Business law notes
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About This Presentation
Business law notes
Slide Content
1
BUSINESS LAW
What is Business Law?
Business Law is also known as Commercial law or corporate law, is the
body of law that applies to the rights, relations, and conduct of persons
and businesses engaged in commerce, merchandising, trade, and sales.
It is often considered to be a branch of civil law and deals with issues of
both private law and public law.
Meaning of Law
• The word ‘Law’ has been derived from the Teutonic word ‘Lag,
which means ‘definite’.
On this basis Law can be defined as a definite rule of conduct and human
relations. It also means a uniform rule of conduct which is applicable
equally to all the people of the State. Law prescribes and regulates
general conditions of human activity in the state.
Business Law Meaning
• Business Law originated in the common law system, particularly
the one in the United States of America. By its content, it is a
counterpart of the term “commercial law”.
Definition of business law
• “A law is a rule of conduct imposed and enforced by the
sovereign.” – Austin
• “La“Law is the body of principles recognised and applied by the
state in the administration of justice.” – Salmond
• “A law is a rule of conduct imposed and enforced by the
sovereign.” – Austin
• “La“Law is the body of principles recognised and applied by the
state in the administration of justice.” – Salmond
Introduction to Business Law
• Business law encompasses all of the laws that dictate how to form
and run a business. This includes all of the laws that govern how
to start, buy, manage and close or sell any type of business.
Business laws establish the rules that all businesses should follow.
• A savvy businessperson will be generally familiar with business
laws and know when to seek the advice of a licensed attorney.
Importance of Business Law
• It’s important for business owners, managers, and other
professionals to have a basic understanding of business law to
help them make better decisions.
Businesses need these laws for the same reasons that people do: to define
unacceptable behaviour, to provide certainty and stability, to protect the
public, and to provide a mechanism for businesses to resolve disputes.
DEFINITION OF CONTRACT
Contract is an agreement between two or more persons creating
rights and duties between them and which is enforceable by law.
Pollack defines contract as, “every agreement and promise
enforceable at law is a contract.”
According to Section 2(h) of the Contract Act, “an agreement
enforceable by law is a contract.”
From the above definitions it is clear that a contract consists of
two elements:
(1) An agreement.
(2) The agreement should be enforceable by law.
BUSINESS LAW
What is Business Law?
Business Law is also known as Commercial law or corporate law, is the
body of law that applies to the rights, relations, and conduct of persons
and businesses engaged in commerce, merchandising, trade, and sales.
It is often considered to be a branch of civil law and deals with issues of
both private law and public law.
Meaning of Law
• The word ‘Law’ has been derived from the Teutonic word ‘Lag,
which means ‘definite’.
On this basis Law can be defined as a definite rule of conduct and human
relations. It also means a uniform rule of conduct which is applicable
equally to all the people of the State. Law prescribes and regulates
general conditions of human activity in the state.
Business Law Meaning
• Business Law originated in the common law system, particularly
the one in the United States of America. By its content, it is a
counterpart of the term “commercial law”.
Definition of business law
• “A law is a rule of conduct imposed and enforced by the
sovereign.” – Austin
• “La“Law is the body of principles recognised and applied by the
state in the administration of justice.” – Salmond
• “A law is a rule of conduct imposed and enforced by the
sovereign.” – Austin
• “La“Law is the body of principles recognised and applied by the
state in the administration of justice.” – Salmond
Introduction to Business Law
• Business law encompasses all of the laws that dictate how to form
and run a business. This includes all of the laws that govern how
to start, buy, manage and close or sell any type of business.
Business laws establish the rules that all businesses should follow.
• A savvy businessperson will be generally familiar with business
laws and know when to seek the advice of a licensed attorney.
Importance of Business Law
• It’s important for business owners, managers, and other
professionals to have a basic understanding of business law to
help them make better decisions.
Businesses need these laws for the same reasons that people do: to define
unacceptable behaviour, to provide certainty and stability, to protect the
public, and to provide a mechanism for businesses to resolve disputes.
DEFINITION OF CONTRACT
Contract is an agreement between two or more persons creating
rights and duties between them and which is enforceable by law.
Pollack defines contract as, “every agreement and promise
enforceable at law is a contract.”
According to Section 2(h) of the Contract Act, “an agreement
enforceable by law is a contract.”
From the above definitions it is clear that a contract consists of
two elements:
(1) An agreement.
(2) The agreement should be enforceable by law.
2
(1) AGREEMENT
According to Section 2(e) “Every promise and every set of
promise forming the consideration for each other, is an agreement.”
An agreement, therefore, comes into existence only when one
party make a proposal or offer to the other and that other signifies his
assent (i.e. gives his acceptance).
From the above definitions it is clear that for an agreement there must be:
(a) Plurality of Persons
There must be two or more persons to make an agreement because
one person cannot enter into an agreement with himself.
(b) Consensus ad idem
It means that both the parties to an agreement must agree about
the subject matter of the agreement in the same sense and the same time.
The term consensus means identity of minds.
EXAMPLE:
A own two cycles Sohrab and Eagle. A is selling Sohrab cycle to
B. B. thinks he is buying Eagle cycle. There is no consensus ad idem and
consequently no contract.
2) Enforceability
Enforceability is the second requirement of contract. An
agreement is said to be enforceable if it is recognized by courts. In order
to be enforceable by law, the agreement must create legal obligations
between the parties. If an agreement does not create legal obligations, it is
not contract. ‘All contracts are agreements but all agreements are not
contracts. Agreements are of two types:
(a) Social agreements
(b) Legal agreements
Social agreements are social in nature and do no enjoy the benefits of
law. In such agreements the parties do not intend to create legal relations.
Legal agreements are contracts because they create legal obligations
between the parties. In business agreements it is presumed that the parties
intend to create legal relations so all business agreements are in other
words contracts.
EXAMPLE:
(a) A invites B to a dinner. B accepts the invitation but does not attend it A
cannot sue B for damages. It is a social agreement because it does not
create legal obligation. It is not a contract.
(b) a promise to sell his car to B for Rs.2 lac. It is a legal agreement because
it creates legal obligations between the parties. This agreement is also a
contract.
CLASSIFICATION OF CONTRACTS
The contracts can be divided in the following three main groups.
1. According to enforceability.
2. According to formation.
3. According to performance.
ENFORCEABILITY:
(1) AGREEMENT
According to Section 2(e) “Every promise and every set of
promise forming the consideration for each other, is an agreement.”
An agreement, therefore, comes into existence only when one
party make a proposal or offer to the other and that other signifies his
assent (i.e. gives his acceptance).
From the above definitions it is clear that for an agreement there must be:
(a) Plurality of Persons
There must be two or more persons to make an agreement because
one person cannot enter into an agreement with himself.
(b) Consensus ad idem
It means that both the parties to an agreement must agree about
the subject matter of the agreement in the same sense and the same time.
The term consensus means identity of minds.
EXAMPLE:
A own two cycles Sohrab and Eagle. A is selling Sohrab cycle to
B. B. thinks he is buying Eagle cycle. There is no consensus ad idem and
consequently no contract.
2) Enforceability
Enforceability is the second requirement of contract. An
agreement is said to be enforceable if it is recognized by courts. In order
to be enforceable by law, the agreement must create legal obligations
between the parties. If an agreement does not create legal obligations, it is
not contract. ‘All contracts are agreements but all agreements are not
contracts. Agreements are of two types:
(a) Social agreements
(b) Legal agreements
Social agreements are social in nature and do no enjoy the benefits of
law. In such agreements the parties do not intend to create legal relations.
Legal agreements are contracts because they create legal obligations
between the parties. In business agreements it is presumed that the parties
intend to create legal relations so all business agreements are in other
words contracts.
EXAMPLE:
(a) A invites B to a dinner. B accepts the invitation but does not attend it A
cannot sue B for damages. It is a social agreement because it does not
create legal obligation. It is not a contract.
(b) a promise to sell his car to B for Rs.2 lac. It is a legal agreement because
it creates legal obligations between the parties. This agreement is also a
contract.
CLASSIFICATION OF CONTRACTS
The contracts can be divided in the following three main groups.
1. According to enforceability.
2. According to formation.
3. According to performance.
ENFORCEABILITY:
3
According to enforceability, a contract can be divided into the
following five kinds:
1. VALID CONTRACT:
DEFINITION:
A valid contract, is an agreement enforceable by law. An
agreement becomes enforceable by law when all the essentials of a valid
contract as explained by section 10 are present. If even one is missing,
there, is no valid contract.
OBLIGATION OF PARTIES
In valid contract all the parties to the contract are legally
responsible for the performance of a contract, if one of the parties breaks
the contract, the other party has a right to take action against the guilty
party. The contract can be enforced through the court also.
EXAMPLE:
A Proposes to sell his car to B for Rs.2 lac and B accepts the
proposal. If A and B both possess contractual capacity and B is consent is
free, thee is a valid contract between A and B.
If A fails to deliver the car, B can sue him in the court for delivery
and if B fails to make the payment, A can sue him for recovery of price.
2. VOIDABLE CONTRACT
DEFINITION:
According to Section 2(i) “An agreement which is enforceable by
law at the option of one or more of the parties thereto, but not at the
option of the other or others, is avoidable.
Generally, avoidable contract takes place when the consent of one
of the parties is not free. It is a valid contract until it is avoided by the
party having the right to avid it. Once it is avoided it becomes void. But if
the party chooses to affirm it, the contract continuous to be valid.
CIRCUMSTANCES UNDER WHICH
A CONTRACT BECOMES VOIDABLE
The following are the circumstances under which a contract
becomes voidable.
1. A contract becomes voidable when the consent of one of the parties to the
contract is obtained by coercion undue influence, misrepresentation or
fraud. (Sec 19).
EXAMPLE:
(a) A, threatens to shoot B to purchase his Honda 110 for Rs.20,000. B
agrees. This contract was made by coercion and is voidable at the option
of B.
(b) A, in order to deceive B, falsely states that 500 pounds of sugar is
produced annually at A’s factory and in this way induces B to buy the
factory. The contract is voidable at the option of B.
2. When a person promises o do something for another person but the other
person prevents him from performing his promise, the contract becomes
voidable at his option. (Sec 5).
EXAMPLE:
According to enforceability, a contract can be divided into the
following five kinds:
1. VALID CONTRACT:
DEFINITION:
A valid contract, is an agreement enforceable by law. An
agreement becomes enforceable by law when all the essentials of a valid
contract as explained by section 10 are present. If even one is missing,
there, is no valid contract.
OBLIGATION OF PARTIES
In valid contract all the parties to the contract are legally
responsible for the performance of a contract, if one of the parties breaks
the contract, the other party has a right to take action against the guilty
party. The contract can be enforced through the court also.
EXAMPLE:
A Proposes to sell his car to B for Rs.2 lac and B accepts the
proposal. If A and B both possess contractual capacity and B is consent is
free, thee is a valid contract between A and B.
If A fails to deliver the car, B can sue him in the court for delivery
and if B fails to make the payment, A can sue him for recovery of price.
2. VOIDABLE CONTRACT
DEFINITION:
According to Section 2(i) “An agreement which is enforceable by
law at the option of one or more of the parties thereto, but not at the
option of the other or others, is avoidable.
Generally, avoidable contract takes place when the consent of one
of the parties is not free. It is a valid contract until it is avoided by the
party having the right to avid it. Once it is avoided it becomes void. But if
the party chooses to affirm it, the contract continuous to be valid.
CIRCUMSTANCES UNDER WHICH
A CONTRACT BECOMES VOIDABLE
The following are the circumstances under which a contract
becomes voidable.
1. A contract becomes voidable when the consent of one of the parties to the
contract is obtained by coercion undue influence, misrepresentation or
fraud. (Sec 19).
EXAMPLE:
(a) A, threatens to shoot B to purchase his Honda 110 for Rs.20,000. B
agrees. This contract was made by coercion and is voidable at the option
of B.
(b) A, in order to deceive B, falsely states that 500 pounds of sugar is
produced annually at A’s factory and in this way induces B to buy the
factory. The contract is voidable at the option of B.
2. When a person promises o do something for another person but the other
person prevents him from performing his promise, the contract becomes
voidable at his option. (Sec 5).
EXAMPLE:
4
A contracts with B that A shall whitewash. B’s House for
Rs.10,000. A, is ready to whitewash but B prevents him from doing so.
This contract is voidable at the option of A.
3. When a party to the contract promises to do a certain thing within
a specified time, but fails to do it, then the contract becomes voidable at
the option of the promise, if the time is essence of the contract, (Sec 55)
EXAMPLE
A, contracts with B that A shall white-wash B’s House for
Rs.10,000 within one week. But A does not turn up within the specified
time. The contract is voidable at the option of B.
3. VOID CONTRACT
DEFINITION:
The word void means not binding in law. A contract, -which
cannot be enforced by either party, is called a void contract Section 2(j)
defines “A contract which ceases to be enforceable by law becomes void,
when it ceases to be enforceable.”
From this definition, it is clear that a void contract is not void
from the very beginning. It is valid contract and binding on the parties
when it is originally made but after its formation it become void due to
certain reasons.
FORMATION:
According to formation, a contract can be divided into the
following three kinds:
1. EXPRESS CONTRACT
Where the offer or acceptance is made in words spoken or written,
it is an express contract.
It can also be defined in this way that an express contract is one in
which the parties directly state the terms of the contract orally or in
writing at the time the contract is made.
EXAMPLE:
A tells on telephone to B that he wants to sell his car for Rs.3 lac
and B informs A that he agrees to purchase the car, there is an express
contract.
2. IMPLIED CONTRACT
Where the offer or acceptance is made, otherwise than in words, it
is an implied contract.
Implied contract is one, which is not made by words, written or
spoken, but by the acts and conduct of the parties thereto. It arises when
one person, without being requested to do so, renders services under
circumstances indicating that he expects to be paid for them, and the
other person, known such circumstances, accepts the benefit of those
services.
EXAMPLE
(a) A, a Railway Coolie carries the luggage of B in order to carry it out
of the railway station without being asked by B, and B allows him to do
so. The conduct of B shows that he is a ready to pay to A for the services.
It is an implied contract.
A contracts with B that A shall whitewash. B’s House for
Rs.10,000. A, is ready to whitewash but B prevents him from doing so.
This contract is voidable at the option of A.
3. When a party to the contract promises to do a certain thing within
a specified time, but fails to do it, then the contract becomes voidable at
the option of the promise, if the time is essence of the contract, (Sec 55)
EXAMPLE
A, contracts with B that A shall white-wash B’s House for
Rs.10,000 within one week. But A does not turn up within the specified
time. The contract is voidable at the option of B.
3. VOID CONTRACT
DEFINITION:
The word void means not binding in law. A contract, -which
cannot be enforced by either party, is called a void contract Section 2(j)
defines “A contract which ceases to be enforceable by law becomes void,
when it ceases to be enforceable.”
From this definition, it is clear that a void contract is not void
from the very beginning. It is valid contract and binding on the parties
when it is originally made but after its formation it become void due to
certain reasons.
FORMATION:
According to formation, a contract can be divided into the
following three kinds:
1. EXPRESS CONTRACT
Where the offer or acceptance is made in words spoken or written,
it is an express contract.
It can also be defined in this way that an express contract is one in
which the parties directly state the terms of the contract orally or in
writing at the time the contract is made.
EXAMPLE:
A tells on telephone to B that he wants to sell his car for Rs.3 lac
and B informs A that he agrees to purchase the car, there is an express
contract.
2. IMPLIED CONTRACT
Where the offer or acceptance is made, otherwise than in words, it
is an implied contract.
Implied contract is one, which is not made by words, written or
spoken, but by the acts and conduct of the parties thereto. It arises when
one person, without being requested to do so, renders services under
circumstances indicating that he expects to be paid for them, and the
other person, known such circumstances, accepts the benefit of those
services.
EXAMPLE
(a) A, a Railway Coolie carries the luggage of B in order to carry it out
of the railway station without being asked by B, and B allows him to do
so. The conduct of B shows that he is a ready to pay to A for the services.
It is an implied contract.
5
(b) M, a professional shoes shiner starts polishing the shoes of W
without being asked to do so, and W allows him to do so. It is an implied
contract and W is under obligation to pay to M.
3. CONSTRUCTIVE OR QUASI CONTRACT
Such a contract does not arise due to express or implied
agreement between the parties but the law imposes a contract under
certain special circumstance. A quasi Contract is based upon the principle
of equity that a person shall not be allowed to get benefit at the expense
of another.
EXAMPLE
(a) A, finder of lost goods is under a obligation find out the true owner
and return the goods.
(b) A, a trader, leaves goods at B’s house by mistake, B treats the goods
as his own and starts using them. There is a quasi contract between A and
B. B is bound to pay for the goods.
PERFORMANCE
According to performance a contract can be divided into the
following four kinds:
1. EXECUTED CONTRACT
Executed means that which is done. A contract is said to be
executed when both the parties have completely performed their
obligations. It means that nothing remains to be done by either party
under the contract.
EXAMPLE
(a) A, purchased a book from B for Rs.200 and paid the price on the
spot. It is an executed contract because both the parties have performed
their duties.
(b) A agrees to paint a picture for B for Rs.2,000. When A paints the
picture and B pay the price, the contract is said to be executed.
2. EXECUTORY CONTRACT
Executory means that which remains to be done. In an executory
contract something remains to be done. In other words a, contract is said
to be executory when both the parties to a contract have yet to perform
their obligations.
EXAMPLE
(a) M promise to sell his car to N for Rs.2 lac and N pays only
Rs.50,000 as advance money and promise to pay the balance later. M
gives the possession of car to N and promises to transfer ownership on
receipt of full amount. The contract between M and N is executory
because there remains something to be done on both sides.
(b) A agrees to teach B, from the next month and B promises to pay
Rs.800 to A. It is an executory contract because the promises are yet to be
performed.
3. UNILATERAL CONTRACT
(b) M, a professional shoes shiner starts polishing the shoes of W
without being asked to do so, and W allows him to do so. It is an implied
contract and W is under obligation to pay to M.
3. CONSTRUCTIVE OR QUASI CONTRACT
Such a contract does not arise due to express or implied
agreement between the parties but the law imposes a contract under
certain special circumstance. A quasi Contract is based upon the principle
of equity that a person shall not be allowed to get benefit at the expense
of another.
EXAMPLE
(a) A, finder of lost goods is under a obligation find out the true owner
and return the goods.
(b) A, a trader, leaves goods at B’s house by mistake, B treats the goods
as his own and starts using them. There is a quasi contract between A and
B. B is bound to pay for the goods.
PERFORMANCE
According to performance a contract can be divided into the
following four kinds:
1. EXECUTED CONTRACT
Executed means that which is done. A contract is said to be
executed when both the parties have completely performed their
obligations. It means that nothing remains to be done by either party
under the contract.
EXAMPLE
(a) A, purchased a book from B for Rs.200 and paid the price on the
spot. It is an executed contract because both the parties have performed
their duties.
(b) A agrees to paint a picture for B for Rs.2,000. When A paints the
picture and B pay the price, the contract is said to be executed.
2. EXECUTORY CONTRACT
Executory means that which remains to be done. In an executory
contract something remains to be done. In other words a, contract is said
to be executory when both the parties to a contract have yet to perform
their obligations.
EXAMPLE
(a) M promise to sell his car to N for Rs.2 lac and N pays only
Rs.50,000 as advance money and promise to pay the balance later. M
gives the possession of car to N and promises to transfer ownership on
receipt of full amount. The contract between M and N is executory
because there remains something to be done on both sides.
(b) A agrees to teach B, from the next month and B promises to pay
Rs.800 to A. It is an executory contract because the promises are yet to be
performed.
3. UNILATERAL CONTRACT
6
Unilateral contract is one in which only one party has to fulfill his
obligations at the time of formation of the contract, the other party has
already fulfilled his obligations by doing some acts at the time of the
contract or before the contract comes into existence. Such contract is also
known as contract with executed consideration.
EXAMPLE
A promised to pay Rs.1,000 to any one who found his lost bag. B
found the bag and returned it to A. It is an unilateral contract which
comes into existence when the bag is found. Now A has to pay as B as
already performed his obligation by finding the bag.
4. BILATERAL CONTRACT
A bilateral contract is one in which die obligations of both the
parties to the contract are outstanding at the time of the formation of the
contract. In other words it is a contact in which both the parties have yet
to perform their obligations.
It is similar to executory contract and is also known as contract
with executory consideration.
EXAMPLE
A Promises to paint the picture for B and B promises to pay
Rs.5,000 to A.
ESSENTIALS OF A VALID CONTRACT :
A valid contract is an agreement, which is binding and
enforceable. In valid contract all the parties are legally bound to perform
the contract.
According to Section 2 (h) of the Contract Act, “an agreement
enforceable by law is a contract.”
It means an agreement is regarded as a control when it is
enforceable by law. It is a contract, which can be enforced by either of the
parties to the contract. If one of the parties refuses to perform the
contract, the other party can take an action in a court of law against such
party. To be enforceable by law, an agreement must possess some
essentials of a valid contract, which are stated in section 10.
According to Section 10, “all agreements are contracts if they are
made by the free consent of parties, competent to contract, for a lawful
consideration and with a lawful object and are not hereby expressly
declared to be void.”
When necessary the agreement must satisfy the requirements of
law regarding writing attestation or registration.
ESSENTIALS OF VALID CONTRACT
An agreement becomes enforceable by law when it fulfils
essential conditions. These conditions may be called the essentials of a
valid contract, which are as follows:
(1) OFFERS AND ACCEPTANCE
For an agreement there must be a lawful offer by one and lawful
acceptance of that offer from the other party. The term lawful means that
the offer and acceptance must satisfy the requirements of Contract Act.
Unilateral contract is one in which only one party has to fulfill his
obligations at the time of formation of the contract, the other party has
already fulfilled his obligations by doing some acts at the time of the
contract or before the contract comes into existence. Such contract is also
known as contract with executed consideration.
EXAMPLE
A promised to pay Rs.1,000 to any one who found his lost bag. B
found the bag and returned it to A. It is an unilateral contract which
comes into existence when the bag is found. Now A has to pay as B as
already performed his obligation by finding the bag.
4. BILATERAL CONTRACT
A bilateral contract is one in which die obligations of both the
parties to the contract are outstanding at the time of the formation of the
contract. In other words it is a contact in which both the parties have yet
to perform their obligations.
It is similar to executory contract and is also known as contract
with executory consideration.
EXAMPLE
A Promises to paint the picture for B and B promises to pay
Rs.5,000 to A.
ESSENTIALS OF A VALID CONTRACT :
A valid contract is an agreement, which is binding and
enforceable. In valid contract all the parties are legally bound to perform
the contract.
According to Section 2 (h) of the Contract Act, “an agreement
enforceable by law is a contract.”
It means an agreement is regarded as a control when it is
enforceable by law. It is a contract, which can be enforced by either of the
parties to the contract. If one of the parties refuses to perform the
contract, the other party can take an action in a court of law against such
party. To be enforceable by law, an agreement must possess some
essentials of a valid contract, which are stated in section 10.
According to Section 10, “all agreements are contracts if they are
made by the free consent of parties, competent to contract, for a lawful
consideration and with a lawful object and are not hereby expressly
declared to be void.”
When necessary the agreement must satisfy the requirements of
law regarding writing attestation or registration.
ESSENTIALS OF VALID CONTRACT
An agreement becomes enforceable by law when it fulfils
essential conditions. These conditions may be called the essentials of a
valid contract, which are as follows:
(1) OFFERS AND ACCEPTANCE
For an agreement there must be a lawful offer by one and lawful
acceptance of that offer from the other party. The term lawful means that
the offer and acceptance must satisfy the requirements of Contract Act.
7
The offer must be made with the intention of creating legal relations
otherwise, there will be no agreement.
EXAMPLE:
A say to B that he will sell his cycle to him for Rs.2000. This is an
offer. If B accepts this offer, there is an acceptance.
2) LEGAL RELATIONSHIP
The parties to an agreement must create legal relationship. It
arises when parties know that if one for the failure of a contract.
Agreements of a social or domestic nature do not create legal relations
and as such cannot give rise to a contract. It is presumed in commercial
agreements that parties intend to create legal relations.
EXAMPLE:
(i) A father promises to pay his son Rs.500 every month as pocket
money. Later, he refuses to pay. The son cannot recover as it is a social
agreement and does not create legal relations.
(ii) A offers to sell his watch to B for Rs.200 and B agrees to buy it at
the same price, there is a contract as it creates legal-relationship between
them.
(iii) A husband promised to pay his wife a household allowance of 30
pounds every month. Later, the parties separated and the husband failed
to pay. The wife used for allowance. Held that the wife was not entitled
for the allowance as the agreement was social and did not create any legal
obligations.
3. LAWFUL CONSIDERATION
The third essential of a valid contract is the presence of
consideration. Consideration is “something in return.” It may be some
benefit to the party. Consideration has been defined as the price paid by
one party for the promise of the other. An agreement is enforceable only
when both the parties get something and give something. The something
given or obtained is the price of the promise and is called consideration.
EXAMPLE:
(i) A agrees to sell his house to B for Rs.10 Lac is the consideration for
A’s promise to sell the house, and A’s promise to sell the house is the
consideration for B’s promise to pay Rs.10 Lac. These are lawful
considerations.
(ii) A promise to obtain for B employment in the public service, and B
promise to pay 10,000 rupees to A. the agreement is void, as the
consideration for it is unlawful.
4. CAPACITY OF PARTIES
An agreement is enforceable only if it is entered into by parties
who possess contractual capacity. It means that the parities to an
agreement must be competent to contract. According to Section 11, in
order to be competent to contract the parties must be of the age of
majority and of sound mind and must not be disqualified from contracting
by any law to which they are subject. A contract by a person of unsound
mind is void ab-initio (from the beginning).
If one of the parties to the agreement suffers from minority,
madness, drunkenness etc., the agreement is not enforceable at law,
except in some cases.
EXAMPLE:
The offer must be made with the intention of creating legal relations
otherwise, there will be no agreement.
EXAMPLE:
A say to B that he will sell his cycle to him for Rs.2000. This is an
offer. If B accepts this offer, there is an acceptance.
2) LEGAL RELATIONSHIP
The parties to an agreement must create legal relationship. It
arises when parties know that if one for the failure of a contract.
Agreements of a social or domestic nature do not create legal relations
and as such cannot give rise to a contract. It is presumed in commercial
agreements that parties intend to create legal relations.
EXAMPLE:
(i) A father promises to pay his son Rs.500 every month as pocket
money. Later, he refuses to pay. The son cannot recover as it is a social
agreement and does not create legal relations.
(ii) A offers to sell his watch to B for Rs.200 and B agrees to buy it at
the same price, there is a contract as it creates legal-relationship between
them.
(iii) A husband promised to pay his wife a household allowance of 30
pounds every month. Later, the parties separated and the husband failed
to pay. The wife used for allowance. Held that the wife was not entitled
for the allowance as the agreement was social and did not create any legal
obligations.
3. LAWFUL CONSIDERATION
The third essential of a valid contract is the presence of
consideration. Consideration is “something in return.” It may be some
benefit to the party. Consideration has been defined as the price paid by
one party for the promise of the other. An agreement is enforceable only
when both the parties get something and give something. The something
given or obtained is the price of the promise and is called consideration.
EXAMPLE:
(i) A agrees to sell his house to B for Rs.10 Lac is the consideration for
A’s promise to sell the house, and A’s promise to sell the house is the
consideration for B’s promise to pay Rs.10 Lac. These are lawful
considerations.
(ii) A promise to obtain for B employment in the public service, and B
promise to pay 10,000 rupees to A. the agreement is void, as the
consideration for it is unlawful.
4. CAPACITY OF PARTIES
An agreement is enforceable only if it is entered into by parties
who possess contractual capacity. It means that the parities to an
agreement must be competent to contract. According to Section 11, in
order to be competent to contract the parties must be of the age of
majority and of sound mind and must not be disqualified from contracting
by any law to which they are subject. A contract by a person of unsound
mind is void ab-initio (from the beginning).
If one of the parties to the agreement suffers from minority,
madness, drunkenness etc., the agreement is not enforceable at law,
except in some cases.
EXAMPLE:
8
(i) M, a person of unsound mind, enters into an agreement with S to
sell his house for Rs.2 lac. It is not a valid contract because M is not
competent to contract.
(ii) A, aged 20 promises to sell his car to B for Rs.3 Lac. It is a valid
contract because A is competent to contract.
(5) FREE CONSENT
It is another essential of a valid contract. Consent means that the
parties must have agreed upon the same thing in the same sense. For a
valid contract it is necessary that the consent of parties to the contact
must be free.
EXAMPLE:-
A compels B to enter into a contract on the point of pistol. It is not
a valid contract as the consent of B is not free.
(6) LAWFULL OBJECT
It is also necessary that agreement should be made for a lawful
object. The object for which the agreement has been entered into must not
be fraudulent, illegal, immoral, or opposed to public policy or must not
imply injury to the person or property of another. Every agreement of
which the object or consideration is unlawful is illegal and the therefore
void.
EXAMPLE:-
A promise to pay B Rs.5 thousand if B beats C. The agreement is
illegal as its object is unlawful.
(7) WRITING AND REGISTRATION
According to Contract Act, a contract may be oral or in writing.
Although in practice, it is always in the interest of the parties that the
contract should be made in writing so that it may be convenient to prove
in the court. However, a verbal contract if proved in the court will not be
considered invalid merely on the ground that it not in writing. It is
essential for the validity of a contact that it must be in writing signed and
attested by witness and registered if so required by the law.
EXAMPLE:
(i) A Verbally promises to sell his book to y for Rs.200 it is a valid
contract because the law does not require it to be in writing.
(ii) A verbally promises to sell his house to B it is not a valid contract
because the law requires that the contract of immovable property must be
in writing.
(8) CERTAINITY
According to Section 29 of the Contract Act, “Agreements the
meaning of which are not certain or capable of being made certain are
void.” In order to give rise to a valid contract the terms of the agreement,
must not be vague or uncertain. For a valid contract, the terms and
conditions of an agreement must be clear and certain.
(i) M, a person of unsound mind, enters into an agreement with S to
sell his house for Rs.2 lac. It is not a valid contract because M is not
competent to contract.
(ii) A, aged 20 promises to sell his car to B for Rs.3 Lac. It is a valid
contract because A is competent to contract.
(5) FREE CONSENT
It is another essential of a valid contract. Consent means that the
parties must have agreed upon the same thing in the same sense. For a
valid contract it is necessary that the consent of parties to the contact
must be free.
EXAMPLE:-
A compels B to enter into a contract on the point of pistol. It is not
a valid contract as the consent of B is not free.
(6) LAWFULL OBJECT
It is also necessary that agreement should be made for a lawful
object. The object for which the agreement has been entered into must not
be fraudulent, illegal, immoral, or opposed to public policy or must not
imply injury to the person or property of another. Every agreement of
which the object or consideration is unlawful is illegal and the therefore
void.
EXAMPLE:-
A promise to pay B Rs.5 thousand if B beats C. The agreement is
illegal as its object is unlawful.
(7) WRITING AND REGISTRATION
According to Contract Act, a contract may be oral or in writing.
Although in practice, it is always in the interest of the parties that the
contract should be made in writing so that it may be convenient to prove
in the court. However, a verbal contract if proved in the court will not be
considered invalid merely on the ground that it not in writing. It is
essential for the validity of a contact that it must be in writing signed and
attested by witness and registered if so required by the law.
EXAMPLE:
(i) A Verbally promises to sell his book to y for Rs.200 it is a valid
contract because the law does not require it to be in writing.
(ii) A verbally promises to sell his house to B it is not a valid contract
because the law requires that the contract of immovable property must be
in writing.
(8) CERTAINITY
According to Section 29 of the Contract Act, “Agreements the
meaning of which are not certain or capable of being made certain are
void.” In order to give rise to a valid contract the terms of the agreement,
must not be vague or uncertain. For a valid contract, the terms and
conditions of an agreement must be clear and certain.
9
EXAMPLE:
(i) A promised to sell 20 books to B. It is not clear which books A has
promised to sell. The agreement is void because the terms are not clear.
(ii) A agrees to sell B a hundred tons of oil. It is not clear what is the
kind of oil. The agreement is void because of it uncertainty.
(iii) O agreed to purchase a van from S on hire-purchase terms. The price
was to be paid over two years. Held there was no contract as the terms
were not certain about rate of interest and mode of payment.
(9) POSSIBILITY OF PERFORMANCE
The valid contract must be capable of performance section 56 lays
down that. “An agreement to do an act impossible in itself is void.” If the
act is legally or physically impossible to perform, the agreement cannot
be enforced at law.
EXAMPLE:-
(i) A agrees with B to discover treasure by magic, the agreement is not
enforceable.
(ii) A agrees with B to put life into B’s dead brother. The agreement is
void as it is impossible of performance.
(10) NOT EXPRESSLY DECLARED VOID
An agreement must not be one of those, which have been
expressly declared to be void by the Act. Section 24-30 explains certain
types of agreement, which have been expressly declared to be void. An
agreement in restraint of trade and an agreement by way of wager have
been expressly declared void.
EXAMPLE:-
A promise to close his business against the promise of B to pay
him Rs.2 lac is a void agreement because it is restraint of trade.
UNIT-II
OFFER AND ACCEPTANCE:
The first essential of a valid contract is an agreement i.e., offer
and acceptance. The agreement result from an exchange of promises by
the parties involved. An agreement arises when one party, the offer or,
makes an offer and the other party to whom the offer is made i.e. the
offeree accepts it. In every case, there must be both an offer and an
acceptance. If either is lacking there is no agreement. In order to make a
contract there must be a lawful offer by one party and lawful acceptance
of the offer by the other party.
OFFER / PROPOSAL
DEFINITION:
The words proposal and offer are synonymous and are used
interchangeably. Section 2(a) defines a proposal as “when one person
signifies to another his willingness to do or to abstain from doing any
thing, with a view to obtaining the assent of that other to such act or
abstinence he is said to make a proposal.”
This definition of an offer consists of two parts.
(1) There must be an expression of the willingness by one to another to do or
to abstain from doing something.
EXAMPLE:
(i) A promised to sell 20 books to B. It is not clear which books A has
promised to sell. The agreement is void because the terms are not clear.
(ii) A agrees to sell B a hundred tons of oil. It is not clear what is the
kind of oil. The agreement is void because of it uncertainty.
(iii) O agreed to purchase a van from S on hire-purchase terms. The price
was to be paid over two years. Held there was no contract as the terms
were not certain about rate of interest and mode of payment.
(9) POSSIBILITY OF PERFORMANCE
The valid contract must be capable of performance section 56 lays
down that. “An agreement to do an act impossible in itself is void.” If the
act is legally or physically impossible to perform, the agreement cannot
be enforced at law.
EXAMPLE:-
(i) A agrees with B to discover treasure by magic, the agreement is not
enforceable.
(ii) A agrees with B to put life into B’s dead brother. The agreement is
void as it is impossible of performance.
(10) NOT EXPRESSLY DECLARED VOID
An agreement must not be one of those, which have been
expressly declared to be void by the Act. Section 24-30 explains certain
types of agreement, which have been expressly declared to be void. An
agreement in restraint of trade and an agreement by way of wager have
been expressly declared void.
EXAMPLE:-
A promise to close his business against the promise of B to pay
him Rs.2 lac is a void agreement because it is restraint of trade.
UNIT-II
OFFER AND ACCEPTANCE:
The first essential of a valid contract is an agreement i.e., offer
and acceptance. The agreement result from an exchange of promises by
the parties involved. An agreement arises when one party, the offer or,
makes an offer and the other party to whom the offer is made i.e. the
offeree accepts it. In every case, there must be both an offer and an
acceptance. If either is lacking there is no agreement. In order to make a
contract there must be a lawful offer by one party and lawful acceptance
of the offer by the other party.
OFFER / PROPOSAL
DEFINITION:
The words proposal and offer are synonymous and are used
interchangeably. Section 2(a) defines a proposal as “when one person
signifies to another his willingness to do or to abstain from doing any
thing, with a view to obtaining the assent of that other to such act or
abstinence he is said to make a proposal.”
This definition of an offer consists of two parts.
(1) There must be an expression of the willingness by one to another to do or
to abstain from doing something.
10
(2) The expression of willingness must be made to obtain the assent of the
other person to such act or abstinence.
The offer must be made with the intention of creating legal
relations; otherwise, there will be no agreement.
EXAMPLE:-
(i) A offer to sell his watch to B for Rs.100 A is making an offer to B.
(ii) A says to B I am willing to sell my car for Rs.3 Lac Are you
interested to buy it. “A makes an offer to B.
DEFINITIONS:
OFFEROR:
The person making the offer is called the offeror or promisor or
proposer.
OFFEREE:
The person to whom the offer is made is called the offeree or
proposer.
PROMISOR:
The person accepting the offer is called the promisor or acceptor.
ESSENTIALS OF A VALID OFFER
Following are the legal rules or essentials of a valid offer:
(1) IT MAY BE EXPRESS OR IMPLIED
An offer may be made either by words or by conduct. An offer,
which is made by words spoken or written, is called an express offer. The
offer, which is made by the conduct of a person, is called an implied
offer.
EXAMPLE:
(a) M says to N that he will sell his motorcycle to him for Rs.40,000. It
is an express offer.
(b) A railway coolie carries the luggage of B without being asked to do
so B allows him to do so. It is an implied offer.
(c) The new Khan Transport Company runs buses on different routes to
carry passengers at the scheduled fares. This is an implied offer by the
company.
(2) IT MUST CREATE LEGAL RELATIONS
The offer must be made in order to create legal relations
otherwise, there will be no agreement. If an offer does into give rise to
legal obligations between the parties it is not a valid offer in the eye of
law.
EXAMPLE:-
(a) A invites B to dinner B accept the invitation. It does not create any
legal relations, so there is no agreement.
(2) The expression of willingness must be made to obtain the assent of the
other person to such act or abstinence.
The offer must be made with the intention of creating legal
relations; otherwise, there will be no agreement.
EXAMPLE:-
(i) A offer to sell his watch to B for Rs.100 A is making an offer to B.
(ii) A says to B I am willing to sell my car for Rs.3 Lac Are you
interested to buy it. “A makes an offer to B.
DEFINITIONS:
OFFEROR:
The person making the offer is called the offeror or promisor or
proposer.
OFFEREE:
The person to whom the offer is made is called the offeree or
proposer.
PROMISOR:
The person accepting the offer is called the promisor or acceptor.
ESSENTIALS OF A VALID OFFER
Following are the legal rules or essentials of a valid offer:
(1) IT MAY BE EXPRESS OR IMPLIED
An offer may be made either by words or by conduct. An offer,
which is made by words spoken or written, is called an express offer. The
offer, which is made by the conduct of a person, is called an implied
offer.
EXAMPLE:
(a) M says to N that he will sell his motorcycle to him for Rs.40,000. It
is an express offer.
(b) A railway coolie carries the luggage of B without being asked to do
so B allows him to do so. It is an implied offer.
(c) The new Khan Transport Company runs buses on different routes to
carry passengers at the scheduled fares. This is an implied offer by the
company.
(2) IT MUST CREATE LEGAL RELATIONS
The offer must be made in order to create legal relations
otherwise, there will be no agreement. If an offer does into give rise to
legal obligations between the parties it is not a valid offer in the eye of
law.
EXAMPLE:-
(a) A invites B to dinner B accept the invitation. It does not create any
legal relations, so there is no agreement.
11
(b) A offers to sell his watch to B for Rs.200 and B agrees. There is an
agreement because here the parties intend to create legal relations.
(c) Three friends joined to enter a newspaper competition and agreed to
share any winnings. It was held the intended to create legal relations and
their agreement was therefore a contract.
(3) IT MUST BE DEFINITE & CLEAR
An offer must be definite and clear, if the terms of an offer are not
definite and clear, it cannot be called a valid offer. If such offer is
accepted it cannot create a binding contract.
EXAMPLE:
A has two motorcycles. He offers B to sell one motorcycle for
Rs.27,000. It is not a valid offer because it is not clear that which motor
cycle A wanted to sell.
(4) IT IS DIFFEENT FROM INVITATION TO OFFER
An offer is different from an invitation to offer. It is also called
invitation to treat or invitation to receive offer. An invitation to offer
looks like offer but legally it is not offer.
In the case of an invitation to offer, the person sending out the
invitation does not make an offer but only invites the other party to make
an offer. His object is to inform that he is willing to deal with anybody
who after getting such information is willing to open negotiations with
him. Such invitations for offers are not offers according to law and so
cannot become agreement by acceptance.
EXAMPLE:
(a) Quotations, Catalogues of prices, display of goods with prices issue
of prospectus by companies are examples of invitation to offer.
(b) Display of goods in an auction sale is not an offer rather it is an
invitation to offer. The offer will come from the buyer in the form of bids.
(5) IT MAY BE SPECIFIC OR GENERAL
When an offer is made to a specified person or group of persons,
it is called specific offer. Such an offer can be accepted only by the
person or persons to whom it is made. A general offer, on the other hand,
is one, which is made to public in general and it may be accepted by any
person who fulfils the conditions mentioned in it. Both specified and
general offers are valid.
EXAMPLE:-
(b) A offers to sell his watch to B for Rs.200 and B agrees. There is an
agreement because here the parties intend to create legal relations.
(c) Three friends joined to enter a newspaper competition and agreed to
share any winnings. It was held the intended to create legal relations and
their agreement was therefore a contract.
(3) IT MUST BE DEFINITE & CLEAR
An offer must be definite and clear, if the terms of an offer are not
definite and clear, it cannot be called a valid offer. If such offer is
accepted it cannot create a binding contract.
EXAMPLE:
A has two motorcycles. He offers B to sell one motorcycle for
Rs.27,000. It is not a valid offer because it is not clear that which motor
cycle A wanted to sell.
(4) IT IS DIFFEENT FROM INVITATION TO OFFER
An offer is different from an invitation to offer. It is also called
invitation to treat or invitation to receive offer. An invitation to offer
looks like offer but legally it is not offer.
In the case of an invitation to offer, the person sending out the
invitation does not make an offer but only invites the other party to make
an offer. His object is to inform that he is willing to deal with anybody
who after getting such information is willing to open negotiations with
him. Such invitations for offers are not offers according to law and so
cannot become agreement by acceptance.
