Business Laws(MBA 022)

Overview

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IMPORTANCE OF BUSINESS LAWSKnowledge Of Business Laws Is Important Due To: Subject included in the Syllabus of MBA. It gives an edge to managers and improves their

business acumen. Acquaints managers to statutory provisions of

business. It is beneficial to persons interested in floating their own

business. Beneficial to managers at higher positions It is beneficial to existing entrepreneurs Beneficial to managers as corporate consultants Beneficial to all of us as common man (viz: rights of

consumers, contracts etc)

Unit 1 Contract Act, 1872 Introductiono Definition of a Contract and its essentials.o Formation of a valid Contract o Offer and Acceptance.o Consideration.o Capacity to Contract.o Free consent.o Legality of object.o Discharge of a Contract by performance.o Impossibility and Frustration.o Breach.o Damages for breach of a contract.o Quasi contracts.o Contract of Indemnity and Guarantee.o Bailment and Pledge, Agency.

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INDIAN CONTRACT ACT, 1872

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What is Contract?Let us acquaint ourselves with some common terms:Proposal (Offer): Sec 2(a): When a person signifies to

another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.

Promise: Sec 2(b): A proposal when accepted becomes promise

Agreement: Sec 2(e): Every promise and every set of promises forming consideration for each other is called agreement

Contract: Sec 2(h): An agreement enforceable by law is contract

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UNDERSTANDING CONTRACT Proposal + Acceptance = Promise

Promise + Consideration = Agreement

Agreement + Enforceability by Law = CONTRACT

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Essentials Elements of a Contract1. There must be a promise or a set of

promises

2. There must be consideration for both the parties

3. Agreement thus made by promise and consideration must be enforceable by law.

Note: Obligations arising out of a contract are “rights in personam” and not the “rights in rem”

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Formation of a valid contract: (Sec. 10) Offer & acceptance (Agreement) Consideration Agreement enforceable by law Capacity to contract Free consent Legality of object Certainty of meaning Possibility of performance Writing & registration Not expressly declared to be void.

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Offer/Proposal: Sec.2(a)“A proposal is defined as “when a person signifies

to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal”.

Ex1: A offers to sell his book to B. A is making an offer to do something, i.e. to sell his book.

Ex2: A offers not to file a suit against B, if the latter pays A the amount of Rs 200 out standing. (abstaining)

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How an Offer is made?(Sec - 3)(a) By Words (written or oral): The written offer can be

made by letters, telegrams, telex, adv etc. The oral offer can be made either in person or over telephone.

(b) By Conduct: A bus standing at bus stop meant for a particular destination

(c) Offer by Omission: A offers not to file a suit against B, if the latter pays A the amount of Rs 200 outstanding. This is an offer by abstinence or omission to do something

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Specific and General OffersAn offer can be made:

1. To a definite person or group of persons (Specific Offer)

Ex: A offers to sell his house to B

2. To the public at large (General Offer)

Ex; The patent medicine company adv that it would reward Rs 200 to anyone who contracted influenza after using the inoculation of the company

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Offer/Proposal: Sec.2(a) Essentials of offer: It must be an expression of the willingness

to do or abstain from doing something. Such expression must be to another

person. Such expression must be made with the

intention to obtain the assent of the other person to such an act or abstinence.

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Rules regarding a valid offer: Offer may be express or implied. Must give rise to legal consequences & be

capable of creating legal relationship. Terms must be certain & not vague. May be specific or general. Must not be an invitation to offer. Can be made subject to any terms & conditions. Must be communicated to offeree. Invitation to offer, cross offers & counter offers. Communication of special terms Prescribed mode of acceptance.

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Invitation to Offer, Cross Offer, Counter Offer(i) Offer vis-à-vis Invitation to Offer: A prospectus issued

by a college for admission is an invitation to Offer. By filling the admission form attached with the prospectus a student is making an offer for admission. By granting the admission to student college is accepting the offer.

(ii) Cross Offers: A wrote to B to sell his horse to him for Rs 500. At the same time B wrote to A to buy his horse for Rs 500. There letters crossed in post. This is cross offer and can not be treated as acceptance.

