THE INDIAN CONTRACT ACT

 

THE INDIAN CONTRACT ACT, 1872 [9 of 1872, dt. 25-4-1872]

 

 whereas it is expedient to define and amend certain parts of the law relating to contracts;

 It is hereby enacted as folloes:-

 

 PRELIMINARY

 1. Short title

 This Act may be called the Indian Contract Act, 1872.

 Extent and 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, 1972.

 Enactments repealed-2[***] Nothing herein contained shall affect the provisions of any statue, Act or regulation not hereby expressly repealed, nor any usage or custom of trade, nor any incident of any contract, not inconsistent with the provisions of this Act.

 2. Interpretation clause

 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 order 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 " 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 from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a considereation for the promise;

 (e) Every promise and every set of promises, forming the consideration for each other, is an agreement;

 (f) Promises which form the consideration or part of the consideration for each other, are called reciprocal promises;

 

 

 

 

 (g) An agreement not enforceable by law is said to be void;

 (h) An agreement enforceable by law is a contract;

 (i) An agreement which is enforceable by law at the option of one or more of the parties thereto,

 but not at the option of the other or others, is a voidable contract;

 (j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.

 

 COMMENTS

 

 Sec. 2 (a) - When there is mere silence on the part of offeree there is no acceptance of offer.- Ramji Daya Wala v. Invest Import AIR 19781 SC 2085. There must be an absolute and unconditionable acceptance of offer- Badri Prasad v. State AIR 1970 SC 706. Where ourchase receives the goods, beyond stipulated date of delivery, he shall ,make the payment for them, the contract shall be deemed to be subsisting at the time goods are delivered.- Jain Mills & Electrical stores v. State AIR 1991 Ori 117. A tenderer can be excluded from being considered as a tenderer in case he fails in the supply of required documents.- G. J. Fernandez v. State of Karnataka AIR 1990 SC 958

 Sec. 2(b) - mere acceptance of owner that he is willing to accept the acquisition provided a lump-sum compensation is provided to him is no more than offer. Nutakki Sesharatanam v. Sub Collector Land cquisition AIR 1992 SC 131

 Unless and until the printed terms on the ticket become part of the contract cannot be given force for otherwise it will amount to an alteration of the terms of original contract- Special Secretary to Govt. of rajasthan v. V. Venkatarama AIR 1984 AP 5.

 Sec. 2(c ) - Wher the plaintiff supplies the goods to defendant firm and the defendant firm admits that the same were received by it that the presumption is that an order is placed withbthe plaintiff by the defendant firm.- K. M. Patil v. Firm M. Rahim AIR 1981 SC 977

 Sec. 2(e) - In case there is an offer on the part of the plaintiff to be bound by the settlement of the defendant, the plaintiff cannot resile from such an offer upon the defendant agreeing to make such settlement unless sufficient cause is shown satisfying the court allowing a withdrawal of the offer.- Florable Skinner v BKM Ramlila Mandal AIR 1980 P & H 284.

 Section 2(h): Definition of Contract- It was held that there was no contract because the parties did not intend that they should be attended by legal consequences. The parties were living together, the wife intending to return to Ceylon, ATKIN, L. J. said

 

 

 

 

 " It would be the worst possible example to hold that agreements such as this resulted in legal obligations which could be enforced in the courts. It would mean that when a husband made his wife a promise to give her an allowance of f 30, or 2 a week, whatever he could afford to give her for the maintenance of the household and children, and she promised so as to apply it, not only could she sue him for his failure in any week to supply the allowance, but he could sue her non-performance of the obligations, express or implied, which she has undertaken upon her part. The small courts of this country would have to be multiplied one hundred fold these arrangements did result in fact in legal obligations. They are not used upon, and the reason that they are not used upon is not because the parties are reluctant to enforce their legal rights when the arrangement is broken, but they are not sued upon because the parties in the inception of the arrangement never intended that they should be sued upon. Arrangement such as these, as I say, are are outside the realm of contracts altogether."- Balfour v. Balfour(1918-19) All E 12 860 (C A)

 

 CHAPTER 1 OF COMMUNICATION, ACCEPTANCE AND REVOCATION OF PROPOSALS

 

 3. Communication, acceptance and revocation of proposals

 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.

COMMENTS

 

 When the tender is submitted that is in nature of proposal or offer and unless the highest bid of tender is accepted and communicated to him, there cannot be a concluded contract between the parties- Exclusive Engineer v. Mohan Prasad AIR 1990 Ori 26

 4. Communication when complete

 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 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.

 

 Illustrations

(a) A proposes, by letter, to sell a house to B at a certain price. The communication of the proposal is complete when B receives the letter.

 (b) B accepts A' s proposal by a letter sent by post. The communication of the acceptance is complete- as against A, when the letter is posted; as against B, when the letter is received by A.

 (c ) A revokes his proposal by telegram

 The revocation is complete as against A when the telegram is despatched. It is complete as

 against B when B receives it.

 B revokes his acceptance by telegram. B's revocation is complete as against B when the telegram is despatched, and as against A when it reaches him.

COMMENTS

 

 Notice Inviting Tenders (NIT) for design, manufacture, erection, testing and commissioning of "Aerial Ropeway System" for Bauxite nines in Orissa. Petitioner submitting tenders letter of acceptance issued from Delhi. Subsequent disputes, petitions filed before Delhi High Court for reference of dispute or arbitrator. Objection was raised as to territorial jurisdiction. Once tenders accepted and acceptance communicated to petitioner from New Delhi, courts in Delhi have jurisdiction, as part of cause of action arises in Delhi.- Interstate Equipment (India) Private Ltd. v. Bharat Aluminium Company Limited 2004 III AD (Delhi) 110

 Revocation of proposals and acceptances

 A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not after wards.

 An acceptance may be revoked at any time before the communication of the acceptance is completely as against the acceptor, but not after wards.

 

 Illustration

 A proposes, by a letter sent by port, 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 after wards.

 

 

 B may revoke his acceptance to any time before or at the moment when the letter communicating it reaches A, but not after wards.

 

 COMMENTS

 A sham transaction can also be treated as voidable at the instance of some persons, - K. C. Nayak v. Lakshmidhar Nayak AIR 1993 Ori 1

 Petitioner highest Bidder in respect of plot. Condition that the bid may be withdrawn at any time. Also subject to confirmation by vice-chairman. Deposit as per terms made by petitioner. Bid rejected due to plot auctioned did not belong to DDA. Present petition filed for allotment of alternate plot. Contention of petitioner that bid had been confirmed by vice chairman. Only communication was to be issued. Relief of alternate plot given in similar cases. Contention of respondent that amount refunded back with interest through not accepted by petitioner. There was no concluded contract due to non-communication. Petitioner cannot seek specific relief by way of proceedings. Held, reason for cancellation of bid; real and cogent. Respondent learnt later that it had no title to land auctioned. Auction is only an invitation to offer claim for alternate plot not found sustainable. However, petitioner entitled to relief of compensation due to negligence of respondent. Directions to refund the amount deposited with interest from the date of deposit.

 6. Revocation how made

 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 the death or insnity comes to the knowledge of the acceptor before acceptance.

 7. Acceptance must be absolute

 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 a manner, the proposer may, within a reasonable time after the acceptance is communicated ton 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.

 

 

 8. Acceptance by performing conditions, or receiving consideration

 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.

 

 COMMENTS

 

 Contract is concluded when the petitioner agrees purchasing the house in dispute at the enhanced price mentioned in the brochure and thereafter applies for allotment at the said price.- Shiv Pal Kiran v. State of U. P. AIR 1988 All 268

 9. Promises, express or implied

 Insofar as the proposal or acceptance of any promise is made in words, the promise is said to be express. Insofar as such proposal or acceptance is made otherwise than in words, the promise is said to be implied.

 

 COMMENTS

 

 Conditional offer made by the defendant for submission of bid in response of notice of inviting tender bids. No concluded contract comes into existence. Decree of Trial Court set aside.- Binani Metals Ltd. v. Union of India 2004 (78) DRJ 264 (DB)

 

 CHAPTER 11

OF CONTRACTS, VOIDABLE CONTRACTS, AND VOID AGREEMENTS

 

 10. What agreements are contracts

 All arrangements 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 effect any law in force in 1[India], and not hereby expressely 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.

 

 COMMENTS

 

 Where there is no specification as of rates of items in the contract, the same has to be ascertained from the evidence before the Court.- S A Jaish & Co. v. Gujarat Electricity Board AIR

 

 1988 SC 254.

 Where some statutory provision is breached prior to the conclusion of a contract, petition under art, 226 may be moved so as to compel the authorities confirming the statutory requirement.- Ashok Kumar v. State of UP AIR 1989 All 109

 11. Who are competent to contract

 Every person is competent to contract who is of the age of majority according to the law to which his subject3, and who is of sound mind and is not disqualified from contracting by any law to which he is subject.