EXAMPLE:
(a) Quotations, Catalogues of prices, display of goods with prices issue
of prospectus by companies are examples of invitation to offer.
(b) Display of goods in an auction sale is not an offer rather it is an
invitation to offer. The offer will come from the buyer in the form of bids.
(5) IT MAY BE SPECIFIC OR GENERAL
When an offer is made to a specified person or group of persons,
it is called specific offer. Such an offer can be accepted only by the
person or persons to whom it is made. A general offer, on the other hand,
is one, which is made to public in general and it may be accepted by any
person who fulfils the conditions mentioned in it. Both specified and
general offers are valid.
EXAMPLE:-
12
(a) M makes an offer to N to sell his bicycle for Rs.800, it is a specific
offer. In this case, only N can accept it.
(b) A announces in a newspaper a reward of Rs.1,000 for any one who
will return his lost radio. It is general offer.
(6) IT MUST BE COMMUNICATED TO THE OFFEREE
An offer is effective only when it is communicated to the offeree.
If an offer is not communicated to the offeree it cannot be accepted. Thus
an offer, which is not communicated, is not a valid offer. It applies to
both specific and general offers.
EXAMLES:
A without knowing that a reward has been offered for the arrest of
a particular criminal, catches the criminal and informs the police. A
cannot recover the reward as he was not aware of it.
(7) IT SHOULD NOT CONTAIN NEGATIVE CONDITION
an offer should not contain a condition the non-compliance of
which may be assumed as acceptance. An offeror cannot say that if
acceptance is not communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeree does not reply, there is no
contract, because no obligation to reply can be imposed on him, on the
ground of justice no agreement because such condition cannot be
imposed on the offeree. It is only a one sided offer.
EXAMPLE:
A wrote to B offering to sell his book for Rs.500 adding that if he
didn’t reply with in 5 days, the offeree would be presumed to have been
accepted. There is no agreement b/c such condition can’t be imposed on
the offeree. It is only a one sided offer.
(8) IT MAY BE SUBJECT TO ANY TERMS & CONDITIONS
An offeror may attach any terms and conditions to the offer he
makes. He may even prescribe the mode of acceptance. There is no
contract, unless all the terms of the offer are accepted in the mode
prescribed by the offeror. It must be noted that if the offeror asks for
sending the acceptance by telegram and the offeree sends the acceptance
by letter, and the offeror may reject such acceptance.
EXAMPLE:
A asks B to send the reply of his offer by telegram but B sends
reply by letter, A may reject such acceptance because it is opposed to the
prescribed mode of communication.
(9) IT MUST NOT CONTAIN CROSS OFFERS
When two parties make similar offers to each other, in ignorance
of each other’s such offers are called cross-offers. The acceptance of
cross-offers does not result in complete agreement.
EXAMPLE:
On 23
rd
December 2007, A wrote B to sell him 100 ton of iron at
Rs.10,000 per ton. On the same day, B wrote to A to buy 100 tons of iron
at Rs.10,000 per ton. There is no contract between A & B because the
(a) M makes an offer to N to sell his bicycle for Rs.800, it is a specific
offer. In this case, only N can accept it.
(b) A announces in a newspaper a reward of Rs.1,000 for any one who
will return his lost radio. It is general offer.
(6) IT MUST BE COMMUNICATED TO THE OFFEREE
An offer is effective only when it is communicated to the offeree.
If an offer is not communicated to the offeree it cannot be accepted. Thus
an offer, which is not communicated, is not a valid offer. It applies to
both specific and general offers.
EXAMLES:
A without knowing that a reward has been offered for the arrest of
a particular criminal, catches the criminal and informs the police. A
cannot recover the reward as he was not aware of it.
(7) IT SHOULD NOT CONTAIN NEGATIVE CONDITION
an offer should not contain a condition the non-compliance of
which may be assumed as acceptance. An offeror cannot say that if
acceptance is not communicated up to a certain date, the offer would be
presumed to have been accepted. If the offeree does not reply, there is no
contract, because no obligation to reply can be imposed on him, on the
ground of justice no agreement because such condition cannot be
imposed on the offeree. It is only a one sided offer.
EXAMPLE:
A wrote to B offering to sell his book for Rs.500 adding that if he
didn’t reply with in 5 days, the offeree would be presumed to have been
accepted. There is no agreement b/c such condition can’t be imposed on
the offeree. It is only a one sided offer.
(8) IT MAY BE SUBJECT TO ANY TERMS & CONDITIONS
An offeror may attach any terms and conditions to the offer he
makes. He may even prescribe the mode of acceptance. There is no
contract, unless all the terms of the offer are accepted in the mode
prescribed by the offeror. It must be noted that if the offeror asks for
sending the acceptance by telegram and the offeree sends the acceptance
by letter, and the offeror may reject such acceptance.
EXAMPLE:
A asks B to send the reply of his offer by telegram but B sends
reply by letter, A may reject such acceptance because it is opposed to the
prescribed mode of communication.
(9) IT MUST NOT CONTAIN CROSS OFFERS
When two parties make similar offers to each other, in ignorance
of each other’s such offers are called cross-offers. The acceptance of
cross-offers does not result in complete agreement.
EXAMPLE:
On 23
rd
December 2007, A wrote B to sell him 100 ton of iron at
Rs.10,000 per ton. On the same day, B wrote to A to buy 100 tons of iron
at Rs.10,000 per ton. There is no contract between A & B because the
13
offers wee similar and made in ignorance of the other and so there is no
acceptance of each other’s offer.
REVOCATION OR TERMINATION OF OFFER
According to Section 6, an offer may come to an end in any of the
following ways:
(1) NOTICE OF REVOCATION
The offeror can revoke his offer at any time by sending a notice of
revocation to the offeree, before its acceptance. The offeror can reject the
offer before its acceptance even though the period for which the offer was
kept open has not yet expired.
EXAMPLE:
A, the offeror at an auction sale makes the highest bid. But he has
the right to withdraw (revoke) the bid (offer) is revoked before
acceptance.
(2) LAPSE OF TIME
When the offer states that, the it is open until a particular date the
offer terminates on that date if it is not accepted by that time. If the offer
does not specify the time, it will terminate after the lapse of a reasonable
time. What is reasonable time depends upon the circumstances of each
case.
EXAMPLE:
An application for allotment of shares was made on 8
th
June. The
application was informed on the 23
rd
November that shares have been
allotted to him. He refused to accept them. It was held that his offer had
lapsed by reason of the delay of the company in notifying their
acceptance, and that he was not bound to accept the shares.
(3) FAILURE TO FULFILL CONDITION
An offer stands revoked if the offeree fails to fulfill the conditions
given therein. If an offer contains some conditions and the offeree has
taken responsibility to fulfill such conditions and if the offeree fails to
fulfill such conditions the offer terminates.
EXAMPLE:
A offer to sell his scooter to B for Rs.48,000 if B gets admission
in medical college. If B fails to get admission the offer will stand revoked
as he fails to fulfill the conditions.
(4) REVOCATION OF OFFER BY OFFEREE
If the offeree rejects the offer and communicates the rejection to
the offeror, the offer shall terminate even though the period for which the
offer was kept open may not have yet expired. The rejection may be by
words spoken or written or implied.
EXAMPLE:
A offered to B to sell his bicycle to him at Rs.1000 only telling t
hat the offer was open for a period of 10 days. Here B being the offeree
only after 3 days rejected the offer. It shall terminate although the period
for which offer was kept open had not yet expired.
offers wee similar and made in ignorance of the other and so there is no
acceptance of each other’s offer.
REVOCATION OR TERMINATION OF OFFER
According to Section 6, an offer may come to an end in any of the
following ways:
(1) NOTICE OF REVOCATION
The offeror can revoke his offer at any time by sending a notice of
revocation to the offeree, before its acceptance. The offeror can reject the
offer before its acceptance even though the period for which the offer was
kept open has not yet expired.
EXAMPLE:
A, the offeror at an auction sale makes the highest bid. But he has
the right to withdraw (revoke) the bid (offer) is revoked before
acceptance.
(2) LAPSE OF TIME
When the offer states that, the it is open until a particular date the
offer terminates on that date if it is not accepted by that time. If the offer
does not specify the time, it will terminate after the lapse of a reasonable
time. What is reasonable time depends upon the circumstances of each
case.
EXAMPLE:
An application for allotment of shares was made on 8
th
June. The
application was informed on the 23
rd
November that shares have been
allotted to him. He refused to accept them. It was held that his offer had
lapsed by reason of the delay of the company in notifying their
acceptance, and that he was not bound to accept the shares.
(3) FAILURE TO FULFILL CONDITION
An offer stands revoked if the offeree fails to fulfill the conditions
given therein. If an offer contains some conditions and the offeree has
taken responsibility to fulfill such conditions and if the offeree fails to
fulfill such conditions the offer terminates.
EXAMPLE:
A offer to sell his scooter to B for Rs.48,000 if B gets admission
in medical college. If B fails to get admission the offer will stand revoked
as he fails to fulfill the conditions.
(4) REVOCATION OF OFFER BY OFFEREE
If the offeree rejects the offer and communicates the rejection to
the offeror, the offer shall terminate even though the period for which the
offer was kept open may not have yet expired. The rejection may be by
words spoken or written or implied.
EXAMPLE:
A offered to B to sell his bicycle to him at Rs.1000 only telling t
hat the offer was open for a period of 10 days. Here B being the offeree
only after 3 days rejected the offer. It shall terminate although the period
for which offer was kept open had not yet expired.
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(5) COUNTER OFFER BY THE OFFEREE
An offer may be revoked by the offeree by making the counter
offer. An offer comes to an end when the offeree makes a counter offer.
EXAMPLE:
A offers to sell his house to B for Rs.1 Lac B offers Rs.80,000. A
refuses. Finally, B offers Rs.1 lac but A refuses to sell. There is no
contract because B by offering Rs.80,000 has already rejected the offer.
(6) DEATH OR INSANITY OF THE OFFEROR OR OFFEREE
If the offeror dies or becomes insane before the acceptance the
offer lapses provided that the fact of his death or insanity comes to the
knowledge of the acceptor before acceptance. If the person to whom a
proposal is made dies before the acceptance of the proposal the proposal
will come to an end. But if he dies after proposal is accepted then his
legal representative, will be responsible for the contract.
EXAMPLE:
X had written t o the D requesting them to give credit to Y and
guaranteeing payment up to Rs.100. D gave credit to Y.X then died and D
in ignorance of this fact of death continued the credit to Y. D sued X’s
executors on the guarantee. It was held that the defendants were liable.
(7) SUBSEQUENT ILLEGALITY
An offer lapses if it becomes illegal after it is made and before it
is accepted. An offer may also terminate, when it becomes illegal due to
change in law, before its acceptance by the offeree.
EXAMPLE:
An offer is made to sell 10 bags of rice for Rs.2000 and before it
is accepted a law prohibiting the sale of rice by private individuals is
enacted the offer comes to an end as sale would be illegal on the
promulgation of the new law.
(8) DESTRUCTION OF SUBJECT MATTER
An offer lapses if the thing which is the subject matter of the offer
destroys before its acceptance by the other party.
EXAMPLE:
A offer to sell his horse to B the horse dies before the acceptance
of offer by B the offer terminates.
ACCEPTANCE:
DEFINITION:
Section 2(b) defines acceptance as follows:
(5) COUNTER OFFER BY THE OFFEREE
An offer may be revoked by the offeree by making the counter
offer. An offer comes to an end when the offeree makes a counter offer.
EXAMPLE:
A offers to sell his house to B for Rs.1 Lac B offers Rs.80,000. A
refuses. Finally, B offers Rs.1 lac but A refuses to sell. There is no
contract because B by offering Rs.80,000 has already rejected the offer.
(6) DEATH OR INSANITY OF THE OFFEROR OR OFFEREE
If the offeror dies or becomes insane before the acceptance the
offer lapses provided that the fact of his death or insanity comes to the
knowledge of the acceptor before acceptance. If the person to whom a
proposal is made dies before the acceptance of the proposal the proposal
will come to an end. But if he dies after proposal is accepted then his
legal representative, will be responsible for the contract.
EXAMPLE:
X had written t o the D requesting them to give credit to Y and
guaranteeing payment up to Rs.100. D gave credit to Y.X then died and D
in ignorance of this fact of death continued the credit to Y. D sued X’s
executors on the guarantee. It was held that the defendants were liable.
(7) SUBSEQUENT ILLEGALITY
An offer lapses if it becomes illegal after it is made and before it
is accepted. An offer may also terminate, when it becomes illegal due to
change in law, before its acceptance by the offeree.
EXAMPLE:
An offer is made to sell 10 bags of rice for Rs.2000 and before it
is accepted a law prohibiting the sale of rice by private individuals is
enacted the offer comes to an end as sale would be illegal on the
promulgation of the new law.
(8) DESTRUCTION OF SUBJECT MATTER
An offer lapses if the thing which is the subject matter of the offer
destroys before its acceptance by the other party.
EXAMPLE:
A offer to sell his horse to B the horse dies before the acceptance
of offer by B the offer terminates.
ACCEPTANCE:
DEFINITION:
Section 2(b) defines acceptance as follows:
15
Thus acceptance is the assent given to a proposal and it has the
effect of converting of the proposal into promise. Without the acceptance
of the proposal no agreement can come into existence.
EXAMPLE:
A offer to sell his house to B for Rs.5 Lac B accepts the offer to
purchase the house for Rs.5 Lac. This is an acceptance.
ESSENTIALS OF A VALD ACCEPTANCE
The following are the different legal rules or essentials a valid
acceptance:
(1) IT MUST BE GIVEN BY THE OFFEREE
An offer can be accepted only by the person to whom it is made.
It cannot be accepted by an other person without the consent of offeror. If
anyone attempted to accept it no contract with that person arises.
EXAMPLE:
A sold his business to B without disclosing the fact to his
customers. J sent an order for the supply of goods to A by name. B
received the order and executed the same. It was held that thee was no
contract between B and J because J never made any offer to B.
(2) IT MUST BE ABSOLUTE & UNCONDITIONAL
In order to convert the offer into an agreement the acceptance
must be absolute and unconditional. If the offeree imposes any condition
in his acceptance it is not a valid acceptance but a counter offer.
EXAMPLE:
A offers to sell his watch to B for Rs.500 and B replies that he can
buy it only for Rs.300 thee is a material variation in the acceptance.
Therefore, there is no agreement as the acceptance is not absolute and
unconditional.
(3) IT MUST BE IN A PRESCRIBED MANNER
If the offeror in his offer has prescribed any particular manner of
acceptance it must be given according to all that particular manner. If no
particular manner is prescribed in the offer then acceptance should be
made in a reasonable manner.
EXAMPLE:
A makes an offer to B and writes “if you accept the offer send
your acceptance by telegram.” B sends his acceptance by registered post.
It is not a valid acceptance. But a should inform B that it is rejected
because it not in the prescribed manner.
(4) IT MSUT BE COMMUNICATED TO THE OFFEROR
In order to form a contract, the acceptance must be communicated
to the offeror in a clear manner by the offeree or his authorized agent.
Mere expression of intention to accept an offer is not a valid acceptance.
EXAMPLE:
Thus acceptance is the assent given to a proposal and it has the
effect of converting of the proposal into promise. Without the acceptance
of the proposal no agreement can come into existence.
EXAMPLE:
A offer to sell his house to B for Rs.5 Lac B accepts the offer to
purchase the house for Rs.5 Lac. This is an acceptance.
ESSENTIALS OF A VALD ACCEPTANCE
The following are the different legal rules or essentials a valid
acceptance:
(1) IT MUST BE GIVEN BY THE OFFEREE
An offer can be accepted only by the person to whom it is made.
It cannot be accepted by an other person without the consent of offeror. If
anyone attempted to accept it no contract with that person arises.
EXAMPLE:
A sold his business to B without disclosing the fact to his
customers. J sent an order for the supply of goods to A by name. B
received the order and executed the same. It was held that thee was no
contract between B and J because J never made any offer to B.
(2) IT MUST BE ABSOLUTE & UNCONDITIONAL
In order to convert the offer into an agreement the acceptance
must be absolute and unconditional. If the offeree imposes any condition
in his acceptance it is not a valid acceptance but a counter offer.
EXAMPLE:
A offers to sell his watch to B for Rs.500 and B replies that he can
buy it only for Rs.300 thee is a material variation in the acceptance.
Therefore, there is no agreement as the acceptance is not absolute and
unconditional.
(3) IT MUST BE IN A PRESCRIBED MANNER
If the offeror in his offer has prescribed any particular manner of
acceptance it must be given according to all that particular manner. If no
particular manner is prescribed in the offer then acceptance should be
made in a reasonable manner.
EXAMPLE:
A makes an offer to B and writes “if you accept the offer send
your acceptance by telegram.” B sends his acceptance by registered post.
It is not a valid acceptance. But a should inform B that it is rejected
because it not in the prescribed manner.
(4) IT MSUT BE COMMUNICATED TO THE OFFEROR
In order to form a contract, the acceptance must be communicated
to the offeror in a clear manner by the offeree or his authorized agent.
Mere expression of intention to accept an offer is not a valid acceptance.
EXAMPLE:
16
A proposes by letter to purchase B’s house. B expresses his
intention to sell it to A but does not send a reply to him. The house is sold
to C despite B’s intention. A has no legal remedy against B.
(5) IT MAY BE EXPRESS OR IMPLIED
When an acceptance is given by words spoken or written, it is
called express acceptance. When it is given by conduct, it is called
implied acceptance. Sometimes the proposal instead of being made to a
definite person is made to the public.
EXAMPLE:
A wrote a letter to B to sell his cycle for Rs.2,000. B accepted his
offer and sent a letter of acceptance to A. It is an express acceptance.
CONSIDERATION
ESSENTIALS OF A VALID CONSIDERATION
The essentials or legal rules of a valid consideration are as under:-
(1) IT MUST MOVE AT THE DESIRE OF THE PROMISOR
In order to constitute legal consideration the act or abstinence
forming the consideration for the promise must be done at the desire or
request of the promisor.
EXAMPLES:
A saves B’s house from the fire without being asked to do so. A
cannot demand payment for his services because A performed this act
voluntarily and not at the desire of B.
(2) IT MAY MOVE FROM THE PROMISEEE OR ANY OTHER
PERSON
The second essential of a valid consideration is that consideration
may move from the promisee or from a third person on his behalf. In
other words the act which is to constitute consideration may be done by
the promise or any other person.
EXAMPLE:
A, an old lady, gifted her property to her daughter R on the
condition that she should pay certain amount annually to A’s brother C.
On the same day R, entered into an agreement with her Uncle C to pay
the amount. Afterwards she refused to fulfill her promise. C filed a suit. It
was held that C was entitled to recover the amo0unt as the consideration
on his behalf had moved from her sister A.
(3) IT MAY BE PAST, PRESENT OR FUTURE
It is clear from the definition of consideration that it may be past
present or future. It means that the consideration is an act, which has
already been done at the desire of the promisor, or in progress or is
promised to be done in future.
(A) PAST CONSIDERATION:
When the consideration for a present promise was given before
the date of the promise it is called a past consideration. It is not a valid
consideration.
A proposes by letter to purchase B’s house. B expresses his
intention to sell it to A but does not send a reply to him. The house is sold
to C despite B’s intention. A has no legal remedy against B.
(5) IT MAY BE EXPRESS OR IMPLIED
When an acceptance is given by words spoken or written, it is
called express acceptance. When it is given by conduct, it is called
implied acceptance. Sometimes the proposal instead of being made to a
definite person is made to the public.
EXAMPLE:
A wrote a letter to B to sell his cycle for Rs.2,000. B accepted his
offer and sent a letter of acceptance to A. It is an express acceptance.
CONSIDERATION
ESSENTIALS OF A VALID CONSIDERATION
The essentials or legal rules of a valid consideration are as under:-
(1) IT MUST MOVE AT THE DESIRE OF THE PROMISOR
In order to constitute legal consideration the act or abstinence
forming the consideration for the promise must be done at the desire or
request of the promisor.
EXAMPLES:
A saves B’s house from the fire without being asked to do so. A
cannot demand payment for his services because A performed this act
voluntarily and not at the desire of B.
(2) IT MAY MOVE FROM THE PROMISEEE OR ANY OTHER
PERSON
The second essential of a valid consideration is that consideration
may move from the promisee or from a third person on his behalf. In
other words the act which is to constitute consideration may be done by
the promise or any other person.
EXAMPLE:
A, an old lady, gifted her property to her daughter R on the
condition that she should pay certain amount annually to A’s brother C.
On the same day R, entered into an agreement with her Uncle C to pay
the amount. Afterwards she refused to fulfill her promise. C filed a suit. It
was held that C was entitled to recover the amo0unt as the consideration
on his behalf had moved from her sister A.
(3) IT MAY BE PAST, PRESENT OR FUTURE
It is clear from the definition of consideration that it may be past
present or future. It means that the consideration is an act, which has
already been done at the desire of the promisor, or in progress or is
promised to be done in future.
(A) PAST CONSIDERATION:
When the consideration for a present promise was given before
the date of the promise it is called a past consideration. It is not a valid
consideration.
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EXAMPLE:
(a) A has lot his pure and B a finder, delivers it to him. B cannot
demand payment for his services because of past consideration.
(b) A teaches the son of B at B’s request in the month of January and in
February B promises to pay A sum of Rs.2,000 for his services. The
services of A will be past consideration.
(B) PRESENT CONSIDERATION :
When consideration is given simultaneously by one party to
another at the time of contract, it is called Present Consideration. The act
constituting the consideration is wholly or completely performed.
EXAMPLE:
A sells a book to B and B pay its price immediately it is a case of
present consideration.
(C) FUTURE CONSIDERATION :
When the consideration on both sides is to be given at a future
date, it s called future consideration or executory consideration. It
consists of promises and each promise is a consideration for the other.
EXAMPLE:
X promises to deliver certain goods to Y for Rs.1500 after a week
upon Y’s promise to pay the agreed price at the time of delivery. The
promise of X is supported by promise of Y and the consideration is
executory on both sides.
(4) IT NEED NOT BE ADEQUATE
It is not necessary that consideration should be adequate to the
value of the promise. The law only insists on the presence of
consideration and not on its adequacy. It is for the parties to the contract
to consider the adequacy of consideration and the courts are not
concerned about it.
EXAMPLE:
A agrees to sell his car worth Rs.200,000 for Rs.50,000 only and
his consent is free. The agreement is valid contract.
(5) IT MUST BE REAL
It is necessary that consideration must be real and competent.
Where consideration is physically impossible illegal uncertain or unreal it
is not real and therefore shall not be a valid consideration.
(a) PHYSICALLY IMPOSSIBLE:
A promise to do something which is physically impossible.
EXAMPLE:
(a) A has lot his pure and B a finder, delivers it to him. B cannot
demand payment for his services because of past consideration.
(b) A teaches the son of B at B’s request in the month of January and in
February B promises to pay A sum of Rs.2,000 for his services. The
services of A will be past consideration.
(B) PRESENT CONSIDERATION :
When consideration is given simultaneously by one party to
another at the time of contract, it is called Present Consideration. The act
constituting the consideration is wholly or completely performed.
EXAMPLE:
A sells a book to B and B pay its price immediately it is a case of
present consideration.
(C) FUTURE CONSIDERATION :
When the consideration on both sides is to be given at a future
date, it s called future consideration or executory consideration. It
consists of promises and each promise is a consideration for the other.
EXAMPLE:
X promises to deliver certain goods to Y for Rs.1500 after a week
upon Y’s promise to pay the agreed price at the time of delivery. The
promise of X is supported by promise of Y and the consideration is
executory on both sides.
(4) IT NEED NOT BE ADEQUATE
It is not necessary that consideration should be adequate to the
value of the promise. The law only insists on the presence of
consideration and not on its adequacy. It is for the parties to the contract
to consider the adequacy of consideration and the courts are not
concerned about it.
EXAMPLE:
A agrees to sell his car worth Rs.200,000 for Rs.50,000 only and
his consent is free. The agreement is valid contract.
(5) IT MUST BE REAL
It is necessary that consideration must be real and competent.
Where consideration is physically impossible illegal uncertain or unreal it
is not real and therefore shall not be a valid consideration.
(a) PHYSICALLY IMPOSSIBLE:
A promise to do something which is physically impossible.
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EXAMPLE:
A, promise to put life in B’s dead brother on B’s promise to pay
him Rs.1 Lac.
(b) LEGALLY IMPOSSIBLE:
A promise to do something which is illegal.
E.g. A promise to pay Rs.1 Lac to B on his promise to beat C.
(c) UNCERTAIN CONSIDERATION :
A promise to do something, which is too unclear and uncertain.
E.g. A employs B for a certain work and B promises to pay a
CAPACITY OF PARTIES
Section 10 of the Contract Act requires that the contracting parties
must be competent to contract. Section 11 lays down that “every person is
competent the contact who is of the age of majority according to the law
to which he is subject and who is of sound mind and is not disqualified
from contracting by any law to which he is subject. According to section
11 the following persons are incompetent to contract.
1. Minors.
2. Persons of unsound mind.
3. Persons disqualified by law.
MINOR
AGE OF MAJORITY:
According to the Majority Act, 1875, a minor is a person who has
not completed 18 year of age. Where a guardian of minor’s person or
property has been appointed under the guardian and wards Act or court of
wards ha taken charge of minor’s property a minor will attain the age of
majority after 21 years of age.
NATURE OF MINOR’S AGREEMENTS
The law regarding minor’s agreements may be explained as
under:
(1) VOID AGREEMENT
According to Contract Act, a minor’s agreement is absolutely void
because a minor has no legal capacity to enter into a contract. The
agreement is deemed as void ab-initio a minor is not liable to perform any
act, which he has promised to perform under an agreement. He cannot be
held liable because he does not possess the capacity to judge what is good
and what is bad for him. He cannot be compelled to pay back the money
received by him under the agreement.
EXAMPLES:
A. a minor sold his shop to B. The amount was paid to A but the
sale deed could not be registered as A was minor. On a suit by B, it was
held that as, A was minor, so agreement was void ab-initio and the
amount was not recoverable.
EXAMPLE:
A, promise to put life in B’s dead brother on B’s promise to pay
him Rs.1 Lac.
(b) LEGALLY IMPOSSIBLE:
A promise to do something which is illegal.
E.g. A promise to pay Rs.1 Lac to B on his promise to beat C.
(c) UNCERTAIN CONSIDERATION :
A promise to do something, which is too unclear and uncertain.
E.g. A employs B for a certain work and B promises to pay a
CAPACITY OF PARTIES
Section 10 of the Contract Act requires that the contracting parties
must be competent to contract. Section 11 lays down that “every person is
competent the contact who is of the age of majority according to the law
to which he is subject and who is of sound mind and is not disqualified
from contracting by any law to which he is subject. According to section
11 the following persons are incompetent to contract.
1. Minors.
2. Persons of unsound mind.
3. Persons disqualified by law.
MINOR
AGE OF MAJORITY:
According to the Majority Act, 1875, a minor is a person who has
not completed 18 year of age. Where a guardian of minor’s person or
property has been appointed under the guardian and wards Act or court of
wards ha taken charge of minor’s property a minor will attain the age of
majority after 21 years of age.
NATURE OF MINOR’S AGREEMENTS
The law regarding minor’s agreements may be explained as
under:
(1) VOID AGREEMENT
According to Contract Act, a minor’s agreement is absolutely void
because a minor has no legal capacity to enter into a contract. The
agreement is deemed as void ab-initio a minor is not liable to perform any
act, which he has promised to perform under an agreement. He cannot be
held liable because he does not possess the capacity to judge what is good
and what is bad for him. He cannot be compelled to pay back the money
received by him under the agreement.
EXAMPLES:
A. a minor sold his shop to B. The amount was paid to A but the
sale deed could not be registered as A was minor. On a suit by B, it was
held that as, A was minor, so agreement was void ab-initio and the
amount was not recoverable.
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(2) MINOR AND NECESSARIES
According to Section 68, a person who supplies necessaries to a
minor or anyone whom the minor is bound to support the supplier is
entitled to recover reasonable value of such goods from the property of a
minor. If a minor owns no property the supplier will lose the price of the
price of necessaries. In nutshell minor will not be personally liable it is
his property only which is liable.
What is a necessary article depends upon the status and
circumstances of the particular minor. Luxury goods cannot be regarded
as necessaries. Food and clothing may be necessaries. The necessaries
may include lodging expenses medical expenses and loans taken up by
minor for necessaries, etc. But if a minor takes a loan for trade that will
not be a necessary.
EXAMPLES:
(a) A supplies necessaries to B, a minor for his life. A is entitled to
recover value from B’s property.
(b) A supplied minor a coat with diamond buttons. A cannot recover the
price of the coat.
(3) AGREEMENT BY GUARDIAN OF BEHALF OF MINOR
A contract made, on behalf of minor, by his guardian is binding
on the minor. It can be enforced against the minor provided the contract is
within the authority of the guardian and it is for the benefit of the minor.
The sole aim should be the benefit and welfare of the minor.
EXAMPLE:
A contract of sale of immovable property by the guardian of
minor, for the minor’s benefit, may be specifically enforced by either
party to the contract.
(4) MINOR AS AN AGENT
A minor can be an agent. If a minor works as an agent he can
make his principal responsible to third parties for his acts. But he cannot
be held personally liable for negligence or breach of duty.
EXAMPLE
A appoints M, a minor as his agent to sell his house. M makes an
agreement with B to sell A’s house. The agreement is valid.
FREE CONSENT
INTRODUCTION:
(2) MINOR AND NECESSARIES
According to Section 68, a person who supplies necessaries to a
minor or anyone whom the minor is bound to support the supplier is
entitled to recover reasonable value of such goods from the property of a
minor. If a minor owns no property the supplier will lose the price of the
price of necessaries. In nutshell minor will not be personally liable it is
his property only which is liable.
What is a necessary article depends upon the status and
circumstances of the particular minor. Luxury goods cannot be regarded
as necessaries. Food and clothing may be necessaries. The necessaries
may include lodging expenses medical expenses and loans taken up by
minor for necessaries, etc. But if a minor takes a loan for trade that will
not be a necessary.
EXAMPLES:
(a) A supplies necessaries to B, a minor for his life. A is entitled to
recover value from B’s property.
(b) A supplied minor a coat with diamond buttons. A cannot recover the
price of the coat.
(3) AGREEMENT BY GUARDIAN OF BEHALF OF MINOR
A contract made, on behalf of minor, by his guardian is binding
on the minor. It can be enforced against the minor provided the contract is
within the authority of the guardian and it is for the benefit of the minor.
The sole aim should be the benefit and welfare of the minor.
EXAMPLE:
A contract of sale of immovable property by the guardian of
minor, for the minor’s benefit, may be specifically enforced by either
party to the contract.
(4) MINOR AS AN AGENT
A minor can be an agent. If a minor works as an agent he can
make his principal responsible to third parties for his acts. But he cannot
be held personally liable for negligence or breach of duty.
EXAMPLE
A appoints M, a minor as his agent to sell his house. M makes an
agreement with B to sell A’s house. The agreement is valid.
FREE CONSENT
INTRODUCTION:
20
It is essential to the creation of a contract that both parties should
agree to the same thing in the same sense. In such situations, a person
who ha made an agreement should not be held responsible to it, because
his consent is not real.
DEFINITION OF CONSENT:
According to section 10 free Consent of all the parties to an
agreement is one of the essential elements of a valid contract. Contract
Act, defines the term Consent as “Two or more persons are said to
consent when they agree upon the same thing in the same sense.”
DEFINITION OF FRE CONSENT:
Contract Act lays down that consent is said to be free when it is
not caused by coercion undue influence fraud misrepresentation, or
mistake.
In other words when the consent is obtained by coercion, undue
influence misrepresentation or fraud thee is no free consent, and the
contract is voidable at the option of the party whose consent was not free.
The various reasons, which make consent un-free, are discussed
one by one in detail.
COERSION
DEFINITION:
Section 15 of the Contract Act, defines coercion as follows:
“Coercion is the committing or threatening to commit, any act,
forbidden by the Pakistan Code, or the unlawful detaining to detain, any
property, to the prejudice of any person whatever, with the intention of
causing any person to enter into an agreement.
BURDEN OF PROOF:
The burden of proof that coercion was used lies on the party who
to set aside the contract on the ground of coercion.
UNDUE INFLUENCE
DEFINITION:
Section 16(1) of the act define undue influence as follows:
“A contract is said to be induced by undue influence where the
relations subsisting between the parties such that one of the parties to a
contract are in a position to obtain an unfair advantage over the other.”
Position t o dominate the will of the other is clarified as under. A
person is deemed to be in a position to dominate the will of another:
(a) Where he hold a real or apparent authority over the other e.g. the
relationship between master and servant police office and the accused or;
(b) Where he stands in a fiduciary relation to the other.
It is essential to the creation of a contract that both parties should
agree to the same thing in the same sense. In such situations, a person
who ha made an agreement should not be held responsible to it, because
his consent is not real.
DEFINITION OF CONSENT:
According to section 10 free Consent of all the parties to an
agreement is one of the essential elements of a valid contract. Contract
Act, defines the term Consent as “Two or more persons are said to
consent when they agree upon the same thing in the same sense.”
DEFINITION OF FRE CONSENT:
Contract Act lays down that consent is said to be free when it is
not caused by coercion undue influence fraud misrepresentation, or
mistake.
In other words when the consent is obtained by coercion, undue
influence misrepresentation or fraud thee is no free consent, and the
contract is voidable at the option of the party whose consent was not free.
The various reasons, which make consent un-free, are discussed
one by one in detail.
COERSION
DEFINITION:
Section 15 of the Contract Act, defines coercion as follows:
“Coercion is the committing or threatening to commit, any act,
forbidden by the Pakistan Code, or the unlawful detaining to detain, any
property, to the prejudice of any person whatever, with the intention of
causing any person to enter into an agreement.
BURDEN OF PROOF:
The burden of proof that coercion was used lies on the party who
to set aside the contract on the ground of coercion.
UNDUE INFLUENCE
DEFINITION:
Section 16(1) of the act define undue influence as follows:
“A contract is said to be induced by undue influence where the
relations subsisting between the parties such that one of the parties to a
contract are in a position to obtain an unfair advantage over the other.”
Position t o dominate the will of the other is clarified as under. A
person is deemed to be in a position to dominate the will of another:
(a) Where he hold a real or apparent authority over the other e.g. the
relationship between master and servant police office and the accused or;
(b) Where he stands in a fiduciary relation to the other.
21
(c) Where he makes a contract with a person whose mental capacity is
temporarily or permanently affected by reason of age, illness or mental or
bodily distress e.g. old illiterate persons etc.
(1) POSITION TO DOMINATE
In order to prove undue influence it is necessary that relations
existing between the parties should be such that one of them must be in a
position to dominate the will of the other. The person who occupies the
superior position may be in a position to obtain the consent of another
party.
EXAMPLE:
U, a spiritual adviser induced his follower M to gift to him the
whole of his property to secure benefits to his soul in t he next world.
Such consent is said to be obtained by undue influence. U is in a position
to dominate the will of another.
(2) UNFAIR ADVANTAGE
In order to prove undue influence it is also necessary that the party
who is in a dominating position must have used his position to obtain an
unfair advantage from the other.
EXAMPLE:
A, having advanced money to his son B, obtains from him, by
misuse of parental influence, a bond for a greater amount than the sum
advanced. A obtains unfair advantages.
DISTINCTION BETWEEN COERCION AND UNDUE INFLUENCE
The following are the points of distinction between the two.
COERCION UNDUE INFLUENCE
Nature
Coercion is a physical threat either
to property or person.
Undue influence is a mental or
moral threat
Illegal & Unfair
Threatening to do an illegal act.
In undue influence the act may not
be illegal, it may only be unfair.
Parties
Coercion may be exercised by Or
Against the party to the agreement
it may also be exercised by or
Against some third party.
Undue influence must be exercised
by or against the party t the
agreement.
Relationship
For concern no specific
relationship between the parties is
necessary.
For undue influence there must be a
specific relationship between the
parties.
Effect
In coercion the contract is voidable
at the option of aggrieved party.
In undue influence the contract is
either voidable or the court may set
aside it or enforce it in a modified
form.
FRAUD
(c) Where he makes a contract with a person whose mental capacity is
temporarily or permanently affected by reason of age, illness or mental or
bodily distress e.g. old illiterate persons etc.
(1) POSITION TO DOMINATE
In order to prove undue influence it is necessary that relations
existing between the parties should be such that one of them must be in a
position to dominate the will of the other. The person who occupies the
superior position may be in a position to obtain the consent of another
party.
EXAMPLE:
U, a spiritual adviser induced his follower M to gift to him the
whole of his property to secure benefits to his soul in t he next world.
Such consent is said to be obtained by undue influence. U is in a position
to dominate the will of another.
(2) UNFAIR ADVANTAGE
In order to prove undue influence it is also necessary that the party
who is in a dominating position must have used his position to obtain an
unfair advantage from the other.
EXAMPLE:
A, having advanced money to his son B, obtains from him, by
misuse of parental influence, a bond for a greater amount than the sum
advanced. A obtains unfair advantages.
DISTINCTION BETWEEN COERCION AND UNDUE INFLUENCE
The following are the points of distinction between the two.
COERCION UNDUE INFLUENCE
Nature
Coercion is a physical threat either
to property or person.
Undue influence is a mental or
moral threat
Illegal & Unfair
Threatening to do an illegal act.
In undue influence the act may not
be illegal, it may only be unfair.
Parties
Coercion may be exercised by Or
Against the party to the agreement
it may also be exercised by or
Against some third party.
Undue influence must be exercised
by or against the party t the
agreement.
Relationship
For concern no specific
relationship between the parties is
necessary.
For undue influence there must be a
specific relationship between the
parties.
Effect
In coercion the contract is voidable
at the option of aggrieved party.
In undue influence the contract is
either voidable or the court may set
aside it or enforce it in a modified
form.
FRAUD
22
The term fraud includes all acts committed by a party to induce
the other party to enter into a contract with an intention to deceive.
DEFINITION:
According to Section 17, “Fraud means and includes any of the
following acts committed by a party to a contract or with his connivance,
or by his agent, with intent to deceive or to induce another party thereto
or his agent, to enter into the contract.”
1. The suggestion as a fact, of that which is not true, by one who does
not believe it to be true;
2. The active concealment of a fact b one having knowledge or belief
of the fact;
3. A promise made without any intention of performing it;
4. Any other act fitted to deceive; and
5. Any such act or omission as the law specially declares to be
fraudulent.
(1) SUGGESTION REGARDING FACTS
When a party to the contract makes a false statement intentionally,
he would be liable for fraud. But if a person honestly believes his
statement to be true, he cannot be held liable for fraud.
EXAMPLE:
(a) A tells B known to be false that his factory produce 500 pound of
butter per day. On this suggestion, B agrees to buy the factory. A is guilty
of fraud.
(b) A known that his watch is made in Pakistan. In order to sell his
watch he tells B that it is made in Japan. B buys the watch. A is guilty of
fraud.
(2) ACTIVE CONCEALMENT OF FACT
When the party to be contract conceals material facts, essential to
the contract, which he is under an obligation to disclose to the other party
before entering into a contract he is guilty of fraud. According to sale of
goods act, the seller is bound to disclose to the buyer about the faults in
the goods hi is selling.
(3) PROMISE IWTHOUT INTENTION OF PERFORMING
The initial intention into to perform the promise that is being
made is a necessary element to constitute fraud. Thus, where a person
enters into a contract and obtains possession of goods with the intention
of not paying for them, he commits fraud.
EXAMPLE:
(a) X purchases certain good from Y on credit without any intention of
paying for them as he was under insolvent circumstances. X is guilty of
fraud.
(b) A knowing that he has no money, takes a dinner in a hotel with an
intention of slipping away. A is guilty of fraud.
The term fraud includes all acts committed by a party to induce
the other party to enter into a contract with an intention to deceive.
DEFINITION:
According to Section 17, “Fraud means and includes any of the
following acts committed by a party to a contract or with his connivance,
or by his agent, with intent to deceive or to induce another party thereto
or his agent, to enter into the contract.”
1. The suggestion as a fact, of that which is not true, by one who does
not believe it to be true;
2. The active concealment of a fact b one having knowledge or belief
of the fact;
3. A promise made without any intention of performing it;
4. Any other act fitted to deceive; and
5. Any such act or omission as the law specially declares to be
fraudulent.
(1) SUGGESTION REGARDING FACTS
When a party to the contract makes a false statement intentionally,
he would be liable for fraud. But if a person honestly believes his
statement to be true, he cannot be held liable for fraud.
EXAMPLE:
(a) A tells B known to be false that his factory produce 500 pound of
butter per day. On this suggestion, B agrees to buy the factory. A is guilty
of fraud.
(b) A known that his watch is made in Pakistan. In order to sell his
watch he tells B that it is made in Japan. B buys the watch. A is guilty of
fraud.
(2) ACTIVE CONCEALMENT OF FACT
When the party to be contract conceals material facts, essential to
the contract, which he is under an obligation to disclose to the other party
before entering into a contract he is guilty of fraud. According to sale of
goods act, the seller is bound to disclose to the buyer about the faults in
the goods hi is selling.
(3) PROMISE IWTHOUT INTENTION OF PERFORMING
The initial intention into to perform the promise that is being
made is a necessary element to constitute fraud. Thus, where a person
enters into a contract and obtains possession of goods with the intention
of not paying for them, he commits fraud.
EXAMPLE:
(a) X purchases certain good from Y on credit without any intention of
paying for them as he was under insolvent circumstances. X is guilty of
fraud.
(b) A knowing that he has no money, takes a dinner in a hotel with an
intention of slipping away. A is guilty of fraud.
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(4) ANY ACT WITH INTENTION TO DECEIVE
This is general clause and includes all cases not falling within any
of the other clauses provided the act is fitted to deceive. A person can
adopt different methods to cheat the other party. It is therefore difficult to
explain all the methods under the definition of the fraud.
EXAMPLE:
A company issued prospectus containing statement which was
true that company has paid divided between 2004 and 2005. In fact in
these years the company suffered losses and paid dividend out of secret
reserves.