(iii) Counter Offer: An offer terminates by counter offer of the offeree. “An offer to sell rice was accepted with an endorsement on the sold and bought note that yellow and wet grain will not be accepted.

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Lapse & revocation of an offer: Lapse of stipulated or reasonable time. Acceptance not in prescribed mode. Rejection. Death or insanity of offeror or offeree before

acceptance. Revocation. Non-fulfillment of condition precedent. Subsequent illegality or destruction of

subject-matter.

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Acceptance: Sec 2(b)“When the person to whom the proposal is

made signifies his assent thereto, the proposal is said to be accepted.

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Essentials of a Valid Acceptance

Acceptance must be absolute & unqualified (Sec 7).

Must be communicated to the offeror. Must be according to the mode

prescribed Within reasonable time. Acceptance must succeed an offer. Rejected offers can be accepted only if

renewed.

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Consideration: Sec2(d) In simple terms “Consideration is what a

promisor demands as the price for his promise”. As per Sec 2(d): When at the desire of the

promisor, the promisee or any other person has done or abstained from doing, promises to do or promises to abstain from doing is called a consideration for the purpose.

Ex: A agrees to sell his house to B for Rs 10000. here B’s promise to pay Rs 10000 is consideration for A’s promise and A’s promise to sell the house is the consideration for B’s promise.

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Consideration: Sec2(d) Essentials of consideration: Consideration must move at the desire of

offeror. May move from offeree or any other person. Stranger to a contract cannot sue; except in

case of trust created, an addressee of an insured article; family settlement.

May be past, present or future. Must be of some value. Must be real.

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Consideration: Sec2(d) When at the desire of the promisor, the

promisee or any other person has done or abstained from doing, promises to do or promises to abstain from doing something, such act or abstinece or promise is called a consideration for the promise.

Ex. ‘A’ agree to sell his house to ‘B’ for Rs 10,000. Here B’s promise to pay the sum of Rs 10000 is consideration for A’s promise and A’s promise to sell the house is the consideration for B’s promise

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“No Consideration, No Contract”- Exceptions:

General rule is that “no consideration no contract” but there are certain exceptions of the rule:

Natural love & affection. (Ex. An elder brother agrees to pay the debts of his younger brother)

Agreement to compensate for past voluntary service. (A finds B’s purse and returns it, B promises to pay Rs 50 )

Payment of time-barred debt. (A owes B Rs 1000 but the debt is time barred by limitation act. A signs a promise to return Rs 500 in return of debt. This is valid contract)

No consideration is required to create an agency

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Capacity to Contract: (Sec 11)

Sec 11 provides “every person is competent to contract who is of the age of majority and who is of sound mind and not disqualified by any law.

Incapacity to Contract:1. Minority2. Mental Incompetence3. Status

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Capacity to Contract: (Sec 11)1. Minor : Sec 3 of Indian Majority Act 1875:

A minor is a person who has not completed 18 years of age. However in the following two cases, a minor attains majority after 21 years of age:

(i) Where a guardian of minor’s person or property has been appointed under the Guardians and Wards Act 1890 or

(ii) Where the superintendence of minor’s property is assumed by a court of wards

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1. Minors’ Contracts: Void & inoperative : Minor can not bind himself by a

contract Minor can be promisee or beneficiary No ratification on attaining the age of majority. If a minor has received any benefits under a void

contract, he can not be asked to refund Minor is always allowed to plead minority (even

when he had procured a loan misrepresenting him as major)

Minor can not be a partner to a partnership firm Minor’s state liable to a person who supplies

necessaries of life to him Minor’s parents/ guardians are not liable to a

minor’s creditor for the breach of contract by the minor except when the minor acts as an agent of parents

A minor can act as an agent and bind his principal by his acts without incurring personal liability.

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2. Unsound mind: Sec 12 (i) Usually of unsound mind , but occasionally of sound

mind : may make a contract when he is of sound mind (ii) Usually of sound mind but occasionally of unsound mind:

may not make a contract when he is of unsound mind Causes: idiocy (permanently of unsound mind) Lunacy ( mentally deranged, however he has some intervals

of sound mind.) Drunkenness Hypnotism Mental decay Effects: Void & inoperative Similar to agreements entered into by minors.

