INDIAN CONTRACT ACT 1872
EmailTHE INDIAN CONTRACT ACT, 1872
ACT No. 9 OF 1872
25th April, 1872
WHEREAS it is expedient to define and amendcertain parts of the law relating to contracts;
It is hereby enacted as follows: –
PRELIMINARY
1.Short title: This Act may be called theIndian Contract Act, 1872.
Extent: Commencement: It extends to thewhole of India 1 [except theState of Jammu and Kashmir];and it shall come into force on the first day of September, 1872.
2 [*] Nothing herein contained shallaffect the provisions of any Statute, Act or Regulation not hereby expresslyrepealed, nor any usage or custom of trade, nor any incident of any contract,not inconsistent with the provisions of this Act.
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1. Substituted for the words except Part BStates by the Part B States (Laws) Act, 1951(3 of 1951), Sec.3 and Schedule(1-4-1951).
2. Words the enactments mentioned in theschedule hereto are repealed to the extent specified in the third columnthereof but were repealed by the Repealing and Amending Act, 1914 (10 of 1914).
2.Interpretation-clause: In this Act thefollowing words and expressions are used in the following senses, unless acontrary intention appears from the context: –
(a) When one person signifies to anotherhis willingness to do or to abstain from doing anything, with a view toobtaining the assent of that other to such act or abstinence, he is said tomake a proposal:
(b) When the person to whom the proposal ismade signifies his assent thereto, the proposal is said to be accepted. A proposal,when accepted, becomes a promise:
(c) The person making the proposal iscalled the "promisor", and the person accepting the proposal iscalled the "promisee":
(d) When, at the desire of the promisor,the promisee or any other person has done or abstained from doing, or does orabstains 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:
(e) Every promise and every set ofpromises, forming the consideration for each other, is an agreement:
(f) Promises which form the considerationor part of the consideration for each other are called reciprocal promises:
(g) An agreement not enforceable by law issaid to be void:
(h) An agreement enforceable by law is acontract:
(i) An agreement which is enforceable bylaw at the option of one or more of the parties thereto, but not at the optionof the other or others, is a voidable contract:
(j) A contract which ceases to beenforceable by law becomes void when it ceases to be enforceable.
CHAPTER I
OF THE COMMUNICATION ACCEPTANCE ANDREVOCATION OF PROPOSALS
3.Communication, acceptance and revocationof proposals: The communication of proposals, the acceptance of proposals, andthe revocation of proposals and acceptances, respectively, are deemed to bemade by any act or omission of the party proposing, accepting or revoking bywhich he intends to communicate such proposal, acceptance or revocation, orwhich has the effect of communicating it.
4.Communication when complete: Thecommunication of a proposal is complete when it comes to the knowledge of theperson to whom it is made.
The communication of an acceptance iscomplete, –
as against the proposer, when it is put ina course of transmission to him, so as to be out of the power of the acceptor;
as against the acceptor, when it comes tothe knowledge of the proposer.
The communication of a revocation iscomplete, –
as against the person who makes it, when itis put into a course of transmission to the person to whom it is made, so as tobe out of the power of the person who makes it;
as against the person to whom it is made,when it comes to his knowledge.
Illustrations
(a) A proposes, by letter, to sell a houseto B at a certain price.
The communication of the proposal iscomplete when B receives the letter.
(b) B accepts A’s proposal by a letter sentby post.
The communication of the acceptance iscomplete,
as against A when the letter is posted;
as against B, when the letter is receivedby A.
(c) A revokes his proposal by telegram.
The revocation is complete as against Awhen the telegram is despatched. It is complete as against B when B receivesit.
B revokes his acceptance by telegram. B’srevocation is complete as against B when the telegram is despatched, and asagainst A when it reaches him.
5.Revocation of proposals and acceptances:A proposal may be revoked at any time before the communication of itsacceptance is complete as against the proposer, but not afterwards.
An acceptance may be revoked at any timebefore the communication of the acceptance is complete as against the acceptor,but not afterwards.
Illustrations
A proposes, by a letter sent by post, tosell his house to B.
B accepts the proposal by a letter sent bypost.
A may revoke his proposal at any timebefore or at the moment when B posts his letter of acceptance, but notafterwards.
B may revoke his acceptance at any timebefore or at the moment when the letter communicating it reaches A, but notafterwards.
STATE AMENDMENT
Uttar Pradesh
In its application to the State of Uttar Pradesh, at theend of the first paragraph, insert following Explanation.
Explanation: – Where an invitation to aproposal contains a condition that any proposal made in response to such invitationshall be kept open for a specified time and a proposal is thereupon madeaccepting such condition, such proposal may not be revoked within such time.
U. P. Act 57of 1976, Sec.25 (1-1-1977).
6.Revocation how made: A proposal isrevoked –
(1) by the communication of notice ofrevocation by the proposer to the other party;
(2) by the lapse of the time prescribed insuch proposal for its acceptance, or, if no time is so prescribed, by the lapseof a reasonable time, without communication of the acceptance;
(3) by the failure of the acceptor tofulfil a condition precedent to acceptance; or
(4) by the death or insanity of theproposer, if the fact of his death or insanity comes to the knowledge of theacceptor before acceptance.
7.Acceptance must be absolute: In order toconvert a proposal into a promise, the acceptance must –
(l) be absolute and unqualified;
(2) be expressed in some usual andreasonable manner, unless the proposal prescribes the manner in which it is tobe accepted. If the proposal prescribes a manner in which it is to be accepted,and the acceptance is not made in such manner, the proposer may, within areasonable time after the acceptance is communicated to him, insist that hisproposal shall be accepted in the prescribed manner, and not otherwise; but ifhe fails to do so, he accepts the acceptance.
8.Acceptance by performing conditions, orreceiving consideration: Performance of the conditions of a proposal, or theacceptance of any consideration for a reciprocal promise which may be offeredwith a proposal, is an acceptance of the proposal.
9.Promises, express and implied: In so faras the proposal or acceptance of any promise is made in words, the promise issaid to be express. In so far as such proposal or acceptance is made otherwisethan in words, the promise is said to be implied.
CHAPTER II
OF CONTRACT, VOIDABLE CONTRACTS AND VOIDAGREEMENTS
10.What agreements are contracts: Allagreements are contracts if they are made by the free consent of partiescompetent to contract, for a lawful consideration and with a lawful object, andare not hereby expressly declared to be void.
Nothing herein contained shall affect anylaw in force in 1 [India] and not hereby expressly repealed by which anycontract is required to be made in writing or in the presence of witnesses, orany law relating to the registration of documents.
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1. Substituted for the words Part A Statesand Part C States, by the Part B States (Laws) Act, 1951 (3 of 1951), Sec.3 and Sch.(1-4-1951).
11.Who are competent to contract: Everyperson is competent to contract who is of the age of majority according to thelaw to which he is subject, and who is of sound mind, and is not disqualifiedfrom contracting by any law to which he is subject.
12.What is a sound mind for the purposes ofcontracting: A person is said to be of sound mind for the purpose of making acontract if, at the time when he makes it, he is capable of understanding itand of forming a rational judgment as to its effect upon his interests.
A person who is usually of sound mind, butoccasionally of unsound mind, may not make a contract when he is of unsoundmind.
Illustrations
(a) A patient in a lunatic asylum, who isat intervals of sound mind, may contract during those intervals.
(b) A sane man, who is delirious from feveror who is so drunk that he cannot understand the terms of a contract or form arational judgment as to its effect on his interests, cannot contract whilstsuch delirium or drunkenness lasts.
13.Consent defined: Two or more persons aresaid to consent when they agree upon the same thing in the same sense.
14.Free consent defined: Consent is said tobe free when it is not caused by –
(1) coercion, as defined in section 15, or
(2) undue influence, as defined in section16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined insection 18, or
(5) mistake, subject to the provisions ofsections 20, 21 and 22.
Consent is said to be so caused when itwould not have been given but for the existence of such coercion, undueinfluence, fraud, misrepresentation or mistake.
15.Coercion defined: "Coercion"is the committing, or threatening to commit, any act forbidden by the IndianPenal Code, or the unlawful detaining, or threatening to detain, any property,to the prejudice of any person whatever, with the intention of causing anyperson to enter into an agreement.
Explanation: – It is immaterial whether theIndian Penal Code is or is not in force in the place where the coercion is employed.
Illustration
A, on board an English ship on the highseas, causes B to enter into an agreement by an act amounting to criminalintimidation under the Indian Penal Code.
A afterwards sues B for breach of contractat Calcutta.
A has employed coercion, although his actis not an offence by the law of England,and although section 506 of the Indian Penal Code was not in force at the timewhen or place where the act was done.
1 [16.Undue influence defined: (1) Acontract is said to be induced by "undue influence" where therelations subsisting between the parties are such that one of the parties is ina position to dominate the will of the other and uses that position to obtainan unfair advantage over the other.
(2) In particular and without prejudice tothe generality of the foregoing principle, a person is deemed to be in aposition to dominate the will of another –
(a) where he holds a real or apparentauthority over the other or where he stands in a fiduciary relation to theother; or
(b) where he makes a contract with a personwhose mental capacity is temporarily or permanently affected by reason of age,illness, or mental or bodily distress.
(3) Where a person who is in a position todominate the will of another, enters into a contract with him, and thetransaction appears, on the face of it or on the evidence adduced, to beunconscionable, the burden of proving that such contract was not induced byundue influence shall lie upon the person in a position to dominate the will ofthe other.
Nothing in this sub-section shall affectthe provisions of section 111 of the Indian Evidence Act, 1872.
Illustrations
(a) A having advanced money to his son, B,during his minority, upon B’s coming of age obtains, by misuse of parentalinfluence a bond from B for a greater amount than the sum due in respect of theadvance. A employs undue influence.
(b) A, a man enfeebled by disease or age,is induced, by B’s influence over him as his medical attendant, to agree to payB an unreasonable sum for his professional services. B employs undue influence.
(c) A, being in debt to B, the money-lenderof his village, contracts a fresh loan on terms which appear to beunconscionable. It lies on B to prove that the contract was not induced byundue influence.
(d) A applies to a banker for a loan at atime when there is stringency in the money market. The banker declines to makethe loan except at an unusually high rate of interest. A accepts the loan onthese terms. This is a transaction in the ordinary course of business, and thecontract is not induced by undue influence.]
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1. Substituted for the original Section 16,by the Indian Contract (Amendment) Act, 1899(6 of 1899), Sec.2.
17.Fraud defined: "Fraud" meansand includes any of the following acts committed by a party to a contract, orwith his connivance, or by his agent, with intent to deceive another partythereto or his agent, or to induce him to enter into the contract:-
(1) the suggestion, as a fact, of thatwhich is not true, by one who does not believe it to be true;
(2) the active concealment of a fact by onehaving knowledge or belief of the fact;
(3) a promise made without any intention ofperforming it;
(4) any other act fitted to deceive;
(5) any such act or omission as the lawspecially declares to be fraudulent.
Explanation: – Mere silence as to factslikely to affect the willingness of a person to enter into a contract is notfraud, unless the circumstances of the case are such that, regard being had tothem, it is the duty of the person keeping silence to speak, or unless hissilence is, in itself, equivalent to speech.
Illustrations
(a) A sells, by auction, to B, a horsewhich A knows to be unsound. A says nothing to B about the horse’s unsoundness.This is not fraud in A.
(b) B is A’s daughter and has just come ofage. Here, the relation between the parties would make it A’s duty to tell B ifthe horse is unsound.
(c) B says to A – "If you do not denyit, I shall assume that the horse is sound." A says nothing. Here A’ssilence is equivalent to speech.
(d) A and B, being traders, enter upon acontract. A has private information of a change in prices which would affectB’s willingness to proceed with the contract. A is not bound to inform B.
18.Misrepresentation defined:"Misrepresentation" means and includes –
(1) the positive assertion, in a manner notwarranted by the information of the person making it, of that which is nottrue, though he believes it to be true;
(2) any breach of duty which, without anintent to deceive, gains an advantage to the person committing it, or any oneclaiming under him, by misleading another to his prejudice or to the prejudiceof any one claiming under him;
(3) causing, however innocently, a party toan agreement to make a mistake as to the substance of the thing which is thesubject of the agreement.
19.Voidability of agreements without freeconsent: When consent to an agreement is caused by coercion, 1 [*] fraud ormisrepresentation, the agreement is a contract voidable at the option of theparty whose consent was so caused.
A party to a contract, whose consent wascaused by fraud or misrepresentation, may, if he thinks fit, insist that thecontract shall be performed, and that he shall be put in the position in whichhe would have been if the representations made had been true.
Exception: – If such consent was caused bymisrepresentation or by silence, fraudulent within the meaning of section 17,the contract, nevertheless, is not voidable, if the party whose consent was socaused had the means of discovering the truth with ordinary diligence.
Explanation: – A fraud or misrepresentationwhich did not cause the consent to a contract of the party on whom such fraudwas practised, or to whom such misrepresentation was made, does not render acontract voidable.
Illustrations
(a) A, intending to deceive B, falselyrepresents 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 theoption of B.
(b) A, by a misrepresentation, leads Berroneously to believe that five hundred maunds of indigo are made annually atA’s factory. B examines the accounts of the factory, which show that only fourhundred maunds of indigo have been made. After this B buys the factory. Thecontract is not voidable on account of A’s misrepresentation.
(c) A fraudulently informs B that A’sestate is free from incumbrance. B thereupon buys the estate. The estate issubject to a mortgage. B may either avoid the contract, or may insist on itsbeing carried out and the mortgage debt redeemed.
(d) B, having discovered a vein of ore onthe estate of A, adopts means to conceal, and does conceal, the existence ofthe ore from A. Through A’s ignorance B is enabled to buy the estate at anunder-value. The contract is voidable at the option of A.
(e) A is entitled to succeed to an estateat the death of B; B dies: C, having received intelligence of B’s death,prevents the intelligence reaching A, and thus induces A to sell him his interestin the estate. The sale is voidable at the option of A.
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1. Words undue influencewere repealed bythe Indian Contract (Amendment) Act, 1899(6 of 1899), Sec.3.
1 [19A.Power to set aside contract inducedby undue influence: When consent to an agreement is caused by undue influence,the agreement is a contract voidable at the option of the by party whoseconsent was so caused.
Any such contract may be set aside eitherabsolutely or, if the party who was entitled to avoid it has received anybenefit thereunder, upon such terms and conditions as to the Court may seemjust.
Illustrations
(a) A’s son has forged B’s name to apromissory note. B, under threat of prosecuting A’s son, obtains a bond from Afor the amount of the forged note. If B sues on this bond, the Court may setthe bond aside.
(b) A, a money-lender, advances Rs.100 toB, an agriculturist, and, by undue influence, induces B to execute a bond forRs.200 with interest at 6 per cent per month. The Court may set the bond aside,ordering B to repay the Rs.100 with such interest as may seem just.]
