THE INDIAN CONTRACT ACT, 1872

GENERAL PRINCIPLES OF CONTRACT

The Indian Contract Act extends to the whole of India and it came into force on the first day of September 1872.

WHAT IS A CONTRACT?

An agreement enforceable by law is a contract [Sec. 2(h)]

Thus for the formation of a contract there must be:

1. An agreement

2. The agreement should be enforceable by law.

An agreement is defined as every promise and every set of promises forming the consideration for each other and a promise is an accepted proposal. [S. 2(e)]

ESSENTIALS OF A VALID CONTRACT

1.Offer and acceptance 2.Free

consent

3.Capacity

to

contract

4.Lawful

Consideration

5 Lawful

Object

6.Agreement not expressly

declared void

7.Certainty

Of

meaning

8.Possibility

of

performance

9. Legal

formalities

10.Intention to

create legal

relationships

Section 10 0f the Indian Contract Act, 1872 defines a contract as “All agreements are contracts if they are made with the free consent of the parties competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void.”

FREE CONSENT OF PARTIES

Sec. 13: “Two or more persons are said to consent when they agree upon the same thng in the same sense.”

According to Sec.14, “Consent” is said to be free when it is not caused by:

a) Coercion, or b) Undue influence, or c) Fraud, or d) Misrepresentation, or e) Mistake

CAPACITY TO CONTRACT / COMPETENCY OF PARTIES

According to Sec.11, “Every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind and is not disqualified from contracting by the law to which he is subject.”

Thus a person who

a. is of the age of majority according to the law to which he is subject

is of sound mind – A person is said to be of sound mind for the purpose of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgement as to its

b. effect upon his interests.

c. is not disqualified from contracting by any law to which he is subject to is competent to contract.

CONSIDERATION

According to Sec.2(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 consideration for the promise”.Thus “Consideration” means something in return, i.e.quid pro quo.In a contract, both parties must exchange something of value, in order to make the contract enforceable. Thereby, establishing the rule:” No consideration, No Contract”. Where only one party to the agreement gives and the other party does not give anything in reciprocation, it is said to be a gift and not a contract.

Essential elements of a valid consideration:

It must be given only at the desire of the Promisor :

A’s son is lost and B goes in search of him: B would get the reward (if any) only if he acts at the request of A, unless it is a public offer made by A.

Reciprocation may be made by any one, either the promisee himself or a third party.

It may be Past, Present or Future

It must have some value although it need not be adequate.

It must be real and not illusory

FOR A LAWFUL CONSIDERATION AND OBJECT –Consideration or object is UNLAWFUL if (1)It is forbidden by law, (2) Is of such a nature if permitted it would defeat the provisions of any law,(3) It is fraudulent,(4) The court regards it immoral,

(5) The court regards it opposed to public policy. Every agreement of which the consideration or object is unlawful is void.

NOT EXPRESSLY DECLARED TO BE VOID

Agreements become void if consideration and object are unlawful in parts.

Contracts may be classified as under:

a. Valid Contract: A contract which satisfies all the conditions prescribed by law is a valid contract.

b. Void Contract: Although the terms,“Void” and “Contract” cannot go hand-in-hand, since only agreements can be void, yet a contract, when at the time of formation, was valid but later, due to certain extrinsic change in circumstances, becomes unenforceable in the court of law, it is known as a ‘Void Contract’

c. Void Agreement: “An agreement not enforceable by law is said to be void”.Sec.2(g)Such agreements are void ab initio which means that they unenforceable right from the time they are made.

d. Voidable Contract: “An agreement which is enforceable by law at the option of one or more of the parties thereon, but not at the option of the other or others, is a voidable contract.”Sec.2(i).

In simple words, a voidable contract is one, which may be set aside or called off by one of the parties, generally because that party’s consent may not have been given of free will. In this case, one of the parties is aggrieved and hence has an option either to cancel the contract or to continue.

VOID, VOIDABLE AND UNENFORCEABLE CONTRACTSThere are three classifications of contracts that are not binding. A contract is void if it is based on an illegal purpose or contrary to public policy. It will not be recognized by court or enforceable by either party. A contract is voidable

VOIDABLE CONTRACT

OPTION IThe party may repudiate (not accept) the contract even if he had earlier consented to it, since his consent was not free.

OPTION IIThe party may choose to continue with the contract, even if his consent was not free.

if one of the parties has the option to terminate the contract. Contracts with minors are examples of voidable contracts.

BILATERAL V. UNILATERAL CONTRACTSContracts may be bilateral or unilateral. The more common of the two, a bilateral contract, is an agreement in which each of the parties to the contract makes a promise or promises to the other party. For example, in a contract for the sale of a home, the buyer promises to pay the seller Rs.2,00,000 in exchange for the seller's promise to deliver title to the property. In a unilateral contract only one party to the contract makes a promise. The most common type of unilateral contract is an insurance contract. The insurance company promises to pay the insured a stated amount of money on the happening of an event if the insured pays premiums; note that the insured does not make any promise to pay the premia.

EXPRESS CONTRACTS V. IMPLIED CONTRACTSA contract can be either an express contract or an implied contract. An express contract is one in which the terms are expressed verbally, either orally or in writing. An implied contract is one in which some of the terms are not expressed in words.

I M P L I E D I N F A C T O R I M P L I E D I N L A WAn implied contract can either be implied in fact or implied in law. A contract which is implied in fact is one in which the circumstances imply that parties have reached an agreement even though they have not done so expressly. For example, by going to a doctor for a physical, a patient agrees that he will pay a fair price for the service. If he refuses to pay after being examined, he has breached a contract implied in fact.

Q U A S I - C O N T R A C T SA contract which is implied in law is also called a quasi-contract, because it is not in fact a contract; rather, it is a means for the courts to remedy situations in which one party would be unjustly enriched were he or she not required to compensate the other. For example, an unconscious patient treated by a doctor at the scene of an accident has not agreed (either expressly or by implication) to pay the doctor for emergency services, but the patient would be unjustly enriched by the doctor's services were the patient not required to compensate the doctor.

FORMATION OF A CONTRACTFor the formation of a contract the process of proposal or offer by one party and the acceptance thereof by the other is necessary. This generally

involves the process of negotiation where the parties apply their minds, make an offer, give acceptance and create a contract.

Offer[ S. 2(a)] When one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of the other to such act or abstinence, he is said to make a proposal.

Requisites of a valid Offer - An offer to be valid must fulfill the condition mentioned herein below:

a. Intention to create legal relationship

b. Certain and Unambiguous terms

c. Must not be a mere declaration of intention

d. Should be different from an invitation to offer

e. Should be properly communicated

f. Should not contain any term, the non-compliance of which would amount to acceptance.

Acceptance [S.2(b)]When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.

In order to convert a proposal into a promise, the acceptance must be

1. Absolute and unqualified – Any departure from the terms of the offer or any qualification vitiates the acceptance unless it is agreed to by the person from whom the offer comes. An acceptance with a variation is no acceptance; it is simply a counter proposal.

2. Expressed in some usual and reasonable manner. – If the proposer /offeror prescribes any particular manner of acceptance it has to be made in that manner and where no manner is prescribed it should be in a usual and reasonable manner. Communication of acceptance (before lapse of time) is very vital, for the purpose of completing the primary requirements of formation a contract.

FREE CONSENT OF PARTIES

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

According to Sec.14, “Consent” is said to be free when it is not caused by:

a) Coercion, or b) Undue influence, or c) Fraud, or d) Misrepresentation, or e) Mistake

Consent is said to be free when it is NOT caused by

Coercion [S.15]– Consent is said to be caused by coercion when it is obtained by pressure exerted by either committing or threatening to commit an act forbidden by the Indian Penal Code or unlawfully detaining or threatening to detain any property.

Illustration

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

A afterwards sues B for breach of contract at Calcutta.