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3. Disqualified persons: Alien enemies :(i) Contracts during the war: Can neither contract with Indian

subject nor can sue in an Indian court except by licence from Central Govt.

(ii) Contract made before the war: Stands dissolved or suspended for the period of war

Foreign sovereigns & ambassadors: Can enter into contracts and enforce these contracts in our courts. However they can not be proceeded against in Indian courts without sanction of Central Govt.

Convicts: Incapable to contract while serving the imprisonment

Company: Can not enter into contracts which are ultra vires Insolvents: Incompetent to contract Position of Married women: Has the capacity to contract

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CONSEN T (SEC 13)

Sec 13 defines consent “ two or more persons are said to consent when they agree upon the same thing in the same sense”

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4. Free consent: Sec 14Consent is said to be free if it is not

caused by: Coercion Undue influence Misrepresentation Fraud Mistake

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Coercion: Sec 15 Committing or threatening to commit any act

forbidden by the IPC with an intention to cause any person to enter into an agreement.

The unlawful detaining or threatening to detain, any property with an intention to cause any person to enter into an agreement.

The act constituting coercion, may be directed at any person & not necessarily at the other party to the agreement.

It does not matter whether the IPC is or is not in force where the coercion is employed. If suit is filed in India the said provision will apply.

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Effects of Coercion:

Voidable The party exercising coercion exposes

himself to criminal liability under the IPC, besides an action in contract.

Burden of proof lies on the party who wants to set aside the contract on the plea of coercion.

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Undue Influence: Sec 16 A contract is said to be induced by

undue influence when the relation subsisting between the parties is such that one of the parties is in a position to dominate the will of the other and he uses this position to obtain an unfair advantage over the other.

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Presumption of Undue Influence:

In the following cases undue influence is presumed to exist & the burden of proof lies on the party who is in a position to dominate the will of the other:

The person holds a real or apparent authority over the other, e.g., master & servant, police officer & accused.

Fiduciary relationship e.g., father & son, doctor & patient.

The contracting parties mental capacity is temporarily or permanently affected due to age, illness, mental or bodily distress, e.g., old illiterate persons.

Unreasonable bargains, high prices, high rate of interest etc are instances of circumstances when undue influence is presumed.

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No presumption of undue influence: In the following cases law does not

presume undue influence & the burden of proof lies on the party alleging that undue influence existed:

Mother & daughter Grandson & grandfather Husband & wife Creditor & debtor Landlord & tenant.

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Effects of Undue Influence: Voidable Sec. 64: Court has the discretion to

direct the aggrieved party to refund the benefit in part or in whole or set aside the contract without any direction for refund of benefit.

There is no criminal liability in case of undue influence.

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Misrepresentation: Sec 18 A representation means a statement of fact made

by one party to the other either before or at the time of contract, relating to some matter essential to the formation of the contract, with an intention to induce the other party to enter into a contract.

It may be expressed by words spoken or written or implied from the acts or conduct of the parties.

In law, a representation when wrongly made without an intention to deceive the other party is known as misrepresentation.

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Misrepresentation: ExampleA who wanted himself to be ensured, gives

his age as 24 yrs in the proposal form, while in fact he was of 27 yrs. A was not aware about his correct age. He gave his age as per school certificate. Here A gains some advantage in terms of less premium. So it amounts to misrepresentation.

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Effects of misrepresentation: Voidable May choose to rescind the contract or Affirm the contract & insist that he be put

in a position in which he would have been, if the representation made had been true.

The remedy is lost if the other party had sufficient means of discovering the truth with ordinary diligence.

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Fraud: Sec 17 Fraud means & includes any of the following acts

committed by a party with an intention to deceive or induce the other party to enter into a contract:

1. A false statement made intentionally is fraud2. Active concealment of a material fact by a person

having knowledge of the fact is fraud. However, mere non-disclosure is not a fraud, if there is no duty to disclose.

