LECTURE NOTES FOR BUSINESS LAWS

UNIT-1: Meaning & Nature of Law

Law of Contract-Definition –Classification of Contracts –essential
elements of a contract - Remedies for Breach of Contract.

INTRODUCTION TO LAW
 As a social being, man comes into contact with people in different capacities
 He comes into contact,
 For example:
1. with a landlord as a tenant
2. with Government as a Taxpayer
3. with customers as a seller and
4. with suppliers as a buyer.
 Inevitable consequence of modern civilization
 In all these associations, he is expected to observe a code or a set of rules.
 The word ‘Law’ is a general term and has different connotations for different people,
e.g.,
1.A citizen may think of Law as a set of rules which he must obey.
2.A Lawyer who practices law may think of Law as a vocation.
3.A legislator may look at law as something Created by him
4.A judge may think as guiding principles to be applied in making decisions

DEFINITION OF LAW
In the words of Salmond,” Law is the body of principles recognized and applied by the state
in the administration of justice.”

Woodrow Wilson has defined law as “that portion of the established habit and thought of
mankind which has gained distinct and formal recognition in the shape of uniform rules
backed by the authority and power of the government.”

 Law is not static

 laws are changed to fit the requirements of the society.
 Law prevailing in a society at any point of time must be in conformity with –
-the general sentiments
- customs and
-aspirations of its people.
 It is a real phenomenon having a real existence in relation to the facts of human affairs

OBJECT OF LAW
 The object of law is order and the result of order is that men are enabled to look ahead
 with some sort of security as to the future.
 In the context of new emerging India, the main object of law is considered to be “ to
establish socio-economic justice and remove the existence imbalance in the socio-
economic structure.”
 In the pre- independence era, the principal concern of the government was limited to
the maintenance of law and order in the country.

BUT
 The situation has changed now and the fundamental task of broadening the horizons of
the welfare state is being pursued by the legislation covering the entire gamut of social
activity

CONTRACT
DEFINITION OF CONTRACT
It is an agreement made between two or more parties which the law will enforce

Sec. 2(h) Indian Contract Act, 1872 defines a Contract as an agreement enforceable by law
Every agreement and promise enforceable at law is a Contract
An agreement creating and defining obligations between the parties
What is enforceability of an Agreement?
An agreement is defined as “Every promise and every set of promises, forming consideration
for each other”
A promise is defined thus “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
An agreement is an accepted proposal
To form an agreement, there must be a proposal or offer by one party and its acceptance by
the other
AGREEMENT = OFFER + ACCEPTANCE

CONSENSUS AD IDEM
The parties to the agreement must have agreed about the subject matter of the agreement in
the same sense and at the same time. Unless there is consensus ad idem, there can be no
contract.
OBLIGATION
It is defined as a legal tie which imposes upon a definite person or persons the necessity of
doing or abstaining from doing a definite act or acts
It may relate to social or legal matters
An agreement which gives rise to social obligation is not a contract

ESSENTIAL ELEMENTS OF VALID CONTRACT

  Offer and acceptance
 Intention to create legal relationship
 Lawful consideration
 Capacity of parties – competency
 Free and genuine consent
 Lawful object
 Agreement not declared void
 Certainty and possibility of performance
 Legal formalities
Offer and acceptance
There must be two parties to an agreement
One party makes the offer and other party accepts it
The terms of the offer must be definite and the acceptance of the offer must be absolute and
unconditional
The acceptance must be according to the mode prescribed and must be communicated to the
offeror.
Intention to create legal relationship
 When two parties enter into an agreement, their intention must be to create legal
relationship between them
 If there is no such intention on the part of the parties, there is no contract between them
 Agreements of social or domestic nature do not contemplate legal relationship as such
they are not contracts
Case :( Balfour V. Balfour)
• A husband promised to pay his wife a household allowance of $30 every
month. Later the parties separated and the husband failed to pay the
amount. The wife sued for the allowance. Held, agreements such as these
were outside the realm of contract altogether

