implications of novation, rescission, and alteration of contracts.
Every promisee may dispense with or remit, wholly or in part, the performance of the promisee made to him, or may extend the time for such performance1, or may accept instead of it any satisfaction which he thinks fit.
Illustrations
(a) A promises to paint a picture for B. B afterwards forbids him to do so. A is no longer bound to perform the promise.
(b) A owes B 5,000 rupees. A pays to B, and B accepts, in satisfaction of the whole debt, 2,000 rupees paid at the time and place at which the 5,000 rupees were payable. The whole debt is discharged.
(c) A owes B 5,000 rupees. C pays to B 1,000 rupees, and B accepts them, in satisfaction of his claim on A. This payment is a discharge of the whole claim2.
(d)
When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is promisor. The party rescinding avoidable contract shall, if he have received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received.1
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1. See s. 75, infra.
When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.
Illustrations
(a) A pays B 1,000 rupees, in consideration of B's promising to marry C, A's daughter. C is dead at the time of the promise. The agreement is void, but B must repay A the 1,000 rupees.
(b) A contracts with B to deliver to him 250 maunds of rice before the first of May. A delivers 130 maunds only before that day, and none after. B retains the 130 maunds after the first of May. He is bound to pay A for them.
(c) A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for
The rescission of a voidable contract may be communicated or revoked in the same manner, and subject to the same rules, as apply to the communication or revocation of a proposal1.
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1. See ss. 3 and 5, supra.
If any promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to any non-performance caused thereby.
Illustration
A contracts with B to repair B's house.
B neglects or refuses to point out to A the places in which his house requires repair.
A is excused for the non-performance of the contract if it is caused by such neglect or refusal.
Section 67 of the Indian Contract Act, 1872, addresses the effect of neglect or refusal by a promisee to provide reasonable facilities to a promisor for the performance of a contract. It emphasizes that such neglect or refusal can excuse the promisor from performing his obligations, thereby impacting the enforceability of the contract. This section plays a crucial role in understanding the obligations and liabilities of parties in contractual relationships, especially regarding performance and breach.
Section 67 states:"If any promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to any nonperformance caused thereby."In essence, it provides that a promisor can be excused from performance if the promisee fails to cooperate by providing reasonable facilities.
In summary, Section 67 of the Indian Contract Act, 1872, provides a statutory basis for excusing a promisor from performance if the promisee neglects or refuses to provide reasonable facilities, emphasizing cooperation’s role in contractual obligations. Courts interpret this section to reinforce that non-performance due to such neglect is justified, thereby limiting liability and influencing remedies available to the aggrieved party.
If a person, incapable of entering into a contract, or any one whom he is legally bound to support, is supplied by another person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.1
Illustrations
(a) A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B's property.
(b) A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition in life. A is entitled to be reimbursed from B's property.
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1. The property of a Government ward in the C.P. is not liable under this s
A person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other.
Illustration
B holds land in Bengal, on a lease granted by A, the zamindar. The revenue payable by A to the Government being in arrear, his land is advertised for sale by the Government. Under the revenue law, the consequence of such sale will be the annulment of
B's lease. B, to prevent the sale and the consequent annulment of his own lease, pays to the Government the sum due from A. A is bound to make good to B the amount so paid.
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 make compensation to the former in respect of, or to restore, the thing so done or delivered1.
Illustrations
(a) A, a tradesman, leaves goods at B's house by mistake. B treats the goods as his own. He is bound to pay A for them.
(b) A saves B's property from fire. A is not entitled to compensation from B, if the circumstances show that he intended to act gratuitously.
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1. As to suits by minors under s. 70 in Presidency Small Cause Courts, see the Presidency Small Cause Cou
A person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee1.
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1. See ss. 151 and 152, infra.
A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.
Illustrations
(a) A and B jointly owe 100 rupees to C, A alone pays the amount to C, and B, not knowing this fact, pays 100 rupees over again to C. C is bound to repay the amount to B.
(b) A railway company refuses to deliver up certain goods to the consignee, except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegally excessive.
When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by contract.-When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and
1[When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
Explanation.-A stipulation for increased interest from the date of default may be a stipulation by way of penalty.]
Exception.-When any person enters into any bail-bond, recognizance or other instrument of the same nature, or, under the provisions of any law, or under the orders of the 2[Central Government] or of any 3[State Government], gives any bond for the performanc
Section 74 of the Indian Contract Act, 1872, addresses the issue of compensation for breach of contract where a penalty is stipulated. It provides a framework for determining the compensation that a party may claim when the other party fails to fulfill their contractual obligations.
Section 74 states that when a contract is broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any stipulation by way of penalty, the party complaining of the breach is entitled to receive reasonable compensation not exceeding the amount so named or stipulated.
Section 74 does not prescribe any punishment; rather, it outlines the rights of the aggrieved party to claim compensation. The focus is on the recovery of damages rather than punitive measures against the breaching party.
This commentary provides a comprehensive overview of Section 74 of the Indian Contract Act, 1872, highlighting its essential elements, scope, and judicial interpretations.
A person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfilment of the contract.
Illustration
A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two months, and B engages to pay her 100 rupees for each night's performance. On the sixth night, A wilfully absents herself from the theatre, and B, in consequence, rescinds the contract. B is entitled to claim compensation for the damage which he has sustained through the non-fulfilment of the contract.
CHAPTER VII.-Sections 76-123. [Sale of Goods:] Rep. by the Indian Sale of Goods Act, 1930 (3 of 1930) s. 65.
A contract by which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person, is called a "contract of indemnity".
Illustration
A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of 200 rupees. This is a contract of indemnity.
The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor-
(1) all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies;
(2) all costs which he may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorized him to bring or defend the suit;
(3) all sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence o
A "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the "surety"; the person in respect of whose default the guarantee is given is called the "principal debtor", and the person to whom the guarantee is given is called the "creditor". A guarantee may be either oral or written.
Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee.
Illustrations
(a) B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of A's promise to deliver the goods. This is a sufficient consideration for C's promise.
(b) A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the debt for a year, and promises that, if he does so, C will pay for them in default of payment by B. A agrees to forbear as requested. This is a sufficient consideration for C's promise.
(c) A sells and delivers goods to
Section 127 of the Indian Contract Act, 1872, deals with the consideration required for a contract of guarantee. It clarifies that any act or promise made for the benefit of the principal debtor can serve as valid consideration for the guarantee, thereby supporting the enforceability of such contracts. The section emphasizes that even past acts or promises can constitute valid consideration if they benefit the principal debtor.
Section 127 states:"Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee."It also includes illustrations, notably:- An agreement to pay for goods supplied to the principal debtor, made after the supply, can be valid consideration if it benefits the debtor.- An agreement to pay in default of the principal debtor, made after the debt is due, can also be valid if it benefits the debtor.
Section 127 does not prescribe punishment; rather, it defines the scope of valid consideration. If a guarantee lacks consideration, it is void and unenforceable. The violation of this principle can lead to the guarantee being declared invalid in a court of law, affecting the liability of the surety.
Section 127 affirms that consideration for a guarantee can include acts or promises benefiting the principal debtor, even if made in the past. While the provision supports commercial certainty, it also emphasizes that such consideration must be lawful and not opposed to public policy. Parties have the freedom to contract out of certain statutory rights, provided such agreements do not violate Section 23. The enforceability of guarantees hinges on the presence of valid consideration, and courts scrutinize the nature and timing of such acts or promises to determine validity.
The liability of the surety is co- extensive with that of the principal debtor, unless it is otherwise provided by the contract.
Illustration
A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is dishonoured by C. A is liable, not only for the amount of the bill, but also for any interest and charges which may have become due on it.
A guarantee which extends to a series of transactions, is called a "continuing guarantee".
Illustrations
(a) A, in consideration that B will employ C in collecting the rent of B's zamindari, promises B to be responsible, to the amount of 5,000 rupees, for the due collection and payment by C of those rents. This is a continuing guarantee.
(b) A guarantees payment to B, a tea-dealer, to the amount of £ 100, for any tea he may from time to time supply to C. B supplies C with tea to above the value of £ 100, and C pays B for it. Afterwards, B supplies C with tea to the value of £ 200. C fails to pay. The guarantee given by A was a continuing guarantee, and he is accordingly liable to B to the extent of £ 100.
(c) A guarantees payment to B of the price o
A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor.
Illustrations
(a) A, in consideration of B's discounting, at A's request, bills of exchange for C, guarantees to B, for twelve months, the due payment of all such bills to the extent of 5,000 rupees. B discounts bills for C to the extent of 2,000 rupees. Afterwards, at the end of three months, A revokes the guarantee. This revocation discharges A from all liability to B for any subsequent discount. But A is liable to B for the 2,000 rupees, on default of C.
(b) A guarantees to B, to the extent of 10,000 rupees, that C shall pay all the bills that B shall draw upon him. B draws upon C. C accepts the bill. A gives notice of revocation. C dishonours the bill at maturity. A is lia
The death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions.
Where two persons contract with a third person to undertake a certain liability, and also contract with each other that one of them shall be liable only on the default of the other, the third person not being a party to such contract, the liability of each of such two persons to the third person under the first contract is not affected by the existence of the second contract, although such third person may have been aware of its existence.
Illustration
A and B make a joint and several promissory note to C. A makes it, in fact, as surety for B, and C knows this at the time when the note is made. The fact that A, to the knowledge of C, made the note as surety for B, is no answer to a suit by C against A upon the note.
Any variance, made without the surety's consent, in the terms of the contract between the principal 1[debtor] and the creditor, discharges the surety as to transactions subsequent to the variance.
Illustrations
(a) A becomes surety to C for B's conduct as a manager in C's bank. Afterwards, B and C contract, without A's consent, that B's salary shall be raised, and that he shall become liable for one-fourth of the losses on overdrafts. B allows a customer to overdraw, and the bank loses a sum of money. A is discharged from his suretyship by the variance made without his consent, and is not liable to make good this loss.
(b) A guarantees C against the misconduct of B in an office to which B is appointed by C, and of which the duties are defined by an Act of the Legislature. By a subsequent Act,
Section 133 of the Indian Contract Act, 1872, deals with the discharge of a surety's liability due to variance in the terms of the contract between the principal debtor and the creditor without the surety's consent. It is a fundamental provision that safeguards the interests of sureties by ensuring that any unilateral change in the contractual obligations by the creditor can release the surety from further liability.
Section 133 states:"Any variance, made without the surety's consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance."This means that if the creditor alters the terms of the original contract without obtaining the surety's approval, the surety is discharged from liability for any transactions after such change.
Section 133 does not prescribe any punishment; rather, it provides a legal consequence—discharge of the surety—when its conditions are violated. The legal effect is that the surety is no longer liable for the transactions subsequent to the variance.
Section 133 of the Indian Contract Act, 1872, plays a crucial role in balancing the rights of sureties and creditors. It ensures that any unilateral variation in the terms of the contract by the creditor without the surety’s consent discharges the surety from liabilities arising from transactions after such variation. Judicial precedents reinforce the importance of this provision, emphasizing that sureties are protected from unfair contractual modifications that could unjustly increase their liabilities.
Note: All references are based on the provided sources and legal principles derived therefrom.
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.
Illustrations
(a) A gives a guarantee to C for goods to be supplied by C to B. C supplies goods to B, and afterwards B becomes embarrassed and contracts with his creditors (including C) to assign to them his property in consideration of their releasing him from their demands. Here B is released from his debt by the contract with C, and A is discharged from his suretyship.