3. A promise made without an intention of performing it.4. Any act or omission declared by law to be fraudulent.5. Any other act fitted to deceive.

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Fraud: Example A says to B that his coat is made of pure

wool, though he knows that it is untrue. B purchases the coat believing A’s statement to be true. It is a fraud by A, and therefore contract is voidable at B’s option.

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Silence & fraud: Mere silence as to facts likely to

affect the willingness of a person to enter into a contract is not fraud, unless:

1. Such a person is under a duty to speak or

2. Silence is in itself equivalent to speech.

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Effects of fraud: Right to rescind the contract. Affirm the contract and ask for restitution,

i.e., to be put in a position, he would have been, if the statement made had been true.

The aggrieved party can also claim damages.

Fraud by a stranger to the contract does not affect the contract.

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Action for fraud: Fraudulent statement must be

instrumental in inducing the party to enter into a contract.

The plaintiff must have been actually deceived by the fraudulent statement.

No action will lie if the plaintiff does not sustain any loss or injury.

The contract is not Voidable if the party had enough means at its disposal to discover the truth with ordinary diligence.

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Mistake: (Sec 21)Mistake may be of two kinds:(i) Mistake of Law:

(a) Mistake of law of the country (“Ignorantia juris non- excusat ” Every one is supp to know the law of his country. Ignorance of law has no excuse)Effect: Will not render contract void(b) Mistake of foreign law Effect: will be considered as mistake of fact

(ii) Mistake of Facts: (a) Bilateral Mistakes Effect: No agreement (b) Unilateral Mistakes Effect: Will not be void

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5. Legality of Object S-23, 24An agreement will not be enforceable by law if

its object or consideration is unlawful. An object or consideration becomes unlawful in the following cases:

Forbidden by law: an object or consideration is said to be forbidden by law when it is a punishable by the criminal law of the country or by any special law of the land

Ex: A loan grants to the guardian of a minor to celebrate the marriage party of the minor.

If it is of such a nature that, if permitted it would defeat the provisions of any law, that is it would indirectly lead to the violation of law.

Ex: A rents a flat to B for Rs 1200 pm and made two agreements one for rent @ Rs 500 pm and services @ Rs 700 in order to avoid tax

If it is fraudulent.

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Contd.. Where it implies or involves injury to

the person or property of another.Ex: A borrowed Rs 100 from B and A

executes bond promising to work without pay for 2 yrs and in case of default will pay int at exorbitant rates

If court regards it as immoral: Ex: Acts against good public morals.

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Effects: Void No restitution.

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Discharge of contract: Discharge of a contract refers to a

process, by which the rights and obligations arising out of a contract come to an end. Thus, discharge of a contract means termination of a contract.

A contract may be discharged in any of the following ways:

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Contd..

1. By performance

2. By mutual consent or agreement

3. By subsequent or supervening impossibility or illegality

4. By lapse of time

5. By operation of law

6. By breach of contract.

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Discharge of Contract by Performance : Under a contract legal obligations are created, which

both the parties to a contract are under a duty to fulfill. Fulfilling of such legal obligations, or performance of the promise under a contract by both the parties is known as performance of a contract.

Performance of all the obligations arising out of a contract, by all the parties to a contract is the normal & natural mode of discharging a contract.

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Rules regarding performance: Only the promisee can demand performance of the

promise under a contract, a third party cannot demand performance, even though it was made for his benefit.

A contract involving personal skill, taste etc., must be performed by the promisor itself. Where it appears from the nature of the contract, that the parties intend that the promise of the contract should be performed by the promisor itself; then it must be performed by the promisor only.

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Contd.. Where a contract is of an impersonal nature, then

either the promisor himself or his agent may perform the contract.

Where death of the promisor occurs, before the performance of the contract, then in such case the liability of performance falls on his legal representatives; unless a contrary intention appears from the contract.

Where a promisee accepts performance of the promise from a third person, however afterwards he cannot enforce it against the promisor.

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Performance of joint promises: Where several joint promisor’s with a single

promisee. Where a single promisor makes a promise with

several joint promisee’s. Where several joint promisor’s make a promise

with several joint promisee’s .