Lawful consideration
Consideration means an advantage or benefit moving from one party to the other. It is the
essence of a bargain. “something in return”
A promise to do something and getting nothing in return is usually not enforceable by law
Consideration need not necessarily be in cash or kind
It may be an act or abstinence or promise to do or not to do something
It may be past, present or future
It must be real and lawful
Capacity of parties - Competency
The parties to the agreement must be capable of entering into a valid contract
Every person is competent to contract if he
 Is of the age of majority
Is of sound mind and
Is not disqualified from contracting by any law to which he is subject
Free and genuine consent
It is essential to the creation of every contract that there must be free and genuine consent of
the parties to the agreement
The consent of the parties is said to be free when they are of the same mind on all the
material terms of the contract
There is absence of the free consent if the agreement is induced by Coercion, Undue
Influence, Fraud, Misrepresentation etc.,
Lawful object
The object must not be
o Illegal
o Immoral
o Opposed to public policy
If an agreement suffers from any legal flaw, it would not be enforceable by law

Agreement not declared void

The agreement must not have been expressly declared void by law in force in the country

Certainty and possibility of Performance

 The agreement must be certain and not vague or indefinite, if not it cannot be enforced

EG : 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

“Scammel Vs. Ouston” – O agreed to purchase a motor van from S “ on hire

purchase terms”. The hire purchase price was to be paid over two years. Held,
there was no contract as the terms were not certain about the rate of interest and
mode of payment. NO precise meaning could be attributed to the words “on hire
purchase” since there was a wide variety of hire purchase terms.
Legal formalities
 A contract may be made by words spoken or written
 As regards the legal effects, there is no difference between a contract in writing and a
contract made by word of mouth
 In the interest of parties, the contract should be in writing
 The document in which the contract is incorporated is to be stamped
 When there is a statutory requirement that a contract should be made in writing or in
the presence of witnesses or registered, the required statutory formalities must be
complied with
CLASSIFICATION OF LAW

CONTRACTS ACCRODING TO VALIDITY

 Voidable contract
– An agreement which is enforceable by law at the option of one or more parties
thereto, but not at the option of the other or others is a voidable contract
• When the consent of a party of a contract is not free the contract is
voidable at his option
• When a party to a contract promises to perform all obligation within a
specified time, any failure on his part to perform his obligation within the
fixed time makes the contract voidable at the option of the promisee
 Void agreement
– An agreement not enforceable by law is said to be void
– A void agreement does not create any legal rights or obligations
 Void contract
– A contract which ceases to be enforceable by law becomes void when it ceases to
be enforceable
• A contract, when originally entered into, may be valid and binding on the
 parties, it may be subsequently become void
– Eg war or Govt. Order
 Illegal agreement
– An illegal agreement is one which transgress (controversy) some rule or basic
public policy or which is criminal in nature or which is immoral. All Illegal
agreements are void but all void agreements are not necessarily illegal
 Unenforceable contract
– An unenforceable contract is one which cannot be enforced in court of law
because of some technical defect such as absence or writing etc.,
CLASSIFICATION ACCORIDNG TO FORMATION
 Express contract
– If the terms of contract expressly agreed upon at the time of formation of the
contract, the contract is said to be an express contract
 Implied contract
– An implied contract is one which is inferred from the acts or conduct of the
parties or course of dealings between them
 Quasi contract
– A quasi contract is not a contract at all. A contract is intentionally entered into by
the parties. A quasi contract is created by law. It resembles a contract in that a
legal obligation is imposed on a party who is required to perform it.
• Eg : T a tradesman, leaves goods at C’s house by mistake. C treats the
goods as his own.
• C is bound to pay for the goods
 E commerce contract
– The contracts which is entered into between two parties via internet is called E
Commerce Contract
CLASSIFICATION ACCORDING TO PERFORMANCE
 Executed contract
– Executed means that which is done. If both the parties have performed their
obligations, they are executed contracts
 Executory contract
– Both the parties have yet to perform their obligations
– It may sometimes partly executed and partly executory
  Unilateral
– When only one party has to fulfill his obligation at the time of the formation of
the contract, the other party having fulfilled his obligation at the time of the
contract or before the contract comes into existence
• A permits a railway coolie to carry his luggage and place it in a carriage.
The contract comes to an end as it places it in carriage. Now it is the
obligation of A to pay the amount’
 Bilateral contract
– The obligation on the part of both the parties the contract is outstanding at the
time of formation of the contract. (Executory Contracts)

REMEDIES FOR BREACH OF CONTRACT

WHAT IS A REMEDY?
a remedy is the means given by law for the enforcement of a right.