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1. Inserted by Indian Contract Act(Amendment) Act, 1899, Sec.3.
STATE AMENDMENT
Madhya Pradesh
After Section 19A of the Indian ContractAct, 1872 (9 of 1872), insert thefollowing sections: –
"19-B.Definitions of maintainer andchampertous agreement:
(a) Maintainer means a person who givesassistance or encouragement to one of the parties to a suit or proceeding andwho has neither an interest in such suit or proceeding nor any other motiverecognized by law as justifying his interference.
(b) ‘Champertous agreement means anagreement whereby the nominal plaintiff agrees with the maintainer to sharewith or give to him a part of whatever is gained as the result of the suitmaintained.
19-C.Power to set aside champertousagreement: A champertous agreement may be set aside upon such terms andconditions as the Court may deem fit to impose."
C. P. and BerarIndian Contract (Amendment) Act (15 of 1938), Sec.2.
This Act has been extended to the wholeState of M. P .by M. P. Act 23 of 1958.In itsapplication to Vidarbha region of MahrashtraState, it has beenrepealed by Maharashtra Repealing and Amending Act (26 of 1963), Sec.2 andFirst Sch. (4-6-1963).
20.Agreement void where both parties areunder mistake as to matter of fact: Where both the parties to an agreement areunder a mistake as to a matter of fact essential to the agreement, theagreement is void.
Explanation: – An erroneous opinion as tothe value of the thing which forms the subject-matter of the agreement is notto be deemed a mistake as to a matter of fact.
Illustrations
(a) A agrees to sell to B a specific cargoof goods supposed to be on its way from Englandto Bombay. Itturns out that, before the day of the bargain, the ship conveying the cargo hadbeen cast away and the goods lost. Neither party was aware of the facts. Theagreement is void.
(b) A agrees to buy from B a certain horse.It turns out that the horse was dead at the time of the bargain, though neitherparty was aware of the fact. The agreement is void.
(c) A, being entitled to an estate for thelife of B, agrees to sell it to C. B was dead at the time of the agreement, butboth parties were ignorant of the fact. The agreement is void.
21.Effect of mistakes as to law: A contractis not voidable because it was caused by a mistake as to any law in force in1[*] India; but amistake as to a law not in force in 1 [*] India has the same effect as amistake of fact.
2 [*]
Illustration
A and B make a contract grounded on theerroneous belief that a particular debt is barred by the Indian Law ofLimitation; the contract is not voidable.
3 [*]
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1.Words "any province of" which were substituted for"British", by A. C. A. O., 1948, omitted by A. L. O., 1950.
2. Para.2 which was inserted by the A.O.,1937 and amended by the A. C. A.O., 1948, was omitted by A.L.O., 1950.
3. Second Illustration was repealed by theRepealing and Amending Act, 1917 (24 of 1917), Sec.3 and Sch.II.
22.Contract caused by mistake of one partyas to matter of fact: A contract is not voidable merely because it was causedby one of the parties to it being under a mistake as to a matter of fact.
23.What considerations and objects arelawful and what not: The consideration or object of an agreement is lawful,unless –
it is forbidden by law; or
is of such a nature that, if permitted, itwould defeat the provisions of any law; or
is fraudulent; or
involves or implies injury to the person orproperty of another; or the Court regards it as immoral, or opposed to publicpolicy.
In each of these cases, the considerationor object of an agreement is said to be unlawful. Every agreement of which theobject or consideration is unlawful is void.
Illustrations
(a) A agrees to sell his house to B for10,000 rupees. Here B’s promise to pay the sum of 10,000 rupees is theconsideration for A’s promise to sell the house, and A’s promise to sell thehouse is the consideration for B’s promise to pay the 10,000 rupees. These arelawful considerations.
(b) A promises to pay B 1,000 rupees at theend of six months, if C, who owes that sum to B, fails to pay it. B promises togrant time to C accordingly. Here the promise of each party is theconsideration for the promise of the other party and they are lawfulconsiderations.
(c) A promises, for a certain sum paid tohim by B, to make good to B the value of his ship if it is wrecked on a certainvoyage. Here A’s promise is the consideration for B’s payment and B’s paymentis the consideration for A’s promise and these are lawful considerations.
(d) A promises to maintain B’s child and Bpromises to pay A 1,000 rupees yearly for the purpose. Here the promise of eachparty is the consideration for the promise of the other party. They are lawfulconsiderations.
(e) A, B and C enter into an agreement forthe division among them of gains acquired, or to he acquired, by them by fraud.The agreement is void, as its object is unlawful.
(f) A, promises to obtain for B anemployment in the public service, and B promises to pay 1,000 rupees to A. Theagreement is void, as the consideration for it is unlawful.
(g) A, being agent for a landed proprietor,agrees for money, without the knowledge of his principal, to obtain for B alease of land belonging to his principal. The agreement between A and B isvoid, as it implies a fraud by concealment, by A, on his principal.
(h) A promises B to drop a prosecutionwhich he has instituted against B for robbery, and B promises to restore thevalue of the things taken. The agreement is void, as its object is unlawful.
(i) A’s estate is sold for arrears ofrevenue under the provisions of an Act of the Legislature, by which thedefaulter is prohibited from purchasing the estate. B, upon an understandingwith A, becomes the purchaser, and agrees to convey the estate to A uponreceiving from him the price which B has paid. The agreement is void, as itrenders the transaction, in effect, a purchase by the defaulter, and would sodefeat the object of the law.
(j) A, who is B’s mukhtar, promises toexercise his influence, as such, with B in favour of C, and C promises to pay1,000 rupees to A. The agreement is void, because it is immoral.
(k) A agrees to let her daughter to hire toB for concubinage. The agreement is void, because it is immoral, though theletting may not be punishable under the Indian Penal Code.
Void agreements
24.Agreements void, if considerations andobjects unlawful in part: If any part of a single consideration for one or moreobjects, or any one or any part of any one of several considerations for asingle object, is unlawful, the agreement is void.
Illustration
A promises to superintend, on behalf of B,a legal manufacture of indigo, and an illegal traffic in other articles. Bpromises to pay to A, a salary of 10,000 rupees a year. The agreement is void,the object of A’s promise, and the consideration for B’s promise, being in partunlawful.
25.Agreement without consideration, void,unless it is in writing and registered, or is a promise to compensate forsomething done, or is a promise to pay a debt barred by limitation law:
An agreement made without consideration isvoid, unless –
(1) it is expressed in writing andregistered under the law for the time being in force for the registration of 1[documents], and is made on account of natural love and affection betweenparties standing in a near relation to each other; or unless
(2) it is a promise to compensate, whollyor in part, a person who has already voluntarily done something for thepromisor, or something which the promisor was legally compellable to do; orunless
(3) it is a promise, made in writing andsigned by the person to be charged therewith, or by his agent generally or speciallyauthorized in that behalf, to pay wholly or in part a debt of which thecreditor might have enforced payment but for the law for the limitation ofsuits.
In any of these cases, such an agreement isa contract.
Explanation 1: – Nothing in this sectionshall affect the validity, as between the donor and donee, of any gift actuallymade.
Explanation 2: – An agreement to which theconsent of the promisor is freely given is not void merely because theconsideration is inadequate; but the inadequacy of the consideration may betaken into account by the Court in determining the question whether the consentof the promisor was freely given.
Illustrations
(a) A promises, for no consideration, togive to B Rs.1,000. This is a void agreement.
(b) A, for natural love and affection,promises to give his son, B, Rs.1,000. A puts his promise to B into writing andregisters it. This is a contract.
(c) A finds B’s purse and gives it to him.B promises to give A Rs.50.This is a contract.
(d) A supports B’s infant son. B promisesto pay A’s expenses in so doing. This is a contract.
(e) A owes B Rs.1,000 but the debt isbarred by the Limitation Act. A signs a written promise to pay B Rs.500 onaccount of the debt. This is a contract.
(f) A agrees to sell a horse worth Rs.1,000for Rs.10. A’s consent to the agreement was freely given. The agreement is acontract notwithstanding the inadequacy of the consideration.
(g) A agrees to sell a horse worth Rs.1,000for Rs.10. A denies that his consent to the agreement was freely given.
The inadequacy of the consideration is afact which the Court should take into account in considering whether or not A’sconsent was freely given.
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1. Substituted for the word assurances, bythe Amending Act, 1891 (12 of 1891).
26.Agreement in restraint of marriage void:Every agreement in restraint of the marriage of any person, other than a minor,is void.
27.Agreement in restraint of trade void:Every agreement by which any one is restrained from exercising a lawfulprofession, trade or business of any kind, is to that extent void.
Saving of agreement not to carry onbusiness of which good-will is sold –
Exception 1: – One who sells the goodwillof a business may agree with the buyer to refrain from carrying on a similarbusiness, within specified local limits; so long as the buyer, or any personderiving title to the goodwill from him, carries on a like business therein,provided that such limits appear to the Court reasonable, regard being had tothe nature of the business.
1 [*]
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1. Exceptions 2 and 3 repealed by theIndian Partnership Act, 1932 (9 of1932), Sec.73 and Sch.II.
28.Agreements in restraint of legalproceedings void: 1 [Every agreement, –
(a) by which any party thereto isrestricted absolutely from enforcing his rights under or in respect of anycontract, by the usual legal proceedings in the ordinary tribunals, or whichlimits the time within which he may thusenforce his rights; or
(b) which extinguishes the rights of anyparty thereto, or discharges any party thereto from any liability, under or inrespect of any contract on the expiry of a specified period so as to restrict any party fromenforcing his rights,
is void tothat extent.]
Saving of contract to refer to arbitrationdispute that may arise.
Exception 1: – This section shall notrender illegal a contract, by which two or more persons agree that any disputewhich may arise between them in respect of any subject or class of subjectsshall be referred to arbitration, and that only the amount awarded in sucharbitration shall be recoverable in respect of the dispute so referred.
2 [*]
Saving of contract to refer questions thathave already arisen.-
Exception 2: – Nor shall this sectionrender illegal any contract in writing, by which two or more persons agree torefer to arbitration any question between them which has already arisen, oraffect any provision of any law in force for the time being as to references toarbitration.
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1. Substituted by Sec.2 of The IndianContract (Amendment) Act, 1996 (1 of1997) w.e.f. (8-1-1997).
2. Second clause of Exception 1 wasrepealed by the Specific Relief Act, 1877(1 of 1877), Act 1 of 1877 has now been repealed by the Specific ReliefAct, 1963 (47 of 1963) (1-3-1964).
29.Agreements void for uncertainty:Agreements, the meaning of which is not certain, or capable of being madecertain, are void.
Illustrations
(a) A agrees to sell to B "a hundredtons of oil". There is nothing whatever to show what kind of oil wasintended. The agreement is void for uncertainty.
(b) A agrees to sell to B one hundred tonsof oil of a specified description, known as an article of commerce. There is nouncertainty here to make the agreement void.
(c) A, who is a dealer in cocoanut-oilonly, agrees to sell to B "one hundred tons of oil". The nature ofA’s trade affords an indication of the meaning of the words, and A has enteredinto a contract for the sale of one hundred tons of cocoanut-oil.
(d) A agrees to sell to B "all thegrain in my granary at Ramnagar". There is no uncertainty here to make theagreement void.
(e) A agrees to sell to B "onethousand maunds of rice at a price to be fixed by C". As the price iscapable of being made certain, there is no uncertainty here to make theagreement void.
(f) A agrees to sell to B "my whitehorse for rupees five hundred or rupees one thousand". There is nothing toshow which of the two prices was to be given. The agreement is void.
30.Agreements by way of wager void:Agreements by way of wager are void; and no suit shall be brought forrecovering anything alleged to be won on any wager, or entrusted to any personto abide the result of any game or other uncertain event on which any wager ismade.
Exception in favour of certain prizes forhorse-racing:
This section shall not be deemed to renderunlawful a subscription or contribution, or agreement to subscribe orcontribute, made or entered into for or toward any plate, prize or sum ofmoney, of the value or amount of five hundred rupees or upwards, to be awardedto the winner or winners of any horse-race.
Section 294A of the Indian Penal Code notaffected:
Nothing in this section shall be deemed tolegalize any transaction connected with horse-racing, to which the provisionsof section 294A of the Indian Penal Code apply.
CHAPTER III
OF CONTINGENT CONTRACTS
31.Contingent contract defined: A"contingent contract" is a contract to do or not do something, ifsome event, collateral to such contract, does or does not happen.
Illustration
A contracts to pay Rs.10,000 if B’s house is burnt. This is a contingentcontract.
32.Enforcement of contracts contingent onan event happening: Contingent contracts to do or not to do anything if anuncertain future event happens cannot be enforced by law unless and until thatevent has happened.
If the event becomes impossible, suchcontracts become void.
Illustrations
(a) A makes a contract with B to buy B’shorse, if A survives C. This contract cannot be enforced by law unless anduntil C dies in A’s lifetime.
(b) A makes a contract with B to sell ahorse to B at a specified price, if C, to whom the horse has been offered,refuses to buy him. The contract cannot be enforced by law unless and until Crefuses to buy the horse.
(c) A, contracts to pay B a sum of moneywhen B marries C. C dies without being married to B. The contract becomes void.
33.Enforcement of contracts contingent onan event not happening: Contingent contracts to do or not to do anything if anuncertain future event does not happen can be enforced when the happening ofthat event becomes impossible, and not before.
Illustration
A agrees to pay B a sum of money if acertain ship does not return. The ship is sunk. The contract can be enforcedwhen the ship sinks.
34.When event on which contract iscontingent to be deemed impossible, if it is the future conduct of a livingperson: If the future event on which a contract is contingent is the way inwhich a person will act at an unspecified time, the event shall be consideredto become impossible when such person does anything which renders it impossiblethat he should so act within any definite time, or otherwise than under furthercontingencies.
Illustration
A agrees to pay B a sum of money if Bmarries C. C, marries D. The marriage of B to C must now be consideredimpossible, although it is possible that D may die and that C may afterwardsmarry B.
35.When contracts become void which arecontingent on happening of specified event within fixed time: Contingentcontracts to do or not to do anything if a specified uncertain event happenswithin a fixed time become void if, at the expiration of the time fixed, suchevent has not happened, or if, before the time fixed, such event becomesimpossible.
When contracts may be enforced which arecontingent on specified event not happening within fixed time:
Contingent contracts to do or not to doanything if a specified uncertain event does not happen within a fixed time maybe enforced by law when the time fixed has expired and such event has nothappened or, before the time fixed has expired, if it becomes certain that suchevent will not happen.
Illustrations
(a) A, promises to pay B a sum of money ifa certain ship returns within a year. The contract may be enforced if the shipreturns within the year, and becomes void if the ship is burnt within the year.
(b) A, promises to pay B a sum of money ifa certain ship does not return within a year. The contract may be enforced ifthe ship does not return within the year, or is burnt within the year.
