THE

CONTRACT ACT, 1872

PERFORMANCE OF A CONTRACT
1. Meaning of performance
2. Types of performance
3. Types of tender
4. Essentials of a valid tender
5. Effect of refusal to perform
6. Persons who can perform and demand performance
7. Rules regarding the performance of joint promise
8. Time and place of performance
1. Meaning of Performance
A contract creates an obligation, which continues till the contract has
been discharged by actual performance. Performance of the contract is
one of the vital modes of discharge of the contract. A contract is said to
have been performed when the parties to a contract either perform or
offer to perform their respective promises.

Obligations of parties to contracts:

The parties to a contract must either perform, or offer to perform their
respective promises, unless such performance is dispensed with or
excused under the provisions of this Act, or of any other law.
2. Types of Performance
There are two types of performance as follows:
Actual performance: When the promisor has made the performance in accordance with
the terms of the contract and is accepted by the promisee it is called an actual
performance. [Section 37]
Example: A contracted to deliver to B at his warehouse on 1st November, 500 bales of
cotton of a particular quality. A brought the cotton of requisite quality to the appointed
place on the appointed day during the business hours, and B took the delivery of goods.
This is an actual performance.
Attempted performance: Although, the promisor has made an offer of performance but
the offer of performance of promisor is not accepted by the promisee it is called an
attempted performance. Attempted performance is also known as tender. [Section 38]
Example: A contracted to deliver to B at his warehouse on 1st November, 500 bales of
cotton of a particular quality. B refused to take the delivery of goods; it is a case of
attempted performance because A has done what he was required to do under the
contract.
3. Types of Tenders
There can be two types of tender as follows:
Tender of goods or services: Where the promisor offers to deliver the goods or services
but the promisee refuses to accept.
Effects
◦ Goods or services need not be offered again.
◦ Promisor may sue the promisee for non-performance and claim damages.
◦ Promisor is discharged from his liability i.e. he is not liable for non-performance.

Tender of money: Where the promisor offers to pay the amount but the promisee refuses
to accept the same.
Effects
◦ Promisor is not discharged from his liability to pay the amount
◦ Promisor will not be liable for interest from the date of a valid tender
4. Essentials of a Valid Tender
The essentials of a valid tender are shown below:
Unconditional: Tender is said to be unconditional when it is made in accordance with
the terms of the contract.
Proper Time: Tender must be made at the stipulated time or during business hours.
Tender of goods or money before the due date is also not a valid tender.
Proper Place: Tender must be made at the stipulated place or a business place.
Proper Person: It must be made to the promisee or his duly authorized agent. In case of
several joint promisees, a tender made to one of them has the same legal
consequences as tender to all of them.
Reasonable Opportunity: Promisee must have reasonable opportunity for examining the
at the goods offered are the same as per the terms of the contract.
Whole Obligation: A valid tender is for the whole obligation. However, a minor deviation
from the terms of the contract may not render the tender invalid.
Fixed amount and Legal Tender: In case of tender of money the amount must be fixed
and in legal tender.
5. Effect of Refusal to Perform
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
willingness in its continuance. [Section 39]
Example: A, a singer enters into a contract with B, the manager of a
theatre, to sing at his theatre two nights in every week during the next two
months, and B engages to pay her Rs.100 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.
6. Persons who can Perform & Demand Performance
Persons who can Perform:
Promisor: If a contract is of personal nature or it was agreed that promise will be performed by the promisor himself than such
promise must be performed by the promisor.
Example: A promises to marry B, A must perform this promise personally.
Promisor’s Agent: If the intention of parties is that the promise can either be performed by the promisor himself or any person
employed by him than such contracts can be performed by the promisor himself or an agent employed by him.
Example: 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 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.
Legal Representatives: Unless a contrary intention appears or the contract is of personal nature on death of promisor, his legal
representative can perform the contract.
Example: A promises to marry B, A dies. A’s legal representatives cannot perform this promises.
Third Party: With the consent of the promisee a contract can be performed by a third party. When a promisee accepts performance
of the promise from a third person, he cannot afterwards enforce it against the promisor.
Joint Promisor: Unless a contrary intention appears, in case of several promisor the following persons must perform the promise:
◦ All the promisors jointly in case of all the promisors are alive
◦ Representatives of the deceased promisor jointly with the surviving promisor(s) in case of death of any of the joint promisors
◦ Representatives of all of them jointly in case of death of all joint promisors
Example: A and B jointly promise to repay a loan of Rs.10,000 on a specified day. A dies before that specified day. A's
representative jointly with B must perform the promise on the specified day.
6. Persons who can Perform & Demand Performance
Persons who can Demand Performance:
Promisee: Under a contract only a promisee can demand the performance of the promise.
Example: A promises B to pay Rs.10,000 to C. It is only B who can demand performance and not C.
Promisee’s Agent: If the intention of parties is that performance can be demanded from any person authorised by the promisee
then performance can be demanded by promisee’s agent.
Legal Representative: Unless a contrary intention appears from the contract or the contract is of a personal nature on death of the
promisee, his legal representative can demand performance.
Example: A promise to marry to B on the specified day. B dies before the specified day. The legal representatives of B cannot
demand performance of the promise from A because the contract is of personal nature.
Third Party: A third party can also demand the performance of the contract in some exceptional cases like beneficiary in case of
trust or the person for whose benefit the provision is made in family arrangements.
◦ Joint Promises: In case of several promisees, unless a contrary intention appears, the performance can be demanded by the
following persons:
◦ All the promises jointly in case all the promisees are alive
◦ Representatives of deceased promisee jointly with the surviving promisees in case of death of any of joint promisees
◦ Representatives of all of them jointly in case of death of all joint promisees
Example: A promises B and C jointly to repay loan of Rs.10,000 on a specified day. B dies before that specified day. B's
representative jointly with C can demand the performance from Aon specified day. If B and C die before that specified day, the
representatives of B and C jointly can demand the performance from A on the specified day.
7. Rules regarding the Performance of Joint Promise
Joint and several liability of joint promisors:
Example: A, B and C jointly promise to pay DRs.3,000. D may compel either A or B or C to pay him Rs.3,000.
Right to Claim Contribution:
Example: A, B and C jointly promise to pay D a sum of Rs.3,000. C is compelled to pay the whole. A is insolvent, but
his assets are sufficient to pay one-half of his debts. C is entitled to receive Rs.500 from A's estate and Rs.1,250 from
B.
Sharing of Loss in Contribution:
Example: A, B and C are under a joint promise to pay D Rs.3,000. C is unable to pay anything and A is compelled
to pay the whole. A is entitled to receive Rs.1,500 from B.
Release of One Joint Promisor:
Example: A, B and C jointly promise to pay D Rs.3,000. D releases A from his liability and sues B and C for payment,
Here, neither B and C are released from their liability to D nor is A released from his liability to B and C for
contribution.
Devolution of Joint Rights:
Example: A, in consideration of Rs.5,000 lent to him by B and C, promises B and C jointly to repay them that sum
with interest on a day specified. B dies. The right to claim performance rests with B's representative jointly with C
during C's life, and, after the death of C, with the representatives of B and C jointly.
8. Time and Place of Performance
Time for performance is not specified
Where the time for performance is not specified in a contract and the promisor has undertaken to perform without application by the promisee then the
contract must be performed within a reasonable time. The question 'What is reasonable time' is a question of fact. [Section 46]
Time for performance is specified
Where the time for performance is specified in a contract and the promisor has undertaken to perform it without application by the promisee then the
promisor must perform his promise on that particular day during the usual hours of business and at a place where the promise ought to be performed.
[Section 47]
Place for performance is specified
Where the time for performance is specified in a contract and the promisor has not undertaken to perform it without application by the promisee than the
promisee must apply for performance at a proper place and within usual hours of business. [Section 48]
Place for performance is not specified
Where the place for performance is not specified in a contract and the promise is to be performed without application by the promisee than the promisor
must apply to the promisee to appoint a reasonable place for the performance and to perform the promise at such place. [Section 49]
Example:
B owes A Rs.2,000. A desires B to pay the amount to A's account with C, a banker. B who also banks with C, orders the amount to be transferred from his
account to A’s credit, and this is done by C. Afterwards, and before A knows of the transfer, C fails. There has been a good payment by B.
A and B are mutually indebted. A and B settle an account by setting off one item against another, and B pays A the balance found to be due from him
upon such settlement. This amounts to payment by A and B, respectively, of the sums which they owed to each other.
A owes B Rs.2,000. B accepts some of A's goods in reduction of the debt. The delivery of the goods operates as a part payment.
A desires B, who owes him Rs.100, to send him a note for Rs.100 by post. The debt is discharged as soon as B posts a letter containing the note duly
addressed to A.
RECIPROCAL PROMISES
Promises which form the consideration or part of the consideration for each other are called
'reciprocal promises'. [Section 2(f)]
Example: In a contract for sale, A promises to deliver the goods to B at a fixed price and B
promises to give promise for the payment of the price. Such promises are called reciprocal
promises.