 

 COMMENTS

 

 Transfer of Property Act, 1882- Sections 6, 122, 123, 126 & 127- Hindu Minority and Guardianship Act- Section 6: Appellant, a minor on the date of execution of the gift-deed. Legal acceptance of property gifted. Whether a minor can be held to have legally accepted the property gifted to him and the gift deed is irrevocable? Gift-deed executed on 24-9-1945. Cancellation by deceased mother of gift under a deed dated 28-3 1970 will be executed on 28-3-1970 will be executed bequeathing same property in favour of daughter, respondent No.1. Suit for declaration of title and cancellation deed and will to be declared as void filed by appellant. No prohibition in law the ownership in property cannot be gifted without its possession and right of enjoyment. Under gift deed donor clearly transferred ownership and title of the property. Minor not incapable of receiving property can accept gifts without intervention of guardian or through him. Gift intervivos to a child cannot be revoked presumption of acceptance i. e. Minor in custody of mother. Donor if also the guardian of child in whose favor gift is made presumption of acceptance on his behalf without over act of acceptance of ownership by minor acceptance confirmed if not repudiated by parents till attaining majority. No mention by donor of non-acceptance of gift by donee in cancellation deed is no revocation of gift.

 Acceptance can be implied if gift received by minor from parents- K. Balakrishnan v. K. Kamalam 1004 I AD (SC) 377

 12. What is a sound mind for the purposes of contracting

 A person is said to be of sound mind for the purposes of making a contract, if, at the time when he makes, he is capable of understanding it and of forming a rational judgement as to its effect upon his interests.

 A person who is usually of sound mind, but occasionally of sound mind, may 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 judgement as to its effect on his interests, cannot contract whilst such delirium of drunkenness lasts.

 13. " Consent" defined

 Two or more persons are said to consent when they agree upon the same thing in the same sense.

 14. "Free consent" defined

 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 18. 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, under influence, fraud, misrepresentation or mistake.

 15. " Coercion" defined

 " Coercion" is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (45 of 1860) or the lawful 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.

Illustrations

 A, on board an English ship on the high seas, causes B to enter into an agrrement by an act amounting to criminal intimidation under the Indian Penal Code (45 of 1860).

 A after wards sues b for breach of contract at Calcutta.

 A has employed coercion, although his act is not an offence by the law of England, and although the section 506 of the Indian Penal Code (45 of 1860) was not in force at the time when or at the place where the act was done.

 1[16. "Undue influence" defined

 (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 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 the 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 the will of the another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.

 Nothing in this sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872 (1 of 1872).

Illustrations

 

 (a) A, having advanced money to his son, B, during his minority, upon B`s coming of age obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence.

 (b) A, a man enfeebled by disease of age, is induced, by B's influence over him as his medical attendant, to agree to pay B an unreasonable sum for his professional services. B employees undue influence.

 

 

 

 

 (c) A, being in debt to B, the money lender of his village, contracts a fresh loan on terms which appear to be unconscionable. It lies on B to prove that the contract was not induced by undue influence.

 (d) A applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accept the loan on these terms. This is a transaction in the ordinary course of business, and the contract is not induced by undue influence.]

 17. "Fraud defined

 "Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent2, with intend to deceive another part thereto or 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 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 person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak1, or unless his silence is, in itself, equivalent to speech.

 

 Illustrations

 

 

        A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud in A.

 

 (b) B is A's daughter and has just come of age. Here the relation between the parties would make it A's duty to tell B if the horse is unsound.

 (c) B says to A- "if you do not deny it, I shall assume that the horse is sound". A says nothing. Here, A's silence is equivalent to speech.

 (d) A and B, being traders, enter upon a contract. A has private information of a change in prices which would affect B's willingness to proceed with the contract. A is not bound to inform B.

 

 

 

 COMMENT

 

 Inference cannot be drawn of fraud from the mere fact of the plaintiff being a lady, old and illiterate.- Hajra Bai v. Jadav Bai AIR 1986 MP 106

 18. "Misrepresentation" defined

 

 (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 intend 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.

 

 19. Voidability of agreements without fee consent

 When consent to an agreement is caused by coercion, 2[***] fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

 A part to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and he shall be put on the position in which would have been if the representations made had been true.

 Exception: If such consent was caused by the misrepresentation or by silence, fraudulent within the meaning of section 17,, the contract, neverthless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with the ordinary filigence.

 Explanation: A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such fraud was practised, or to whom such misrepresentation was made, does not render a contract voidable.

 (a) A, intending to deceive B, falsely represents that five hundred maunds of indigo are made annually at A's factory, and there by induces B to buy the factory. The contract is voidable at the option of B.

 (b) A by a misrepresentation, leads B erroneously to believe that five hundred maunds of indigo are made annually at A's factory. B examines the accounts of the factory, which show that only four hundred maunds of indigo have been made. After this B buys the factory. The contract is not voidable on account of A's misrepresentation.

 

 

 (c ) A fraudulently informs B that A's estate is free from encumbrance. B there upon buys the estate. The estate is subject to a mortgage. B may either avoid the contract, or may insist on its being carried out and the mortgage-debt redeemed.

 (d) B, having discovered a vein of ore on the estate of A, adopts means to conceal, and does conceal, the existence of the ore from A. Though A's ignorance B is enabled to buy the estate at an undervalue. The contract is voidable at the option of A.

 (e) A is entitled to succeed to an estate at the death of B; dies; C, having received intelligence of B's death, prevents the intelligence reaching A, and thus induces A to sell him his interest in the estate. The sale is voidable at the option of A.

 

 COMMENTS

 Misrepresentation would not ipso be a ground to avoid the contract unless the securing of the court is through deception.- Dhagwani Bai v. LIC India AIR 1984 MP 126

 

 1[19A. Power to set aside contract induced by undue influence

 When consent to an agreement is caused by an 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 promissory note. B under threat of persecuting 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 aside 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 the bond aside, ordering B to repay Rs. 100 with such interest as may seem just.]

 20. Agreement void where both parties are under mistake as to matter of fact

 Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.

 

 

 

 

 

 

 

 Explanation: An erroneous opinion as to the value of the things 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 facts. The agreement is void.

 (b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The agreement is void.

 (c) a, being entitled to an estate of the life of B, agrees to sell it to C. B was dead at the time of the agreement, but both parties were ignorant of the fact. The agreement is void.

 

 COMMENT

 The mistake does not have any effect upon assent unless the mistake is of both the parties and as to the existence of same quality which makes the thing without the quality essentially different from the thing it was believed to be.- ITC Ltd. v. George Joseph Fernandez AIR 1989 SC 839

 21. Effect of mistakes as to law

 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 contract grounded on the erroneous belief that a particular debt is barred by the Indian Law of Limitation; the contract is not voidable.

3[***]

 22. Contract caused by mistake of one party as to matter of fact

 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.

 

 

 23. What considerations and objects are lawful and what not

 The consideration or object of an agreement is lawful, unless-

 it is forbidden by law;4 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 lawful is void.

 (a) A agrees to sell his house to B for 10,000 rupees. Here, B's promise to pay the sum of 10,000 rupees is the consideration for A's promise to sell the house and A's promise to sell the house is the consideration for B's promise to pay the 10,000 rupees. These are lawful considerations.

 (b) A promises to pay 10,000 rupees at the end of six months, if C, who owes that sum to , fails to pay it. B promises to grant time to C accordingly. Here, the promise of each party is the consideration for the promise of the other party, and they are lawful considerations.

 (c) A promises, for a certain sum paid to him by B, to make good to B the vale of his ship if it is wrecked on a certain voyage. Here, A's promise is the consideration for B's payment is the consideration for A's promise, and these are lawful considerations.

 (d) A promises to maintain B's child, and B promises to pay A 1,000 rupees yearly for the purpose. Here, the promise of each party is the consideration for the promise of the other party. They are lawful considerations.

 (e) A, B and C enter into an agreement for the division among them of gains acquired, or to be acquired, by them by fraud. The agreement is void, as its object is unlawful.

 (f) promises to obtain for B an employment in the public service and B promises to pay 1,000 rupees to A. The agreement is void, as the consideration for its lawful.

 (g) a, being agent for a landed proprietor, agrees for money, without the knowledge of his principal, to obtain for B a lease of land belonging to his principal. The agreement between A and B is void, as it implies a fraud by concealment, by A, on his principal.

 (h) A promises B to drop a prosecution which he has instituted against B for robbery, and B promises to restore the value of the things taken. The agreement is void, as its object is unlawful.

 (i) A's estate is sold for arrears of revenue under the provisions of an Act of the Legislature, by which the defaulter is prohebitted from purchasing the estate. B, upon an understanding with A, becomes the purchase, and agrees to convey the estate to A upon

 

 receiving from him the price which B has paid. The agreement is void, as it renders the transaction, in effect, a purchase by the defaulter, and would so defeat the object of the law.

 (j) A, who is B's mukhtar, promise to exercise his influence, as such, with B infaour of C, and C promises to pay 1,000 rupees to A. The agreement is void, because it is immoral.

 (k) A agrees to let her daughter to hire to B for concubinage. The agreement is void, because it is immoral, though the letting may not be punishable under the Indian Penal Code (45 of 1860).

 

 COMMENTS

 

 Mere possibility that the law would be transgressed is no ground to treat the agreement as opposed to public policy. To treat it as such it must be ex facie ikllegal or capable of being performed only by unlawful means.- M. George v. M. Checho 1987 (1) KLT 392

 The court would not entertain the suit where the person realizes the amount pursuant to void agreement.- Sundra Gownder v. Bala Chandra AIR 1991 Ker. 324

 Where the land is transferred in the name of the father as consideration for giving his married daughter, though there is no divorce to another person such giving is for immoral purpose and against the public policy.- Kamala Bai v. Arjun Singh AIR 1991 MP 275

 One entering a contract with proper object cannot enforce his rights thereunder.- ITC Ltd. v. G.J.Fernandez AIR 1989 SC 839

 Legality of object consideration- The court was of the opinion that the rule must be discharged. It said: " It is settled law, that any person who contributes to the performance of and use for that (immoral) purpose, cannot recover the proceeds of the things supplied. If, to create that in capacity, it was ever considered necessary that the price should be bargained or expected to be paid out of the fruits of the illegal act that proposition has been overeruled by the cases and has now ceased to be law. the rule which is applicable to the matter is ex turpi causa non oritur actio and no cause of no action can arise."