36.Agreement contingent on impossibleevents void: Contingent agreements to do or not to do anything, if animpossible event happens, are void, whether the impossibility of the event isknown or not to the parties to the agreement at the time when it is made.
Illustrations
(a) A agrees to pay B 1,000 rupees if twostraight lines should enclose a space. The agreement is void.
(b) A agrees to pay B 1,000 rupees if Bwill marry A’s daughter C. C was dead at the time of the agreement. Theagreement is void.
CHAPTER IV
OF THE PERFORMANCE OF CONTRACTS
Contracts which must be performed
37.Obligation of parties to contracts: Theparties to a contract must either perform, or offer to perform, theirrespective promises, unless such performance is dispensed with or excused underthe provisions of this Act, or of any other law.
Promises bind the representatives of thepromisors in case of the death of such promisors before performance, unless acontrary intention appears from the contract.
Illustrations
(a) A promises to deliver goods to B oncertain day on payment of Rs.1,000. A dies before that day. A’s representativesare bound to deliver the goods to B, and B is bound to pay the Rs.1,000 to A’srepresentatives.
(b) A promises to paint a picture for B bya certain day, at a certain price. A dies before the day. The contract cannotbe enforced either by A’s representatives or by B.
38.Effect of refusal to accept offer ofperformance: Where a promisor has made an offer of performance to the promisee,and the offer has not been accepted, the promisor is not responsible fornon-performance, nor does he thereby lose his rights under the contract.
Every such offer must fulfil the followingconditions: –
(1) it must be unconditional;
(2) it must be made at a proper time andplace, and under such circumstances that the person to whom it is made may havea reasonable opportunity of ascertaining that the person by whom it is made isable and willing there and then to do the whole of what he is bound by hispromise to do;
(3) if the offer is an offer to deliveranything to the promisee, the promisee must have a reasonable opportunity ofseeing that the thing offered is the thing which the promisor is bound by hispromise to deliver.
An offer to one of several joint promiseeshas the same legal consequences as an offer to all of them.
Illustration
A, contracts to deliver to B at hiswarehouse, on the 1st March, 1873, 100 bales of cotton of a particular quality.In order to make an offer of a performance with the effect stated in thissection, A must bring the cotton to B’s warehouse, on the appointed day, undersuch circumstances that B may have a reasonable opportunity of satisfyinghimself that the thing offered is cotton of the quality contracted for, andthat there are 100 bales.
39.Effect of refusal of party to performpromise wholly: When a party to a contract has refused to perform, or disabledhimself from performing, his promise in its entirety, the promisee may put an endto the contract, unless he has signified, by words or conduct, his acquiescencein its continuance.
Illustrations
(a) A, a singer, enters into a contractwith B, the manager of a theatre, to sing at his theatre two nights in everyweek during the next two months, and B engages to pay her 100 rupees for eachnight’s performance. On the sixth night A wilfully absents herself from thetheatre. B is at liberty to put an end to the contract.
(b) A, a singer, enters into a contractwith B, the manager of a theatre, to sing at his theatre two nights in everyweek during the next two months, and B engages to pay her at the rate of 100rupees for each night. On the sixth night A wilfully absents herself. With theassent of B, A sings on the seventh night. B has signified his acquiescence inthe continuance of the contract, and cannot now put an end to it, but isentitled to compensation for the damage sustained by him through A’s failure tosing on the sixth night.
By whom contracts must be performed
40.Person by whom promise is to beperformed: If it appears from the nature of the case that it was the intentionof the parties to any contract that any promise contained in it should beperformed by the promisor himself, such promise must be performed by the promisor.Inother cases, the promisor or his representatives may employ a competent personto perform it.
Illustrations
(a) A promises to pay B a sum of money. Amay perform this promise, either by personally paying the money to B or bycausing it to be paid to B by another; and, if A dies before the time appointedfor payment, his representatives must perform the promise, or employ someproper person to do so.
(b) A promises to paint a picture for B. Amust perform this promise personally.
41.Effect of accepting performance fromthird person: When a promisee accepts performance of the promise from a thirdperson, he cannot afterwards enforce it against the promisor.
42.Devolution of joint liabilities: Whentwo or more persons have made a joint promise, then, unless a contraryintention appears by the contract, all such persons, during their joint lives,and, after the death of any of them, his representative jointly with thesurvivor or survivors, and, after the death of the last survivor, therepresentatives of all jointly, must fulfil the promise.
43.Any one of joint promisors may becompelled to perform: When two or more persons make a joint promise, thepromisee may, in the absence of express agreement to the contrary, compel any 1[one or more] of such joint promisors to perform the whole of the promise.
Each promisor may compel contribution:
Each of two or more joint promisors maycompel every other joint promisor tocontribute equally with himself to the performance of the promise,unless a contrary intention appears from the contract.
Sharing of loss by default in contribution:
If any one of two or more joint promisorsmakes default in such contribution, the remaining joint promisors must bear theloss arising from such default in equal shares.
Explanation: – Nothing in this sectionshall prevent a surety from recovering from his principal, payments made by thesurety on behalf of the principal, or entitle the principal to recover anythingfrom the surety on account of payments made by the principal.
Illustrations
(a) A, B and C jointly promise to pay D3,000 rupees. D may compel either A or B or C to pay him 3,000 rupees.
(b) A, B and C jointly promise to pay D thesum of 3,000 rupees. C is compelled to pay the whole. A is insolvent, but his assetsare sufficient to pay one-half of his debts. C is entitled to receive 500rupees from A’s estate, and 1,250 rupees from B.
(c) A, B and C are under a joint promise topay D 3,000 rupees. C is unable to pay anything, and A is compelled to pay thewhole. A is entitled to receive 1,500 rupees from B.
(d) A, B and C are under a joint promise topay D 3,000 rupees, A and B being only sureties for C. C fails to pay. A and Bare compelled to pay the whole sum. They are entitled to recover it from C.
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1. Substituted for the word oneby theAmending Act, 1891 (12 of 1991).
44.Effect of release of one joint promisor:Where two or more persons have made a joint promise, a release of one of suchjoint promisors by the promisee does not discharge the other joint promisor orjoint promisors; neither does it free the joint promisors so released fromresponsibility to the other joint promisor or joint promisors.
45.Devolution of joint rights: When aperson has made a promise to two or more persons jointly, then, unless acontrary intention appears from the contract, the right to claim performancerests, as between him and them, with them during their joint lives, and, afterthe death of any of them, with the representative of such deceased personjointly with the survivor or survivors, and, after the death of the lastsurvivor, with the representatives of all jointly.
Illustration
A, in consideration of 5,000 rupees, lentto him by B and C, promises B and C jointly to repay them that sum with intereston a day specified. B dies. The right to claim performance rests with B’srepresentative jointly with C during C’s life, and after the death of C withthe representatives of B and C jointly.
Time and place for performance
46.Time for performance of promise, whereno application is to be made and no time is specified: Where, by the contract,a promisor is to perform his promise without application by the promisee, andno time for performance is specified, the engagement must be performed within areasonable time.
Explanation: – The question "what is areasonable time" is, in each particular case, a question of fact.
47.Time and place for performance ofpromise, where time is specified and no application to be made: When promise isto be performed on a certain day, and the promisor has undertaken to perform itwithout application by the promisee, the promisor may perform it at any timeduring the usual hours of business on such day and at the place at which thepromise ought to be performed.
Illustration
A promises to deliver goods at B’swarehouse on the first January. On that day A brings the goods to B’swarehouse, but after the usual hour for closing it, and they are not received.A has not performed his promise.
48.Application for performance on certainday to be at proper time and place: When a promise is to be performed on acertain day, and the promisor has not undertaken to perform it withoutapplication by the promisee, it is the duty of the promisee to apply forperformance at a proper place and within the usual hours of business.
Explanation: – The question "what is aproper time and place" is, in each particular case, a question of fact.
49.Place for performance of promise, whereno application to be made and no place fixed for performance: When a promise isto be performed without application by the promisee, and no place is fixed forthe performance of it, it is the duty of the promisor to apply to the promiseeto appoint a reasonable place for the performance of the promise, and to performit at such place.
Illustration
A undertakes to deliver a thousand maundsof jute to B on a fixed day. A must apply to B to appoint a reasonable placefor the purpose of receiving it, and must deliver it to him at such place.
50.Performance in manner or at timeprescribed or sanctioned by promisee: The performance of any promise may bemade in any manner, or at any time which the promisee prescribes or sanctions.
Illustrations
(a) B owes A 2,000 rupees A desires B topay the amount to A’s account with C a banker. B who also banks with C, ordersthe amount to be transferred from his account to A’s credit, and this is doneby C. Afterwards, and before A knows of the transfer, C fails. There has been agood payment by B.
(b) A and B are mutually indebted. A and Bsettle an account by setting off one item against another, and B pays A thebalance found to be due from him upon such settlement. This amounts to apayment by A and B, respectively, of the sums which they owed to each other.
(c) A owes B 2,000 rupees. B accepts someof A’s goods in reduction of the debt. The delivery of goods operates as a partpayment.
(d) A desires B, who owes him Rs.100, tosend him a note for Rs.100 by post. The debt is discharged as soon as B putsinto the post a letter containing the note duly addressed to A.
Performance of reciprocal promises
51.Promisor not bound to perform, unlessreciprocal promisee ready and willing to perform: When a contract consists ofreciprocal promises to be simultaneously performed, no promisor need performhis promise unless the promisee is readyand willing to perform his reciprocal promise.
Illustrations
(a) A and B contract that A shall delivergoods to B to be paid for by B on delivery.
A need not deliver the goods, unless B is readyand willing to pay for the goods on delivery.
B need not pay for the goods, unless A isready and willing to deliver them on payment.
(b) A and B contract that A shall delivergoods to B at a price to be paid by instalments, the first instalment to bepaid on delivery.
A need not deliver, unless B is ready andwilling to pay the first instalment on delivery.
B need not that pay the first instalment,unless A is ready and willing to deliver the goods on payment of the firstinstalment.
52.Order of performance of reciprocalpromises: Where the order in which reciprocal promises are to be performed isexpressly fixed by the contract, they shall be performed in that order; and,where the order is not expressly fixed by the contract, they shall be performedin that order which the nature of the transaction requires.
Illustrations
(a) A and B contract that A shall build ahouse for B at a fixed price. A’s promise to build the house must be performedbefore B’s promise to pay for it.
(b) A and B contract that A shall make overhis stock-in-trade to B at a fixed price, and B promises to give security forthe payment of the money. A’s promise need not be performed until the securityis given, for the nature of the transaction requires that A should have securitybefore he delivers up his stock.
53.Liability of party preventing event onwhich the contract is to take effect: When a contract contains reciprocalpromises, and one party to the contract prevents the other from performing hispromise, the contract becomes voidable at the option of the party so prevented;and he is entitled to compensation from the other party for any loss which hemay sustain in consequence of the non-performance of the contract.
Illustration
A and B contract that B shall executecertain work for A for a thousand rupees. B is ready and willing to execute thework accordingly, but A prevents him from doing so. The contract is voidable atthe option of B; and, if he elects to rescind it, he is entitled to recoverfrom A compensation for any loss which he has incurred by its non-performance.
54.Effect of default as to that promisewhich should be first performed, in contract consisting of reciprocal promises:When a contract consists of reciprocal promises, such that one them cannot beperformed, or that its performance cannot be claimed till the other has beenperformed, and the promisor of the promise last mentioned fails to perform it,such promisor cannot claim the performance of the reciprocal promise, and mustmake compensation to the other party to the contract for any loss which suchother party may sustain by the non-performance of the contract.
Illustrations
(a) A hires B’s ship to take in and convey,from Calcutta to the Mauritius, a cargo to be provided by A, B receiving acertain freight for its conveyance. A does not provide any cargo for the ship.A cannot claim the performance of B’s promise, and must make compensation to Bfor the loss which B sustains by the non-performance of the contract.
(b) A contracts with B to execute certainbuilder’s work for a fixed price, B supplying the scaffolding and timbernecessary for the work. B refuses to furnish any scaffolding or timber, and thework cannot be executed. A need not execute the work, and B is bound to makecompensation to A for any loss caused to him by the non-performance of thecontract.
(c) A contracts with B to deliver to him,at a specified price, certain merchandise on board a ship which cannot arrivefor a month, and B engages to pay for the merchandise within a week from thedate of the contract. B does not pay within the week. A’s promise to deliverneed not be performed, and B must make compensation.
(d) A promises B to sell him one hundredbales of merchandise, to be delivered next day, and B promises A to pay forthem within a month. A does not deliver according to his promise. B’s promiseto pay need not be performed, and A must make compensation.
55.Effect of failure to perform at fixedtime, in contract in which time is essential: When a party to a contractpromises to do a certain thing at or before a specified time, or certain thingsat or before specified times, and fails to do any such thing at or before thespecified time, the contract, or so much of it as has not been performed,becomes voidable at the option of the promisee, if the intention of the partieswas that time should be of the essence of the contract.
Effect of such failure when time is notessential:
If it was not the intention of the partiesthat time should be of the essence of the contract, the contract does notbecome voidable by the failure to do such thing at or before the specifiedtime; but the promisee is entitled to compensation from the promisor for anyloss occasioned to him by such failure.
Effect of acceptance of performance at timeother than that agreed upon:
If, in case of a contract voidable onaccount of the promisor’s failure to perform his promise at the time agreed,the promisee accepts performance of such promise at any time other than thatagreed, the promisee cannot claim compensation for any loss occasioned by thenon-performance of the promise at the time agreed, unless, at the time of suchacceptance he gives notice to the promisor of his intention to do so.
STATE AMENDMENT
Uttar Pradesh
In its application to the State of UttarPradesh, in the third paragraph, for the words unless at the time of suchacceptance he gives notice to the promisor of his intention to do so, the wordswhere at the time of such acceptance he has waived his right to do soshall besubstituted.
U. P. Act 57 of 1976, Sec.26 (1-1-1977).
56.Agreement to do impossible act: Anagreement to do an act impossible in itself is void.
Contract to do act afterwards becomingimpossible or unlawful.
A contract to do an act which, after thecontract is made, becomes impossible, or, by reason of some event which thepromisor could not prevent, unlawful, becomes void when the act becomesimpossible or unlawful.
Compensation for loss throughnon-performance of act known to be impossible or unlawful.-
Where one person has promised to dosomething which he knew, or, with reasonable diligence, might have known, andwhich the promisee did not know, to be impossible or unlawful, such promisormust make compensation to such promisee for any loss which such promiseesustains through the non-performance of the promise.
Illustrations
(a) A agrees with B to discover treasure bymagic. The agreement is void.
(b) A and B contract to marry each other.Before the time fixed for the marriage, A goes mad. The contract becomes void.
(c) A contracts to marry B, being alreadymarried to C, and being forbidden by the law to which he is subject to practicepolygamy, A must make compensation to B for the loss caused to her by thenon-performance of his promise.