WHEN A CONTRACT IS BROKEN, THE INJURED PARTY, HAS ONE OR MORE OF THE
FOLLOWING REMEDIES:
 Rescission of the contract
 Suit for Damages
 Suit upon Quantum Meruit
 Suit for specific performance of the Contract
 Suit for injunction.
RECISSION
When a contract is broken by one party, the other party may sue to treat the contract as rescinded and
refuse further performance. In such a case, he is absolved of all his obligations under the contract.
E.g: A promises B to supply 10 Bags of cement on a certain day. B agrees to pay the price after the
receipt of the goods. A does not supply the goods. B is discharged from liability to pay the price.
DAMAGES
Damages are the monetary compensation allowed to the injured party by the court for the loss of injury
suffered by him by the breach of a contract.
OBJECTS OF AWARDING DAMAGES
It is to put the injured party in the same position, so far as money can do it, as if he had not been injured,
I.e, in the position in which he would have been there been performance and not breach.
This is also known as DOCTRINE OF RESTITUION .
(RESTITUTIO IN INTEGRUM)
CASE:HADLEY VS BAXENDALE
X’s mill was stopped by the breakdown of a shaft. He delivered the shaft to Y, a common carrier, to be
taken to a manufacturer to copy it and make a new one. X did not make known to Y that delay would
result in loss of profits. By some neglect on the part of Y the delivery of the shaft was delayed in transit
beyond a reasonable time. Held, Y was not liable for loss of profits during the period of delay as the
circumstances communicated to Y did not show that a delay in the delivery of the shaft would entail loss
of profits to the mill.
WHEN A CONTRACT HAS BEEN BROKEN, THE INJURED PARTY IS ENTITLED TO:
 Such damages which is naturally arose in the usual course of things from such breach. This
related to ordinary damages arising in the usual course of the things.
 Such damages which the parties knew, when they made the contract, to be likely to result from
the breach. This relates to Special damages.
 Such Compensation is not to be given for any remote or indirect loss or damage sustained by
reason of the breach; and
 Such compensation for damages arising from a breach of contract, the means which existed of
remedying the inconvenience caused by the non-performance of the contract must be taken into
account.
DAMAGES ARISING NATURALLY – ORDINARY DAMAGES

When a contract has been broken, the injured party can recover from the other party such damages as
naturally and directly arose in the usual course of things from the [Link] damages are known as
ordinary damages.
E.g.: A contracts to sell and deliver 50 quintals of Farm wheat to B at Rs.475 per quintal, the price to be
paid at the time of delivery. The price of Wheat rises to Rs. 500 per quintal and A refuses to sell the
Wheat. B can claim damages at the rate of Rs.25 per quintal.

In a contract for the sale of goods, the measure of damages on the breach of a contract is the difference
between the contract price and the market price of such goods on the date of the breach.
If, however, the thing contracted for is not available in the market, the price of the nearest and best
available substitute may be taken into account for calculating damages.
Where the subject matter of a contract is goods specially made to order and which are not marketable, the
price of the goods is the measure of the damages.
COMPENSATION IS NOT TO BE GIVEN FOR ANY REMOTE OR INDIRECT LOSS OR
DAMAGE
E.g: A contracts to pay a sum of money to B on a specified day. He does not pay the money on that day.
B in consequence of not receiving money on that day, is unable to pay his debts, and is totally ruined. A is
not liable to make good to B anything except the principal sum he contracted to pay together with interest
up to the day of payment.

EFFECT OF NEGLECT BY PROMISEE

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.
E.g: A contracts with B to repair his 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.
DAMAGES IN CONTEMPPLATION OF THE PARTIES
Damages other than those arising form the breach of the contract may be recovered if such damages may
reasonably be supposed to have been in the contemplation of the both of the parties as the probable result
of the breach of the contract. Such damages are known as Special Damages,witch cannot be claimed as
the matter of right

SIMPSON VS LONDON & [Link].