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Rules regarding joint promises: Unless a contrary intention appears from the contract,

the right to claim performance rests with all the promisees jointly & a single promisee cannot claim performance.

Unless a contrary intention appears from the contract, all promisors must jointly fulfill the promise.

In the absence of an express agmt. to the contrary, the promisee is entitled to compel any one or more of the joint promisors to perform the whole of the promise.

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Contd.. Where one of the joint owners is made to perform the whole

contract, he may realize equal contribution from other joint promisors, unless a contrary intention appears from the contract.

Where any one of the joint owners fails to make a contribution, then the remaining joint promisors must bear the loss arising from such failure, in equal shares.

In case of a joint promise, if one of the joint promisors is released from his liability by the promisee, his liability to the promisee ceases, but this does not discharge the other promisors from their liability; neither does it free the joint promisor so released from his liability to contribute to the other joint promisors.

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Impossibility of acts: [Sec 56] An agreement to do an act impossible

in itself is void. Ex: A enters into agreement with B to

dig a well on moon in order to fetch water.

Since the event is impossible in nature the contract is void

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Supervening impossibility orFrustration of contract

FRUSTRATION OF CONTRACT: A contract when subsequent to its formation, becomes legally or physically impossible to perform is known as frustration of contract.

In England, it is popularly known as “Doctrine of Frustration”.

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Subsequent impossibility leading to frustration of contract

Destruction of subject matter By the death or disablement of parties By subsequent illegalities By declaration of war

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Breach of contract: Breach of contract brings an end to the

obligations arising out of a contract, and hence the contract stands discharged.

The aggrieved party can sue for damages. Breach of contract may be anticipatory or

actual.

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Anticipatory breach: Such a breach occurs before the time stipulated for

performance has arrived. Anticipatory breach may be express or implied. The aggrieved party may sue the other party for

breach, immediately or wait until the due date arrives and then sue.

Where he chooses to wait until the due date, the contract remains in operation and the other party may either perform his part of the contract or take advantage of any supervening impossibility.

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Actual breach: Actual breach occurs when a party fails to

perform his obligations upon the date fixed for performance of contract.

There can be no actual breach so long as the time for performance has not yet arrived.

The aggrieved party may sue for damages.

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Remedies for breach of contract:

Rescission of contract Suit for damages Suit upon quantum merit (as much as

merited, breach of part performance) Suit for specific performance Suit for an injunction (order of prohibition

from court)

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Rescission of contract Parties may cancel the contract on mutual

consent Ex: A entered into contract with B for the

supply of 1000 bales of cotton at Rs 10 k.

B does not supply cotton, A need not pay.

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Suit for damages: Monetary compensation awarded to the

aggrieved party for the loss suffered by him, caused by the breach of contract by the other party is known as ‘damages’.

The award of damages is based on the principle of compensation & not punishment.

The purpose of damages is to put the injured party in the position he would have been, had there been no breach.

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Contd.. Damages are awarded to the aggrieved party only

if actual loss is proved. The loss suffered must not be remote or an

indirect result of the breach. While estimating the loss caused to a party by

breach, the inconvenience caused should also be considered.

Special damages should also be taken into account.

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Kinds of damages:

Ordinary or compensatory damages Special damages Exemplary or punitive damages Nominal damages

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Ordinary Damages:

Ordinary damages are restricted to direct or proximate consequences of breach of contract.

They arise naturally & directly in the usual course of things from breach of contract.

Remote & indirect losses are not considered.

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Special damages: They arise on account of special or unusual circumstances

affecting the plaintiff. They are remote in nature & not the natural & probable

consequence of breach. Such damages cannot be claimed as a matter of right, they can

be claimed only if the special circumstances which would result in special loss in case of breach are brought to the notice of the other party.

Such damages must be in contemplation of the parties at the time of entering the contract, subsequent knowledge of the special circumstances will not create any special liability on the guilty party.

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Vindictive & exemplary:

The purpose of such damages is to punish the guilty party for breach.

The cardinal principle of contract law is that in case of breach of contract, damages are awarded to the aggrieved party, to compensate for the loss suffered and not to punish the guilty party.