 It held that the jury were entitled to infer, as they did, that the broughum was hired for the purpose of enabling the prostitute defendant to pursue her calling, and that the plaintiff's knew it. It was further observed that " it need not be part of the bargain that the subject of the contract should be used unlawfully, but that is enough if it is handed over for the [purpose that the borrower shall so apply it."

 "If, therefore, this article was furnished to the defendant for the purpose of enabling her to make a display fovouable to immoral purpose, the plaintiff's can derive no cause of action from the bargain."- Pearce v. Delhi Development Authority 2004 VI AD (Delhi), 253; 108(03) DLT 392

 

 

 

 

 MRTP Act, 1969, Sections 2, 4(1), 12B, 12B(1), 14, 33, 36A, 36A(1), 36B, 36D, 37 (1)- Jurisdiction of commission to entertain the respondent's claim for compensation- Applicability of 'effect doctrine' - Appellant carried on its business of manufacturing printing machines in Germany was incorporated under German Law and has its registered office in Germany. Printing machine sold to the respondent no. 1by the appellant. Unfair Trade Practices enquiry applications filed by respondent No.1 against appellant and respondent No.2 Appellant challenged the jurisdiction of the Commission on the ground that parties had agreed that the applicable law in the event of any dispute would be German Law and the Appellant neither provided any service nor carried on any trade or trade practice in India for the purpose of the Act and even the machine in question had been sold to the respondent No.1 outside India. Remedies available under the Act are additional to the usual remedies available under the Contract Act to the parties. Jurisdictional clause in the contract would not apply to proceedings before the Commission. Objection to jurisdiction can neither be taken by way of demurrer6 or raised as an issue in the proceeding. Second objection to the jurisdiction of the Commission to be determined on evidence. Commission would have to enquire into the question whether the respondent No.2 was in fact involved in the capacity of the appellant's agent as alleged by the respondent No.1 cannot be determined without taking evidence. If so, the appellant may be said to carry on business in India thus giving the Commission the necessary jurisdiction to determine the respondent No.1's complaint. Appellant contented that the sale was completed in Germany and the appellant was required to deliver he machine at Bombay Port C.I.F. and that the property in the machine had passed from the appellant to the respondent No. ! before the goods were imported by the respondent No. 1. Contention of appellant pertains to the defence of the appellant on merits. Commission erred in law when it held that would have jurisdiction because the effect of the unfair trade practice would be in India. Merely because the effect of an unfair trade practice is felt in India, this would not clothe the Commission with jurisdiction unless the 'effect' is itself an 'unfair' trade practice' within India. Commission directed to deal with the second aspect of the preliminary objection on evidence- Man Roland Druckimachinen AG v. Multicolour Offset Ltd 2004 V AD (S.C.) 614

24. Agreements void, if considerations and objects unlawful in part

 If any part of a single consideration for one or more objects, or any one 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 another articles. B promises to pay to A a salary 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.

COMMENT

 In case of pre-existing civil liability, the dropping of criminal proceedings need not necessarily be a consideration for the agreement to satisfy that liability.- Union Carbide Corporation v. Union of India AIR 1992 SC 248

 

 

 

 

 25. Agreement void, if made without consideration

 Agreement without consideration, void, unless it is in writing and registered or is a promise to compensate for something done or is a promise to pay a debt barred by a limitation law.

 An agreement made without consideration is void-

(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 don something for the promisor, or something which the promisor was legally completable 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 authorised in that behalf, to pay wholly or in a part of debt of which the creditor might have enforced payment but for the law for the limitation of suits.

 In any of these cases, such an agreement is a contract.

 Explanation 1: Nothing in this section shall affect the validity, as between the donor and donee, of any gift actaully made.

 Explanation 2: An agreement to which the consent of the promisor is freely given is not void merely because the consideration may be taken into an account by the Court in determining the question whether the consent of the promisor was freelt given.

Illustrations

 

 (a) A promises, for no consideration, to give to B Rs.1,000. this is a void agreement.

 (b) A, for natural love and affection, promises to give his son, B, Rs. 1,000. A puts his promise to B into writing and registers it. This is a contract.

 (c) A finds 's purse and gives it to him. B promises to give A Rs.50. This is a contract.

 (d) A supports B's infant son. B promises to pay A's expenses in so doing. This is a contract.

 (e) A owes B Rs. 1,000, but the debt is barred by the Limitation Act. A signs written promise to pay B Rs. 500 on account of the debt. This is a contract.

 (f) A agrees to sell a horse worth Rs.1,000 for Rs. 10. A' s consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.

 

 

 

 (g) A agrees to sell horse of worth Rs. 1,000 for Rs. 10. A denies that his consent to the agreement was freely given. The inadequacy of the consideration is a fact which the court should take into account into considering whether or not A's consent was freely given.

 

 COMMENT

 The balance sheet of the firm signed by a partner stating that firm is liable to pay cretain amount, amounts to promise- Suresh Chandra & Co. v. Vadnere Chemical Works AIR 1991 Bom.44

 26. Agreement in restraint of marriage, void

 Every agreement in restraint of the marriage of any person, other than a minor, is void.

 27. Agreement is restraint of trade, void

 Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extend void.

 Exception 1: Saving of agreement not to carry on business of which goodwill is sold- One who sells the goodwill of a business may agree with the buyer to refrain the from carrying on a similar business, within specified local limits, so long as the buyer, or any person delivering title to the goodwill 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[***]

COMMENTS

 

 Application for vocation of interim order by the Respondent. Partnership deed contented that clause signed by the husband cannot bind the wife or relative. If order opertaes against wife, there would be restraint of trade as contemplated under section27 of Contract Act. It was held that existence of a situation where inhibition against a contract imposing restraint of trade could be attracted in cases of business rivalry other than employment agreements. Further held contract neither unconscionable nor excessively harsh or unreasonable. Application dismissed.- Jitender Singh Chhbra v. Rajeev Taneja 2005 III AD (Delhi) 27

 29. Agreements restraint of legal proceedings, void

 2[every agreement,-

 (a) by which any part 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 part thereto from any liability, under or inspect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent.]

 

 

 Exception 1: Saving of contract to refer to arbitration dispute that may arise: his 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 subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred. 1[* * ]

 Exception 2: Saving of contract to refer questions that have already arisen: Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to references to arbitration2.

COMMENT

 

 Where there is an agreement between the parties to have their dispute settled in a particular forum, any other forum while it has also territorial jurisdiction is precluded from entertaining a suit.- Patel Roadways Pvt.Ltd. v. Republic Forge Co. AIR 1985 AP 387

 C.P.C., Sections 20 and 115: Whether High Court was correct holding that the Civil Court at Barnala had jurisdiction to try the suit filed by the respondent No. 1. Material purchased by the plaintiff No.2 booked with New Monga Transport Co.,defendant No.1 for transportation to Barnala. Destruction of whole of the materials due to file, claim lodged against plaintiff No. 1. Plaintiff No.1, United India Insurance o. Ltd. settled the claim for a sum of Rs. 4,63,516/- on the basis of the surveyor's report. Amount paid to plaintiff No.2. who executed a letter of subrogation-cum-special power of attorney in favor of plaintiff No.1 who filed suit claiming compensation from defendant No.1. Consignment note stating that court at Udaipur alone to have jurisdiction. Defendant No.1 pleaded that court at Barnala had no jurisdiction to deal with suit and that court at Udaipur alone had jurisdiction to try suit and was open to parties to choose any one of two competent courts to decide dispute. Once parties bound themselves by an agreement, it is not open for them to choose a different jurisdiction. It is not a case where chosen court did not have jurisdiction. High Court was not justified in upsetting order of appellate court. Intention of the parties can be culled out from use of the expressions "only", "alone", "exclusive" and the like with reference to a particular court. Intention to exclude a court's jurisdiction should be reflected in clear, unambiguous, explicit and specific terms. First appellate court justified in holding that it was only court at Udaipur which had jurisdiction to true the suit. Appeal, therefore, allowed.- New Moga Transport Company )Through its proprietor Krishanlal Jhanwar) v. United India Insurance Co.Ltd. 2004 V AD (S.C) 477

 MRTP Act, 1969, Sections 2, 4(1), 12B, 12B(1), 14, 33, 36A, 36A(1), 36B, 36D, 37(1)- Jurisdiction of Commission to entertain the respondents's claim for compensation- Applicability of 'effect doctrine'- Appellant carried on its business of manufacturing printing machines in Germany was incorporated under German Law and has its office in Germany. Printing machine sold to the respondent No. 1 by the appellant. Unfair Trade Practices enquiry applications filed by respondent No.1 against appellant and respondent No.2. Appellant challenged the jurisdiction of the Commission on the ground that parties had agreed that the applicable law in the event of the any dispute would be German Law and the appellant neither provided any service nor carried on any trade or trade practice in India for the purpose of the

 

 Act and even the machine in question had been sold to the respondent No.1 outside India. Remedies available under the Act are additional to the usual remedies available under the Contract Act to the parties. Jurisdiction clause in the contract would not apply to proceedings before the Commission. Objection to jurisdiction can neither be taken by way of demurrer or raised as an issue in the proceeding. Second objection to the jurisdiction of the Commission to be determined on evidence. Commission would have to enquire into the question whether the respondent No.2. was in fact involved in the capacity of the appellant's agent as alleged by the respondent No.1 cannot be determined without taking evidence. If so, the appellant may be said to carry on business in India thus giving the Commission the necessary jurisdiction to determine the respondent No.1's complaint. Appellant contented that the sale was completed in Germany and the appellant was required to deliver the machine in Bomaby Port C.I.F. and that the properly in the machine had passed from the appellant to the respondent No. before the goods are imported by the respondent No.1. Contention of appellant pertains to the defence of the appellant on merits. Commission erred in law when it held that it would have jurisdiction because the effect of the unfair trade practice would be in India. Merely the effect of an unfair trade practice is felt in India, this would not clothe the commission with jurisdiction unless the 'effect' is itself an 'unfair trade practice' within India. Commission directed to deal with the second aspect of the preliminary objection on evidence- Man Roland Druckimachinen AG v. Multicolour Offset Ltd 2004 V AD (S.C.) 614

 29. Agreements void for uncertainty

 Agreements, the meaning of which is not certain, or capable of being made certain, are void.