A has employed coercion, although his act is not an offence by the law of England, and although 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.

Undue influence [S.16]– A contract is said to be induced by "undue influence" where the relation subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

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 then the sum due in respect of the advance. A employs undue influence

Fraud [S.17]– Means and includes the following acts done with the intention to deceive or to induce a person to enter into a contract. (a) the suggestion that a fact is true when it is not true and the person making the suggestion does not believe it to be true (b) active concealment of a fact by a person who has knowledge or belief of the fact, (c) promise made without the intention of performing it.

Illustration

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.

Misrepresentation [S.18]– When a person positively asserts that a fact is true when his information does not warrant it to be so, though he believes it to be true, it is misrepresentation. A breach of duty which brings an advantage to the person committing it by misleading the other to his prejudice is also a misrepresentation.

19. Voidability of agreements without free consent

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

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

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

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

Illustrations

    (a) A, intending to deceive B, falsely represents that five hundred maunds of indigo are made annually at A's factory, and thereby 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 mounds 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.

Mistake [Ss.20,21]– Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. An erroneous opinion as the value of the thing, which forms the subject matter of the agreement, is not deemed as mistake as to a matter of fact . Unilateral mistake, i.e. the mistake in the mind of only one party does not affect the validity of the contract.

Effect of mistake as to law

A contract is not voidable because it was caused by a mistake as to any law in force in India; but a mistake as to a law not in force in India has the same effect as a mistake of fact.

Illustration

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

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, 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 be deemed a mistake as to a matter of fact.

Illustration

  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 in the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of these facts. The agreement is void.

CAPACITY TO CONTRACT / COMPETENCY OF PARTIES

According to Sec.11, “Every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind and is not disqualified from contracting by the law to which he is subject.”

Thus a person who

a. is of the age of majority according to the law to which he is subject

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

c. is not disqualified from contracting by any law to which he is subject to is competent to contract.

d. is of the age of majority according to the law to which he is subject

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

f. is not disqualified from contracting by any law to which he is subject

is competent to contract.

Therefore, a minor is not competent to contract and an agreement by a minor is void ab initio. He cannot ratify an agreement on attaining the age of majority and validate the same. (Void ab initio means it has at no time had any legal validity).

The following persons are therefore INCOMPETENT to contract:

1. Minors: The law protects minor’s rights because they are not mature and may not possess the competency to judge the implication of their acts and omissions .An agreement with a minor, as such, is void ab initio, i.e unenforceable right from its inception.

Mohori Bibee v. Dharmodas Ghose

D, a minor borrowed a sum from M by executing a mortgage of his property in favour of M. Subsequently, D sued for setting aside the mortgage. The Privy Council held that Sections 10 & 11 of the Indian Contract Act make the minor’s agreement void and therefore the mortgage was not valid. M prayed for refund of the amount by the minor. It was held that the money advanced to the minor cannot be recovered because minor’s agreement is void.

2. Persons of unsound mind

a. Insane Persons

b. Congenital Idiots

c. Lunatics (permitted to contract during the period of lucidity, i.e. when they are of

sound mind)

d. Drunken Persons

3. Persons disqualified by law to which they are subject

a. Convict – On who is sentenced to a term of imprisonment, has to forgo many a Constitutional as well as contractual rights.

b. Alien Enemy – A national of a country with which one’s own country is at war.

c. Foreign Sovereign – Persons holding senior Government positions, representing other countries such as Ambassadors, High Commissioners, Foreign Secretaries and the like, who enjoy special privileges and immunities that do not make them subject to Indian laws(with exceptions). Hence, they cannot be tried in Indian courts if they default on performance of a contract.

d. Insolvent – A person whose liabilities exceed his assets and as such would not be able to honour and fulfill his commitments if he enters into a contract.

CONSIDERATION

According to Sec.2(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 consideration for the promise”.Thus “Consideration” means something in return, i.e.quid pro quo.In a contract, both parties must exchange something of value, in order to make the contract enforceable. Thereby, establishing the rule:” No consideration, No Contract”. Where only one party to the agreement gives and the other party does not give anything in reciprocation, it is said to be a gift and not a contract.

Essential elements of a valid consideration:

It must be given only at the desire of the Promisor :

A’s son is lost and B goes in search of him: B would get the reward (if any) only if he acts at the request of A, unless it is a public offer made by A.

Reciprocation may be made by any one, either the promisee himself or a third party.

It may be Past, Present or Future

It must have some value although it need not be adequate.

It must be real and not illusory

If one party does not give anything, such party cannot complain in case it is aggrieved.

However, there may be exceptions to the rule “No consideration, No Contract”; these are mentioned under Sec.25( which is also a part of the discussion under “Void Agreements”)

An agreement made without consideration is void, unless -

(1) it is expressed in writing and registered under the law for the time being in force for the registration of documents, and is made on account of natural love and affection between parties standing in a near relation to each other; or unless. 

(2) it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do; or unless. (3) it is a promise, made in writing and signed by the person to be charged therewith or by his agent generally or specially authorised in that behalf, to pay wholly or in part 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 actually made.

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

FOR A LAWFUL CONSIDERATION AND OBJECT –Consideration or object is UNLAWFUL if (1) It is forbidden by law, (2) Is of such a nature if permitted it would defeat the provisions of any law,(3) It is fraudulent,(4) The court regards it immoral,(5) The court regards it opposed to public policy. Every agreement of which the consideration or object is unlawful is void.

NOT EXPRESSLY DECLARED TO BE VOID

1. Agreements become void if consideration and object are unlawful in parts.

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

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

of law to discourage agreements, which restrain freedom of marriage. Where a party is restrained from marrying at all, or for marrying for a fixed period or from marrying a particular person, or class of persons, the agreement is void.

4. Agreement in restraint of trade. Every agreement, by which one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.

5. Agreement in restraint of legal proceedings. Every agreement by which any party thereto is restricted absolutely from enforcing his \rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights is void to that extent.

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

7. Agreements by way of wager/ Bet. Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on wager, or entrusted to any person to bide by the result of any game or other uncertain event on which any wager is made. (Wager means betting or gambling). However certain prizes for horseracing are exempted.

8. Agreement to do an impossible act

An agreement to do an act impossible in itself is void.Contract to do act afterwards becoming impossible or unlawful: A contract to do an act which, after the contract is made, becomes impossible or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

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.

PERFORMANCE OF CONTRACTS

Obligations of parties to contracts [S.37]

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 promisor in case of the death of such promisors before performance, unless a contrary intention appears from the contract.

Illustration

 A promises to deliver goods to B on a certain day of payment of Rs. 1,000. A dies before that day. A's representatives are bound to deliver the goods to B, and B is bound to pay the Rs. 1,000 to A's representatives.

TYPES OF PERFORMANCE

Every contract consists of reciprocal promises. As a general rule, the parties to a contract must perform or offer to perform their respective promises and obligations. When one party performs his promise, he can enforce the performance of the promise of the other party.

a) Actual Performance: When both the parties to the contract discharge their respective obligations on the stipulated date and as per the conditions laid down in the contract, they are said to have effected actual performance of the contract.

b)Attempted Performance/ Tender of Performance: Where a promisor has made an offer of performance to the promisee and the offer has been accepted by the promisee, it is called an a 

Effect of refusal to accept offer of performance[S.38]

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 officer must fulfil the following conditions-

    (1) it must be unconditional;

    (2) it must be made at a proper time and place, and under such circumstances that the person to whom it is made may have a reasonable opportunity of ascertaining that the person by whom it is been 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.

Effect of refusal of party to perform promise wholly [S.39]

When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.

Illustrations

    (a) A, a singer, enters into 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 100 rupees for each night's performance. On the sixth night A wilfully absents herself from the theatre. B is at liberty to put an end to the contract.