S sent some specimens of his goods for exhibition at an agricultural [Link] the show he entrusted
some of his samples to an agent of the railway company for carriage to another show ground at New
Castle. On the consignment note he wrote “Must, be at New Castle, Monday certain”. Owing, to a default
on the part of the railway company, the samples arrived late for the show. Held, S could claim damages
for the loss of profit at the show.
VINDICTIVE OR EXEMPLARY DAMAGES

Damages for the breach of a contract are given by way of compensation for loss suffered, and not by way
punishment for wrong inflicted. Hence, “vindictive” or “exemplary” damages have no place in the law of
contract because they are punitive by nature.
But in case of
(a) Breach of promise to marry and
(b) Dishonor of a cheque by banker wrongfully when he possesses sufficient funds to the credit of the
customer, the Court may award exemplary damages.
NOMINAL DAMAGES
Where the injured party has not in fact suffered any loss by reason of the breach of a contract, the
damages recoverable by him are nominal.
CASE : BRACE VS CALDER
A firm consisting of four partners employed B for a period of two years. After six months two partners
retired, the business being carried on by the other two. B declined to be employed under the continuing
partners. Held, he was only entitled to nominal damages as he had suffered no loss.
DAMAGES FOR LOSS OF REPUTATION
These are generally not recoverable.
An exception to this rule exists in the case of a banker who wrongfully refuses to honor a customer’s
cheque. IF the customer happens to be a tradesman, he can recover damages in respect of any loss to his
trade reputation by the breach. And the rule of law is :
THE SMALLER THE AMOUNT OF THE CHEQUE DISHONOURED, THE LARGER THE
AMOUNT OF DAMAGES AWARDED. BUT IF THE CUSTOMER IS NOT A TRADESMAN, HE
CAN RECOVER ONLY NOMINAL DAMAGES.
CASE : ADDIS VS GRAMOPHONE CO LTD
A was wrongfully dismissed in a harsh and humiliating manner by G from his employment. Held,
(a) A could recover a sum representing his wages for the period of notice and the commission which
he would have earned during that period; but
(b) He could not recover anything for his injured feelings or for the loss sustained from the fact that
his dismissal made it more difficult for him to obtain employment.
MITIGATION OF DAMAGES
It is the duty of the injured party to take all reasonable steps to mitigate the loss caused by the breach.
He cannot claim to be compensated by the party in default for loss which he ought reasonably to have
avoided.
That is he cannot claim compensation for loss which is really due not to the breach but due to his own
neglect to mitigate the loss after the breach.
DIFFICULTY OF ASSESSMENT
Although damages which are incapable of assessment cannot be recovered, the fact that they are difficult
to assess with certainty or precision does not prevent the aggrieved party from recovering them.
The courtmust do its best to estimate the loss and a contingencymay be taken into account.
Case : CHAPLIN VS HICKS
H advertised a beauty competition by which readers of certain newspapers were to select fifty ladies. H
himself was to select twelve out of these fifty. The selected twelve were to be provided theatrical
engagements. C was one of the fifty and by H’s breach of contract she was not present when the final
selection was made. Held, C was entitled to damages although it was difficult to assess them.
Cost of decree
The aggrieved party is entitled, in addition to damages, to get the cost of getting the decree for damages.
The cost of suit for damages is in the discretion of the court.
LIQUIDATED DAMAGES AND PENALTY
Liquidated damages represents a sum, fixed or ascertained by the parties in the contract, which is a fair
and genuine pre-estimate of the probable loss that might ensue as a result of the breach, if it takes place.
A penalty is a sum named in the contract at the time of its formation, which is disproportionate to the
damage likely to accrue as a result of the breach. It is fixed up with a view to secure the performance of
the contract
QUANTUM MERUIT
It means “AS MUCH AS EARNED”
A right to sue on a quantum meruit arises where a contract, partly performed by one party, has become
discharged by the breach of the contract by the other party.
The right is founded not on the original contract which is discharged or is void but on an implied promise
by the other party to pay for what has been done.

SPECIFIC PERFORMANCE
In certain cases, damages are not an adequate remedy. The court may, in such cases, direct the party in
breach to carry out his promise according to the terms of the contract. This is a direct by the court for
Specific Performance of the contract at the suit of the party not in breach.
INJUNCTION
Where a party is in breach of a negative term of a contract, the court may , by issuing an order, restrain
him form doing what he promised not to do. Such an order of the court is known as an “Injunction”.
Case:LUMLEY VS WAGNER
W agreed to sing at L’s theatre, and during a certain period to sing nowhere else. Afterwards W made
contract with Z to sing at another theatre and refused to perform the contract with L. Held, W could be
restrained by injunction form singing for Z.
Contract of Indemnity - Right of Indemnity Holder and Indemnifier ; Contract of Guarantee -
Types of Guarantee - Rights and Liabilities - Discharge of surety from his liability ; Contract of
Bailment: Duties and Rights of Bailee & Bailor and Termination of Bailment Agency - Agent
and Principal - Creation of Agency - Classification of Agents - Rights, Duties and Liabilities of
Agent and Principal – Termination of Agency .