Illustrations

 (a) A agrees to sell B " a hundred tons of oil". There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainity.

 (b) A agrees to sell B 100 tons of oil of a specified description, known as an article of commerce. There is no uncertainity here to make the agreement void.

 (c ) A, who is dealer in coconut oil only, agrees to sell B "100 tins 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 coconut oil.

 (d) A, agrees to sell B " all the grain in my granary at Ramnagar". There is no uncertainity here to make the agreement void.

 (e) A agrees to sell to B "1000 maunds of rice at a price to be fixed by C". As the price capable of being made certain, there is no uncertainity here to make the agreement void.

 (f) A agrees to sell to B " my white horse for rupees five hundred or rupees one thousand". There is nothing to show which of the two prices was to be given. The agreement is void.

 30. Agreements by way of wager, void

 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 a person to abide the result of any game or other uncertain event on which any wager is made.

 Exception in favor of certain prizes for horse-raising: 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 rewarded 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.

 

 

CHAPTER 111

OF CONTINGENT CONTRACTS

 

 31. "Contingent contract" defined

 A "contingent contract" is a contract to do or not to do some thing, if some event, collateral to such contract, does or does not happen.

Illustration

 

 A contracts to pay to B Rs. 10,000 if B's house is burnt. This is a contingent contract.

 32. Enforcement of contracts contingent on an event happening

 Contingent contract 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 the 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.

 33. Enforcement of contracts contingent on an event not happening

 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.

 34. When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person

 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.

 

 Illustrations

 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 after wards marry B.

 35. When contracts become void, which are contingent on happening of specified event within 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 contract 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 become 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 the year; and becomes void if the ship is burnt within the year.

 (b) A promises to pay B a sum of money if a certain ship does not return within a year. The contract may be enforced if the ship does not return within a year, or is burnt within the year.

 36. Agreements contingent on impossible events, void

 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.

 

 

 

 

Illustration

 (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.

 

 CHAPTER IV OF THE PERFORMANCE OF CONTRACTS WHICH MUST BE PERFORMED

 

 37. Obligations of parties to contracts

 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 such promisors before the 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 ton deliver the goods to B, and b is bound to pay 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 representatives or by B.

 38. Effect of refusal to accept offer of performance

 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 fullfil 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 promisor is bound by his promise to deliver.

 An offer to one of several joint promisees has the same legal consequences as an offer to all of them.

Illustration

 A contracts to deliver to B at his warehouse, on the first March, 1873, 100 bales of cotton of a particular quality. In order to make an offer of performance with the effect stated in this section, A must bring the cotton to B's warehouse, on the appointed day, under such circumstances that B may have a reasonable opportunity of satisfying himself that the thing offered is cotton of the quality contracted for, and that there are 100 bales.

39. Effect of refusal of party to perform promise wholly When a party to a contract has refused to perform, or disabled himself from performing his promise in its entirely, 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 signer, enters into a contract with B, the manager of a theatre, to sing at his theatre twi nights in every week during 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 signer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights in every week during next two months, and B engages to pay her at the rate of 100 rupees for each night. On the sixth night A wilfully absents herself. With the assent of B, A signs on the seventh night. B has signified his acquiescence in the continuance of the contract, and cannot now put an end to it, but it is entitled to compensation for the damages sustained by him through A's failure to sing on the sixth night.

 BY WHOM CONTRACTS MUST BE PERFORMED

 40. Person by whom promise is to be performed

 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, 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 of B. A must perform this promise personally.

 41. Effect of accepting performance from third person

 When a promisee accept performance of the promise from a third person, he cannot afterwards enforce it against the promisor.

 42. Devolution of joint liabilities

 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 fulfill the promise.

 

 

 

 

 

 43. Any one of joint promisors may be compelled to perform

 When two or more persons make a joint promise, the promise may, in the absence of express agreement to the contrary, compel any one or more of such joint promisors to perform the whole promise.

 Each promisor may compel contribution: Each of tow 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 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 principal, or entitle the principal to recover anything from the surety on account of payments made by be principal.

Illustrations

 (a) A, B and C jointly promise to pay D 3,000 rupees, D may compel either A or B or C to pay him 3,000 rupees.

 (b) A, B and C jointly promise to pay D the sum of 3,000 rupees. C is compelled to pay the whole. A is involvent, but his assets are sufficient to pay one-half of his debts, C is entitled to receive 500 rupees from A's estate, and 2,500 rupees from B.

 (c) A, B and C are under a joint promise to pay D 3,000 rupees. C is unable to pay anything and A is compelled to pay the whole. a is entitled to receive 1,500 rupees from B.

 (d) A, B and C are under a joint promise to pay D 3,000 rupees. A and B being only sureties for C. C fails to pay. A and B are compelled to pay the whole sum. They are entitled to recover it from C.

 44. Effect of release of one joint promisor

 Where two or more persons have made a joint promise, a release of one of such joint promisors by the promisee does nt discharge the other joint promisor or joint promisors, neither does it free the joint promisors or released from responsibility to the other joint promisor or joint promisors.

 45. Devolution of joint rights

 When a person has made a promise to two or more persons jointly, then, unless 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 one 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.

 

 

Illustration

 A, in consideration of 5,000 rupees, lent to him by B and C, promises B and C jointly to repay them last sum with interest on a day specified. B dies. The right to claim performance rests with B's representative jointly with C's life; and, after the death of C, with the representatives of B and C jointly.

 TIME AND PLACE FOR PERFORMANCE

 46. Time for performance of promise, where no application is to be made and no time is specified

 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 reasonable time" is, in each particular case, a question of fact.

 47. Time and place for performance of promise, where time is specified and no application to be made

 When a promise is to be performed on a certain day, and the promisor has undertaken to perform it without the application by the promisee, the promisor may perform it at any time during the usual hours of business om 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 first January. On that day A brings the goods to B's warehouse, but after the usual hour of closing it, and they are not received. A has not performed his promise.

48. Application for performance on certain day to be at proper time and place

 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 the performance at a proper place and within the usual hours of business

 Explanation : The question "what is proper time and place" is, in each particular case, a question of fact.

 49. Place for the performance of promise, where no application to be made and no place fixed for performance

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 a place.

 

 

Illustration

A undertake 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.

50. Performance in manner or at time prescribed or sanctioned by promisee

The performance of any promise may be made in any manner, or at any time which the promisee prescribe 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 to be transferred from his account to A's credit and this is done by C. After wards, and before A knows of the the transfer, fails. There has been a good payment by B.

(b) A and B are mutually indebted. A and B settled an account by setting off one item against another, and B pays the balance found to be due from him upon such settlement. This amounts to a payment by A and B, respectively, if the sums which they owed to each other.

(c ) A owes B 2,000 rupees. B accepts some of A's goods in deduction of the debt. The delivery of the gods operates as a part payment.

(d) A desires B, who owes him Rs.100, to send him a note for Rs. 100 by post. the debt is discharged as soon as B puts into the post a letter containing the note duly addressed to A.

PERFORMANCE OF RECIPROCAL PROMISES

51. Promisor not bound to perform, unless reciprocal promisee and ready willing to perform

When a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform his promise unless thye 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 gods, unless A is ready and willing to deliver them on payment.

(b) A and B contract that A shall goods to B at a price to be paid by installments, the installment to be paid on delivery.

A need not deliver, unless B is ready and willing to pay the first installment on delivery.

 

 B need not pay the first installment, unless A is ready and willing to deliver the goods on payment of the first installment.

52. Order of performance of reciprocal promises

Where the order in which the 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 transaction requires.

Illustrations

(a) A and B contract that A shall build a house for Bat 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 a fixed price, and b promises to give security for the payment of the money. A's promsie need not to be performed until the security is given, for the nature of the transaction rrequires that A should have security before he delivers up his stock.

53. Liability of party preventing event on which contract is to take effect

When a contract contains reciprocal promises, and one party to the contract prevents the other performing his promise, the contract becomes voidable at they option of the party so prevented; and he is entitled to compensation1 from 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 some work for A 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, 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.

54. effect of default as to the promise which should be performed, in contract consisting or reciprocal promises

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 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 take compensation to B for the loss which B sustains by the non-performance of the contract.