(5) ANY ACT OR OMISSION
According to this section it is obligatory to disclose relevant facts
to the other party in certain cases. The seller is bound to disclose to the
buyer all material defects about the property i.e. property is mortgaged
etc. If some one omits to disclose facts he would be guilty of fraud.
A mere expression of opinion or commendatory expression is not
fraud. For example if some one says tat land is very fertile or our
products are best in the market.”
(6) CONTRACTS OF MARRIAGE ENGAGEMENT
Every material fact must be disclosed by both parties to a contract
of marriage otherwise the other party is justified in breaking off the
engagement.
DISTINCTION BETWEEN FRAUD AND MISREPRESENTATIN
The following are the points of distinction between the two:
FRAUD MISREPRESENTATION
Intention
In case of fraud, the party makes
a False statement with an
intention to deceive the other
party.
In case of misrepresentation there is
no intention to deceive the other
party.
Belief
In case of fraud, the person
making the suggestion does not
believe it to be true.
In case of misrepresentation the
person making the suggestion
believes it to be true.
Damages
In fraud, the aggrieved part can
Claim damages in addition to the
right of avoiding the contract
In misrepresentation entitles the party
to avoid contract and there can be no
suit for damages
Offence
Fraud may amount to an offence
of cheating. It is a criminal act.
Misrepresentation does not amount to
a Offence of cheating. It is not a
criminal act.
Truth
(4) ANY ACT WITH INTENTION TO DECEIVE
This is general clause and includes all cases not falling within any
of the other clauses provided the act is fitted to deceive. A person can
adopt different methods to cheat the other party. It is therefore difficult to
explain all the methods under the definition of the fraud.
EXAMPLE:
A company issued prospectus containing statement which was
true that company has paid divided between 2004 and 2005. In fact in
these years the company suffered losses and paid dividend out of secret
reserves.
(5) ANY ACT OR OMISSION
According to this section it is obligatory to disclose relevant facts
to the other party in certain cases. The seller is bound to disclose to the
buyer all material defects about the property i.e. property is mortgaged
etc. If some one omits to disclose facts he would be guilty of fraud.
A mere expression of opinion or commendatory expression is not
fraud. For example if some one says tat land is very fertile or our
products are best in the market.”
(6) CONTRACTS OF MARRIAGE ENGAGEMENT
Every material fact must be disclosed by both parties to a contract
of marriage otherwise the other party is justified in breaking off the
engagement.
DISTINCTION BETWEEN FRAUD AND MISREPRESENTATIN
The following are the points of distinction between the two:
FRAUD MISREPRESENTATION
Intention
In case of fraud, the party makes
a False statement with an
intention to deceive the other
party.
In case of misrepresentation there is
no intention to deceive the other
party.
Belief
In case of fraud, the person
making the suggestion does not
believe it to be true.
In case of misrepresentation the
person making the suggestion
believes it to be true.
Damages
In fraud, the aggrieved part can
Claim damages in addition to the
right of avoiding the contract
In misrepresentation entitles the party
to avoid contract and there can be no
suit for damages
Offence
Fraud may amount to an offence
of cheating. It is a criminal act.
Misrepresentation does not amount to
a Offence of cheating. It is not a
criminal act.
Truth
24
In case of fraud, the aggrieved
party can avoid contract even if
it had the means of discover the
truth with Ordinary diligence.
In case of misrepresentation
aggrieved party cannot avoid the
count if it had means to discover the
truth ordinary diligence.
PERFORMANCE OF CONTRACTS
Performance of Contract means the fulfillment of legal obligations
created under the contract by both the promisor and the promise. When a
Contract is duly performed by both the parties to the contract, the contract
comes to an end. The various rules regarding the performance of
contracts are as under:
PERFORMANCE OF A SINGLE PROMISE
WHO CAN DEMAND PERFORMANCE ?
It is only the promise who can demand performance of the
contract. There is a rule that a person cannot acquire right under a
contract to which he is not a party. A third party cannot demand
performance of the contract even though it was made for his benefit. In
case of death of the promise, his legal representatives can demand
performance.
EXAMPLE:
(a) A promises B to pay C a sum of Rs.1000. The person who can
demand performance is B and not C. In case of death of the promise, his
legal representatives can demand performance.
(b) A draws a cheque for Rs.100 in favour of C the banker makes a
mistake regarding A’s balance and refuses payment. Bank is liable to A
ad not to C because C is not a party to contract.
Who May Perform?
(1) THE PROMISOR HIMSELF
As a general rule, a contract may be performed by the promisor,
either personally or through any other competent person.
But in case of contract involving personal skill, taste or diligence
e.g. a contract to paint a picture a contract of agency or of service; the
promisor himself must perform the contract of agency or of service; the
promisor himself must perform the contact. In case of death or
disablement of a promisor, a contract will be discharged and the other
party would be freed form liability.
EXAMPLE:
A promise to paint a picture for B. A must perform the promise
himself.
(2) THE PROMISOR OR HIS AGENT
In case of fraud, the aggrieved
party can avoid contract even if
it had the means of discover the
truth with Ordinary diligence.
In case of misrepresentation
aggrieved party cannot avoid the
count if it had means to discover the
truth ordinary diligence.
PERFORMANCE OF CONTRACTS
Performance of Contract means the fulfillment of legal obligations
created under the contract by both the promisor and the promise. When a
Contract is duly performed by both the parties to the contract, the contract
comes to an end. The various rules regarding the performance of
contracts are as under:
PERFORMANCE OF A SINGLE PROMISE
WHO CAN DEMAND PERFORMANCE ?
It is only the promise who can demand performance of the
contract. There is a rule that a person cannot acquire right under a
contract to which he is not a party. A third party cannot demand
performance of the contract even though it was made for his benefit. In
case of death of the promise, his legal representatives can demand
performance.
EXAMPLE:
(a) A promises B to pay C a sum of Rs.1000. The person who can
demand performance is B and not C. In case of death of the promise, his
legal representatives can demand performance.
(b) A draws a cheque for Rs.100 in favour of C the banker makes a
mistake regarding A’s balance and refuses payment. Bank is liable to A
ad not to C because C is not a party to contract.
Who May Perform?
(1) THE PROMISOR HIMSELF
As a general rule, a contract may be performed by the promisor,
either personally or through any other competent person.
But in case of contract involving personal skill, taste or diligence
e.g. a contract to paint a picture a contract of agency or of service; the
promisor himself must perform the contract of agency or of service; the
promisor himself must perform the contact. In case of death or
disablement of a promisor, a contract will be discharged and the other
party would be freed form liability.
EXAMPLE:
A promise to paint a picture for B. A must perform the promise
himself.
(2) THE PROMISOR OR HIS AGENT
25
Where personal skill is not necessary and the work could be done
by any one, the promisor or his representative may employ a competent
person to perform it. In case of a contract to sell goods, the promisor
himself or his agent may perform the contract.
EXAMPLE:
A promise B to sell goods. A may perform this promise himself or
ask his agent for performance.
(3) THE LEGAL REPRESENTATIVE
In case of death of the promisor before performance, the liability
of performance falls on his legal representatives of a deceased promisor
are not bound to perform the contract. But in case of a contract of
impersonal nature the legal representative are bound to perform the
contract. They are not personally liable.
EXAMPLE:
(b) Promises to paint a picture for B on a certain day at a certain price. A
dies before the day. The contract cannot be preformed. A’s heirs are not
liable for the contract as in this case the personal skill of A was involved.
(c) Promises to deliver goods to B on a certain day on payment of
Rs.1000. A dies before that day. A’s representatives are bound to deliver
the goods to B and B is bound to pay the settled sum of Rs.1000 to A’s
representatives.
(4) THE THIRD PERSON
If a promise accepts performance of the promise from a third
person, he cannot afterwards enforce it against the promisor. Once the
third party performs the contract, and that is accepted by the promise
there is end of the matter and the promisor is then discharged.
EXAMPLE:
A promise accepted lesser amount from a third party in full
satisfaction of his claim; it was held that he could not enforce the promise
against the promise against the promisor for the remainder.
PERFORMANCE OF JOINT PROMISES
Joint promises may take any of the following shapes:
(1) Where several joint promisor make a promise with a single promise,
e.g. A, B C jointly promise to pay Rs.3,000 to D, or
(2) Where a single promisor makes a promise with several joint
promises e.g. P promise to pay Rs.3000 to Q and R jointly, or
(3) Where several joint promisor make a promise with several joint
promises, e.g. A, B and C jointly promise to pay Rs.3000 to P, Q and R
jointly. The following are the rules regarding performance in this case.
Who Can Demand Performance?
When a promise is made with several persons jointly, then, in the
absence of any agreement to the contrary all the promise jointly have a
right to claim compensation and a single promise cannot demand
performance.
Where personal skill is not necessary and the work could be done
by any one, the promisor or his representative may employ a competent
person to perform it. In case of a contract to sell goods, the promisor
himself or his agent may perform the contract.
EXAMPLE:
A promise B to sell goods. A may perform this promise himself or
ask his agent for performance.
(3) THE LEGAL REPRESENTATIVE
In case of death of the promisor before performance, the liability
of performance falls on his legal representatives of a deceased promisor
are not bound to perform the contract. But in case of a contract of
impersonal nature the legal representative are bound to perform the
contract. They are not personally liable.
EXAMPLE:
(b) Promises to paint a picture for B on a certain day at a certain price. A
dies before the day. The contract cannot be preformed. A’s heirs are not
liable for the contract as in this case the personal skill of A was involved.
(c) Promises to deliver goods to B on a certain day on payment of
Rs.1000. A dies before that day. A’s representatives are bound to deliver
the goods to B and B is bound to pay the settled sum of Rs.1000 to A’s
representatives.
(4) THE THIRD PERSON
If a promise accepts performance of the promise from a third
person, he cannot afterwards enforce it against the promisor. Once the
third party performs the contract, and that is accepted by the promise
there is end of the matter and the promisor is then discharged.
EXAMPLE:
A promise accepted lesser amount from a third party in full
satisfaction of his claim; it was held that he could not enforce the promise
against the promise against the promisor for the remainder.
PERFORMANCE OF JOINT PROMISES
Joint promises may take any of the following shapes:
(1) Where several joint promisor make a promise with a single promise,
e.g. A, B C jointly promise to pay Rs.3,000 to D, or
(2) Where a single promisor makes a promise with several joint
promises e.g. P promise to pay Rs.3000 to Q and R jointly, or
(3) Where several joint promisor make a promise with several joint
promises, e.g. A, B and C jointly promise to pay Rs.3000 to P, Q and R
jointly. The following are the rules regarding performance in this case.
Who Can Demand Performance?
When a promise is made with several persons jointly, then, in the
absence of any agreement to the contrary all the promise jointly have a
right to claim compensation and a single promise cannot demand
performance.
26
In case of death of any one promise, the legal representatives of
deceased persons jointly can demand performance with serving promises.
When all the promise are dead, the legal representatives of all
jointly can demand performance.
EXAMPLE:
A borrows Rs.5000 from B and C. A promises B and C jointly t
return the sum with interest B dies. B’s representative with C jointly can
demand performance. On the death of C the representative of B and C
jointly can demand performance.
Who May Perform?
(1) ALL PROMISORS MUST JOINTLY FULFILL THE PROMISE
When two or more persons make a joint promise the, unless a
contrary intention appears from the contract, all such persons must jointly
fulfill the promise. When any one of he joint promisor dies his legal
representative must fulfill the promise, jointly with the surviving
promisors. On the death of all the original promisors the legal
representatives of all of them jointly must fulfill the promise.
The above rule is of course subject to the following usual
conditions:
(a) The contracts involving personal skill e.g. to paint a picture; come to an
end on the death of any of the joint promisor and the liability of
performance does not fall on the legal representatives.
(b) the legal representatives are not personally liable. Their liability is
limited to the assets inherited by them.
EXAMPLE:
A, B and C jointly promise to pay D Rs.3,000. D may compel
either A or B or C or all or any two of them to pay him Rs.3000.
(2) EACH PROMISOR MAY COMPEL FOR CONT RIBUTION
If one of the joint, Promisors is compelled to perform the whole
contract, he can ask for equal contribution to the others, unless a contrary
intention appears from the contract.
EXAMPLE:
If A is compelled to pay the entire amount of Rs.3000 he can
recover from B and C Rs.1000 each.
(3) SHARING OF LOSS BY DEFAULT IN CONTRIBUTION
If any one of the joint promisors makes a default in making
contribution, if any, the remaining joint promisors must bear the loss
arising out of such default in equal shares.
EXAMPLE
If A is compelled to pay the whole Rs.3000 and C is unable to pay
anything. A is entitled to receive Rs.1500 from B. If C’s estate is able to
pay one half of his share, A is entitled to receive Rs.500 from C’s estate
and Rs.1250 form B.
(4) EFFECT OF RELEASE OF ONE JOINT PROMISOR
In case of death of any one promise, the legal representatives of
deceased persons jointly can demand performance with serving promises.
When all the promise are dead, the legal representatives of all
jointly can demand performance.
EXAMPLE:
A borrows Rs.5000 from B and C. A promises B and C jointly t
return the sum with interest B dies. B’s representative with C jointly can
demand performance. On the death of C the representative of B and C
jointly can demand performance.
Who May Perform?
(1) ALL PROMISORS MUST JOINTLY FULFILL THE PROMISE
When two or more persons make a joint promise the, unless a
contrary intention appears from the contract, all such persons must jointly
fulfill the promise. When any one of he joint promisor dies his legal
representative must fulfill the promise, jointly with the surviving
promisors. On the death of all the original promisors the legal
representatives of all of them jointly must fulfill the promise.
The above rule is of course subject to the following usual
conditions:
(a) The contracts involving personal skill e.g. to paint a picture; come to an
end on the death of any of the joint promisor and the liability of
performance does not fall on the legal representatives.
(b) the legal representatives are not personally liable. Their liability is
limited to the assets inherited by them.
EXAMPLE:
A, B and C jointly promise to pay D Rs.3,000. D may compel
either A or B or C or all or any two of them to pay him Rs.3000.
(2) EACH PROMISOR MAY COMPEL FOR CONT RIBUTION
If one of the joint, Promisors is compelled to perform the whole
contract, he can ask for equal contribution to the others, unless a contrary
intention appears from the contract.
EXAMPLE:
If A is compelled to pay the entire amount of Rs.3000 he can
recover from B and C Rs.1000 each.
(3) SHARING OF LOSS BY DEFAULT IN CONTRIBUTION
If any one of the joint promisors makes a default in making
contribution, if any, the remaining joint promisors must bear the loss
arising out of such default in equal shares.
EXAMPLE
If A is compelled to pay the whole Rs.3000 and C is unable to pay
anything. A is entitled to receive Rs.1500 from B. If C’s estate is able to
pay one half of his share, A is entitled to receive Rs.500 from C’s estate
and Rs.1250 form B.
(4) EFFECT OF RELEASE OF ONE JOINT PROMISOR
27
In case of a joint promise, if one of the joint promisors is released
form his liability by the promise, his liability to the promise ceases but his
liability to the other promisors to contribute does not cease.
EXAMPLE:
A, B and C are under a joint promise to pay Rs.3000 to X. X may
release C from liability, but A & B remain liable to pay to X. C is not
released from the debt.
DISCHARGE OF CONTRACT
When the rights and obligations arising out of a contract come
to an end, the contract is said to be discharged or terminated. A
contract may be discharged in any of the following ways:
1. Discharge by performance.
2. Discharge by Agreement.
3. Discharge by subsequent impossibility.
4. Discharge by lapse of time.
5. Discharge by operation of law.
6. Discharge by breach of contract.
1. DISCHARGE BY PERFORMANCE :
Performance is the natural mode of discharge. When the
parties to a contract perform their shares of the promises, the
contract is discharged. If only one of the several parties performs the
promise, he alone is discharged. Performance may be: (a) actual
performance; or (b) offer of performance or tender.
2. DISCHARGE BY AGREEMENT :
A contract can also be discharged by the fresh agreement
between the same parties. A contract may be terminated by
agreement in any of the following ways:
(a) NOVATION
Novation of contract means replacement of an existing
contract by another contract. In novation the parties may change. If
the parties are not changed then the material terms of the contract
must be altered in the new contract because a mere variation of some
of the terms of a contract is not novation but alteration.
EXAMPLE
A is indebted to B and B to C. By mutual agreement B’s debt
to C and B’s loan to. A are cancelled and G accepts A as his debtor.
There is novation involving change of parties.
(b) ALTERATION
In case of a joint promise, if one of the joint promisors is released
form his liability by the promise, his liability to the promise ceases but his
liability to the other promisors to contribute does not cease.
EXAMPLE:
A, B and C are under a joint promise to pay Rs.3000 to X. X may
release C from liability, but A & B remain liable to pay to X. C is not
released from the debt.
DISCHARGE OF CONTRACT
When the rights and obligations arising out of a contract come
to an end, the contract is said to be discharged or terminated. A
contract may be discharged in any of the following ways:
1. Discharge by performance.
2. Discharge by Agreement.
3. Discharge by subsequent impossibility.
4. Discharge by lapse of time.
5. Discharge by operation of law.
6. Discharge by breach of contract.
1. DISCHARGE BY PERFORMANCE :
Performance is the natural mode of discharge. When the
parties to a contract perform their shares of the promises, the
contract is discharged. If only one of the several parties performs the
promise, he alone is discharged. Performance may be: (a) actual
performance; or (b) offer of performance or tender.
2. DISCHARGE BY AGREEMENT :
A contract can also be discharged by the fresh agreement
between the same parties. A contract may be terminated by
agreement in any of the following ways:
(a) NOVATION
Novation of contract means replacement of an existing
contract by another contract. In novation the parties may change. If
the parties are not changed then the material terms of the contract
must be altered in the new contract because a mere variation of some
of the terms of a contract is not novation but alteration.
EXAMPLE
A is indebted to B and B to C. By mutual agreement B’s debt
to C and B’s loan to. A are cancelled and G accepts A as his debtor.
There is novation involving change of parties.
(b) ALTERATION
28
Alteration of a contract takes place when one or more of the
terms of the contract are changed. If a material alteration in a
written contract is made with the consent of all the parties the
original contract is discharged by alteration and a new contract takes
its place. An alteration may be a change in the amount of money, the
rate of interest, or the names of the parties. Alteration results in the
discharge of the original contract.
The difference between “novation and “alteration” is that in
case of novation there may be a change of parties but in case of
alteration parties remain the same and only the term o the contract
are changed.
EXAMPLE
A agrees to supply B. 1000 mounds of salt at Rs.50 a mound
within 3 months from date. Later on, A and B alter the agreement in
the following way: A agrees to supply 800 mounds of salt at the same
rate within 2 months instead of three. The latter agreement puts an
end to the former.
(c) RESCISSION:
Means cancellation of contract by mutual consent. A contract
may be cancelled ‘by agreement between the parties at any time
before it is discharged by performance. The cancellation of
agreement releases the parties form their obligation arising out of the
contract.
EXAMPLE:
A promises to deliver certain goods to B on a certain date.
Before the date of performance, A and B mutually agree that the
contract will not be performed. The parties have cancelled the
contract.
(d) REMISSION:
Remission means the acceptance of lesser sum than what was
due from promisor. According to the section 63, a person who has a
right to demand the performance of a contract may:
(i) Remit or give up the whole or part of a debt.
(ii) Extend the time for performance.
Where a promise remits a part of the debt and gives a
discharge for the whole debt on receiving a smaller amount, such
discharge is valid.
EXAMPLE:
A owes B Rs.5,000. A pays to B and B accepts in full
satisfaction Rs.2000. The whole debt is discharged.
3. DISCHARGE BY SUBSEQUENT IMPOSSIBILITY :
INITIAL IMPOSSIBILITY:
According to section 56, “An agreement to do impossible act is
void ab-initio.” It means agreement which is obviously impossible
cannot be binding, e.g., an agreement to discover treasure by magic is
void agreement.
Alteration of a contract takes place when one or more of the
terms of the contract are changed. If a material alteration in a
written contract is made with the consent of all the parties the
original contract is discharged by alteration and a new contract takes
its place. An alteration may be a change in the amount of money, the
rate of interest, or the names of the parties. Alteration results in the
discharge of the original contract.
The difference between “novation and “alteration” is that in
case of novation there may be a change of parties but in case of
alteration parties remain the same and only the term o the contract
are changed.
EXAMPLE
A agrees to supply B. 1000 mounds of salt at Rs.50 a mound
within 3 months from date. Later on, A and B alter the agreement in
the following way: A agrees to supply 800 mounds of salt at the same
rate within 2 months instead of three. The latter agreement puts an
end to the former.
(c) RESCISSION:
Means cancellation of contract by mutual consent. A contract
may be cancelled ‘by agreement between the parties at any time
before it is discharged by performance. The cancellation of
agreement releases the parties form their obligation arising out of the
contract.
EXAMPLE:
A promises to deliver certain goods to B on a certain date.
Before the date of performance, A and B mutually agree that the
contract will not be performed. The parties have cancelled the
contract.
(d) REMISSION:
Remission means the acceptance of lesser sum than what was
due from promisor. According to the section 63, a person who has a
right to demand the performance of a contract may:
(i) Remit or give up the whole or part of a debt.
(ii) Extend the time for performance.
Where a promise remits a part of the debt and gives a
discharge for the whole debt on receiving a smaller amount, such
discharge is valid.
EXAMPLE:
A owes B Rs.5,000. A pays to B and B accepts in full
satisfaction Rs.2000. The whole debt is discharged.
3. DISCHARGE BY SUBSEQUENT IMPOSSIBILITY :
INITIAL IMPOSSIBILITY:
According to section 56, “An agreement to do impossible act is
void ab-initio.” It means agreement which is obviously impossible
cannot be binding, e.g., an agreement to discover treasure by magic is
void agreement.
29
SUBSEQUENT IMPOSSIBILITY:
Sometimes, a contract capable to be performed after
formation becomes impossible or unlawful and as a result void.
(a) DESTRUCTION OF SUBJECT MATTER
When the parties make a contract for a particular subject
matter, the contract is discharged if the subject matter is destroyed
without the fault of the promisor or promise.
EXAMPLE:
A, let out a music hall to B for a number of concerts on certain
days. The hall was destroyed by fire before the date of first concert.
The plaintiff sued the defendant for damages. It was held that the
contract has become void and the defendant was not liable.
(c) DEAT OR PERSONAL IN CAPACITY
Where the performance of a contract depends upon the
personal skill, or qualification or the existence of a given person, the
contract is discharged on the illness or incapacity or the death of that
person.
In other words the death or illness of a particular person
whose action is necessary for the promised performance discharges
the duty to render that performance.
EXAMPLE:
(a) A and B contract to marry each other. Before the time fixed for the
marriage, A dies. The contract becomes void.
(b) An artist undertook to perform at a concert for a certain price, but
before he could do so, he met with an accident and lost his right arm.
Held the artist was discharged due to disablement.
(d) CHANGE OF LAW
Contracts, which are lawful when made but become unlawful
later due to change in law, become impossible to be performed. A
subsequent change in law may render the contract illegal and in such
cases the contract is deemed discharged. Impossibility created by law
is valid excuse for non-performance.
EXAMPLE:
A sold to B 100 bags of wheat at Rs.150 per bag. But before
delivery the government banned the sale and purchase of wheat by
private traders. The contract was discharged by subsequent change
in law.
(e) DECLARATION OF WAR
A contract entered into with an alien enemy during war is
illegal and void abinitio. Contract entered into before the
commencement of war is suspended during the war. However, such
contracts may be revived after the war is over if the nature of the
contract so permits.
EXAMPLE:
SUBSEQUENT IMPOSSIBILITY:
Sometimes, a contract capable to be performed after
formation becomes impossible or unlawful and as a result void.
(a) DESTRUCTION OF SUBJECT MATTER
When the parties make a contract for a particular subject
matter, the contract is discharged if the subject matter is destroyed
without the fault of the promisor or promise.
EXAMPLE:
A, let out a music hall to B for a number of concerts on certain
days. The hall was destroyed by fire before the date of first concert.
The plaintiff sued the defendant for damages. It was held that the
contract has become void and the defendant was not liable.
(c) DEAT OR PERSONAL IN CAPACITY
Where the performance of a contract depends upon the
personal skill, or qualification or the existence of a given person, the
contract is discharged on the illness or incapacity or the death of that
person.
In other words the death or illness of a particular person
whose action is necessary for the promised performance discharges
the duty to render that performance.
EXAMPLE:
(a) A and B contract to marry each other. Before the time fixed for the
marriage, A dies. The contract becomes void.
(b) An artist undertook to perform at a concert for a certain price, but
before he could do so, he met with an accident and lost his right arm.
Held the artist was discharged due to disablement.
(d) CHANGE OF LAW
Contracts, which are lawful when made but become unlawful
later due to change in law, become impossible to be performed. A
subsequent change in law may render the contract illegal and in such
cases the contract is deemed discharged. Impossibility created by law
is valid excuse for non-performance.
EXAMPLE:
A sold to B 100 bags of wheat at Rs.150 per bag. But before
delivery the government banned the sale and purchase of wheat by
private traders. The contract was discharged by subsequent change
in law.
(e) DECLARATION OF WAR
A contract entered into with an alien enemy during war is
illegal and void abinitio. Contract entered into before the
commencement of war is suspended during the war. However, such
contracts may be revived after the war is over if the nature of the
contract so permits.
EXAMPLE:
30
A contracts to take in cargo for B at a foreign port. A’s Govt.
afterwards declared war against the country in which the port is
situated. The contract becomes void.
(4) DISCHARGE BY LAPSE OF TIME :
A contract is discharged by lapse of time. The Limitation Act,
1908 laws down that a contract should be performed within a
specified period. If the contract is not performed and no legal action
is taken by the promise within the period of limitation, he is deprived
of his remedy at law, the contract is terminated in such a case.
EXAMPLE:
A owes Rs.5000 to B. The last date for the repayment of the
loan has expired and B does not file a suit against A for three years.
B loses the rights to recover the money back.
(5) DISCHARGE BY OPERATION OF LAW :
A contract terminates by operation of law in the following
cases:
(a) INSOLVENCY
The insolvency Act provides for discharge of contracts under
particular circumstances. Where the court declares a person as
insolvent, the rights and duties of such person are transferred to the
officer of court, know as Official Receiver, After the order of the
court such person is discharge from his liabilities incurred before his
insolvency.
EXAMPLE
A promises to sell his car to B for Rs.2 lac. Before the
performance of the contract A is declared insolvent by court. The
contract between A, & B is discharged.
(b) MERGER
Merger takes place when an inferior right available to a party
merges into a superior right available to the same party under, some
other contract. As a result of merger the former contract stands
discharged automatically.
EXAMPLE
(a) Where a man holds property under a contract of tenancy buys
the property. His rights as a tenant are merged into the rights of
ownership and the contract of tenancy stands discharged by
operation of law.
(b) Where a part-lime lecturer is made full time “lecturer, the
contract of part time, lectureship is discharged by merger.
(c) UNAUTHORIZED MATERIAL ALTERATION
Where a party to the contract makes any material alteration
in the contract, without the consent of the other party, the contract
can be avoided by the other Party. A material alteration is one, which
A contracts to take in cargo for B at a foreign port. A’s Govt.
afterwards declared war against the country in which the port is
situated. The contract becomes void.
(4) DISCHARGE BY LAPSE OF TIME :
A contract is discharged by lapse of time. The Limitation Act,
1908 laws down that a contract should be performed within a
specified period. If the contract is not performed and no legal action
is taken by the promise within the period of limitation, he is deprived
of his remedy at law, the contract is terminated in such a case.
EXAMPLE:
A owes Rs.5000 to B. The last date for the repayment of the
loan has expired and B does not file a suit against A for three years.
B loses the rights to recover the money back.
(5) DISCHARGE BY OPERATION OF LAW :
A contract terminates by operation of law in the following
cases:
(a) INSOLVENCY
The insolvency Act provides for discharge of contracts under
particular circumstances. Where the court declares a person as
insolvent, the rights and duties of such person are transferred to the
officer of court, know as Official Receiver, After the order of the
court such person is discharge from his liabilities incurred before his
insolvency.
EXAMPLE
A promises to sell his car to B for Rs.2 lac. Before the
performance of the contract A is declared insolvent by court. The
contract between A, & B is discharged.
(b) MERGER
Merger takes place when an inferior right available to a party
merges into a superior right available to the same party under, some
other contract. As a result of merger the former contract stands
discharged automatically.
EXAMPLE
(a) Where a man holds property under a contract of tenancy buys
the property. His rights as a tenant are merged into the rights of
ownership and the contract of tenancy stands discharged by
operation of law.
(b) Where a part-lime lecturer is made full time “lecturer, the
contract of part time, lectureship is discharged by merger.
(c) UNAUTHORIZED MATERIAL ALTERATION
Where a party to the contract makes any material alteration
in the contract, without the consent of the other party, the contract
can be avoided by the other Party. A material alteration is one, which
31
changes the legal identity or character of the contract or the rights
and duties of the parties to the contract. An alteration which is not
material or which is authorized will not affect the validity of the
contract. An alteration even by a stranger will entitle the other party
to avoid the contract, but where the alteration is unintentional,
contract cannot be avoided.
EXAMPLE:
A executes a promissory note in favour of B for Rs.3,000. B by
alteration exceeds the amount from Rs.3,000 to 30,000. A may refuse
to pay Rs.3,000.
6. DISCHARGE BY BREACH OF CONTRACT :
Ac contract must be performed according to its terms. But
where the Promisor fails to perform the contract according to the
terms of the contract, thee is a breach of contract by him. Breach of
contract may be of two kinds;
1. Actual Breach
2. Anticipatory breach
(1) Actual Breach
It occurs when a party fails to perform a contract, when
performance is due. But, if a party, who has failed to perform the
contract at the appointed time, subsequently expresses his willingness
to perform, he can do so after paying compensation, if time is not
essence of contract.
EXAMPLE:
A degrees t o deliver 5 bags of wheat on 1
st
March He does not
deliver the wheat on the day. There is a actual breach of contract.
(2) Anticipatory Breach
An anticipatory breach of contract occurs before the
time fixed for performance has arrived. It may happen in two ways.
(i) Express Breach
In this case a party to the contract communicates t the other
party, his intention not to perform the contract, before the due date
of performance has arrived.
EXAMPLE:
A contracts with B to supply 100 bags to wheat for Rs.15,000
on 1
st
March. On 15
th
February, A informs B that he will not be able
to supply the wheat. Thee is express rejection of contract.
(ii) Implied Breach
In this case a party to the contract does an act, which makes
the performance of the contract impossible.
EXAMPLE:
A promises to sell his horse to B on 1
st
June and before that
date he sells the same horse to C.
UNIT-III
INDEMNITY AND GUARANTEE
CONTRACT OF INDEMINITY
DEFINITION AND NATURE:
changes the legal identity or character of the contract or the rights
and duties of the parties to the contract. An alteration which is not
material or which is authorized will not affect the validity of the
contract. An alteration even by a stranger will entitle the other party
to avoid the contract, but where the alteration is unintentional,
contract cannot be avoided.
EXAMPLE:
A executes a promissory note in favour of B for Rs.3,000. B by
alteration exceeds the amount from Rs.3,000 to 30,000. A may refuse
to pay Rs.3,000.
6. DISCHARGE BY BREACH OF CONTRACT :
Ac contract must be performed according to its terms. But
where the Promisor fails to perform the contract according to the
terms of the contract, thee is a breach of contract by him. Breach of
contract may be of two kinds;
1. Actual Breach
2. Anticipatory breach
(1) Actual Breach
It occurs when a party fails to perform a contract, when
performance is due. But, if a party, who has failed to perform the
contract at the appointed time, subsequently expresses his willingness
to perform, he can do so after paying compensation, if time is not
essence of contract.
EXAMPLE:
A degrees t o deliver 5 bags of wheat on 1
st
March He does not
deliver the wheat on the day. There is a actual breach of contract.
(2) Anticipatory Breach
An anticipatory breach of contract occurs before the
time fixed for performance has arrived. It may happen in two ways.
(i) Express Breach
In this case a party to the contract communicates t the other
party, his intention not to perform the contract, before the due date
of performance has arrived.
EXAMPLE:
A contracts with B to supply 100 bags to wheat for Rs.15,000
on 1
st
March. On 15
th
February, A informs B that he will not be able
to supply the wheat. Thee is express rejection of contract.
(ii) Implied Breach
In this case a party to the contract does an act, which makes
the performance of the contract impossible.
EXAMPLE:
A promises to sell his horse to B on 1
st
June and before that
date he sells the same horse to C.
UNIT-III
INDEMNITY AND GUARANTEE
CONTRACT OF INDEMINITY
DEFINITION AND NATURE:
32
“A contract by which one party promises to save the other
from loss caused to him by the conduct of the promisor himself or by
the conduct of and other person, is called a contract of indemnity.”
In other words a contract where one person promise to
compensate the other from the loss, which may arise due to the
conduct of the promisor himself or any other person, is called a
contract of indemnity.
PARTIES:
There are two parties to a contract of indemnity.
1. INDEMNIFIER:
The person who promises to make good the loss is called the
indemnifier (promisor).
2. INDEMNITY – HOLDER:
The person whose loss is to be made good is called the
indemnity holder or indemnified (promise).
EXAMPLE:
(a) A parked his scooter at the college scooter stands. He lost his
token given by the contractor. The contractor refuses to return the
scooter to A unless he (A) gives him an indemnity bond against any
loss which he may suffer if any other person claims the scooter from
the contractor.
(b) A and B went to a shop. A says to the shopkeeper. ”Let B have
the goods I shall see you are paid” It is contract of indemnity.
RIGHTS OF INDEMNITY HOLDER:
The following are the rights of indemnity – holder against the
indemnifier.
1. He can recover all damages which he may be compelled to pay
in respect of any suit filed against him.
2. He can recover expenses in respect of any suit filed by him with
the authority of indemnifier.
3. He can recover all expenses which he may have paid under the
terms of any compromise of any such, provided the compromise was
made with the consent of indemnifier.
RIGHT OF INDEMNIFIER:
It is a well known principle of law that where one person has
agreed to indemnify another, he will on making good the loss, be
entitled to all the ways and means by which the person indemnified
might have protected himself against or reimbursed himself for the
loss.
CONTRACT OF GUARA NTEE
DEFINITION:
“A contract by which one party promises to save the other
from loss caused to him by the conduct of the promisor himself or by
the conduct of and other person, is called a contract of indemnity.”
In other words a contract where one person promise to
compensate the other from the loss, which may arise due to the
conduct of the promisor himself or any other person, is called a
contract of indemnity.
PARTIES:
There are two parties to a contract of indemnity.
1. INDEMNIFIER:
The person who promises to make good the loss is called the
indemnifier (promisor).
2. INDEMNITY – HOLDER:
The person whose loss is to be made good is called the
indemnity holder or indemnified (promise).
EXAMPLE:
(a) A parked his scooter at the college scooter stands. He lost his
token given by the contractor. The contractor refuses to return the
scooter to A unless he (A) gives him an indemnity bond against any
loss which he may suffer if any other person claims the scooter from
the contractor.
(b) A and B went to a shop. A says to the shopkeeper. ”Let B have
the goods I shall see you are paid” It is contract of indemnity.
RIGHTS OF INDEMNITY HOLDER:
The following are the rights of indemnity – holder against the
indemnifier.
1. He can recover all damages which he may be compelled to pay
in respect of any suit filed against him.
2. He can recover expenses in respect of any suit filed by him with
the authority of indemnifier.
3. He can recover all expenses which he may have paid under the
terms of any compromise of any such, provided the compromise was
made with the consent of indemnifier.
RIGHT OF INDEMNIFIER:
It is a well known principle of law that where one person has
agreed to indemnify another, he will on making good the loss, be
entitled to all the ways and means by which the person indemnified
might have protected himself against or reimbursed himself for the
loss.
CONTRACT OF GUARA NTEE
DEFINITION:
33
“A contract of guarantee is a contract to perform the promise or
discharge the liability of a third person in case of his default.”
A contract of guarantee is made with the object of enabling a
person to get a loan or goods on credit or an employment etc. It may
be either oral or written. It is a promise to pay a debt owing by a
third person in case the later does not pay.
PARTIES:
There are three parties to a contract of guarantee:
1. Surety:
The person who gives the guarantee is called the surety or
guarantor;
2. Creditor:
The person to whom the guarantee is given is called he
creditor.
3. Principal debtor:
The person for whom the guarantee is given is called the
principal debtor.
EXAMPLE:
(a) A requests B to lend Rs.5 lack to C and guarantees that if C fails
to pay, he will himself pay to B, there is a contract of guarantee.
(b) A sells and delivers goods to B. C afterwards, without
consideration, agrees to pay for them in default of B. The agreement
is void.
WRITING NOT NECESSARY:
According to section 126, it is not necessary that contract of
guarantee must be in writing. It may be either oral or written. It may
be express or implied from the conduct of parties.
EXAMPLE:
A sells and delivers goods to B on the verbal guarantee of C. It
is valid guarantee.
NATURE AND EXTENT OF SURETY’S LIABILITY
EXTENT OF SURETY’S LIABILITY
Section 128 of the contract Act 1872 provides that the liability
of the surety is co-extensive with that of the principle debtor, unless it
is otherwise provided by the contract. The phrase co-extensive with
that of principle debtor’ shows the quantum of the surety’s liability.
The quantum of obligation of surety is the general it will be neither
more nor less; the surety’s liability can be made less than that of the
principle debtor but never greater with special contract.
EXAMPLE:
A guarantee to B the payment of a bill of exchange by C, the
acceptor. The bill is dishonored by C. A is liable not only for the
amount of the bill.
“A contract of guarantee is a contract to perform the promise or
discharge the liability of a third person in case of his default.”
A contract of guarantee is made with the object of enabling a
person to get a loan or goods on credit or an employment etc. It may
be either oral or written. It is a promise to pay a debt owing by a
third person in case the later does not pay.
PARTIES:
There are three parties to a contract of guarantee:
1. Surety:
The person who gives the guarantee is called the surety or
guarantor;
2. Creditor:
The person to whom the guarantee is given is called he
creditor.
3. Principal debtor:
The person for whom the guarantee is given is called the
principal debtor.
EXAMPLE:
(a) A requests B to lend Rs.5 lack to C and guarantees that if C fails
to pay, he will himself pay to B, there is a contract of guarantee.
(b) A sells and delivers goods to B. C afterwards, without
consideration, agrees to pay for them in default of B. The agreement
is void.
WRITING NOT NECESSARY:
According to section 126, it is not necessary that contract of
guarantee must be in writing. It may be either oral or written. It may
be express or implied from the conduct of parties.
EXAMPLE:
A sells and delivers goods to B on the verbal guarantee of C. It
is valid guarantee.
NATURE AND EXTENT OF SURETY’S LIABILITY
EXTENT OF SURETY’S LIABILITY
Section 128 of the contract Act 1872 provides that the liability
of the surety is co-extensive with that of the principle debtor, unless it
is otherwise provided by the contract. The phrase co-extensive with
that of principle debtor’ shows the quantum of the surety’s liability.
The quantum of obligation of surety is the general it will be neither
more nor less; the surety’s liability can be made less than that of the
principle debtor but never greater with special contract.
EXAMPLE:
A guarantee to B the payment of a bill of exchange by C, the
acceptor. The bill is dishonored by C. A is liable not only for the
amount of the bill.
34
1. SPECIFIC GUARANTEE:
The guarantee which is given for a single debt or transaction
is called specific or ordinary guarantee. It comes to an end as soon as
the liability under the transaction ends.
EXAMPLE:
G guarantees K for the payment of 5 bags of wheat purchased
C.C makes payment. Later on C again purchases 5 bags of wheat. C
did not pay for that. K used g. Held, G’s guarantee is specific
guarantee and G is not liable.
2. CONTINUING GUARANTEE:
According to section 129, a guarantee, which extends to a
series of transaction, is called continuing guarantee. In other words a
guarantee which covers a number of transactions over a period of
time is called continuing guarantee. It is just like a standing offer,
which is accepted by the creditor every time a subsequent transaction
take lace. Being a sanding offer it may be revoked at any time by the
surety as to further transactions.
EXAMPLE:
(a) A guarantee to C for B’s credit purchases with a running
balance of account not exceeding Rs.5,000. this is a continuing
guarantee.
(b) A guarantees to C for B’s purchases from C for six months to
the extent of Rs.5,000. this is a continuing guarantee.
DISTINCTION BETWEEN INDEMNITY AND GUARANTEE
The following are the points of distinction between the two:
INDEMNITY GUARANTEE
1. Number of Parties
In a contract of Indemnity, thee
are two Parties the indemnifier
and the indemnity holder.
In a contract of guarantee, there
are three parties. The creditor,
the principal debtor, and the
surety.
2. Number of Contract
In indemnity there is only one
contract between the indemnifier
and the indemnified.
In guarantee, there are three
contracts one between creditors,
and the principal debtor, second
between the creditor and the
surety, and the third between the
surety and the principal debtor.
3. Number of Liability
The liability of indemnifier is
primary and independent.
The liability of surety is
secondary. It means that surety
is liable only if the principal
debtor fails to perform his
obligations.
4. Request
In the contract of indemnity, the
indemnifier acts without the
request of the debtor.
In a contract of guarantee the
liability already exists and its
performance is guarantee by the
surety.
6. Purpose
A contract of indemnity is for the
A contract of guarantee is for the
security of a debt.
1. SPECIFIC GUARANTEE:
The guarantee which is given for a single debt or transaction
is called specific or ordinary guarantee. It comes to an end as soon as
the liability under the transaction ends.
EXAMPLE:
G guarantees K for the payment of 5 bags of wheat purchased
C.C makes payment. Later on C again purchases 5 bags of wheat. C
did not pay for that. K used g. Held, G’s guarantee is specific
guarantee and G is not liable.
2. CONTINUING GUARANTEE:
According to section 129, a guarantee, which extends to a
series of transaction, is called continuing guarantee. In other words a
guarantee which covers a number of transactions over a period of
time is called continuing guarantee. It is just like a standing offer,
which is accepted by the creditor every time a subsequent transaction
take lace. Being a sanding offer it may be revoked at any time by the
surety as to further transactions.