(d) A contracts to take in cargo for B at aforeign port. A’s Government afterwards declares war against the country inwhich the port is situated. The contract becomes void when war is declared.
(e) A contracts to act at a theatre for sixmonths in consideration of a sum, paid in advance by B. On several occasions Ais too ill to act. The contract to act on those occasions becomes void.
57.Reciprocal promise to do things legal,and also other things illegal: Where persons reciprocally promise, firstly, todo certain things which are legal, and, secondly, under specified circumstancesto do certain other things which are illegal, the first set of promises is acontract, but the second is a void agreement.
Illustration
A and B agree that A shall sell B a housefor 10,000 rupees, but that, if B uses it as a gambling house, he shall pay A50,000 rupees for it.
The first set of reciprocal promises,namely, to sell the house and to pay 10,000 rupees for it, is a contract.
The second set is for an unlawful object,namely, that B may use the house as a gambling house, and is a void agreement.
58.Alternative promise, one branch beingillegal: In the case of an alternative promise, one branch of which is legaland the other illegal, the legal branch alone can be enforced.
Illustration
A and B agree that A shall pay B 1,000rupees for which B shall afterwards deliver to A either rice or smuggled opium.
This is a valid contract to deliver rice,and a void agreement as to the opium.
Appropriation of payments
59.Application of payment where debt to bedischarged is indicated: Where a debtor, owing several distinct debts to oneperson, makes a payment to him, either with express intimation, or undercircumstances implying that the payment is to be applied to the discharge ofsome particular debt, the payment, if accepted, must be applied accordingly.
Illustrations
(a) A owes B, among other debts, 1,000rupees upon a promissory note which falls due on the first June. He owes B noother debt of that amount. On the first June A pays to B 1,000 rupees. Thepayment is to be applied to the discharge of the promissory note.
(b) A owes to B, among other debts, the sumof 567 rupees. B writes to A and demands payment of this sum. A sends to B 567rupees. This payment is to be applied to the discharge of the debt of which Bhad demanded payment.
60.Application of payment where debt to bedischarged is not indicated: Where the debtor has omitted to intimate and thereare no other circumstances indicating to which debt the payment is to beapplied, the creditor may apply it at his discretion to any lawful debtactually due and payable to him from the debtor, whether its recovery is or isnot barred by the law in force for the time being as to the limitation ofsuits.
61.Application of payment where neitherparty appropriates: Where neither party makes any appropriation the paymentshall be applied in discharge of the debts in order of time, whether they areor are not barred by the law in force for the time being as to the limitationof suits. If the debts are of equal standing, the payment shall be applied indischarge of each proportionately.
Contracts which need not be performed
62.Effect of novation, rescission, andalteration of contract: If the parties to a contract agree to substitute a newcontract for it, or to rescind or alter it, the original contract need not beperformed.
Illustrations
(a) A owes money to B under a contract. Itis agreed between A, B and C that B shall thenceforth accept C as his debtor,instead of A. The old debt of A to B is at an end, and a new debt from C to Bhas been contracted.
(b) A owes B 10,000 rupees. A enters intoan arrangement with B, and gives B a mortgage of his (A’s) estate for 5,000rupees in place of the debt of 10,000 rupees. This is a new contract andextinguishes the old.
(c) A owes B 1,000 rupees under a contract.B owes C 1,000 rupees. B orders A to credit C with 1,000 rupees in his books,but C does not assent to the arrangement. B still owes C 1,000 rupees, and nonew contract has been entered into.
63.Promise may dispense with or remitperformance of promise: Every promisee may dispense with or remit, wholly or inpart, the performance of the promise made to him, or may extend the time forsuch performance, or may accept instead of it any satisfaction which he thinksfit.
Illustrations
(a) A promises to paint a picture for B. Bafterwards forbids him to do so. A is no longer bound to perform the promise.
(b) A owes B 5,000 rupees. A pays to B, andB accepts, in satisfaction of the whole debt, 2,000 rupees paid at the time andplace at which the 5,000 rupees were payable. The whole debt is discharged.
(c) A owes B 5,000 rupees. C pays to B1,000 rupees, and B accepts them, in satisfaction of his claim on A.This paymentis a discharge of the whole claim.
(d) A owes B, under a contract, a sum ofmoney, the amount of which has not been ascertained. A, without ascertainingthe amount, gives B, and B, in satisfaction thereof, accepts, the sum of 2,000rupees. This is a discharge of the whole debt whatever may be its amount.
(e) A owes B 2,000 rupees, and is alsoindebted to other creditors. A makes an arrangement with his creditors,including B, to pay them a 1 [composition] of eight annas in the rupee upontheir respective demands. Payment to B of 1,000 rupees is a discharge of B’sdemand.
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1. Substituted for the word"compensation" by the Amending Act, 1891 (12 of 1891), Sec.2 andSch.II.
64.Consequences of rescission of voidablecontract: When a person at whose option a contract is voidable rescinds it, theother party thereto need not perform any promise therein contained in which heis promisor. The party rescinding a voidable contract shall, if he havereceived any benefit thereunder from another party to such contract, restoresuch benefit, so far as may be, to the person from whom it was received.
65.Obligation of person who has receivedadvantage under void agreement, or contract that becomes void: When anagreement is discovered to be void, or when a contract becomes void, any personwho has received any advantage under such agreement or contract is bound torestore it, or to make compensation for it to the person from whom he receivedit.
Illustrations
(a) A pays B 1,000 rupees in considerationof B’s promising to marry C, A’s daughter. C is dead at the time of thepromise. The agreement is void, but B must repay A the 1,000 rupees.
(b) A contracts with B to deliver to him250 maunds of rice before the first of May. A delivers 130 maunds only beforethat day, and none after. B retains the 130 maunds after the first of May. Heis bound to pay A for them.
(c) A, a singer, contracts with B, themanager of a theatre, to sing at his theatre for two nights in every weekduring the next two months, and B engages to pay her a hundred rupees for eachnight’s performance. On the sixth night, A wilfully absents herself from thetheatre, and B, in consequence, rescinds the contract. B must pay A for thefive nights on which she had sung.
(d) A contracts to sing for B at a concertfor 1,000 rupees, which are paid in advance. A is too ill to sing. A is notbound to make compensation to B for the loss of the profits which B would havemade if A had been able to sing, but must refund to B the 1,000 rupees paid inadvance.
66.Mode of communicating or revokingrescission of voidable contract: The rescission of a voidable contract may becommunicated or revoked in the same manner, and subject to the same rules, asapply to the communication or revocation of a proposal.
67.Effect of neglect of promisee to affordpromisor reasonable facilities for performance: If any promisee neglects orrefuses to afford the promisor reasonable facilities for the performance of hispromise, the promisor is excused by such neglect or refusal as to anynon-performance caused thereby.
Illustration
A contracts with B to repair B’s house.
B neglects or refuses to point out to A theplaces in which his house requires repair.
A is excused for the non-performance of thecontract if it is caused by such neglect or refusal.
CHAPTER V
OF CERTAIN RELATIONS RESEMBLING THOSECREATED BY CONTRACT
68.Claim for necessaries supplied to personincapable of contracting, or on his account: If a person, incapable of enteringinto a contract, or any one whom he is legally bound to support, is supplied byanother person with necessaries suited to his condition in life, the person whohas furnished such supplies is entitled to be reimbursed from the property ofsuch incapable person.
Illustrations
(a) A supplies B, a lunatic, withnecessaries suitable to his condition in life. A is entitled to be reimbursedfrom B’s property.
(b) A supplies the wife and children of B,a lunatic, with necessaries suitable to their condition in life. A is entitledto be reimbursed from B’s property.
69.Reimbursement of person paying money dueby another, in payment of which he is interested: A person who is interested inthe payment of money which another is bound by law to pay, and who thereforepays it, is entitled to be reimbursed by the other.
Illustration
B holds land in Bengal, on a lease grantedby A, the zamindar. The revenue payable by A to the Government being in arrear,his land is advertised for sale by the Government. Under the revenue law, theconsequence of such sale will be the annulment of B’s lease. B, to prevent thesale and the consequent annulment of his own lease, pays to the Government thesum due from A. A is bound to make good to B the amount so paid.
70.Obligation of person enjoying benefit ofnon-gratuitous act: Where a person lawfully does anything for another person,or delivers anything to him, not intending to do so gratuitously, and suchother person enjoys the benefit thereof, the latter is bound to makecompensation to the former in respect of, or to restore, the thing so done ordelivered.
Illustrations
(a) A, a tradesman, leaves goods at B’shouse by mistake. B treats the goods as his own. He is bound to pay A for them.
(b) A saves B’s property from fire. A isnot entitled to compensation from B, if the circumstances show that he intendedto act gratuitously.
71.Responsibility of finder of goods: Aperson who finds goods belonging to another, and takes them into his custody,is subject to the same responsibility as a bailee.
72.Liability of person to whom money ispaid or thing delivered by mistake or under coercion: A person to whom moneyhas been paid, or anything delivered, by mistake or under coercion, must repayor return it.
Illustrations
(a) A and B jointly owe 100 rupees to C. Aalone Pays the amount to C, and B, not knowing this fact, pays 100 rupees overagain to C. C is bound to repay the amount to B.
(b) A railway company refuses to deliver upcertain goods to consignee, except upon the payment of an illegal charge forcarriage. The consignee pays the sum charged in order to obtain the goods. Heis entitled to recover so much of the charge as was illegally excessive.
CHAPTER V1
OF THE CONSEQUENCES OF BREACH OF CONTRACT
73.Compensation for loss or damage causedby breach of contract: When a contract has been broken, the party who suffersby such breach is entitled to receive, from the party who has broken thecontract, compensation for any loss or damage caused to him thereby, whichnaturally arose in the usual course of things from such breach, or which theparties knew, when they made the contract, to be likely to result from thebreach of it.
Such compensation is not to be given forany remote and indirect loss or damage sustained by reason of the breach.
Compensation for failure to dischargeobligation resembling those created by contract:
When an obligation resembling those createdby contract has been incurred and has not been discharged, any person injuredby the failure to discharge it is entitled to receive the same compensationfrom the party in default, as if such person had contracted to discharge it andhad broken his contract.
Explanation: – In estimating the loss ordamage arising from a breach of contract, the means which existed of remedyingthe inconvenience caused by the non-performance of the contract must be takeninto account.
Illustrations
(a) A contracts to sell and deliver 50maunds of saltpetre to B, at a certain price to be paid on delivery. A breakshis promise. B is entitled to receive from A , by way of compensation, the sum,if any, by which the contract price falls short of the price for which B mighthave obtained 50 maunds of saltpetre of like quality at the time when thesaltpetre ought to have been delivered.
(b) A hires B’s ship to go to Bombay, andthere take on board, on the first of January, a cargo which A is to provide andto bring it to Calcutta, the freight to be paid when earned. B’s ship does notgo to Bombay, but A has opportunities of procuring suitable conveyance for thecargo upon terms as advantageous as those on which he had chartered the ship. Aavails himself of those opportunities, but is put to trouble and expense indoing so. A is entitled to receive compensation from B in respect of suchtrouble and expense.
(c) A contracts to buy of B, at a statedprice, 50 maunds of rice, no time being fixed for delivery. A afterwardsinforms B that he will not accept the rice if tendered to him. B is entitled toreceive from A, by way of compensation, the amount, if any, by which thecontract price exceeds that which B can obtain for the rice at the time when Ainforms B that he will not accept it.
(d) A contracts to buy B’s ship for 60,000rupees, but breaks his promise. A must pay to B, by way of compensation, theexcess, if any, of the contract price over the price which B can obtain for theship at the time of the breach of promise.
(e) A, the owner of a boat, contracts withB to take a cargo of jute to Mirzapur, for sale at that place, starting on aspecified day. The boat, owing to some avoidable cause, does not start at thetime appointed, whereby the arrival of the cargo at Mirzapur is delayed beyondthe time when it would have arrived if the boat had sailed according to thecontract. After that date, and before the arrival of the cargo, the price ofjute falls. The measure of the compensation payable to B by A is the differencebetween the price which B could have obtained for the cargo at Mirzapur at thetime when it would have arrived if forwarded in due course, and its marketprice at the time when it actually arrived.
(f) A contracts to repair B’s house in acertain manner, and receives payment in advance. A repairs the house, but notaccording to contract. B is entitled to recover from A the cost of making therepairs conform to the contract.
(g) A contracts to let his ship to B for ayear, from the first of January, for a certain price. Freights rise, and, onthe first of January, the hire obtainable for the ship is higher than thecontract price. A breaks his promise. He must pay to B, by way of compensation,a sum equal to the difference between the contract price and the price forwhich B could hire a similar ship for a year on and from the first of January.
(h) A contracts to supply B with a certainquantity of iron at a fixed price, being a higher price than that for which Acould procure and delivery the iron. B wrongfully refuses to receive the iron.B must pay to A, by way of compensation, the difference between the contractprice of the iron and the sum for which A could have obtained and delivered it.
(i) A delivers to B, a common carrier, amachine, to be conveyed, without delay, to A’s mill informing B that his millis stopped for want of the machine. B unreasonably delays the delivery of themachine, and A, in consequence, loses a profitable contract with theGovernment. A is entitled to receive from B, by way of compensation, theaverage amount of profit which would have been made by the working of the millduring the time that delivery of it was delayed, but not the loss sustainedthrough the loss of the Government contract.
(j) A, having contracted with B to supply Bwith 1,000 tons of iron at 100 rupees a ton, to be delivered at a stated time,contracts with C for the purchase of 1,000 tons of iron at 80 rupees a ton,telling C that he does so for the purpose of performing his contract with B. Cfails to perform his contract with A, who cannot procure other iron, and B, inconsequence, rescinds the contract. C must pay to A 20,000 rupees, being theprofit which A would have made by the performance of his contract with B.
(k) A contracts with B to make and deliverto B, by a fixed day, for a specified price, a certain piece of machinery. Adoes not deliver the piece of machinery at the time specified, and inconsequence of this, B is obliged to procure another at a higher price thanthat which he was to have paid to A, and is prevented from performing acontract which B had made with a third person at the time of his contract withA (but which had not been then communicated to A), and is compelled to makecompensation for breach of that contract. A must pay to B, by way ofcompensation, the difference between the contract price of the piece ofmachinery and the sum paid by B for another, but not the sum paid by B to thethird person by way of compensation.
(l) A, a builder, contracts to erect andfinish a house by the first of January in order that B may give possession ofit at that time to C, to whom B has contracted to let it. A is informed of thecontract between B and C. A builds the house so badly that, before the first ofJanuary, it falls down and has to be rebuilt by B, who, in consequence, losesthe rent which he was to have received from C, and is obliged to makecompensation to C for the breach of his contract. A must make compensation to Bfor the cost of rebuilding the house, for the rent lost, and for thecompensation made to C.