Exemplary damages are hence not recoverable for the breach of contract, as a general rule; however there are two exceptions to this rule.

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Exceptions:

Breach of a contract to marry: damages depend upon the extent of injury to party’s feelings.

Dishonor of a cheque by a banker when there are sufficient funds to the credit of the customer: the smaller the amount of cheque, greater the amount of damage.

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Nominal damages: Such damages are awarded for namesake.

They are neither awarded by way of compensation to aggrieved party nor by way of punishment to the guilty party.

Such damages are awarded only to establish that a right has been violated by the breach of contract & the aggrieved party has not suffered any actual damage, i.e., it is of insignificant value.

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Sec 74: It lays down that the courts are not bound to treat

the sum mentioned in the contract (either liquidated damages or penalty) as the sum payable for damages for breach.

The courts allow reasonable compensation to cover actual loss sustained, not exceeding the amount mentioned in the contract.

The amount mentioned in the contract, regardless whether it is liquidated damages or penalty, determines only the maximum limit of liability, in case of breach of contract.

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Suit upon Quantum meruit: The term Quantum Meruit means “ in

proportion to the work done”. A suit for quantum meruit is generally filed

in the following cases:1. Where work has been done in pursuance of

a contract, which has been discharged due to the default of the defendant. In such a case, generally, damages & payment of quantum meruit is allowed.

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Suit for specific performance: Specific performance means the actual carrying

out of the contract as agreed. Such a suit is filed in the court, in order to obtain a

decree from the court, directing the defendant to actually perform the promise made.

Such a suit may be filed in addition to a suit for damages.

Such a decree is not granted for contracts of every description, it is granted only in cases where the legal remedy is inadequate or defective.

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Specific performance not granted in the following cases:

Where monetary compensation is an adequate relief.

Where court cannot supervise the actual execution of the contract.

Where contract is for personal services.

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Suit for an injunction:

It is an order of a court restraining a person from doing a particular act.

Injunction is a preventive remedy and is appropriate in case of anticipatory breach of contract, where damages would not be an adequate relief.

When a court issues an injunction order, it restrains the defaulting party from committing an act, which he promised not to do under the contract.

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CONTRACT OF INDEMNITY S. 124 Introduction : Sometimes, a person does not enter into a

business due to the risk involved in it. In such a situation, if anybody agrees or promises to bear the risk or damage which may occur in future, then the former can commence that business without any hesitation . This contract between the former and the latter party is known as the contract of indemnity.

Indemnity is a protection against the loss, especially in the form of a promise to pay for the loss of money or goods by a person to the other while entering in to a transaction with the third party.

The person who makes the promise is known as the indemnifier and the person to whom the promise is made is known as the indemnity holder.

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CONTRACT OF INDEMNITY S. 124 {CONTD… According to Section 124 of Indian Contract ACt, 1872, the

contract of indemnity means a contract where 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.

Essentials of the Contract of Indemnity : The following are the essential attributes for a contract of indemnity.

1. Promise : There should be a promise by one person to the other person.

2. Saving from Loss : The second condition is that the promise should be for the purpose of saving the person from the loss.

3. Loss by Human Agency : The loss should have been caused due to the conduct of the human agency.

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CONTRACT OF GUARANTEE General : Sometimes, a person takes the responsibility

to repay the loan taken by some other, in case of his default. These types of contracts are called contracts of guarantee.

Sec. 126 of the Contract Act says that guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default.

The person who gives the guarantee is called the “surety” and for whom it is given is called the principal debtor and to whom it is given is called the creditor.

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Nature of Contract of Guarantee

1. Contract of guarantee may be oral or in writing. 2. It is essential that there should be principal debt

in existence at the time of contract. 3. Benefit to the principal debtor is the sufficient

consideration for a contract of guarantee. 4. Consent of the surety should not have been

obtained by fraud or by concealment of the material facts or through misrepresentation (Sec 142 &143). There should be free consent of the surety.