EXAMPLE:
(a) A guarantee to C for B’s credit purchases with a running
balance of account not exceeding Rs.5,000. this is a continuing
guarantee.
(b) A guarantees to C for B’s purchases from C for six months to
the extent of Rs.5,000. this is a continuing guarantee.
DISTINCTION BETWEEN INDEMNITY AND GUARANTEE
The following are the points of distinction between the two:
INDEMNITY GUARANTEE
1. Number of Parties
In a contract of Indemnity, thee
are two Parties the indemnifier
and the indemnity holder.
In a contract of guarantee, there
are three parties. The creditor,
the principal debtor, and the
surety.
2. Number of Contract
In indemnity there is only one
contract between the indemnifier
and the indemnified.
In guarantee, there are three
contracts one between creditors,
and the principal debtor, second
between the creditor and the
surety, and the third between the
surety and the principal debtor.
3. Number of Liability
The liability of indemnifier is
primary and independent.
The liability of surety is
secondary. It means that surety
is liable only if the principal
debtor fails to perform his
obligations.
4. Request
In the contract of indemnity, the
indemnifier acts without the
request of the debtor.
In a contract of guarantee the
liability already exists and its
performance is guarantee by the
surety.
6. Purpose
A contract of indemnity is for the
A contract of guarantee is for the
security of a debt.
35
reimbursement of loss.
A surety has the following rights:
1. Against the creditor.
2. Against the principle debtor.
3. Against the co-sureties.
1. SURETY’S RIGHTS AGAINST THE CREDITOR:
(a) RIGHT TO SECURITIES:
According to Section 141, the surety, at the time of payment,
can demand the securities, which the creditor has received from the
principal debtor at the time of creation of contract.
Whether the surety knows of the existence of such securities
or not is immaterial. If creditor by negligence loses any security held
by him, the surety is discharged to that extent from the payment of
guaranteed sum. But if the security is lost due to unavoidable act, the
surety would not be discharged.
Surety can recover the securities only after making full
payment. He cannot claim the benefit of a part of the securities if he
has paid a part of the debt.
EXAMPLE:
(a) C advance B Rs.2000 on the guarantee of A, C has also a further
security for Rs.2000 by a pledge of B’s furniture. C cancels the
pledge. B becomes insolvent and C sues A on his guarantee. A is
discharged from liability to the amount of the value of the furniture.
(b) C’vs advance to B is secured by a decree. He receives also a
guarantee for the advance from A.C afterwards takes B’s goods in
execution under the decree and then without the knowledge of A
withdraws the execution. A is discharged.
(c) A as surety for B makes a bond jointly with B to C to secure a
loan from C to B. Afterwards C obtain from B a further security for
the same debt. Subsequently C gives up the further security. A is not
discharged.
(b) RIGHT TO CLAIM SET-OFF, IF ANY:
The surety is also entitled to the benefit of any set-off or
counter claim, which the principal debtor has against creditor.
EXAMPLES:
A, the creditor is in possession of his principal debtor, B’s car
for which B could have counter-claimed. C, the surety of B can claim
set-off in respect of that car against B.
reimbursement of loss.
A surety has the following rights:
1. Against the creditor.
2. Against the principle debtor.
3. Against the co-sureties.
1. SURETY’S RIGHTS AGAINST THE CREDITOR:
(a) RIGHT TO SECURITIES:
According to Section 141, the surety, at the time of payment,
can demand the securities, which the creditor has received from the
principal debtor at the time of creation of contract.
Whether the surety knows of the existence of such securities
or not is immaterial. If creditor by negligence loses any security held
by him, the surety is discharged to that extent from the payment of
guaranteed sum. But if the security is lost due to unavoidable act, the
surety would not be discharged.
Surety can recover the securities only after making full
payment. He cannot claim the benefit of a part of the securities if he
has paid a part of the debt.
EXAMPLE:
(a) C advance B Rs.2000 on the guarantee of A, C has also a further
security for Rs.2000 by a pledge of B’s furniture. C cancels the
pledge. B becomes insolvent and C sues A on his guarantee. A is
discharged from liability to the amount of the value of the furniture.
(b) C’vs advance to B is secured by a decree. He receives also a
guarantee for the advance from A.C afterwards takes B’s goods in
execution under the decree and then without the knowledge of A
withdraws the execution. A is discharged.
(c) A as surety for B makes a bond jointly with B to C to secure a
loan from C to B. Afterwards C obtain from B a further security for
the same debt. Subsequently C gives up the further security. A is not
discharged.
(b) RIGHT TO CLAIM SET-OFF, IF ANY:
The surety is also entitled to the benefit of any set-off or
counter claim, which the principal debtor has against creditor.
EXAMPLES:
A, the creditor is in possession of his principal debtor, B’s car
for which B could have counter-claimed. C, the surety of B can claim
set-off in respect of that car against B.
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2. SURETY’S RIGHT AGAINST THE PRINCIPAL DEBTOR:
The surety enjoys the following rights against the principal
debtor.
A. Right of Subrogation:
According to Section 140 when the surety has paid the
guaranteed debt on default of the principal debtor, the surety is
entitled to all the remedies, which are available to creditor against
debtor.
EXAMPLE:
A direct of a company guaranteed and paid the rent due from
the company before the date of liquidation. It was held that he was
entitled to stand in the place of the creditor and use all remedies in
the name of the creditor.
B. RIGHT TO INDEMNITY:
In every contract of guarantee there is an implied promise by
the principle debtor to indemnity the surety and the surety is entitled
to recover from the principal debtor what eve sum he has rightfully
paid under the guarantee but not sums which he had paid
wrongfully.
In other words the surety can recover from the principal
debtor, the amount which he has rightfully paid to the creditor.
EXAMPLE:
B is indebted to C and A is surety for the debt. C demands
payment from A and on his refusal sues him for the amount. A
defends the unit, having reasonable grounds for doing so but is
compelled to pay the amount of debt with costs. He can recover from
B the amount paid by him for costs, as well as the principal debt.
3. SURETY’S RIGHT AGAINST CO -SURETIES:
Where a debt is guaranteed by more than one sureties, they
are called co sureties. In such a case all the sureties are liable to make
the payment to the creditor according to the agreement among them.
If there is no agreement and one of the co-sureties is compelled to pay
the entire debt, he has a right to contribution from the so-sureties.
Sections 146 and 147 provide the rules in connection.
(a) SIMILAR AMOUNT:
Where thee are sureties for the same debt and the principal
debtor has committed a default each party is liable to contribute
equally to the extent of the default.
EXAMPLE:
A, B and C are sureties to D for the sum of Rs.3000 let to E. E
makes default in payment. A, B and C are liable as between
themselves to pay Rs.1000 each. If C is insolvent and could pay only
Rs.500 then A and B will contribute equally to make good his loss.
(b) DIFFERENT AMOUNT:
2. SURETY’S RIGHT AGAINST THE PRINCIPAL DEBTOR:
The surety enjoys the following rights against the principal
debtor.
A. Right of Subrogation:
According to Section 140 when the surety has paid the
guaranteed debt on default of the principal debtor, the surety is
entitled to all the remedies, which are available to creditor against
debtor.
EXAMPLE:
A direct of a company guaranteed and paid the rent due from
the company before the date of liquidation. It was held that he was
entitled to stand in the place of the creditor and use all remedies in
the name of the creditor.
B. RIGHT TO INDEMNITY:
In every contract of guarantee there is an implied promise by
the principle debtor to indemnity the surety and the surety is entitled
to recover from the principal debtor what eve sum he has rightfully
paid under the guarantee but not sums which he had paid
wrongfully.
In other words the surety can recover from the principal
debtor, the amount which he has rightfully paid to the creditor.
EXAMPLE:
B is indebted to C and A is surety for the debt. C demands
payment from A and on his refusal sues him for the amount. A
defends the unit, having reasonable grounds for doing so but is
compelled to pay the amount of debt with costs. He can recover from
B the amount paid by him for costs, as well as the principal debt.
3. SURETY’S RIGHT AGAINST CO -SURETIES:
Where a debt is guaranteed by more than one sureties, they
are called co sureties. In such a case all the sureties are liable to make
the payment to the creditor according to the agreement among them.
If there is no agreement and one of the co-sureties is compelled to pay
the entire debt, he has a right to contribution from the so-sureties.
Sections 146 and 147 provide the rules in connection.
(a) SIMILAR AMOUNT:
Where thee are sureties for the same debt and the principal
debtor has committed a default each party is liable to contribute
equally to the extent of the default.
EXAMPLE:
A, B and C are sureties to D for the sum of Rs.3000 let to E. E
makes default in payment. A, B and C are liable as between
themselves to pay Rs.1000 each. If C is insolvent and could pay only
Rs.500 then A and B will contribute equally to make good his loss.
(b) DIFFERENT AMOUNT:
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Where there are sureties for the same debt for different sums,
they are bound to contribute equally subject to the limit fixed by
their guarantee. They will not contribute proportionately.
EXAMPLE:
(a) A, B and C as sureties for D guarantee for different sums. A
Rs.10,000 B Rs.20,000 C Rs.40,000 D makes default in payment to the
extent of RS.30,000 liability of A, B and C is Rs.10,000 each.
(b) If D makes default to the extent of Rs.40,000 then liability shall
be used as of A Rs.10,000 B and C will pay equal share of the balance
of 15,000 each.
(c) If D makes default to the extent of Rs.70,000 then A, B and C
will pay full amount of guarantee.
DISCHARGE OF SURETY FROM LIABILITY :
A surety is said to be discharged from liability when his
liability comes to an end. I can be revoked by notice of the liability
has not been incurred. But a continuing guarantee may at any time,
be revoked by the surety as to future transaction by giving a notice to
the creditor. The liability of surety comes to an end regarding the
future transactions after the surety has served the notice of
revocation. The surety remains liable for transaction entered into
prior to the notice.
EXAMPLE:
A lends B a certain sum on the guarantee of C. C cannot
revoke the guarantee. But if A has not yet given the sum to B, C may
revoke the guarantee by giving a notice.
1. DEATH OF SURETY:
In specific guarantee the surety is not discharged form
his liability on his death if the liability has already occurred.
But in case of a continuing guarantee, the death of surety
discharges him from liability regarding the transactions after
his death unless there is a contract to the contrary. The
decreased surety’s estate will not be liable for future
transactions entered into after the death of the surety even if
the creditor has not notice for the death.
EXAMPLE:
A sells goods to B for Rs. 1 lac C guarantees payment.
A delivers goods cost Rs.50,000. Afterwards C dies C’s
property is liable up to Rs.50,000 only.
2. CHANGE IN TERMS OF CONTRACT:
According to Section 133, when any change is made in the
terms of the contract by the principal debtor and the creditor
without the surety’s consent, the liability of the surety terminates as
to future transactions.
3. RELEASE OR DISCHARGE OF PRINCIPAL DEBTOR:
According to section 134 the following two ways discharge the
surety from liability:
EXAMPLE:
Where there are sureties for the same debt for different sums,
they are bound to contribute equally subject to the limit fixed by
their guarantee. They will not contribute proportionately.
EXAMPLE:
(a) A, B and C as sureties for D guarantee for different sums. A
Rs.10,000 B Rs.20,000 C Rs.40,000 D makes default in payment to the
extent of RS.30,000 liability of A, B and C is Rs.10,000 each.
(b) If D makes default to the extent of Rs.40,000 then liability shall
be used as of A Rs.10,000 B and C will pay equal share of the balance
of 15,000 each.
(c) If D makes default to the extent of Rs.70,000 then A, B and C
will pay full amount of guarantee.
DISCHARGE OF SURETY FROM LIABILITY :
A surety is said to be discharged from liability when his
liability comes to an end. I can be revoked by notice of the liability
has not been incurred. But a continuing guarantee may at any time,
be revoked by the surety as to future transaction by giving a notice to
the creditor. The liability of surety comes to an end regarding the
future transactions after the surety has served the notice of
revocation. The surety remains liable for transaction entered into
prior to the notice.
EXAMPLE:
A lends B a certain sum on the guarantee of C. C cannot
revoke the guarantee. But if A has not yet given the sum to B, C may
revoke the guarantee by giving a notice.
1. DEATH OF SURETY:
In specific guarantee the surety is not discharged form
his liability on his death if the liability has already occurred.
But in case of a continuing guarantee, the death of surety
discharges him from liability regarding the transactions after
his death unless there is a contract to the contrary. The
decreased surety’s estate will not be liable for future
transactions entered into after the death of the surety even if
the creditor has not notice for the death.
EXAMPLE:
A sells goods to B for Rs. 1 lac C guarantees payment.
A delivers goods cost Rs.50,000. Afterwards C dies C’s
property is liable up to Rs.50,000 only.
2. CHANGE IN TERMS OF CONTRACT:
According to Section 133, when any change is made in the
terms of the contract by the principal debtor and the creditor
without the surety’s consent, the liability of the surety terminates as
to future transactions.
3. RELEASE OR DISCHARGE OF PRINCIPAL DEBTOR:
According to section 134 the following two ways discharge the
surety from liability:
EXAMPLE:
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M contracts to lend N Rs.1 lac on 1 March. S guarantees
payment. M pays the amount on 1 January. S is discharged from his
liability, as the terms of contract have been changed.
4. RELEASE FOR DISCHARGE OF PRINCIPAL DEBTOR:
According to section 134 the following two ways discharge the
surety from liability:
The surety is discharged by any contract between the creditor
and the principal debtor, by which the principal debtor is a released.
Any release of the principal debtor is a release of the surety also.
The surety is also discharged by any act or omission of the
creditor, the legal consequence of which is the discharge of the
principal debtor.
EXAMPLE:
(a) A contracts to build a house for B. C guarantees for the
performance of the contract by A if B release A from the
performances of the contract, the liability of C as a surety shall come
to an end.
(b) A contract with B to build house for B within a stipulated time.
B is liable to supply the necessary timber. C guarantees A’s
performance of the contract. B fails to supply the timber. C is
discharged from his surety ship.
5. ARRANGEMENT WITHOUT SURETY’S CONSENT:
According to Section 135,where the creditor with out the
consent of surety makes an arrangement with the principal debtor
for composition or promises to give him time or no to sue him, the
surety will be discharged. Section 136 provides that where a contract
to give time to the principal debtor is made by the creditor with a
third person and not with the principal debtor the surety is not
discharged.
EXAMPLE:
P purchased a motor car from C under the hire purchase
agreement on guarantee of S for the due performance of the
agreement. C for valuable consideration gives P further time for
payment of one of the installments. Held the giving of time to P
discharged S from his liability.
6. CREDITOR’S ACT OR OMISSION:
Section 139 provides that if the creditor does any act which is
inconsistent with the right of the surety or omits to do any act which
his duty to the surety requires him to do and the eventual remedy of
the surety himself against the principal debtor is thereby impaired
the surety is discharged.
It is the duty of the creditor to do every act necessary for the
protection of the rights of the surety and if he fails in this duty, the
surety is discharged.
M contracts to lend N Rs.1 lac on 1 March. S guarantees
payment. M pays the amount on 1 January. S is discharged from his
liability, as the terms of contract have been changed.
4. RELEASE FOR DISCHARGE OF PRINCIPAL DEBTOR:
According to section 134 the following two ways discharge the
surety from liability:
The surety is discharged by any contract between the creditor
and the principal debtor, by which the principal debtor is a released.
Any release of the principal debtor is a release of the surety also.
The surety is also discharged by any act or omission of the
creditor, the legal consequence of which is the discharge of the
principal debtor.
EXAMPLE:
(a) A contracts to build a house for B. C guarantees for the
performance of the contract by A if B release A from the
performances of the contract, the liability of C as a surety shall come
to an end.
(b) A contract with B to build house for B within a stipulated time.
B is liable to supply the necessary timber. C guarantees A’s
performance of the contract. B fails to supply the timber. C is
discharged from his surety ship.
5. ARRANGEMENT WITHOUT SURETY’S CONSENT:
According to Section 135,where the creditor with out the
consent of surety makes an arrangement with the principal debtor
for composition or promises to give him time or no to sue him, the
surety will be discharged. Section 136 provides that where a contract
to give time to the principal debtor is made by the creditor with a
third person and not with the principal debtor the surety is not
discharged.
EXAMPLE:
P purchased a motor car from C under the hire purchase
agreement on guarantee of S for the due performance of the
agreement. C for valuable consideration gives P further time for
payment of one of the installments. Held the giving of time to P
discharged S from his liability.
6. CREDITOR’S ACT OR OMISSION:
Section 139 provides that if the creditor does any act which is
inconsistent with the right of the surety or omits to do any act which
his duty to the surety requires him to do and the eventual remedy of
the surety himself against the principal debtor is thereby impaired
the surety is discharged.
It is the duty of the creditor to do every act necessary for the
protection of the rights of the surety and if he fails in this duty, the
surety is discharged.
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EXAMPLE:
A employs B as a cashier on the guarantee of M. A promise to
check up the cash of B at least once a month. A does not check the
cash as promised. B commits fraud. M is not liable to A.
BAILMENT AND PLEDGE
CONT`RACT OF BAILMENT
MEANING AND DEFINITION:
The term bailment is derived from a French word “bailor’
which means to deliver. It denotes a contract resulting from delivery.
It involves change of possession of goods from one person to another
and not transfers of ownership.
According to Section 148, “a bailment is the delivery of goods
by one persons to another for some purpose, upon a contract that
they shall, when the purpose is accomplished, be returned or
otherwise disposed off according to the direction of the person
delivering them.”
A bailment arises when one person transfers possession of
goods to another person on condition that he will return them after
the accomplishment of purpose.
PARTIES
There are two parties to a contract of bailment:
BAILOR: The person delivering the goods is called the bailor.
BAILEE: The person to whom the goods are delivered is called the
bailee.
EXAMPLES
(a) A delivers a piece of cloth to B to make a suit. There is a contract
of bailment between A and B.
(b) A lends a book to B for examination. There is contract of
bailment between A and B.
(c) A delivers a watch to B for repair. There is a contract of
bailment.
(d) A sells certain goods to B, who leaves them in the possession of
A. A becomes the bailee and B becomes bailor.
ESSENTIAL FEATURES
The following are the essential features of a bailment.
1. CONTRACT
A bailment is based on a contract between bailor and bailee.
The delivery of goods should be made for some purpose under a
contract that when the purpose is accomplished, the goods shall be
returned to the bailor. If the goods are delivered without any
contract i.e. by mistake, thee is no bailment. It should also possess all
EXAMPLE:
A employs B as a cashier on the guarantee of M. A promise to
check up the cash of B at least once a month. A does not check the
cash as promised. B commits fraud. M is not liable to A.
BAILMENT AND PLEDGE
CONT`RACT OF BAILMENT
MEANING AND DEFINITION:
The term bailment is derived from a French word “bailor’
which means to deliver. It denotes a contract resulting from delivery.
It involves change of possession of goods from one person to another
and not transfers of ownership.
According to Section 148, “a bailment is the delivery of goods
by one persons to another for some purpose, upon a contract that
they shall, when the purpose is accomplished, be returned or
otherwise disposed off according to the direction of the person
delivering them.”
A bailment arises when one person transfers possession of
goods to another person on condition that he will return them after
the accomplishment of purpose.
PARTIES
There are two parties to a contract of bailment:
BAILOR: The person delivering the goods is called the bailor.
BAILEE: The person to whom the goods are delivered is called the
bailee.
EXAMPLES
(a) A delivers a piece of cloth to B to make a suit. There is a contract
of bailment between A and B.
(b) A lends a book to B for examination. There is contract of
bailment between A and B.
(c) A delivers a watch to B for repair. There is a contract of
bailment.
(d) A sells certain goods to B, who leaves them in the possession of
A. A becomes the bailee and B becomes bailor.
ESSENTIAL FEATURES
The following are the essential features of a bailment.
1. CONTRACT
A bailment is based on a contract between bailor and bailee.
The delivery of goods should be made for some purpose under a
contract that when the purpose is accomplished, the goods shall be
returned to the bailor. If the goods are delivered without any
contract i.e. by mistake, thee is no bailment. It should also possess all
40
the essentials of a valid contract. The contract may be express or
implied.
EXAMPLES
(a) A gives a piece of cloth to T, a tailor for making a suit. There is a
contract of bailment between A and T.
(b) B’s ornaments, have been stolen, and recovered by the police,
and disappeared from police custody. Held the state was liable.
2. SPECIFIC PURPOSE
The bailment of goods is always made for some purpose and is
subject to the condition that when the purpose is accomplished the
goods will be returned to the bailor or disposed of according to the
directions of the bailor. If the person to whom the goods are
delivered is not bound to return them to the person delivering them,
there is no bailment.
EXAMPLES
A gives his watch to B for repair. There is a bailment.
3. DELIVERY OF GOODS
The most important feature of bailment is the delivery of
moveable goods from one person to another. Mere custody does not
create relationship of bailor and bailee. A servant who receives goods
from his master to take to a third person has only custody. The
possession remains with master, so the servant cannot be called
bailee.
EXAMPLES:
(a) A buys a T.V. from B. The T.V. is ready for immediate delivery.
A ask B to keep it with him for one hour so that A may buy other
things from the market. B is now holding the T.V. as bailee.
(b) U entered a restaurant for dinning; H the waiter took his coat
and hung it on a hook behind it. When U rose to leave, the coat was
gone. Held, the owner of the restaurant was liable for loss.
4. NO CHANGE OF OWNERSHIP
Under bailment, it is only the possession that passes from the
owner to the other and not the ownership; Mere custody without
possession is not bailment, e.g. (a servant holding his master’s goods).
If there is a change of ownership the transaction may be a sale or
exchange but is not a bailment.
EXAMPLE
A delivers his car to B for repair. The possession of car
transfers from A to B but ownership remains with A.
5. RETURN OF SAME GOODS
the essentials of a valid contract. The contract may be express or
implied.
EXAMPLES
(a) A gives a piece of cloth to T, a tailor for making a suit. There is a
contract of bailment between A and T.
(b) B’s ornaments, have been stolen, and recovered by the police,
and disappeared from police custody. Held the state was liable.
2. SPECIFIC PURPOSE
The bailment of goods is always made for some purpose and is
subject to the condition that when the purpose is accomplished the
goods will be returned to the bailor or disposed of according to the
directions of the bailor. If the person to whom the goods are
delivered is not bound to return them to the person delivering them,
there is no bailment.
EXAMPLES
A gives his watch to B for repair. There is a bailment.
3. DELIVERY OF GOODS
The most important feature of bailment is the delivery of
moveable goods from one person to another. Mere custody does not
create relationship of bailor and bailee. A servant who receives goods
from his master to take to a third person has only custody. The
possession remains with master, so the servant cannot be called
bailee.
EXAMPLES:
(a) A buys a T.V. from B. The T.V. is ready for immediate delivery.
A ask B to keep it with him for one hour so that A may buy other
things from the market. B is now holding the T.V. as bailee.
(b) U entered a restaurant for dinning; H the waiter took his coat
and hung it on a hook behind it. When U rose to leave, the coat was
gone. Held, the owner of the restaurant was liable for loss.
4. NO CHANGE OF OWNERSHIP
Under bailment, it is only the possession that passes from the
owner to the other and not the ownership; Mere custody without
possession is not bailment, e.g. (a servant holding his master’s goods).
If there is a change of ownership the transaction may be a sale or
exchange but is not a bailment.
EXAMPLE
A delivers his car to B for repair. The possession of car
transfers from A to B but ownership remains with A.
5. RETURN OF SAME GOODS
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It is essential for bailment that when the purpose is
accomplished, the goods must be returned in original form or in
changed form or disposed of according to the directions of bailor. If
the bailee has an option of paying money or of returning different
property, there is no bailment.
EXAMPLES
A lends his cycle to B for 2 days. B is liable to return the same
cycle.
CLASSIFICATION OF BAILMENT
Bailment may be classified as follows:
(1) According to benefit.
(2) According to reward.
1. BENEFIT
According to benefit, bailment can be grouped into three
classes.
(a) FOR THE BENEFIT OF THE BAILOR
Where the goods are delivered for safe custody to a neighbor,
relative, or friend without any compensation to be paid.
(b) FOR THE BENEFIT OF THE BAILEE
Where goods are delivered to the bailee to be used by him
without any compensation to be charged from him. For EXAMPLE.
A borrows B’s pen to use in the examination hall, the bailment is for
the sole benefit of A, the bailee.
(c) FOR T HE BENEFIT OF THE BAILOR AND BAILEE
Where the goods are delivered for the benefit of both the
bailor and bailee. For EXAMPLE, bailment for repair, hire, etc.
2. REWARD:
Bailment may also be classified into two classes according to
reward.
(a) BAILMENT WITHOUT REWARD
It is bailment in which neither the bailor nor the bailee is
entitled to any remuneration. It is also called gratuitous bailment.
For EXAMPLE, lending of a book to a friend, depositing of goods for
safe custody without any charges.
(b) BAILMENT FOR REWARD
It is a bailment where the bailor or the bailee is entitled to
remuneration. It is also called non -gratuitous bailment.
For EXAMPLE, motorcar let out for hire, cloth given for tailoring on
charges.
DUTIES OF BAILOR
It is essential for bailment that when the purpose is
accomplished, the goods must be returned in original form or in
changed form or disposed of according to the directions of bailor. If
the bailee has an option of paying money or of returning different
property, there is no bailment.
EXAMPLES
A lends his cycle to B for 2 days. B is liable to return the same
cycle.
CLASSIFICATION OF BAILMENT
Bailment may be classified as follows:
(1) According to benefit.
(2) According to reward.
1. BENEFIT
According to benefit, bailment can be grouped into three
classes.
(a) FOR THE BENEFIT OF THE BAILOR
Where the goods are delivered for safe custody to a neighbor,
relative, or friend without any compensation to be paid.
(b) FOR THE BENEFIT OF THE BAILEE
Where goods are delivered to the bailee to be used by him
without any compensation to be charged from him. For EXAMPLE.
A borrows B’s pen to use in the examination hall, the bailment is for
the sole benefit of A, the bailee.
(c) FOR T HE BENEFIT OF THE BAILOR AND BAILEE
Where the goods are delivered for the benefit of both the
bailor and bailee. For EXAMPLE, bailment for repair, hire, etc.
2. REWARD:
Bailment may also be classified into two classes according to
reward.
(a) BAILMENT WITHOUT REWARD
It is bailment in which neither the bailor nor the bailee is
entitled to any remuneration. It is also called gratuitous bailment.
For EXAMPLE, lending of a book to a friend, depositing of goods for
safe custody without any charges.
(b) BAILMENT FOR REWARD
It is a bailment where the bailor or the bailee is entitled to
remuneration. It is also called non -gratuitous bailment.
For EXAMPLE, motorcar let out for hire, cloth given for tailoring on
charges.
DUTIES OF BAILOR
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A bailor is the person who delivers the goods. His duties are as
under:
1. DUTY TO DISCLOSE FAULTS
According section 150, a gratuitous bailor is bound to disclose
to the bailee all those faults in the goods bailed which are known to
him and if he fails to do so, he will be liable to pay such damages to
the bailee arising from such faults.
A bailor for reward is responsible for all defects in the goods
bailed whether he is aware of the defects or not. If he does not
disclose them to the bailee, he will be liable for damages, which may
arise due to those faults.
EXAMPLES:
(a) A lends a horse, which he knows to be vicious to B. He does not
disclose the fact that the horse is vicious. The horse runs away and B
is thrown and injured. A is responsible for damages sustained.
(b) A hires a carriage of B. The carriage is unsafe thought B is not
aware of it, and A is injured. B is responsible to A for the injury.
2. DUTY TO REPAY NECESSARY EXPENSES
In case of gratuitous bailment, where goods are to be kept or
to be carried by the bailee for the bailor, it is the duty of the bailor to
repay all the necessary expenses incurred by the bailee for the
purpose of the bailment.
EXAMPLE
A delivers a horse to B for safe custody. The horse becomes
sick and B spends Rs.50 on medical and Rs.20 on feeding. A is liable
to pay B Rs.70.
3. DUTY TO REPAY EXTRA-ORDINARY EXPENSES
In case of any kind of bailment, it is the duty of the bailor to
bear extraordinary expenses, if any, incurred by the bailee regarding
the goods bailed.
EXAMPLE:
B hires A’s horse for his carriage. The horse becomes sick and
B spends Rs.50 on medical and Rs.20 on feeding. A is liable to pay to
B Rs.50 the extraordinary expenses only.
4. DUTY TO INDEMNIFY FOR DEFECTIVE TITLE
A bailor is the person who delivers the goods. His duties are as
under:
1. DUTY TO DISCLOSE FAULTS
According section 150, a gratuitous bailor is bound to disclose
to the bailee all those faults in the goods bailed which are known to
him and if he fails to do so, he will be liable to pay such damages to
the bailee arising from such faults.
A bailor for reward is responsible for all defects in the goods
bailed whether he is aware of the defects or not. If he does not
disclose them to the bailee, he will be liable for damages, which may
arise due to those faults.
EXAMPLES:
(a) A lends a horse, which he knows to be vicious to B. He does not
disclose the fact that the horse is vicious. The horse runs away and B
is thrown and injured. A is responsible for damages sustained.
(b) A hires a carriage of B. The carriage is unsafe thought B is not
aware of it, and A is injured. B is responsible to A for the injury.
2. DUTY TO REPAY NECESSARY EXPENSES
In case of gratuitous bailment, where goods are to be kept or
to be carried by the bailee for the bailor, it is the duty of the bailor to
repay all the necessary expenses incurred by the bailee for the
purpose of the bailment.
EXAMPLE
A delivers a horse to B for safe custody. The horse becomes
sick and B spends Rs.50 on medical and Rs.20 on feeding. A is liable
to pay B Rs.70.
3. DUTY TO REPAY EXTRA-ORDINARY EXPENSES
In case of any kind of bailment, it is the duty of the bailor to
bear extraordinary expenses, if any, incurred by the bailee regarding
the goods bailed.
EXAMPLE:
B hires A’s horse for his carriage. The horse becomes sick and
B spends Rs.50 on medical and Rs.20 on feeding. A is liable to pay to
B Rs.50 the extraordinary expenses only.
4. DUTY TO INDEMNIFY FOR DEFECTIVE TITLE
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Where the title of the bailor to the goods is defective and as a
result the bailee suffers a loss. The bailor is responsible to indemnify
the bailee for such loss.
EXAMPLE
A gives his neighbor’s scooter to B for use without the
neighbor’s permission. The neighbor uses B and receives
compensation. A is bound to indemnify B for losses.
5. DUTY TO RECEIVE BACK THE GOODS
It is the duty of the bailor to receive back the goods when the
bailee returns them after the accomplishment of the purpose of
bailment. If the bailor refuses to take delivery of goods at proper
time, “the bailee can claim compensation for all necessary expenses
incurred in connection of safe custody.
EXAMPLE
A bails his cow to B for feeding for 2 months. A does not take
his cow back after 2 months. B has to spend more on feeding. A is
liable to compensate B.
DUTIES OF BAILEEE
A bailee is the person to whom the goods are delivered. His
duties are as follows:
1. DUTY TO TAKE REASONABLE CARE
“In all cases of bailment the bailee is bound to take as much
care of the goods bailed to him as a man of ordinary prudence would,
under similar circumstances, take of his own goods of the same bulk,
quality and value as the goods bailed.”
If the bailee does not take such a care of the goods bailed and
the goods are damaged by his negligence, he would be responsible for
the loss.
EXAMPLE
(a) A sends some ornaments to B, a goldsmith. B keeps it locked.
The ornaments are stolen. B is not liable for loss.
(b) A bails car to B. B omits to lock up the car. The car is stolen. B is
liable for car.
2. DUTY NOT TO MAKE UNAUTHORIZED USE
It is the duty of he bailee to use the goods strictly according to
the terms of the bailment. If the bailee makes an unauthorized use of
the goods bailed, he is liable to make compensation to the bailer for
any damage arising to the goods due to such use.
EXAMPLE
(a) A, hires a car from B to visit Multan. A allows his son to use the
car for learning driving. B is entitled to terminate the bailment.
(b) A goldsmith accompanied by his wife went to village to attend a
marriage. He took some ornaments entrusted to him by customers.
The object was to enable his wife to wear the ornaments at the
marriage. On the way, robbers snatched ornaments. The goldsmith
was held liable to the customers for loss.
Where the title of the bailor to the goods is defective and as a
result the bailee suffers a loss. The bailor is responsible to indemnify
the bailee for such loss.
EXAMPLE
A gives his neighbor’s scooter to B for use without the
neighbor’s permission. The neighbor uses B and receives
compensation. A is bound to indemnify B for losses.
5. DUTY TO RECEIVE BACK THE GOODS
It is the duty of the bailor to receive back the goods when the
bailee returns them after the accomplishment of the purpose of
bailment. If the bailor refuses to take delivery of goods at proper
time, “the bailee can claim compensation for all necessary expenses
incurred in connection of safe custody.
EXAMPLE
A bails his cow to B for feeding for 2 months. A does not take
his cow back after 2 months. B has to spend more on feeding. A is
liable to compensate B.
DUTIES OF BAILEEE
A bailee is the person to whom the goods are delivered. His
duties are as follows:
1. DUTY TO TAKE REASONABLE CARE
“In all cases of bailment the bailee is bound to take as much
care of the goods bailed to him as a man of ordinary prudence would,
under similar circumstances, take of his own goods of the same bulk,
quality and value as the goods bailed.”
If the bailee does not take such a care of the goods bailed and
the goods are damaged by his negligence, he would be responsible for
the loss.
EXAMPLE
(a) A sends some ornaments to B, a goldsmith. B keeps it locked.
The ornaments are stolen. B is not liable for loss.
(b) A bails car to B. B omits to lock up the car. The car is stolen. B is
liable for car.
2. DUTY NOT TO MAKE UNAUTHORIZED USE
It is the duty of he bailee to use the goods strictly according to
the terms of the bailment. If the bailee makes an unauthorized use of
the goods bailed, he is liable to make compensation to the bailer for
any damage arising to the goods due to such use.
EXAMPLE
(a) A, hires a car from B to visit Multan. A allows his son to use the
car for learning driving. B is entitled to terminate the bailment.
(b) A goldsmith accompanied by his wife went to village to attend a
marriage. He took some ornaments entrusted to him by customers.
The object was to enable his wife to wear the ornaments at the
marriage. On the way, robbers snatched ornaments. The goldsmith
was held liable to the customers for loss.
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3. DUTY NOT TO MIX THE GOODS
It is also the duty of a bailee that he should not mix his own
goods with those of the bailor, without the bailor’s consent.
EXAMPLE
A, bails a bag of superior flour worth Rs.45 to B. B, without
A’s consent, mixes the flour with inferior flour of his own, worth only
Rs.25 per bag. B must compensate A for the loss of his flour.
4. DUTY TO RETURN THE GOODS
It is the duty of the bailee to return or deliver, according to
the bailor’s directions, the goods bailed, without demand, as soon as
the time for which they wee bailed has expired, or the purpose for
which they wee bailed has been accomplished.
EXAMPLE
A, hires a horse from B for one week. But A does not return
the horse on the due date. The horse dies one day after the expiry of
the period of bailment without any fault on A’s part. A is liable for
the price of the horse to B.
5. DUTY TO RETURN INCREASE
In the absence of any contract to the contrary, the bailee is
bound to deliver to the bailor any natural increase or profit which
may have accrued from the goods bailed.
EXAMPLE
A leaves a cow in the custody of B to be taken care of. The cow
has a calf. B is bound to deliver the calf as the cow to A.
RIGHTS OF BAILEE
The duties of the bailor are the rights of the bailee. These
rights are as under:
1. RIGHT TO CLAIM DAMAGES :
In case of bailment without reward the bailee is entitled to
know the faults in the goods bailed to him of which the bailor is
aware. A bailee has a right to claim compensation from the bailor for
any loss or damaged arising directly from such faults in the goods
bailed.
However, in case of bailment for reward the bailee is entitled
to claim compensation for even those faults of which bailor was not
aware.
EXAMPLE
A lends a horse to B which he knows to be vicious; He does
not disclose the fact that the horse is vicious. The horse while B is on
his back runs away. B is thrown and injured. A is responsible to B
for damages sustained.
2. RIGHT TO RECOVER EXPENSES :
The bailee can recover all necessary expenses incurred by him
for the purpose of the bailment, from the bailor.
3. DUTY NOT TO MIX THE GOODS
It is also the duty of a bailee that he should not mix his own
goods with those of the bailor, without the bailor’s consent.
EXAMPLE
A, bails a bag of superior flour worth Rs.45 to B. B, without
A’s consent, mixes the flour with inferior flour of his own, worth only
Rs.25 per bag. B must compensate A for the loss of his flour.
4. DUTY TO RETURN THE GOODS
It is the duty of the bailee to return or deliver, according to
the bailor’s directions, the goods bailed, without demand, as soon as
the time for which they wee bailed has expired, or the purpose for
which they wee bailed has been accomplished.
EXAMPLE
A, hires a horse from B for one week. But A does not return
the horse on the due date. The horse dies one day after the expiry of
the period of bailment without any fault on A’s part. A is liable for
the price of the horse to B.
5. DUTY TO RETURN INCREASE
In the absence of any contract to the contrary, the bailee is
bound to deliver to the bailor any natural increase or profit which
may have accrued from the goods bailed.
EXAMPLE
A leaves a cow in the custody of B to be taken care of. The cow
has a calf. B is bound to deliver the calf as the cow to A.
RIGHTS OF BAILEE
The duties of the bailor are the rights of the bailee. These
rights are as under:
1. RIGHT TO CLAIM DAMAGES :
In case of bailment without reward the bailee is entitled to
know the faults in the goods bailed to him of which the bailor is
aware. A bailee has a right to claim compensation from the bailor for
any loss or damaged arising directly from such faults in the goods
bailed.
However, in case of bailment for reward the bailee is entitled
to claim compensation for even those faults of which bailor was not
aware.
EXAMPLE
A lends a horse to B which he knows to be vicious; He does
not disclose the fact that the horse is vicious. The horse while B is on
his back runs away. B is thrown and injured. A is responsible to B
for damages sustained.
2. RIGHT TO RECOVER EXPENSES :
The bailee can recover all necessary expenses incurred by him
for the purpose of the bailment, from the bailor.
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EXAMPLE
A delivers his horse to B for safe custody. The horse becomes
sick and B’s spends Rs.200 on medical expenses. B is entitled to
recover such expenses from A.
3. RIGHT TO DELIVER GOODS:
Where goods have been bailed by several joint owners, the
bailee has a right to 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.
EXAMPLE
A, B & C jointly bail a car to X for 5 days. X can return the
car to any one of them.
4. RIGHT TO COMPENSATION :
If the bailor has no right to bail the goods or to receive them
back or to give directions regarding them and as a result the bailee
suffers a loss, the bailee is entitled to receive such loss from bailor.
EXAMPLE
A bails his friend, C’s scooter to B with his permission. B has
right to return the scooter to A. He is not liable to C.
5. RIGHT TO STOP DELIVERY:
If a person other than the bailor claims goods bailed, the
bailee may apply to the court to stop delivery of the goods to the
bailor and to decide the title to the goods.
EXAMPLE
A bails the goods to B. X claims that he is the owners of those
goods and demands from B. B can stop the delivery of goods to A and
request the court to decide about the ownership of goods.
6. RIGHT TO USE:
If a third person wrongfully deprives the bailee of the use or
possession of the goods bailed or causes the injury to the goods, bailee
is entitled to use such person.
The bailor can also bring an action against such third person
in respect of such goods bailed.
EXAMPLE
A gives a piece of cloth to T, a tailor to make a suit. M
forcefully takes the coat from T. A or T can file a suit against M.
EXAMPLE
A delivers his horse to B for safe custody. The horse becomes
sick and B’s spends Rs.200 on medical expenses. B is entitled to
recover such expenses from A.
3. RIGHT TO DELIVER GOODS:
Where goods have been bailed by several joint owners, the
bailee has a right to 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.
EXAMPLE
A, B & C jointly bail a car to X for 5 days. X can return the
car to any one of them.
4. RIGHT TO COMPENSATION :
If the bailor has no right to bail the goods or to receive them
back or to give directions regarding them and as a result the bailee
suffers a loss, the bailee is entitled to receive such loss from bailor.
EXAMPLE
A bails his friend, C’s scooter to B with his permission. B has
right to return the scooter to A. He is not liable to C.
5. RIGHT TO STOP DELIVERY:
If a person other than the bailor claims goods bailed, the
bailee may apply to the court to stop delivery of the goods to the
bailor and to decide the title to the goods.
EXAMPLE
A bails the goods to B. X claims that he is the owners of those
goods and demands from B. B can stop the delivery of goods to A and
request the court to decide about the ownership of goods.
6. RIGHT TO USE:
If a third person wrongfully deprives the bailee of the use or
possession of the goods bailed or causes the injury to the goods, bailee
is entitled to use such person.
The bailor can also bring an action against such third person
in respect of such goods bailed.
EXAMPLE
A gives a piece of cloth to T, a tailor to make a suit. M
forcefully takes the coat from T. A or T can file a suit against M.
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7. RIGHT OF LIEN:
Lien means the right to retain possession of the property or
goods belonging to another until some debt or claim is paid.
Bailee has the right to retain that particular property in
respect of which he has rendered some services and his charges are
due.
EXAMPLE
A delivers rough diamond to B, a jeweler, to be cut and
polished, which is accordingly done. B is entitled to retain the stone
till he is paid for the services he rendered.
RIGHTS OF THE BAILOR
The duties of the bailee are the rights of the bailor. The rights
of the bailor are as under:
1. RIGHT TO CLAIM DMAGES:
The bailor can recover damages from the bailee if any caused
to the goods bailed due to the bailee’s negligence.
EXAMPLE
A bailed some goods to B. B did not kept the goods locked.
The goods were stolen. A can recover loss from B.
2. RIGHT TO DEMAND RETURN OF GOODS :
The bailor is entitled to demand the return for the goods
bailed as soon as the purpose of bailment is accomplished. If the
bailee makes default in returning the goods at the proper time and
place, the bailor is entitled to compensation arising from such
situation.
EXAMPLE
A gives a car to B on rent for 5 days. A can demand the return
of car after 5 days. If B does not return the car after 5 days. A can
claim damages.