(m) A sells certain merchandise to B,warranting it to be of a particular quality, and B, in reliance upon thiswarranty, sells it to C with a similar warranty. The goods prove to be notaccording to the warranty, and B becomes liable to pay C a sum of money by wayof compensation. B is entitled to be reimbursed this sum by A.
(n) A contracts to pay a sum of money to Bon a day specified. A does not pay the money on that day; B, in consequence ofnot receiving the money on that day, is unable to pay his debts, and is totallyruined. A is not liable to make good to B anything except the principal sum hecontracted to pay, together with interest up to the day of payment.
(o) A contracts to deliver 50 maunds ofsaltpetre to B on the first of January, at a certain price. B afterwards,before the first of January, contracts to sell the saltpetre to C at a pricehigher than the market price of the first of January. A breaks his promise. Inestimating the compensation payable by A to B, the market price of the first ofJanuary, and not the profit which would have arisen to B from the sale to C, isto be taken into account.
(p) A contracts to sell and deliver 500bales of cotton to B on a fixed day. A knows nothing of B’s mode of conductinghis business. A breaks his promise, and B, having no cotton, is obliged toclose his mill. A is not responsible to B for the loss caused to B by theclosing of the mill.
(q) A contracts to sell and deliver to B,on the first of January, certain cloth which B intends to manufacture into capsof a particular kind, for which there is no demand, except at that season. Thecloth is not delivered till after the appointed time, and too late to be usedthat year in making caps. B is entitled to receive from A, by way ofcompensation, the difference between the contract price of the cloth and itsmarket price at the time of delivery, but not the profits which he expected toobtain by making caps, nor the expenses which he has been put to in makingpreparation for the manufacture.
(r) A, a ship-owner, contracts with B toconvey him from Calcutta to Sydney in A’s ship, sailing on the first of January,and B pays to A, by way of deposit, one-half of his passage-money. The shipdoes not sail on the first of January, and B, after being in consequencedetained in Calcutta for some time and thereby put to some expense, proceeds toSydney in another vessel, and, in consequence, arriving too late in Sydney,loses a sum of money. A is liable to repay to B his deposit with interest, andthe expense to which he is put by his detention in Calcutta, and the excess, ifany, of the passage-money paid for the second ship over that agreed upon forthe first, but not the sum of money which B lost by arriving in Sydney toolate.
74.Compensation for breach of contractwhere penalty stipulated for: 1 [When a contract has been broken, if a sum isnamed in the contract as the amount to be paid in case of such breach, or ifthe contract contains any other stipulation by way of penalty, the partycomplaining of the breach is entitled, whether or not actual damage or loss isproved to have been caused thereby, to receive from the party who has brokenthe contract reasonable compensation not exceeding the amount so named or, asthe case may be, the penalty stipulated for.
Explanation: – A stipulation for increasedinterest from the date of default may be a stipulation by way of penalty.]
Exception: – When any person enters intoany bail-bond, recognizance or other instrument of the same nature, or underthe provisions of any law, or under the orders of the 2 [Central Government] orof any 3 [State] Government, gives any bond for the performance of any publicduty or act in which the public are interested, he shall be liable, upon breachof the condition of any such instrument, to pay the whole sum mentionedtherein.
Explanation: – A person who enters into acontract with Government does not necessarily thereby undertake any publicduty, or promise to do an act in which the public are interested.
Illustrations
(a) A contracts with B to pay B Rs.1,000,if he fails to pay B Rs.500 on a given day. A fails to pay B Rs.500 on thatday. 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 practisesas a surgeon within Calcutta, he will pay B Rs.5,000. A practises as a surgeonin Calcutta. B is entitled to such compensation, not exceeding Rs.5,000, as thecourt considers reasonable.
(c) A gives a recognizance binding him in apenalty of Rs.500 to appear in Court on a certain day. He forfeits hisrecognizance. He is liable to pay the whole penalty.
4 [(d) A gives B a bond for the repaymentof Rs.1,000 with interest at 12 per cent at the end of six months, with astipulation that, in case of default, interest shall be payable at the rate of75 per cent from the date of default. This is a stipulation by way of penalty,and B is only entitled to recover from A such compensation as the Courtconsiders reasonable.]
4 [(e) A, who owes money to B, amoney-lender, undertakes to repay him by delivering to him 10 maunds of grainon a certain date, and stipulates that, in the event of his not delivering thestipulated amount by the stipulated date, he shall be liable to deliver 20maunds. This is a stipulation by way of penalty, and B is only entitled toreasonable compensation in case of breach.]
4 [(f) A undertakes to repay B a loan ofRs.1,000 by five equal monthly instalments with a stipulation that, in defaultof payment of any instalment, the whole shall become due. This stipulation isnot by way of penalty, and the contract may be enforced according to itsterms.]
4 [(g) A borrows Rs.100 from B and giveshim a bond for Rs.200 payable by five yearly instalments of Rs.40, with astipulation that, in default of payment of any instalment, the whole shallbecome due. This is a stipulation by way of penalty.]
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1. Substituted for the first paragraph ofSec.74, by the Indian Contract Act Amendment Act, 1899 (6 of 1899), Sec. 4.
2. Substituted for the words ‘Government ofIndia’ by A.O., 1937.
3. Inserted, the Indian Contract Act AmendmentAct, 1899 (6 of 1899), Sec. 4. (2).
4. Substituted for the word ‘Provincial byA.L.O., 1950.
75.Party rightfully rescinding contractentitled to compensation: A person who rightfully rescinds a contract isentitled to compensation for any damage which he has sustained through thenon-fulfilment of the contract.
Illustration
A, a singer, contracts with B, the managerof a theatre, to sing at his theatre for two nights in every week during thenext two months, and B engages to pay her 100 rupees for each night’sperformance. On the sixth night, A wilfully absents herself from the theatre,and B, in consequence, rescinds the contract. B is entitled to claimcompensation for the damage which he has sustained through the non-fulfilmentof the contract.
CHAPTER VII
[Sections 76 to 123]
SALE OF GOODS
1 [*]
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1. Chapter VII repealed by the Indian Saleof Goods Act, 1930 (3 of 1930), Sec.65.
CHAPTER VIII
OF INDEMNITY AND GUARANTEE
124.Contract of indemnity defined: Acontract by which one party promises to save the other from loss caused to himby the conduct of the promisor himself, or by the conduct of any other person,is called a "contract of indemnity".
Illustration
A contracts to indemnify B against theconsequences of any proceedings which C may take against B in respect of acertain sum of 200 rupees. This is a contract of indemnity.
125.Rights of indemnity-holder when sued:The promisee in a contract of indemnity, acting within the scope of hisauthority, is entitled to recover from the promisor –
(1) all damages which he may be compelledto pay in any suit in respect of any matter to which the promise to indemnifyapplies;
(2) all costs which he may be compelled topay in any such suit if, in bringing or defending it, he did not contravene theorders of the promisor, and acted as it would have been prudent for him to actin the absence of any contract of indemnity, or if the promisor authorized himto bring or defend the suit;
(3) all sums which he may have paid underthe terms of any compromise of any such suit, if the compromise was notcontrary to the orders of the promisor, and was one which it would have beenprudent for the promisee to make in the absence of any contract of indemnity,or if the promisor authorized him to compromise the suit.
126.Contract of guarantee, surety,principal debtor and creditor: A "contract of guarantee" is acontract to perform the promise, or discharge the liability, of a third personin case of his default. The person who gives the guarantee is called the"surety"; the person in respect of whose default the guarantee isgiven is called the "principal debtor", and the person to whom theguarantee is given is called the "creditor". A guarantee may beeither oral or written.
127.Consideration for guarantee: Anythingdone, or any promise made, for the benefit of the principal debtor, may be asufficient consideration to the surety for giving the guarantee.
Illustrations
(a) B requests A to sell and deliver to himgoods on credit. A agrees to do so, provided C will guarantee the payment ofthe price of the goods. C promises to guarantee the payment in consideration ofA’s promise to deliver the goods.This is a sufficient consideration for C’spromise.
(b) A sells and delivers goods to B. Cafterwards requests A to forbear to sue B for the debt for a year, and promisesthat, if he does so, C will pay for them in default of payment by B. A agreesto forbear as requested. This is a sufficient consideration for C’s promise.
(c) A sells and delivers goods to B. Cafterwards, without consideration, agrees to pay for them in default of B. Theagreement is void.
128.Suretys liability: The liability of thesurety is co-extensive with that of the principal debtor, unless it isotherwise provided by the contract.
Illustration
A guarantees to B the payment of a bill ofexchange by C, the acceptor. The bill is dishonoured by C. A is liable not onlyfor the amount of the bill but also for any interest and charges which may havebecome due on it.
129.Continuing guarantee: A guarantee whichextends to a series of transactions is called a "continuingguarantee".
Illustrations
(a) A, in consideration that B will employC in collecting the rent of B’s zamindari, promises B to be responsible, to theamount of 5,000 rupees, for the due collection and payment by C of those rents.This is a continuing guarantee.
(b) A guarantees payment to B, atea-dealer, to the amount of 100, for any tea he may from time to time supplyto C. B supplies C with tea to above the value of 100, and C pays B for it.Afterwards B supplies C with tea to the value of 200.C fails to pay. Theguarantee given by A was a continuing guarantee, and he is accordingly liableto B to the extent of 100.
(c) A guarantees payment to B of the priceof five sacks of flour to be delivered by B to C and to be paid for in a month.B delivers five sacks to C. C pays for them. Afterwards B delivers four sacksto C, which C does not pay for. The guarantee given by A was not a continuingguarantee, and accordingly he is not liable for the price of the four sacks.
130.Revocation of continuing guarantee: Acontinuing guarantee may at any time be revoked by the surety, as to futuretransactions, by notice to the creditor.
Illustrations
(a) A, in consideration of B’s discounting,at A’s request, bills of exchange for C, guarantees to B, for twelve months,the due payment of all such bills to the extent of 5,000 rupees. B discountsbills for C to the extent of 2,000 rupees. Afterwards, at the end of threemonths, A revokes the guarantee. This revocation discharges A from allliability to B for any subsequent discount. But A is liable to B for the 2,000rupees, on default of C.
(b) A guarantees to B, to the extent of10,000 rupees, that C shall pay all the bills that B shall draw upon him. Bdraws upon C. C accepts the bill. A gives notice of revocation. C dishonoursthe bill at maturity. A is liable upon his guarantee.
131.Revocation of continuing guarantee bysuretys death: The death of the surety operates, in the absence of any contractto the contrary, as a revocation of a continuing guarantee, so far as regardsfuture transactions.
132.Liability of two persons, primarilyliable, not affected by arrangement between them that one shall be surety onothers default: Where two persons contract with a third person to undertake acertain liability, and also contract with each other that one of them shall beliable only on the default of the other, third person not being a party to suchcontract, the liability of each of such two persons to the third person underthe first contract is not affected by the existence of the second contract,although such third person may have been aware of its existence.
Illustration
A and B make a joint and several promissorynote to C. A makes it, in fact, as surety for B, and C knows this at the timewhen the note is made. The fact that A, to the knowledge of C, made the note assurety for B, is no answer to a suit by C against A upon the note.
133.Discharge of surety by variance interms of contract: Any variance, made without the surety, consent in the termsof the contract between the principal 1 [debtor] and the creditor, dischargesthe surety as to transactions subsequent to the variance.
Illustrations
(a) A becomes surety to C for B’s conductas a 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-fourthof the losses on overdrafts. B allows a customer to overdraw, and the bankloses a sum of money. A is discharged from his suretyship by the variance madewithout his consent, and is not liable to make good this loss.
(b) A guarantees C against the misconductof B in an office to which B is appointed by C, and of which the duties aredefined by an Act of the Legislature. By a subsequent Act, the nature of theoffice is materially altered. Afterwards, B misconducts himself. A isdischarged by the change from future liability under his guarantee, though themisconduct of B is in respect of a duty not affected by the later Act.
(c) C agrees to appoint B as his clerk tosell goods at a yearly salary, upon A’s becoming surety to C for B’s dulyaccounting for moneys received by him as such clerk. Afterwards, without A’sknowledge or consent, C and B agree that B should be paid by a commission onthe goods sold by him and not by a fixed salary. A is not liable for subsequentmisconduct of B.
(d) A gives to C a continuing guarantee tothe extent of 3,000 rupees for any oil supplied by C to B on credit. AfterwardsB becomes embarrassed, and, without the knowledge of A, B and C contract that Cshall continue to supply B with oil for ready money, and that the paymentsshall be applied to the then existing debts between B and C. A is not liable onhis guarantee for any goods supplied after this new arrangement.
(e) C contracts to lend B 5,000 rupees onthe 1st March. A guarantees repayment. C pays the 5,000 rupees to B on the 1stJanuary. A is discharged from his liability, as the contract has been varied,inasmuch as C might sue B for the money before the 1st of March.
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1. Inserted by the Repealing and AmendingAct, 1917 (24 of 1917), Sec.2 and Sch.I.
134.Discharge of surety by release ordischarge of principal debtor: The surety is discharged by any contract betweenthe creditor and the principal debtor, by which the principal debtor isreleased or by any act or omission of the creditor, the legal consequence ofwhich is the discharge of the principal debtor.
Illustrations
(a) A gives a guarantee to C for goods tobe supplied by C to B. C supplies goods to B, and afterwards B becomesembarrassed and contracts with his creditors (including C) to assign to themhis property in consideration of their releasing him from their demands. Here Bis released from his debt by the contract with C, and A is discharged from hissuretyship.
(b) A contracts with B to grow a crop ofindigo on A’s land and to deliver it to B at a fixed rate, and C guarantees A’sperformance of his contract. B diverts a stream of water which is necessary forirrigation of A’s land and thereby prevents him from raising the indigo. C isno longer liable on his guarantee.
(c) A contracts with B for a fixed price tobuild a house for B within a stipulated time, B supplying the necessary timberguarantees performance of the contract. B omits to supply the timber. C isdischarged from his suretyship.
135.Discharge of surety when creditorcompounds with, gives time to, or agrees not to sue, principal debtor: Acontract between the creditor and the principal debtor, by which the creditormakes a composition with, or promises to give time to, or not to sue, theprincipal debtor, discharges the surety, unless the surety assents to suchcontract.
136.Surety not discharged when agreementmade with third person to give time to principal debtor: Where a contract togive time to the principal debtor is made by the creditor with a third person,and not with the principal debtor, the surety is not discharged.
Illustration
C, the holder of an overdue bill ofexchange drawn by A as surety for B, and accepted by B, contracts with M togive time to B. A is not discharged.
137.Creditors forbearance to sue does notdischarge surety: Mere forbearance on the part of the creditor to sue theprincipal debtor or to enforce any other remedy against him does not, in theabsence of any provision in the guarantee to the contrary, discharge thesurety.
Illustration
B owes to C a debt guaranteed by A. Thedebt becomes payable. C does not sue B for a year after the debt has becomepayable. A is not discharged from his suretyship.