Contract of Indemnity

The term Indemnity literally means “Security against loss”. In a contract of indemnity one party – i.e. the
indemnifier promise to compensate the other party i.e. the indemnified against the loss suffered by the
other.

The English law definition of a contract of indemnity is – “it is a promise to save a person harmless from
the consequences of an act”. Thus it includes within its ambit losses caused not merely by human agency
but also those caused by accident or fire or other natural calamities.

The definition of a contract of indemnity as laid down in Section 124 – “A contract by which one party
promises to save the other from loss caused to him by the conduct of the promisor himself, or by the
conduct of any other person, is called a contract of indemnity.

The definition provided by the Indian Contract Act confines itself to the losses occasioned due to the act
of the promisor or due to the act of any other person.

Under a contract of indemnity, liability of the promisor arises from loss caused to the promisee by the
conduct of the promisor himself or by the conduct of other person. [Punjab National Bank v Vikram
Cotton Mills].

Every contract of insurance, other than life insurance, is a contract of indemnity. The definition is
restricted to cases where loss has been caused by some human agency. [GajananMoreshwar v
Moreshwar Madan]

Section 124 deals with one particular kind of indemnity which arises from a promise made by an
indemnifier to save the indemnified from the loss caused to him by the conduct of the indemnifier himself
or by the conduct of any other person, but does not deal with those classes of cases where the indemnity
arises from loss caused by events or accidents which do not depend upon the conduct of indemnifier or
any other person. [Moreshwar v Moreshwar]
“Contract of indemnity” defined.-A contract by which one party promises to save the other from loss
caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a
“contract of indemnity”.

Illustration
A contracts to indemnify B against the consequences of any proceedings which C may take against B in
respect of a certain sum of 200 rupees. This is a contract of indemnity.

Nature of Contract of Indemnity –

A contract of indemnity may be express or implied depending upon the circumstances of the case, though
Section 124 of the Indian Contract Act does not seem to cover the case of implied indemnity.

A broker in possession of a government promissory note endorsed it to a bank with forged endorsement.
The bank acting in good faith applied for and got a renewed promissory note from the Public Debt Office.
Meanwhile the true owner sued the Secretary of State for conversion who in turn sued the bank on an
implied indemnity. It was held that – it is general principle of law when an act is done by one person at
the request of another which act is not in itself manifestly tortious to the knowledge of the person doing it,
and such act turns to be injurious to the rights of a third person, the person doing it is entitled to an
indemnity from him who requested that it should be done. [Secretary of State v Bank of India].

The Indian Contract Act also deals with special cases of implied indemnity –

1. U/s 69 if a person who is interested in payment of money which another is bound by law to pay
and therefore pays it, he is entitled to be indemnified. For instance – if a tenant pays certain electricity bill
to be paid by the owner, he is entitled to be indemnified by the owner.

2. Section 145 provides for right of a surety to claim indemnity from the principal debtor for all
sums which he has rightfully paid towards the guarantee.

3. Section 222 provides for liability of the principal to indemnify the agent in respect of all
amounts paid by him during the lawful exercise of his authority.

The plaintiff, an auctioneer, acting on the instruction of the defendant sold certain cattle which
subsequently turned out to belong to someone else other than the defendant. When the true owner sued
the auctioneer for conversion, the auctioneer in turn sued the defendant for indemnity. The Court held that
the plaintiff having acted on the request of the defendant was entitled to assume that, if it would have
turned out to be wrongful, he would be indemnified by the defendant. [Adamson v Jarvis].

Right of Indemnity Holder and Indemnifier

An indemnity holder (i.e. indemnified) acting within the scope of his authority is entitled to the
following rights –

1. Right to recover damages – he is entitled to recover all damages which he might have
been compelled to pay in any suit in respect of any matter covered by the contract.

2. Right to recover costs – He is entitled to recover all costs incidental to the institution and
defending of the suit.
3. Right to recover sums paid under compromise – he is entitled to recover all amounts which
he had paid under the terms of the compromise of such suit. However, the compensation must
not be against the directions of the indemnifier. It must be prudent and authorized by the
indemnifier.