3. RIGHT TO CLAIM INCREASE:
He is entitled to claim any increase or profit, which may have
accrued from the goods bailed.
EXAMPLE
A bailed a cow to B for safe custody. The cow gave a birth to a
child. A can demand cow along with child.
4. RIGHT TO TERMIANTE BAILMENT:
The bailor has a right to terminate the bailment if the bailee
does any act, which is against the terms of the contract though the
7. RIGHT OF LIEN:
Lien means the right to retain possession of the property or
goods belonging to another until some debt or claim is paid.
Bailee has the right to retain that particular property in
respect of which he has rendered some services and his charges are
due.
EXAMPLE
A delivers rough diamond to B, a jeweler, to be cut and
polished, which is accordingly done. B is entitled to retain the stone
till he is paid for the services he rendered.
RIGHTS OF THE BAILOR
The duties of the bailee are the rights of the bailor. The rights
of the bailor are as under:
1. RIGHT TO CLAIM DMAGES:
The bailor can recover damages from the bailee if any caused
to the goods bailed due to the bailee’s negligence.
EXAMPLE
A bailed some goods to B. B did not kept the goods locked.
The goods were stolen. A can recover loss from B.
2. RIGHT TO DEMAND RETURN OF GOODS :
The bailor is entitled to demand the return for the goods
bailed as soon as the purpose of bailment is accomplished. If the
bailee makes default in returning the goods at the proper time and
place, the bailor is entitled to compensation arising from such
situation.
EXAMPLE
A gives a car to B on rent for 5 days. A can demand the return
of car after 5 days. If B does not return the car after 5 days. A can
claim damages.
3. RIGHT TO CLAIM INCREASE:
He is entitled to claim any increase or profit, which may have
accrued from the goods bailed.
EXAMPLE
A bailed a cow to B for safe custody. The cow gave a birth to a
child. A can demand cow along with child.
4. RIGHT TO TERMIANTE BAILMENT:
The bailor has a right to terminate the bailment if the bailee
does any act, which is against the terms of the contract though the
47
term of bailment has not expired or the purpose of bailment has not
been accomplished.
EXAMPLE
A gives on hire to B a horse for his own riding. B drives the
horse in carriage. A can terminate the contract.
5. RIGHT TO USE:
The bailor may use the bailee for breach of contract if the
goods are not returned or disposed of as directed by the bailor.
EXAMPLE
(a) A gives his T.V. to B for repairs X gets the possession of T.V.
from B. A can sue X.
(b) A gives a piece of wood to B, a carpenter to make some tables. B
does net take care of that woods. The fire breaks out and destroys a
wood. A can use B for loss.
TERMIANTION OF BAILEMENT
A contract of bailment terminates under the following
circumstances:
1. EXPIRTY OF TIME:
When the contract of bailment is for a specified period, the
bailment terminates after the expiry of specified period.
EXAMPLE
A stores some oranges in the cold storage of B for one month.
After one month, the bailment terminates.
2. ACCOMPLISHMENT OF PURPOSE :
If the bailment is for a specific purpose, the bailment
terminates as soon as the purpose is accomplished.
EXAMPLE
M gives his radio to N for repairs N repairs and returns the
radio, the bailment is over.
3. UNAUTHORIZED USE:
If the bailee does any act, which is inconsistent with the terms
of the bailment, the bailment may be terminated by the bailor even
though the term of bailment has not expired or the purpose of
bailment has not been accomplished.
EXAMPLE:
A bails a car to B for 5 days for his personal use. B allows his
friend, X to use the car. A can terminate bailment before 5 days.
4. ON DEATH:
A gratuitous bailment is terminated by the death of either the
bailor or the bailee.
term of bailment has not expired or the purpose of bailment has not
been accomplished.
EXAMPLE
A gives on hire to B a horse for his own riding. B drives the
horse in carriage. A can terminate the contract.
5. RIGHT TO USE:
The bailor may use the bailee for breach of contract if the
goods are not returned or disposed of as directed by the bailor.
EXAMPLE
(a) A gives his T.V. to B for repairs X gets the possession of T.V.
from B. A can sue X.
(b) A gives a piece of wood to B, a carpenter to make some tables. B
does net take care of that woods. The fire breaks out and destroys a
wood. A can use B for loss.
TERMIANTION OF BAILEMENT
A contract of bailment terminates under the following
circumstances:
1. EXPIRTY OF TIME:
When the contract of bailment is for a specified period, the
bailment terminates after the expiry of specified period.
EXAMPLE
A stores some oranges in the cold storage of B for one month.
After one month, the bailment terminates.
2. ACCOMPLISHMENT OF PURPOSE :
If the bailment is for a specific purpose, the bailment
terminates as soon as the purpose is accomplished.
EXAMPLE
M gives his radio to N for repairs N repairs and returns the
radio, the bailment is over.
3. UNAUTHORIZED USE:
If the bailee does any act, which is inconsistent with the terms
of the bailment, the bailment may be terminated by the bailor even
though the term of bailment has not expired or the purpose of
bailment has not been accomplished.
EXAMPLE:
A bails a car to B for 5 days for his personal use. B allows his
friend, X to use the car. A can terminate bailment before 5 days.
4. ON DEATH:
A gratuitous bailment is terminated by the death of either the
bailor or the bailee.
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EXAMPLE
M borrows a book from his friend, N for 10 days. M dies. The
bailment terminates.
5. TERMIANTION BY BAILOR:
A gratuitous bailment can be terminated by the bailor at any
time, even before the stated time if the termination causes no loss to
the bailee. In case the bailee suffers a loss due to termination, the
bailor is liable to make good the loss.
EXAMPLE:
S lends a book to T for one month x can demand return of
book before the expiry of bailment period.
6. DESTRUCTION OF SUBEJCT MATTER:
A bailment is terminated when the subject matter of the
bailment is destroyed or due to change in its natural becomes
incapable of use for the purpose of bailment.
EXAMPLE:
S lends a book to T for one month. X can demand return of
book before the expiry of bailment period.
CONTRACT OF PLEDGE
PLEDGE OR PAWN
DEFINITION
The bailment of goods as security for payment of a debt or
performance of a promise is called pledge. The bailor in this case is
called the pledgor or pawnor. The bailee is called the pledge or
Pawnee.
A pledge or Pawn is a special kind of bailment. Under Pledge
one person transfers possession of some goods to another to secure
the payment of debt or the performance of a promise. In case of
pledge the goods are deposited as security go get a loan. If there is no
transfer of possession of goods, there is no pledge.
EXAMPLE:
A borrows Rs.1000 from B and keeps his watch as security for
payment of the debt. The bailment of watch is called a pledge.
DIFFERENCE BETWEEN PLEDGE AND BAILMENT
The following are the points of different the two:
EXAMPLE
M borrows a book from his friend, N for 10 days. M dies. The
bailment terminates.
5. TERMIANTION BY BAILOR:
A gratuitous bailment can be terminated by the bailor at any
time, even before the stated time if the termination causes no loss to
the bailee. In case the bailee suffers a loss due to termination, the
bailor is liable to make good the loss.
EXAMPLE:
S lends a book to T for one month x can demand return of
book before the expiry of bailment period.
6. DESTRUCTION OF SUBEJCT MATTER:
A bailment is terminated when the subject matter of the
bailment is destroyed or due to change in its natural becomes
incapable of use for the purpose of bailment.
EXAMPLE:
S lends a book to T for one month. X can demand return of
book before the expiry of bailment period.
CONTRACT OF PLEDGE
PLEDGE OR PAWN
DEFINITION
The bailment of goods as security for payment of a debt or
performance of a promise is called pledge. The bailor in this case is
called the pledgor or pawnor. The bailee is called the pledge or
Pawnee.
A pledge or Pawn is a special kind of bailment. Under Pledge
one person transfers possession of some goods to another to secure
the payment of debt or the performance of a promise. In case of
pledge the goods are deposited as security go get a loan. If there is no
transfer of possession of goods, there is no pledge.
EXAMPLE:
A borrows Rs.1000 from B and keeps his watch as security for
payment of the debt. The bailment of watch is called a pledge.
DIFFERENCE BETWEEN PLEDGE AND BAILMENT
The following are the points of different the two:
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PLEDGE BAILMENT
1. PURPOSE
In case of pledge, the goods are
delivered to provide a security for
a loan or for the performance of
the promise.
In case of bailment, the goods
are delivered for a purpose other
than the above two purposes,
e.g., for repair and safe custody
etc.
2. RIGHTS
In case of pledge, the pledge has a
right of sale of the pledged goods
on default after giving a notice to
the pledgor.
In case of bailment, the bailee
has not such right of sale. He can
remain the goods or use for the
dues.
3. USE OF GOODS
In case of pledge, the pledge has
no right of using the goods
pledged.
In case of bailment, there is no
such restriction if the nature of
transaction so requires.
4. RETURN OF GOODS
In case of pledge the pledge is not
bound to return the goods
delivered under pledge by the
pledgor unless the debt is repaid
or promise performed.
In case of bailment without
reward the bailee is bound to
return the goods on demand by
the bailor.
5. LIEN
In pledge, lien can be exercised
even for non-payment of interest.
In bailment, lien can be
exercised only for the labour and
skill spend.
CONTRACT OF CARRIAGE
DEFINITION OF CONTRACTION OF CARRIAGE :
A contract whereby a person or company agrees to carry goods or
people from one place to another in return of payment is called a contract
of carriage.
KINDS OF CARRIER:
The carrier may be of the following three kinds.
1. Common Carrier.
2. Private Carrier.
3. Gratuitous Carrier.
COMMON CARRIER
DEFINITION:
The Carries Act, 1865 defines a Common Carrier as “any
individual, form or company other than the government engaged in
the business of transporting for hire, goods from place to place, by
land or inland navigation, for all persons indiscriminately.”
EXCEPTIONS:
A Common carrier can lawfully refuse to carry goods in the
following circumstances.
(a) If the vehicle is already full.
(b) If he does not carry that type of goods.
PLEDGE BAILMENT
1. PURPOSE
In case of pledge, the goods are
delivered to provide a security for
a loan or for the performance of
the promise.
In case of bailment, the goods
are delivered for a purpose other
than the above two purposes,
e.g., for repair and safe custody
etc.
2. RIGHTS
In case of pledge, the pledge has a
right of sale of the pledged goods
on default after giving a notice to
the pledgor.
In case of bailment, the bailee
has not such right of sale. He can
remain the goods or use for the
dues.
3. USE OF GOODS
In case of pledge, the pledge has
no right of using the goods
pledged.
In case of bailment, there is no
such restriction if the nature of
transaction so requires.
4. RETURN OF GOODS
In case of pledge the pledge is not
bound to return the goods
delivered under pledge by the
pledgor unless the debt is repaid
or promise performed.
In case of bailment without
reward the bailee is bound to
return the goods on demand by
the bailor.
5. LIEN
In pledge, lien can be exercised
even for non-payment of interest.
In bailment, lien can be
exercised only for the labour and
skill spend.
CONTRACT OF CARRIAGE
DEFINITION OF CONTRACTION OF CARRIAGE :
A contract whereby a person or company agrees to carry goods or
people from one place to another in return of payment is called a contract
of carriage.
KINDS OF CARRIER:
The carrier may be of the following three kinds.
1. Common Carrier.
2. Private Carrier.
3. Gratuitous Carrier.
COMMON CARRIER
DEFINITION:
The Carries Act, 1865 defines a Common Carrier as “any
individual, form or company other than the government engaged in
the business of transporting for hire, goods from place to place, by
land or inland navigation, for all persons indiscriminately.”
EXCEPTIONS:
A Common carrier can lawfully refuse to carry goods in the
following circumstances.
(a) If the vehicle is already full.
(b) If he does not carry that type of goods.
50
(c) If the goods are of dangerous nature and may result extra-
ordinary risk.
(d) If the destination to which the goods are to be transported is not
on his normal route.
(e) If reasonable charges for the carriage are not paid.
(f) If the goods are offered at an unreasonable hour.
(g) If the consigner refuses to disclose the nature of goods offered
for carriage.
DIFFERENCE BETWEEN COMMON
CARRIER AND PRIVATE CARRIER
COMMON CARRIER PRIVATE CARRIER
1. ACT
the Common Carriers Act, 1865,
governs a common carrier.
A private carrier is governed by
the contract Act, 1872.
2. REGULAR BUSINESS
A common Carrier carries the
goods of all persons
indiscriminately.
A Private carrier carries the
goods of a particular person on
some special terms mutually
agreed upon.
3. REJECTION OF OFFER
A common carrier carries the
goods as regular business
A Private carrier carries the
goods as a casual occupation
and not as a regular business.
4. REJECTION OF OFFER
A common carrier cannot reject
the offer of goods for carriage. He
can reject the offer only under
some special circumstances.
A private carrier can reject the
offer of carriage of goods
without any reason.
5. HIRE
A Common Carrier carries the
goods for hire.
A Private Carrier may carry the
goods for hire or free of charge.
RIGHTS OF COMMON CARRIERS
1. RIGHT TO GET REMUNERATION :
A common carrier is entitled to the agreed changes if any, for
his work. If charges have not been agreed, he is entitled to reasonable
charges for his services. He can demand payment for hire in advance
and if he is not paid, he may refuse to carry.
2. RIGHT TO RETAIN:
He has a right to retain the goods and refuse delivery thereof
until his charges of hire are paid. If no charges are paid he can
exercise particular lien over the goods.
3. RIGHT TO USE:
(c) If the goods are of dangerous nature and may result extra-
ordinary risk.
(d) If the destination to which the goods are to be transported is not
on his normal route.
(e) If reasonable charges for the carriage are not paid.
(f) If the goods are offered at an unreasonable hour.
(g) If the consigner refuses to disclose the nature of goods offered
for carriage.
DIFFERENCE BETWEEN COMMON
CARRIER AND PRIVATE CARRIER
COMMON CARRIER PRIVATE CARRIER
1. ACT
the Common Carriers Act, 1865,
governs a common carrier.
A private carrier is governed by
the contract Act, 1872.
2. REGULAR BUSINESS
A common Carrier carries the
goods of all persons
indiscriminately.
A Private carrier carries the
goods of a particular person on
some special terms mutually
agreed upon.
3. REJECTION OF OFFER
A common carrier carries the
goods as regular business
A Private carrier carries the
goods as a casual occupation
and not as a regular business.
4. REJECTION OF OFFER
A common carrier cannot reject
the offer of goods for carriage. He
can reject the offer only under
some special circumstances.
A private carrier can reject the
offer of carriage of goods
without any reason.
5. HIRE
A Common Carrier carries the
goods for hire.
A Private Carrier may carry the
goods for hire or free of charge.
RIGHTS OF COMMON CARRIERS
1. RIGHT TO GET REMUNERATION :
A common carrier is entitled to the agreed changes if any, for
his work. If charges have not been agreed, he is entitled to reasonable
charges for his services. He can demand payment for hire in advance
and if he is not paid, he may refuse to carry.
2. RIGHT TO RETAIN:
He has a right to retain the goods and refuse delivery thereof
until his charges of hire are paid. If no charges are paid he can
exercise particular lien over the goods.
3. RIGHT TO USE:
51
The carrier has a special right regarding the goods delivered
to him for carriage. He can file a suit against any person who
wrongfully deprives him of goods or injures him.
4. RIGHT TO RECOVER EXPENSES :
If it is necessary to incur some expenses for the safety of goods
from extra ordinary dangers such as flood, the carrier ought to incur
it. He can recover such expenses from the owner.
5. RIGHT TO SELL:
On refusal to accept delivery of the goods by the consignee,
the carrier would be entitled to take such steps as may be deemed
reasonable in the circumstances of the case, he can even sell the goods
if the same are of perishable nature or store them in warehouse if the
condition of the goods may so allow. In that case he can recover
warehouse expenses etc. from the consignor.
6. RIGHT TO GIVE CONCESSION:
He has a right to give some concession to any person.
However, he cannot charge an unreasonable payment from any
customer.
7. RIGHT TO REFUSE TO CARRY GOODS :
He has a right to refuse to carry the goods of every type. He
can refuse to carry the dangerous nature of goods. He can also refuse
to carry goods which he does not normally carry.
DUTIES OF COMMON CARRIER
1. DUTY TO RECEIVE GOODS:
A common carrier is bound to receive for carriage all goods
offered, provided he has convenience to carry them and the goods are
of proper kind, and the employer is ready to pay reasonable hire.
2. DUTY TO CARRY GOODS :
A common carrier is bound to carry goods of all persons who
employ him for the carriage of goods. He can refuse to carry the
goods under certain circumstances.
3. DUTY TO FOLLOW ROUTE:
A common carrier is bound to carry goods delivered to him
for carriage by his usual route, which may or may not be his shortest
route. He can, however, deviate form the ordinary route if that
became necessary for the safe carriage of the goods.
4. DUTY TO DELIVER THE GOODS :
The carrier must deliver the goods at the agreed time or
where, no time is fixed, within a reasonable time. He should use
reasonable diligence to avoid delay.
5. DUTY TO CARRY GOODS SAF ELY:
He must carry the goods with reasonable care. It is the duty of
common carrier to ensure their safety during he carriage and until
delivery.
The carrier has a special right regarding the goods delivered
to him for carriage. He can file a suit against any person who
wrongfully deprives him of goods or injures him.
4. RIGHT TO RECOVER EXPENSES :
If it is necessary to incur some expenses for the safety of goods
from extra ordinary dangers such as flood, the carrier ought to incur
it. He can recover such expenses from the owner.
5. RIGHT TO SELL:
On refusal to accept delivery of the goods by the consignee,
the carrier would be entitled to take such steps as may be deemed
reasonable in the circumstances of the case, he can even sell the goods
if the same are of perishable nature or store them in warehouse if the
condition of the goods may so allow. In that case he can recover
warehouse expenses etc. from the consignor.
6. RIGHT TO GIVE CONCESSION:
He has a right to give some concession to any person.
However, he cannot charge an unreasonable payment from any
customer.
7. RIGHT TO REFUSE TO CARRY GOODS :
He has a right to refuse to carry the goods of every type. He
can refuse to carry the dangerous nature of goods. He can also refuse
to carry goods which he does not normally carry.
DUTIES OF COMMON CARRIER
1. DUTY TO RECEIVE GOODS:
A common carrier is bound to receive for carriage all goods
offered, provided he has convenience to carry them and the goods are
of proper kind, and the employer is ready to pay reasonable hire.
2. DUTY TO CARRY GOODS :
A common carrier is bound to carry goods of all persons who
employ him for the carriage of goods. He can refuse to carry the
goods under certain circumstances.
3. DUTY TO FOLLOW ROUTE:
A common carrier is bound to carry goods delivered to him
for carriage by his usual route, which may or may not be his shortest
route. He can, however, deviate form the ordinary route if that
became necessary for the safe carriage of the goods.
4. DUTY TO DELIVER THE GOODS :
The carrier must deliver the goods at the agreed time or
where, no time is fixed, within a reasonable time. He should use
reasonable diligence to avoid delay.
5. DUTY TO CARRY GOODS SAF ELY:
He must carry the goods with reasonable care. It is the duty of
common carrier to ensure their safety during he carriage and until
delivery.
52
6. DUTY TO PROVIDE SUITABLE CARRIER :
It is also his duty to load the goods properly in the vehicle so
that the goods may be carried to the destination safely.
7. DUTY TO DELIVER TO RIGHT PERSON :
It is the duty of Common carrier to use reasonable care to
deliver the goods to right person in accordance with the usual course
of business.
UNIT-V
CONTRACT OF SALES OF GOODS
SALE OF GOODS ACT:
The law relating to sale of goods is contained in the Sale of
Goods Act, 1930. This law came into force on 1 July 1930. The Act
contains 66 Sections and extends to the whole of Pakistan.
It is like any other contract. In order to be valid, it must also
possess all the essentials of a valid contract.
DEFINITION OF CONTRACT OF SALE:
Section 4(1) of the Sale of Goods Act defines a contract of sale
of goods as “a contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a price.”
In other words, a contract to transfer the ownership of goods
from the seller to the buyer is known as contract of sale.
ESSENTIALS OF A CONTRACT OF SALE:
The above definition provides the following essentials of a
contract of sale of goods.
1. BUYERS AND SELLER:
There should be two parties to a contract of sale, i.e. a buyer
and a seller. One person cannot act as a buyer and seller because a
person cannot buy his own goods and similarly a person cannot sell
his goods to himself.
EXAMPLES
A sells his computer to B for Rs.40,000. A is a seller and B, is a
buyer.
2. TRANSFER OF PROPERTY:
Transfer of property is the second essential of contract of sale.
Property here means ownership. A mere transfer of possession of the
goods cannot be termed as sale.
EXAMPLE
6. DUTY TO PROVIDE SUITABLE CARRIER :
It is also his duty to load the goods properly in the vehicle so
that the goods may be carried to the destination safely.
7. DUTY TO DELIVER TO RIGHT PERSON :
It is the duty of Common carrier to use reasonable care to
deliver the goods to right person in accordance with the usual course
of business.
UNIT-V
CONTRACT OF SALES OF GOODS
SALE OF GOODS ACT:
The law relating to sale of goods is contained in the Sale of
Goods Act, 1930. This law came into force on 1 July 1930. The Act
contains 66 Sections and extends to the whole of Pakistan.
It is like any other contract. In order to be valid, it must also
possess all the essentials of a valid contract.
DEFINITION OF CONTRACT OF SALE:
Section 4(1) of the Sale of Goods Act defines a contract of sale
of goods as “a contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a price.”
In other words, a contract to transfer the ownership of goods
from the seller to the buyer is known as contract of sale.
ESSENTIALS OF A CONTRACT OF SALE:
The above definition provides the following essentials of a
contract of sale of goods.
1. BUYERS AND SELLER:
There should be two parties to a contract of sale, i.e. a buyer
and a seller. One person cannot act as a buyer and seller because a
person cannot buy his own goods and similarly a person cannot sell
his goods to himself.
EXAMPLES
A sells his computer to B for Rs.40,000. A is a seller and B, is a
buyer.
2. TRANSFER OF PROPERTY:
Transfer of property is the second essential of contract of sale.
Property here means ownership. A mere transfer of possession of the
goods cannot be termed as sale.
EXAMPLE
53
A sells his A.C. to B for Rs.20,000. The ownership and the
possession of the A.C. will transfer from A to B.
3. GOODS:
The subject matter of the contract of sale must be goods.
According to section 2(7), “goods means every kind of movable
property other than actionable claims and money; and includes
electricity, water, gas, stock and shares, growing crops, grass and
thing attached to our forming part of the land which are agreed to be
severed before sale or under the contract of sale.”
EXAMPLE:
A sells his car to M for Rs.3 Lac. It is a contract of sale
because here the subject matter i.e. a car is a moveable thing.
4. PRICE
According to section 2(10), the consideration in a contract of
sale must be the price. When goods are sold or exchanged for other
goods, the transaction is barter, and not a contract of sale of goods. If
goods are sold partly for goods and partlyfor money, the contract is
sale.
EXAMPLES:
(i) A sells his chair to B for Rs.2,000. It is contract of sale.
(ii) X sells his horse to B against B’s promise to give 100 mounds of
wheat. It is not a contract of sale.
5. SALE AND AGREEMENT TO SELL
The terms contract of sale includes, both sale and an
agreement to sell. Where under a contract of sale the property
(ownership) in the goods is transferred from the seller to the buyer,
at the time of making the contract the contract is called as sale.
Where under a contract of sale the transfer of ownership in the goods
is to take place at a future time or subject to some condition
thereafter to be fulfilled, the contract is called an agreement to sell.
EXAMPLES:
(i) A buys a book from S and pays the whole price on a counter. It
is a sale.
(ii) A agree to buy B’s car for Rs.200,000, if his mechanic approves
the car. It is an agreement to sell.
6. OTHER FORMALITIES:
There is no specific procedure to make a contract. Apart from
the above, all other essentials of a valid contract like capacity of the
parties, free consent, legality of object etc. should also be there in a
contract of sale. It may be oral or in writing.
EXAMPLE:
A sells his A.C. to B for Rs.20,000. The ownership and the
possession of the A.C. will transfer from A to B.
3. GOODS:
The subject matter of the contract of sale must be goods.
According to section 2(7), “goods means every kind of movable
property other than actionable claims and money; and includes
electricity, water, gas, stock and shares, growing crops, grass and
thing attached to our forming part of the land which are agreed to be
severed before sale or under the contract of sale.”
EXAMPLE:
A sells his car to M for Rs.3 Lac. It is a contract of sale
because here the subject matter i.e. a car is a moveable thing.
4. PRICE
According to section 2(10), the consideration in a contract of
sale must be the price. When goods are sold or exchanged for other
goods, the transaction is barter, and not a contract of sale of goods. If
goods are sold partly for goods and partlyfor money, the contract is
sale.
EXAMPLES:
(i) A sells his chair to B for Rs.2,000. It is contract of sale.
(ii) X sells his horse to B against B’s promise to give 100 mounds of
wheat. It is not a contract of sale.
5. SALE AND AGREEMENT TO SELL
The terms contract of sale includes, both sale and an
agreement to sell. Where under a contract of sale the property
(ownership) in the goods is transferred from the seller to the buyer,
at the time of making the contract the contract is called as sale.
Where under a contract of sale the transfer of ownership in the goods
is to take place at a future time or subject to some condition
thereafter to be fulfilled, the contract is called an agreement to sell.
EXAMPLES:
(i) A buys a book from S and pays the whole price on a counter. It
is a sale.
(ii) A agree to buy B’s car for Rs.200,000, if his mechanic approves
the car. It is an agreement to sell.
6. OTHER FORMALITIES:
There is no specific procedure to make a contract. Apart from
the above, all other essentials of a valid contract like capacity of the
parties, free consent, legality of object etc. should also be there in a
contract of sale. It may be oral or in writing.
EXAMPLE:
54
A verbally promises to sell his radio to B for Rs.2,000. It is a
contract of sale if both the parties are competent to contract and have
given their consent freely, etc.
DISTINCTION BETWEEN SALE & AGREEMENT TO SELL
The following are the points of the distinction between the
two:-
SALE AGREEMENT TO SELL
1. Transfer of Property
In a sale, the ownership in goods
passes to the buyer immediately
at the time of making the
contract.
In an agreement to sell, there is
no transfer of ownership to the
buyer at the time of the contract.
The ownership transfers at a
certain date or subject to
fulfillment of some condition.
2. Type of Goods
A sale can only be in case of
existing and specific goods.
A agreement to sell is mostly in
case of future and contingent
goods.
3. Nature of Rights
In sale, the buyer becomes and so
gets the rights against the goods.
Moreover, if the seller refuses to
deliver the goods, the buyer may
sue for recovery of goods.
In an agreement to sell, the buyer
cannot get the rights against the
goods. He gets the rights against
the seller only so he can sue for
damages for breach of agreement
and not for recovery of goods
4. Right of Resale In an agreement to sell, the
In a sale, he ownership is with
the buyer and so the seller
cannot resell the goods, even
though the goods are in the
possession of seller.
ownership in goods remains with
the seller and so he can resell
those goods to the new buyer. The
original buyer can use for breach
of contract only and the
subsequent buyer gets at good
title to the goods.
5. Nature of Contract
A sale is an executed contract,
because the ownership has
passed from seller to the buyer
An agreement to sell is an
executory contract, as the
property has to pass in future.
KINDS OF GOODS
According to Sale of Good Acts the goods may be classified
into following kinds.
Existing Goods.
Specific Goods.
Future Goods.
Contingent Goods.
1. EXISTING GOODS:
The goods which are owned and possessed by the seller, at the
time of entering the contract of sale are called existing goods. In
A verbally promises to sell his radio to B for Rs.2,000. It is a
contract of sale if both the parties are competent to contract and have
given their consent freely, etc.
DISTINCTION BETWEEN SALE & AGREEMENT TO SELL
The following are the points of the distinction between the
two:-
SALE AGREEMENT TO SELL
1. Transfer of Property
In a sale, the ownership in goods
passes to the buyer immediately
at the time of making the
contract.
In an agreement to sell, there is
no transfer of ownership to the
buyer at the time of the contract.
The ownership transfers at a
certain date or subject to
fulfillment of some condition.
2. Type of Goods
A sale can only be in case of
existing and specific goods.
A agreement to sell is mostly in
case of future and contingent
goods.
3. Nature of Rights
In sale, the buyer becomes and so
gets the rights against the goods.
Moreover, if the seller refuses to
deliver the goods, the buyer may
sue for recovery of goods.
In an agreement to sell, the buyer
cannot get the rights against the
goods. He gets the rights against
the seller only so he can sue for
damages for breach of agreement
and not for recovery of goods
4. Right of Resale In an agreement to sell, the
In a sale, he ownership is with
the buyer and so the seller
cannot resell the goods, even
though the goods are in the
possession of seller.
ownership in goods remains with
the seller and so he can resell
those goods to the new buyer. The
original buyer can use for breach
of contract only and the
subsequent buyer gets at good
title to the goods.
5. Nature of Contract
A sale is an executed contract,
because the ownership has
passed from seller to the buyer
An agreement to sell is an
executory contract, as the
property has to pass in future.
KINDS OF GOODS
According to Sale of Good Acts the goods may be classified
into following kinds.
Existing Goods.
Specific Goods.
Future Goods.
Contingent Goods.
1. EXISTING GOODS:
The goods which are owned and possessed by the seller, at the
time of entering the contract of sale are called existing goods. In
55
other words the goods which are physically in existence and in
seller’s ownership or possession, at the time of entering the contract
of sale are called existing goods.
2. SPECIFIC GOODS:
According to section 2(14), the goods which are identified and
agreed upon at the time of contract of sale are called Specific goods.
Where there is a contract for specific goods, the seller can complete
the contract only by delivering tie goods agreed upon.
EXAMPLE:
(i) A agrees to sell to B a particular radio bearing a distinctive
number; there is a contract of sale of Specific goods.
(ii) X owns a number of cows, and promises to sell one of them; the
contract is not for specific goods. But if the cow to be sold has been
singled out, the contract is for specific goods.
3. FUTURE GOODS:
According to section 2(6), the goods which a seller does not
possess at the time of contract but which will be manufactured,
produced or acquired by the seller after making the contract of sale
are called future goods. As a rule, a person may make a contract
about the goods of which he is not the owner. He hopes to acquire
such goods. He can just make an agreement sell about future goods.
The reason is that he cannot transfer the ownership of the
goods before the goods come into existence. Thee can be no sale of
future goods because the ownership cannot pass on to the buyer at
the time of contract.
EXAMPLE:
X agrees to sell to Y all the mangoes, which will be produced
in his garden next year. It is a contract of future goods.
4. CONTINGENT GOODS:
According to section 6(2), the goods which are also not in
existence at the time of contract of sale are called contingent goods.
These are like future goods. In this case, the acquisition by the seller
depends upon an uncertain contingency. In case of contract of
contingent goods, the ownership does not pass to the buyer at the
time of contract, like future goods.
A contract of sale of contingent goods is enforceable only if the
event on the happening of which the performance of the contract is
dependent happens, otherwise the contract becomes void.
EXAMPLE:
A agrees to sell to B a specific there painting provided the is
able to purchase it from its present owner. This is a contract for the
sale of contingent goods.
FIXATION OF PRICE:
other words the goods which are physically in existence and in
seller’s ownership or possession, at the time of entering the contract
of sale are called existing goods.
2. SPECIFIC GOODS:
According to section 2(14), the goods which are identified and
agreed upon at the time of contract of sale are called Specific goods.
Where there is a contract for specific goods, the seller can complete
the contract only by delivering tie goods agreed upon.
EXAMPLE:
(i) A agrees to sell to B a particular radio bearing a distinctive
number; there is a contract of sale of Specific goods.
(ii) X owns a number of cows, and promises to sell one of them; the
contract is not for specific goods. But if the cow to be sold has been
singled out, the contract is for specific goods.
3. FUTURE GOODS:
According to section 2(6), the goods which a seller does not
possess at the time of contract but which will be manufactured,
produced or acquired by the seller after making the contract of sale
are called future goods. As a rule, a person may make a contract
about the goods of which he is not the owner. He hopes to acquire
such goods. He can just make an agreement sell about future goods.
The reason is that he cannot transfer the ownership of the
goods before the goods come into existence. Thee can be no sale of
future goods because the ownership cannot pass on to the buyer at
the time of contract.
EXAMPLE:
X agrees to sell to Y all the mangoes, which will be produced
in his garden next year. It is a contract of future goods.
4. CONTINGENT GOODS:
According to section 6(2), the goods which are also not in
existence at the time of contract of sale are called contingent goods.
These are like future goods. In this case, the acquisition by the seller
depends upon an uncertain contingency. In case of contract of
contingent goods, the ownership does not pass to the buyer at the
time of contract, like future goods.
A contract of sale of contingent goods is enforceable only if the
event on the happening of which the performance of the contract is
dependent happens, otherwise the contract becomes void.
EXAMPLE:
A agrees to sell to B a specific there painting provided the is
able to purchase it from its present owner. This is a contract for the
sale of contingent goods.
FIXATION OF PRICE:
56
The money consideration for a sale of goods is known as
‘price’. According to Section 2(10) Price is an essential element in
every contract of sale of goods. A valid sale cannot take place without
a price. The price should be paid or promised to be paid in legal
tender money in Pakistan, i.e., unless otherwise agreed.
MODES OF FIXING THE PRICE:
1. PRICE:
This is the most usual mode of fixing the price. The parties are
free to fix any price. The price may be stated in a contract by the
parties to the contract. The price should be definite, if an alternative
price is fixed, the agreement is void.
2. AGREED MANNER:
There may be an agreement among the parties that the buyer
would pay the market price prevailing on a particular date or it may
be fixed by a third party, i.e. valuer appointed by the consent of
parties.
Remember that if no rice is fixed the contract is not void for
uncertainty because in that case law usually allows market price
prevailing on the date of supply of goods.
3. COURSE OF DEALING:
If the buyer has been previously paying to a particular seller
the price prevailing on the date of placing the order, the, it is clear
that the buyer will pay the price prevailing on the date, of any
subsequent order.
4. REASONABLE PRICE:
If the price is not capable of being fixed in accordance with
any of the above modes, the buyer is bound to pay to the seller a
‘reasonable price.’ What is a reasonable price is a question of fact
and depends upon the circumstances of each case. Generally, the
market price is considered as reasonable price.
CONDITION AND WARRANTIES
A contract of sale of goods contains various terms or
stipulations regarding the quality of the goods, the price, the mode of
payment, the delivery of goods the time of performance and the place
where the goods are to be sent etc.
Some of there stipulations may be major terms while others
may be minor terms. In law of sales major, terms are called
conditions and minor terms are called warranties.
DEFINITION OF CONDITION:
According to section 12(2) a “condition is a stipulation
essential to the main purpose of the contract the breach of which
gives the aggrieved party a right to repudiate the contract itself.”
In other words, a condition is essential for the main purpose
of the contract. It is regarded as the very basis of the contract. Its
non-fulfillment causes irreparable loss to the aggrieved party. In case
The money consideration for a sale of goods is known as
‘price’. According to Section 2(10) Price is an essential element in
every contract of sale of goods. A valid sale cannot take place without
a price. The price should be paid or promised to be paid in legal
tender money in Pakistan, i.e., unless otherwise agreed.
MODES OF FIXING THE PRICE:
1. PRICE:
This is the most usual mode of fixing the price. The parties are
free to fix any price. The price may be stated in a contract by the
parties to the contract. The price should be definite, if an alternative
price is fixed, the agreement is void.
2. AGREED MANNER:
There may be an agreement among the parties that the buyer
would pay the market price prevailing on a particular date or it may
be fixed by a third party, i.e. valuer appointed by the consent of
parties.
Remember that if no rice is fixed the contract is not void for
uncertainty because in that case law usually allows market price
prevailing on the date of supply of goods.
3. COURSE OF DEALING:
If the buyer has been previously paying to a particular seller
the price prevailing on the date of placing the order, the, it is clear
that the buyer will pay the price prevailing on the date, of any
subsequent order.
4. REASONABLE PRICE:
If the price is not capable of being fixed in accordance with
any of the above modes, the buyer is bound to pay to the seller a
‘reasonable price.’ What is a reasonable price is a question of fact
and depends upon the circumstances of each case. Generally, the
market price is considered as reasonable price.
CONDITION AND WARRANTIES
A contract of sale of goods contains various terms or
stipulations regarding the quality of the goods, the price, the mode of
payment, the delivery of goods the time of performance and the place
where the goods are to be sent etc.
Some of there stipulations may be major terms while others
may be minor terms. In law of sales major, terms are called
conditions and minor terms are called warranties.
DEFINITION OF CONDITION:
According to section 12(2) a “condition is a stipulation
essential to the main purpose of the contract the breach of which
gives the aggrieved party a right to repudiate the contract itself.”
In other words, a condition is essential for the main purpose
of the contract. It is regarded as the very basis of the contract. Its
non-fulfillment causes irreparable loss to the aggrieved party. In case
57
of violation of condition the aggrieved party gets a right to cancel the
contract. The party can refuse to accept the goods. If the injured
party has already paid the price, he can recover it.
EXAMPLE:
A contract to deliver 100 Pak fan to B. But A delivers Climax
fans. It is breach of condition on the part of A. B is entitled to reject
the fans or accept them and claim damages.
DEFINITION OF WARRANTY:
According to Section 12(3) “ a warranty is a stipulation
collectral to the main purpose of the contract the breach of which
gives the aggrieved party a right to use for damages only, and not to
avoid the contract itself.”
In other words a warrantee is not essential for the main
purpose of the contract. It is subsidiary or collectral to the main
purpose of the contract. It is not regarded as the basis of the contract.
It is of secondary importance. The breach of warranty gives
the injured party a right to recover damages only. It does not give
right to reject the goods and treats the contract as repudiated.
There is no hard and fast rule as to know which stipulation is
a condition and which one is a warranty. The only suitable method to
distinguish between these two terms is that if the stipulation is such
that its breach would be very harmful for the rights of the aggrieved
party, then such a stipulation is a condition and where it is not so the
stipulation is only a warranty.
EXAMPLE:
A promise to deliver to B 100 washing machines at his
showroom. But A delivers them at the home. It is a breach of
warranty on the part of A. B cannot reject them. He can claim
damages only.
DISTINCTION BETWEEN CONDITION AND WARRANTY
The following are the points of distinction between a condition
and a warranty:
CONDITION WARRANTY
1. Value
A condition is a stipulation,
which is Essential to the main
purpose of the Contract.
A warranty is a stipulation,
which is not essential to the main
purpose of Contract.
2. Basis
It forms the basis of a contract
It does not form the basis of a
of violation of condition the aggrieved party gets a right to cancel the
contract. The party can refuse to accept the goods. If the injured
party has already paid the price, he can recover it.
EXAMPLE:
A contract to deliver 100 Pak fan to B. But A delivers Climax
fans. It is breach of condition on the part of A. B is entitled to reject
the fans or accept them and claim damages.
DEFINITION OF WARRANTY:
According to Section 12(3) “ a warranty is a stipulation
collectral to the main purpose of the contract the breach of which
gives the aggrieved party a right to use for damages only, and not to
avoid the contract itself.”
In other words a warrantee is not essential for the main
purpose of the contract. It is subsidiary or collectral to the main
purpose of the contract. It is not regarded as the basis of the contract.
It is of secondary importance. The breach of warranty gives
the injured party a right to recover damages only. It does not give
right to reject the goods and treats the contract as repudiated.
There is no hard and fast rule as to know which stipulation is
a condition and which one is a warranty. The only suitable method to
distinguish between these two terms is that if the stipulation is such
that its breach would be very harmful for the rights of the aggrieved
party, then such a stipulation is a condition and where it is not so the
stipulation is only a warranty.
EXAMPLE:
A promise to deliver to B 100 washing machines at his
showroom. But A delivers them at the home. It is a breach of
warranty on the part of A. B cannot reject them. He can claim
damages only.
DISTINCTION BETWEEN CONDITION AND WARRANTY
The following are the points of distinction between a condition
and a warranty:
CONDITION WARRANTY
1. Value
A condition is a stipulation,
which is Essential to the main
purpose of the Contract.
A warranty is a stipulation,
which is not essential to the main
purpose of Contract.
2. Basis
It forms the basis of a contract
It does not form the basis of a
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and goes direct to the root of the
contract.
contract and does not go direct
to the root of the contract
3. Breach
The breach of a condition gives
the aggrieved party the right to
reject the contract.
The breach of warranty does not
give aggrieved party a right to
reject the contact.
4. Treatment
A breach of condition may be
treated as a breach of warranty.
A breach of warranty cannot be
treated as a breach of condition.
5. Option
In case of breach of condition, the
Aggrieved party has an option to
Claim damages instead of
rejecting.
In case of breach of warranty the
aggrieved party has no option to
reject the contract. He can only
claim damages.
EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES
Conditions and warranties may be express or implied. The
conditions and warranties which are included in clear words the
contracts are called express. The conditions and warranties which
are not included in the contract but the law presume their existence
in the contract is called implied.
IMPLIED CONDITIONS:
Unless otherwise agreed, the law includes the following
conditions into a contract of sale of goods.
1. CONDITIONS AS TO TITLE:
In a contract of sale, there is an implied condition on the part
of the seller that in the case of sale he has a right to sell goods and
that in the case of agreement to sell; he will have a right to sell the
goods at the time when the property is to pass. The seller has the
right to sell the goods as the owner or as owner’s agent.
As a result of this condition if the seller’s title proves to be
defective the buyer can reject the goods and the recover his price. In
this case the buyer has no option to treat the breach of condition as
breach of warranty and accept the goods and use the seller for
damages He must return the goods to the true owner. He can recover
the price form seller because the consideration has failed.
EXAMPLE:
(a) A purchased a car from B. After few months the car is seized by
the police as a stolen one. A can recover the price from B.
(b) R purchased a motor from D and used for several months. D had
no title to the car and, therefore, R was compelled to return the car to
the true owner. R used D to recover the price, which he had already
paid. He was held entitled to recover the whole of the price paid by
him.
2. SALE BY DESCRIPTION:
Where there is a contract of sale of goods by description;
there is an implied condition that the goods shall correspond with the
description. If the goods are not according to the description, the
and goes direct to the root of the
contract.
contract and does not go direct
to the root of the contract
3. Breach
The breach of a condition gives
the aggrieved party the right to
reject the contract.