Types of Reciprocal Promises:

The reciprocal promises have following types:
1. Mutual and independent: When the promises are to be performed by each party
independently, without waiting for the other party to perform is called Mutual and
independent.
2. Mutual and dependent: When the performance of one party depends on the prior
performance of the other party it is called Mutual and dependent.
3. Mutual and concurrent: When the promises are to be performed simultaneously i.e. at the
same time it is called Mutual and concurrent.
DISCHARGE OF A CONTRACT

1. Discharge of a Contract
2. Discharge by Performance
3. Discharge by Agreement or by Consent
4. Discharge by Operation of Law
5. Discharge by Impossibility of Performance
6. Discharge by Lapse of Time
7. Discharge by Breach
1. Discharge of a Contract

Meaning of Discharge
A contract is said to be discharged when contractual relations
between the parties to a contract are terminated or comes to
an end.
In other words, when the parties to a contract have either
performed or are freed from the task of performing their
respective obligations as arising from the contract.
1. Discharge of a Contract
Modes of Discharge of a Contract: The chart below shows the various ways in which a
contract is said to be discharged:
2. Discharge by Performance
Performance of a contract is one of the most common ways of discharging a contract. A contract can
be discharged by performance in any of the following ways:
a. Actual Performance: If the parties to the contract perform their respective promises in accordance
with the terms of the contract then it is said to be discharged by actual performance. [Section 37]
Example: A contracted to deliver to B at his warehouse on 1st November, 500 bales of cotton of a
particular quality. A brought the cotton of requisite quality to the appointed place on the appointed
day during the business hours, and B took the delivery of goods. This is an actual performance.
b. Attempted Performance: If the promisor has made an offer of performance as per the terms of the
contract and the promisee refuses to accept the offer of performance then the promisor is said to be
discharged by attempted performance. It is also known as tender. It is equivalent to actual
performance. In this performance, the promisor offers to perform his obligation, but the promisee
refuses to accept his performance. [Section 38]
Effect of tender is that the contract is deemed to be performed. Promisee is discharged from his
liability of non-performance. His rights against the promise are unaffected.
Example: A contracted to deliver to B at his warehouse on 1st November, 500 bales of cotton of a
particular quality. B refused to take the delivery of goods; it is a case of attempted performance
because A has done what he was required to do under the contract.
3. Discharge by Agreement or by Consent
The rights and obligations created by an agreement can be discharged without being performed
through formation of another agreement between the parties due to which the rights and obligations
in the original agreement comes to an end. A contract can be discharged by mutual agreement in
any of the following ways:
1. Novation: Novation means the substitution of a new contract for an old one. The new agreement
extinguishes the rights and obligations that were in effect under the old agreement.
A novation ordinarily arises when a new individual assumes an obligation to pay that was incurred by
the original party to the contract. In the case of a novation, the original debtor is totally released from
the obligation, which is transferred to someone else. The nature of the transaction is dependent upon
the agreement between the parties. A novation also takes place when the original parties continue
their obligation to one another, but a new agreement is substituted for the old one. [Section 62]
Example:
◦ A owes money to B under a contract. It is agreed between A, B and C that B shall now accept C as
his debtor; instead of A. The old debt of A to B no longer exists and a new debt from C to B has been
contracted.
◦ A owes B Rs.10,000. A enters into an agreement with B, and gives B a mortgage of his (A's) estate for
Rs.5,000 in place of the debt of Rs.10,000. This is a new contract and extinguishes the old.
3. Discharge by Agreement or by Consent
3. Rescission: Rescission is the cancellation of a contract by mutual agreement of parties. [Section 62]
Example: A promises B to sell and deliver 500 Bales of cotton on 1st November at his godown and B
promises to pay for goods on 1st December. A does not supply the goods. B may rescind the contract.
4. Alteration: Alteration means a variation made in the language or terms of a contract with mutual
agreement. When this occurs the original contract is discharged and a new contract is created. The
parties in alteration remain same. [Section 62]
Example: X promise to sell and deliver 500 bales of cotton, on 1st November and Y promises to pay for
goods on 1st December. Afterwards, X and Y mutually decide that the goods shall be delivered in five
equal instalments at Z's godown. Here, original contract has been discharged and a new contract has
come into effect.
5. Remission: Remission means accepting a less amount than the initial amount agreed. [Section 63]
Example: A owes B Rs.5,000. C pays to B Rs.1,000, and B accepts them in satisfaction of his claim on A.
This payment is a discharge of the whole claim.
6. Waiver: Waiver is a unilateral act of one person that results in the surrender of a legal right. Thus, it
amounts to releasing a person of certain legal obligation under a contract.
7. Promisee’s Refusal / Neglect: If any promisee neglects or refuses to afford the promisor reasonable
facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to
any nonperformance caused. [Section 67]
4. Discharge by Operation of Law
A contract may be discharged by operation of law in any of the following cases:
1. Death: On the death of the promisor a contract involving the personal skill or ability is discharged. In
other contracts, the rights and liabilities of the deceased person pass on to his legal representatives.
Example: A (an artist) promises to paint a picture for B by June 22, 2013 for Rs. 100,000. A dies before
completing the picture. Here it is a contract involving personal skill and on death of A the contract will
be discharged.
2. Insolvency: When a person’s debts exceeds his assets, he is adjudged insolvent and his property
stands vested in the Official Receiver or Official Assignee appointed by the court. Such person cannot:
◦ Enter into contracts relating to his property
◦ Sue
◦ Sued
Therefore, on declaration of a person as an insolvent person is discharged from his liabilities incurred
prior to his adjudication.
Example: A took a loan from B amounting to Rs. 1 million payable in June 2013. On March 2013 A was
declared as insolvent by relevant court. After the order adjudication he is discharged from his
liabilities as the amount will be paid by the Official Assignee / Official Receiver.
4. Discharge by Operation of Law
3. Material Alteration: A contract is discharged if the terms of the contract are materially altered
without getting prior consent of parties. A material alteration is one which changes following in a
significant manner:
◦ Legal identity of the contract; or
◦ Character of the contract; or
◦ Rights and liabilities of the parties to the contract
An alteration which is not material or which is made after getting prior consent does not affect the
validity of the contract.
Example: A gives a promissory note amounting to Rs. 50,000 to B payable on August 16, 2013. B
subsequently, endorses the same note in favour of C after altering the date from August 16, 2013 to
August 23, 2013. Here, change of date is a material alteration and has discharged A from the
instrument because it was made without his consent.
4. Same Identity: When the promisor becomes the promisee, the other parties are discharged e.g.
negotiation back in case of negotiable instrument i.e. creditor to himself becomes a debtor of the
same loan.
Example: A gives a promissory note to B. B endorses the note in favour of C who in turn endorses in
favour of A. Here, A is both the promisor and the promisee and hence the other parties are
discharged.
5. Discharge by Impossibility of Performance
◦Supervening impossibility