4. Right to sue for specific performance – he is entitled to sue for specific performance if
he has incurred absolute liability and the contract covers such liability. 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

It is important to note here that the right to indemnity cannot be claimed of dishonesty, lack of
good faith and contravention of the promisor’s request. However, the right cannot be negative in
case of oversight. [Yeung v HSBC]

Right of Indemnifier
Section 125 of the Act only lays down the rights of the indemnified and is quite silent of the rights of
indemnifier as if the indemnifier has no rights but only liability towards the indemnified.

In the logical state of things if we read Section 141 which deals with the rights of surety, we can easily
conclude that the indemnifier’s right would also be same as that of surety.

Where one person has agreed to indemnify the other, he will, on making good the indemnity, be entitled
to succeed to all the ways and means by which the person indemnified might have protected himself
against or reimbursed himself for the loss. [Simpson v Thomson]

Principle of Subrogation is applicable because it is an essential part of law of indemnity and is based on
equity and the Contract Act contains no provision in contravention with [Maharaja Shri JarvatSinghji v
Secretary of State for India]

Contract of Guarantee

A “contract of guarantee” is a contract to perform the promise, or discharge the liability, of

a third person in case of his default. The person who gives the guarantee is called the”
surety”;

the person in respect of whose default the guarantee is given is called the” principal debtor
“, and the person to whom the guarantee is given is called the” creditor “. A guarantee may
be either oral or written.
Consideration for guarantee. -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.

Contract of Guarantee
Contract of Guarantee means a contract to perform the promises made or discharge the liabilities
of the third person in case of his failure to discharge such liabilities.

Types of Guarantee

A contract of guarantee may be for an existing liability or for future liability. A contract of
guarantee can be a specific guarantee (for any specific transaction only) or continuing guarantee.

Specific Guarantee: A specific guarantee is for a single debt or any specified transaction. It
comes to an end when such debt has been paid.

Continuing Guarantee: A continuing guarantee is a type of guarantee which applies to a series of

transactions.

A continuing guarantee applies to all the transactions entered into by the principal debtor until it
is revoked by the surety. A continuing guarantee can be revoked anytime by surety for future
transactions by giving notice to the creditors. However, the liability of a surety is not reduced for
transactions entered into before such revocation of guarantee.

Rights and Liabilities

The Indian contract act is silent regarding the RI.

On the authority of the English law, the rights of indemnifier are analogous to the
rights of a surety under sec. 141.

Contract of Bailment:

 Derived from French word" bailler” means to deliver

In legal sense, it involves change in possession of goods from one person to another for some
specific purpose

 The delivery of goods by one person to another for some purpose, upon a contract, that
they shall, when the purpose is accomplished, be returned or otherwise disposed of
according to the directions of the person delivering them.
Duties and Rights of Bailee& Bailor

 To disclose known faults: If he does not disclose he is responsible for any damages
caused to the bailee directly from such faults

• Read vs. Dean

• A hires a motor launch from B for holiday on the river Thames. The launch
caught fire and A was unable to extinguish it as the fire-fighting equipment was
out of order. As such he was injured and suffered loss. Held, B was liable.

 [Link] bear extraordinary expenses of bailment:

• E.g.: A lends his horse to B, a friend, for two days. The feeding charges are to be
paid by B. But if the horse meets with an accident, A will have to repay B medical
expenses, incurred by B.

• Where in the case of gratuitous bailment, the goods are to be kept or to be carried,
or some work is to be done upon the goods by the bailee for the bailor, the bailor
must repay to the bailee all the necessary expenses incurred by him for the
purpose of the bailment.

• E.g.: A leaves his car with B a friend, for safe custody for two months, B has to
pay Rs.100 per month to the night watchman for keeping a watch over the car. It
is the duty of A to pay B the necessary expenses incurred by B,

 3. To indemnify bailee for loss in case of premature termination of gratuitous bailment:

• In case the loss accruing to the bailee from such premature termination should not
exceed the benefit he has derived out of the bailment.

• In case the loss exceeds the benefit, the bailor shall have to indemnify the bailee.

• E.g.: A lends an old discarded bicycle to B gratuitously for three months. B incurs
Rs.120 for repairs. IF A asks for the return of the bicycle after one month, he will
have to compensate B for expenses incurred by B in excess of the benefit derived
by him.