The breach of warranty does not
give aggrieved party a right to
reject the contact.
4. Treatment
A breach of condition may be
treated as a breach of warranty.
A breach of warranty cannot be
treated as a breach of condition.
5. Option
In case of breach of condition, the
Aggrieved party has an option to
Claim damages instead of
rejecting.
In case of breach of warranty the
aggrieved party has no option to
reject the contract. He can only
claim damages.
EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES
Conditions and warranties may be express or implied. The
conditions and warranties which are included in clear words the
contracts are called express. The conditions and warranties which
are not included in the contract but the law presume their existence
in the contract is called implied.
IMPLIED CONDITIONS:
Unless otherwise agreed, the law includes the following
conditions into a contract of sale of goods.
1. CONDITIONS AS TO TITLE:
In a contract of sale, there is an implied condition on the part
of the seller that in the case of sale he has a right to sell goods and
that in the case of agreement to sell; he will have a right to sell the
goods at the time when the property is to pass. The seller has the
right to sell the goods as the owner or as owner’s agent.
As a result of this condition if the seller’s title proves to be
defective the buyer can reject the goods and the recover his price. In
this case the buyer has no option to treat the breach of condition as
breach of warranty and accept the goods and use the seller for
damages He must return the goods to the true owner. He can recover
the price form seller because the consideration has failed.
EXAMPLE:
(a) A purchased a car from B. After few months the car is seized by
the police as a stolen one. A can recover the price from B.
(b) R purchased a motor from D and used for several months. D had
no title to the car and, therefore, R was compelled to return the car to
the true owner. R used D to recover the price, which he had already
paid. He was held entitled to recover the whole of the price paid by
him.
2. SALE BY DESCRIPTION:
Where there is a contract of sale of goods by description;
there is an implied condition that the goods shall correspond with the
description. If the goods are not according to the description, the
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buyer can reject the goods. In a sale by description, the seller cannot
perform the contract by supplying another.
EXAMPLE:
A advertised a car for sale as ‘Corolla, 2008 Model. ‘B after
buying the car, found it of an earlier model. B could return the car.
3. SALE BY SAMPLE:
In case of sale by sample, the goods must be supplied
according to sample agreed upon. And the bulk shall correspond
with the sample in quality.
EXAMPLE:
Two parcels of wheat were sold by sample. The buyer
examined the bulk a week after. One parcel was shown to him but the
seller refused to show the other parcel, which was not thee in the
warehouse. It was held, that the buyer was entitled to rescined the
contract.
4. SALE BY SAMPLE AS WELL AS BY DESCRIPTION:
When goods are sold by sample as well as by description,
there is an implied condition that the bulk of the goods wshall
correspond both with the sample and with the description, if the
goods supplied correspond only with the sample and not with the
description or vice-versa, the buyer can reject the goods. The bulk of
goods must correspond with both.
EXAMPLE:
N agreed to sell G some oil described as ‘foreign refined oil’,
was similar to sample only. The oil supplied, though corresponded
with the sample, was mixed with local oil. Held, that since the oil
supplied was not in accordance with the description, the buyer was
entitled to reject the same.
5. CONDITION AS TO FITNES OR QUALITY:
Where the buyer informs to the seller about the particular
purpose for with the goods are require, there is an implied condition
tha the goods shall be reasonably fit for such purpose.
EXAMPLE:
A enters into an agreement with B to buy 100 oil filters to be
used for Suzuki cars. The oil filters were unfit. A can reject them.
6. CONDITION AS TO MERCHANTABILITY:
Where goods are bought by description from seller who deals
in goods of that description, there is implied condition that the goods
shall be of mercantable quality. Merchantability quality means that
the goods mush be saleable in the market as goods of that
description.
buyer can reject the goods. In a sale by description, the seller cannot
perform the contract by supplying another.
EXAMPLE:
A advertised a car for sale as ‘Corolla, 2008 Model. ‘B after
buying the car, found it of an earlier model. B could return the car.
3. SALE BY SAMPLE:
In case of sale by sample, the goods must be supplied
according to sample agreed upon. And the bulk shall correspond
with the sample in quality.
EXAMPLE:
Two parcels of wheat were sold by sample. The buyer
examined the bulk a week after. One parcel was shown to him but the
seller refused to show the other parcel, which was not thee in the
warehouse. It was held, that the buyer was entitled to rescined the
contract.
4. SALE BY SAMPLE AS WELL AS BY DESCRIPTION:
When goods are sold by sample as well as by description,
there is an implied condition that the bulk of the goods wshall
correspond both with the sample and with the description, if the
goods supplied correspond only with the sample and not with the
description or vice-versa, the buyer can reject the goods. The bulk of
goods must correspond with both.
EXAMPLE:
N agreed to sell G some oil described as ‘foreign refined oil’,
was similar to sample only. The oil supplied, though corresponded
with the sample, was mixed with local oil. Held, that since the oil
supplied was not in accordance with the description, the buyer was
entitled to reject the same.
5. CONDITION AS TO FITNES OR QUALITY:
Where the buyer informs to the seller about the particular
purpose for with the goods are require, there is an implied condition
tha the goods shall be reasonably fit for such purpose.
EXAMPLE:
A enters into an agreement with B to buy 100 oil filters to be
used for Suzuki cars. The oil filters were unfit. A can reject them.
6. CONDITION AS TO MERCHANTABILITY:
Where goods are bought by description from seller who deals
in goods of that description, there is implied condition that the goods
shall be of mercantable quality. Merchantability quality means that
the goods mush be saleable in the market as goods of that
description.
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EXAMPLE:
A sold a Radio to B. The Radio was defective. It did not work
in spite of repairs. B could return the Radio and claim refund.
7. CONDITION AS TO WHOLESOMENESS:
Wholesomeness means conducive to health. This condition
applies only in contract of sale of eatables and provisions. In such
cases goods supplied must be merchantable and wholesome also.
EXAMPLE:
(a) F bought milk A, a dairy owner. The milk contained germs of
typhoid fever. F’s wife, on taking the milk, became infected and died
of it. A, was held liable in damages.
(b) C bought a bun containing a stone, which broke one of C’s teeth.
Held C could recover damages.
IMPLIED WARRANTIES:
Unless otherwise agreed, the law includes the following
warranties into a contract of sales of goods.
1. QIET POSESSION:
In every contract of sale, it is implied warranty on the part of
seller that the buyer shall have and enjoy quiet possession of the
goods. It is an implied assurance to the buyer that he shall have the
possession and enjoyment of the goods sold to him without
disturbance by the seller of any other person. If this right of buyer is
disturbed by a person having a superior right than that of the seller,
the buyer can claim damages from seller.
EXAMPLE:
A bought a motor car from B and used it for some months,
after some months if appeared that B had no title to it and A was
compelled to surrender it to the true owner. A was entitled to recover
the purchase price form B.
RIGHTS OF UNPAID SELLER
DEFINE OF UNPAID SELLER:
According to Section 45(1) the seller of goods is deemed to be
an unpaid seller:
1. When the whole of the price has not been paid or tendered; or
2. when a bill of exchange or other negotiable instrument has been
received as a conditional payment and the same has been dishonored.
EXAMPLE:
A sold a Radio to B. The Radio was defective. It did not work
in spite of repairs. B could return the Radio and claim refund.
7. CONDITION AS TO WHOLESOMENESS:
Wholesomeness means conducive to health. This condition
applies only in contract of sale of eatables and provisions. In such
cases goods supplied must be merchantable and wholesome also.
EXAMPLE:
(a) F bought milk A, a dairy owner. The milk contained germs of
typhoid fever. F’s wife, on taking the milk, became infected and died
of it. A, was held liable in damages.
(b) C bought a bun containing a stone, which broke one of C’s teeth.
Held C could recover damages.
IMPLIED WARRANTIES:
Unless otherwise agreed, the law includes the following
warranties into a contract of sales of goods.
1. QIET POSESSION:
In every contract of sale, it is implied warranty on the part of
seller that the buyer shall have and enjoy quiet possession of the
goods. It is an implied assurance to the buyer that he shall have the
possession and enjoyment of the goods sold to him without
disturbance by the seller of any other person. If this right of buyer is
disturbed by a person having a superior right than that of the seller,
the buyer can claim damages from seller.
EXAMPLE:
A bought a motor car from B and used it for some months,
after some months if appeared that B had no title to it and A was
compelled to surrender it to the true owner. A was entitled to recover
the purchase price form B.
RIGHTS OF UNPAID SELLER
DEFINE OF UNPAID SELLER:
According to Section 45(1) the seller of goods is deemed to be
an unpaid seller:
1. When the whole of the price has not been paid or tendered; or
2. when a bill of exchange or other negotiable instrument has been
received as a conditional payment and the same has been dishonored.
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FEATURES OF UNPAID SELLER:
The following are the features of unpaid seller;
1. He must sell goods on cash basis and he must be unpaid.
2. If he sells the goods on credit, he is not an unpaid seller.
3. He is unpaid seller if the term of credit has expired and the
price has not been paid.
4. He must be unpaid either wholly or partly. If only a part of the
price remains unpaid he is deemed to be an unpaid seller.
EXAMPLE:
(a) A sells goods to B on 5 months credit. A is not an unpaid seller.
But if B becomes insolvent after 2 months A becomes an unpaid
seller.
(b) A sells goods to B for Rs.5 thousand. B has paid Rs.3 thousand
and the remaining are still to be paid. A is an unpaid seller.
(c) A sells 50 books to B. A gets a cheque form B for a period of 10
days. On the date of maturity, the cheque is dishonored. A becomes
an unpaid seller.
(d) A sells a mixer to B. B tenders the payment to take delivery. But
A refuses to accept payment. A is not unpaid seller.
RIGHTS OF AN UNPAID SELELR:
An unpaid seller has the following rights:
(1) Right of unpaid seller against the goods.
(2) Right of unpaid seller against the buyer personally.
We shall examine these rights in detail one by one.
1. RIGHTS OF UNPAID SELLER AGAINST THE GOODS:
An unpaid seller has the following three rights in spite of the
fact that the ownership in the goods has passed to the buyer.
(a) Right of lien;
(b) Right of Stoppage of goods in transit;
(c) Right of resale.
(a) RIGHT OF LIEN:
Lien is the right to retain possession of goods and refuse to
deliver them to the buyer until the price due in respect of them is
paid or tendered. An unpaid seller in possession of the goods can
exercise his right of lien on the goods in the following cases.
(i) Where the goods have been sold without any stipulation as to
credit;
(ii) Where the goods have been sold on credit, but the term of credit
has expired;
FEATURES OF UNPAID SELLER:
The following are the features of unpaid seller;
1. He must sell goods on cash basis and he must be unpaid.
2. If he sells the goods on credit, he is not an unpaid seller.
3. He is unpaid seller if the term of credit has expired and the
price has not been paid.
4. He must be unpaid either wholly or partly. If only a part of the
price remains unpaid he is deemed to be an unpaid seller.
EXAMPLE:
(a) A sells goods to B on 5 months credit. A is not an unpaid seller.
But if B becomes insolvent after 2 months A becomes an unpaid
seller.
(b) A sells goods to B for Rs.5 thousand. B has paid Rs.3 thousand
and the remaining are still to be paid. A is an unpaid seller.
(c) A sells 50 books to B. A gets a cheque form B for a period of 10
days. On the date of maturity, the cheque is dishonored. A becomes
an unpaid seller.
(d) A sells a mixer to B. B tenders the payment to take delivery. But
A refuses to accept payment. A is not unpaid seller.
RIGHTS OF AN UNPAID SELELR:
An unpaid seller has the following rights:
(1) Right of unpaid seller against the goods.
(2) Right of unpaid seller against the buyer personally.
We shall examine these rights in detail one by one.
1. RIGHTS OF UNPAID SELLER AGAINST THE GOODS:
An unpaid seller has the following three rights in spite of the
fact that the ownership in the goods has passed to the buyer.
(a) Right of lien;
(b) Right of Stoppage of goods in transit;
(c) Right of resale.
(a) RIGHT OF LIEN:
Lien is the right to retain possession of goods and refuse to
deliver them to the buyer until the price due in respect of them is
paid or tendered. An unpaid seller in possession of the goods can
exercise his right of lien on the goods in the following cases.
(i) Where the goods have been sold without any stipulation as to
credit;
(ii) Where the goods have been sold on credit, but the term of credit
has expired;
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(iii) Where the buyer becomes insolvent even though the period of
credit may not have yet expired.
RULES REGARDING LIEN:
The rules regarding lien are as under:
(i) The right of lien can be exercised only when the goods are in
possession of seller.
(ii) It can be exercised by the unpaid seller if he is in possession of
goods as agent or bailee of the buyer.
(iii) It can be exercised even if the document of title has been
delivered but the goods are in the possession of the seller.
(iv) It can be exercised for price and not for other expenses.
(v) If seller delivers some goods, he can retain the remainder.
(vi) If the seller delivers the goods under the circumstances as to
show in agreement to waive the lien, the seller cannot retain the
remainder.
EXAMPLE:
A sells the goods to B for Rs.1 Lac B pays 50 thousand and
promises to pay the remaining after sometime. A has a right to
exercise a lien on the goods.
TERMIANTION OF LIEN:
The unpaid seller losses his lien in the following cases:
(i) When he delivers the goods to a carrier or other bailee for the
purposes of transmission to the buyer without reserving the right to
disposal of the goods.
(ii) When the possession of the good is obtained lawfully by the
buyer or his agent.
(iii) When the seller waives his right of lien on the goods.
(iv) It may be noted that right of lien if once lost, will not revive if the
buyer delivers the goods to the seller for any particular purpose.
EXAMPLE:
Where a refrigerator after being sold was delivered to the
buyer and since it was not functioning properly the buyer delivered
back the same to the seller for repairs, it was held that the seller
could not exercise his lien over the refrigerator.
(b) RIGHT OF STOPPAGE OF GOODS IN TRANSIT:
The second right of the unpaid seller is to stop the goods in
transit. Goods in transit mean that the goods must be neither with
the seller, nor with the buyer nor with their agent. They should be in
the custody of a carrier. He can regain possession of the goods as long
as they are in course of transit and retain them until payment or
tender of the price.
RIGHT OF STOPPAGE:
The unpaid seller can exercise this right under the following
circumstances.
(i) When the buyer becomes insolvent;
(ii) When the buyer or his agent takes delivery of the goods before their
arrival at the appointed destination.
(iv) when the buyer requests the carrier to carry the goods to a new
destination after the original destination is reached.
(iii) Where the buyer becomes insolvent even though the period of
credit may not have yet expired.
RULES REGARDING LIEN:
The rules regarding lien are as under:
(i) The right of lien can be exercised only when the goods are in
possession of seller.
(ii) It can be exercised by the unpaid seller if he is in possession of
goods as agent or bailee of the buyer.
(iii) It can be exercised even if the document of title has been
delivered but the goods are in the possession of the seller.
(iv) It can be exercised for price and not for other expenses.
(v) If seller delivers some goods, he can retain the remainder.
(vi) If the seller delivers the goods under the circumstances as to
show in agreement to waive the lien, the seller cannot retain the
remainder.
EXAMPLE:
A sells the goods to B for Rs.1 Lac B pays 50 thousand and
promises to pay the remaining after sometime. A has a right to
exercise a lien on the goods.
TERMIANTION OF LIEN:
The unpaid seller losses his lien in the following cases:
(i) When he delivers the goods to a carrier or other bailee for the
purposes of transmission to the buyer without reserving the right to
disposal of the goods.
(ii) When the possession of the good is obtained lawfully by the
buyer or his agent.
(iii) When the seller waives his right of lien on the goods.
(iv) It may be noted that right of lien if once lost, will not revive if the
buyer delivers the goods to the seller for any particular purpose.
EXAMPLE:
Where a refrigerator after being sold was delivered to the
buyer and since it was not functioning properly the buyer delivered
back the same to the seller for repairs, it was held that the seller
could not exercise his lien over the refrigerator.
(b) RIGHT OF STOPPAGE OF GOODS IN TRANSIT:
The second right of the unpaid seller is to stop the goods in
transit. Goods in transit mean that the goods must be neither with
the seller, nor with the buyer nor with their agent. They should be in
the custody of a carrier. He can regain possession of the goods as long
as they are in course of transit and retain them until payment or
tender of the price.
RIGHT OF STOPPAGE:
The unpaid seller can exercise this right under the following
circumstances.
(i) When the buyer becomes insolvent;
(ii) When the buyer or his agent takes delivery of the goods before their
arrival at the appointed destination.
(iv) when the buyer requests the carrier to carry the goods to a new
destination after the original destination is reached.
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(v) When the carrier wrongfully refuses to deliver the goods to the
buyer or his agent.
(vi) When part delivery of the goods has been made to the buyer or
his agent with the intention of delivering the whole of the goods.
EXAMPLE:
A sells 20 bags of cement to B. a gives the delivery of the
cement to carrier to carry to B. Later on A gets news that B has
becomes insolvent. A can stop delivery of cement in transit to B.
(c) RIGHT OF RESSALE:
The third right of unpaid seller is resale. He can resell the
goods in the following cases:
(i) Where the goods are of perishable nature; or
(ii) Where there is express provision regarding such right in the
contract; or
(iii) Where the seller gives a notice to the buyer of his intention to
resell and the buyer does not pay or tender the price within a
reasonable time.
SALE WITH NOTICE:
(i) If on a resale there is a loss to the seller, he can recover it from
the defaulting buyer.
(ii) If the resale results in profit, the seller can retain it.
SALE WITH NOTICE:
(i) If the unpaid seller sells without giving notice to buyer he will
not be entitled to recover damages from buyer.
(ii) In case of profit on resale, the buyer will be entitled to profit.
EXAMPLE:
(a) X sells some vegetables to Y on credit. Y does not pay. X can
resut to any other person.
(b) M sells 100 blankets to N for Rs.1 Lac and gives him one week
for payment N does not pay. M can resell those blankets to any other
person.
(3) RIGHTS OF UNPAID SELLER AGAINST THE BUYER
PERSONALLY:
The unpaid seller, in addition to his rights against goods has
the following rights against the buyer personally:
(a) SUIT FOR PRICE:
Where the ownership in goods has passed to the buyer and the
buyer refuses to pay the price according to the terms of the contract,
the seller can use the buyer for price, irrespective of delivery of
goods.
(v) When the carrier wrongfully refuses to deliver the goods to the
buyer or his agent.
(vi) When part delivery of the goods has been made to the buyer or
his agent with the intention of delivering the whole of the goods.
EXAMPLE:
A sells 20 bags of cement to B. a gives the delivery of the
cement to carrier to carry to B. Later on A gets news that B has
becomes insolvent. A can stop delivery of cement in transit to B.
(c) RIGHT OF RESSALE:
The third right of unpaid seller is resale. He can resell the
goods in the following cases:
(i) Where the goods are of perishable nature; or
(ii) Where there is express provision regarding such right in the
contract; or
(iii) Where the seller gives a notice to the buyer of his intention to
resell and the buyer does not pay or tender the price within a
reasonable time.
SALE WITH NOTICE:
(i) If on a resale there is a loss to the seller, he can recover it from
the defaulting buyer.
(ii) If the resale results in profit, the seller can retain it.
SALE WITH NOTICE:
(i) If the unpaid seller sells without giving notice to buyer he will
not be entitled to recover damages from buyer.
(ii) In case of profit on resale, the buyer will be entitled to profit.
EXAMPLE:
(a) X sells some vegetables to Y on credit. Y does not pay. X can
resut to any other person.
(b) M sells 100 blankets to N for Rs.1 Lac and gives him one week
for payment N does not pay. M can resell those blankets to any other
person.
(3) RIGHTS OF UNPAID SELLER AGAINST THE BUYER
PERSONALLY:
The unpaid seller, in addition to his rights against goods has
the following rights against the buyer personally:
(a) SUIT FOR PRICE:
Where the ownership in goods has passed to the buyer and the
buyer refuses to pay the price according to the terms of the contract,
the seller can use the buyer for price, irrespective of delivery of
goods.
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EXAMPLE:
A sells the goods to B for Rs.1 Lac refuse to pay the price. A
can use for the price.
(b) SUIT FOR DAMAGES FOR NON -ACCEPTANCE:
Where the buyer refuses to accept and pay for the goods the
seller may use him for damages for non-acceptance. The seller can
recover damages only. He cannot recover full price.
EXAMPLE:
A sells the goods to B. B refuses to take the goods and pay the
price. A can use B to compel to take the goods.
(c) SUIT FOR SPECIAL DAMAGES AND INTEREST:
The seller can use the buyer for special damages also where
the parties are aware of such loss at the time of contract the unpaid
seller can recover interest at a reasonable rate on he total unpaid
price of goods sold, from the time it was due it is actually paid.
EXAMPLE:
X sells some goods to Y. Y does not pay the price. X can use
for damages and interest on unpaid price if the parties are aware of
such circumstances.
BUYER’S RIGHTS AGAISNT SELLER:
The buyer has the following rights against the seller for
breach of contract:
1. SUIT FOR DAMAGES FOR NON -DELIVERY:
Where the seller wrongfully neglects or refuses to deliver the
goods to the buyer the buyer may use the seller for damages for non-
delivery.
EXAMPLE:
A sells iron to B at Rs.50 thousand a ton. A does not supply
the iron on a stated date. The price of iron increases to 60 thousand a
ton. B can use for damages arising due to non-delivery.
2. SUIT FOR SPECIFIC PERFORMANCE:
Were there is breach of a contract for the sale of specific
goods the buyer may life a suit for specific performance. This remedy
is granted only when damages would not be adequate remedy. It is
granted when subject-matter of the contract is rare goods, say, a
picture by a dead painter.
EXAMPLE:
A Promise to sell B a rare painting. A refuse to give painting.
B can use for specific performance.
3. SUIT FOR DAMAGES FOR BREACH OF WARRANTY:
EXAMPLE:
A sells the goods to B for Rs.1 Lac refuse to pay the price. A
can use for the price.
(b) SUIT FOR DAMAGES FOR NON -ACCEPTANCE:
Where the buyer refuses to accept and pay for the goods the
seller may use him for damages for non-acceptance. The seller can
recover damages only. He cannot recover full price.
EXAMPLE:
A sells the goods to B. B refuses to take the goods and pay the
price. A can use B to compel to take the goods.
(c) SUIT FOR SPECIAL DAMAGES AND INTEREST:
The seller can use the buyer for special damages also where
the parties are aware of such loss at the time of contract the unpaid
seller can recover interest at a reasonable rate on he total unpaid
price of goods sold, from the time it was due it is actually paid.
EXAMPLE:
X sells some goods to Y. Y does not pay the price. X can use
for damages and interest on unpaid price if the parties are aware of
such circumstances.
BUYER’S RIGHTS AGAISNT SELLER:
The buyer has the following rights against the seller for
breach of contract:
1. SUIT FOR DAMAGES FOR NON -DELIVERY:
Where the seller wrongfully neglects or refuses to deliver the
goods to the buyer the buyer may use the seller for damages for non-
delivery.
EXAMPLE:
A sells iron to B at Rs.50 thousand a ton. A does not supply
the iron on a stated date. The price of iron increases to 60 thousand a
ton. B can use for damages arising due to non-delivery.
2. SUIT FOR SPECIFIC PERFORMANCE:
Were there is breach of a contract for the sale of specific
goods the buyer may life a suit for specific performance. This remedy
is granted only when damages would not be adequate remedy. It is
granted when subject-matter of the contract is rare goods, say, a
picture by a dead painter.
EXAMPLE:
A Promise to sell B a rare painting. A refuse to give painting.
B can use for specific performance.
3. SUIT FOR DAMAGES FOR BREACH OF WARRANTY:
65
Where there is breach of warranty by the seller, the buyer is
entitled to use for damages if he has paid the price to seller. But if the
buyer has not yet paid the price he may ask the seller for a
reasonable reduction in price.
EXAMPLE:
A promises to sell and deliver tables to B on 1
st
March 2000.
But A delivers on 10
th
March. B can claim damages.
4. SUIT FOR CANCELLATION AND DAMAGES FOR BREACH OF
CONDITION:
Where thee is a breach of condition by the seller, the buyer
can avoid the contract and claim damages.
EXAMPLE:
A Promise to sell to B Sony TV. A sends Sharp TV to B. B can
avoid the contract and claim damages.
CARRIAGE OF GOODS BY SEA
INTRODUCTION:
For the purpose of study of law pertaining to the carriage of
goods by sea the following Acts are relevant.
1. Bill of Lading Act, 1856
2. Carriage of Goods by Sea Act, 1925.
3. Merchant and shipping Act, 1894.
The above Acts have gone into a number of modifications with
a view to bring them up to date.
CONTRACT AFFREIGHTMENT :
A contract for the carriage of goods by Sea is called as a
Contract of affreightment. The word affreightment means t he hiring
of a ship. In other words a contract of Affreightment is a contract
between the Consignor and the Shipping Company in which the
consignor agrees to hire at a price called freight, a space in a ship for
the carriage of the goods.
CHARTER PARTY
MEANING:
A charter party is a contract entered into for the hiring of the
whole ship to carry goods from one port to the other part. It also
refers to the written document wherein the contract for hiring of the
whole ship for the carriage of goods is expressed. The one who thus
acquires the ship is called the character.
Where there is breach of warranty by the seller, the buyer is
entitled to use for damages if he has paid the price to seller. But if the
buyer has not yet paid the price he may ask the seller for a
reasonable reduction in price.
EXAMPLE:
A promises to sell and deliver tables to B on 1
st
March 2000.
But A delivers on 10
th
March. B can claim damages.
4. SUIT FOR CANCELLATION AND DAMAGES FOR BREACH OF
CONDITION:
Where thee is a breach of condition by the seller, the buyer
can avoid the contract and claim damages.
EXAMPLE:
A Promise to sell to B Sony TV. A sends Sharp TV to B. B can
avoid the contract and claim damages.
CARRIAGE OF GOODS BY SEA
INTRODUCTION:
For the purpose of study of law pertaining to the carriage of
goods by sea the following Acts are relevant.
1. Bill of Lading Act, 1856
2. Carriage of Goods by Sea Act, 1925.
3. Merchant and shipping Act, 1894.
The above Acts have gone into a number of modifications with
a view to bring them up to date.
CONTRACT AFFREIGHTMENT :
A contract for the carriage of goods by Sea is called as a
Contract of affreightment. The word affreightment means t he hiring
of a ship. In other words a contract of Affreightment is a contract
between the Consignor and the Shipping Company in which the
consignor agrees to hire at a price called freight, a space in a ship for
the carriage of the goods.
CHARTER PARTY
MEANING:
A charter party is a contract entered into for the hiring of the
whole ship to carry goods from one port to the other part. It also
refers to the written document wherein the contract for hiring of the
whole ship for the carriage of goods is expressed. The one who thus
acquires the ship is called the character.
66
KINDS OF CHARACTER PARTY
The following are the kinds of charter party.
1. VOYAGE CHARTER PARTY :
When the ship is chartered for a particular voyage, it is
known as a voyage charter party. A voyage charter is a contract to
carry specified goods on a particular voyage on a freight calculated
according to the quantity of cargo carried.
2. TIME CHARTER PARTY:
When the vessel is chartered for a particular period,
irrespective of the number of voyages that it may have to undertake
and perform, it is called time charter.
CLAUSES OF A CHARTER PARTY
The following are the importance clauses in a charter party.
1. NAMES OF THE PARTIES AND OF SHIP:
This clause deals with the name and description of the parties
and the steamer. The name of the ship which is to carry out the
voyage is a condition of the charter party.
2. CLASS OF THE CHARTER PARTY :
This clause deals with the terms of which this ship is hired.
3. CLASS OF THE SHIP:
This clause deals with the description of the ship as belonging
to a particular class.
4. NOW AT:
This clause indicates where the ship actually is at the time
charter.
5. SEAWORTHINESS AND THE FITNESS :
This clause amounts to a express warranty of seaworthiness. It
is usually stated as, ‘That at the date of the commencement of the
voyage, the ship shall be tight, staunch and strong, and in every way
fitted for the voyage.”
6. PORT OF LOADING:
This clause specifies the port of loading of the ship. The ship
owner has to bring the ship to the port of loading and has to inform
the character of the readiness of the ship to load.
7. FULL AND COMPLETE CARGO :
The character agrees to provide a full cargo i.e. as much cargo
as the ship can hold.
8. LAY DAYS AND DEMURRAGE :
KINDS OF CHARACTER PARTY
The following are the kinds of charter party.
1. VOYAGE CHARTER PARTY :
When the ship is chartered for a particular voyage, it is
known as a voyage charter party. A voyage charter is a contract to
carry specified goods on a particular voyage on a freight calculated
according to the quantity of cargo carried.
2. TIME CHARTER PARTY:
When the vessel is chartered for a particular period,
irrespective of the number of voyages that it may have to undertake
and perform, it is called time charter.
CLAUSES OF A CHARTER PARTY
The following are the importance clauses in a charter party.
1. NAMES OF THE PARTIES AND OF SHIP:
This clause deals with the name and description of the parties
and the steamer. The name of the ship which is to carry out the
voyage is a condition of the charter party.
2. CLASS OF THE CHARTER PARTY :
This clause deals with the terms of which this ship is hired.
3. CLASS OF THE SHIP:
This clause deals with the description of the ship as belonging
to a particular class.
4. NOW AT:
This clause indicates where the ship actually is at the time
charter.
5. SEAWORTHINESS AND THE FITNESS :
This clause amounts to a express warranty of seaworthiness. It
is usually stated as, ‘That at the date of the commencement of the
voyage, the ship shall be tight, staunch and strong, and in every way
fitted for the voyage.”
6. PORT OF LOADING:
This clause specifies the port of loading of the ship. The ship
owner has to bring the ship to the port of loading and has to inform
the character of the readiness of the ship to load.
7. FULL AND COMPLETE CARGO :
The character agrees to provide a full cargo i.e. as much cargo
as the ship can hold.
8. LAY DAYS AND DEMURRAGE :
67
A charter party generally fixes the number of days called ‘lay
days’ within which the ship to be loaded or discharged.
9. LAW OF MERCHANDISE :
The charter agrees to engage only in lawful trades and carry
lawful merchandise.
10. PAYMENT OF FREIGHT:
Freight is the consideration paid or agreed to be paid by the
chatterer for hiring the ship for carriage of goods between certain
ports. This is a very important clause as it lays down when and how
and to whom the right is payable.
11. SHIP OWNER’S LIEN:
The ship owner has a lien on the goods he carries for the
freight and demurrage due to him, and therefore, he can refuse to
deliver the cargo till the amount due is paid.
IMPLIED WARRANTIES
In addition to what is stated above, the following terms in all
contracts of carriage by sea are implied to be available though the
same may or may not be expressly provided in a charter party;
(a) That the ship is sea worthy at the commencement of the voyage,
i.e. the ship is reasonably fit to encounter the ordinary perils of the
sea during the voyage.
(b) The ship shall be ready to commence the voyage and shall carry
out the same with all reasonable dispatch and diligence.
(c) The ship shall not deviate from the agreed or customary route
except for good cause, such as, to ensure safety of the ship, to effect,
repairs to protect the ship from further damage or to save human
life.
(d) The charterer or the shipper shall not include in his cargo illegal
or contraband goods, or which are dangerous goods.
MATE’S RECEIPT:
When the goods are delivered to a ship for carriage, a receipt
is issued by the Mate of the ship who is an officer under the Captain
thereby acknowledging that he had received the goods as specified
therein on board the ship. It is known as Mate’s Receipt. In fact it is
a provisional or interim receipt, which is subsequently exchanged for
a regular Bill of Lading.
BILL OF LADING
MEANING:
A bill of lading is a document issued by Master of the ship or
the ship owner as the case may be or other agent in exchange of
Mate’s Receipt after the goods are placed on board the ship for being
carried to the named destination.
A charter party generally fixes the number of days called ‘lay
days’ within which the ship to be loaded or discharged.
9. LAW OF MERCHANDISE :
The charter agrees to engage only in lawful trades and carry
lawful merchandise.
10. PAYMENT OF FREIGHT:
Freight is the consideration paid or agreed to be paid by the
chatterer for hiring the ship for carriage of goods between certain
ports. This is a very important clause as it lays down when and how
and to whom the right is payable.
11. SHIP OWNER’S LIEN:
The ship owner has a lien on the goods he carries for the
freight and demurrage due to him, and therefore, he can refuse to
deliver the cargo till the amount due is paid.
IMPLIED WARRANTIES
In addition to what is stated above, the following terms in all
contracts of carriage by sea are implied to be available though the
same may or may not be expressly provided in a charter party;
(a) That the ship is sea worthy at the commencement of the voyage,
i.e. the ship is reasonably fit to encounter the ordinary perils of the
sea during the voyage.
(b) The ship shall be ready to commence the voyage and shall carry
out the same with all reasonable dispatch and diligence.
(c) The ship shall not deviate from the agreed or customary route
except for good cause, such as, to ensure safety of the ship, to effect,
repairs to protect the ship from further damage or to save human
life.
(d) The charterer or the shipper shall not include in his cargo illegal
or contraband goods, or which are dangerous goods.
MATE’S RECEIPT:
When the goods are delivered to a ship for carriage, a receipt
is issued by the Mate of the ship who is an officer under the Captain
thereby acknowledging that he had received the goods as specified
therein on board the ship. It is known as Mate’s Receipt. In fact it is
a provisional or interim receipt, which is subsequently exchanged for
a regular Bill of Lading.
BILL OF LADING
MEANING:
A bill of lading is a document issued by Master of the ship or
the ship owner as the case may be or other agent in exchange of
Mate’s Receipt after the goods are placed on board the ship for being
carried to the named destination.
68
CONTENTS OF BILL OF LADING:
It must be stamped and signed by the ship owner or his agent.
A bill of lading must contain the following:
(a) The leading marks necessary for the identification of the goods.
(b) The number of packages or pieces or the quantity, or weight, as
the case may be, as furnished in writing by the shipper.
(c) The apparent order or condition of the goods.
(d) The name of the ship, the port of the shipment, part of delivery
and person to whom delivery is to be made.
(e) Excepted perils clause.
(f) Amount of freight.
KIND OF BILL OF LADING:
The following are the kinds of the bill of lading.
1. CLEAN BILL OF LADING:
When it is stated in a bill of lading that the goods are in good
order and condition the bill shall be said to be a Clean Bill of
Lading.
2. QUALIFIED BILL OF LADING:
When it is said that the goods received are in a bad condition
the bill of lading in that case is called Qualified Bill of Lading.
3. THROUGH BILL OF LADING:
When the cargo covered by a bill of lading is to be carried
partly by sea and partly by land and freight has been charged for sea
and land transportation, the Bill of Lading is called though Bill of
Lading.
DIFFERENCE BETWEEN BILL OF LADING & CHARTER PARTY
The following are the points of distinction between the two
areas under:
BILL OF LADING CHARTER PARTY
1. A bill of lading is an
evidence of the receipt of the
goods on board the ship as well
as an evidence of the contract for
the carriage of goods.
A charter party is only a
contract relating to the hiring of
the entire or principal part of the
ship.
2. A bill of lading is a
document of title to the goods
specified therein.
A charter party is not a
document of title to the goods.
3. A bill of lading is transferable
by endorsement and delivery.
A charter party is not
transferable.
4. A bill of lading is always for a
particular destination.
A charter party may be for a
particular voyage or for a
particular time.
CONTENTS OF BILL OF LADING:
It must be stamped and signed by the ship owner or his agent.
A bill of lading must contain the following:
(a) The leading marks necessary for the identification of the goods.
(b) The number of packages or pieces or the quantity, or weight, as
the case may be, as furnished in writing by the shipper.
(c) The apparent order or condition of the goods.
(d) The name of the ship, the port of the shipment, part of delivery
and person to whom delivery is to be made.
(e) Excepted perils clause.
(f) Amount of freight.
KIND OF BILL OF LADING:
The following are the kinds of the bill of lading.
1. CLEAN BILL OF LADING:
When it is stated in a bill of lading that the goods are in good
order and condition the bill shall be said to be a Clean Bill of
Lading.
2. QUALIFIED BILL OF LADING:
When it is said that the goods received are in a bad condition
the bill of lading in that case is called Qualified Bill of Lading.
3. THROUGH BILL OF LADING:
When the cargo covered by a bill of lading is to be carried
partly by sea and partly by land and freight has been charged for sea
and land transportation, the Bill of Lading is called though Bill of
Lading.
DIFFERENCE BETWEEN BILL OF LADING & CHARTER PARTY
The following are the points of distinction between the two
areas under:
BILL OF LADING CHARTER PARTY
1. A bill of lading is an
evidence of the receipt of the
goods on board the ship as well
as an evidence of the contract for
the carriage of goods.
A charter party is only a
contract relating to the hiring of
the entire or principal part of the
ship.
2. A bill of lading is a
document of title to the goods
specified therein.
A charter party is not a
document of title to the goods.
3. A bill of lading is transferable
by endorsement and delivery.
A charter party is not
transferable.
4. A bill of lading is always for a
particular destination.
A charter party may be for a
particular voyage or for a
particular time.
69
5. A bill of lading does not
amount to a lease of the ship.
A charter party may amount
to a lease of the ship or a part
thereof.
INDUSTRIAL LAW (SECTION – B)
UNFAIR LABOUR PRACTICES
Unfair labor practices may be on the part of employers, and
the workers.
UNFAIR LABOUR PRACTICES OF EMPLOYERS :
According to section 63(1) the following actions of the
employer trade union of employers or any person on behalf of either
shall be unfair labour practices on the part of the employer:
(a) Impose any condition in a contract of employment seeking to
restrain the right of a person to join a trade union or continue his
membership of a trade union.
(b) Refuse to employ or refuse to continue to employ any person on
the ground that such person is or is not a member of a trade union.
(c) Discriminate against any person in regard to any employment,
promotion, condition of employment or working condition on the
ground that such person is or is not a member of a trade union.
(d) Dismiss, discharge, remove from employment, or transfer a
workman, or injure him in respect of his employment on the ground
that workman wants to become a member of trade union.
(e) Induce any person to refrain from becoming or ceasing to be a
member of a trade union by conferring or offering to confer (give)
any advantage.
(f) Compel or attempt to compel any officer bearer of a CBA to
arrive at a settlement by using intimidation, coercion, pressure,
threat, confinement to a place, physical injury and disconnection of
water, power or telephone facilities or by such other methods.
(g) Interfere with or in any way influence the balloting.
(h) Recruit any new workman during the period of notice of strike.
UNFAIR LABOUR PRACTICES OF WORKMEN :
According to Section 64, the following action of workmen
trade union of workmen or any of its members of office bearer of
trade union shall be unfair labour practices on the part of the
workmen.
(a) Persuade a workman to join or refrain from joining a trade
union during working hours.
5. A bill of lading does not
amount to a lease of the ship.
A charter party may amount
to a lease of the ship or a part
thereof.
INDUSTRIAL LAW (SECTION – B)
UNFAIR LABOUR PRACTICES
Unfair labor practices may be on the part of employers, and
the workers.
UNFAIR LABOUR PRACTICES OF EMPLOYERS :
According to section 63(1) the following actions of the
employer trade union of employers or any person on behalf of either
shall be unfair labour practices on the part of the employer:
(a) Impose any condition in a contract of employment seeking to
restrain the right of a person to join a trade union or continue his
membership of a trade union.
(b) Refuse to employ or refuse to continue to employ any person on
the ground that such person is or is not a member of a trade union.
(c) Discriminate against any person in regard to any employment,
promotion, condition of employment or working condition on the
ground that such person is or is not a member of a trade union.
(d) Dismiss, discharge, remove from employment, or transfer a
workman, or injure him in respect of his employment on the ground
that workman wants to become a member of trade union.
(e) Induce any person to refrain from becoming or ceasing to be a
member of a trade union by conferring or offering to confer (give)
any advantage.
(f) Compel or attempt to compel any officer bearer of a CBA to
arrive at a settlement by using intimidation, coercion, pressure,
threat, confinement to a place, physical injury and disconnection of
water, power or telephone facilities or by such other methods.
(g) Interfere with or in any way influence the balloting.
(h) Recruit any new workman during the period of notice of strike.
UNFAIR LABOUR PRACTICES OF WORKMEN :
According to Section 64, the following action of workmen
trade union of workmen or any of its members of office bearer of
trade union shall be unfair labour practices on the part of the
workmen.
(a) Persuade a workman to join or refrain from joining a trade
union during working hours.
70
(b) Intimidate any person to become or refrain from becoming or to
continue to be or to cease to be member of a trade union.
(c) Induce any person to refrain from becoming or cease to be a
member of trade union by intimidating or conferring any advantage
to any person.
(d) Compel or attempt to compel the employer to accept any
demand by using intimidation coercion. Pressure. Threat,
confinement, physical injury, disconnection of telephone, water or
power facilities or by such other methods.
(e) Commence continues, to take part in or expend or supply money
or support of an illegal strike or a adopt go slow measurers.
(f) Carry any arms or weapons within the premises of an employer
without any legal authority.
COLLECTIVE BARGAINING AGENT :
Section 2 of the industrial Relations Ordinance 1969
“Collective bargaining Agent,” means the trade union or workmen,
which under section 22, is the agent of the workmen in the
establishment or, as the case may be, industry, in the manner of
collective bargaining.
RIGHTS AND DUTIES OF COLLECTIVE BARGAINING AGENTS :
According to Section 22(12), section 23-A and 23-B of the
Ordinance, the collective bargaining agent shall have the following
rights and duties.
(a) To undertake collective bargaining with the employer, or
employees, on matters concerned with employment, non -
employment, the terms of employment of the conditions of work.
(b) To represent all or any of the workmen in any proceedings.
(c) To give notice, and declare a strike in accordance with the
provisions of the Ordinance.
(d) To nominate representative of workmen on the Board of
Trustees of any welfare institutions of provident fund.
(e) To nominate, shop stewards, who act as link between labour and
management.
(f) To nominate workers representatives the management
committee which is to be participate in the management.
(g) To appoint auditors to audit accounts in case workers doubt the
accuracy of the accounts already audited by the management
auditors.