(b) A contracts with B to grow a crop of indigo on A's land and to deliver it to B at a fixed rate, and C guarantees A's performance of this contract. B diverts a stream of water whi
A contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract.
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.
Illustration
C, the holder of an overdue bill of exchange drawn by A as surety for B, and accepted by B, contracts with M to give time to B. A is not discharged.
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.
Illustration
B owes to C a debt guaranteed by A. The debt becomes payable. C does not sue B for a year after the debt has become payable. A is not discharged from his suretyship.
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 sureties1.
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1. See s. 44, supra.
If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.
Illustrations
(a) B contracts to build a ship for C for a given sum, to be paid by instalments as the work reaches certain stages. A becomes surety to C for B's due performance of the contract. C, without the knowledge of A, prepays to B the last two instalments. A is discharged by this prepayment.
(b) C lends money to B on the security of a joint and several promissory note made in C's favour by B, and by A as surety for B, together with a bill of sale of B's furniture, which gives power to C to sell the furniture, and ap
Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor.
A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not; and if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security.
Illustrations
(a) C, advances to B, his tenant, 2,000 rupees on the guarantee of A. C has also a further security for the 2,000 rupees by a mortgage of B's furniture. C cancels the mortgage. B becomes insolvent and C sues A on his guarantee. A is discharged from liability to the amount of the value of the furniture.
(b) C, a creditor, whose advance to B is secured by a decree, receives also a guarantee for
Any guarantee which has been obtained by means of misrepresentation made by the creditor, or with his knowledge and assent, concerning a material part of the transaction, is invalid.
Any guarantee which the creditor has obtained by means of keeping silence as to material circumstances, is invalid.
Illustrations
(a) A engages B as clerk to collect money for him. B fails to account for some of his receipts, and A in consequence calls upon him to furnish security for his duly accounting. C gives his guarantee for B's duly accounting. A does not acquaint C with B's previous conduct. B afterwards makes default. The guarantee is invalid.
(b) A guarantees to C payment for iron to be supplied by him to B to the amount of 2,000 tons. B and C have privately agreed that B should pay five rupees per ton beyond the market price, such excess to be applied in liquidation of an old debt. This agreement is concealed from A. A is not liable as a surety.
Where a person gives a guarantee upon a contract that the creditor shall not act upon it until another person has joined in it as co-surety, the guarantee is not valid if that other person does not join.
In every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety, and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee, but, no sums which he has paid wrongfully.
Illustrations
(a) B is indebted to C, and A is surety for the debt. C demands payment from A, and on his refusal sues him for the amount. A defends the suit, having reasonable grounds for doing so, but is compelled to pay the amount of the debt with costs. He can recover from B the amount paid by him for costs, as well as the principal debt.
(b) C lends B a sum of money, and A, at the request of B, accepts a bill of exchange drawn by B upon A to secure the amount. C, the holder of the bill, demands payment of it from A, and, o
Where two or more persons are co-sureties for the same debt or duty, either jointly or severally, and whether under the same or different contracts, and whether with or without the knowledge of each other, the co-sureties, in the absence of any contract to the contrary, are liable, as between themselves, to pay each an equal share of the whole debt, or of that part of it which remains unpaid by the principal debtor1.
Illustrations
(a) A, B and C are sureties to D for the sum of 3,000 rupees lent to E. E makes default in payment. A, B and C are liable, as between themselves, to pay 1,000 rupees each.
(b) A, B and C are sureties to D for the sum of 1,000 rupees lent to E, and there is a contract between A, B and C that A is to be responsible to the extent of one-quarter, B to the extent of one-
Co-sureties who are bound in different sums are liable to pay equally as far as the limits of their respective obligations permit.
Illustrations
(a) A, B and C, as sureties for D, enter into three several bonds, each in a different penalty, namely, A in the penalty of each 10,000 rupees, B in that of 20,000 rupees, C in that of 40,000 rupees, conditioned for D's duly accounting to E. D makes default to the extent of 30,000 rupees. A, B and C are each liable to pay 10,000 rupees.
(b) A, B and C, as sureties for D, enter into three several bonds, each in a different penalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees, C in that of 40,000 rupees, conditioned for D's duly accounting to E. D makes default to the extent of 40,000 rupees. A is liable to pay 10,000 rupees, a
A "bailment" is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the "bailor". The person to whom they are delivered is called, the "bailee".
Explanation.-If a person already in possession of the goods of another contracts to hold them as a bailee, he thereby becomes the bailee, and the owner becomes the bailor of such goods, although they may not have been delivered by way of bailment.
The delivery to the bailee may be made by doing anything which has the effect of putting the goods in the possession of the intended bailee or of any person authorized to hold them on his behalf.
The bailor is bound to disclose to the bailee faults in the goods bailed, of which the bailor is aware, and which materially interfere with the use of them, or expose the bailee to extraordinary risks; and if he does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults.
If the goods are bailed for hire, the bailor is responsible for such damage, whether he was or was not aware of the existence of such faults in the goods bailed.
Illustrations
(a) A lends a horse, which he knows to be vicious, to B. He does not disclose the fact that the horse is vicious. The horse runs away. B is thrown and injured. A is responsible to B for damage sustained.
(b) A hires a carriage of B. The carriage is unsafe, thoug
In all cases of bailment the bailee is bound to take as much care of the goods bailed to him 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 bailed2.
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1. The responsibility of the Trustees of the Port of Madras constituted under the Madras Port Trust Act, 1905 (Madras Act 2 of 1905), in regard to goods has been declared to be that of a bailee under these sections, without the qualifying words "in the absence of any special contract" in s. 152, see s. 40(1) of that Act.