 

 

(b) A contracts with B to execute certain builder's work for a fixed price, B supplying the scaffolding and timber necessary for the work. B refuses to furnish any scaffolding or timber, and the work cannot be executed. A need not execute the work, and B is bound to make compensation to A for any loss caused to him by non-performance of the contract.

(c ) A contracts with B to deliver to him, at a specified price, certain merchandise on board a ship which cannot arrive for a month, and B engages to pay for the merchandise within a week from the date of the contract. B does not pay within the week. A's promise to deliver need not

be performed, and N must make compensation.

(d) A promises B to sell him one hundred bales of merchandise, to be delivered next day, and B promises A to pay for them within a month. A does not deliver according to his promise. B's promises to pay need not be performed, and A must make compensation.

55. Effect of failure to perform at fixed time, in contract in which time is essential

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 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 not essential : If it was not the intention of the parties that time should be of the essence of thecontract, 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 bu such failure.

Effect of acceptance of performance at time other that that agreed upon : If, in case of a contract voidable on account of the promisor's failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other that that agreed, the promisee cannot claim compensation of any loss occassioned by the non-performance of the promise at the time agreed, unless, at the time of such acceptance, he gives notice to the promisor of his iintention to do so1.

56. Agreement to do impossible act

An agreement to do an act impossible in itself is void.

Contract to do act after wards becoming impossible or unlawful : A contract to do an act which, after the contract is made, become impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful2.

Compensation for loss through non-performance of act known to be impossible or unlawful : Where one person has promised to be 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.

(a) A agrees with B to discover treasure by magic. the agreement is void.

(b) A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The contract becomes void.

(c ) A contracts to marry B, being already married to C, and being forbidden by the law to which he is subject to practice polygamy. A must make compensation to B for the loss caused to her by the non-performance of his promise.

(d) A contracts to take in cargo for B at a foreign port. A's Government after wards declares war

against the country in which the port is situated. the contract becomes void when war is declared.

(e) A contracts to act at a theatre for six months in a consideration of a sum paid in advance by B. On several occasions A is too ill to act. the contract to act on those occasions becomes void.

57. Reciprocal promises to do things legal, and also other things illegal

Where persons reciprocally promise, firstly, to do certain things which are legal, and, secondly, under specified circumstance, to do certain other things which are illegal, the first set of promise 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 void agreement.

58. Alternative promise, one branch being illegal

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 shall pay B 1,000 rupees, for which B shall after wards 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

59. Application of payment where debt to be discharged is indicated

Where a debtor, owing several distinct debts to one person, makes a payment to him, either with express intimation, or under circumstance 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 the 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.

60. Application of payment where debt to be discharged is not indicated

here 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 anu 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.

61. Application of payment where neither party appropriates

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 limitations of suits. if the debts are of equal standing, the payment shall be applied in discharge of each proportion ably.

CONTRACTS WHICH NEED NOT BE PERFORMED

62. Effect of novation, rescission and alteration of contract

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 accepts 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 agreement 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. B orders A to credit C with 1,000 rupees in his books, but C does not assent to the arrangement. B still owes C 1,000 rupees, and no new contract has been entered into.

63. Promisee may dispense with or remit performance of promise

Every promisee may dispense with or remit. wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.

Illustrations

(a) A promises to paint a picture for B. B after wards 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) A owes B, under ac contract, a sum of money, the amount of which has not been ascertained. A, without ascertaining the amount, gives to B, and B, in satisfaction thereof accepts, the sum of 2,000 rupees. This is a discharge of the whole debt, whatever may be its amount.

(e) A owes B 2,000 rupees, and is also indebted to other creditors. A makes an arrangement with his creditors including B, to pay them a 3[composition] of eight annas in the rupee upon their respective demands. payments to B of 1,000 rupees is a discharge of B's demand.

64. Consequences of rescission of a voidable contract

When a person at whose option a contract is voidable rescinds it, the other party thereto need to perform any promise therein contained in which he is promisor. The party rescinding a voidable contracat shall, if he has received any benefit there under from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received4.

65. Obligation of the person who has received advantage under void agreement or contract that becomes void

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 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 forst of May. A delivers 130 maunds only before that day, and none after. B retains the 130 maunds after the first day of May. He is bound to pay A for them.

(c ) a, a signer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two moths, and B engages to pay her hundred 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 must pay A for the five nights on which she had sung.

 

 

(d) A contracts to sing for b at a concert for 1,000 rupees, which are paid in advance. A is too ill to sing. A is not bound to make compensation to B for the loss of profit which B would have made if A had been able to sing, but must refund to B the 1,000 rupees paid in advance.

66. Mode of communicating or revoking rescission of voidable contract

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 the proposal1.

67. Effect of neglect of promisee to afford promisor reasonable facilities for performance

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.

CHAPTER V OF CERTAIN RELATIONS RESEMBLING THOSE CREATED BY CONTRACT

68. Claim for necessaries supplied to person incapable of contracting, or on his account

If a person, incapable of entering into a contract, or anyone 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 person2.

(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 and children of B, a lunatic, with necessaries suitable to their condition in life. A is entitled to be reimbursed by the other.

69. Reimbursement of person paying money due by another, in payment of which hr is interested

A person who is interested in the payment of the money which another is bound bu 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 arrears, 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 one lease, pays to the government the sum due from A. A is bound to make good to B the amount so paid.

70. Obligation of person enjoying benefit of non-gratuitous act

Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such another 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, 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 circumstances show that he intended to act gratuitously.

71. Responsibility of finder of goods

A person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee1.

72. Liability of person yo whom money is paid, or thing delivered by mistake or under coercion

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 of 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.

CHAPTER VI OF THE CONSEQUENCES OF BREACH OF CONTRACT

73. Compensation of loss or damage caused by breach of contract

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 h ad had broken his contract.

Explanation : In estimating the loss or damage arising from a breach of contract, the means which exited of remedying the inconvenience caused by non-performance of the contract must be taken into account.

 

 Illustrations

(a) A contracts to sell and deliver 50 maunds of saltpetre to B, at a certain price to be paid on delivery. A breaks his promise. B is entitled to receive from A, by way of compensation, the sum, if any, by which the contract price falls short of the price for which B might have obtained 50 maunds of saltpetre of like quality at the time when the saltpetre out to have been delivered.

(b) A hires B's ship to go to Bombay, and there takes on board on the first of January, a cargo, which A is to provide, and to bring it to Calcutta, the freight to be paid when earned. B's ship does not go to Bombay, bur A has opportunities for procuring suitable conveyance for the cargo upon terms as advantageous as those on which he had chartered the ship. A avails himself of those opportunities, but is paid to trouble and expense in doing so. A is entitled to receive compensation from B in respect of such trouble and expense.

(c ) A contracts to bu of B, at a stated price, 50 maunds of rice, no time being fixed for delivery. A after wards informs B that he will not accept the rice if tendered to him. B is entitled to receive from A, by way of compensation, the amount, if any, by whi cOMPENSATION OF LAch the contract price exceeds that which B can obtain for the rice at the time when A informs B that he will not accept it.

(d) A contracts to buy B's ship for 60,000 rupees, but breaks the promise. A must pay to B, by way of compensation, the excess, if any, of the contract price over the price which C can obtain for the ship at the time of the breach of promise.

(e) A, the owner of a boat, contracts with B, to take a cargo of jute to Mirzapur, for sale at that place, starting on a specified day. The boat, owing to some unavoidable cause, does not start at the time appointed , whereby the arrival of the cargo at Mirzapur is delayed beyond the time when it would have arrived if the boat had sailed according to the contract. After the date, and before the arrival of the cargo, the price of jute falls. The measure of the compensation payable to B by A is the difference between the price which B could have obtained for the cargo at Mirzapur at the time when it would have arrived if forwarded in due course, and its market price at the time when it actually arrived.

(f) A contracts to repair B's house in a certain manner, and receives payment in advance. A repairs the house, but not according to contract. B is entitled to recover from A the cost of making the repairs conforming to the contract.

(g) A contracts to let his ship to B for a year, from first of January, for a certain price. Freights rise, and, on the first of January, the hire obtainable for the ship is higher than the contract

 

 price. A breaks his promise. He must pay to B, by way of compensation, a sum equal to the difference between the contract price and the price for which B could hire a similar ship for a year on and from the first of January.

(h) A contracts to supply B with a certain quantity of iron with a fixed price, being a higher price than that for which A could and deliver the iron. B wrongfully refuses to receive the iron. B must pay to A, by way of compensation, the difference between the contract price of the iron and the sum for which A could have obtained and delivered it.

(i) A delivers to B, a common carrier, a machine, to be conveyed, without delay, to A's mill.informing B that his mill is stopped for want of the machine. B unreasonably delays the delivery of the machine and A, in consequence, loses a profitable contract with the Government. A is entitled to receive from B, by way of compensation, the average amount of profit which would have been made by the working of the mill during the time that delivery of it was delayed, but not the loss sustained through the loss of he Government contrcat.

(j) A, having contracted with B to supply B with 1,000 tons of iron at 100 rupees a ton, to be delivered at a stated time, contracts with C for the purchase of 1,000 tons of iron at 80 rupees a ton, telling C that he does so for the purpose of performing his contract with B. C fails to perform his contract with A, who cannot procedure other iron, and B, in consequence, rescinds the contract. C must pay to A 20,000 rupees, being the profit which A would have made by the performance of his contract with B.