LABOUR IN FACTORIES
FACTORIES ACT 1934:
The law relating to workers employed in factories is contained
in Factories Act 1934; it extends to the whole of Pakistan. It consists
of 82 sections. This act of 1934 was adopted
in Pakistan after Independence. Then several important amendments
have been made in 1972. This Act regulates health safety, welfare,
working conditions, working hours, employment of young persons,
(b) Intimidate any person to become or refrain from becoming or to
continue to be or to cease to be member of a trade union.
(c) Induce any person to refrain from becoming or cease to be a
member of trade union by intimidating or conferring any advantage
to any person.
(d) Compel or attempt to compel the employer to accept any
demand by using intimidation coercion. Pressure. Threat,
confinement, physical injury, disconnection of telephone, water or
power facilities or by such other methods.
(e) Commence continues, to take part in or expend or supply money
or support of an illegal strike or a adopt go slow measurers.
(f) Carry any arms or weapons within the premises of an employer
without any legal authority.
COLLECTIVE BARGAINING AGENT :
Section 2 of the industrial Relations Ordinance 1969
“Collective bargaining Agent,” means the trade union or workmen,
which under section 22, is the agent of the workmen in the
establishment or, as the case may be, industry, in the manner of
collective bargaining.
RIGHTS AND DUTIES OF COLLECTIVE BARGAINING AGENTS :
According to Section 22(12), section 23-A and 23-B of the
Ordinance, the collective bargaining agent shall have the following
rights and duties.
(a) To undertake collective bargaining with the employer, or
employees, on matters concerned with employment, non -
employment, the terms of employment of the conditions of work.
(b) To represent all or any of the workmen in any proceedings.
(c) To give notice, and declare a strike in accordance with the
provisions of the Ordinance.
(d) To nominate representative of workmen on the Board of
Trustees of any welfare institutions of provident fund.
(e) To nominate, shop stewards, who act as link between labour and
management.
(f) To nominate workers representatives the management
committee which is to be participate in the management.
(g) To appoint auditors to audit accounts in case workers doubt the
accuracy of the accounts already audited by the management
auditors.
LABOUR IN FACTORIES
FACTORIES ACT 1934:
The law relating to workers employed in factories is contained
in Factories Act 1934; it extends to the whole of Pakistan. It consists
of 82 sections. This act of 1934 was adopted
in Pakistan after Independence. Then several important amendments
have been made in 1972. This Act regulates health safety, welfare,
working conditions, working hours, employment of young persons,
71
leave and other provisions relating to labour employed in the
factories.
DEFINITIONS:
Section 2 of the Factories Act, 1934 defines the different terms
as follows:
ADOLESCENT:
An adolescent means a person who has completed his fifteenth
year but has not completed his seventeenth year.
ADULT:
An adult means a person who has not completed his
seventeenth year.
CHILD:
A child means a person who has not completed his fifteenth
years.
DAY:
A day means a period of 24 hours beginning at mid night.
POWER:
Power means electrical energy and any other form of energy.
Which is mechanically transmitted and is not generated by human or
animal agency.
APPOINTMENT:
The Provincial Government is authorized to appoint the
inspector. Every District Magistrate works as an inspector of factory
in his district. The inspector can exercise his powers within his
district.
Any person who is interested in any industry cannot be
appointed for the post and if he already holds the posts he cannot
retain it.
POWER OF INSPECTOR:
According to section 11, the powers of inspector are as under:-
1. He can enter any premise, which is used as a factory or by the
existing circumstances can be deemed a factory.
2. He can make necessary examination of the premises, plants, and
of any prescribed registers.
3. He can take on the spot or otherwise such evidence of any
person may be necessary.
4. He can exercise such other powers as may be necessary for the
purposes of the Act.
leave and other provisions relating to labour employed in the
factories.
DEFINITIONS:
Section 2 of the Factories Act, 1934 defines the different terms
as follows:
ADOLESCENT:
An adolescent means a person who has completed his fifteenth
year but has not completed his seventeenth year.
ADULT:
An adult means a person who has not completed his
seventeenth year.
CHILD:
A child means a person who has not completed his fifteenth
years.
DAY:
A day means a period of 24 hours beginning at mid night.
POWER:
Power means electrical energy and any other form of energy.
Which is mechanically transmitted and is not generated by human or
animal agency.
APPOINTMENT:
The Provincial Government is authorized to appoint the
inspector. Every District Magistrate works as an inspector of factory
in his district. The inspector can exercise his powers within his
district.
Any person who is interested in any industry cannot be
appointed for the post and if he already holds the posts he cannot
retain it.
POWER OF INSPECTOR:
According to section 11, the powers of inspector are as under:-
1. He can enter any premise, which is used as a factory or by the
existing circumstances can be deemed a factory.
2. He can make necessary examination of the premises, plants, and
of any prescribed registers.
3. He can take on the spot or otherwise such evidence of any
person may be necessary.
4. He can exercise such other powers as may be necessary for the
purposes of the Act.
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DUTIES OF INSPECTOR:
According to section 11, the duties of the inspector are as under:-
1. He can operate within the assigned local limits.
2. He can act as subordinate to specified authority.
3. He can prohibit the employment of any person.
4. He can direct the manager to prevent admission of a child who
cannot be lawfully employed.
CHIEF INSPECTOR
APPOINTMENT:
According to section 10(2) the Provincial Government may
appoint any person as a chief inspector. The Chief Inspector in
addition to the powers conferred on him shall exercise the inspector.
The Chief Inspector in addition to the powers conferred on him shall
be a public servant and be subordinate to such authority as the
Provincial Government may specify.
CERTIFYING SURGEON
APPOINTMENT:
As it is necessary that the workers of a factory shall have good
health and be fit for the work of the factory, the Provincial
Government may appoint a registered medical practitioner as a
certifying surgeon for the local limits as may be assigned to him. The
certifying surgeon may delegate his powers to another registered
medical practitioner for issuing certificates of fitness for employment
for three months only.
HEATLH OF WORKERS :
It is the duty of owner of the factory to keep good working
condition in order to protect the health of the workers. The factories
Act provides the following provisions in this respect.
1. CLEANLINESS:
The employer is required to keep the factory premises neat
and clean by daily sweeping, weekly washing every 14 months white
washing every 5 Years repairing and arranging proper drainage.
2. DISPOSAL OF WASTE AND WATER :
Every employer is bound to take proper and effective
measures for the disposal of wastes resulting from the manufacturing
process carried on in he factory.
3. VENTILATION AND TEMPERATURE :
It is legally required that in every room in which
manufacturing process is carried on, proper arrangement should be
DUTIES OF INSPECTOR:
According to section 11, the duties of the inspector are as under:-
1. He can operate within the assigned local limits.
2. He can act as subordinate to specified authority.
3. He can prohibit the employment of any person.
4. He can direct the manager to prevent admission of a child who
cannot be lawfully employed.
CHIEF INSPECTOR
APPOINTMENT:
According to section 10(2) the Provincial Government may
appoint any person as a chief inspector. The Chief Inspector in
addition to the powers conferred on him shall exercise the inspector.
The Chief Inspector in addition to the powers conferred on him shall
be a public servant and be subordinate to such authority as the
Provincial Government may specify.
CERTIFYING SURGEON
APPOINTMENT:
As it is necessary that the workers of a factory shall have good
health and be fit for the work of the factory, the Provincial
Government may appoint a registered medical practitioner as a
certifying surgeon for the local limits as may be assigned to him. The
certifying surgeon may delegate his powers to another registered
medical practitioner for issuing certificates of fitness for employment
for three months only.
HEATLH OF WORKERS :
It is the duty of owner of the factory to keep good working
condition in order to protect the health of the workers. The factories
Act provides the following provisions in this respect.
1. CLEANLINESS:
The employer is required to keep the factory premises neat
and clean by daily sweeping, weekly washing every 14 months white
washing every 5 Years repairing and arranging proper drainage.
2. DISPOSAL OF WASTE AND WATER :
Every employer is bound to take proper and effective
measures for the disposal of wastes resulting from the manufacturing
process carried on in he factory.
3. VENTILATION AND TEMPERATURE :
It is legally required that in every room in which
manufacturing process is carried on, proper arrangement should be
73
made by providing adequate ventilation for circulation of fresh air
and proper machinery should be taken to keep the temperature of
the room at such a degree that it should not effect the health of the
workers adversely.
4. DUST AND FUMES:
Proper measures may be adopted to avoid the accumulation of
the dust and fumes and their inhalation by the workers to safe guard
their health from the injurious effect in every room where due to
manufacturing process dust and fumes or any other impurity of that
the nature is created.
5. ARTIFICIAL HUMIDIFICATION:\
Where the manufacturing process creates so much heat it
consumes all the moisture present in the atmosphere proper and
effective arrangement must be made to create humidity necessary to
save the human skin from cracking and also for keeping the room
cool.
6. OVERCROWDING :
In a factory no workroom should be overcrowd to an extent
injurious to the health of the workmen working therein. In every
workroom thee must be 500 cubic feet of space of every worker.
7. LIGHTING:
Sufficient and suitable lighting natural or artificial or both are
required to be provided and maintained. In case of a failure of an
ordinary electric system, emergency lighting of special points as in
work room and passages are required to be maintained in such a
manner that these will function automatically.
8. DRINKING WATER:
Suitable points, which are conveniently suitable for all
workers employed in a factory, are required to be provided and
maintained for sufficient supply for wholesome drinking water. In
every factory where more than 250 workers are ordinary employed
provision shall be made for cooling the drinking water during the hot
weather.
9. LATRINES AND URINALS:
Sufficient latrines and urinals are required to be provided
separately for males and females. These should be adequately lighted
and ventilated and these are required to be maintained in a clean and
sanitary condition at all times, with suitable detergence or
disinfections or with both.
10. SPITTOONS:
Sufficient numbers of spittoons are required to be provided at
convenient places and should be maintained with clean and hygienic
conditions.
11. PRECAUTIONS AGAINST CONTAGIOUS OR INFECTIOUS
DISEASE:
The factory doctor will ensure that each worker in a factory is
not suffering from any contagious or infectious disease. The fee of
examination of workers shall be borne by the occupier of the factory.
made by providing adequate ventilation for circulation of fresh air
and proper machinery should be taken to keep the temperature of
the room at such a degree that it should not effect the health of the
workers adversely.
4. DUST AND FUMES:
Proper measures may be adopted to avoid the accumulation of
the dust and fumes and their inhalation by the workers to safe guard
their health from the injurious effect in every room where due to
manufacturing process dust and fumes or any other impurity of that
the nature is created.
5. ARTIFICIAL HUMIDIFICATION:\
Where the manufacturing process creates so much heat it
consumes all the moisture present in the atmosphere proper and
effective arrangement must be made to create humidity necessary to
save the human skin from cracking and also for keeping the room
cool.
6. OVERCROWDING :
In a factory no workroom should be overcrowd to an extent
injurious to the health of the workmen working therein. In every
workroom thee must be 500 cubic feet of space of every worker.
7. LIGHTING:
Sufficient and suitable lighting natural or artificial or both are
required to be provided and maintained. In case of a failure of an
ordinary electric system, emergency lighting of special points as in
work room and passages are required to be maintained in such a
manner that these will function automatically.
8. DRINKING WATER:
Suitable points, which are conveniently suitable for all
workers employed in a factory, are required to be provided and
maintained for sufficient supply for wholesome drinking water. In
every factory where more than 250 workers are ordinary employed
provision shall be made for cooling the drinking water during the hot
weather.
9. LATRINES AND URINALS:
Sufficient latrines and urinals are required to be provided
separately for males and females. These should be adequately lighted
and ventilated and these are required to be maintained in a clean and
sanitary condition at all times, with suitable detergence or
disinfections or with both.
10. SPITTOONS:
Sufficient numbers of spittoons are required to be provided at
convenient places and should be maintained with clean and hygienic
conditions.
11. PRECAUTIONS AGAINST CONTAGIOUS OR INFECTIOUS
DISEASE:
The factory doctor will ensure that each worker in a factory is
not suffering from any contagious or infectious disease. The fee of
examination of workers shall be borne by the occupier of the factory.
74
12. VACCINATION AND INOCULATION :
Each worker in a factory shall be vaccinated and inoculated
against such diseases. The expenses of such vaccination and
inoculation shall be borne by the occupier of the factory.
SAFETY OF WORKERS
The Factories Act ahs imposed the duty upon an employer of
a factory to comply with the provisions with regard to the safety of
the workers. The employer will be responsible for negligence in this
respect. The various provisions regarding safety are as under:-
1. PRECAUTIONS AGAINST FIRE:
Even factory must provide exists for escape in case of fire. The
doors of the factory shall not be locked, while the factory is in
operation and all doors must open outwards. Alarms shall be ready
to warn workers in case of fire.
2. FENCING OF MACHINERY:
All dangerous type of machines shall be fenced so as to ensure
safety of the workers working on such machines. Every screw, bolt,
shaft, spindle, wheel and pinion and all spur toothed and friction
gearing in motion shall be securely fenced.
3. MACHINERY IN MOTION :
While machinery is in motion, an examination can only be
carried out by a trained male adult worker, wearing tight fitting
clothing. The name of such a worker has been recorded in the
register.
4. EMPLOYMENT ON DANGEROUS MACHINE :
A child or adolescent shall not be allowed to work on a
machine specified as dangerous by the Provincial Government unless
he has been fully instructed and in under supervision of a person
with through knowledge and experience of the machine.
5. CUTTING OF POWER:
There shall be suitable stinking gear or other mechanical
appliances to be used for moving driving belts to and form fast and
loose pulleys, which form part of the transmission machinery. There
shall also be maintained and used in every workroom some efficient
means of cutting off the power promptly from the running
machinery.
6. SELF ACTING MACHINE:
In any factory traversing part of a self acting machine and the
material carried on it shall not be allowed to run within a distance of
18 inches from any fixed structure if the space cover which it runs is
a space over which a person is liable to pass.
7. CASING OF NEW MACHINERY :
If new machinery is intended to be driven by mechanical
power the requirements as to the sinking of the set screws and
guarding of gearings etc must be complied with.
8. COTTON OPENERS:
12. VACCINATION AND INOCULATION :
Each worker in a factory shall be vaccinated and inoculated
against such diseases. The expenses of such vaccination and
inoculation shall be borne by the occupier of the factory.
SAFETY OF WORKERS
The Factories Act ahs imposed the duty upon an employer of
a factory to comply with the provisions with regard to the safety of
the workers. The employer will be responsible for negligence in this
respect. The various provisions regarding safety are as under:-
1. PRECAUTIONS AGAINST FIRE:
Even factory must provide exists for escape in case of fire. The
doors of the factory shall not be locked, while the factory is in
operation and all doors must open outwards. Alarms shall be ready
to warn workers in case of fire.
2. FENCING OF MACHINERY:
All dangerous type of machines shall be fenced so as to ensure
safety of the workers working on such machines. Every screw, bolt,
shaft, spindle, wheel and pinion and all spur toothed and friction
gearing in motion shall be securely fenced.
3. MACHINERY IN MOTION :
While machinery is in motion, an examination can only be
carried out by a trained male adult worker, wearing tight fitting
clothing. The name of such a worker has been recorded in the
register.
4. EMPLOYMENT ON DANGEROUS MACHINE :
A child or adolescent shall not be allowed to work on a
machine specified as dangerous by the Provincial Government unless
he has been fully instructed and in under supervision of a person
with through knowledge and experience of the machine.
5. CUTTING OF POWER:
There shall be suitable stinking gear or other mechanical
appliances to be used for moving driving belts to and form fast and
loose pulleys, which form part of the transmission machinery. There
shall also be maintained and used in every workroom some efficient
means of cutting off the power promptly from the running
machinery.
6. SELF ACTING MACHINE:
In any factory traversing part of a self acting machine and the
material carried on it shall not be allowed to run within a distance of
18 inches from any fixed structure if the space cover which it runs is
a space over which a person is liable to pass.
7. CASING OF NEW MACHINERY :
If new machinery is intended to be driven by mechanical
power the requirements as to the sinking of the set screws and
guarding of gearings etc must be complied with.
8. COTTON OPENERS:
75
No women or child is allowed to be employed in any part of a
factory for pressing cotton in which a cotton opener is at work. They
are allowed where the delivery end is situated and thee is a partition
wall which is up to roof and there is no door opening in the partition
wall.
9. CRANES AND LIFTING MACHINERY :
All parts of cranes and other lifting machines must be of good
construction and be properly maintained. These must be thoroughly
examined at least once a year and must not be overloaded. The crane
must be at a specified distance from the wheel track of the crane.
10. HOISTS AND LIFTS:
Every hoist and lift shall be of good mechanical construction,
sound material and adequate strength and properly maintained.
They must be examined once in every six months. Every hoist way
and lift way shall be sufficiently protected by an enclosure fitted with
gates. Every such gate will be fitted with interlocking or other
efficient device.
11. EXCESSIVE WEIGHTS:
In any factory a person shall not be allowed to lift or move
any load so heavy as may cause him injury. The Provincial
Government may make rules prescribing maximum weights that may
be lifted, carried or moved by adult man, adolescent and children
employed in factories or in any process carried on in a factory.
12. PROTECTION OF EYES:
In every factory effective’s screens or suitable goggles should
be provided for the protection of persons employed on any
manufacturing process or in the immediate vicinity of the process if
such a process involves of injury to the eyes. The worker is required
to use protective devices provided for them.
WELFARE OF THE WORKERS
The Factories Act provides the following provisions regarding
the welfare of workers.
1. PROVISION OF CANTEEN:
In a factory where more than 250 workers are employed, the
employer must provide an adequate canteen for the use of the
worker.
2. WELFARE OFFICER:
In a factory where not less than 500 workers are employed,
the manager shall employ such number of welfare offices, having
such qualifications as may be prescribed.
No women or child is allowed to be employed in any part of a
factory for pressing cotton in which a cotton opener is at work. They
are allowed where the delivery end is situated and thee is a partition
wall which is up to roof and there is no door opening in the partition
wall.
9. CRANES AND LIFTING MACHINERY :
All parts of cranes and other lifting machines must be of good
construction and be properly maintained. These must be thoroughly
examined at least once a year and must not be overloaded. The crane
must be at a specified distance from the wheel track of the crane.
10. HOISTS AND LIFTS:
Every hoist and lift shall be of good mechanical construction,
sound material and adequate strength and properly maintained.
They must be examined once in every six months. Every hoist way
and lift way shall be sufficiently protected by an enclosure fitted with
gates. Every such gate will be fitted with interlocking or other
efficient device.
11. EXCESSIVE WEIGHTS:
In any factory a person shall not be allowed to lift or move
any load so heavy as may cause him injury. The Provincial
Government may make rules prescribing maximum weights that may
be lifted, carried or moved by adult man, adolescent and children
employed in factories or in any process carried on in a factory.
12. PROTECTION OF EYES:
In every factory effective’s screens or suitable goggles should
be provided for the protection of persons employed on any
manufacturing process or in the immediate vicinity of the process if
such a process involves of injury to the eyes. The worker is required
to use protective devices provided for them.
WELFARE OF THE WORKERS
The Factories Act provides the following provisions regarding
the welfare of workers.
1. PROVISION OF CANTEEN:
In a factory where more than 250 workers are employed, the
employer must provide an adequate canteen for the use of the
worker.
2. WELFARE OFFICER:
In a factory where not less than 500 workers are employed,
the manager shall employ such number of welfare offices, having
such qualifications as may be prescribed.
76
3. SHELTERS FOR REST:
In every factory where more than 150 workers are ordinarily
employed, an adequate shelter of prescribed standard shall be
provided for use of the workers during periods of rest.
4. FIRST AID APPLIANCES:
The manager or occupier of a factory is required to maintain
stores of First Aid appliances and provide for their proper custody
and use.
WORKING HOURS
DAILY HOURS:
A worker may be required to work in a factory for not more
than nine hours in a day; however a male adult worker may work for
ten hours a day in seasonal factory.
WEKLY HOURS:
A worker in a factory shall not be allowed to work for more
than forty-eight hours in a week. If it is seasonal factory, the worker
shall not be allowed to work for more than fifty hours in a week. If
for technical reasons, a work is continuous throughout the day, a
worker may be allowed to work for fifty-six hours in a week.
DOUBLE EMPLOYMENT :
An adult worker shall not be allowed to work in any factory
on any day on which he has already been working in any other
factory except under specified circumstance.
OVERTIME WORK:
If a worker in a non seasonal factory has worked for more
then nine hours in a day, or more than forty eight hours in a week, he
will be entitled to overtime pay at the rate of twice his ordinary rate
of pay.
CHILD WORKERS
WORKING HOURS:
A child shall not be allowed to work in factory for more than 5
hours on any day. The span of time during which the child workers
or adolescent, can be allowed to work in a factory is from 6 a.m. to 7
p.m. Sec. 54.
FITNES CERTIFICATES:
A child or an adolescent, in spite of attaining the required age,
cannot be allowed to work in a factory without obtaining a fitness
certificate form a certifying surgeon.
REGISTER OF CHILD WORKERS :
3. SHELTERS FOR REST:
In every factory where more than 150 workers are ordinarily
employed, an adequate shelter of prescribed standard shall be
provided for use of the workers during periods of rest.
4. FIRST AID APPLIANCES:
The manager or occupier of a factory is required to maintain
stores of First Aid appliances and provide for their proper custody
and use.
WORKING HOURS
DAILY HOURS:
A worker may be required to work in a factory for not more
than nine hours in a day; however a male adult worker may work for
ten hours a day in seasonal factory.
WEKLY HOURS:
A worker in a factory shall not be allowed to work for more
than forty-eight hours in a week. If it is seasonal factory, the worker
shall not be allowed to work for more than fifty hours in a week. If
for technical reasons, a work is continuous throughout the day, a
worker may be allowed to work for fifty-six hours in a week.
DOUBLE EMPLOYMENT :
An adult worker shall not be allowed to work in any factory
on any day on which he has already been working in any other
factory except under specified circumstance.
OVERTIME WORK:
If a worker in a non seasonal factory has worked for more
then nine hours in a day, or more than forty eight hours in a week, he
will be entitled to overtime pay at the rate of twice his ordinary rate
of pay.
CHILD WORKERS
WORKING HOURS:
A child shall not be allowed to work in factory for more than 5
hours on any day. The span of time during which the child workers
or adolescent, can be allowed to work in a factory is from 6 a.m. to 7
p.m. Sec. 54.
FITNES CERTIFICATES:
A child or an adolescent, in spite of attaining the required age,
cannot be allowed to work in a factory without obtaining a fitness
certificate form a certifying surgeon.
REGISTER OF CHILD WORKERS :
77
Where children are employed in a factory the manager of that
factory shall maintain a register of child workers showing the name,
age of each child, nature of his work, group in which he is included,
and the number of his certificates of fitness.
OTHER RESTRICTIONS:
Child workers and adolescent workers are not allowed to
perform double duty. They are not allowed to work at a place where
cotton opener is at work.
They cannot oil or clean the machines while they are in
motion. They are not allowed to work on dangerous machines.
WOMEN WORKERS
The Factories Act provides the following provisions relating to
women Workers.
MACHINERY IN MOTION :
A woman shall not be allowed to clean, lubricate or adjust any
part of the machinery while in motion, or work between moving
parts, or between moving and fixed parts of machinery in motion.
COTTON OPENERS:
A woman shall not employ in any part of the factory for
pressing cotton in which a cotton opener is at work. However they
are allowed if the cotton openers are located on different sides.
SUITABLE ROOM:
Where more than 50 women workers are ordinarily employed
there shall be provided a suitable room from for use of children
under 6 years of age.
WORKING HOURS:
A woman shall not be allowed or required to work for more
than 9 hours in a day and no exemption in this respect will be
granted.
WORKING TIME:
A woman shall not be allowed to work accept between 6
a.m. and 7 p.m. However, the Provincial Government may allowed to
work between 5 a.m. and 7 p.m. in special cases.
LABOUR COURT
The provincial Government may establish as many labour
courts as it considers necessary. A labour court shall consist of one
Presiding Officer appointed by the Provincial Government who shall
be qualified to be a judge of High Court. The condition is relaxable in
the case of Baluchistan.
POWER AND FUNCTIONS :
Where children are employed in a factory the manager of that
factory shall maintain a register of child workers showing the name,
age of each child, nature of his work, group in which he is included,
and the number of his certificates of fitness.
OTHER RESTRICTIONS:
Child workers and adolescent workers are not allowed to
perform double duty. They are not allowed to work at a place where
cotton opener is at work.
They cannot oil or clean the machines while they are in
motion. They are not allowed to work on dangerous machines.
WOMEN WORKERS
The Factories Act provides the following provisions relating to
women Workers.
MACHINERY IN MOTION :
A woman shall not be allowed to clean, lubricate or adjust any
part of the machinery while in motion, or work between moving
parts, or between moving and fixed parts of machinery in motion.
COTTON OPENERS:
A woman shall not employ in any part of the factory for
pressing cotton in which a cotton opener is at work. However they
are allowed if the cotton openers are located on different sides.
SUITABLE ROOM:
Where more than 50 women workers are ordinarily employed
there shall be provided a suitable room from for use of children
under 6 years of age.
WORKING HOURS:
A woman shall not be allowed or required to work for more
than 9 hours in a day and no exemption in this respect will be
granted.
WORKING TIME:
A woman shall not be allowed to work accept between 6
a.m. and 7 p.m. However, the Provincial Government may allowed to
work between 5 a.m. and 7 p.m. in special cases.
LABOUR COURT
The provincial Government may establish as many labour
courts as it considers necessary. A labour court shall consist of one
Presiding Officer appointed by the Provincial Government who shall
be qualified to be a judge of High Court. The condition is relaxable in
the case of Baluchistan.
POWER AND FUNCTIONS :
78
The functions of the labour court are:
(a) Adjudicate (pass judgment) and determine industrial dispute.
(b) Enquire into and adjudicate any matter relating to
implementation or violation of settlement.
(c) Try offences a may be referred to it.
(d) Exercise and perform such other powers functions as may be
assigned to it.
(e) For the purpose of (a) above, the labour court shall have the
following powers.
(i) Enforcing the attendance of any person and examining him on oath.
(ii) Compelling the production of documents and material objects.
(iii) Issuing commissions for examination of witnesses or documents.
PROCEDURE:
The labour court while trying an offence shall follow the
summary procedure. No court fee shall be payable for filling,
exhibiting or recording any document in, or obtaining any
documents from a labour court.
When the parties to a case, at any time before a final order is
passed by the labour court, satisfy the labour court that the matter
has been resolved by them amicably (politely) and that there are
sufficient grounds for withdrawing the case, it may allow such
withdrawal.
STRIKE AND LOCK-OUT:
Strike:
Strike means cession of work by a body of persons employed
in any establishment acting in combination or a concerted refusal or
refusal under a common understanding of any number of person
who have been or are so employed to continue to work or to accept
employment.
Lock-out:
Lockout means the closing of a place of employment or art of
such place or the suspension, wholly or partly, of work by an
employer, or refusal, absolute or conditional, by an employer to
continue to employ any number of workmen employed by him where
such closing, suspension or refusal occurs in connection with an
industrial dispute or is intended for the purpose of compelling
workmen employed to accept certain terms and condition of affecting
employment.
ILLEGAL STRIKE OR LOCKOUT :
A strike or lockout shall be illegal if:
(a) It is declared, commenced or continued without giving to the
other party a notice of strike or lockout, or before the date of strike
or lockout specified in the notice.
The functions of the labour court are:
(a) Adjudicate (pass judgment) and determine industrial dispute.
(b) Enquire into and adjudicate any matter relating to
implementation or violation of settlement.
(c) Try offences a may be referred to it.
(d) Exercise and perform such other powers functions as may be
assigned to it.
(e) For the purpose of (a) above, the labour court shall have the
following powers.
(i) Enforcing the attendance of any person and examining him on oath.
(ii) Compelling the production of documents and material objects.
(iii) Issuing commissions for examination of witnesses or documents.
PROCEDURE:
The labour court while trying an offence shall follow the
summary procedure. No court fee shall be payable for filling,
exhibiting or recording any document in, or obtaining any
documents from a labour court.
When the parties to a case, at any time before a final order is
passed by the labour court, satisfy the labour court that the matter
has been resolved by them amicably (politely) and that there are
sufficient grounds for withdrawing the case, it may allow such
withdrawal.
STRIKE AND LOCK-OUT:
Strike:
Strike means cession of work by a body of persons employed
in any establishment acting in combination or a concerted refusal or
refusal under a common understanding of any number of person
who have been or are so employed to continue to work or to accept
employment.
Lock-out:
Lockout means the closing of a place of employment or art of
such place or the suspension, wholly or partly, of work by an
employer, or refusal, absolute or conditional, by an employer to
continue to employ any number of workmen employed by him where
such closing, suspension or refusal occurs in connection with an
industrial dispute or is intended for the purpose of compelling
workmen employed to accept certain terms and condition of affecting
employment.
ILLEGAL STRIKE OR LOCKOUT :
A strike or lockout shall be illegal if:
(a) It is declared, commenced or continued without giving to the
other party a notice of strike or lockout, or before the date of strike
or lockout specified in the notice.
79
(b) It is declared commenced, or continued in consequence of an
industrial dispute.
(c) It is declared, commenced, or continued during the period of
which a settlement or award is in operation in respect of any of the
matters covered by a settlement or award.
WORKS COUNCIL:
The employer of every establishment in which 50 or more
workmen had been employed on any day in the preceding 12 months
shall constitute a works council. It shall consist of equal members of
representatives of employers and workmen. Where there is no
C.B.A., the representative of workmen shall be chosen from amongst
the workmen representative shall be nominated by the C.B.A.
FUNCTIONS:
(1) Promote measures for securing and preserving good relations
between the employer and the workmen.
(2) Endeavor to maintain continuous sympathy and undertaking
between and workmen.
(3) Promote settlement of differences through bilateral negotiations.
(4) Encourage vocation training with the establishment.
(5) Take measures for facilitating within the establishment.
(6) Take measures for facilitating good and harmonious working
conditions.
(7) Promote security of employment for workmen and conditions of
safety, health and job satisfaction in work.
(8) Provide educational facilities for children of workmen and
promote their absorption in the establishment.
(9) Discuss any other matter of mutual interest with a view to
promote better labour management relations.
CLASSIFICATION OF DISABLEMENT UNDER
THE WORKMEN COMPENSATION ACT
Disablement means a loss or reduction of earning power or
incapacity of work and includes inability to get work if that be the
result of the accidental injury.
PARTIAL DISABLEMENT:
Means, when the disablement is of a temporary nature such
was engaged at the time of the accident resulting in the disablement,
and where the disablement is of a permanent nature, such
disablement as reduces his earning capacity in every employment
which he was capable of undertaking at that time.
(b) It is declared commenced, or continued in consequence of an
industrial dispute.
(c) It is declared, commenced, or continued during the period of
which a settlement or award is in operation in respect of any of the
matters covered by a settlement or award.
WORKS COUNCIL:
The employer of every establishment in which 50 or more
workmen had been employed on any day in the preceding 12 months
shall constitute a works council. It shall consist of equal members of
representatives of employers and workmen. Where there is no
C.B.A., the representative of workmen shall be chosen from amongst
the workmen representative shall be nominated by the C.B.A.
FUNCTIONS:
(1) Promote measures for securing and preserving good relations
between the employer and the workmen.
(2) Endeavor to maintain continuous sympathy and undertaking
between and workmen.
(3) Promote settlement of differences through bilateral negotiations.
(4) Encourage vocation training with the establishment.
(5) Take measures for facilitating within the establishment.
(6) Take measures for facilitating good and harmonious working
conditions.
(7) Promote security of employment for workmen and conditions of
safety, health and job satisfaction in work.
(8) Provide educational facilities for children of workmen and
promote their absorption in the establishment.
(9) Discuss any other matter of mutual interest with a view to
promote better labour management relations.
CLASSIFICATION OF DISABLEMENT UNDER
THE WORKMEN COMPENSATION ACT
Disablement means a loss or reduction of earning power or
incapacity of work and includes inability to get work if that be the
result of the accidental injury.
PARTIAL DISABLEMENT:
Means, when the disablement is of a temporary nature such
was engaged at the time of the accident resulting in the disablement,
and where the disablement is of a permanent nature, such
disablement as reduces his earning capacity in every employment
which he was capable of undertaking at that time.
80
Partial disablement may be temporary or permanent. When
the loss or diminution of earning capacity is caused in relation to the
employment in which he was engaged at the time of the accident, thee
is partial temporary disablement which he was capable of doing at
the time of the accident there is partial permanent disablement.
TOTAL DISABLEMENT:
Means such disablement, whether of a temporary or
permanent nature, an incapacitates a workman for all work which he
was capable of performing at the time of the accident resulting in
such disablement. In order to constitute total disablement, it must be
such a character that the person concerned is unable to any work and
not merely which he was performing at the time of the accident.
NEGOTIABLE INSTRUMENTS
A Negotiable instrument may be defined as one the property
in which is acquired by every person who takes it bonafide and for
value, notwithstanding any defect of title in the person form whom he
took it. A negotiable instrument may also be defined as a contractual
obligation, in writing and signed by the party executing it, containing
an unconditional promise or order of a specified person.
According to section 13(a) negotiable instrument means a
promissory note, bill of exchange or cheque not payable either to
order to bearer, whether word order or bearer appear on the
instrument or not.
From the above definitions it is clear that negotiable
instrument is a written promise or order to pay money, such as
promissory note, bills of a exchange and cheque which, when in
proper form, may be transferred from hand to hand as a substitute
of money.
ELEMENTS OF NEGOTIABLE INSTRUMENT :
For a negotiable instrument the following essential elements
are required:
(a) WRITTEN:
Negotiable instrument must be in writing.
(b) SIGNED:
Instrument must be signed by the maker (or drawer).
(c) UNCONDITIONAL:
It must contain unconditional promise or order to pay.
(d) CERTAIN SUM:
Instrument must require payment of a certain sum of money only
and nothing else.
(e) CERTAIN TIME:
Instrument must be payable at a time which is certain to
arrive.
(f) CERTAIN PAYEE:
Partial disablement may be temporary or permanent. When
the loss or diminution of earning capacity is caused in relation to the
employment in which he was engaged at the time of the accident, thee
is partial temporary disablement which he was capable of doing at
the time of the accident there is partial permanent disablement.
TOTAL DISABLEMENT:
Means such disablement, whether of a temporary or
permanent nature, an incapacitates a workman for all work which he
was capable of performing at the time of the accident resulting in
such disablement. In order to constitute total disablement, it must be
such a character that the person concerned is unable to any work and
not merely which he was performing at the time of the accident.
NEGOTIABLE INSTRUMENTS
A Negotiable instrument may be defined as one the property
in which is acquired by every person who takes it bonafide and for
value, notwithstanding any defect of title in the person form whom he
took it. A negotiable instrument may also be defined as a contractual
obligation, in writing and signed by the party executing it, containing
an unconditional promise or order of a specified person.
According to section 13(a) negotiable instrument means a
promissory note, bill of exchange or cheque not payable either to
order to bearer, whether word order or bearer appear on the
instrument or not.
From the above definitions it is clear that negotiable
instrument is a written promise or order to pay money, such as
promissory note, bills of a exchange and cheque which, when in
proper form, may be transferred from hand to hand as a substitute
of money.
ELEMENTS OF NEGOTIABLE INSTRUMENT :
For a negotiable instrument the following essential elements
are required:
(a) WRITTEN:
Negotiable instrument must be in writing.
(b) SIGNED:
Instrument must be signed by the maker (or drawer).
(c) UNCONDITIONAL:
It must contain unconditional promise or order to pay.
(d) CERTAIN SUM:
Instrument must require payment of a certain sum of money only
and nothing else.
(e) CERTAIN TIME:
Instrument must be payable at a time which is certain to
arrive.
(f) CERTAIN PAYEE:
81
Drawee of a bill or cheque must with reasonable certainty be
named or described.
(g) MERE DELIVERY:
Instrument must be transferable by simple delivery like cash.
DEFINE DISSOLUTIN OF A FIRM. EXPLAIN THE
CIRCUMSTANCES UNDER WHICH A FIRM MAY BE DISSOLVED
HOW A PARTNERSHIP FIRM CAN BE DISSOVLED ?
WHAT IS DISSOLUTION OF A PARTNERSHIP FIRM ?
Dissolution of a partnership firm means the termination of
contractual relationship between all the partners. It means an end or
closure of partnership business. According to partnership Act, if
there is dissolution of a partnership among all the partners of a firm,
is a case of dissolution of a firm. Here all the members cease to carry
on the business. On the close of the business, the assets or liabilities
are settled as per agreement.
DISSOLUTION OF A FIRM:
Dissolution of partnership firm and dissolution of partnership
are two different terms. Dissolution of the partnership firm is the
closure of partnership business, here, all the partners cease to carry
on the business the relationship between all the partners of a firm is
broken so as to close the business of the firm.
DISSOLUTION OF PARTNERSHIP:
Dissolution of partnership is the end of partnership only. If
one partner of a firm dies, retires of adjudged insolvent (unable to
pay debt), the remaining partners may agree to continue the firm
under the same name. The remaining partners may purchase the
shares of the outgoing or decease partner by signing a fresh
agreement. The firm can thus continue is business. We, thus,
conclude by saying that dissolution of partnership may or may not
include the dissolution of the firm. But the dissolution of the firm
includes the dissolution of partnership.
MODES OF DISSOLUTION OF A FIRM:
The circumstances under which the dissolution of a firm may
take are as follows:
(1) Dissolution by agreement.
(2) Dissolution by notice.
(3) Compulsory dissolution.
(4) Contingent dissolution.
(5) Dissolution by the court.
1. DISSOLUTION BY AGREEMENT :
Drawee of a bill or cheque must with reasonable certainty be
named or described.
(g) MERE DELIVERY:
Instrument must be transferable by simple delivery like cash.
DEFINE DISSOLUTIN OF A FIRM. EXPLAIN THE
CIRCUMSTANCES UNDER WHICH A FIRM MAY BE DISSOLVED
HOW A PARTNERSHIP FIRM CAN BE DISSOVLED ?
WHAT IS DISSOLUTION OF A PARTNERSHIP FIRM ?
Dissolution of a partnership firm means the termination of
contractual relationship between all the partners. It means an end or
closure of partnership business. According to partnership Act, if
there is dissolution of a partnership among all the partners of a firm,
is a case of dissolution of a firm. Here all the members cease to carry
on the business. On the close of the business, the assets or liabilities
are settled as per agreement.
DISSOLUTION OF A FIRM:
Dissolution of partnership firm and dissolution of partnership
are two different terms. Dissolution of the partnership firm is the
closure of partnership business, here, all the partners cease to carry
on the business the relationship between all the partners of a firm is
broken so as to close the business of the firm.
DISSOLUTION OF PARTNERSHIP:
Dissolution of partnership is the end of partnership only. If
one partner of a firm dies, retires of adjudged insolvent (unable to
pay debt), the remaining partners may agree to continue the firm
under the same name. The remaining partners may purchase the
shares of the outgoing or decease partner by signing a fresh
agreement. The firm can thus continue is business. We, thus,
conclude by saying that dissolution of partnership may or may not
include the dissolution of the firm. But the dissolution of the firm
includes the dissolution of partnership.
MODES OF DISSOLUTION OF A FIRM:
The circumstances under which the dissolution of a firm may
take are as follows:
(1) Dissolution by agreement.
(2) Dissolution by notice.
(3) Compulsory dissolution.
(4) Contingent dissolution.
(5) Dissolution by the court.
1. DISSOLUTION BY AGREEMENT :
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Partnership is created by agreement. Similarly, it can be
dissolved by an agreement at any time. A firm may be dissolved with
the consent of all the partners or in accordance with the contract
already made between the partners.
2. DISSOLUTION BY NOTICE:
When partnership business has no fixed time or it is will
(partnershi9p at will), it can be dissolved by any partner. The
partner will give a notice in writing to all the partners. The
partnership stands dissolved from the date mentioned in the notice.
3. COMPULSORY DISSOLUTION :
A firm is bound to be dissolved in any of the following
circumstances:-
(a) When all the partners are declared insolvent (unable to pay
debt).
(b) When all except one of the partners are declared unable to pay
debt (insolvent).
(c) If the business of the firm is against public interest and is
declared unlawful.
4. CONTINGENT DISSOLUTION :
A firm is dissolved automatically on the happening of
following certain events (contingencies).
(a) On the expiry of the period for which the partnership firm was
established
(b) On the completion of the specific object (venture) for which the
firm was started.
(c) When a partner is declared insolvent.
UNIT-III
hypothecation
Table of Contents
Introduction
o What is hypothecation or hypothecation of assets?
Alternate asset for hypothecation
Benefits of hypothecation
Hypothecation deed and its purpose
Key elements of hypothecation deed
o Obligations of the parties
o Security
o Title and ownership
o Repayment of loan
o Interest and default interest rate
o Insolvency
o Representations and warranties
o Amendment
Conclusion
Introduction
What is hypothecation or hypothecation of assets?
Hypothecation or hypothecation of assets is generally said to have taken
place when an asset is provided as collateral security to secure a loan in
advance. This means that a borrower against the security offered as
collateral is granted a loan/credit by the lender. In the case of
Partnership is created by agreement. Similarly, it can be
dissolved by an agreement at any time. A firm may be dissolved with
the consent of all the partners or in accordance with the contract
already made between the partners.
2. DISSOLUTION BY NOTICE:
When partnership business has no fixed time or it is will
(partnershi9p at will), it can be dissolved by any partner. The
partner will give a notice in writing to all the partners. The
partnership stands dissolved from the date mentioned in the notice.
3. COMPULSORY DISSOLUTION :
A firm is bound to be dissolved in any of the following
circumstances:-
(a) When all the partners are declared insolvent (unable to pay
debt).
(b) When all except one of the partners are declared unable to pay
debt (insolvent).
(c) If the business of the firm is against public interest and is
declared unlawful.
4. CONTINGENT DISSOLUTION :
A firm is dissolved automatically on the happening of
following certain events (contingencies).
(a) On the expiry of the period for which the partnership firm was
established
(b) On the completion of the specific object (venture) for which the
firm was started.
(c) When a partner is declared insolvent.
UNIT-III
hypothecation
Table of Contents
Introduction
o What is hypothecation or hypothecation of assets?