 4. To receive back the goods:

• If the bailor refuses to receive back the goods, the bailee is entitled to receive
compensation from the bailor for the necessary expenses of custody.

 [Link] indemnify the bailee:

If the title of the bailor is defective and the bailee suffers in consequence….

[Link] of rights

• Can enforce by suit all the liabilities or duties of the bailee as his rights.

2. Avoidance of contract

• Bailor can terminate the bailment- if bailee does things inconsistent with the
bailment

3. Return of goods lent gratuitously

• If goods lent gratitutiously bailor –can ask for return anytime –but if loss suffered
by bailee –over the benefit derived then bailor has to indemnify.

[Link] from a wrong-doer.

• Third person is a wrong fully deprives the bailee of the use or possession of the
goods bailed or does injury the bailor or bailee can suit on the third person.

 [Link] take reasonable care of the goods bailed:

• If in spite of the bailee’s reasonable care of them,. IF, in spite of the bailee’s
reasonable care, goods are damaged or destroyed in any way, the bailee is not
liable for the loss, destruction or deterioration of the things bailed.

Coldman Vs Hill

• Some cattle belonging to A were agisted (given for feeding grass against
payment) with B. Without any negligence on B’s part the cattle were stolen. B did
not inform the owner or the police or make any effort to recover them, because he
thought it would be useless to do so. Held, B was liable for the loss.

• [Link] to make any unauthorized use of goods:

E.g.: A hires a horse in Calcutta from B expressly to march to Varanasi. A rides with due care,
but marches to Cuttack instead. The horse accidentally falls and is injured. A is liable to
compensate B for the injury to the horse.

 3. Not to mix the goods bailed with his own goods: IF he mixes the bailor’s goods with
his own goods

• (a) with the bailors consent: both the parties shall have a proportionate interest in
the mixture thus produced
 • (b) without the bailors consent: if the goods can be separated or divided, the
bailee is bound to bear all the expenses incurred in the separation of the bales, and
any other incidental charges.

• © without the bailor’s consent: If the mixture is beyond the separation, the bailor
is entitled to be compensated by the bailee for the loss of the goods.

• (d) IF the goods of bailor were mixed up by some act unknowingly, the mixture
belongs to bailor and the bailee in proportion to their shares but the cost of
separation will have to be borne by the bailee.

 [Link] to set up an adverse title

 5. TO return any accretion(increase) to the goods

• E.g.: 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.

6. To return the goods.

 Shaw &Co. Vs Symmons & Sons:

• A delivered some books to B to be bound. He pressed for their

return, but B neglected to return them although more than a
reasonable time had elapsed. A fire accidentally broke out on B’s
premises, and the books were burnt. Held, B was liable for the loss,
although he was not negligent, because of his failure to deliver the
books within a reasonable time.

 1. Delivery of goods to one of several joint bailors of goods:

 [Link] of goods to bailor without title.

 [Link] to apply to Court to stop delivery

 [Link] of action against trespassers

 5. Bailee’s lien:

• Where the lawful charges of the bailee in respect of the goods bailed are not paid,
he may retain the goods. This right of the bailee to retain the goods is known as
“Particular Lien”.
Termination of Bailment

 A contract of bailment can be terminated by any of the following;

 1. ACCOMPLISHMENT OF PURPOSE

When the purpose for which goods were bailed” has been accomplished, the contract of
bailment is terminated and goods are returned to the bailor.

 [Link] OF TIME

When the goods are bailed for a fixed time, the contract of bailment is terminated at the
expiry of the time fixed.

3. DEATH OF THE PARTY

A gratuitous bailment is terminated by the death either of the bailor Sec. 162.

 4. BAILEE’S INCONSISTENT ACT

 A contract of bailment ‘is voidable (terminated) at the option of the bailee does any act
with regard to the goods bailed’ with the conditions of the bailment.

Contract of Agency

 Agency is a special type of contract.

 The concept of agency was developed as one man cannot possibly do every
transaction himself.
 The principles of contract of agency are :

– (a) Accepting matters of a personal nature (e.g. a person cannot marry through
an agent, as it is a matter of personal nature)

– (b) A person acting through another person

As per section 185, no consideration is necessary to create an agency

Agent and Principal –

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”
[section 182].
 Agreement between principal and agent:

 Between the principal and third person, any person can become an agent

 Principal is liable for the acts of the agent

Intention of agent to act on behalf of the principal:

 If it is in the interest of principal

Creation of Agency

AGENCY WITH EXPRESS AGREEMENT

The authority given by principal to agent is an express authority which enables the agent
to bind the principal by acts done within scope of his authority.