(k) A contracts with B to make and deliver to B, by a fixed day, for a specified price, a certain piece of machinery. A does not deliver the piece machinery at the time specified, and, in consequence of this, B is obliged to procure another at a higher price than that which he was to have paid to A, and is prevented from performing a contract which B had made with a hired person at the time of his contract with A( but which had not been then communicated to A), and is compelled to make compensation for breach of that contract. A must pay to B, by way of compensation , the difference between the contract price of the piece of machinery and the sum paid by B for another, but not the sum paid by B to the third person by way of compensation.

(l) A, a builder contracts to erect and finish a house by the first of January, in order that B may give possession of it at that time to C, to whom B has contracted to let it. A is informed of the contract between B and C. builds the house so badly that, before the first of January, it falls down and has to be rebuilt by B, who in consequence, loses the rent which he was to have received from C, and is obliged to make compensation to C for the breach of his contract. A must make compensation to B for the cost of rebuilding of the house, for the rent lost, and for the compensation made to C.

(m) A sells certain merchandise to B, warranting it to be of a particular quality, and B, in reliance upon this warranty, sells it to C with a similar warranty. The goods prove to be not according to the warranty, and B becomes liable to pay c a sum of money by way of compensation. B is entitled to be reimbursed this sum by A.

(n) A contracts to pay a sum of money to B on day to B on a day specified. A does not pay the money on that day; B, in consequence of not receiving the money om that day, is unable to pay his debts, and is totally ruined. A is not liable to pay, make good to B anything except the principal sum he contracted to pay, together with interest up to the day of payment.

(o) A contracts to deliver 50 maunds of saltpetre to B on the first of january, at a certain price. B, after wards, before the first of January, contracts to sell the saltpetre to C at a price higher than the market price of the first January. A breaks his promise. In estimating the compensation payable by A to B, the market price of the first of January, and not the profit which would have arisen to B from the sale to C, is to be taken into account.

(p) A contracts to sell and deliver 500 bales of cotton to B on a fixed day. A knows nothing of B's mode of conducting his business. A breaks his promise, and B, having no cotton, is obliged to close his mill. A is not responsible to B for the loss caused to B by closing of the mill.

(q) A contracts to sell and deliver to B, on the first day of January, certain cloth which B intends to manufacture into caps of a particular kind, for which there is no demand, except at that season.. The cloth is not delivered till after the appointed time, and too late to be used that year in making caps. B is entitled to receive from A, by way of compensation, the difference between the contract piece of the cloth and its market price at the time of delivery, but not the profits which he expected to obtain by making caps, nor the expenses which he has been put to in making preparation for the manufacture.

® A, a ship owner, contracts with B to convey him from Calcutta to Sydney in A's ship, sailing on the first of January, and B pays to A, by way of deposit, one-half of his passage-money. The ship does not sail on the first of January, and B, after being in consequence, detained in Calcutta for some time, and thereby put to some expense, proceeds to Sydney in another vessel, and, in consequence, arriving too late in Sydney, loses a sum of money. A is liable to

repay to B his deposit, with interest, and the expense to which he is put by his detention in Calcutta, and the excess, if any, of the passage-money paid for the second ship over that agreed upon the for the first, but not the sum of money which B lost by arriving in Sydney too late.

74. Compensation for breach of contract where penalty stipulated for

1[When a contract has been contract has been broken, if sum is named in the contracts 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 Central Government or of any State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.

Explanation : A person who enters into a contract with the government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested.

Illustrations

(a) A contracts with B to pay B Rs. 1,000, if he fails to pay B Rs.500 on a given day. A fails to pay B Rs. 500 on that day. B is entitled to recover from A such compensation, not exceeding Rs. 1,000, as the court considers reasonable.

(b) A contracts with B that, if A practices as a surgeon within Calcutta, he will pay B Rs. 5,000. A practices as a surgeon in Calcutta. B is entitled to such compensation; not exceeding Rs. 5,000, as the court considers reasonable.

(c ) A gives recognizance binding him in a penalty of Rs. 500 to appear in court on a certain day. He forfeits his recognisance. He is liable to pay the whole penalty.

2[(d) A gives B a bond for the payment of Rs. 1,000 with interest at 12 per cent at the end of six months, with a stipulation that, in case of default, interest shall be payable at the rate of 75 per cent from the date of default. This is stipulation by way of penalty, and B is only entitled to recover from A such compensation as the court considers reasonable.

(e) A, who owes money to B, a money-lender, undertakes to repay him by delivering to him 10 maunds of grain on a certain date, and stipulates that, in the event of his not delivering the stipulated amount by the stipulated date, shall be liable to to deliver 20 maunds. This is a stipulation by way of penalty, and B is only entitled to reasonable compensation in case of breach.

 

 

(f) A undertakes to repay B a loan of Rs. 1,000 by five equal monthly installments, with a stipulation that, in default, of payment of any installment, the whole shall become due. This stipulation is not by way of penalty, and the contract may be enforced according to its terms.

(g) A borrows Rs. 100 from B and gives him a bond for Rs. 200 payable by five yearly installments of Rs.40, with a stipulation that, in default of payment of any installment, the whole shall become due. This is a stipulation by way of penalty.]

75. Party rightfully rescinding contract, entitled to compensation

A person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfillment of the contract.

Illustration

A a singer contracts with B, a 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. In the sixth night, A willfully 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-fulfillment of the contract.

CHAPTER VII SECTIONS 76 - 123 [ Sale of Goods] Rep. by the Sale of Goods Act, 1930 (3 of 1930) s. 65.

CHAPTER VIII OF INDEMNITY AND GUARANTEE

124. " 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 contrcat of indemnity.

125. Rights of Indemnity-holder when sued

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 authorised him to bring or

 

 defend the suit;

(3) all sums which he may 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 of any contract of indemnity, or if the promisor authorused him to compromise the suit.

126. "Contract of guarantee", "surety", "principal debtor" and "creditor"

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 "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.

127. 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.

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 after wards requests 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 B. A after wards, without consideration, agrees to pay for them in default of B. The agreement is void.

128. Surety's liability

The liability of the surety is co-extensive with that of 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 dishonored by C. A is liable not only for the amount of the bills but also for any interest and charges which may have become due on it.

129. Continuing guarantee

A guarantee which extends to a series of transaction, is called, a " continuing guarantee".

 

 Illustrations

(a) A, in consideration that B will employ C in collecting the rents 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 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. After wards, 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 extend of $ 100.

(c ) A guarantees payment to B of the price of five sacks of flour to be delivered by B to and to be paid for in a month. B delivers five sacks to C. C pays for them. After wards B delivers four sacks to C, which C does not pay for. The guarantee given by A was not a continuing guarantee, and accordingly he is not liable for the price of the four sacks.

130. Revocation of continuing guarantee

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. After wards, at the end of three months, A revokes the guarantee. This revocation discharges A from all liabilty to B for any subsequent diScount. But is liable to B for the 2,000 rupees, on default of C.

(b) A guarantees to B, to the extend 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 dishonors the bill at maturity, A is liable upon his guarantee.

131. Revocation continuing guarantee by surety's death

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.

132. Liability of two persons, primarily liable, not affected by arrangement between them that one shall be surety on other's default

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.

133. Discharge of surety by variance in terms of contract

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 susequent to the variance.

Illustrations

(a) A becomes surety to C for B's conduct as manager in C's bank. After wards, 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 over-draw, and the bank loses a sum of money. A is discharged from his surety ship 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, the nature of the office is materially altered. After wards, B misconduct himself. a is discharged by the change from future liability under his guarantee, though the misconduct of B is in respect of a duty not affected by the later Act.

(c ) C agrees to appoint b as his clerk to sell goods at a yearly salary, upon A's becoming surety to C for B's duly accounting for moneys received by him as such clerk. After wards, without A's knowledge or consent, C and B agree that b should be paid by a commission on the goods sold by him and not by a fixed salary. A is not liable for subsequent misconduct of B.

(d) A gives to C a continuing guarantee to the extent of 3,000 rupees for any oil supplied by C to B on credit. After wards becomes embarrassed, and, without the knowledge of A, B and C contract that C shall continue to supply B with oil for ready money, and that the payments shall be applied to the then existing debts between B and C. is not liable on his guarantee for any goods supplied after this new arrangement.

(e) C contracts to lend B 5,000 rupees on the 1st March. a guarantees repayment. C pays the 5,000 rupees to B on the 1st January, A is discharged from his liability, as the contract has been varied, inasmuch as C might sue B for the money before the first of March.

134. Discharge of surety by release or discharge of principal debtor

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 after

wards 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 contracts with C, and A is discharged from his surety ship.

(b) A contracts with B to grow a crop of indigo on A's land to deliver to B at a fixed rate, and C guarantees A's performance of this contract. B diverts a stream of water which is necessary for the irrigation of A's land, and thereby prevents him from raising the indigo. C is no longer liable on his guarantee.

(c ) a contracts with B for a fixed price to build a house for B within a stipulated time. B B supplying the necessary timber. guarantees A's performance of the contract. B omits to suply the timber. C is discharged from his surety ship.

136. Discharge of surety when creditor compounds with, gives time to, or agrees, not to sue, principal debtor

A contract between the creditor and the principal debtor, or which the creditor makes a compositon with, or promises to give time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract.

136. Surety not discharged when agreement made with third person to give time to principal debtor

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 over due bill of exchange drawn by A as surety for b, and accepted by B, contracts with M to give to B. A is not discharged.

137. Creditors, forbearance to sue does not discharge surety

Mere forbearance on the part of the creditors 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. he debt becomes payable. C does not sue B for a year after the debt has become payable. A is not discharged from his surety ship.