138.Release of one co-surety does notdischarge others: Where there are co-sureties, a release by the creditor of oneof them does not discharge the others; neither does it free the surety soreleased from his responsibility to the other sureties.
139.Discharge of surety by creditors act oromission impairing suretys eventual remedy: If the creditor does any act whichis inconsistent with the rights of the surety, or omits to do any act which hisduty to the surety requires him to do, and the eventual remedy of the suretyhimself against the principal debtor is thereby impaired, the surety isdischarged.
Illustrations
(a) B contracts to build a ship for C for agiven sum, to be paid by instalments as the work reaches certain stages. Abecomes surety to C for B’s due performance of the contract. C, without theknowledge of A, prepays to B the last two instalments. A is discharged by thisprepayment.
(b) C lends money to B on the security of ajoint and several promissory note made in C’s favour by B, and by A as suretyfor B, together with a bill of sale of B’s furniture, which gives power to C tosell the furniture, and apply the proceeds in discharge of the note.Subsequently, C sells the furniture, but, owing to his misconduct and wilfulnegligence, only a small price is realized. A is discharged from liability onthe note.
(c) A puts M as apprentice to B, and givesa guarantee to B for M’s fidelity. B promises on his part that he will, atleast once a month, see M make up the cash. B omits to see this done aspromised, and M embezzles. A is not liable to B of his guarantee.
140.Rights of surety on payment orperformance: Where a guaranteed debt has become due, or default of theprincipal debtor to perform a guaranteed duty has taken place, the surety, uponpayment or performance of all that he is liable for, is invested with all therights which the creditor had against the principal debtor.
141.Suretys right to benefit of creditorssecurities: A surety is entitled to the benefit of every security which thecreditor has against the principal debtor at the time when the contract ofsuretyship is entered into, whether the surety knows of the existence of suchsecurity or not; and, if the creditor loses, or, without the consent of thesurety, parts with such security, the surety is discharged to the extent of thevalue of the security.
Illustrations
(a) C advances to B, his tenant, 2,000rupees on the guarantee of A. C has also a further security for the 2,000rupees by a mortgage of B’s furniture. C cancels the mortgage. B becomesinsolvent, and C, sues A on his guarantee. A is discharged from liability tothe amount of the value of the furniture.
(b) C, a creditor, whose advance to B issecured by a decree, receives also a guarantee for that advance from A. Cafterwards takes B’s goods in execution under the decree, and then, without theknowledge of A, withdraws the execution. A is discharged.
(c) A, as surety for B, makes a bondjointly with B to C, to secure a loan from C to B. Afterwards, C obtains from Ba further security for the same debt. Subsequently, C gives up the furthersecurity. A is not discharged.
142.Guarantee obtained by misrepresentationinvalid: Any guarantee which has been obtained by means of misrepresentationmade by the creditor, or with his knowledge and assent, concerning a materialpart of the transaction, is invalid.
143.Guarantee obtained by concealmentinvalid: Any guarantee which the creditor has obtained by means of keepingsilence as to material circumstances is invalid.
Illustrations
(a) A engages B as clerk to collect moneyfor him. B fails to account for some of his receipts, and A in consequencecalls upon him to furnish security for his duly accounting. C gives hisguarantee for B’s duly accounting. A does not acquaint C with B’s previousconduct. B afterwards makes default. The guarantee is invalid.
(b) A guarantees to C payment for iron tobe supplied by him to B to the amount of 2,000 tons. B and C have privatelyagreed that B should pay five rupees per ton beyond the market price, suchexcess to be applied in liquidation of an old debt. This agreement is concealedfrom A. A is not liable as a surety.
144.Guarantee on contract that creditorshall not act on it until co-surety joins: Where a person gives a guaranteeupon a contract that the creditor shall not act upon it until another personhas joined in it as co-surety, the guarantee is not valid if that other persondoes not join.
145.Implied promise to indemnify surety: Inevery contract of guarantee there is an implied promise by the principal debtorto indemnify the surety; and the surety is entitled to recover from theprincipal debtor whatever sum he has rightfully paid under the guarantee, butno sums which he has paid wrongfully.
Illustrations
(a) B is indebted to C, and A is surety forthe debt. C demands payment from A, and on his refusal sues him for the amount.A defends the suit, having reasonable grounds for doing so, but is compelled topay the amount of the debt with costs. He can recover from B the amount paid byhim for costs, as well as the principal debt.
(b) C lends B a sum of money, and A, at therequest of B, accepts a bill of exchange drawn by B upon A to secure theamount. C, the holder of the bill, demands payment of it from A, and, on A’srefusal to pay, sues him upon the bill. A, not having reasonable grounds for sodoing, defends the suit, and has to pay the amount of the bill and costs. Hecan recover from B the amount of the bill, but not the sum paid for costs, asthere was no real ground for defending the action.
(c) A guarantees to C, to the extent of2,000 rupees, payment for rice to be supplied by C to B. C supplies to B riceto a less amount than 2,000 rupees, but obtains from A payment of the sum of2,000 rupees in respect of the rice supplied. A cannot recover from B more thanthe price of the rice actually supplied.
146.Co-sureties liable to contributeequally: Where two or more persons are co-sureties for the same debt or duty,either jointly or severally, and whether under the same or different contracts;and whether with or without the knowledge of each other, the co-sureties, inthe absence of any contract to the contrary, are liable, as between themselves,to pay each an equal share of the whole debt, or of that part of it whichremains unpaid by the principal debtor.
Illustrations
(a) A, B and C are sureties to D for thesum of 3,000 rupees lent to E. E makes default in payment. A, B and C areliable, as between themselves, to pay 1,000 rupees each.
(b) A, B and C are sureties to D for thesum of 1,000 rupees lent to E, and there is a contract between A, B and C thatA is to be responsible to the extent of one-quarter, B to the extent ofone-quarter, and C to the extent of one-half. E makes default in payment. Asbetween the sureties, A is liable to pay 250 rupees, B 250 rupees, and C 500rupees.
147.Liability of co-sureties bound indifferent sums: Co-sureties who are bound in different sums are liable to payequally as far as the limits of their respective obligations permit.
Illustrations
(a) A, B and C, as sureties for D, enterinto three several bonds, each in a different penalty, namely, A in the penaltyof 10,000 rupees, B in that of 20,000 rupees, C in that of 40,000 rupees,conditioned for D’s duly accounting to E. D makes default to the extent of30,000 rupees. A, B and C are liable to pay 10,000 rupees.
(b) A, B and C, as sureties for D, enterinto three several bonds, each in a different penalty, namely, A in the penaltyof 10,000 rupees, B in that of 20,000 rupees, C in that of 40,000 rupees,conditioned for D’s duly accounting to E. D makes default to the extent of40,000 rupees. A is liable to pay 10,000 rupees, and B and C 15,000 rupeeseach.
(c) A, B and C, as sureties for D, enterinto three several bonds, each in a different penalty, namely, A in the penaltyof 10,000 rupees, B in that of 20,000 rupees, C in that of 40,000 rupees,conditioned for D’s duly accounting to E. D makes default to the extent of70,000 rupees. A, B and C have to pay each the full penalty of his bond.
CHAPTER IX
OF BAILMENT
148.Bailment, bailorand baileedefined: A"bailment" is the delivery of goods by one person to another for somepurpose, upon a contract that they shall, when the purpose is accomplished, bereturned or otherwise disposed of according to the directions of the persondelivering 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 inpossession of the goods of another contracts to hold them as a bailee, hethereby becomes the bailee, and the owner becomes the bailor of such goods,although they may not have been delivered by way of bailment.
149.Delivery to bailee how made: Thedelivery to the bailee may be made by doing anything which has the effect ofputting the goods in the possession of the intended bailee or of any personauthorized to hold them on his behalf.
150.Bailors duty to disclose faults ingoods bailed: The bailor is bound to disclose to the bailee faults in the goodsbailed, of which the bailor is aware, and which materially interfere with useof them, or expose the bailee to extraordinary risks; and if he does not makesuch disclosure, he is responsible for damage arising to the bailee directlyfrom such faults.
If the goods are bailed for hire, thebailor is responsible for such damage, whether he was or was not aware of theexistence of such faults in the goods bailed.
Illustrations
(a) A lends a horse, which he knows to bevicious, to B. He does not disclose the fact that the horse is vicious. Thehorse runs away. B is thrown and injured. A is responsible to B for damagesustained.
(b) A hires a carriage of B. The carriageis unsafe, though B is not aware of it, and A is injured. B is responsible to Afor the injury.
151.Care to be taken by bailee: In allcases of bailment the bailee is bound to take as much care of the goods bailedto him as a man of ordinary prudence would, under similar circumstances, takeof his own goods of the same bulk, quality and value as the goods bailed.
152.Bailee when not liable for loss, etc.,of thing bailed: The bailee, in the absence of any special contract, is notresponsible for the loss, destruction or deterioration of the thing bailed, ifhe has taken the amount of care of it described in section 151.
153.Termination of bailment by bailees actinconsistent with conditions: A contract of bailment is avoidable at the optionof the bailor, if the bailee does any act with regard to the goods bailed,inconsistent with the conditions of the bailment.
Illustration
A lets to B, for hire, a horse for his ownriding. B drives the horse in his carriage. This is, at the option of A, atermination of the bailment.
154.Liability of bailee making unauthoriseduse of goods bailed: If the bailee makes any use of the goods bailed, which isnot according to the conditions of the bailment, he is liable to makecompensation to the bailor for any damage arising to the goods from or duringsuch use of them.
Illustrations
(a) A lends a horse to B for his own ridingonly. 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 makecompensation to A for the injury done to the horse.
(b) A hires a horse in Calcutta from Bexpressly to march to Benares. A rides with due care, but marches to Cuttackinstead. The horse accidentally falls and is injured. A is liable to makecompensation to B for the injury to the horse.
155.Effect of mixture, with bailorsconsent, of his goods with bailees: If the bailee, with the consent of thebailor, mixes the goods of the bailor with his own goods, the bailor and thebailee shall have an interest, in proportion to their respective shares, in themixture thus produced.
156.Effect of mixture without bailorsconsent, when the goods can be separated: If the bailee, without the consent ofthe bailor, mixes the goods of the bailor with his own goods, and the goods canbe separated or divided, the property in the goods remains in the partiesrespectively; but the bailee is bound to bear the expense of separation ordivision, and any damage arising from the mixture.
Illustration
A bails 100 bales of cotton marked with aparticular mark to B. B, without A’s consent, mixes the 100 bales with otherbales of his own, bearing a different mark; A is entitled to have his 100 balesreturned, and B is bound to bear all the expense incurred in the separation ofthe bales, and any other incidental damage.
157.Effect of mixture, without bailorsconsent, when the goods cannot be separated: If the bailee, without the consentof the bailor, mixes the goods of the bailor with his own goods, in such amanner that it is impossible to separate the goods bailed from the other goodsand deliver them back, the bailor is entitled to be compensated by the baileefor the loss of the goods.
Illustration
A bails a barrel of Cape flour worth Rs.45to B. B, without A’s consent, mixes the flour with country flour of his own,worth only Rs.25 a barrel. B must compensate A for the loss of his flour.
158.Repayment, by bailor, of necessaryexpenses: Where, by the conditions of the bailment, the goods are to be kept orto be carried, or to have work done upon them by the bailee for the bailor, andthe bailee is to receive no remuneration, the bailor shall repay to the baileethe necessary expenses incurred by him for the purpose of the bailment.
159.Restoration of goods lent gratuitously:The lender of a thing for use may at any time require its return, if the loanwas gratuitous, even though he lent it for a specified time or purpose. But,if, on the faith of such loan made for a specified time or purpose, theborrower has acted in such a manner that the return of the thing lent beforethe time agreed upon would cause him loss exceeding the benefit actuallyderived by him from the loan, the lender must, if he compels the return,indemnify the borrower for the amount in which the loss so occasioned exceedsthe benefit so derived.
160.Return of goods bailed on expiration oftime or accomplishment of purpose: It is the duty of the bailee to return, ordeliver according to the bailor’s directions, the goods bailed, without demand,as soon as the time for which they were bailed has expired, or the purpose forwhich they were bailed has been accomplished.
161.Bailees responsibility when goods arenot duly returned: If, by the default of the bailee, the goods are notreturned, delivered or tendered at the proper time, he is responsible to thebailor for any loss, destruction or deterioration of the goods from that time.
162.Termination of gratuitous bailment bydeath: A gratuitous bailment is terminated by the death either of the bailor orof the bailee.
163.Bailor entitled to increase or profitfrom goods bailed: In the absence of any contract to the contrary, the baileeis bound to deliver to the bailor, or according to his directions, any increaseor profit which may have accrued from the goods bailed.
Illustration
A leaves a cow in the custody of B to betaken care of. The cow has a calf. B is bound to deliver the calf as well asthe cow to A.
164.Bailors responsibility to bailee: Thebailor is responsible to the bailee for any loss which the bailee may sustainby reason that the bailor was not entitled to make the bailment, or to receiveback the goods or to give directions, respecting them.
165.Bailment by several joint owners: Ifseveral joint owners of goods bail them, the bailee may deliver them back to,or according to the directions of, one joint owner without the consent of all,in the absence of any agreement to the contrary.
166.Bailee not responsible on re-deliveryto bailor without title: If the bailor has no title to the goods, and thebailee, in good faith, delivers them back to, or according to the directionsof, the bailor, the bailee is not responsible to the owner in respect of suchdelivery.
167.Right of third person claiming goodsbailed: If a person, other than the bailor, claims goods bailed, he may applyto the Court to stop the delivery of the goods to the bailor, and to decide thetitle to the goods.
168.Right of finder of goods; may sue forspecific reward offered: The finder of goods has no right to sue the owner forcompensation for trouble and expense voluntarily incurred by him to preservethe goods and to find out the owner; but he may retain the goods against theowner until he receives such compensation; and, where the owner has offered aspecific reward for the return of goods lost, the finder may sue for suchreward, and may retain the goods until he receives it.
169.When finder of thing commonly on salemay sell it: When a thing which is commonly the subject of sale is lost, if theowner cannot with reasonable diligence be found, or if he refuses, upon demand,to pay the lawful charges of the finder, the finder may sell it –
(1) when the thing is in danger ofperishing or of losing the greater part of its value, or,
(2) when the lawful charges of the finder,in respect of the thing found, amount to two-thirds of its value.
170.Bailees particular lien: Where thebailee has, in accordance with the purpose of the bailment, rendered anyservice involving the exercise of labour or skill in respect of the goodsbailed, he has, in the absence of a contract to the contrary, a right to retainsuch goods until he receives due remuneration for the services he has renderedin respect of them.
Illustrations
(a) A delivers a rough diamond to B, ajeweller, to be cut and polished, which is accordingly done. B is entitled toretain the stone till he is paid for the services he has rendered.