◦Grounds of supervening impossibility

◦Not an excuse of supervening impossibility

◦Supervening illegality
Supervening Impossibility
When a contract is valid at the time of formation and becomes impossible to perform
subsequently it is called effected by supervening impossibility.
Effects of supervening impossibility
The effects of supervening impossibility are as follows: [Section 56]
◦ A contract becomes void when an act becomes impossible after the formation of the
contract.
◦ A contract becomes void when an act becomes unlawful by reason of some event
beyond the control of promisor.
◦ A promisor is liable to compensate the promisee for any loss which arose due to
nonperformance of promisor when the promisor hides the impossibility of performance.
◦ A person is bound to restore any benefit received or compensated under a contract when
such agreement or contract becomes void.
Example: A contracts to sing for B at a concert for Rs.10,000 which is paid in advance. A is
too ill to sing. A must refund Rs.10,000 to B.
Grounds of Supervening Impossibility
A contract is discharged by supervening impossibility in the following cases:
Destruction of subject matter
Example: A music hall was rented out for a series of concerts. The hall caught fire before the
date of first concert. It was held, the contract has become void on the ground of
supervening impossibility.
Death or personal incapacity (doctrine of frustration)
Example: A agreed to sing on a specified day. A fell seriously ill and could not perform on
that day. The contract was discharged.
Declaration of war
Example: X contracts to take in cargo for Y at a foreign port. X's government afterwards
declares war against the country in which the port is situated. The contract becomes void
when the war is declared.
Particular state of things ceases to exist or occur
Example: A and B contract to marry each other. Before the time fixed for the marriage, A
goes mad. The contract becomes void.
Not an Excuse of Supervening Impossibility
Impossibility of performance is, as a rule, not an excuse from performance. It means that a
person should perform his promise if he has promised to do so unless the performance
becomes absolutely impossible.
A contract is not discharged by the supervening impossibility in the following cases:
1. Difficulty of performance
Example: A agreed to supply gold within a specified time. He failed to supply in time
because of government's restriction on the transport of gold from collieries. Here A will not
be discharged because the gold was available in the open market from where A could
have obtained it.
2. Commercial impossibility
Example: A, a furniture retailer, agreed to supply certain furniture to B at an agreed rate.
Afterwards, there was a sharp increase in the rates of the timber and rates of wages. Since,
it was no longer profitable to supply at the agreed rate, A did not supply. A will not be
discharged on the ground of supervening impossibility.
Not an Excuse of Supervening Impossibility
3. Default of a third party
Example: A entered into a contract with B for the sale of goods to be
manufactured by C, a manufacturer of those goods. C did not manufacture
those goods. A will not be discharged and will be liable to B for damages.
4. Strikes, lockouts and civil disturbances
Example: A agreed to supply to B certain goods to be imported from
America. The goods could not be imported due to riots in that country. It
was held that this was no, excuse for non-performance of the contract.
5. Partial impossibility
A contract is not discharged simply on the grounds of partial impossibility of
some of the objects of the contract.
Supervening Illegality
If the performance of the contract becomes unlawful due to a
change in the law after the formation of the contract then the
contract is said to be discharged.
Example: A agreed to sell his land to B after the formation of the
contract, the Government issued a notification and acquired the
land. The contract was discharged.
6. Discharge by Lapse of Time
Limitation Period
If a contract is not performed within the period of limitation then it is
discharged as the parties cannot legally enforce their rights.
After the expiry of the limitation period, the debt becomes time banned and
hence cannot be recovered through court of law.
Example: A sold goods to B amounting to Rs. 10,000 on a credit of 1 year on
January 1, 2012. On due date i.e. December 31, 2012 B defaulted in
payment. In the given scenario A can file suit against B by December 31,
2015.
6. Discharge by Breach
If a party refuses or fails to perform his part of the contract then the contract is said to be discharged due to
breach. A breach of contract may occur in the following two ways:
1. Actual breach of contract
Actual breach of contract occurs when a party to a contract refuses or fails to perform his part of the contract at
the time fixed for performance. [Section 38]
Actual breach of contract occurs in the following two ways:
Due date of performance: If any party to a contract refuses or fails to perform his part of the contract at the time
fixed for performance, it is called an actual breach of contract on due date of performance.
Example: A agreed to sell to B 10 tons of wheat @ Rs.8,000 per ton to be delivered in two equal instalments on 20th
November and on 21st November. On 20th November, A refused to deliver the goods. It is an actual breach of
contract on due date of performance.
Course of performance: If any party has performed a part of the contract and then refuses or fails to perform the
remaining part of the contract, it is called an actual breach of contract during the course of performance.
Example: A agreed to sell to B 10 tons of wheat @ Rs.8,000 per ton to be delivered in two equal instalments on 20th
November and 21st November. On 20th November, A delivered 5 tons and refused to deliver remaining 5 tons. It is
an actual breach of contract during the course of performance.
6. Discharge by Breach
2. Anticipatory breach of contract
Anticipatory breach of contract occurs when before the performance is due the party acts in a way
that the contract may not be performed. [Section 39]
A party may be intended not to perform the contract in the following two ways:
Refusal to perform promise: When a party to a contract has refused to perform his promise
Example: A, a farmer agrees to sell to B his entire crop of 10 tons of wheat @ Rs. 8,000 per ton to be
delivered on 20th November. On 1st November, A informs B that he is not going to supply the goods. A
has committed anticipatory breach of contract by express repudiation.
Disabled to perform promise: When a party to a contract has disabled himself from performing his
promise in its entirety.
Example: A, a farmer agrees to sell to B his entire crop of 10 tons of wheat @ Rs. 8,000 per ton to be
delivered on 20th November. On 1st November, A contracted to sell his entire crop to C @ Rs. 10,000
per ton. A has committed anticipatory breach of contract by implied repudiation.
REMEDIES FOR BREACH OF CONTRACT