    (b) A, a singer, enters into 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 sings on the seventh night. B has signified his acquiescence in the continuance of the contract, and cannot now put an end to it, but is entitled to compensation for the damage sustained by him through A's failure to sing on the sixth night.

BY WHOM CONTRACTS MUST BE PERFORMED

Person by whom promise is to be performed [S.40]

If it appears from the nature of the case that it was the intention of the parties to any contract that any promise contain 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.

Illustration

A promises to pay B a sum of money. A may perform this promise, either by personally paying the money to B, or by causing it to be paid to B by another; and, if A dies before the time appointed for payment, his representatives must perform the promise, or employ some proper person to do so.   .

Effect of accepting performance from third person [S.41]

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

DISCHARGE OF A CONTRACT

Discharge of a contract means termination of the contractual relations between the parties to a contract. A contract is said to be discharged when the rights and obligations of the parties to the contract come to an end.

MODES OF DISCHARGE OF A CONTRACT [Ss.37 to 75]

1.Discharge by Performance: A contract can be discharged by performance in the following ways:

a. By Actual Performance: A contract is said to be discharged by actual performance when the parties to the contract perform their promises in accordance with the terms of the contract.

b. By Attempted Performance or tender: A contract is said to be discharged by attempted performance when the promisor has made an offer of performance to the promisee but it has not been accepted by the promisee.

2. Discharge by Mutual Agreement:

a. Novation: means the substitution of a new contract for the original contract.Such a new contract may be either between the same parties or between different parties.The consideration of the new contract is the discharge of the original contract.

b. Rescission: means the cancellation of the contract by any party or all the parties to a contract.

c. Alteration: means a change in the terms of a contract with mutual consent of the parties.Alteration discharges the original contract and creates a new contract.However, parties to the new contract must not change.

d. Remission: means acceptance by the promisee of a lesser fulfillment of the promise made.

e. Waiver means intentional relinquishment of a right under the contract. Thus it amounts to releasing a person of certain legal obligation under the contract.

3. Discharge by Operation of law

By death of the promisor, by insolvency, by unauthorized material alteration.

4. Discharge by Impossibility of Performance:

a. By Initial impossibility Agreements that are void ab initio e.g. An agreement with a Minor would be impossible to perform due to initial impossibility.

b. By Supervening(subsequent) impossibility also known as “Frustration”

Which may be caused due to:

Destruction of Subject-matter

Change in law

Outbreak of War

Death of parties

In Krell v Henry, the landlord was not allowed to charge rent from the one- day tenant since the purpose for which the tenant had taken the room on hire (to watch the coronation procession of the King-to-be) was frustrated, as the procession was called off. Hence the subject matter in this case did not materialize and the contract was discharged due to supervening impossibility to perform.

5.Discharge by Breach

A contract is said to be discharged by breach of contract if any party to the contract refuses or fails to perform his part of the contract or by his act makes it impossible to perform his obligation under the contract. A breach of contract may occur in following two ways;

a. Anticipatory breach of contract: occurs when the declares his intention of not performing the contract before the performance is due. [Frost v. Knight]

b. Actual breach – a breach that occurs during the course of performance or on the due date of performance.

BREACH OF CONTRACT

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 the Act, or any other law.

Promises bind the representatives of the promisor in the case of death of such promisor before performance, unless a contrary intention appears from a contract.

In a contract the agreement being enforceable by law, each party to the contract is legally bound to perform his part of the obligation. Non-performance of the duty undertaken by a party in a contract amounts to breach of contract, for which he can be made liable.

REMEDIES

When a party to the contract commits a breach of contract, there are two possible alternatives available to the other party.

Firstly to bring an action for the breach of contract, and secondly he may bring an action for specific performance of the contract.

REMEDIES IN CASE OF BREACH

1. Compensation for loss or damage caused by breach of contract.

For the breach of contract damages is the most appropriate remedy. When a contact 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 or indirect loss or damage sustained by reason of the breach.

In Hadley v. Baxendale it was laid down that the court would take into account only such loss as may be fairly and reasonably considered arising naturally from the breach of the contract itself.

Illustration

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 B can obtain for the ship at the time of breach of promise.

2. Compensation for breach of contact where penalty stipulated.

When a contract has been broken and a sum has been named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether actual damage or loss is proved to have been caused thereby, to receive from the party who as broken the contract reasonable compensation not exceeding the amount so named or, the penalty stipulated for.

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 practises as a surgeon within Calcutta, he will pay B Rs. 5,000. A practises as a surgeon in Calcutta. B is entitled to such compensation; not exceeding Rs. 5,000 as the court considers reasonable.

  3.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 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. On the sixth night, A willfully absents herself from the theatre, and B, in consequence, rescinds the contracts. B is entitled to claim compensation for the damage which he has sustained through the non-fulfilment of the contract.

4. Quantum Meruit – ‘Quantum meruit’ means ‘as much as earned’. A contract may come to end by * breach of contract * contract becoming void or * Voidable contract avoided by party. In such case, if a party has executed part of contract, he is entitled to get a proportionate amount i.e. ‘as much as earned by him’. This is not by way of ‘damages’ or ‘compensation for loss’. - - The principle is that even when contract comes to a premature end, the party should get amount proportional to the work done/services provided/goods supplied by one party.  One party should not get enriched at the cost of other.

5. Specific Performance

Specific performance means actual execution of the contract as agreed between the parties.

Specific Performance of any contract may, in the discretion of the court be enforced in the following situations –

When there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done; or

When the act agreed to be done is such that compensation in money for its non-performance would not afford adequate relief.

Exceptions: where compensation would be adequate relief are:

1. Agreement by a landlord for repair of the rented premises;

2. Contract for the mortgage of immovable property;

3. Contract for the sale of any goods, for instance machinery or buffaloes. However, a contract to deliver rare coins would be

specifically enforceable, as compensation would not constitute adequate relief in such a case;

4. An agreement to pay money by installments;

5. An agreement for lending money.

BESIDES THE FOLLOWING:

A contract which runs into such minute or numerous details or which is so dependent on the personal qualifications or volition of the parties, or otherwise from its nature is such, that the court cannot enforce specific performance of its material terms, cannot be specifically enforced.

Another situation when a contract cannot be specifically enforced is where "the contract is in its nature determinable". A contract is said to be determinable, when a party to the contract can put it to an end.

A contract the performance of which involves the performance of a continuous duty, which the Court cannot supervise, cannot be specifically enforced.

CONTRACT OF INDEMNITY

"Contract of Indemnity" defined [S. 124]

A contract by which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person, is called a "contract of indemnity".

Illustration

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

Rights of indemnity-holder when sued [S. 125]

The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor-

 (1) all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies;

 (2) all costs which he may be compelled to pay in any such suit, if in bringing or defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorized him to bring or defend the suit;

 (3) all sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorised him to compromise the suit.

CONTRACT OF GUARANTEE [S. 126]

A "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the "surety", the person in respect of whose default the guarantee is given is called the "principal debtor", and the person to whom the guarantee is given is called the "creditor". A guarantee may be either oral or written.

Consideration for guarantee [S. 127]

Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee.

Illustrations

(a) B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of A's promise to deliver the goods. This is a sufficient consideration for C's promise.

    (b) A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the debt for a year, and promises that, if he does so, C will pay for them in default of payment by B. A agrees to forbear as requested. This is a sufficient consideration for C's promise.

    (c) A sells and delivers goods to B.A afterwards, without consideration, agrees to pay for them in default of B. The agreement is void.

Surety's liability [S. 128]

The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.

Illustration

A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is dishonoured by C. A is liable not only for the amount of the bills but also for any interest and charges which may have become due on it.

MODES OF DISCHARGE OF A SURETY FROM HIS LIABILITY

Discharge of surety by variance in terms of contract [S. 133]

Any variance made without the surety's consent, in the terms of the contract between the principal  debtor and the creditor, discharges the surety as to transactions subsequent to the variance.