(b) A gives cloth to B, a tailor, to makeinto a coat. B promises A to deliver the coat as soon as it is finished, and togive a three months’ credit for the price. B is not entitled to retain the coatuntil he is paid.
171.General lien of bankers, factors,wharfingers, attorneys and policy-brokers: Bankers, factors, wharfingers, attorneysof a High Court and policy-brokers may, in the absence of a contract to thecontrary, retain as a security for a general balance of account, any goodsbailed to them; but no other persons have a right to retain, as a security forsuch balance, goods bailed to them, unless there is an express contract to thateffect.
Bailments of Pledges
172.Pleadge, pawnor, and pawnee defined:The bailment of goods as security for payment of a debt or performance of apromise is called "pledge". The bailor is in this case called the"pawnor". The bailee is called the "pawnee".
173.Pawnees right of retainer: The pawneemay retain the goods pledged, not only for payment of the debt or theperformance of the promise, but for the interest of the debt, and all necessaryexpenses incurred by him in respect of the possession or for the preservationof the goods pledged.
174.Pawnee not to retain for debt orpromise other than that for which goods pledged. Presumption in case ofsubsequent advances: The pawnee shall not, in the absence of a contract to thateffect, retain the goods pledged for any debt or promise other than the debt orpromise for which they are pledged; but such contract, in the absence ofanything to the contrary, shall be presumed in regard to subsequent advancesmade by the pawnee.
175.Pawnees right as to extraordinaryexpenses incurred: The pawnee is entitled to receive from the pawnorextraordinary expenses incurred by him for the preservation of the goodspledged.
176.Pawnees right where pawnor makesdefault: If the pawnor makes default in payment of the debt, or performance, atthe 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, andretain the goods pledged as a collateral security; or he may sell the thingpledged, on giving the pawnor reasonable notice of the sale.
If the proceeds of such sale are less thanthe amount due in respect of the debt or promise, the pawnor is still liable topay the balance.If the proceeds of the sale are greater than the amount so due,the pawnee shall pay over the surplus to the pawnor.
177.Defaulting pawnors right to redeem: Ifa time is stipulated for the payment of the debt, or performance of thepromise, for which the pledge is made, and the pawnor makes default in paymentof the debt or performance of the promise at the stipulated time, he may redeemthe goods pledged at any subsequent time before the actual sale of them, but hemust, in that case, pay, in addition, any expenses which have arisen from hisdefault.
1 [178.Pledge by mercantile agent: Where amercantile agent is, with the consent of the owner, in possession of goods orthe document of title to goods, any pledge made by him, when acting in the ordinarycourse of business of a mercantile agent, shall be as valid as if he wereexpressly authorised by the owner of the goods to make the same; provided thatthe pawnee acts in good faith and has not at the time of the pledge notice thatthe pawnor has not authority to pledge.
Explanation: – In this section, theexpressions "mercantile agent" and "documents of title"shall have the meanings assigned to them in the Indian Sale of Goods Act, 1930.
178A.Pledge by person in possession undervoidable contract: When the pawnor has obtained possession of the goods pledgedby him under a contract voidable under section 19 or section 19A, but thecontract has not been rescinded at the time of the pledge, the pawnee acquiresa good title to the goods, provided he acts in good faith and without notice ofthe pawnor’s defect of title.]
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1. Substituted for Sec.178 by the IndianContract (Amendment) Act (4 of 1930), Sec.2.
179.Pledge where pawnor has only a limitedinterest: Where a person pledges goods in which he has only a limited interest,the pledge is valid to the extent of that interest.
Suits by bailees or bailors againstwrong-doers
180.Suit by bailor or bailee againstwrong-doer: If a third person wrongfully deprives the bailee of the use orpossession of the goods bailed, or does them any injury, the bailee is entitledto use such remedies as the owner might have used in the like case if nobailment had been made; and either the bailor or the bailee may bring a suitagainst a third person for such deprivation or injury.
181.Apportionment of relief or compensationobtained by such suits: Whatever is obtained by way of relief or compensationin such suit shall, as between the bailor and the bailee, be dealt withaccording to their respective interests.
CHAPTER X
AGENCY
Appointment and authority of agents
182.Agentand principaldefined: An"agent" is a person employed to do any act for another or torepresent another in dealings with third persons.The person for whom such actis done, or who is so represented, is called the "principal".
183.Who may employ agent: Any person who isof the age of majority according to the law to which he is subject, and who isof sound mind, may employ an agent.
184.Who may be an agent: As between theprincipal and third persons any person may become an agent, but no person whois not of the age of majority and of sound mind can become an agent, so as tobe responsible to his principal according to the provisions in that behalfherein contained.
185.Consideration not necessary: Noconsideration is necessary to create an agency.
186.Agents authority may be expressed orimplied: The authority of an agent may be expressed or implied.
187.Definitions of express and impliedauthority: An authority is said to be express when it is given by words spokenor written. An authority is said to be implied when it is to be inferred fromthe circumstances of the case; and things spoken or written, or the ordinarycourse of dealing, may be accounted circumstances of the case.
Illustration
A owns a shop in some paras, living himselfin Calcutta, and visiting the shop occasionally. The shop is managed by B, andhe is in the habit of ordering goods from C in the name of A for the purposesof the shop, and of paying for them out of A’s funds with A’s knowledge. B hasan implied authority from A to order goods from C in the name of A for thepurposes of the shop.
188.Extend of agents authority: An agenthaving an authority to do an act has authority to do every lawful thing whichis necessary in order to do such act.
An agent having an authority to carry on abusiness has authority to do every lawful thing necessary for the purpose, orusually 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 necessaryfor the purpose of recovering the debt, and may give a valid discharge for thesame.
(b) A constitutes B his agent to carry onhis business of a ship-builder. B may purchase timber and other materials, andhire workmen, for the purpose of carrying on the business.
189.Agents authority in an emergency: Anagent has authority, in an emergency, to do all such acts for the purpose ofprotecting his principal from loss as would be done by a person of ordinaryprudence, in his own case, under similar circumstances.
Illustrations
(a) An agent for sale may have goodsrepaired if it be necessary.
(b) A consigns provisions to B at Calcutta,with directions to send them immediately to C, at Cuttack. B may sell theprovisions at Calcutta, if they will not bear the journey to Cuttack withoutspoiling.
Sub-Agents
190.When agent cannot delegate: An agentcannot lawfully employ another to perform acts which he has expressly orimpliedly undertaken to perform personally, unless by the ordinary custom oftrade a sub-agent may, or, from the nature of the agency, a sub-agent must, beemployed.
191.Sub-agentdefined: A"sub-agent" is a person employed by, and acting under the control of,the original agent in the business of the agency.
192.Representation of principal bysub-agent properly appointed: Where a sub-agent is properly appointed, theprincipal 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 originallyappointed by the principal.
Agent’s responsibility for sub-agent:
The agent is responsible to the principalfor the acts of the sub-agent.
Sub-agent’s responsibility:
The sub-agent is responsible for his actsto the agent, but not to the principal, except in case of fraud or wilfulwrong.
193.Agents responsibility for sub-agentappointed 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 suchperson in the relation of a principal to an agent, and is responsible for hisacts both to the principal and to third persons; the principal is notrepresented by or responsible for the acts of the person so employed, nor isthat person responsible to the principal.
194.Relation between principal and personsduly appointed by agent to act in business of agency: Where an agent, holdingan express or implied authority to name another person to act for the principalin the business of the agency, has named another person accordingly, suchperson is not a sub-agent, but an agent of the principal for such part of thebusiness of the agency as is entrusted to him.
Illustrations
(a) A directs B, his solicitor, to sell hisestate by auction, and to employ an auctioneer for the purpose. B names C, anauctioneer, to conduct the sale. C is not a sub-agent, but is A’s agent for theconduct of the sale.
(b) A authorizes B, a merchant in Calcutta,to recover the moneys due to A from C & Co. B instructs D, a solicitor, totake legal proceedings against C & Co. for the recovery of the money. D isnot a sub-agent, but is solicitor for A.
195.Agents duty in naming such person: Inselecting such agent for his principal, an agent is bound to exercise the sameamount of discretion as a man of ordinary prudence would exercise in his owncase; and, if he does this, he is not responsible to the principal for the actsor negligence of the agent so selected.
Illustrations
(a) A instructs B, a merchant, to buy aship for him. B employs a ship-surveyor of good reputation to choose a ship forA. The surveyor makes the choice negligently and the ship turns out to beunseaworthy and is lost. B is not, but the surveyor is, responsible to A.
(b) A consigns goods to B, a merchant, forsale. B, in due course, employs an auctioneer in good credit to sell the goodsof A, and allows the auctioneer to receive the proceeds of the sale. Theauctioneer afterwards becomes insolvent without having accounted for theproceeds. B is not responsible to A for the proceeds.
Ratification
196.Right of person as to acts done for himwithout his authority. Effect of ratification: Where acts are done by oneperson on behalf of another, but without his knowledge or authority, he mayelect to ratify or to disown such acts. If he ratifies them, the same effectswill follow as if they had been performed by his authority.
197.Ratification may be expressed orimplied: Ratification may be expressed or may be implied in the conduct of theperson on whose behalf the acts are done.
Illustrations
(a) A, without authority, buys goods for B.Afterwards B sells them to C on his own account; B’s conduct implies aratification of the purchase made for him by A.
(b) A, without B’s authority, lends B’smoney to C. Afterwards B accepts interest on the money from C. B’s conductimplies a ratification of the loan.
198.Knowledge requisite for validratification: No valid ratification can be made by a person whose knowledge ofthe facts of the case is materially defective.
199.Effect of ratifying unauthorized actforming part of a transaction: A person ratifying any unauthorized act done onhis behalf ratifies the whole of the transaction of which such act formed apart.
200.Ratification of unauthorized act cannotinjure third person: An act done by one person on behalf of another, withoutsuch other person’s authority, which, if done with authority, would have theeffect of subjecting a third person to damages, or of terminating any right orinterest of a third person, cannot, by ratification, be made to have sucheffect.
Illustrations
(a) A, not being authorized thereto by B,demands, on behalf of B, the delivery of a chattel, the property of B, from C,who is in possession of it. This demand cannot be ratified by B, so as to makeC liable for damages for his refusal to deliver.
(b) A holds a lease from B, terminable onthree months’ notice. C, an unauthorized person, gives notice of termination toA. The notice cannot be ratified by B, so as to be binding on A.
Revocation of Authority
201.Termination of agency: An agency isterminated by the principal revoking his authority; or by the agent renouncingthe 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 bythe principal being adjudicated an insolvent under the provisions of any Actfor the time being in force for the relief of insolvent debtors.
202.Termination of agency where agent hasan interest in subject-matter: Where the agent has himself an interest in theproperty which forms the subject-matter of the agency, the agency cannot, inthe absence of an express contract, be terminated to the prejudice of suchinterest.
Illustrations
(a) A gives authority to B to sell A’sland, and to pay himself, out of the proceeds, the debts due to him from A. Acannot revoke his authority, nor can it be terminated by his insanity or death.
(b) A consigns 1,000 bales of cotton to B,who has made advances to him on such cotton, and desires B to sell the cotton,and to repay himself, out of the price, the amount of his own advances. Acannot revoke this authority, nor is it terminated by his insanity or death.
203.When principal may revoke agentsauthority: The principal may, save as is otherwise provided by the lastpreceding section, revoke the authority given to his agent at any time beforethe authority has been exercised so as to bind the principal.
204.Revocation where authority has beenpartly exercised: The principal cannot revoke the authority given to his agentafter the authority has been partly exercised so far as regards such acts andobligations as arise from acts already done in the agency.
Illustrations
(a) A authorizes B to buy 1,000 bales ofcotton on account of A, and to pay for it out of A’s moneys remaining in B’shands. B buys 1,000 bales of cotton in his own name, so as to make himselfpersonally liable for the price. A cannot revoke B’s authority so far as regardspayment for the cotton.
(b) A authorizes B to buy 1,000 bales ofcotton on account of A, and to pay for it out of A’s moneys remaining in B’shands. B buys 1,000 bales of cotton in A’s name, and so as not to renderhimself personally liable for the price. A can revoke B’s authority to pay forthe cotton.
205.Compensation for revocation byprincipal, or renunciation by agent: Where there is an express or impliedcontract that the agency should be continued for any period of time, theprincipal 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 agencywithout sufficient cause.
206.Notice of revocation or renunciation:Reasonable notice must be given of such revocation or renunciation; otherwisethe damage thereby resulting to the principal or the agent, as the case may be,must be made good to the one by the other.
207.Revocation and renunciation may beexpressed or implied: Revocation and renunciation may be expressed or may beimplied in the conduct of the principal or agent respectively.
Illustration
A empowers B to let A’s house. Afterwards Alets it himself. This is an implied revocation of B’s authority.
208.When a termination of agents authoritytakes effect as to agent, and as to third persons: The termination of theauthority of an agent does not, so far as regards the agent, take effect beforeit becomes known to him, or, so far as regards third persons, before it becomesknown to them.
Illustrations
(a) A directs B to sell goods for him, andagrees to give B five per cent commission on the price fetched by the goods. Aafterwards, by letter, revokes B’s authority. B, after the letter is sent, butbefore he receives it, sells the goods for 100 rupees. The sale is binding onA, and B is entitled to five rupees as his commission.
(b) A, at Madras, by letter, directs B tosell for him some cotton lying in a warehouse in Bombay, and afterwards, byletter, revokes his authority to sell, and directs B to send the cotton toMadras. B, after receiving the second letter, enters into a contract with C,who knows of the first letter, but not of the second, for the sale to him ofthe cotton. C pays B the money, with which B absconds. C’s payment is good asagainst A.
(c) A directs B, his agent, to pay certainmoney to C. A dies, and D takes out probate to his will. B, after A’s death,but before hearing of it, pays the money to C. The payment is good as againstD, the executor.
209.Agents duty on termination of agency byprincipals death or insanity: When an agency is terminated by the principaldying or termination becoming of unsound mind, the agent is bound to take, onbehalf of the representatives of his late principal, all reasonable steps forthe protection and preservation of the interests entrusted to him.
210.Termination of sub-agents authority:The termination of the authority of an agent causes the termination (subject tothe rules herein contained regarding the termination of an agent’s authority)of the authority of all sub-agents appointed by him.
Agent’s duty to principal
211.Agents duty in conducting principalsbusiness: An agent is bound to conduct the business of his principal accordingto the directions given by the principal, or, in the absence of any suchdirections, according to the custom which prevails in doing business of thesame kind at the place where the agent conducts such business. When the agentacts otherwise, if any loss be sustained, he must make it good to hisprincipal, and, if any profit accrues, he must account for it.
Illustrations
(a) A, an agent engaged in carrying on forB a business, in which it is the custom to invest from time to time, atinterest, the moneys which may be in hand, omits to make such investment. Amust make good to B the interest usually obtained by such investments.