The agreement may be either by word of mouth or written form

It arises from the conduct, situation or relationship of parties

It may be inferred from circumstances of the case or ordinary course of dealing

E.g. A woman allowed her son to drive a car for her , she paid all the expenses for
maintenance. The son caused an accident injuring his wife. Held wife could sue the
mother since son was an agent of mother [ Smith vs. Moss]

Classification of Agents –

As per section 182, an agent is a person who brings his principal into the contractual relations
with the third parties. The principal appoints or employs an agent under the contract of agency.
Thus, an agent is the link that connects the principal to the third parties. An agent binds the
principal by his acts. In other words, a principal is responsible for the acts of the agent to the
third parties. When an agent acts for his principal, he has the capacity of his principal. There are 3
classes of agents: General agent, Special agent and Mercantile agent. Let us discuss the
Classification of Agents in detail.

Classification of Agents

 General Agent

 Special Agent

 Mercantile Agent

1. General Agent:
The principal appoints a general agent to do anything within his authority in all transactions or in
all transactions relating to a specific trade, business or matter. The principal grants the authority to
the agent to act on his behalf.

It may be assumed by the third party that such an agent has the authority to do all that is usual for
a general agent to do. Any private restrictions on the agent’s authority do not affect the third party.

2. Special Agent:

He is the one who is appointed or employed to do or perform only a specific act, task or function.
Outside of this special act, task or function, he has no authority or power. In this case, the third
party cannot assume that the agent has unlimited authority. Thus, any act of the agent outside his
authority cannot bind the principal.

3. Mercantile Agent:

As per section 2(9) of the Sale of goods act, 1930, a mercantile agent is a person who in the
customary course of business has an agent’s authority either to sell or consign the goods for the
purpose of sale or to buy goods or to raise money on the security of goods. Thus, this definition
covers the following:

a. Factors:

A factor is a person who is appointed to sell goods which are put in his possession or to buy
goods for his principal. He is the evident owner of the goods in his custody and can thus sell
them in his own name and receive payment for them.

He also has an insurable interest in the goods in his custody and a general lien regarding any
claim that he may have to arise out of the agency.

b. Brokers:
A broker is a person whose business is to make contracts with the other parties for the sale and
purchase of goods or securities for brokerage.

He does not have the possession of the goods and acts in the name of the principal. Also, he has
no lien over goods because he has no possession of goods.

c. Del Credere Agent:

A del credere agent is a person who ensures or guarantees his principal that the creditors of
goods will pay for the goods they buy for extra remuneration. In the case of failure to pay by the
third party, he needs to pay the due amount to his principal.

d. Bankers:

The relation between a banker and a customer is basically that of a debtor and creditor. However,
when a banker buys or sells securities or collects cheque, dividends, interests, bills of exchange
or promissory notes on behalf of his customer, he becomes the agent of his customer. Thus, he
has a general lien on all the securities in his possession regarding the general balance due to him
by the customer.

e. Partners:

As per the Partnership Act, every partner is an agent as well as the principal of every other
partner in a Partnership firm. Also, every partner is the agent of the firm for the business of the
firm.

f. Auctioneers:

An auctioneer is a person who sells the goods by auction. An auction is a process by which
goods are sold to the highest bidder in a public competition. He cannot warrant his principal’s
title to the goods.
He is the agent of the seller until the goods are auctioned or knocked down. However, after the
knockdown, he becomes the agent of the buyer. Also, he is evidence that the sale took place.

Rights, Duties and Liabilities of Agent and Principal –

i. Agent exceeding his authority in an emergency (sec 189)

 Not in a position to communicate with the principal

 Taken necessary steps to protect the interests of principal

 Acted Bonafide

Principal is liable for the acts of agent

 To protect or preserve

 The authority is implied because of necessity

E.g. A horse was sent by train. When it arrived at the station of destination, nobody took the
delivery. The railway Co. had to feed the horse. Held the rail Co. was an agent of necessity and
could recover the amount spent on horse
Termination of Agency .

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