1. Meaning of remedy
2. Remedies for breach
3. Kinds of damages
4. Rules regarding amount of damages
5. Remoteness of damages
1. Meaning of Remedy
A remedy can be defined as a manner in which a right is enforced or satisfied by a court
when some harm or injury, recognized by society as a wrongful act, is inflicted upon an
individual.
Remedies can be categorized into the following types:
◦ Common law remedies
◦ Equitable remedies
◦ Quantum meruit claim
1. Meaning of Remedy
Common law remedies:
Damages and action for the price are common law remedies and are more frequently sought
when a remedy is needed for breach of contract, since they arise as of a right. The object of such
a remedy is not to punish the party at fault but to compensate the aggrieved party (pecuniary
loss) as far as money can do so.

Equitable remedies:
Equitable remedies are the court ordered action that directs parties to do or not to do something.
In other words, equitable remedies are only appropriate in specialised circumstances e.g. where
monetary damages would be inadequate compensation for the breach of an agreement. Specific
performance and injunction are equitable remedies.

Quantum meruit claim:

Quantum meruit claim is categorized as a claim in quasi contract. The aim of such an award is
based on an implied agreement to pay for what has been done. Quantum meruit is likely to be
sought where one party has already performed part of his obligations and the other party then
repudiates the contract. Provided the injured elects to treat the contract as terminated, he may
claim a reasonable amount for the work done.
2. Remedies for breach
Parties to a lawful contract are bound to perform their respective obligations. But when
one of the parties refuses to perform his obligations he is said to have committed a
breach of the contract.
The various remedies available to an aggrieved party are as follows:
1. Rescission of contract: Rescission is the putting an end to a contract. Rescission means
a right not to perform your obligation. In case of breach of a contract, the promisee may
put an end to the contract. In such a case, the aggrieved party is discharged from all
the obligations under the contract and is entitled to claim compensation for the damage
which he has sustained because of the non-performance of the contract. [Section 39
and 75]
Example: A agrees to supply 10 tons of wheat to B on 20th November. B promises to pay
for the goods on its receipt. A does not supply the goods on the due date. Here, B is
discharged from the liability of paying the price. B is entitled to rescind the contract and
to claim compensation for the damage which he has sustained because of non-supply
of goods on the due date.
2. Remedies for breach
2. Restitution: It means return of the benefit received by one party to the contract from the other
under a void contract. When a contract becomes void it needs not to be performed by either
party.
Example: A pays B Rs. 1,000 in consideration of B’s promising to marry C (A’s daughter). C is dead
at the time of promise. The agreement is void but B must repay A Rs.1,000.
3. Damages: Damages are monetary compensation allowed for loss suffered by the aggrieved
party due to breach of a contract. The object of awarding damages is not to punish the party at
fault but to compensate the aggrieved party (pecuniary loss) as far as money can do so. [Section
73]
4. Injunction: Suit for injunction is also an equitable remedy demanding courts stay order.
Injunction means an order of the court which abstains from wrong doing. Where a party to a
contract does something which he promised not to do, the court may issue an order prohibiting
him from doing so.
Thus, injunction is a preventive relief. It is particularly appropriate in case of anticipatory breach of
contract where damages would not be an adequate relief.
Example: A agreed to play cricket for Apple Cricket Club during the contract period of 3 years.
During the contract period, A made a contract with Orange Cricket Club and refused to play
cricket for Apple Cricket Club. Here, A could be restrained by injunction from doing so.
2. Remedies for breach
5. Quantum meruit: The term Quantum Meruit means “as much as earned or
deserved.” In case of breach of contract the application or non-application of the term
quantum meruit varies depending upon the terms of the contract. Further, the divisibility
or indivisibility of performance of the contract may also be taken into account.
The aim of such an award is based on an implied agreement to pay for what has been
done. Quantum Meruit is likely to be sought where one party has already performed part
of his obligations and the other party then repudiates the contract. Provided the injured
elects to treat the contract as terminated, he may claim a reasonable amount for the
work done.
Example: C as owner of a magazine engaged P to write a book to be published by
instalments in his magazine. After a few instalments were published, the publication of
the magazine was stopped. It was held that P could claim payment for the part already
published.
6. Specific performance: Suit for specific performance is an equitable doctrine that
compels a party to execute the agreement according to its terms where monetary
damages would be inadequate compensation for the breach of an agreement.
3. Kinds of Damages
Following are the different kinds of damages:
Ordinary Damages: Ordinary damages are those which arise naturally in the usual course of things
from the breach itself. These damages can be recovered if the following two conditions are
fulfilled: [Section 73]
◦ The aggrieved party must suffer by breach of contract, and
◦ The damage must be a direct consequence of the breach of contract
Example: On 1st December; X contracted to sell and deliver 50 tons of wheat @ Rs. 8,000 per ton to
Y on 1st January. On 20th December y, afterwards, contracted to sell those goods to Z at Rs. 10,000
per ton. X failed to deliver goods on 1st January when the price of the wheat was Rs. 9,500 per ton.
Y is entitled to recover Rs. 75,000 [i.e. (Rs. 9,500 – Rs. 8,000) x50). Y is not entitled to recover Rs.
1,00,000 as profit which would have arisen to Y from the sale to Z because the profit is the indirect
consequence of the breach of contract.
3. Kinds of Damages
◦ Special damages: Special damages can be recovered for the loss which the parties [Section 73]
◦ Knew about
◦ At the time they made the contract
◦ As likely to result from such breach of contract
Special damages are due to special losses which are in the reasonable contemplation of the
parties at the time of formation of contract.
◦ Exemplary damages: Exemplary damages are those which are awarded with a view to punish
the wrong doer and not primarily with an idea of awarding compensation to the injured party.
The court may award these damages in case of:
◦ a breach of promise to marry, where damages shall be calculated on the basis of mental injury
sustained by the aggrieved party.
◦ wrongful dishonour of a cheque by a banker. In case of wrongful dishonour of a cheque, the rule
is smaller the amount of the cheque, larger will be the amount of damages awarded. A trader
may recover such damages as wrongful dishonour of cheque shall adversely affect his goodwill
but a non-trader whose cheque is wrongfully dishonoured will have to prove the loss of goodwill
before claiming such damages.
3. Kinds of Damages
Nominal damages: Nominal damages are awarded where the injured party has sustained
damage of a short but not of a substantial nature to be reckoned.
◦ Where the breach is technical and injured party has no intention of performing his part of the
contract
◦ Where the injured party has not suffered any actual damage or fails to prove that he has
◦ Where damage is due to the fault of the injured party