2. As to railway contracts see the Indian Railways Act, 1890 (9 of 1890), s. 72. As to the liability of common carriers, see the Carriers Act, 1865 (3 of 1865), s. 8.
The bailee, in the absence of any special contract, is not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken the amount of care of it described in section 151.
A contract of bailment is avoidable 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.
Illustration
A lets to B, for hire, a horse for his own riding. B drives the horse in his carriage. This is, at the "option of A, a termination of the bailment.
If the bailee makes any use of the goods bailed which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them.
Illustrations
(a) A lends a horse to B for his own riding only. B allows C, a member of his family, to ride the horse. C rides with care, but the horse accidentally falls and is injured. B is liable to make compensation to A for the injury done to the horse.
(b) A hires a horse in Calcutta from B expressly to march to Benares. A rides with clue care, but marches to Cuttack instead. The horse accidentally falls and is injured. A is liable to make compensation to B for the injury to the horse.
If the bailee, with the consent of the bailor, mixes the goods of the bailor with his own goods, the bailor and the bailee shall have an interest, in proportion to their respective shares, in the mixture thus produced.
If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, and the goods can be separated or divided, the property in the goods remains in the parties respectively; but the bailee is bound to bear the expense of separation or division, and any damage arising from the mixture.
Illustration
A bails 100 bales of cotton marked with a particular mark to B. B, without A's consent, mixes the 100 bales with other bales of his own, bearing a different mark: A is entitled to have his 100 bales returned, and B is bound to bear all the expense incurred in the separation of the bales, and any other incidental damage.
If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, in such a manner that it is impossible to separate the goods bailed from the other goods, and deliver them back, the bailor is entitled to be compensated by the bailee for the loss of the goods.
Illustration
A bails a barrel of Cape flour worth Rs. 45 to B. B, without A's consent, mixes the flour with country flour of his own, worth only Rs. 25 a barrel. B must compensate A for the loss of his flour.
Where, by the conditions of the bailment, the goods are to be kept or to be carried, or to have work done upon them by the bailee for the bailor, and the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of the bailment.
The lender of a thing for use may at any time require its return, if the loan was gratuitous, even though he lent it for a specified time or purpose. But if, on the faith of such loan made for a specified time or purpose, the borrower has acted in such a manner that the return of the thing lent before the time agreed upon would cause him loss exceeding the benefit actually derived by him from the loan, the lender must, if he compels the return, indemnify the borrower for the amount in which the loss so occasioned exceeds the benefit so derived.
It is the duty of the bailee to return, or deliver according to the bailor's directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished.
If, by the default of the bailee, the goods are not returned, delivered or tendered at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of the goods from that time.2
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1. S. 161 has been, declared to apply to the responsibility of the Trustees of the Port of Madras as to goods in their possession see the Madras Port Trust Act, 1905 (Madras Act 2 of 1905).
2. As to Railway contracts, see the Indian Railways Act, 1890 (9 of 1890), s. 72.
A gratuitous bailment is terminated by the death either of the bailor or of the bailee.
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.
Illustration
A leaves a cow in the custody of B to be taken care of. The cow has a calf. B is bound to deliver the calf as well as the cow to A.
The bailor is responsible to the bailee for any loss which the bailee 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.
If several joint owners of goods bail them, the bailee may deliver them back to, or according to the directions of, one joint owner without the consent of all in the absence of any agreement to the contrary.
If the bailor has no title to the goods, and the bailee, in good faith, delivers them back to, or according to the directions of, the bailor, the bailee is not responsible to the owner in respect of such delivery1.
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1. See the Indian Evidence Act, 1872 (1 of 1872), s. 117.
If a person, other than the bailor, claims goods bailed he may apply to the Court to stop the delivery of the goods to the bailor, and to decide the title to the goods.
The finder of goods has no right to sue the owner for compensation for trouble and expense voluntarily incurred by him to preserve the goods and to find out the owner; but he may retain the goods against the owner until he receives such compensation; and, where the owner has offered a specific reward for the return of goods lost, the finder may sue for such reward, and may retain the goods until he receives it.
When a 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-
(1) when the thing is in danger of perishing or of losing the greater part of its value, or,
(2) when the lawful charges of the finder, in respect of the thing found, amount to two-thirds of its value.
Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.
Illustrations
(a) A delivers a rough diamond to B, a jeweller, to be cut and polished, which is accordingly done. B is entitled to retain the stone till he is paid for the services he has rendered.
(b) A gives, cloth to B, a tailor, to make into a coat. B promises A to deliver the coat as soon as it is finished, and to give a three months' credit for the price. B is not entitled to retain the coat until he is paid.
Bankers, factors, wharfingers, attorneys of a High Court and policy-brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to that effect1.
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1. As to lien of an agent, see s. 221, infra. As to lien of a Railway Administration, see the Indian Railways Act, 1890 (9 of 1890), s. 55.
The bailment of goods as security for payment of a debt or performance of a promise is called "pledge". The bailor is in this case called the "pawnor". The bailee is called the "pawnee".
The pawnee may retain the goods pledged, not only for payment of the debt or the performance of the promise, but for the interest of the debt, and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged.
The pawnee shall not, in the absence of a contract to that effect, retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged; but such contract, in the absence of anything to the contrary, shall be presumed in regard to subsequent advances made by the pawnee.
The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged.
If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledge as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale.
If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.
If a time is stipulated for the payment of the debt, of performance of the promise, for which the pledge is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them1; but he must, in that case, pay, in addition, any expenses which have arisen from his default.
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1. For limitation, see the Limitation Act, 1963 (36 of 1963), Sch. 1.
Where a mercantile agent is, with the consent of the owner, in possession of goods or the document of title to goods, any pledge made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same; provided that the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has not authority to pledge.