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Liability of Surety Liability of Surety: According to Sec 128 of the Contract

Act, the liability of the surety is coextensive with the principal debtor. It means that the liability of the surety is the same as that of the principal debtor. If the amount of debt of the principal debtor is decreased because of whatever reason there will be decrease in the liability of the surety to that extent.

Suit for Claim Against Surety: The liability of the surety is joint and several. Hence, the creditor can sue the surety instead of suing the principal debtor first. The Apex Court also set aside the condition violating this principle or policy of law in Bank of Bihar V. Damodar Prasad

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BAILMENT Introduction : Sometimes, we hand over our goods to

some other person, for example, for safety purpose with a condition of return after the fulfillment of the purpose. It creates a relation of bailor and bailee between those persons. Bailment imposes certain duties on the bailee as well as on the bailor and simultaneously it confers certain rights on them.

In our practical life, we enter into many transactions of this kind such as giving coat to a drycleaner, handing over watch for repairs etc. Hence, it becomes necessary to study the concept as it carries practical importance in our life.

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BAILMENT {CONTD… Meaning of Bailment : Bailment is a kind of contract

between the bailor and bailee in which goods are delivered to the bailee with a condition that the goods be returned to the bailor after the purpose for which they had been given is over. In this contract there is delivery of possession of goods.

Under the Contract Act, 1872 : According to Sec. 148 bailment is the delivery of goods from one person to another for some purpose upon a contract that they shall, when the purpose is accomplished be returned or otherwise be disposed of according to the directions of the person delivering them.

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Essentials of Bailment 1) Delivery of Possession of Goods : The first

condition is that there should be delivery of possession. The possession should be changed from one person to another. Possession includes custody.

2) Upon a Contract : The goods bailed are given upon a contract that the goods be delivered to the same person who delivered them or the goods bailed be disposed of according to the prescription of the bailor. If there is no such arrangement between the bailor and the bailee at the time of entering into the contract, there will be no bailment.

3) For Some Purpose : The goods have been delivered for some purpose, the purpose may be safety of the goods, the repair of the goods, the renewal of goods, etc. The goods be returned when the purpose is achieved by the parties.

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Kinds of Bailment 1. Gratuitous Bailment : When bailment is

for some consideration it is known as gratuitous bailment.

2. Non Gratuitous When bailment is not for some consideration it is known as non gratuitous bailment.

3. for the exclusive benefit of the bailor 4. for the exclusive benefit of the bailee 5. for the mutual benefit of the bailor & bailee

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Duties and liabilities of Bailee and Bailor

Duties and Liabilities of Bailor 1) Duty to Disclose the Defects in the Goods 2) Duty to Pay the Damages to the Bailee : The bailor

owes a duty to disclose the defect in the Duties and Liabilities of the Bailee 1) Reasonable Care of the Goods 2) Duty Not to Make Unauthorized Use of the Goods 3) Duty Not to Mix the Goods 4) Duty to Return 5) Duty to Handover the Increase with the Goods

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PLEDGE ‘Pledge’ or ‘Pawn’ is a kind of bailment of goods

with a special purpose. The goods pledged or pawned serve as security for the payment of a debt or performance of the promise. The person pledging the goods is known as the ‘Pawnor’ and the person with whom the goods are pledged is known as the ‘Pawnee’ or ‘Pledgee’.

Essentials of Pledge : 1) Delivery of Possession 2) Purpose is security for debt.

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Rights of Pledgee or Pawnee

Rights of Pledgee or Pawnee (Secs. 173 to 176) : A pawnee has the following rights under the Act–

1) Right to retain the goods pledged. (Secs. 173 and 174).

2) Right to recover extraordinary expenses incurred by him. (Sec. 175).

3) Rights of suit to secure the debt, etc., and sale of the pledged goods. (Sec. 176).

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AGENCY Introduction : Sometimes, a person opens different branches

when his business progresses. In such a situation, he requires the assistance of some persons who can act on his behalf. The person who gives this kind of assistance is called an agent. This assignment of work creates a specific relationship between those persons.