Damages for inconvenience and uneasiness: If a party has suffered physical inconvenience and
discomfort due to breach of contract, that party can recover the damages for such inconvenience
and discomfort.
Liquidated damages: When the parties to a contract at the time of formation of contract, specify a
sum which will become payable by the party responsible for breach, such specified sum is called
Liquidated Damages. This amount represents a genuine attempt to work out what the loss would
be in the event of such a breach. [Section 74]
4. Rules regarding Amount of Damages
The object of awarding damages is not to punish the party at fault
◦ The injured party is to be placed in the same position as money can do if the contract
had been performed
◦ The aggrieved party can recover actual loss suffered by him arising naturally.
◦ The fact that damages are difficult to assess does not prevent the injured party from
recovering.
◦ Where no real loss arises nominal damages are awarded.
◦ If the parties fix any amount as damages in case of breach of contract then the court
will allow only reasonable amount.
◦ It is the duty of the injured party to minimise the damage suffered.
5. Remoteness of Damages
There are some losses which clearly result from the defendant’s breach of contract but
are considered too remote from the breach for it to be fair to expect the defendant to
compensate the claimant for them.
Example: A taxi driver is booked to take a passenger to the airport in time for a certain
flight to Karachi where the passenger expects to complete a deal worth Rs. 1 million. If
the tax driver breaches the contract by arriving late, the taxi firm may be liable for
expenses such as any extra cost for getting the next flight but is unlikely to be expected
to compensate the passenger for the loss of Rs. 1 million.
INDEMNITY AND GUARANTEE

1. Contract of Indemnity

2. Contract of Guarantee
1. Contract of Indemnity

◦Definition of contract of indemnity

◦Parties in a contract of indemnity
◦Rights of indemnity holder
◦Time of commencement of the indemnifier’s
liability
Definition of contract of indemnity
Contract of indemnity [Section 124]
A contract by which one party promises to save the other from loss caused to him by the conduct of
the promisor himself, or by the conduct of any other person.

Parties in the contract of indemnity

Indemnifier (Promisor): The indemnifier (or promisor) is the person who promises to make good the
loss.
Indemnified / Indemnity holder (Promisee): The indemnified (also referred to as the indemnity holder
or promisee) is the person whose loss is to be made good.
Example: A contracts to indemnify B against the consequences of any proceedings which C may
take against B in respect of a certain sum of Rs. 200/-. This is a contract of Indemnity.
In the above example A is the indemnifier and B is the indemnity holder.
Rights of indemnity holder
According to Section 125 of Contract Act, a promisee is entitled to recover the following
amounts from the promisor provided that he acts within the scope of his authority:
◦ All damages which he may be compelled to pay in any suit in respect of any matter to
which the promise to indemnify applies;
◦ All costs which he may be compelled to pay in
◦ bringing or
◦ defending such suits.
But the indemnified should not acted against the order of the promisor and acted as any
prudent an would act under similar circumstances in his own case, or with the authority of
the indemnifier and
◦ All sums which he may have paid under the terms of any compromise of any such suit.
The compromise should not be contrary to the orders of the indemnifier and should be a
prudent one or authorized by the indemnifier.
Time of commencement of the indemnifier’s liability
The Contract Act is silent on the time of commencement of the indemnifier’s liability under
the contract of indemnity. On the basis of judicial pronouncement of courts,
it can be said that the liability of an indemnifier commences as soon as the
liability of the indemnity holder becomes absolute and certain. In other
words, if the indemnity holder has incurred an absolute liability even though
he has himself paid nothing, he is entitled to ask the indemnifier to
indemnify him.
Example: A promises to compensate B for any loss that he may suffer by
filing a suit against C. The court orders B to pay C damages of Rs. 50,000. As
the loss has become certain, B may claim the amount of loss from A and
give it to C.
2. Contract of Guarantee
◦ Definition of contract of guarantee
◦ Parties in a contract of guarantee
◦ Essentials of a contract of guarantee
◦ Kinds of guarantee
◦ Revocation of a continuing guarantee
◦ Nature of surety’s liability
◦ Discharge of surety
◦ Circumstances where surety is not discharged
◦ Difference between contract of indemnity and contract of guarantee
Definition of contract of guarantee
A contract of guarantee is a contract to perform the promise or discharge the liability of a third
person in case of his default.
Consideration received by the principal debtor is sufficient for the surety and it is not necessary to
result in some benefit to the surety himself. [Section 127]
Example: 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 sufficient consideration for C’s promise.