Illustrations

    (a) A becomes surety to C for B's conduct as manager in C's bank. Afterwards, B and C contract, without A' s consent, that B' s salary shall be raised, and that he shall become liable for one-fourth of the losses on overdrafts. B allows a customer to over-draw, and the bank loses a sum of money.

A is discharged from his suretyship by the variance made without his consent, and is not liable to make good this loss.

    (b) A guarantees C against the misconduct of B in an office to which B is appointed by C, and of which the duties are defined by an Act of the Legislature. By a subsequent Act, the nature of the office is materially altered. Afterwards, B misconducts 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.

   

Discharge of surety by release or discharge of principal debtor [S. 134]

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.

Illustration

    (a) A gives a guarantee to C for goods to be supplied by C to B. C supplies goods to B, and afterwards B becomes embarrassed and contracts with his creditors (including C) to assign to them his property in consideration of their releasing him from their demands. Here B is released from his debt by the contracts with C, and A is discharged from his suretyship.

Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor [S. 135]

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

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

Where a contract to give time to he principal debtor is made by the creditor with a third person, and not with the principal debtor, the surety is not discharged.

Illustration

C, the holder of an overdue bill of exchange drawn by A as surety for B, and accepted by B, contracts with M to give to B. A is not discharged.

Rights of surety on payment or performance [S. 140]

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.

Surety's right to benefit of creditor's securities[S. 141]

A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship 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 existence of such security or not; and if the creditor loses, or without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security.

Illustrations

(a) C advances to B, his tenant, 2,000 rupees on the guarantee of A. C has also further security for the 2,000 rupees by a mortgage of B's furniture. C, cancels the mortgaged. 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's is secured by a decree, receives also a guarantee for that advance from A. C afterwards 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. Afterwards, C obtains from B a further security for the same debt. Subsequently, C gives up the further security. A is not discharged.

Guarantee obtained by misrepresentation, invalid [S. 142]

Any guarantee which has been obtained by means of misrepresentation made by the creditor, or with his knowledge and assent, concerning a material part of the transaction, is invalid.

Guarantee obtained by concealment, invalid [S. 143.]

Any guarantee which the creditor has obtained by means of keeping silence as to material circumstances, is invalid.

Illustrations

 (a) A engages B as clerk to collect money for him. B fails to account for some of his receipts and A in consequence call upon him to furnish security for his duly accounting. C gives his guarantee for B's duly accounting. A does not acquaint C with B's previous conduct. B afterwards makes default. The guarantee is invalid.

(b) A guarantees to C payment for iron to be supplied by him to B to the amount of 2,000 tons. B and C have privately agreed that B should pay five rupees per tonne beyond the market price, such excess to be applied in

liquidation of an old debt. This agreement is concealed from A. A is not liable as a surety.

BAILMENT

Section 148 of the Indian Contract Act, 1872 defines "Bailment" as under:

A "bailment" is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.

 The person delivering the goods is called the "bailor". The person to whom they are delivered is called the "bailee".

Explanation: If a person already in possession of the goods of another 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.

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.

DUTIES OF THE BAILOR AND THE BAILEE

1. Bailor’s duty to disclose 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 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 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.

2. 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 as the goods bailed.

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.

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 foods bailed, inconsistent with the conditions of the bailment.

Illustration

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

2.3.6 Liability of bailee making unauthorised use of goods bailed

If the bailee makes any use of the goods bailed which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them.

Illustration

A lends a horse to B for his own riding only. B allows C, a member of his family, to ride the horse. C rides with care, but the horse accidentally falls and is injured. B is liable to make compensation to A for the injury done to the horse.

2.3.7 Bailee's particular lien

Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the

goods bailed he has in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.

Illustrations

    (a) A delivers a rough diamond to B, a jeweller, to be cut and polished, which is accordingly done. B is entitled to retain the stone till he is paid for the service he has rendered.

    (b) A gives cloth to B, a tailor, to make into a coat, B promises A to deliver the coat as soon as it is finished, and to give a three months' credit for the price, B is not entitled to retain the coat until he is paid.

2.4 PLEDGE

2.4.1 Section 172 of the Indian contract Act defines "Pledge", "pawnor", and "pawnee" as under:

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".

2.4.2 Pawnee's right of retainer

The pawnee may retain the goods pledged, not only for payment of the debt or the performance of the promise, but for the interests of the debt, and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged.

2.4.3 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 debt or promise for which they are pledged; but such contract, in the absence of anything to the contrary, shall be presumed in regard to subsequent advances made by the pawnee.

2.4.4 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.

2.4.5 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 he may sell the thing pledged, on giving the pawnor reasonable notice of the sale.

If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.

2.4.6 Defaulting pawnor's right to redeem

If a time is stipulated for the payment of the debt, or performance of the promise, for which the pledge is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them; but he must, on that case, pay, in addition, any expenses which have arisen from his default.

SELF-ASSESSMENT

Define “Bailment” and describe the essential elements of Bailment

How different is Pledge from Bailment?

Discuss the concepts of “bailment” and “pledge”.

CHAPTER VI

2.5 CONTRACT OF AGENCY

2.5.1 Section 182 of the Indian Contract Act, 1872 defines "Agent" and "Principal"

An "agent" is a person employed to do any act for another, who is so in dealings with third persons. The person for whom such act is done, or represented, is called the "principal".

‘Representative Capacity is the hallmark of Agency’ i.e the contract of agency is based on the principle of representation of one person by another in trade dealings.

2.5.2 Who may employ agent [S. 183]

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

2.5.3 Who may be an agent [S. 184]

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 the principal according to the provisions in that behalf herein contained.

2.5.4 CREATION OF AGENCY

Agency may be created by delegation of authority by the Principal; the authority may be express or implied, by virtue of which the agent is bound and accountable to the principal. However, the primary liability lies with the Principal and he is, in most situations liable to third parties.

When one person acts on behalf of another, without his express consent(obtaining approval later – i.e ratification), or he acts in an emergency or in case of necessity, he is said to have acted with implied authority

MODE1: AGENCY BY AUTHORITY; EXPRESS OR IMPLIED

Agent's authority may be express or implied [S. 186]

The authority of an agent may be express or implied.

No consideration is necessary to create an agency

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 circumstances of the case.

Illustration

A owns a shop in Serampur, living himself in Calcutta, and visiting the shop occasionally. The shop is managed by B, and he is in the habit of ordering goods from C in the name of A for the purposes of the shop, and of paying for them out of A's funds with A's knowledge. B has an implied authority from A to order goods from C in the name of A for the purpose of the shop.

Extent of agent's authority [S. 188]

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

An agent having an authority to carry on a business, has authority to do every lawful thing necessary for the purpose, or usually done in the course, of conducting such business.

Illustrations

    (a) A is employed by B, residing in London, to recover at Bombay a debt due to B. A may adopt any legal process necessary for the purpose of recovering the debt, and may give a valid discharge for the same.

    (b) A constitutes B his agent to carry on his business of a shipbuilder. B may purchase timber and other materials, and hire workmen, for the purpose of carrying on the business.

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 good repaired if it be necessary.

    (b) A consigns provision to be at Calcutta, with direction to send them immediately to

C, at Cuttack. B may sell the provision at Calcutta, if they will not bear the journey

to Cuttack without spoiling.

SUB-AGENT

When agent cannot delegate

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

"Sub-agent" defined [S. 191]

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

Representation of principal by sub-agent properly appointed [S. 192]

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 to the principal for the acts of the sub-agent.

Sub-agent's responsibility: The sub-agent is responsible for his acts to the agent, but not to the principal, except in case of fraud or wilful wrong.

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 person; the principal is not represented, by or responsible for the acts of the person so employed, nor is that person responsible to the principal.