Explanation.-In this section, the expressions "mercantile agent" and "documents of title" shall have the meanings assigned to them in the Indian Sale of Goods Act, 1930 (3 of 1930).
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1. Ss. 178 and 178A subs. by Act 4 of 1930, s. 2, for the original s. 178.
When the pawnor has obtained possession of the goods pledged by him under a contract voidable under section 19 or section 19A, but the contract has not been rescinded at the time of the pledge, the pawnee acquires a good title to the goods, provided he acts in good faith and without notice of the pawnor's defect of title.]
Section 178(a) of the Indian Contract Act, 1872, addresses the legality of pledges made by persons in possession of goods or documents of title to goods, under specific conditions. It plays a crucial role in governing the validity of pledges, especially involving mercantile agents and documents of title, and forms a foundation for commercial transactions involving security interests.
Section 178(a) stipulates that a person in possession of goods or documents of title to goods may make a valid pledge of them, provided the pawnee acts in good faith and under circumstances that do not raise a suspicion of improper conduct by the pawnor. The section also restricts the validity of such pledges if the goods have been obtained through fraud or offence from their lawful owner.
While Section 178(a) itself does not prescribe specific punishments, violations—such as pledging goods obtained through fraud—render the pledge invalid and expose the pledgor and pledgee to legal liabilities, including recovery of goods or their value and potential criminal charges for fraud.
This concise commentary synthesizes legal principles, judicial interpretations, and statutory provisions related to Section 178(a) of the Indian Contract Act, 1872, emphasizing its role in facilitating secure and honest commercial pledges.
Where a person pledges goods in which he has only a limited interest, the pledge is valid to the extent of that interest.
If a third person wrongfully deprives the bailee of the use or possession of the goods bailed, or does them any injury, the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment had been made; and either the bailor or the bailee may bring a suit against a third person for such deprivation or injury.
Whatever is obtained by way of relief or compensation in any such suit shall, as between the bailor and the bailee, be dealt with according to their respective interests.
An "agent" is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the "principal".
Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent.
As between the principal and third persons, any person may become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained.
No consideration is necessary to create an agency.
The authority of an agent may be expressed or implied1.
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1. See, however, the Registration Act, 1908 (16 of 1908), s. 33; see also the Code of Civil Procedure, 1908 (5 of 1908), Sch. I, Order III, rule 4.
An authority is said to be express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case.
Illustration
A owns a shop in Serampore, living himself in Calcutta, and visiting the shop occasionally. The shop is managed by B, and he is in the habit of ordering goods from C in the name of A for the purposes of the shop, and of paying for them out of A's funds with A's knowledge. B has an implied authority from A to order goods from C in the name of A for the purposes of the shop.
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.
An agent having an authority to carry on a business, has authority to do every lawful thing necessary for the purpose, or usually done in the course, of conducting such business.
Illustrations
(a) A is employed by B, residing in London, to recover at Bombay a debt due to B. A may adopt any legal process necessary for the purpose of recovering the debt, and may give a valid discharge for the same.
(b) A constitutes B his agent to carry on his business of a shipbuilder. B may purchase timber and other materials, and hire workmen, for the purpose of carrying on the business.
An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances.
Illustrations
(a) An agent for sale may have goods repaired if it be necessary.
(b) A consigns provisions to B at Calcutta, with directions to send them immediately to C, at Cuttack. B may sell the provisions at Calcutta, if they will not bear the journey to Cuttack without spoiling.
An agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may, or, from the nature of the agency, a sub-agent must, be employed.
A "sub-agent" is a person employed by, and acting under the control of, the original agent in the business of the agency.
Where a sub-agent is properly appointed, the principal is, so far as regards third persons, represented by the sub-agent, and is bound by and responsible for his acts, as if he were an agent originally appointed by the principal.
Agent's responsibility for sub-agent.-The agent is responsible to the principal for the acts of the sub-agent.
Sub-agent's responsibility.-The sub-agent is responsible for his acts to the agent, but not to the principal, except in cases of fraud or wilful wrong.
Where an agent, without having authority to do so, has appointed a person to act as a sub-agent, the agent stands towards such person in the relation of a principal to an agent, and is responsible for his acts both to the principal and to third persons; the principal is not represented, by or responsible for the acts of the person so employed, nor is that person responsible to the principal.
Where an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him.
Illustrations
(a) A directs B, his solicitor, to sell his estate by auction, and to employ an auctioneer for the purpose. B names C, an auctioneer, to conduct the sale. C is not a sub-agent, but is A's agent for the conduct of the sale.
(b) A authorizes B, a merchant in Calcutta, to recover the moneys due to A from C & Co. B instructs D, a solicitor, to take legal proceedings against C & Co. for the recovery of the money. D is not a sub-agent, but is solicitor for A.
In selecting such agent for his principal, an agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his own case; and, if he does this, he is not responsible to the principal for the acts or negligence of the agent so selected.
Illustrations
(a) A instructs B, a merchant, to buy a ship for him. B employs a ship-surveyor of good reputation to choose a ship for A. The surveyor makes the choice negligently and the ship turns out to be unseaworthy and is lost. B is not, but the surveyor is, responsible to A.
(b) A consigns goods to B, a merchant, for sale. B, in due course, employs an auctioneer in good credit to sell the goods of A, and allows the auctioneer to receive the proceeds of the sale. The auctioneer afterwards becomes insolvent without
Where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such acts. If he ratify them, the same effects will follow as if they had been performed by his authority.
Ratification may be expressed or may be implied in the conduct of the person on whose behalf the acts are done.
Illustrations
(a) A, without authority, buys goods for B. Afterwards B sells them to C on his own account; B's conduct implies a ratification of the purchase made for him by A.
(b) A, without B's authority, lends B's money to C. Afterwards B accepts interest on the money from C. B's conduct implies a ratification of the loan.
No valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.
A person ratifying any unauthorized act done on his behalf ratifies the whole of the transaction of which such act formed a part.
An act done by one person on behalf of another, without such other person's authority, which, if done with authority, would have the effect of subjecting a third person to damages, or of terminating any right or interest of a third person, cannot, by ratification, be made to have such effect.
Illustrations
(a) A, not being authorized thereto by B, demands, on behalf of B, the delivery of a chattel, the property of B, from C, who is in possession of it. This demand cannot be ratified by B, so as to make C liable for damages for his refusal to deliver.
(b) A holds a lease from B, terminable on three months' notice. C, an unauthorized person, gives notice of termination to A. The notice cannot be ratified by B, so as to be binding on A.
An agency is terminated by the principal revoking his authority; or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors.
Section 201 of the Indian Contract Act, 1872, governs the circumstances under which an agency relationship is terminated. It is a fundamental provision in agency law, outlining the modes of ending an agency, whether through acts of the parties or by operation of law. This section ensures clarity on when and how the authority of an agent ceases, protecting the interests of both principals and third parties.
Section 201 states that an agency is terminated by:- Revocation of authority by the principal,- Renunciation of the business by the agent,- Completion of the business of the agency,- Death or unsoundness of mind of either the principal or the agent,- Adjudication of the principal as insolvent under applicable law.
It emphasizes that these are the primary modes through which agency relationships end, either voluntarily or involuntarily.
Section 201 itself does not specify punishments or penalties for breach or wrongful termination. Its primary function is to delineate the grounds and process for ending an agency. However, wrongful acts like continuing to act after termination may lead to liabilities under tort or contract law, including damages or injunctions.
This concise legal commentary and the bullet point summary encapsulate the core principles, scope, and judicial interpretations of Section 201 of the Indian Contract Act, 1872, providing a comprehensive understanding of the termination of agency relationships under Indian law.
Where the agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.
Illustrations
(a) A gives authority to B to sell A's land, and to pay himself, out of the proceeds, the debts due to him from A. A cannot revoke this authority, nor can it be terminated by his insanity or death.
(b) A consigns 1,000 bales of cotton to B, who has made advances to him on such cotton, and desires B to sell the cotton, and to repay himself out of the price, the amount of his own advances. A cannot revoke this authority, nor is it terminated by his insanity or death.
Section 202 of the Indian Contract Act, 1872, governs the termination of agency relationships, particularly focusing on situations where the agent has an interest in the subject matter of the agency. It delineates the circumstances under which an agency can or cannot be revoked, emphasizing the importance of the agent’s interest in the property or transaction.
Section 202 states that an agency cannot be terminated by the principal if the agent has himself an interest in the subject matter of the agency, unless there is an express contract to the contrary. It underscores that the agency is irrevocable when the agent has an interest in the property or the transaction, especially when created for valuable consideration or to secure the interest of the agent.
Section 202 applies primarily to agencies created:- Coupled with interest: Where the agent’s interest is in the property or transaction.- For valuable consideration: Agencies created to secure or effectuate security interests.- In the context of immovable property: Particularly relevant in real estate transactions involving powers of attorney or agency coupled with interest.It excludes agencies where the agent has no interest in the subject matter, such as mere authority to negotiate or settle.
Section 202 does not prescribe any specific punishment. Instead, it provides legal principles that protect the agent’s interest from unilateral revocation, thereby safeguarding the agent’s rights and the transaction’s validity. Breach of this provision can lead to civil liabilities, including injunctions or specific performance, and may result in damages or other remedies for the aggrieved party.
In summary, Section 202 emphasizes that an agency created with interest or consideration is generally irrevocable, especially in property transactions, unless there is an explicit agreement to the contrary. The courts have consistently interpreted this section to protect the agent’s rights, particularly when the agency is coupled with an interest supported by registration or consideration. Revocation without proper notice or in absence of interest can be challenged, leading to remedies such as injunctions or specific performance.
The principal may, save as is otherwise provided by the last preceding section, revoke the authority given to his agent at any time before the authority has been exercised so as to bind the principal.
Section 203 of the Indian Contract Act, 1872, addresses the circumstances under which a principal can revoke the authority granted to an agent. It forms a vital part of the law governing agency relationships, delineating the limits and conditions of revocation to ensure clarity and legal certainty in agency contracts.
Section 203 states that the principal may revoke the authority given to his agent at any time before the agent has exercised that authority to bind the principal, unless the agency is coupled with interest or otherwise protected by specific contractual provisions. The section emphasizes that revocation must occur prior to the agent's act that binds the principal.
Section 203 primarily applies to revocable agencies where no interest is involved, allowing the principal to withdraw authority at any time before the agent acts. It also clarifies that once the agent has acted, revocation cannot affect acts already performed, safeguarding the rights of third parties and the agent.
Section 203 does not prescribe any punishment or penal provisions. It is a rule of law that governs the validity of revocation of authority within agency relationships, ensuring lawful conduct and preventing unauthorized acts.
This legal commentary consolidates principles derived from statutory provisions, judicial interpretations, and authoritative commentaries to provide a comprehensive understanding of Section 203 of the Indian Contract Act, 1872.
The principal cannot revoke the authority given to his agent after the authority has been partly exercised, so far as regards such acts and obligations as arise from acts already done in the agency.
Illustrations
(a) A authorizes B to buy 1,000 bales of cotton on account of A, and to pay for it out of A's moneys remaining in B's hands. B buys 1,000 bales of cotton in his own name, so as to make himself personally liable for the price. A cannot revoke B's authority so far as regards payment for the cotton.
(b) A authorizes B to buy 1,000 bales of cotton on account of A, and to pay for it out of A's moneys remaining in B's hands. B buys 1,000 bales of cotton in A's name, and so as not to render himself personally liable for the price. A can revoke B's authority to pay for the cotton.