(b) B, a broker, in whose business it isnot the custom to sell on credit, sells goods of A on credit to C, whose creditat the time was very high. C, before payment, becomes insolvent. B must makegood the loss to A.
212.Skill and diligence required fromagent: An agent is bound to conduct the business of the agency with as muchskill as is generally possessed by persons engaged in similar business, unlessthe principal has notice of his want of skill. The agent is always bound to actwith reasonable diligence, and to use such skill as he possesses; and to makecompensation to his principal in respect of the direct consequences of his ownneglect, want of skill or misconduct, but not in respect of loss or damagewhich are indirectly or remotely caused by such neglect, want of skill ormisconduct.
Illustrations
(a) A, a merchant in Calcutta,has an agent, B, in London,to whom a sum of money is paid on A’s account, with orders to remit. B retainsthe money for a considerable time. A, in consequence of not receiving themoney, becomes insolvent. B is liable for the money and interest from the dayon which it ought to have been paid, according to the usual rate, and for anyfurther direct loss-as e.g., by variation of rate of exchange-but not further.
(b) A, an agent for the sale of goods,having authority to sell on credit, sells to B on credit, without making theproper and usual enquiries as to the solvency of B. B, at the time of suchsale, is insolvent. A must make compensation to his principal in respect of anyloss thereby sustained.
(c) A, an insurance-broker employed by B toeffect an insurance on a ship omits to see that the unusual clauses areinserted in the policy. The ship is afterwards lost. In consequence of theomission of the clauses nothing can be recovered from the underwriters. A isbound to make good the loss to B.
(d) A, a merchant in England, directs B,his agent at Bombay, who accepts the agency, to send him 100 bales of cotton bya certain ship. B, having it in his power to send the cotton, omits to do so.The ship arrives safely in England. Soon after her arrival the price of cottonrises. B is bound to make good to A the profit which he might have made by the100 bales of cotton at the time the ship arrived, but not any profit he mighthave made by the subsequent rise.
213.Agents accounts: An agent is bound torender proper accounts to his principal on demand.
214.Agents duty to communicate withprincipal: It is the duty of an agent, in cases of difficulty, to use allreasonable diligence in communicating with his principal, and in seeking toobtain his instructions.
215.Right of principal when agent deals, onhis own account, in business of agency without principals consent: If an agentdeals on his own account in the business of the agency, without first obtainingthe consent of his principal and acquainting him with all materialcircumstances which have come to his own knowledge on the subject, theprincipal may repudiate the transaction, if the case shows either that anymaterial fact has been dishonestly concealed from him by the agent, or that thedealings of the agent have been disadvantageous to him.
Illustrations
(a) A directs B to sell A’s estate. B buysthe estate for himself in the name of C. A, on discovering that B has boughtthe estate for himself, may repudiate the sale, if he can show that B hasdishonestly concealed any material fact, or that the sale has beendisadvantageous to him.
(b) A directs B to sell A’s estate. B, onlooking over the estate before selling it, finds a mine on the estate which isunknown to A. B informs A that he wishes to buy the estate for himself, butconceals the discovery of the mine. A allows B to buy in ignorance of the existenceof the mine. A, on discovering that B knew of the mine at the time he boughtthe estate, may either repudiate or adopt the sale at his option.
216.Principals right to benefit gained byagent dealing on his own account in business of agency: If an agent, withoutthe knowledge of his principal, deals in the business of the agency on his ownaccount instead of on account of his principal, the principal is entitled toclaim from the agent any benefit which may have resulted to him from thetransaction.
Illustration
A directs B, his agent, to buy a certainhouse for him. B tells A it cannot be bought, and buys the house for himself. Amay, on discovering that B has bought the house, compel him to sell it to A atthe price he gave for it.
217.Agents right of retainer out of sumsreceived on principals account: An agent may retain, out of any sums receivedon account of the principal in the business of the agency, all moneys due tohimself in respect of advances made or expenses properly incurred by him inconducting such business, and also such remuneration as may be payable to himfor acting as agent.
218.Agents duty to pay sums received forprincipal: Subject to such deductions, the agent is bound to pay to hisprincipal all sums received on his account.
219.When agents remuneration becomes due:In the absence of any special contract, payment for the performance of any actis not due to the agent until the completion of such act; but an agent maydetain moneys received by him on account of goods sold, although the whole ofthe goods consigned to him for sale may not have been sold, or although thesale may not be actually complete.
220.Agent not entitled to remuneration forbusiness misconducted: An agent who is guilty of misconduct in the business ofthe agency is not entitled to any remuneration in respect of that part of thebusiness which he has misconducted.
Illustrations
(a) A employs B to recover 1,00,000 rupeesfrom C, and to lay it out on good security. B recovers the 1,00,000 rupees andlays out 90,000 rupees on good security, but lays out 10,000 rupees on securitywhich he ought to have known to be bad, whereby A loses 2,000 rupees. B isentitled to remuneration for recovering the 1,00,000 rupees and for investingthe 90,000 rupees. He is not entitled to any remuneration for investing the10,000 rupees, and he must make good the 2,000 rupees to B.
(b) A employs B to recover l,000 rupeesfrom C. Through B’s misconduct the money is not recovered. B is entitled to noremuneration for his services, and must make good the loss.
221.Agents lien on principals property: Inthe absence of any contract to the contrary, an agent is entitled to retaingoods, papers and other property, whether movable or immovable, of theprincipal received by him, until the amount due to himself for commission,disbursements and services in respect of the same has been paid or accountedfor to him.
Principal’s duty to Agent
222.Agent to be indemnified againstconsequences of lawful acts: The employer of an agent is bound to indemnify himagainst the consequences of all lawful acts done by such agent in exercise ofthe authority conferred upon him.
Illustrations
(a) B, at Singapur, under instructions fromA of Calcutta, contracts with C to deliver certain goods to him. A does notsend the goods to B, and C sues B for breach of contract. B informs A of thesuit, and A authorizes him to defend the suit. B defends the suit, and iscompelled to pay damages and costs, and incurs expenses. A is liable to B forsuch damages, costs and expenses.
(b) B, a broker at Calcutta, by the ordersof A, a merchant there, contracts with C for the purchase of 10 casks of oilfor A. Afterwards A refuses to receive the oil, and C sues B. B informs A, whorepudiates the contract altogether. B defends, but unsuccessfully, and has topay damages and costs and incurs expenses. A is liable to B for such damages,costs and expenses.
223.Agent to be indemnified againstconsequences of acts done in good faith: Where one person employs another to doan act, and the agent does the act in good faith, the employer is liable toindemnify the agent against the consequences of that act, though it cause aninjury to the rights of third persons.
Illustrations
(a) A, a decree-holder and entitled toexecution of B’s goods, requires the officer of the Court to seize certaingoods, representing them to be the goods of B. The officer seizes the goods,and is sued by C, the true owner of the goods. A is liable to indemnify theofficer for the sum which he is compelled to pay to C, in consequence ofobeying A’s directions.
(b) B, at the request of A, sells goods inthe possession of A , but which A had no right to dispose of. B does not knowthis, and hands over the proceeds of the sale to A. Afterwards C, the trueowner of the goods, sues B and recovers the value of the goods and costs. A isliable to indemnify B for what he has been compelled to pay to C and for B’sown expenses.
224.Non-liability of employer of agent todo a criminal act: Where one person employs another to do an act which iscriminal, the employer is not liable to the agent, either upon an express or animplied promise, to indemnify him against the consequences of that Act.
Illustrations
(a) A employs B to beat C, and agrees toindemnify him against all consequences of the act. B thereupon beats C, and hasto pay damages to C for so doing. A is not liable to indemnify B for thosedamages.
(b) B, the proprietor of a newspaper,publishes, at A’s request, a libel upon C in the paper, and A agrees toindemnify B against the consequences of the publication, and all costs anddamages of any action in respect thereof. B is sued by C and has to paydamages, and also incurs expenses. A is not liable to B upon the indemnity.
225.Compensation to agent for injury causedby principals neglect: The principal must make compensation to his agent inrespect of injury caused to such agent by the principal’s neglect or want ofskill.
Illustration
A employs B as a bricklayer in building ahouse, and puts up the scaffolding himself. The scaffolding is unskillfully putup, and B is in consequence hurt. A must make compensation to B.
Effect of Agency on contracts with ThirdPersons
226.Enforcement and consequences of agentscontracts: Contracts entered into through an agent, and obligations arisingfrom acts done by an agent, may be enforced in the same manner, and will havethe same legal consequences, as if the contracts had been entered into and theacts done by the principal in person.
Illustrations
(a) A buys goods from B, knowing that he isan agent for their sale, but not knowing who is the principal. B’s principal isthe person entitled to claim from A the price of the goods, and A cannot, in asuit by the principal, setoff against that claim a debt due to himself from B.
(b) A, being B’s agent with authority toreceive money on his behalf, receives from C a sum of money due to B. C isdischarged of his obligation to pay the sum in question to B.
227.Principal how far bound, when agentexceeds authority: When an agent does more than he is authorized to do, andwhen the part of what he does, which is within his authority, can be separatedfrom the part which is beyond his authority, so much only of what he does as iswithin his authority is binding as between him and his principal.
Illustration
A, being owner of a ship and cargo,authorizes B to procure an insurance for 4,000 rupees on the ship. B procures apolicy for 4,000 rupees on the ship, and another for the like sum on the cargo.A is bound to pay the premium for the policy on the ship, but not the premiumfor the policy on the cargo.
228.Principal not bound when excess ofagents authority is not separable: Where an agent does more than he isauthorized to do, and what he does beyond the scope of his authority cannot beseparated from what is within it, the principal is not bound to recognize thetransaction.
Illustration
A authorizes B to buy 500 sheep for him. Bbuys 500 sheep and 200 lambs for one sum of 6,000 rupees. A may repudiate thewhole transaction.
229.Consequences of notice given to agent:Any notice given to or information obtained by the agent, provided it be givenor obtained in the course of the business transacted by him for the principal,shall, as between the principal and third parties, have the same legalconsequences as if it had been given to or obtained by the principal.
Illustrations
(a) A is employed by B to buy from Ccertain goods, of which C is the apparent owner, and buys them accordingly. Inthe course of the treaty for the sale, A learns that the goods really belongedto D, but B is ignorant of that fact. B is not entitled to set-off a debt owingto him from C against the price of the goods.
(b) A is employed by B to buy from C goodsof which C is the apparent owner. A was, before he was so employed, a servantof C, and then learnt that the goods really belonged to D, but B is ignorant ofthat fact. In spite of the knowledge of his agent, B may set-off against theprice of the goods a debt owing to him from C.
230.Agent cannot personally enforce, nor bebound by, contracts on behalf of principal: In the absence of any contract tothat effect, an agent cannot personally enforce contracts entered into by himon behalf of his principal, nor is he personally bound by them.
Presumption of contract to contrary:
0Such a contract shall be presumed to existin the following cases:
(1) where the contract is made by an agentfor the sale or purchase of goods for a merchant resident abroad;
(2) where the agent does not disclose thename of his principal;
(3) where the principal, though disclosed,cannot be sued.
231.Rights of parties to a contract made byagent not disclosed: If an agent makes a contract with a person who neitherknows, nor has reason to suspect, that he is an agent, his principal mayrequire the performance of the contract; but the other contracting party has,as against the principal, the same rights as he would have had as against theagent if the agent had been principal.
If the principal discloses himself beforethe contract is completed, the other contracting party may refuse to fulfil thecontract, if he can show that, if he had known who was the principal in thecontract, or if he had known that the agent was not a principal, he would nothave entered into the contract.
232.Performance of contract with agentsupposed to be principal: Where one man makes a contract with another, neitherknowing nor having reasonable ground to suspect that the other is an agent, theprincipal, if he requires the performance of the contract, can only obtain suchperformance subject to the rights and obligations subsisting between the agentand the other party to the contract.
Illustration
A, who owes 500 rupees to B, sells 1,000rupees’ worth of rice to B. A is acting as agent for C in the transaction, butB has no knowledge nor reasonable ground of suspicion that such is the ease. Ccannot compel B to take the rice without allowing him to set-off A’s debt.
233.Right of person dealing with agentpersonally liable: In cases where the agent is personally liable, a persondealing with him may hold either him or his principal, or both of them, liable.
Illustration
A enters into a contract with B to sell him100 bales of cotton, and afterwards discovers that B was acting as agent for CA may sue either B or C, or both, or the price of the cotton.
234.Consequence of inducing agent orprincipal to act on belief that principal or agent will be held exclusivelyliable: When a person who has made a contract with an agent induces the agentto act upon the belief that the principal only will be held liable, he cannotafterwards hold liable the agent or principal respectively.
235.Liability of pretended agent: A personuntruly representing himself to be the authorized agent of another, and therebyinducing a third person to deal with him as such agent, is liable, if hisalleged employer does not ratify his acts, to make compensation to the other inrespect of any loss or damage which he has incurred by so dealing.
236.Person falsely contracting as agent notentitled to performance: A person with whom a contract has been entered into inthe character of agent, is not entitled to require the performance of it, if hewas in reality acting, not as agent, but on his own account.
237.Liability of principal inducing beliefthat agents unauthorized acts were authorized: When an agent has, withoutauthority, done acts or incurred obligations to third persons on behalf of hisprincipal, the principal is bound by such acts or obligations, if he has by hiswords or conduct induced such third persons to believe that such acts andobligations were within the scope of the agent’s authority.
Illustrations
(a) A consigns goods to B for sale, andgives him instructions not to sell under a fixed price. C, being ignorant ofB’s instructions, enters into a contract with B to buy the goods at a pricelower than the reserved price. A is bound by the contract.
(b) A entrusts B with negotiableinstruments endorsed in bank. B sells them to C in violation of private ordersfrom A. The sale is good.
238.Effect, on agreement, ofmisrepresentation or fraud by agent: Misrepresentations made, or fraudscommitted, by agents acting in the course of their business for theirprincipals, have the same effect on agreements made by such agents as if suchmisrepresentations or frauds had been made or committed by the principals; butmisrepresentations made, or frauds committed, by agents, in matters which donot fall within their authority, do not affect their principals.
Illustrations
(a) A, being B’s agent for the sale ofgoods, induces C to buy them by a misrepresentation, which he was notauthorized by B to make. The contract is voidable, as between B and C, at theoption of C.
(b) A, the captain of B’s ship, signs billsof lading without having received on board the goods mentioned therein. Thebills of lading are void as between B and the pretended consignor.
CHAPTER XI
OF PARTNERSHIP
1 [*]
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1. Sections 239 to 266 repealed by the IndianPartnership Act, 1932 (9 of 1932),Sec.73 and Sch.II
SCHEDULE
ENACTMENTS REPEALED
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1. Repealed by the Repealing and AmendingAct, 1914 (10 of 1914), Sec.3 and Sch.II