Substituted Agent is a concept wherein the agent is delegated the sole function of appointing another agent who would work for the Principal. The

first agent , thereafter ceases to continue as agent and the newly appointed agent then takes over.

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.

Illustration

A directs B, his solicitor, to sell his estate by auction , and to employ an auctioneer for the purpose. B names C, an auctioneer, to conduct the sale. C is not a sub-agent, but is A's agent for the conduct of the sale.

MODE 2: AGENCY BY 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 effects will follow as if they had been performed by his authority.

Ratification may be express or implied

Ratification may be expressed or may be implied in the conduct of the person on whose behalf the acts are done.

Illustration

A, without authority, buys goods, for B. Afterwards B sells them to C on his own account; B's conduct implies a ratification of the purchase made for him by A.

Requisites of a valid ratification:

The principal must be in existence at the time the act to be ratified was being performed.

The principal must have capacity to contract, at the time the act was being performed.

The act must be done for or on behalf of the Principal

The agent must communicate whole of the facts to the Principal before getting the act ratified.

The principal must ratify the entire transaction.

The act to be ratified must be legal.

Ratification must be done within reasonable time.

Ratification must be communicated to the concerned party.

Ratification relates back to the date , the act was performed.

MODE 3: AGENCY BY NECESSITY

Agency by necessity arises under the following two conditions:

i. There is an actual and definite necessity for acting on behalf of the Principal, and

ii. It is impossible to communicate with the Principal and obtain his consent.

iii. The act must have been done in the best interest of the Principal.

MODE 4: AGENCY BY OPERATION OF LAW

Agency by operation of law is said to arise where the law treats one person as an agent of another.

MODE 5: AGENCY BY ESTOPPEL

Agency by Estoppel arises where a person, by his words or conduct induces third persons to believe that a certain person is his agent. The person who induces as such is estopped from denying the truth of the agency.

Illustration:

A tells B, in the presence and within the hearing of C that he is C’s agent. C does not contradict this statement, although it is not true. Later on B enters into a contract with A believing that A is C’s agent. In such a case, C is bound by this contract and in a suit between C and B, C cannot be permitted to deny his liability as A’s Principal.

2.5.5 REVOCATION OF AUTHORITY

Termination of agency [S. 201]

An agency is terminated by the principal revoking his authority, or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors.

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.

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.

Notice of revocation or 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.

Revocation and renunciation may be expressed or implied

Revocation or renunciation may be expressed or may be implied in the conduct of that principal or agent respectively.

Illustration

A empowers B to let A's house. Afterwards A lets it himself. This is an implied revocation of B's authority.

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, takes effect before it becomes known to him, or, so far as regards third persons, before it becomes known to them.

Illustration

A directs B to sell goods for him, and agrees to give B five per cent commission on the price fetched by the goods. A afterwards by letter, revokes B's authority. B after the letter is sent, but before he receives it,sells the goods for 100rupees. The sale is binding on A,and B is entitled to five rupees as his commission.

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 representative, of his late principal, all reasonable steps for the protection and reservation of the interests entrusted to him.

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.

2.5.6 AGENT'S DUTY TO PRINCIPAL

Agent's duty in conducting principal's business

An agent is bound to conduct the business of his principal according to the directions given by the principal, or in the absence of any such directions according to the customs 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, 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, on its to make such investment. A must make good to B the interest usually obtained by such investments.

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 possesses; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill, or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill, or misconduct.

Illustration

A, a merchant in Calcutta, has an agent, B, in London, to whom a sum of money is paid on A's account, with order to remit. B retains the money for 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 ought 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.

Agent's, duty to communicate with principal

It is the duty of an agent in case of difficulty, to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions.

3. THE SALE OF GOODS ACT, 1930

Preamble to the Act:“An Act to define and amend the law relating to the sale of goods.”Scope of the Act: The Sale of Goods Act, 1930 governs the contracts relating to sale of goods. It applies to the whole of India except the State of Jammu & Kashmir. The contracts for sale of goods are subject to the general principles of law relating to contracts i.e. the Indian Contact Act,1872. A contract for sale of goods has, however, certain peculiar features such as, transfer of ownership of the goods, delivery of goods rights and duties of the buyer and seller, remedies for breach of contract, conditions and warranties implied under a contract for sale of goods, etc. These peculiarities are the subject matter of the provisions of the Sale of Goods Act, 1930.

CHAPTER I  

3.1 DEFINITIONS

1. Contract Of Sale: “A contract of sale is a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a price.”[Sec. 4(1)]

The essential elements of a contract of sale are:

a. Two parties and an agreement in between them i.e. “Seller and Buyer”

b. Subject matter of contract i.e. “Goods”

c. Transfer of ownership as well as possession, from one party to the other i.e.”Transfer of Property in the Goods”.

d. Consideration i.e.”Price”

e. All the essential elements of a valid contract.

2. "buyer" means a person who buys or agrees to buy goods .Sec2(1) 

3."delivery"  means voluntary transfer of possession from one person to another.  Sec2(2)

4."document  of title  to goods"  includes a  bill of  lading, dock- warrant, warehouse  keeper's  certificate,  wharfingers'  certificate, railway receipt,  1 [multi modal  transport document], warrant or order for the  delivery of goods and any other document used in the ordinary course of  business as proof of the possession or control of goods, or  authorizing or  purporting to  authorize, either  by endorsement or by  delivery, the  possessor of  the document to transfer or receive goods thereby represented. Sec.2(4)

5."future  goods" means  goods to  be manufactured  or  produced  or acquired by the seller after the making of the contract of sale. Sec.2(6) 

6."goods"   means  every  kind  of  moveable  property  other  than actionable claims  and money:  and includes  stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale Sec.2(7)  

7."price" means the money consideration for a sale of goods. Sec.2(10) 

8."property"  means the general property in goods, and not merely a special property Sec.2(11)

9."quality of goods" includes their state or condition Sec.2(12) 

10."seller" means a person who sells or agrees to sell goods. Sec.2(13) 

11"specific  goods" means  goods identified  and agreed upon at the time a contract of sale is made Sec.2(14)  

CHAPTER II

4. 2 GOODS--Meaning of

Under the  definition of  "goods" as  given in the Sales of Goods Act, "goods" must  be property  and must  be movable.  Any kind of property which is movable would fall within the definition of "goods" provided it was transmissible or  transferable from hand to hand or capable of delivery which  need not  necessarily, be  in a tangible in a physical sense.

Goods means every kind of immoveable property other than actionable claims and money, and includes the following:

Stocks and Shares

Growing crops, grass and things attached to or forming part of the land which are agreed to be served before sale or under the contract of sale

What is an “Actionable Claim”?

A claim to any debt or any beneficial interest in moveable property not in possession. Such claims cannot be sold or purchased like goods, they can only be assigned, e.g.a debt due from another person. In other words, an actionable claim

is one which can be enforced in the court of law; it is a mere right and hence an abstract in nature… not qualifying as goods.

TYPES OF GOODS

A. Existing Goods – The goods, which are either owned or possessed by the seller at the time of the contract of Sale. These goods may further be sub-divided as:

(i) Specific Goods—These are goods which are identified and agreed upon at the time when a contract of sale is made. E.g an automobile or a mobile phone.

(ii) Ascertained Goods – Goods are said to ascertained when out of a massof unascertained goods, the quantity or number contracted for is identified and earmarked for sale.

(iii) Unascertained Goods -- These are the goods which are not identified and agreed upon at the time when a contract of sale is made e.g goods in stock or lying in lots.

B. Future Goods – Means goods to be manufactured or produced or acquired by the seller after the making of the contract of sale. In this case there can only be an Agreement to Sell rather than a contract of sale.