Meaning of Agency : The word agency is not defined in the Indian Contract Act 1872. yet Sec.182 provides that representative capacity is the basis of agency. Agency is a contract between two persons where one person gives the authority to the other to represent him before the third party. The act done by him will be deemed as if it had been discharged by the person who had given the authority.

For example, If A is the agent of B then A can enter into a contract with C on behalf of A, and C can sue B for any loss or breach of contract.

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The Essential Features of an Agency 1) Existence of the Principal (Sec.183) : The first

essential is that there should be a principal. According to Sec.183 of the Contract Act, the principal should be competent to contract.

2) Existence of the Agent (Sec.184) : There should be an agent in existence at the time of contract.

3) Consideration not Necessary (Sec.185) : No consideration is necessary to create an agency. The provision has already been mentioned as an exception to Sec 25 of the Contract Act. From the very nature of the contract of agency, the principal agrees to be bound by the acts done by the agent on his behalf.

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MODES OF CREATION OF AN AGENC

The relationship of principal and agent may be created in any of the following ways :

1) By Expressed Appointment/Actual Authority 2) Agency by Implication

(a) Agency by holding out (b) Agency by relationship (Husband & wife) (c)Agency by Necessity

3. Agency by Operation of Law 4. Agency by Ratification (Sec 196-200)

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Duties of Agent 1. Execution of the instructions of principal 2. Following the Directions of the Principal 3. To Show Proper Skill and Care (Sec. 212) 4. Non Delegation of Duty 5. Due Care in Appointing Substituted Agent 6. Rendering of proper accounts 7. Proper Communication with the Principal 8. Not to Deal on his Own Account Sec 215 &

216 : 9. Payment of sums received for Principal Sec.

217 & 218

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RIGHTS AND DUTIES OF AGENT AND PRINCIPAL

1. Right to Remuneration Sec 219 2. Rights to Retain the Sums Sec 217 :

Sometimes, the agent incurs expenses in conducting the

3. Right of Lien on the Principal’s Property Sec 219 : The agent is entitled to retain the goods or

4. Right to be Indemnified : The agent is also entitled to be indemnified against the consequences

5. Right to Compensation

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Liability of the Principal

i) Principal’s Liability for Notice to Agent Sec. 229

ii) Principal’s Liability for Agent’s Fraud, Misrepresentation and Torts Sec. 238 (Vicarious Liability)

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TERMINATION OF AGENCY 1. By Revocation of Agent’s Authority 2. By Renunciation 3. By Completion of Business 4.   By Death or Insanity 5. By Principal’s Insolvency 6. By Expiry of Time

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Quasi contracts: [Sec 68-72]

In case of quasi contracts there is no offer, acceptance or consensus; in fact there is no intention on the part of either parties to enter into a contract; still the law, from the conduct & relationship between the parties, implies a promise, imposing obligation on one party & conferring a right in favor of the other party.

Definition: Under certain special circumstances, obligations resembling those created by a contract are imposed by law although the parties have never entered into a contract.

The term “Quasi-Contract” is not used in Indian Contract Act, 1872. Chap V (Section 68-72) of Indian Contract Act, 1872 deals with “Of certain relations resembling those created by contract .

Doctrine of unjust enrichment: A quasi contract rests upon the

doctrine of unjust enrichment which declares that a person shall not be allowed to enrich himself unjustly at others expense.

BREACH OF QUASI CONTRACT

A suit for damages for the breach of contract can be filed in the case of a quasi contract in the same manner as in the case of a completed contract.

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Quasi-contractual obligations: A claim for necessaries supplied to a person

incapable of contracting [Sec. 68] A person who is interested in the payment of money

(in order to protect his own interest), which another person is bound by law to pay, and who therefore pays it, is entitled to be reimbursed [Sec. 69]

Obligation of person enjoying non-gratuitous act [Sec. 70] : the act must have been done lawfully in good faith; the act must be non-gratuitous & the person for whom the act is done must have enjoyed benefit of the act.

Contd.. Responsibility of finder of goods [Sec.

71]: law implies an agreement between the owner & the finder of goods. It casts duties upon the finder of the goods.

Liability of a person to whom money is paid, or goods delivered by mistake or under coercion [Sec. 72]

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