138. Release of one co-surety does not discharge others

Where there are co-sureties, a release by the creditor of one of them does not discharge the others; neither does it free the surety so released from his responsibility to the other sureties.1

139. Discharge of surety by creditor's act or omission impairing surety's eventual remedy

If the creditor does any act which is in consistent with the rights of the surety, or omits to do so 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 installments 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, prepares to B the last two installments. A is discharged by the prepayment.

(b) C lends money to B on the security of a joint and several promissory note made in C's favor 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 apply the proceeds in discharge of the note. Subsequently, C sells the furniture, but, owning to has misconduct and willful negligence, only a small price is realised. A is discharged from liability on the note.

(c ) A puts M as apprentice to B, and gives a guarantee to B for M's fidelty. B promises to his part that he will at least once a month, see that M make up the cash. B omits to see this done as promised, and M embezzles. A is not liable to be on his guarantee.

140. Rights of surety on payment of performance

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.

141. Surety's right to benefit of creditor's securities

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 surety ship 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 with 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 that advance from A. C after wards takes B's goods in execution under the decree, and then, without the knowledge of A, withdraws the execution. A is discharged.

(c ) A, as surety for B, makes a bond jointly with B to C, to secure a loan from C to B. After wards, C obtains from B a further security for the same debt. subsequently, C gives up the further security. A is not discharged.

143. Guarantee obtained by misrepresentation, invalid

Any guarantee which has been obtained by means of representation made by the creditor, or with his knowledge and assent, concerning a material part of the transaction, 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 after wards 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 have privately agreed that B should pay five rupees per ton beyond the market price, such excess to be supplied in liquidation of an old debt. This agreement is concealed from A. A is not liable as a surety.

144. Guarantee on contract that creditor shall not act on it until co-surety joins

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 surety, the guarantee is not valid that other person does not join.

145. Implied promise to indemnify surety

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 sum 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 he 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, A's refusal to pay, sues him upon the bill. A, not having reasonable grounds for so doing, defends the suit, and has to pay the amount of the bill and costs. He can recover from B the amount of the bill, but not the sum paid for the costs, as there was no real ground for defending the action.

(c ) A guarantees to C, to the extent of 2,000 rupees, payment for rice to be sullpied by C to B. C supplies to B rice to a less amount than 2,000 ruopees, but obtains from A payment for the sum of 2,000 rupees in respect of the rice supplied. A cannot recover from B more than the price of the rice actually supplied.

146. Co-sureties liable to contribute equally

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 yo 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 lend 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 is to be responsible to the extent of one-quarter, B to the extent of

one-quarter, And C to the extent of one-half. E makes default in payment. As between the sureties, A is liable to pay 250 rupees, B 250 rupees and C 500 rupees.

147. Liability of co-sureties bound in different sums

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 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. 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, and b and C 15,000 rupees each.

)c ) 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, 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 70,000 rupees. A, and C have to pay each the full penalty of his bond.

CHAPTER IX

OF BAILMENT

148. "Bailment", "bailor" and " bailee defined

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. he 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 contract 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.

149. Delivery to bailee how made

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 authorised to hold them on his behalf.

150. Bailor's duty to diclose faults in goods bailed

The bailor is bound to disclose to the bailee faults in the goods bailed, of which the bailor is aware, and which the materially interfere with the use of them, or expose the bailee to

extraordinary risk; and if he does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults.

If such 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, though B is not aware of it, and A is injured. B is responsible to A for the injury.

1[151. Care to be taken by bailee

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, quantity and value of the goods bailed2.

1[152. Bailee when not liable for loss, etc, of thing bailed

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.

153. Termination of bailment by bailee's act inconsistent with conditions

A contract of bailment is voidable at the option of the bailor, if the bailee does any act with regard to the goods bailed, inconsistent with the conditions of the bailment.

Illustration

A lets to B, for hire, a horse of his own riding. B drives the gorse in his carriage. This is, at the option of A, a termination of the bailment.

154. Liability of bailee making unauthorised use of goods balied

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 during such use of them.

Illustrations

(a) A lends a horse to B for his own riding only. B allows C, 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 the injury done to the horse.

(b) A hires a horse in Calcutta from B expressly to march to Banaras. A rides with due 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.

155. Effect of mixture, with bailor's consent, of his goods with bailee's

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.

156. Effect of mixture, without bailor's consent, when the goods can be separated

If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods and the goods cane be separated or divided, the property in the goods remains in the partis 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 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 expenses incurred in the separation of the bales, and any other incidental damage.

157. Effect of mixture, without bailors consent, when the good cannot be separated

If the bailee, without the consent of the bailor, mixes the goods f the bailor with his own goods, in such am 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 Rs. 25 a barrel. B must compensate A for the loss of his flour.

158. Repayment, by bailor, of necessary expenses

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 bailors shall repay to the bailee the necessary expenses incurred by him for the purpose of the bailment.

159. Restoration of goods lent gratuitously

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 face of such loan made for a specified time for 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 benfit actually derived by him from they 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.

160. Return of goods bailed on expiration of time or acccomplishment of purpose

It is the duty of the bailee to return. or deliver according to the bailor's directions, the goods bailed, witjout demand, as soon as the time for which they were bailed, has expired, or the purpose for which they were bailed has been accomplished.

1[161. Bailee's responsibility when goods are not duly returned

If, by the fault of the bailee, the goods are not returned, deliver or tendered at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of the goods from that time2.

162. termination of gratuitous bailment by death

A gratuitous bailment is terminated by the death either of the bailor or of the bailee.

163. Bailor entitled to increase or profit from goods bailed

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 .

164. Bailor's responsibility to bailee

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.

165. Bailment by several joint owners

f 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.

166. Bailee not responsible on redelivery to bailor without title

If the bailor has no title of 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.

167. Right of third person claiming goods bailed

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.

 

 168. Right of finder of goods; may sue for specified reward offered

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.

169. When finder of thing commonly on sale may sell it

When a thing 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 g\finder, the finder may sell it-

(1) when the thing is in danger of perishing or of losing the greater part of its valur, or

(2) when the lawful charges of the finder in resoect of the thing found amound to tw--third of its value.

170. Bailee's particular lien

Where the baillee has, in accordance with the purpose of the bailment, rendered in 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 certain 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 to deliver thye coat as soon as it is furnished, and to give a three months' credit for the price. B is not entitled to retain the coat until he is paid.

171. General lien of bankers, factors, wharfingers, attorneys and policy brokers

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 the security for such balance, goods bailed to them, unless there is an express contract to that effect1. (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).

BAILMENT OF PLEDGES

172. " pledge", "pawnor", and pawnee" defined

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 "pawnee".

 

 173. Pawnee's right of retainer

The pawnee may retained the goods pledged, not only for repayment of a 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.

174. Pawnee not to retain for debt or promise other than that for which goods pledged - Presumption in case of subsequent advances

The pawnee shall not, in the absence of a contract to that effect, retain the goods pledged for any debt or promise of other than the debts 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.

175. Pawnee's right as to extraordinary expenses incurred

The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged.

176. pawnee's right where pawnor makes default

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 pledged as a collateral security; or may sell the thing pledged on giving the pawnor reasonable notice of the sale.

If the proceeds of such sale are less than 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.

177. Defaulting pawnor's right to redeem

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 actaul sale of them; but he must, on that case, pay, in addition, any expenses which have arisen from his default.

1[178. Pledge by mercantile agent (Se4cs.178 and 178A substituted by Act 4 of 1930.)

here a mercantile agent is, with the consent of the owner, in possession of goods or the documents of title of 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 authorized 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 no authority to pledge.

Explanation : In this section, the expression " nercantile agent" and documents of title" shall have the meanings assigned to them in the Indian Sale of Goods Act, 1930 (3 of 1930

 

 178A. Pledge by person in possession under voidable contract

When the b 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.]

179. Pledge where pawnor has only a limited interest

Where a person pledge goods in which he has only a limited interest, the pledge is valid to the extent of that interest.

SUITS BY BAILEES OR BAILORS AGAINST WRONG-DOERS

180. Suit by bailor or bailee against wrong-doer

If a third person wrongfully deprives the bailee of the use of possession of the goods bailed, or does tghem 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.

181. Appointment of relief or compensation obtained by such suits

Whatever is obtained by way of relief of compensation in any such suit shall, as between the bailor and the bailee, be dealt with according to their respective interests.

CHAPTER X

AGENCY APPOINTMENT AND AUTHORITY OF AGENTS

182. " Agent" and "principal" defined

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"

183. Who may employ agent

Any person who is of the age of majority according to the law to which he is sunject, and who is of sound mind , may employ an agent.

184. Who may be 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 sound mind can become an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained.

 

 

 

 185. Consideration not necessary

No consideration is necessary to create an agency.

186. Agent's authority may be express or implied

The authority of an agent may be express or implied.1 ( See, however, the Registration Act 1908 (16 of 1908), s. 33 see also be Code of Civil Procedure 1908 (5 of 1908).

187. Definitions of express and implied authority

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 sircumstances of the case.

Illustration

A owns a shop in Serampur, living himself in Calcutta, and visiting the shop occasionally. The shop is managed by , 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 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.

188. Extent of agent's authority

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. may purchase timber and other materials, and hire workmen, for the purposes of carrying on the business.

189. Agent's authority in an emergency

An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss and would be done by a person or 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 be 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.