 4.2.1EFFECTS OF DESTRUCTION OF GOODS - ALREADY CONTRACTED

There are various kinds of goods and the parties have various options to agree about the delivery of the goods. What shall be the fate of a contract if the goods are perished or destroyed?

A) Destruction before making of contract -- Where in a contract for sale of specific goods, at the time of making the contract, the goods, without knowledge of the seller, have perished or become so damaged as no longer to answer to their description in the contract, the contract shall become null and void. This is based on the rule of impossibility of performance. Since the subject matter of the contract, which is one of its essential ingredients, itself is destroyed, the contract cannot be carried out.

'Perishing of goods' includes not only complete destruction of the goods when the seller has been irretrievably deprived by the goods or when the goods have been stolen or have in some other way been lost and are untraceable, but also when the goods become un merchantable i.e. when the goods has lost their commercial value.

B) Destruction After the Agreement to Sell but before Sale -- Where in an agreement to sell specific goods, if subsequently the goods, without any fault on the part of the seller of buyer, perish or become so damaged as no longer answer to their description in the agreement, the agreement shall become void, provided the goods are perished before the ownership and risk passes to the buyer. This rule is based on the ground of impossibility of performance.

If the title to be goods has already passed to the buyer, he must pay for the goods though the same cannot be delivered.

4.2.2DOCUMENTS OF TITLE TO GOODS

A document of title to goods is one, which entitles and enables its rightful holder to deal with the goods represented by it, as if he were the owner. It is used in the ordinary course of business as proof of the ownership, possession or control of goods. It authorises the possessor to receive the goods. It also confers a right on the possessor to transfer the goods to another person, by mere delivery or by proper endorsement and delivery.

Cash memo, bill of lading, dock warrant, warehouse keeper's or wharfinger's certificate, lorry receipt (L/R), railway receipt (R/R) and delivery order are some of the instances of document of title to goods.

CHAPTER III

3.3 DISTINCTION BETWEEN “SALE” AND “AGREEMENT TO SELL”

A 'sale' must be distinguished from an 'agreement to sell' since the legal implications of the two terms are vastly different. A contract wherein, the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of property in the goods is to take place at a future time, or subject to some conditions, thereafter to be fulfilled, it is called an agreement to sell. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

1. Transfer of Ownership:

In sale transfer of ownership of goods takes place immediately.

In agreement to sell- transfer of ownership of goods is to take place at a future time or subject to the fulfillment of some condition.

2. Executed or Executory Contract:

Sale is an executed contract because nothing remains to be done.

An agreement to sell is an executory contract because something remains to be done.

3. Conveyance of Property:

Buyer gets a right to enjoy the goods against the whole world including the seller. Therefore, a sale creates a jus in rem (Right against property).

Buyer does not get such right to enjoy the goods. It only jus in personam (Right against the person)

4. Transfer of Risk:

Transfer of risk of loss of goods takes place immediately because ownership is transferred. As a result, in case of destruction of goods, the loss shall be borne by the buyer even though the goods are in the possession of the seller.

Transfer of risk of loss of goods does not take place because ownership is not transferred. As a result, in case of destruction of goods, the loss shall be borne by the seller even though the goods are in the possession of the buyer.

5. Consequences of breach:

In a sale, if the buyer fails to pay the price of the goods he purchases or if there is a breach of contract by the buyer, the seller can sue for the price, even though goods are in his possession.

In agreement to sell, if there is any breach of contract by the buyer, the seller can sue for damages only.

CHAPTER IV

3.5 CONDITIONS AND WARRANTIES

It is usual for both seller and buyer to make representations to each other at the time of entering into a contract of sale. Some of these representations are mere opinions, which do not form part of contract of sale. Whereas some of them may become part of the contract of sale. Representations, which become a part of the contract of sale, are termed as stipulations which may rank as condition and warranty All such stipulations may not be of equal importance. Some of them may be so important that the non-performance of such stipulations may amount to a breach of contract. Such stipulations are called conditions. There are certain stipulations, which are not of vital importance --- these are called warranties.

Stipulations in the contract of sale regarding the quality and quantity of goods, its colour and design, packing of delicate, valuable and breakable

goods etc. are considered as conditions and a seller has to deliver as per conditions. Such conditions are stipulations which are essential to the main purpose of the contract and the breach of such conditions give rise to a right to treat the contract as repudiated.

Sec. 12(2) of the Act defines a condition as, “A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated.”

Those stipulations that are only collateral to the conditions in any contract are said to be warranties, such as free enjoyment of goods and perhaps time of delivery (where time is not essence of the contract).Breach of a Warranty would enable the aggrieved party only to claim compensation and he cannot repudiate the contract.

Sec. 12(3) defines warranty as, “A warranty is stipulation collateral to the main purpose of the contract which gives a right to claim for damages, but not a right to reject the goods and treat the contract as repudiated.”

Conditions and warranties may be express or implied.

Express conditions and warranties are which, are expressly provided in the contract. Implied conditions and warranties are those which are implied by law or custom; these shall prevail in a contract of sale unless the parties agree to the contrary. Sections 14 to 17 contain provisions pertaining to implied conditions and warranties. These may be cancelled or varied by express agreement or by the course of dealings or by usage and customs.

3.5.1 IMPLIED CONDITIONS

i) Condition as to title [Sec.14(a)] -- In every contract of sale, unless the circumstances of the contract are such as to show a different intention, there is an implied condition on the part of the seller, that :

a. In case of a sale, he has a right to sell the goods, and

b. In case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass.

The words 'right to sell' contemplate not only that the seller has the title to what he purports to sell, but also that the seller has the right to pass the property. If the seller's title turns out to be defective, the buyer may reject the goods.

ii) Condition as to Sale by Description [Sec. 15]-- In a contract of sale by description, there is an implied condition that the goods shall correspond with the description. The term ' sale by description' includes the following situation;

a. Where the buyer has not seen the goods and buys them relying on the description given by the seller.

b. Where the buyer has seen the goods but he relies not on what he has seen but what was stated to him and the deviation of the goods from the description is not apparent.

c. Packing of goods may sometimes be a part of the description. Where the goods do not conform to be method of packing described (by the buyer or the seller) in the contract, the buyer can reject the goods.

iii) Conditions in a Sale by Sample [Sec. 17]: A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied to that effect. Usually, a sale by sample is implied when a sample is shown and the parties intend that the goods should be of he kind and quality as the sample is.

iv) Conditions in a sale by Sample as well as by Description [Sec.15]: A vast majority of cases where samples are shown , are sales by sample as well as by description. In a contract for sale by sample as well as by description, the goods supplied must correspond both with the sample as well as with the description. However, if the goods correspond to the description but do not correspond to the sample, it will be treated as a breach of Warranty and not Condition; in case of vice-versa, it will be treated as a breach of Condition and not Warranty.

Section 16 describes the Doctrine of “Caveat Emptor”, which means ”buyer beware”. This implies that the buyer must take all due care and sstisfy himself as to the quality and fitness of the goods while purchasing. Therefore, the buyer purchases the goods at his own risk, relying upon his own skill and judgement.

However, in today’s concept of “Customer is King”, the doctrine of “Caveat Emptor” will hold no substance as it amounts to putting the buyer at great risk and thereby intimidating buyers instead of encouraging them to come and buy. As such there are certain exceptions to this doctrine that act in favour of the buyer. These exceptions thus cast a duty on the seller to meet every reasonable expectation of the buyer. These exceptions are thus in line with the implied conditions of sale.

v) Condition as to Quality or Fitness [Sec.16(1)-being the first exception to caveat emptor] -- Where the buyer, expressly or by implication, makes known the seller the particular purpose for which goods are required, so as to show that the buyer relies on the seller's skill or judgement and the goods are of a description which it is in the course of the seller's business to supply (whether or not as the manufacturer of producer), there is an implied condition that the goods shall be reasonably fit for such purpose. In other words, this condition of fitness shall apply, if:

a. The buyer makes known to the seller the particular purpose for which the goods are required,

b. The buyer relies on the seller's skill or judgement,

c. The goods are of a description which he sellers ordinarily supplies in the course of his business, and

d. The goods supplied are not reasonably fit for the buyer's purpose.

iv) Condition as to Merchantability[Sec.16(2)- being the second exception to caveat emptor] -- Where the goods are bought by description from a seller, who deals in goods of that description (whether or not as the

manufacturer or producer) there is an implied condition that the goods shall be of merchantable quality.