Where there is an express or implied contract that the agency should be continued for any period of time, the principal must make compensation to the agent, or the agent to the principal, as the case may be, for any previous revocation or renunciation of the agency without sufficient cause.
Reasonable notice must be given of such revocation or renunciation, otherwise the damage thereby resulting to the principal or the agent, as the case may be, must be made good to the one by the other.
Revocation and renunciation may be expressed or may be implied in the conduct of the principal or agent respectively.
Illustration
A empowers B to let A's house. Afterwards A lets it himself. This is an implied revocation of B's authority.
The termination of the authority of an agent does not, so far as regards the agent, take effect before it becomes known to him, or, so far as regards third persons, before it becomes known to them.
Illustrations
(a) A directs B to sell goods for him, and agrees to give B five per cent. commission on the price fetched by the goods. A afterwards, by letter, revoke B's authority. B, after the letter is sent, but before he receives it, sells the goods for 100 rupees. The sale is binding on A, and B is entitled to five rupees as his commission.
(b) A, at Madras, by letter, directs B to sell for him some cotton lying in a warehouse in Bombay, and afterwards, by letter, revokes his authority to sell, and directs B to send the cotton to Madras. B, after receiving the second letter, enters into a contr
When an agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take, on behalf of the representatives of his late principal, all reasonable steps for the protection and preservation of the interests entrusted to him.
The termination of the authority of an agent causes the termination (subject to the rules herein contained regarding the termination of an agent's authority) of the authority of all sub-agents appointed by him.
An agent is bound to conduct the business of his principal according to the directions given by the principal, or, in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and if any profit accrues, he must account for it.
Illustrations
(a) A, an agent engaged in carrying on for B a business, in which it is the custom to invest from time to time, at interest, the moneys which may be in hand, omits to make such investment. A must make good to B the interest usually obtained by such investments.
(b) B, a broker, in whose business it is not the custom to sell on credit, sells goods of A on credit to C, whose credit at the time was very
An agent is bound to conduct the business of the agency with as much skill as is generally possessed by persons engaged in similar business unless the principal has notice of his want of skill. The agent is always bound to act with reasonable diligence, and to use such skill as he possesses; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill, or misconduct.
Illustrations
(a) A, a merchant in Calcutta, has an agent, B, in London, to whom a sum of money is paid on A's account, with orders to remit. B retains the money for a considerable time. A, in consequence of not receiving the money, becomes insolvent. B is liable for the money and interest from the day
An agent is bound to render proper accounts to his principal on demand.
It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions.
If an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows, either that any material fact has been dishonestly concealed from him by the agent, or that the dealings of the agent have been disadvantageous to him.
Illustrations
(a) A directs B to sell A's estate. B buys the estate for himself in the name of C. A, on discovering that B has bought the estate for himself, may repudiate the sale, if he can show that B has dishonestly concealed any material fact, or that the sale has been disadvantageous to him.
(b) A directs B to sell A's estate B, on looking over the estat
If an agent, without the knowledge of his principal, deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.
Illustration
A directs B, his agent, to buy a certain house for him. B tells A it cannot be bought, and buys the house for himself. A may, on discovering that B has bought the house, compel him to sell it to A at the price he gave for it.
An agent may retain, out of any sums received on account of the principal in the business of the agency, all moneys due to himself in respect of advances made or expenses properly incurred by him in conducting such business, and also such remuneration as may be payable to him for acting as agent.
Subject to such deductions, the agent is bound to pay to his principal all sums received on his account.
In the absence of any special contract, payment for the performance of any act is not due to the agent until the completion of such act; but an agent may detain moneys received by him on account of goods sold, although the whole of the goods consigned to him for sale may not have been sold, or although the sale may not be actually complete.
An agent who is guilty of misconduct in the business of the agency, is not entitled to any remuneration in respect of that part of the business which he has misconducted.
Illustrations
(a) A employs B to recover, 1,00,000 rupees from C, and to lay it out on good security. B recovers the 1,00,000 rupees; and lays out 90,000 rupees on good security, but lays out 10,000 rupees on security which he ought to have known to be bad, whereby A loses 2,000 rupees. B is entitled to remuneration for recovering the 1,00,000 rupees and for investing the 90,000 rupees. He is not entitled to any remuneration for investing the 10,000 rupees, and he must make good the 2,000 rupees to B.
(b) A employs B to recover 1,000 rupees from C. Through B's misconduct the money is not recovered. B is entitled to no remuner
In the absence of any contract to the contrary, an agent is entitled to retain goods, papers and other property, whether movable or immovable of the principal received by him, until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for to him.
The employer of an agent is bound to indemnify him against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him.
Illustrations
(a) B, at Singapur, under instructions from A of Calcutta, contracts with C to deliver certain goods to him. A does not send the goods to B, and C sues B for breach of contract. B informs A of the suit, and A authorizes him to defend the suit. B defends the suit, and is compelled to pay damages and costs, and incurs expenses. A is liable to B for such damages, costs and expenses.
(b) B, a broker at Calcutta, by the orders of A, a merchant there, contracts with C for the purchase of 10 casks of oil for A. Afterwards A refuses to receive the oil, and C sues B. B informs A, who repudiates the contract altogether. B defends
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 cause an injury to the rights of third persons.
Illustrations
(a) A, a decree-holder and entitled to execution of B's goods, requires the officer of the Court to seize certain goods, representing them to be the goods of B. The officer seizes the goods, and is sued by C, the true owner of the goods. A is liable to indemnify the officer for the sum which he is compelled to pay to C, in consequence of obeying A's directions.