Parties in a contract of guarantee

Principal debtor: The person in respect of whose default the guarantee is given. [Section 126]
Creditor: The person to whom guarantee is given. [Section 126]
Surety: The person who gives guarantee. [Section 126]
Example: A and his friend B enter a shop and A says to Z “Supply the goods required by B and if he
does not pay you, I will.” It is a contract of guarantee.
Essentials of a contract of guarantee
1. Tripartite agreement: A contract of guarantee is a tripartite agreement between the principal
debtor, creditor and surety. There are three contracts in contract of guarantee:
◦ Contract between creditor and the principal debtor
◦ Contract between surety and the principal debtor
◦ Contract between surety and creditor
2. Consent of parties: Consent is an essential for all the contracts similarly all three must have
consented in a contract of guarantee.
3. Existence of a debt: A contract of guarantee requires an existing debt or a promise whose
performance is guaranteed which is enforceable at law. If no such liability exists then there cannot
be a contract of guarantee. The principal debtor can be a minor; in this case surety will be liable
personally.
4. Essentials of a contract: All the essentials required in a contract must exist in a contract of
guarantee.
5. Misrepresentation: According to Section 142 of Contract Act, a guarantee must not be obtained by
misrepresentation.
6. Fraud: According to Section 143 of Contract Act, a guarantee must not be obtained by fraud.
Kinds of Guarantee
Guarantee may be classified under the following two categories:
1. Specific guarantee:
When a guarantee extends to a single transaction or debt, it is called a specific or simple guarantee.
The liability of the surety comes to an end when the guaranteed debt is duly discharged or the
promise is duly performed.
Examples:
A guarantees payment to B of the price of the five bags of flour to be delivered by B to C and to be
paid for in 3 months. B delivers five bags to C, C pays for them. This is a contract of specific
guarantee.
2. Continuing guarantee:
According to Section 129 of Contract Act, when a guarantee extends to a series of transactions, it is
called a continuing guarantee. A surety’s liability continues until the revocation of the guarantee.
Examples:
A, in consideration that B will employ C in collecting the rent of B’s zamindari promises B to be
responsible, to the amount of Rs. 5,000, for the due collection and payment by C of those rents. This is
a continuing guarantee.
Revocation of a Continuing Guarantee
A continuing guarantee can be revoked in the following ways:
1. Notice: A continuing guarantee may at any time be revoked by the surety as to future
transactions, by notice to the creditor. [Section 130]
2. Death of surety: The death of the surety operates, in the absence of any contract to the
contrary, as a revocation of a continuing guarantee regarding future transactions. [Section
131]
3. Other modes of revocation of continuing guarantee: A continuing guarantee is also
revoked in following ways
◦ novation [Section 62]
◦ alteration [Section 133]
◦ release or discharge of the principal debtor by creditor [Section 134]
◦ compounding of creditor with the principal debtor [Section 135]
◦ creditor’s act or omission impairing surety eventual remedy [Section 139]
◦ loss of security [Section 141]
Nature of surety’s liability
Nature of surety’s liability - it is co-extensive:
The liability of a surety is equal to that of the principal debtor unless otherwise agreed.
[Section 128]
Examples: A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill
is dishonoured by C, A is liable not only for the amount of the bill, but also for any interest
and charges which may have become due on it.
Limitation of surety’s liability: The liability of surety may be made less than that of the
principal debtor by an express contract to that effect.
Initiation surety’s liability: The liability of the surety arises immediately at the time of default
by the principal debtor. The creditor can sue the surety without suing the principal debtor.
Condition precedent to surety’s liability: Where a person gives a guarantee upon a
contract that a creditor shall not act upon it until another person has joined in it as co-
surety, the guarantee is not valid if that person does not join.
Discharge of Surety
The ways in which a surety is discharged are shown below:
Discharge of Surety
Discharge of Surety by Revocation:
1. Notice: A surety can be discharged by giving notice to the creditor in
case of continuing guarantee, as to future transactions, by notice to the
creditor. [Section 130]
2. Death of surety: The deceased surety’s estate will not be liable for any
transactions entered into between the creditor and the principal debtor
after the death of the surety, even if the creditor has no notice of the death.
[Section 131]
3. Novation: Novation means the substitution of a new contract of
guarantee for an old one. The new contract extinguishes the rights and
obligations that were in effect under the old contract. [Section 62]
Discharge of Surety
Discharge of Surety by the Conduct of the Creditor:
1. Alteration: If an alteration is made without the consent of the
surety then the surety is discharged as to the transactions,
subsequent to the alteration. [Section 133]
2. Release of principal debtor: The surety is discharged by any
contract between the creditor and the principal debtor, by
which the principal debtor is released. [Section 134]
3. Arrangement: A contract between the creditor and the
principal debtor, by which the creditor makes a competition
with, or promises to give time to, or not to sue, the principal
debtor, discharges the surety, unless the surety assents to such
contract. [Section 135]
Discharge of Surety
Discharge of Surety by Invalidation of Contract:
1. Misrepresentation/ Fraud: Any guarantee which has been obtained by
means of misrepresentation made by the creditor or keeping silence as to
material circumstances, or with his knowledge and assent, concerning a
material part of the transaction, is invalid. [Section 142 & 143]
2. Act or omission: If the creditor does any act which is inconsistent with the
rights of the surety, or omits to do any act which his duty to the surety
requires him to do, and the eventual remedy of the surety himself against
the principal debtor is impaired, the surety is discharged. [Section 139]
3. Failure of co-surety to join surety: Where a person gives a guarantee
upon a contract that a creditor shall not act upon it until another person has
joined in it as co-surety, the guarantee is not valid if that other person does
not join. [Section 144]
Circumstances where surety is not Discharged

◦ Where a contract to give time to the principal debtor is made by the

creditor with a third person, and not with the principal debtor, the surety is
not discharged.

◦ Patience on the part of the creditor to sue the principal debtor or to

enforce any other remedy against him, does not, in the absence of any
provision, in the guarantee to the contrary, discharge the surety.

◦ Where there are co-sureties, the release by the creditor of one of them
does not discharge the other nor does it free the surety so released from
his responsibility to the other sureties. [Section 138]
Difference between contract of indemnity and Guarantee
Head Contract of indemnity Contract of Guarantee
Number of There are two parties indemnifier and There are three parties principal debtor,
parties indemnity holder. creditor and surety.
Number of
contracts There is only one contract There are three contracts.
The surety undertakes for the payment of
The indemnifier undertakes to save the debts of principal debtor in case of his
Object indemnity holder from any loss. default.

The liability of indemnifier is primary and The liability of surety is secondary and
Nature of liability unconditional. conditional and co-extensive.

The liability arises only on the

Commencement The liability arises only on the happening nonperformance of an existing promise or
of liability of a contingency. non-payment of an existing debt

The indemnifier cannot sue a third party

Right in his own name because of absence of A surety, on discharging the debt of
to privity of contract between him and principal debtor, can sue the principal
Sue third party. debtor in his own name.
BAILMENT AND PLEDGE

1. Nature of bailment
2. Duties and rights of bailor and bailee
3. Termination
4. Finder of goods
5. Pledge
1. Nature of Bailment
Meaning of bailment
The 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. [Section 148]
The word “Bailment” is derived from a French word “Baillier” which means to deliver. The analysis
of the above law also reveals that if a person already having had possession of the goods of
another, contracts to hold them as a bailee, he thereby becomes the bailee, and the owner
becomes the bailor of such goods, although they may not have been delivered by way of
bailment.
Example:
◦ X delivers a piece of cloth to Y, a tailor, to be stitched into a suit. There is a contract of bailment
between X and Y.
◦ A lends a laptop to B to be returned after the examination. There is a contract of bailment
between A and B.
◦ An insurance company places a damaged insured car of X in possession of Y, a repairer. X is the
bailor, the insurance company is the bailee, and Y is the sub-bailee.
1. Nature of Bailment
Essential elements of bailment
The essential elements of bailment are shown below:
1. Agreement: A bailment is usually created by agreement between the bailor and the bailee. It
may be gratuitous i.e. without consideration or non-gratuitous i.e. with consideration. The
agreement may be express or implied. In case of finder of goods the bailment is implied by
law.
2. Purpose: The delivery of goods from bailor to bailee must be for some purpose such as personal
service, safe custody, some work to be done upon or transportation.
3. Return of specific goods: In contract of bailment the goods are either returned or disposed of as
per the instructions of bailor after the purpose is achieved.
4. Delivery of goods: A bailment involves delivery of goods by bailor to bailee. In this connection,
the following points may be noted:
◦ The delivery must be voluntary e.g. the delivery of jewellery by its owner to a thief who shows a
revolver does not create a bailment because the delivery is not voluntary.
◦ Delivery may be actual or constructive
2. Duties and Rights of Bailor and Bailee
1. Duties of Bailor & Bailee:

Bailor Bailee
Duty to disclose faults Duty to take care of the goods bailed

Duty to bear expenses Duty not to make any unauthorized use of goods

Duty to indemnify bailee for loss in case of

Duty not to mix the goods bailed with his own goods
early termination of gratuitous bailment

Duty to receive back the goods Duty not to set up an adverse title

Duty to indemnify the bailee Duty to return the goods

Duty to bear the risk of loss Duty to return increase

2. Duties and Rights of Bailor and Bailee
1. Rights of Bailor & Bailee:
Bailor Bailee
Right to claim damages in case of negligence Right to claim damages
Right to terminate the contract in case of
Right to claim reimbursement of expenses
unauthorized use
Right to claim compensation in case of unauthorized Right to be indemnified in case of early termination
use of gratuitous bailment
Right to claim separation of goods in case of
unauthorized Right to recover loss in case of bailor’s defective title
mixture