Merchantable quality ordinarily means that the goods should be such as would be commercially saleable under the description by which they are known in the market at their full value.

v) Condition as to Wholesomeness -- In case of sale of eatable provisions and foodstuff, there is another implied condition that the goods shall be wholesome. Thus, the provisions or foodstuff must not only correspond to their description, but must also be merchantable and wholesome. By 'wholesomeness' it means that goods must be for human consumption.

vi) Condition Implied by Custom or Trade Usage: An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade. In certain sale contracts, the purpose for which the goods are purchased may be implied from the conduct of the parties or from the nature or description of the goods. In such cases, the parties enter into the contract with reference to those known usage. For instance, if a person buys a perambulator or a medicine the purpose for which it is purchased is implied from the thing itself; the buyer need not disclose the purpose to the seller.A condition becomes a warranty when --

a) the buyer waives the conditions or opts to treat the breach of the condition as a breach of warranty ; or

b) The buyer accepts the goods or a part thereof, or is not in a position to reject the goods.

3.5.2 IMPLIED WARRANTIES

i. Implied Warranty of Quiet Possession [Sec.14(a)]-- In every contract of sale, unless there is a contrary intention, there is implied warranties that the buyer's shall have and enjoy quiet possession of the goods. If the buyer's right to possession and enjoyment of the goods is in any way disturbed as consequences of the seller's defective title, the buyer may sue the seller for damages for breach of this warranty.

ii. Implied Warranty of Freedom from Encumbrances [Sec.14(b)]-- The buyer is entitled to a further warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to buyer before or at the time when the contract is made. If the buyer is required to discharge the amount of the encumbrance it shall be a breach of this warranty and the buyer shall be entitled to damages for the same.

CHAPTER V

3.6 TRANSFER OF PROPERTY IN GOODS

Sections 18 to 26

The property in the goods is said, to be transferred from the seller to the buyer when the latter acquires the proprietary rights over the goods and the obligations linked thereto. 'Property in Goods' which means the ownership of goods, is different from ' possession of goods' which means the physical custody or control of the goods.

The transfer of property in the goods from the seller to the buyer is the essence of a contract of sale. Therefore the moment when the property in goods passes from the seller to the buyer is significant for following reasons:

a. Ownership -- The moment the property in goods passes, the seller ceases to be their owner and the buyer acquires the ownership. The buyer can exercise the proprietary rights over the goods. For example, the buyer may sue the seller for non-delivery of the goods or when the seller has resold the goods, etc.

b. Risk follows ownership -- The general rule is that the risk follows the ownership, irrespective of whether the delivery has been made or not. If the goods are damaged or destroyed, the loss shall be borne by the person who was the owner of the goods at the time of damage or destruction. Thus the risk of loss prima facie is in the person in whom the property is.

c. Action Against Third parties -- When the goods are in any way damaged or destroyed by the action of third parties, it is only the owner of the goods who can take action against them.

d. Suit for Price - The seller can sue the buyer for the price, unless otherwise agreed, only after the gods have become the property of the buyer.

e. Insolvency - In the event of insolvency of either the seller or the buyer, the question whether the goods can be taken over by the Official Receiver or Assignee, will depend on whether the property in goods is with the party who has become insolvent.

Essentials for Transfer of Property -- The two essentials requirements for transfer of property in the goods are:

1. Goods must be ascertained: Unless the goods are ascertained, they (or the property therein) cannot pass from the seller to the buyer. Thus, where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained

2. Intention to PASS Property in Goods must be there: In a sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.

3.6.1TRANSFER OF TITLE

Where the goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title than the seller had. As a general rule, no one can sell the goods and give a title thereof unless he is the owner thereof. This general rule is expressed by the maxim “Nemo dat quod non habet”—meaning ‘one cannot give a better title than that he himself has’. Thus, the seller cannot give the buyer of the goods a better title to the goods than he himself has.

There are, however, certain exceptions to the above maxim, which thus make it possible for a Non-owner to sell goods in his own name. These exceptions are as under:

1.Sale by Estoppel

Where the owner of the goods, by his words or conduct or by an act or omission causes the buyer to believe that the seller has the authority to sell the goods and induces the buyer to buy them, he cannot afterwards, contest the claim of title set-up by the seller.

2.Sale by mercantile agent

Where a mercantile agent, with the consent of the owner, is in possession of the goods or of documents of title to the goods, any sale made by him when acting in the ordinary course of business, shall be binding on the owner and shall be valid as if he were expressly authorized by the owner of the goods to make the same

3. Sale by one of several joint owners

If one of the several joint owners of the goods has the sole possession of them with the permission of the other co-owners, the property in the goods is transferred to any person who buys them from such joint owner.

4.Sale by an unpaid Seller

Where an unpaid seller who has exercised his right of lien or stoppage in transit, re-sells the goods, the buyer acquires a good title to the goods as against the original buyer. (this topic is discussed subsequently)

5. Sale by Seller in possession of goods after sale & Sale by Buyer in possession of goods before Sale:

In both the above situations, both, the seller as well as the buyer do not have authority to sell and yet may effect a sale in which the eventual buyer gets a good title to the goods.

The bottom-line, however, in all the above cases of sale by non-owners is that the buyer must have bought the goods in “GOOD FAITH” i.e without knowing about the ‘history’ of the goods and the fact that the seller is NOT the owner of the goods. In other words if he is an innocent buyer he will get good title(ownership) to the goods.

CHAPTER VI

3.7 PERFORMANCE OF THE CONTRACT

The most usual form of performance of a contract of sale is by delivery

Section 2(2) of the Act defines delivery as a voluntary transfer of possession of goods from one person to another.

Delivery of goods may be Actual, Symbolic or Constructive.

a. 1. Actual delivery: Handing over of the goods by the seller to the buyer is called actual delivery.

b. 2. Symbolic delivery: Delivery is said to be symbolic where some symbol of the real possession or control over the goods is handed over to the buyer for

e.g. X sells to Y 100 bags of wheat lying in the godown of Z and hands over the key of the godown to Y.

c. 3.Constructive Delivery: Delivery is said to be constructive where a person who is possession of the goods, acknowledges to hold the goods on behalf of the buyer. For e.g, X sells to Y 100 bags of wheat lying in Z’s warehouse.X orders Z to deliver the wheat to Y.Z agrees to hold the 100 bags of wheat on behalf of Y and makes the necessary entries in his books.

TYPES OF CONTRACTS (WITH REGARD TO DELIVERY OF GOODS)

There are various types of contracts from the point of view of the delivery of goods.

i) F.A.S. or F.A.R. Contract - F.A.S. stands for 'Free Alongside Ship' and F.A.R. stands for 'Free Along with Rail'. Under FAS or far contracts, the seller is required to deliver the goods alongside the ship or rail named in the contract and to notify the buyer that the goods have been so delivered. The property in the goods passes to the buyer when the seller delivers the goods alongside the ship or rail. Thereafter, it is the buyer's duty to arrange for the contract of affreightment and insurance of the goods while the transit.

ii) F.O.B. OR F.O.R Contracts -- F.O.B. stands for 'Free on Board' and F.O.R. stands for 'Free on Rail'. In a F.O.B. (or F.O.R.) contract, the seller is required to deliver the goods on board the sip (or on rail), named in the contract. Thus, the seller has to bear all expenses upto and including shipment of goods on behalf of the buyer, who is responsible for their freight, insurance and subsequent expenses.