SUB-AGENTS 190. When agent cannot delegate

An agent cannot lawfully employ another to perform acts which he has expressly or impliedely undertaken to perform personalyy, unless by the ordinary custom of trade a sub-agent may, or from the nature of agency, a sub-agent must, be employed.

191. " Sub-agent" defined

A "sub-agent" is a person employed by, and acting under the control of, the original agent in the business of the agency.

192. Representation of principal by sub-agent properly appointed

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-agents : The agent is responsible for 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 case of fraud or willful wrong.

193. Agent's responsibility for sub-agent appointed without authority

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.

194. Relation between principal and person duly appointed by agent to act in business of agency

When 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 directs B, his solicitor, to sell his estate by auction, and to employ an auctioneer for the purpose. B names , 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 a solicitor for A.

195. Agent's duty in naming such person

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, employes an auctioneer in good credit to sell the goods of A, ans allows the auctioneer to receive the proceeds of the sale. The auctioneer after wards becomes insolvent without having accounted for the proseeds, B is not responsible to A for the proceeds.

RATIFICATION

196. right of person as to acts done for him without his authority - effect of ratification

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 ratifies them, the same effect will allows will follow as if they had been performed by his authority.

197. Ratification may be expressed or implied

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. After wards 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. After wards B accepts interests on the money from C. B's conduct implies a ratification of the loan.

198. Knowledge of requisite for valid ratification

No valid ratification any authorized act done on his behalf ratifies the whole of the transactions of which such act formed a part.

200. ratification of unauthorized act cannot injure third person

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 of 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, 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.

REVOCATION OF AUTHORITY

201. Termination of agency

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 or becoming of sound 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.

202. Termination of agency, where agent has an interest in subject-matter

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 desire 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.

203. When principal may revoke agent's authority

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.

204. Revocation where authority has been partly exercised

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 money 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 money 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.

205.Compensation for revocation by principal, or renunciation by agent

 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.

 206. Notice for revocation r renunciation

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.

 207. Revocation and renunciation may be expressed or implied

Revocation or 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. After wards A lets it himself. This is an implied revocation B's authority.

 208. When termination of agent's authority takes effect as to agent, and as to third persons

The termination of the authority of an agent does not, so far as regards the agent, take effect before it becomes knows 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 after wards, by letter, revokes 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 after wards, by letter, revokes, his authority to sell, and directs B to sent the cotton to Madras. B, after receiving the second letter, enters into a contract with C, who knows of the first letter, but not of the second, for the sale to him of the cotton. C pays B the money, with which B absconds. C's payment is good as against A.

 (c ) A directs B, his agent, to pay certain money to C. A dies, and D takes out probate to his will. B, after A's death, but before hearing of it, pays the money to C. The payment is good as against D, the executor.

209. Agent's duty on termination of agency by principal's death or insanity

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 reservation of the interests entrusted to him.

 

 

 210. Termination of sub-agent's authority

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.

AGENTS DUTY TO PRINCIPAL

211. agent's duty in conducting principal's business

Agent's duty is bound to conduct the business of his principal according to the directions given by the princpal, 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 high. C, before payment, becomes onsolvent. B must make good the loss to A.

211. Skill and diligence required from agent

An agent is bound to conduct the business of the agency with as much skill as is generally possessed by person 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 possess; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill, or misconduct, bu 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 on which it out to have been paid, according to the usual rate, and for any further direct loss - as, e.g., by variation of rate of exchange - but not further.

(b) A, an agent for the sale of the goods, having authority to sell on credit, sells to B in credit, without making the proper and usual enquiries as to the solvency of B. B, at the time of such sale, is insolvent. A must make compensation to his principal in respect of any loss thereby sustained.

(c ) A, an insurance-broker employed by B to effect an insurance on a ship, omits to see that the

usual clauses are inserted in the policy. The ship is after wards lost. In consequence of the omission of the clause nothing can be recovered from the underwriters. A is bound to make good the loss to B.

(d) A, merchant in England, directs B, his agent at Bombay, who accepts agency, to send him 100 bales of cotton by a certain ship. B, having it in his power to send the cotton, omits to do so. The ship arrives safely in England. Soon after her arrival the price of cotton rises. B is bound to make good to A the profit which he might have made by the 100 bales of cotton at the time the ship arrived, but not any profit he might have made by the subsequent rise.

213. Agent's accounts

An agent is bound to render proper accounts to his principal on demand.

214. Agent's duty to communicate with principal

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.

215. Right of principal when agent deals, on his own accounts, in business of agency without principal's consent

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 . A, on discovering that B has bought the estate for himself, may repudiate the sale, if he can show that has dishonestly concealed any material fact, or that the seal has been disadvantageous to him.

(b) A directs B to sell A's state. B, on looking over the estate before selling it, finds a mine on the estate which is unknown to A. B informs A that he wishes to buy the estate for himself, but conceals the discovery of the mine. A allows B to buy, in ignorance of the existence of the mine. A, on discovering that B knew of the mine at the time he bought the estate, may either repudiate or adopt the sale at his option.

216. Principal's right to benefit gained by agent dealing on his own account in business of agency

If an agent, without the knowledge of his principal, deals in the business of the agency of his own account instead of an account to 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. n A may, on discovering that B has bought the house, compel him to sell it to A at the price he gave for it.

217. Agent's right or retainer out of sums received on principal's account

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.

218. Agent's duty to pay sums received for principal

Subject to such deductions, the agent is bound to pay to his principal all sums received on his account.

219. When agent's remuneration becomes due

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.

220. Agent not entitled to remuneration for business misconducted

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 out 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. Though B's misconduct the money is not recovered. B is entitled to no remuneration for his services and must make good the loss.

221. Agents lien on principal's property

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, disbursement and services in respect of the same has been paid or accounted for to him.

PRINCIPAL'S DUTY TO AGENT

222. Agent to be indemnified against consequences of lawful acts

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 Singapore 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 authorities 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 10 caskes of oil for A. After wards A reuses to receive the oil, and C sues B. B informs A, who repudiates the contract altogether. B defends, but unsuccessfully , and has to pay damages and costs and incurs expenses. A is liable to B for such damages, costs and expenses.

223. Agent to be indemnified against consequences of acts done in good faith

Where on one person employs another to do 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 may cause an injury to the rights third persons.

Illustrations

(a) A, A, a decree-holder and entitled to execution of B's goods, requires the officer of the court to seize the goods, and is issued 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'a discretions

(b) B, at the request of A, sells the goods in possession of A, but which A had no right to disopose of. B does not know this, and hands over the proceeds of the sale to A. After wards C, the true owner of the goods, sues B and B recovers the value of the goods and costs. A is liable to indemnify B for what he has been compelled to pay to C for B's own expenses.

224. Non-liability of employer of agent to do a criminal act

Where one person employs one 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. ( see s. 24, supra.)

 

 

 

 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.

225. Compensation to agent for injury caused by principal's neglect

The principal must take compensation to his agent in respect of injury ( Cf. the Fatal accidents Act, 1855.) 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 the scaffolding himself. The scaffolding is unskillfully put up, and B is in consequences hurt. A must make compensation to B.

EFFECT OF AGENCY ON CONTRACTS WITH THIRD PERSONS

226. Enforcement and consequences of agent's contracts

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 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 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.

227. Principal how far bound, when agent exceeds authority

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 rupes 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 premium for the policy on the cargo.

228. Principal not bound when excess of agent's authority is not separable

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 a sum of 6,000 rupees. A may repudiate the whole transaction.

229. Consequences of notice given to agent

Any notice given 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 toor 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 frm C against the price of 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 belonged to D, but B is ignorant of that fact. In spite of the knowledge of his agent, B may set-off against the price of the goods a debt owing to him from C.

230. Agent cannot personally enforce, nor be bound by, contracts on behalf of principal

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 he is personally bound by them.

Presumption of contract to the contrary : Such a contract shall be persumed to exit in the following cases -

(1) Where the contract is made by an agent for they sale or purchase of goods for a merchant resident abroad;

(2) Where agent does not disclose the name of his principal; and

(3) Where the principal, though disclosed, cannot be sued.

231. Rights of parties to a contract made by agent not disclosed

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 right as he would have had as gainst the agent if the agent had been the principal.

If the principal discloses himself before the contract is completed, the other contracting party may refuse ti fullfill 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. 232. Performance of contract with agent supposed to be principal

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 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 in the case. C cannot compel B to take the rice without allowing him to set-off A's debt.

233. Right of person dealing with agent personally liable

In case 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 100 bales of cotton, and after wards discovers that B was acting as agent for C. A may sue either B or C, or both, for the piece of the cotton.

234. Consequence of inducing agent or principal to action belief that principal or agent will be held exclusively liable

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 after wards hold liable that agent or principal respectively.

235. Liability of pretended agent

A person untruly representing himself to be the authorized agent of another, and thereby including 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 other in respect of any loss or damage which he has incurred by so dealing.

236. Person falsely contracting as agent, not entitled to performance

A person with whom a contract has been entered into the character of agent, is not entitled to require the performance of it he was in reality acting, not as agent, but on his own account.

237. Liability of principal inducing belief that agent's unauthorized acts were authorized

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.

238. effect, on agreement, of misrepresentation or fraud by agent

Misrepresentations made, or fraud committed, by agent acting in the course of their business for their principals, have the same effect on agreements made by such agents as if such misrepresentations of fraud had been made, or committed by the principals; but misrepresentations made, or fraud 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 caption 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 consignor.