Right to claim compensation in case of unauthorized Right to recover loss in case of bailor’s refusal to take
mixture of goods the goods back

Right to demand return of goods Right to deliver goods in case of several joint owner

Right to claim compensation in case of unauthorized Bailee not responsible on re-delivery to bailor without
retention of goods title

Right to demand increase Rights of bailor and bailee against wrong-doer

Right of particular lien
3. Termination
1. Termination of all contract of bailment: All contract of bailment are terminated in the
following cases:
a. Automatic termination: A bailment of goods is automatically terminated on:
◦ Expiry of the time for which goods were bailed
◦ Completion of purpose for which they are bailed.
b. Inconsistent use of goods: When the bailment is for a specific purpose and goods
bailed are used inconsistent of the purpose for which they are bailed.
c. Destruction of the subject-matter: A bailment is terminated when the subject-matter of
the bailment is
◦ destroyed, or
◦ by reason of a change if its nature becomes incapable of use for the purpose of the
bailment.
3. Termination
2. Termination of gratuitous bailment:
a. Death of the bailor or bailee: On death of the bailor or bailee
the gratuitous bailment is terminated.
b. Before the expiry of the fixed period: In case of gratuitous
bailment the bailor can terminate the contract of bailment
before the expiry of fixed term or completion of purpose. In
such a case, the bailor is liable to indemnify the bailee in case
the loss exceeding the benefit derived due to early
termination.
4. Finder of Goods
1. Rights of finder of goods:
a. Right to lien: The finder of goods has a right of lien over the goods found until he
receives the compensation for expense incurred by him to preserve the goods and to
find the owner but he has no right to sue the owner for any such compensation incurred
by him voluntarily. [Section 168]
b. Right to sue for reward: The finder can sue for any specific reward which the owner
has offered for the return of the goods. He may also retain the goods until he receives
the reward. [Section 168]
c. Right of sale: A finder of goods may sell the goods found if [Section 169]:
◦ The owner cannot with reasonable diligence be found, or
◦ If found, he refuses to take the goods or
◦ Goods will perish or lose the greater part of their value, or
◦ The lawful charges of the finder, in respect of the goods found, amount to two third of
their value.
4. Finder of Goods
2. Duties of finder of goods:
a. Duty to take care: The finder of goods must take reasonable
care of the goods found like a person of ordinary prudence.
b. Duty not to use for personal purpose: The goods found must
not be used for personal purpose.
c. Duty not to mix with its own goods: The goods found must not
be mix with his own goods.
d. Duty to find the owner: Subject to lien, the finder of goods
must return the goods to the true owner if found.
5. Pledge
The bailment of goods as security for payment of a debt or performance
of a promise is called a pledge.
The person who delivers the goods as security for payment of a debt or
performance of a promise is called pawnor or pledgor.
The person to whom the goods are delivered as security for payment of a
debt or performance of a promise is called pawnee or pledgee.
Any kind of movable property, i.e., goods, documents, or valuables may
be pledged. But delivery is necessary to complete a pledge. The delivery
may be actual or constructive.
Example:
If A borrows Rs. 200,000 from B and keeps his Rolex watch as security for
payment of the debt, the bailment of watch is a pledge.
Difference between Pledge and Bailment
Head Pledge Bailment
The bailment is the delivery of goods by one
person to another for some purpose, upon a
The bailment of goods as security for
contract that they shall, when the purpose is
Nature of payment of a debt or performance
accomplished, be returned or otherwise
contract of a
disposed of according to the directions of
promise is called pledge.
the
person delivering them.
Name of parties pawnor and pawnee Bailor and bailee
The purpose of pledge is security for
the performance of a specific Bailment is for safe custody, transportation
Purpose
promise, i.e. the payment of a debt etc.
or performance of a promise
Pawnee has no right to use the
Bailee can use if terms of bailment so
Right to use goods
provide.
pledged.
Pawnee can sell the goods pledged
Bailee can either retain the goods or sue the
Right to sell after giving notice to the pawnor in
bailor for his dues.
case of default by the pawnor.
AGENCY

1. Role of an agent
2. Rights and duties of the agent and principal
3. Irrevocable agency
4. Undisclosed agency
5. Personal liability of an agent
1. Role of an Agent
An agent is a person employed to do any (lawful) act for
another or to represent another in dealing with a third person.
The person for whom such act is done or who is so represented
is called the principal.
All types of business may use agents. An agent is a person who
acts on behalf of someone else (a ‘principal’) to arrange a
transaction with a third party. The transaction creates a legal
contract, and the contract is between the principal and the
third party.
1. Role of an Agent
Difference between Sub-agent and Co-agent

Head Sub-Agent Co-Agent

A sub-agent works under the control of A co-agent works under the instructions of the
Control
the agent. principal.
There is no contract between sub-agent There is a contract between co-agent and
Contract
and the principal. the principal.

The agent is not responsible to the principal for the act

The agent is responsible to the principal
Responsibility
for the act of the sub-agent.
of the substituted agent if the agent while selecting
the substituted agent exercised the same amount of
discretion as a man of ordinary prudence would
exercise in his own case

A sub-agent is automatically terminated if

Co-agent is not affected by the termination of the
Termination the authority of the agent is revoked by
original agency.
the principal.

Remuneration to sub-agent is paid by the

Remuneration Remuneration to co-agent is paid by the principal.
agent.
1. Role of an Agent
Legal problems with agency relationships
There are several possible legal problems with agency arrangements. In particular, there
may be some doubt about the validity of a contract that an agent makes with a third
party on behalf of a principal.
Example:
◦ A person might claim to act on behalf of a principal P, and a third party might enter
into an agreement believing the contract to be with P. However, P might deny that the
person is in fact his agent.
◦ A person might be the agent of P with authority to make certain agreements on behalf
of P. However, the agent might make an agreement with a third party and in doing so
go beyond the limits of his authority as agent. The principal P might then refuse to
accept the agreement as legally binding. An example of this is where a manager
makes an agreement on behalf of the company he works for, and the company
refuses to honour the agreement on the grounds that the manager did not have the
authority to make the agreement.
1. Role of an Agent
Authority of an Agent
Agent’s authority and the power to bind the principal
A principal does not give an agent unlimited authority to enter into any contract on behalf of the
principal. There are limits on the authority of an agent that restrict the type of agreement that the
agent can enter into, and the principal is only bound to honour agreements that the agent makes
within the limits of his authority.
When a third party deals with an agent who does not have the authority to make the transaction,
the principal may or may not be bound by such transaction as it depends upon the knowledge of
a third party regarding the authority of an agent. [Section 188]
Example: An agent A is acting on behalf of a principal P. He enters into a contract with another
party T, stating that he is acting as agent for P. However, A has actually acted outside his authority.
P refuses to carry out the terms of the contract. In this situation, the agent A would be liable to both
the third party T and to the principal for breach of warranty of authority. However, there might be
problems in identifying the authority of a particular agent. These arise mainly when an agent
makes an agreement with another party, and the other party genuinely believes that the agent
has the necessary authority, but in fact the principal has not given the agent that authority.
1. Role of an Agent
Authority of an Agent
Agent’s authority and the power to bind the principal
However, there might be problems in identifying the authority of a particular agent. These arise
mainly when an agent makes an agreement with another party, and the other party genuinely
believes that the agent has the necessary authority, but in fact the principal has not given the
agent that authority.