(b) B, at the request of A, sells goods in the possession of A, but which A had no right to dispose of, B does not know this, and hands over the proceeds of the sale to A. Afterwards C, the true
Where one person employs another to do an act which is criminal, the employer is not liable to the agent, either upon an express or an implied promise, to indemnify him against the consequences of that Act1.
Illustrations
(a) A employs B to beat C, and agrees to indemnify him against all consequences of the act. B thereupon beats C, and has to pay damages to C for so doing. A is not liable to indemnify B for those damages.
(b) B, the proprietor of a newspaper, publishes, at A's request, a libel upon C in the paper, and A agrees to indemnify B against the consequences of the publication, and all costs and damages of any action in respect thereof. B is sued by C and has to pay damages, and also incurs expenses. A is not liable to B upon the indemnity.
The principal must make compensation to his agent in respect of injury2 caused to such agent by the principal's neglect or want of skill.
Illustration
A employs B as a bricklayer in building a house, and puts up the scaffolding himself. The scaffolding is unskilfully put up, and B is in consequence hurt. A must make compensation to B.
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2. Cf. the Fatal Accidents Act, 1855 (13 of 1855).
Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences, as if the contracts had been entered into and the acts done by the principal in person.
Illustrations
(a) A buys goods from B, knowing that he is an agent for their sale, but not knowing who is the principal. B's principal is the person entitled to claim from A the price of the goods, and A cannot, in a. suit by the principal, set-off against that claim a debt due to himself from B.
(b) A, being B's agent with authority to receive money on his behalf, receives from C a sum of money due to B. C is discharged of his obligation to pay the sum in question to B.
When an agent does more than he is authorized to do, and when the part of what he does, which is within his authority, can be separated from the part which is beyond his authority, so much only of what he does as is within his authority is binding as between him and his principal.
Illustration
A, being owner of a ship and cargo, authorizes B to procure an insurance for 4,000 rupees on the ship. B procures a policy for 4,000 rupees on the ship, and another for the like sum on the cargo. A is bound to pay the premium for the policy on the ship, but not the premium for the policy on the cargo.
Where an agent does more than he is authorized to do, and what he does beyond the scope of his authority cannot be separated from what is within it, the principal is not bound to recognize the transaction.
Illustration
A authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for one sum of 6,000 rupees. A may repudiate the whole transaction.
Any notice given to or information obtained by the agent, provided it be given or obtained in the course of the business transacted by him for the principal, shall, as between the principal and third parties, have the same legal consequences as if it had been given to or obtained by the principal.
Illustrations
(a) A is employed by B to buy from C certain goods, of which C is the apparent owner, and buys them accordingly. In the course of the treaty for the sale, A learns that the goods really belonged to D, but B is ignorant of that fact. B is not entitled to set-off a debt owing to him from C against the price of the goods.
(b) A is employed by B to buy from C goods of which C is the apparent owner. A was, before he was so employed, a servant of C, and then learnt that the goods really belon
In the absence of any contract to that effect, an agent cannot personally enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them.
Presumption of contract to contrary-Such a contract shall be presumed to exist in the following cases:-
(1) where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad;
(2) where the agent does not disclose the name of his principal;
(3) where the principal, though disclosed, cannot be sued.
If an agent makes a contract with a person who neither knows, nor has reason to suspect, that he is an agent, his principal may require the performance of the contract; but the other contracting party has, as against the principal, the same rights as he would have had as against the agent if the agent had been principal.
If the principal discloses himself before the contract is completed, the other contracting party may refuse to fulfil the contract, if he can show that, if he had known who was the principal in the contract, or if he had known that the agent was not a principal, he would not have entered into the contract.
Where one man makes a contract with another, neither knowing nor having reasonable ground to suspect that the other is an agent, the principal, if he requires the performance of the contract, can only obtain such performance subject to the rights and obligations subsisting between the agent and the other party to the contract.
Illustration
A, who owes 500 rupees to B, sells 1,000 rupees worth of rice to B. A is acting as agent for C in the transaction, but B has no knowledge nor reasonable ground of suspicion that such is the case. C cannot compel B to take the rice without allowing him to set-off A's debt.
In cases where the agent is personally liable, a person dealing with him may hold either him or his principal, or both of them, liable.
Illustration
A enters into a contract with B to sell him 100 bales of cotton, and afterwards discovers that B was acting as agent for C. A may sue either B or C, or both, for the price of the cotton.
When a person who has made a contract with an agent induces the agent to act upon the belief that the principal only will be held liable, or induces the principal to act upon the belief that the agent only will be held liable, he cannot afterwards hold liable the agent or principal respectively.
A person untruly representing himself to be the authorized agent of another, and thereby inducing a third person to deal with him as such agent, is liable, if his alleged employer does not ratify his acts, to make compensation to the other in respect of any loss or damage which he has incurred by so dealing.
A person with whom a contract has been entered into in the character of agent, is not entitled to require the performance of it, if he was in reality acting, not as agent, but on his own account.
When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent's authority.
Illustrations
(a) A consigns goods to B for sale, and gives him instructions not to sell under a fixed price. C, being ignorant of B's instructions, enters into a contract with B to buy the goods at a price lower than the reserved price. A is bound by the contract.
(b) A entrusts B with negotiable instruments endorsed in blank. B sells them to C in violation of private orders from A. The sale is good.
Misrepresentation made, or frauds committed, by agents acting in the course of their business for their principals, have the same effect on agreements made by such agents as if such misrepresentations or frauds had been made or committed by the principals; but misrepresentations made, or frauds committed, by agents, in matters which do not fall within their authority, do not affect their principals.
Illustrations
(a) A, being B's agent for the sale of goods, induces C to buy them by a misrepresentation, which he was not authorized by B to make. The contract is voidable, as between B and C, at the option of C.
(b) A, the captain of B's ship, signs bills of lading without having received on board the goods mentioned therein. The bills of lading are void as between B and the pretended cosignor.
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