Thus, as soon as the goods are put on board the ship, the property in them passes to the buyer. This will be so even if the goods are not specific or ascertained. The buyer is liable to pay the price even if the goods are lost in transit. The property in goods shall, however not pass if the seller reserves the right of disposal.

iii) C.I.F. Contract -- The words 'C.I.F.' stand for cost, insurance and freight. A CIF contract is a type of contract wherein the price includes cost, insurance and freight charges. Under a CIF contract the seller is required to insure the goods, deliver them to the shipping company, arrange for their affreightment and send the bill of lading and insurance policy together with the invoice and a certificate of origin to a bank. The documents are usually delivered by the bank against payment of seller since he continues to be the owner of goods until the buyer pays for them and obtains the documents. The property in the goods passes to the buyer on the delivery of documents. The buyer is equally protected as he is called upon to pay only against the documents and the moment he pays, he obtains the documents, which enable him to get delivery of the goods. If in the meantime the goods are lost neither the buyer nor the seller is put to loss, whoever is the owner at the time of the loss can recover it from the insurer.

iv) Ex-ship contracts -- Under an 'ex-ship contract the seller has to delivery the goods to the buyer at the port of destination. In such contracts the property in the goods does not pass until actual delivery. The goods are at the seller's risk during the voyage. It is therefore, for the seller to insure the

goods to protect his interest. The seller is to pay the freight, or otherwise release the ship owner's lien and to furnish the buyer with a delivery order or an effectual direction to the ship owner to deliver.

CHAPTER VII

3.8 RIGHTS OF AN UNPAID SELLER

Meaning of an unpaid seller[Sec.45(1)(2)]

The seller of goods is deemed to be an unpaid seller-

a.When the whole of the price has not been paid or tendered(offered).

b.When a bill of exchange or other negotiable instrument (such as cheque) has been received as conditional payment, and it has been dishonoured.

The rights of an unpaid seller can broadly be classified under the following two categories;

1. Right against the Goods

2. Right against the buyer personally

3.8.1 RIGHTS AGAINST THE GOODS

a) Where the property in the goods has passed to the buyer.

i. Right of Lien [Secs.47 to 49] -- 'Lien is the right to retain possession of goods until certain charges in respect thereof are paid. An unpaid seller who is in possession of the goods is entitled to retain them until payment of the price, where --

a) The goods have been sold without any stipulation s to credit;

b) The goods have been sold on credit, but the term of credit has expired or

c) The buyer becomes insolvent.

Where the goods have been sold on credit, the right of lien shall remain suspended over the period of credit and shall revive on the expiry of that period.

The right of lien is linked with possession of the goods and not with the title. It is not affected even if the seller has transferred the documents of title till he remains in possession of the goods. However, if the buyer has further transferred the documents of title to a bona fide purchaser the seller's lien is defeated.

ii. Right of Stoppage in transit[Secs.50 to52] --The right of stoppage of goods in transit, arises to an unpaid seller after he has parted with the possession of the goods. The seller has the right to resume possession of the goods while they are in the course of transit and to retain them until payment or tender of the price.

The right of stoppage in transit is available to an unpaid seller, when the buyer becomes insolvent and the goods are in transit.

The buyer is said to be 'insolvent' when he has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they becomes due whether he has committed an act of insolvency or not.

iii. Right of Resale[Sec.54] -- The rights of lien and stoppage in transit, would not have been of much value if he seller had no right to resell the goods, because the seller cannot continue to hold the goods indefinitely. Section 54 provides an unpaid seller with a limited right to resell the goods.

An unpaid seller may resell the goods --

1) When the goods are of perishable nature, without giving any notice to the buyer, of the resale.

2) In case of other goods, when after giving a notice to the buyer of his intention to resell the goods, the buyer does not pay the price within a reasonable time; and

3) Where the seller has expressly reserved the right of resale in the contract. No notice to the buyer is required in that case.

b) Where the property in the goods has not passed to the buyer

1.Right of with holding Delivery -- Where the property in the goods has not passed to the buyer, the unpaid seller has the right to withhold delivery of the goods, which is similar to and co-extensive with his rights of lien and stoppage in transit which he would have had if the property had passed.

2.Stoppage in Transit.

3.8.2 RIGHTS AGAINST THE BUYER PERSONALLY

(Seller's Remedies Against buyer for Breach of Contract)-- Besides, the above rights against the goods, an unpaid seller has certain rights against the buyer personally. The seller enjoys the following rights in personam (also known as remedies for breach of contract).

1. Suit for Price(S.55) -- When the property in the goods has passed to the buyer, and the buyer wrongfully neglects or refuses to pay the price, the seller is entitled to sue him for the price.

Where under a contract of sale the price is payable on a certain day irrespective of delivery or passing of property, and the buyer refuses or neglects to pay on that day, the seller may sue him for the price.

2. Suit for Damages for Non-Acceptance(S.56) -- Where the buyer wrongfully neglects or refuses to pay for the goods, the seller may sue him for damages for non-acceptance.

3. Suit for Damages for Repudiation of contract(S.60) before date of delivery Where the buyer repudiates the contract before the date of delivery, the seller may adopt any of the following two courses of action, viz.-

a) The seller may treat the contact as rescinded and sue the buyer for damages. This is also known as 'damages for anticipatory breach'. The damages will be assessed according to the prices prevailing on the date of breach.

b) The seller may treat the contract as subsisting and wait till the date of delivery. The contract remains open at the risk and for the benefit of both the parties. If the buyer subsequently chooses to perform there shall be no damages; otherwise he shall be liable to damages assessed according to the prices on the day stipulated for delivery.

4. Suit for Interest (S.61) --The seller may recover interest or special damages whereby law interest or special damages may be recoverable.

 

3.9 BUYER'S REMEDIES AGAINST SELLER FOR BREACH OF CONTRACT

A buyer also has certain remedies against the seller who commits a breach. These are:

1. Suit for Damages for Non-Delivery- When the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery. This is in addition to the buyer's right to recover the price, if already paid, in case of non-delivery.

2. Suit for price- Where the buyer has paid the price and the goods are not delivered to him, he can recover the amount paid.

3. Suit for specific performance- When the goods are specific or ascertained, a buyer may sue the seller for specific performance of the contract and compel him to deliver the same goods. The court orders for specific performance only when the goods are specific or ascertained and an order for damages would not be an adequate remedy. Specific performance is generally allowed where the goods are of special significance or value e.g. a rare paining, a unique piece of jewellery, etc.

4. Suit for Breach of Warranty- Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat the breach of condition as breach of warranty, the buyer cannot reject the goods. The buyer may, (a) set up the breach of warranty in extinction or diminution of the price payable by him, or (b) sue the seller for damages for breach of warranty.

5. Suit for Damages for Repudiation of contract before Due date-Where the seller repudiates the contract before the date of delivery, the buyer may adopt any of the following two courses of action --

A. He may treat the contract as rescinded and sue the seller for damages. This is also known as 'damages for anticipatory breach'. The damages will be assessed according to the prices prevailing on the date of breach.

B. He may treat the contract as subsisting and wait till the date of delivery. The contract remains open at the risk and for the benefit of both the parties. If the seller subsequently chooses to perform there shall be no damages otherwise he shall be liable to damages assessed according to the prices on the day stipulated for delivery.

6. Suit for interest- The buyer may recover such interest or special damages, as may be recoverable bylaw. He may also recover the money paid where the consideration for the payment of it has failed. In the absence of a contract to the contrary, the court may award interest, to the buyer, in a suit by him for the refund of the price in a case of a breach on the part of the seller, at such rate as it thinks fit on the amount of the price from the date on which the payment was made.