However, there might be problems in identifying the authority of a particular agent. These arise
mainly when an agent makes an agreement with another party, and the other party genuinely
believes that the agent has the necessary authority, but in fact the principal has not given the
agent that authority.

The authority of an agent to act on behalf of the principal may be any of the following types of
authority:
◦ Express authority
◦ Implied authority
◦ Ostensible authority (apparent authority)
2. Rights and duties of the agent and principal
Duties of Agent & Principal

Agent Principal
Duty to carry out mandate Duty to indemnify for lawful acts
Duty to indemnify against consequences of acts done in good
Duty to follow instructions faith

Duty to reasonable carefulness and proficiency Duty to compensate

Duty to maintain and render accounts Duty to pay
Duty to communicate
Duty not to deal personally
Duty to pay sums received
Duty in case of principal’s death or insanity
Duty not to use critical information
Duty not to make secret profit
Duty not to delegate authority
Duty in selecting sub-agent and substituted
agent
Duty in case of emergency
2. Rights and duties of the agent and principal
Rights of Agent & Principal

Agent Principal
Right to receive remuneration Right to revoke

Right of lien Right in case of departure from direction

Right of retainer Right to accounts

Right of indemnify for lawful acts Right to repudiate

Right of compensation Right to claim benefit
Right of stoppage in transit Right to refuse remuneration
3. Irrevocable Agency
When an agency cannot be terminated or put an end to by the principal, it said to be an
irrevocable agency.
1. Agency coupled with interest
Where the agent has himself an interest in the subject-matter of agency, the agency is said to be
coupled with interest. Such an agency is created with the object of protecting or securing any
interest of the agent.
Such agency cannot be terminated by the
◦ Death or
◦ Unsoundness of mind or
◦ Insolvency
of the principal.
However, it may be revoked by the principal for the agent’s misconduct in the performance of
duties. Such agency may be revoked only if the contract of agency contains an express provision
for the revocation of agency. [Section 202]
Example: A gives authority to B to sell A's car and to pay himself, out of the proceeds, the debts
due to him from A. A cannot revoke this authority, nor can it be terminated by his insanity or death.
3. Irrevocable Agency
2. Revocation would cause the agent personal loss
Where an agent, while acting in the course of business of agency, carries a transaction
in his own name he is personally liable to the third party, unless and until the adventure is
completed.
Example: A authorize B to buy 10,000 bales of cotton on account of A, and to pay for it
out of A's money remaining in B's hands. B buys 10,000 bales of cotton in his own name
so as to make himself personally liable for the price. A cannot revoke B's authority so far
as regards payment for the cotton.

3. Authority partly exercised

If an agent has exercised his authority partly then the authority of the agent to the extent
of acts and obligations arising from acts already done cannot be revoked. [Section 204]
Example: A authorizes B to buy 10,000 bales of cotton on account of A, and to pay for it
out of A's money remaining in B's hands. B buys 10,000 bales of cotton in A's name and
so as not to render himself personally liable for the price. A cannot revoke B's authority
so far as regards buying the cotton but can revoke B's authority to pay for the cotton.
4. Undisclosed Agency
Meaning of undisclosed agency
Where an agent while acting in the course of business of agency does not disclose at the time of
formation of contract the existence of his principal or representative character and enters into
the contract with third party in his own name this is called undisclosed agency. [Section 231]
Position of agent
As the agent has entered into a contract in his own name his position is exactly as that of a
contracting party. The agent is bound by the contract. He may be sued on it and he has the right
to sue the third party.
Position of third party
The position of third party is exactly that of a contracting party. On discovering about the
existence of agency, the third party contracting with the agent may seek his remedy against
either:
◦ the agent or
◦ the principal or
◦ both of them.
Example: A enters into contract with B to sell him 100 cars and afterwards discovers that B was
acting as an agent for C. A may sue either B or C, or both for the price of the cars.
4. Undisclosed Agency
Position of principal
As the agent was acting in the course of business of agency the principal may be
allowed to intervene in the contract provided the following requirements are fulfilled:
Consent of third party: If the principal discloses himself before the contract is completed:
◦ the other contracting party may refuse to fulfil the contract
◦ if he can show that he would not have entered into the contract if he had known
◦ who was the principal in the contract or
◦ that the agent was not principal.
Example: A employed B to bring a theatre ticket for him. A was banned in entering the
theatre and if A would have collected the ticket himself the management would have
refused to give the ticket. In such a case the theatre management may subsequently
refuse A to enter the theatre.
Terms unchanged: The terms of the contract between the agent and the other
contracting party will remain unchanged if the principal is allowed to intervene in the
contract.
5. Personal liability of an agent
It’s a general rule that an agent is not liable if he acts on behalf of the principal.
However, in certain circumstances agent is personally liable which are discussed below:
Foreign principal: When an agent contracts for a principal resident abroad he is presumed to be
personally liable. [Section 230]
Unnamed principal: If an agent declines to disclose the identity of his principal then he is
personally liable to the third party.
Principal cannot be sued: An agent is also presumed to incur personal liability where he contracts
on behalf of a principal who though disclosed cannot be sued. E.g. where promoters contract for a
projected company, they are held liable personally as the company being non-existent at the
time of the contract but cannot be sued. [Section 230]
Undisclosed Principal: Where an agent acts for an undisclosed principal and contracts in his own
name then he is personally liable to the third parties. [Section 231]
Agency coupled with interest: In case of agency coupled with interest, since the agent has himself
an interest in the property which forms the subject matter of the agency therefore the agent is
personally liable to the extent of his interest. [Section 202]
5. Personal liability of an agent
Custom: An agent is personally liable on a contract if there is any usage or custom of a
market or trade to that effect. e.g. stock brokerage business.
Agent exceeding his authority: Where an agent while acting in the course of business of
agency exceeds his authority, he is personally liable for the excess part if it is a
separable transaction otherwise for the entire transaction. [Section 227 & 228]
Improperly appointed sub-agent: An agent is personally liable to third parties for the
acts of an improperly appointed sub-agent. [Section 193]
Agent incurring personal liability: Where an agent, while acting in the course of business
of agency incurs personal liability he is personally liable on the contract.
Criminal act: Where an agent has been employed to do a criminal act, the agent is not
entitled to indemnify himself against the consequences of that act and is personally
liable for it.
Special contract: If an agent, while acting in the course of business of agency enters into
a special contract with the third party that he will be personally liable on the contract
then the agent is personally liable.