Alternate asset for hypothecation
Benefits of hypothecation
Hypothecation deed and its purpose
Key elements of hypothecation deed
o Obligations of the parties
o Security
o Title and ownership
o Repayment of loan
o Interest and default interest rate
o Insolvency
o Representations and warranties
o Amendment
Conclusion
Introduction
What is hypothecation or hypothecation of assets?
Hypothecation or hypothecation of assets is generally said to have taken
place when an asset is provided as collateral security to secure a loan in
advance. This means that a borrower against the security offered as
collateral is granted a loan/credit by the lender. In the case of
83
hypothecation, the borrower or owner of the asset retains the title as well
as ownership of the asset while the lender enjoys the possession. In the
event of default, the lender is entitled to exercise his ownership rights and
seize the asset to recover the defaulted amount of the loan or when the
terms of the agreement are not adhered to by the borrower.
Hypothecation provides security to the lender against the loan advanced,
due to security as collateral pledged by the borrower. Hypothecation
usually arises in the case of movable property, for instance, hypothecation
of any automobile, stocks, inventories, and bills receivable as collateral
against loan advances. The rate of interest charged by the lender under
hypothecation is lower due to the creation of security for the loan.
Although hypothecation is nowhere defined under the Indian Contract
Act, 1872 however Section 2(1) (n) of Securitization and Reconstruction
of Financial Assets and Enforcement of Security Interest (SARFAESI)
Act, 2002 does define hypothecation where it means a charge created on
any movable property by the borrower/owner, to raise funds from the
lender, while retaining ownership over such property.
Through this article, an attempt is made to clearly understand the concept
of hypothecation, as well as emphasis, is placed upon important clauses
of hypothecation deed to avoid any later confusion and conflicts amongst
parties.
Alternate asset for hypothecation
Hypothecation is also possible for stocks or investments which is
known as margin lending wherein the buyer provides his existing
shares as collateral security to a brokerage firm against the shares
purchased on margin. Brokerage firms are entitled to sell these
existing shares if the buyer is called upon for a margin call (wherein
the value of the shares purchased diminishes below a certain
specified limit or account value falls beyond a certain limit.
Benefits of hypothecation
Hypothecation is beneficial to the borrower in three ways:
1. The first and most important advantage available to the
borrower is that he can retain the title and ownership of the
property as well as at the same time he can raise funds from the
bank. This is helpful to a great extent to those individuals or
companies who have just started out and are new in the
business.
2. Second important advantage that lies with the borrower is that
the loan amount is charged with a lower interest rate. Reasons
for this being, the lender has the right to take possession of the
property in the event when the loan amount is not repaid on
time or defaulted. This right of possession provides a sense of
security to the lender that the amount shall be repaid as the
loan is secured against security as well as there shall be a
signed hypothecation deed between the parties.
3. Third, the loan amount granted under hypothecation is usually
small amounts. Businesses, as well as individuals, can take the
benefit of this opportunity to raise funds and pay off easily.
hypothecation, the borrower or owner of the asset retains the title as well
as ownership of the asset while the lender enjoys the possession. In the
event of default, the lender is entitled to exercise his ownership rights and
seize the asset to recover the defaulted amount of the loan or when the
terms of the agreement are not adhered to by the borrower.
Hypothecation provides security to the lender against the loan advanced,
due to security as collateral pledged by the borrower. Hypothecation
usually arises in the case of movable property, for instance, hypothecation
of any automobile, stocks, inventories, and bills receivable as collateral
against loan advances. The rate of interest charged by the lender under
hypothecation is lower due to the creation of security for the loan.
Although hypothecation is nowhere defined under the Indian Contract
Act, 1872 however Section 2(1) (n) of Securitization and Reconstruction
of Financial Assets and Enforcement of Security Interest (SARFAESI)
Act, 2002 does define hypothecation where it means a charge created on
any movable property by the borrower/owner, to raise funds from the
lender, while retaining ownership over such property.
Through this article, an attempt is made to clearly understand the concept
of hypothecation, as well as emphasis, is placed upon important clauses
of hypothecation deed to avoid any later confusion and conflicts amongst
parties.
Alternate asset for hypothecation
Hypothecation is also possible for stocks or investments which is
known as margin lending wherein the buyer provides his existing
shares as collateral security to a brokerage firm against the shares
purchased on margin. Brokerage firms are entitled to sell these
existing shares if the buyer is called upon for a margin call (wherein
the value of the shares purchased diminishes below a certain
specified limit or account value falls beyond a certain limit.
Benefits of hypothecation
Hypothecation is beneficial to the borrower in three ways:
1. The first and most important advantage available to the
borrower is that he can retain the title and ownership of the
property as well as at the same time he can raise funds from the
bank. This is helpful to a great extent to those individuals or
companies who have just started out and are new in the
business.
2. Second important advantage that lies with the borrower is that
the loan amount is charged with a lower interest rate. Reasons
for this being, the lender has the right to take possession of the
property in the event when the loan amount is not repaid on
time or defaulted. This right of possession provides a sense of
security to the lender that the amount shall be repaid as the
loan is secured against security as well as there shall be a
signed hypothecation deed between the parties.
3. Third, the loan amount granted under hypothecation is usually
small amounts. Businesses, as well as individuals, can take the
benefit of this opportunity to raise funds and pay off easily.
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Hypothecation deed and its purpose
Hypothecation deed is a legal document that establishes contractual
relations between the lender and the borrower wherein the lende der
agrees to grant a loan amount to the borrower in return for movable asset
provided as security as well as the lenders right to seize the possession of
such security if the borrower defaults in repayment of the loan as per
terms of the agreement.
Hypothecation deed builds terms and conditions upon which the borrower
and lender agree to hypothecate movable assets against a loan amount.
The deed defines every right and liability of the parties which can be
enforced in an appropriate court of law.
Key elements of hypothecation deed
Before entering into a hypothecation agreement, having a clear
understanding of important clauses in an agreement is vital. Although the
procedure clearing a loan may seem cluster free, the agreement at times
may turn out to be complex, as the agreement is usually drafted by a bank
and therefore, it can be inferred that the bank would keep their interest at
the top.
Therefore, it is advisable for the borrower/customer to read through the
entire agreement giving equal emphasis to each clause, and not consider
this stage as mere signing formality and discard it completely.
Here are some of the important clauses of the hypothecation agreement
that require a clear understanding.
Obligations of the parties
Here, the clause shall discuss all the rights and liabilities of both the
borrower and lender with respect to the loan amount advanced and
security provided as collateral against the loan subject to terms and
conditions of the agreement.
For instances, the clause shall cover disbursement of the loan amount,
manner and number of installments shall it be done, mode of
disbursement, confirmation of loan amount received by the borrower,
fulfillment of certain conditions prior to disbursement of the loan, clear
title, and ownership of the property and other related obligations.
Security
This clause shall define in detail what type of security is offered as
collateral against the loan amount advanced. The property/properties
upon which charge is created shall be defined as hypothecated properties
or secured properties. The clause shall further include insurance charges,
repairs, and maintenance costs, no disposing of that shall be borne and
adhered to by the borrower.
Title and ownership
Having this clause is essential and it is equally important to define this
clause well wherein, the clause shall state that the borrower retains the
title and ownership of hypothecated property as well as income generated
from it while the lender enjoys the possession of such property. Further,
the clause shall state that the lender shall have the right to seize such
property in the event of default to repay the loan amount plus interest
amount or under any other condition agreed by the parties under the
agreement to recover the loan amount advanced to the borrower.
Hypothecation deed and its purpose
Hypothecation deed is a legal document that establishes contractual
relations between the lender and the borrower wherein the lende der
agrees to grant a loan amount to the borrower in return for movable asset
provided as security as well as the lenders right to seize the possession of
such security if the borrower defaults in repayment of the loan as per
terms of the agreement.
Hypothecation deed builds terms and conditions upon which the borrower
and lender agree to hypothecate movable assets against a loan amount.
The deed defines every right and liability of the parties which can be
enforced in an appropriate court of law.
Key elements of hypothecation deed
Before entering into a hypothecation agreement, having a clear
understanding of important clauses in an agreement is vital. Although the
procedure clearing a loan may seem cluster free, the agreement at times
may turn out to be complex, as the agreement is usually drafted by a bank
and therefore, it can be inferred that the bank would keep their interest at
the top.
Therefore, it is advisable for the borrower/customer to read through the
entire agreement giving equal emphasis to each clause, and not consider
this stage as mere signing formality and discard it completely.
Here are some of the important clauses of the hypothecation agreement
that require a clear understanding.
Obligations of the parties
Here, the clause shall discuss all the rights and liabilities of both the
borrower and lender with respect to the loan amount advanced and
security provided as collateral against the loan subject to terms and
conditions of the agreement.
For instances, the clause shall cover disbursement of the loan amount,
manner and number of installments shall it be done, mode of
disbursement, confirmation of loan amount received by the borrower,
fulfillment of certain conditions prior to disbursement of the loan, clear
title, and ownership of the property and other related obligations.
Security
This clause shall define in detail what type of security is offered as
collateral against the loan amount advanced. The property/properties
upon which charge is created shall be defined as hypothecated properties
or secured properties. The clause shall further include insurance charges,
repairs, and maintenance costs, no disposing of that shall be borne and
adhered to by the borrower.
Title and ownership
Having this clause is essential and it is equally important to define this
clause well wherein, the clause shall state that the borrower retains the
title and ownership of hypothecated property as well as income generated
from it while the lender enjoys the possession of such property. Further,
the clause shall state that the lender shall have the right to seize such
property in the event of default to repay the loan amount plus interest
amount or under any other condition agreed by the parties under the
agreement to recover the loan amount advanced to the borrower.
85
Repayment of loan
This clause is similar to every other repayment clause in a loan
agreement. The parties under the agreement, agree on the time period
within which the loan shall be repaid along with interest with agreed
trenches.
The clause shall further include the mode and manner in which the
repayment shall be done by the borrower specifying details of it as well
as an extension to the time period of repayment beyond the agreed time
which shall be contingent upon parties to the agreement and
circumstances of the situation.
Interest and default interest rate
Again this clause is identical to every interest clause in a loan agreement.
This clause shall state that the applicable interest rate shall be paid upon
the loan amount at regular intervals till the loan is actually repaid by the
borrower.
This clause further encapsulates the default interest rate which shall be
higher than the normal interest rate payable by the borrower upon default
in repayment of loan amount by agreed repayment date under the
agreement. The borrower is liable to repay such default interest rate from
the date of default of repayment till the loan amount is actually repaid.
Insolvency
This clause shall state the position of the lender as well as the manner in
which the lender shall recover the loan amount advanced to the borrower
in the event if the borrower is declared insolvent by a competent court or
if any insolvency proceeding initiated against the borrower. The clause
may further state the right of the lender to seize the possession of the
hypothecated property to recover the loan amount under such
circumstances being raised.
Representations and warranties
This clause defines in detail all the assertions and assurances provided by
the borrower and lender under the agreement. In addition to this, the
clause shall further encapsulate, the parties under the agreement agree to
provide all the required and necessary assistance to each other in order to
perform their respective obligations and duties with due diligence.
Amendment
This clause gives the right to the lender to amend the agreement in the
event of default of repayment of the loan amount or under any other event
by giving prior notice to the borrower regarding the same or without
intimating the borrower which shall be contingent upon the situation and
parties to the agreement.
Conclusion
Hypothecation is one of the many modes through which a borrower can
raise funds by providing movable property as collateral security while
retaining the title and ownership. This type of loan carries a lower interest
rate due to the security provided to the lender. This can prove to be
beneficial to small businesses or individuals new to business ventures
requiring small amounts of loans.
Repayment of loan
This clause is similar to every other repayment clause in a loan
agreement. The parties under the agreement, agree on the time period
within which the loan shall be repaid along with interest with agreed
trenches.
The clause shall further include the mode and manner in which the
repayment shall be done by the borrower specifying details of it as well
as an extension to the time period of repayment beyond the agreed time
which shall be contingent upon parties to the agreement and
circumstances of the situation.
Interest and default interest rate
Again this clause is identical to every interest clause in a loan agreement.
This clause shall state that the applicable interest rate shall be paid upon
the loan amount at regular intervals till the loan is actually repaid by the
borrower.
This clause further encapsulates the default interest rate which shall be
higher than the normal interest rate payable by the borrower upon default
in repayment of loan amount by agreed repayment date under the
agreement. The borrower is liable to repay such default interest rate from
the date of default of repayment till the loan amount is actually repaid.
Insolvency
This clause shall state the position of the lender as well as the manner in
which the lender shall recover the loan amount advanced to the borrower
in the event if the borrower is declared insolvent by a competent court or
if any insolvency proceeding initiated against the borrower. The clause
may further state the right of the lender to seize the possession of the
hypothecated property to recover the loan amount under such
circumstances being raised.
Representations and warranties
This clause defines in detail all the assertions and assurances provided by
the borrower and lender under the agreement. In addition to this, the
clause shall further encapsulate, the parties under the agreement agree to
provide all the required and necessary assistance to each other in order to
perform their respective obligations and duties with due diligence.
Amendment
This clause gives the right to the lender to amend the agreement in the
event of default of repayment of the loan amount or under any other event
by giving prior notice to the borrower regarding the same or without
intimating the borrower which shall be contingent upon the situation and
parties to the agreement.
Conclusion
Hypothecation is one of the many modes through which a borrower can
raise funds by providing movable property as collateral security while
retaining the title and ownership. This type of loan carries a lower interest
rate due to the security provided to the lender. This can prove to be
beneficial to small businesses or individuals new to business ventures
requiring small amounts of loans.
86
The parties run into many risks while entering into such an agreement, for
instance, the borrower may dispose of the hypothecated property without
intimating the lender or the lender may amend few clauses of the
agreement without informing the borrower; therefore, incorporating
proper clauses in the agreement and understanding them thoroughly
provides protection to parties to a large extent.
MORTGAGE
Introduction
A mortgage conforms to the ‘Hypotheca’ of Roman Law, upon the
debtor’s failure to pay the debt, the creditor could get the property of the
debtor for sale and recover himself. The concept of mortgage has also
been recognised under Hindu and Muslim Laws where the property was
pledged to the creditor, the debtor was debarred from the possession till
the repayment of debt was made, and the profits in the lieu of interest
were taken by the creditor.
In other words, a mortgage is to be understood as a transfer of
interest explicitly in immovable property as security for a loan. Let’s say
that Mr. X lends some money to Mr. Z, he may do so without asking for
any security or he may demand some security for the payment of money.
If Mr. X does not demand any security and Mr. Z fails to pay the same,
the former will have a right to sue the latter for the money lent but if Mr.
Z becomes insolvent, Mr. X may lose all of his money. However, in a
situation where some security of adequate value is given for the loan, the
lender (Mr. X) will be safeguarded if the borrower (Mr. Z) becomes
insolvent since precedence is given to security over the claims of other
creditors.
The essential element of a mortgage is that it is a transfer of a legal
interest in the property with a provision for redemption i.e. upon
repayment of the loan, the transfer shall become void or the interest shall
be re-conveyed. The provisions pertaining to a mortgage are contained
in Section 58 of the Transfer of Property Act, 1882 (hereinafter “TPA”).
Definitions
Loans may be of two types, secured debt or unsecured debt. Where the
loan is secured against any movable property it is called a pledge while
where the loan is secured against some immovable property of the debtor
it is called a mortgage. A mortgage is a transfer of an interest in specific
immovable property as a security for the repayment of debt.
Justice Mahmud observed: “Mortgage, as understood in this country,
cannot be defined better than by the definition adopted by the legislature
in section 58, TPA.”
The Supreme Court in Kedar Lal v. Hari Lal observed that the whole law
of mortgage in India is embodied in the TPA read with Order 34 Rules 1
to 15 of CPC which deals with suits relating to mortgages of immovable
property. It is important to note that the court cannot travel beyond these
statutory provisions.
Section 58(a) of TPA defines the terms ‘mortgage’, ‘mortgagor’,
‘mortgagee’, ‘mortgage-money’, and ‘mortgage-deed’.
Clause (a) of Section 58 reads:
A mortgage is the transfer of an interest in specific immovable property
for the purpose of securing the payment of money advanced or to be
advanced by way of loan, an existing or future debt, or the performance
of an engagement that may give rise to a pecuniary liability. The
transferor is called a mortgagor, the transferee a mortgagee; the principal
money and interest of which payment is secured for the time being are
The parties run into many risks while entering into such an agreement, for
instance, the borrower may dispose of the hypothecated property without
intimating the lender or the lender may amend few clauses of the
agreement without informing the borrower; therefore, incorporating
proper clauses in the agreement and understanding them thoroughly
provides protection to parties to a large extent.
MORTGAGE
Introduction
A mortgage conforms to the ‘Hypotheca’ of Roman Law, upon the
debtor’s failure to pay the debt, the creditor could get the property of the
debtor for sale and recover himself. The concept of mortgage has also
been recognised under Hindu and Muslim Laws where the property was
pledged to the creditor, the debtor was debarred from the possession till
the repayment of debt was made, and the profits in the lieu of interest
were taken by the creditor.
In other words, a mortgage is to be understood as a transfer of
interest explicitly in immovable property as security for a loan. Let’s say
that Mr. X lends some money to Mr. Z, he may do so without asking for
any security or he may demand some security for the payment of money.
If Mr. X does not demand any security and Mr. Z fails to pay the same,
the former will have a right to sue the latter for the money lent but if Mr.
Z becomes insolvent, Mr. X may lose all of his money. However, in a
situation where some security of adequate value is given for the loan, the
lender (Mr. X) will be safeguarded if the borrower (Mr. Z) becomes
insolvent since precedence is given to security over the claims of other
creditors.
The essential element of a mortgage is that it is a transfer of a legal
interest in the property with a provision for redemption i.e. upon
repayment of the loan, the transfer shall become void or the interest shall
be re-conveyed. The provisions pertaining to a mortgage are contained
in Section 58 of the Transfer of Property Act, 1882 (hereinafter “TPA”).
Definitions
Loans may be of two types, secured debt or unsecured debt. Where the
loan is secured against any movable property it is called a pledge while
where the loan is secured against some immovable property of the debtor
it is called a mortgage. A mortgage is a transfer of an interest in specific
immovable property as a security for the repayment of debt.
Justice Mahmud observed: “Mortgage, as understood in this country,
cannot be defined better than by the definition adopted by the legislature
in section 58, TPA.”
The Supreme Court in Kedar Lal v. Hari Lal observed that the whole law
of mortgage in India is embodied in the TPA read with Order 34 Rules 1
to 15 of CPC which deals with suits relating to mortgages of immovable
property. It is important to note that the court cannot travel beyond these
statutory provisions.
Section 58(a) of TPA defines the terms ‘mortgage’, ‘mortgagor’,
‘mortgagee’, ‘mortgage-money’, and ‘mortgage-deed’.
Clause (a) of Section 58 reads:
A mortgage is the transfer of an interest in specific immovable property
for the purpose of securing the payment of money advanced or to be
advanced by way of loan, an existing or future debt, or the performance
of an engagement that may give rise to a pecuniary liability. The
transferor is called a mortgagor, the transferee a mortgagee; the principal
money and interest of which payment is secured for the time being are
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called the mortgage-money, and the instrument (if any) by which the
transfer is effected is called a mortgage-deed.
Now, as we know, a ‘mortgage’ is a transfer of an interest in immovable
property in order to secure a loan, which may or may not give rise to any
personal liability. The person who needs a loan and gives his property as
security is a ‘mortgagor’ while the person giving loan is a ‘mortgagee’.
The principal amount and the interest to be paid for the time being is
called the mortgage money, and the instrument through which the transfer
of property takes place is called the mortgage deed.
Kinds of mortgage
Simple Mortgage [Section 58(b)]
Clause (b) of Section 58 reads:
Simple mortgage.—Where, without delivering possession of the
mortgaged property, the mortgagor binds himself personally to pay the
mortgage-money, and agrees, expressly or impliedly, that, in the event of
his failure to pay according to his contract, the mortgagee shall have a
right to cause the mortgaged property to be sold and the proceeds of sale
to be applied, so far as may be necessary, in payment of the mortgage
money, the transaction is called a simple mortgage and the mortgagee a
simple mortgagee.
The basic elements of a simple mortgage are:
1. The mortgagor must have bound himself personally to repay
the loan;
2. The possession of the property is not given to the mortgagee;
and
3. To secure the loan he has transferred to the mortgage the right
to have the specific immovable property sold in the event of his
failure to repay.
Mortgagor’s Personal Obligation
The fundamental element of a simple mortgage is the personal obligation
to pay on the part of the mortgagor. Such personal liability or obligation
to pay may be expressed or implied from the terms of a transaction since
a promise to pay arises from the acceptance of the loan.
The promise to pay is implicit in the borrowing transaction itself but it
may be displaced by the terms of the mortgage transaction for instance in
the case of a usufructuary mortgage.
No Delivery of Possession
Possession remains with the mortgagor in the case of a simple mortgage.
The security which is obtained by the mortgagee is of the mortgaged
property, not of the rents and profits accruing from it. As per Section 68,
if a simple mortgagee sues for enforcement of his security, a decree for
possession would be illegal. It would also not operate as foreclosure
rather it would convert a simple mortgagee into a mortgagee having
possession.
Right to cause the Property Sold
The mortgagee is empowered to sell the property in the case of non-
payment of the mortgaged money. However, the power of sale is not to
be exercised without the intervention of the court. This implies that the
called the mortgage-money, and the instrument (if any) by which the
transfer is effected is called a mortgage-deed.
Now, as we know, a ‘mortgage’ is a transfer of an interest in immovable
property in order to secure a loan, which may or may not give rise to any
personal liability. The person who needs a loan and gives his property as
security is a ‘mortgagor’ while the person giving loan is a ‘mortgagee’.
The principal amount and the interest to be paid for the time being is
called the mortgage money, and the instrument through which the transfer
of property takes place is called the mortgage deed.
Kinds of mortgage
Simple Mortgage [Section 58(b)]
Clause (b) of Section 58 reads:
Simple mortgage.—Where, without delivering possession of the
mortgaged property, the mortgagor binds himself personally to pay the
mortgage-money, and agrees, expressly or impliedly, that, in the event of
his failure to pay according to his contract, the mortgagee shall have a
right to cause the mortgaged property to be sold and the proceeds of sale
to be applied, so far as may be necessary, in payment of the mortgage
money, the transaction is called a simple mortgage and the mortgagee a
simple mortgagee.
The basic elements of a simple mortgage are:
1. The mortgagor must have bound himself personally to repay
the loan;
2. The possession of the property is not given to the mortgagee;
and
3. To secure the loan he has transferred to the mortgage the right
to have the specific immovable property sold in the event of his
failure to repay.
Mortgagor’s Personal Obligation
The fundamental element of a simple mortgage is the personal obligation
to pay on the part of the mortgagor. Such personal liability or obligation
to pay may be expressed or implied from the terms of a transaction since
a promise to pay arises from the acceptance of the loan.
The promise to pay is implicit in the borrowing transaction itself but it
may be displaced by the terms of the mortgage transaction for instance in
the case of a usufructuary mortgage.
No Delivery of Possession
Possession remains with the mortgagor in the case of a simple mortgage.
The security which is obtained by the mortgagee is of the mortgaged
property, not of the rents and profits accruing from it. As per Section 68,
if a simple mortgagee sues for enforcement of his security, a decree for
possession would be illegal. It would also not operate as foreclosure
rather it would convert a simple mortgagee into a mortgagee having
possession.
Right to cause the Property Sold
The mortgagee is empowered to sell the property in the case of non-
payment of the mortgaged money. However, the power of sale is not to
be exercised without the intervention of the court. This implies that the
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mortgagee needs to get a decree from the court to execute the sale. Upon
the sale of property by the intervention of the court, the mortgagee shall
get the money advanced by him with interest and the remaining portion of
proceeds of sale shall be given to the mortgagor whose property was sold.
Registration
A simple mortgage can be created only through a registered document.
According to Section 59, even when the sum of money secured is less
than rupees 100, a simple mortgage needs to be effected by a registered
instrument.
Mortgagee’s Remedy
In case the mortgagor fails to repay the loan within the stipulated date, the
following two remedies are available to the mortgagee:
1. Since in a simple mortgage the mortgagor holds a personal
obligation to repay the loan, the mortgagee may sue the
mortgagor personally for the recovery of the money. In such a
case, he shall get a simple money decree.
2. The mortgagee may also move to the court for the sale of
mortgaged property in order to recover his money. In such a
case, he obtains a decree for the sale of the property.
However, the mortgagee may put both the cause of actions in one suit. He
may sue the mortgagor personally and may also request the court for a
decree in his favour for the sale of the property but in both cases, the suit
must be filed within 12 years from the date on which the loan i.e. the
mortgage money becomes due.
Mortgage by Conditional Sale [Section 58(c)]
Clause (c) of Section 58 reads:
Mortgage by conditional sale.—Where, the mortgagor ostensibly sells the
mortgaged property— on condition that on default of payment of the
mortgage money on a certain date the sale shall become absolute, or on
condition that on such payment being made the sale shall become void, or
on condition that on such payment being made the buyer shall transfer the
property to the seller, the transaction is called mortgage by conditional
sale and the mortgagee a mortgagee by conditional sale: Provided that no
such transaction shall be deemed to be a mortgage unless the condition is
embodied in the document which affects or purports to affect the sale.
The concept of a mortgage by conditional sale (known as ‘bye-bil-wafa in
Islam) was introduced by the Muslims due to the prohibition in their
religion to not take interest on the money which is lent by way of loan.
This type of mortgage enabled them to realize their principal amount as
well as interest, at the same time keeping their conscience clear.
Basic elements of a mortgage by conditional sale are:
1. The mortgagor must ostensibly sell the property to the
mortgagee.
2. There must be a condition on such sale that either,
on the repayment of the debt on a certain date,
the sale shall become void or the buyer shall transfer the
property to the seller, or in default of payment on the agreed
date, the sale shall become absolute.
The condition must be contained in the same document.
In other words, when the mortgagor ostensibly sells the mortgaged
property to the mortgagee with a certain condition such as:
mortgagee needs to get a decree from the court to execute the sale. Upon
the sale of property by the intervention of the court, the mortgagee shall
get the money advanced by him with interest and the remaining portion of
proceeds of sale shall be given to the mortgagor whose property was sold.
Registration
A simple mortgage can be created only through a registered document.
According to Section 59, even when the sum of money secured is less
than rupees 100, a simple mortgage needs to be effected by a registered
instrument.
Mortgagee’s Remedy
In case the mortgagor fails to repay the loan within the stipulated date, the
following two remedies are available to the mortgagee:
1. Since in a simple mortgage the mortgagor holds a personal
obligation to repay the loan, the mortgagee may sue the
mortgagor personally for the recovery of the money. In such a
case, he shall get a simple money decree.
2. The mortgagee may also move to the court for the sale of
mortgaged property in order to recover his money. In such a
case, he obtains a decree for the sale of the property.
However, the mortgagee may put both the cause of actions in one suit. He
may sue the mortgagor personally and may also request the court for a
decree in his favour for the sale of the property but in both cases, the suit
must be filed within 12 years from the date on which the loan i.e. the
mortgage money becomes due.
Mortgage by Conditional Sale [Section 58(c)]
Clause (c) of Section 58 reads:
Mortgage by conditional sale.—Where, the mortgagor ostensibly sells the
mortgaged property— on condition that on default of payment of the
mortgage money on a certain date the sale shall become absolute, or on
condition that on such payment being made the sale shall become void, or
on condition that on such payment being made the buyer shall transfer the
property to the seller, the transaction is called mortgage by conditional
sale and the mortgagee a mortgagee by conditional sale: Provided that no
such transaction shall be deemed to be a mortgage unless the condition is
embodied in the document which affects or purports to affect the sale.
The concept of a mortgage by conditional sale (known as ‘bye-bil-wafa in
Islam) was introduced by the Muslims due to the prohibition in their
religion to not take interest on the money which is lent by way of loan.
This type of mortgage enabled them to realize their principal amount as
well as interest, at the same time keeping their conscience clear.
Basic elements of a mortgage by conditional sale are:
1. The mortgagor must ostensibly sell the property to the
mortgagee.
2. There must be a condition on such sale that either,
on the repayment of the debt on a certain date,
the sale shall become void or the buyer shall transfer the
property to the seller, or in default of payment on the agreed
date, the sale shall become absolute.
The condition must be contained in the same document.
In other words, when the mortgagor ostensibly sells the mortgaged
property to the mortgagee with a certain condition such as:
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1. If the mortgagee makes any default on repayment of the debt
(if the loan is not repaid), the sale would become absolute and
binding, or
2. If the mortgagee does not make any default in the payment
(repayment of the debt has been made), the sale would become
void, or
3. If the mortgagee makes the payment, the buyer shall transfer
the mortgaged property to the seller (the mortgagor shall
transfer the property back to the mortgagee), such a transaction
is called a mortgage by conditional sale.
However, it is to be noted that no such transaction will be considered to
be a mortgage where no condition is mentioned in the same document
which shall affect the sale.
Condition in the Same Deed
The Proviso provided under clause (c) of Section 58 brought about a
significant change. Section 19 of the Transfer of Property (Amendment)
Act, 1929 led to the inclusion of the proviso:
Provided that no such transaction shall be deemed to be a mortgage
unless the condition is embodied in the document which affects or
purports to affect the sale.
It states that any deed which intends to effect sale would be termed a
mortgage by conditional sale only when it fulfills the above-mentioned
elements. This amendment is not retrospective in nature. After this
proviso, for a transaction to be treated as mortgage by conditional sale
and not a sale itself the condition of repurchase must be included in the
same document that provides for ostensible sale.
With the amendment in the clause, great emphasis is placed on
inculcating the provision of repurchase in the original sale deed itself
rather than the transaction being carried out through two documents (one
being the sale deed, other being the document containing conditions of
reconveyance). Where they are in separate documents the mortgagor then
the nature of transaction would not be a mortgage by conditional sale
even if they are executed simultaneously.
The intention of the Parties
It must be kept in mind that documents containing reconveyance
conditions would not in any way claim to be mortgaged. The intention of
the parties is one of the crucial factors to determine the nature of the
transaction and evidence needs to be produced before the court if one’s
claim is in contrast to the written words of the deed in question. (Pandit
Chunchun Jha v. Sheikh Ebadat)
Personal Liability
In a mortgage by conditional sale, there is no personal liability on the part
of the mortgagor to pay the debt and consequently, the mortgagee is not
permitted to make other of his properties a part of this transaction. It is an
exception to the rule of No Debt No Mortgage.
Absolute Ownership
The Privy Council in the case of Thumbuswamy v. Hossain
Rowthen observed that the essential characteristic of a mortgage is that
on breach of condition, the sale deed would be executed itself and the
transaction would become an absolute sale without any kind of
accountability between the parties.
1. If the mortgagee makes any default on repayment of the debt
(if the loan is not repaid), the sale would become absolute and
binding, or
2. If the mortgagee does not make any default in the payment
(repayment of the debt has been made), the sale would become
void, or
3. If the mortgagee makes the payment, the buyer shall transfer
the mortgaged property to the seller (the mortgagor shall
transfer the property back to the mortgagee), such a transaction
is called a mortgage by conditional sale.
However, it is to be noted that no such transaction will be considered to
be a mortgage where no condition is mentioned in the same document
which shall affect the sale.
Condition in the Same Deed
The Proviso provided under clause (c) of Section 58 brought about a
significant change. Section 19 of the Transfer of Property (Amendment)
Act, 1929 led to the inclusion of the proviso:
Provided that no such transaction shall be deemed to be a mortgage
unless the condition is embodied in the document which affects or
purports to affect the sale.
It states that any deed which intends to effect sale would be termed a
mortgage by conditional sale only when it fulfills the above-mentioned
elements. This amendment is not retrospective in nature. After this
proviso, for a transaction to be treated as mortgage by conditional sale
and not a sale itself the condition of repurchase must be included in the
same document that provides for ostensible sale.
With the amendment in the clause, great emphasis is placed on
inculcating the provision of repurchase in the original sale deed itself
rather than the transaction being carried out through two documents (one
being the sale deed, other being the document containing conditions of
reconveyance). Where they are in separate documents the mortgagor then
the nature of transaction would not be a mortgage by conditional sale
even if they are executed simultaneously.
The intention of the Parties
It must be kept in mind that documents containing reconveyance
conditions would not in any way claim to be mortgaged. The intention of
the parties is one of the crucial factors to determine the nature of the
transaction and evidence needs to be produced before the court if one’s
claim is in contrast to the written words of the deed in question. (Pandit
Chunchun Jha v. Sheikh Ebadat)
Personal Liability
In a mortgage by conditional sale, there is no personal liability on the part
of the mortgagor to pay the debt and consequently, the mortgagee is not
permitted to make other of his properties a part of this transaction. It is an
exception to the rule of No Debt No Mortgage.
Absolute Ownership
The Privy Council in the case of Thumbuswamy v. Hossain
Rowthen observed that the essential characteristic of a mortgage is that
on breach of condition, the sale deed would be executed itself and the
transaction would become an absolute sale without any kind of
accountability between the parties.
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The mortgagee does not have possession of the property in this type of
mortgage i.e. it gets only qualified ownership which may lead to absolute
ownership in case of default by the mortgagee.
Remedy Available
The remedy with the mortgagee is by way of foreclosure and not sale,
which is possible only through a decree of the court. The mortgagee can
file a decree for foreclosure according to Section 67 of TPA, Rules 2 & 3
of Order 34, CPC only when the mortgagor does not pay the amount on
time and the sale becomes absolute.
Usufructuary Mortgage [Section 58(d)]
Clause (d) of Section 58 reads:
Usufructuary mortgage.—Where the mortgagor delivers possession or
expressly or by implication binds himself to deliver possession of the
mortgaged property to the mortgagee and authorises him to retain such
possession until payment of the mortgage-money, and to receive the rents
and profits accruing from the property or any part of such rents and
profits and to appropriate the same in lieu of interest, or payment of the
mortgage-money, or partly in lieu of interest partly in payment of the
mortgage money, the transaction is called a usufructuary mortgage and
the mortgagee a usufructuary mortgagee.
The basic elements of usufructuary mortgage are:
1. The mortgagor either delivers possession or expressly or
impliedly binds himself to deliver possession of the mortgaged
property to the mortgagee.
2. The mortgagor authorises the mortgagee till the payment of the
mortgage money is satisfied:
to retain such possession;
to receive the rents and profits or any part of such rents and
profits arising from the property; and
to appropriate such rents and profits in lieu of interest, or
payment of the mortgage money, or partly in payment of the
mortgage money.
Delivery of Possession
The possession of the mortgaged property is delivered to the mortgagee
by the mortgagor as a security for the payment of mortgage money. The
mortgagee is entitled to retain the ownership of the property till the debt
remains unsatisfied. The physical delivery of possession is not necessary
to be made at the time of execution of the deed and express or implied
undertaking may be given by the mortgagor to deliver possession.
Rent and Profits
The mortgagee is entitled to receive rent and profits accruing from the
mortgaged property till the money is repaid. The method by which the
rents and profits are to be appropriated depends on the terms of the
mortgage deed. Such rents and profits or part of the rents and profits may
be appropriated:
1. in lieu of interest,
2. in lieu of principal, or
3. in lieu of principal and interest.
The mortgagee does not have possession of the property in this type of
mortgage i.e. it gets only qualified ownership which may lead to absolute
ownership in case of default by the mortgagee.
Remedy Available
The remedy with the mortgagee is by way of foreclosure and not sale,
which is possible only through a decree of the court. The mortgagee can
file a decree for foreclosure according to Section 67 of TPA, Rules 2 & 3
of Order 34, CPC only when the mortgagor does not pay the amount on
time and the sale becomes absolute.
Usufructuary Mortgage [Section 58(d)]
Clause (d) of Section 58 reads:
Usufructuary mortgage.—Where the mortgagor delivers possession or
expressly or by implication binds himself to deliver possession of the
mortgaged property to the mortgagee and authorises him to retain such
possession until payment of the mortgage-money, and to receive the rents
and profits accruing from the property or any part of such rents and
profits and to appropriate the same in lieu of interest, or payment of the
mortgage-money, or partly in lieu of interest partly in payment of the
mortgage money, the transaction is called a usufructuary mortgage and
the mortgagee a usufructuary mortgagee.
The basic elements of usufructuary mortgage are:
1. The mortgagor either delivers possession or expressly or
impliedly binds himself to deliver possession of the mortgaged
property to the mortgagee.
2. The mortgagor authorises the mortgagee till the payment of the
mortgage money is satisfied:
to retain such possession;
to receive the rents and profits or any part of such rents and
profits arising from the property; and
to appropriate such rents and profits in lieu of interest, or
payment of the mortgage money, or partly in payment of the
mortgage money.
Delivery of Possession
The possession of the mortgaged property is delivered to the mortgagee
by the mortgagor as a security for the payment of mortgage money. The
mortgagee is entitled to retain the ownership of the property till the debt
remains unsatisfied. The physical delivery of possession is not necessary
to be made at the time of execution of the deed and express or implied
undertaking may be given by the mortgagor to deliver possession.
Rent and Profits
The mortgagee is entitled to receive rent and profits accruing from the
mortgaged property till the money is repaid. The method by which the
rents and profits are to be appropriated depends on the terms of the
mortgage deed. Such rents and profits or part of the rents and profits may
be appropriated:
1. in lieu of interest,
2. in lieu of principal, or
3. in lieu of principal and interest.
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In the first case, the mortgagor recovers possession at the time of the
payment of the principal amount. In the second case, the mortgagor
continues to pay interest and becomes entitled to recover possession once
the rents and profits obtained by the mortgagee become equal to the
principal amount. In the last case, the mortgagor does not recover
possession until the principal and interest are paid from the rents and
profits.
No Personal Liability of the Mortgagor
The mortgagor does not take any personal responsibility for the payment
of mortgage money in the case of a usufructuary mortgage. The
mortgagee is required to utilise rents and profits from the property for the
satisfaction of his mortgage money. There is no time limit whatsoever for
the mortgage to subsist since it is difficult to predict the time within
which the debt will be satisfied.
Mortgagee’s Remedies
The mortgagee can sue for possession or recovery of advanced money if
the mortgagor fails to deliver possession of the property but if he has
been given possession, his only remedy is to retain property till his debts
are satisfied. The right of foreclosure or sale is not available for the
usufructuary mortgagee. The mortgagee enjoys the advantage of repaying
himself.
Rights of Usufructuary Mortgagor
A usufructuary mortgagor has been given a right under Section 62 to
recover possession of the mortgaged property from the mortgagee in the
cases where:
1. The mortgagee was authorised to pay himself the amount of
mortgage money from the rents and profits of the property and
the mortgage money is paid,
2. The mortgagee is authorized to pay himself from the rents and
profits and the terms stipulated for the payment of the
mortgage money have expired and the mortgagor pays the
mortgage money or balance of the same to the mortgagee or
deposits it in the court.
English Mortgage [Section 58(e)]
Clause (e) of Section 58 reads:
English mortgage.—Where the mortgagor binds himself to repay the
mortgage money on a certain date, and transfers the mortgaged property
absolutely to the mortgagee, but subject to a proviso that he will re-
transfer it to the mortgagor upon payment of the mortgage-money as
agreed, the transaction is called an English mortgage.
Basic elements of an English mortgage are:
1. There is a consensus to pay the amount on the due date. The
mortgagor has to repay the mortgage money on the due date.
2. There is an absolute transfer of property to the mortgagee.
3. Such absolute transfer needs to be subject to a proviso that the
mortgagee will transfer the property to the mortgagor upon
payment of mortgage money on the agreed date.
In the case of English Mortgage, the mortgagor transfers the ownership of
the mortgaged property absolutely to the mortgagee as security. The
mortgagee shall return or re-transfer the property once the mortgagor
repays the amount as agreed on a particular date.
In the first case, the mortgagor recovers possession at the time of the
payment of the principal amount. In the second case, the mortgagor
continues to pay interest and becomes entitled to recover possession once
the rents and profits obtained by the mortgagee become equal to the
principal amount. In the last case, the mortgagor does not recover
possession until the principal and interest are paid from the rents and
profits.
No Personal Liability of the Mortgagor
The mortgagor does not take any personal responsibility for the payment
of mortgage money in the case of a usufructuary mortgage. The
mortgagee is required to utilise rents and profits from the property for the
satisfaction of his mortgage money. There is no time limit whatsoever for
the mortgage to subsist since it is difficult to predict the time within
which the debt will be satisfied.
Mortgagee’s Remedies
The mortgagee can sue for possession or recovery of advanced money if
the mortgagor fails to deliver possession of the property but if he has
been given possession, his only remedy is to retain property till his debts
are satisfied. The right of foreclosure or sale is not available for the
usufructuary mortgagee. The mortgagee enjoys the advantage of repaying
himself.
Rights of Usufructuary Mortgagor
A usufructuary mortgagor has been given a right under Section 62 to
recover possession of the mortgaged property from the mortgagee in the
cases where:
1. The mortgagee was authorised to pay himself the amount of
mortgage money from the rents and profits of the property and
the mortgage money is paid,
2. The mortgagee is authorized to pay himself from the rents and
profits and the terms stipulated for the payment of the
mortgage money have expired and the mortgagor pays the
mortgage money or balance of the same to the mortgagee or
deposits it in the court.
English Mortgage [Section 58(e)]
Clause (e) of Section 58 reads:
English mortgage.—Where the mortgagor binds himself to repay the
mortgage money on a certain date, and transfers the mortgaged property
absolutely to the mortgagee, but subject to a proviso that he will re-
transfer it to the mortgagor upon payment of the mortgage-money as
agreed, the transaction is called an English mortgage.
Basic elements of an English mortgage are:
1. There is a consensus to pay the amount on the due date. The
mortgagor has to repay the mortgage money on the due date.
2. There is an absolute transfer of property to the mortgagee.
3. Such absolute transfer needs to be subject to a proviso that the
mortgagee will transfer the property to the mortgagor upon
payment of mortgage money on the agreed date.
In the case of English Mortgage, the mortgagor transfers the ownership of
the mortgaged property absolutely to the mortgagee as security. The
mortgagee shall return or re-transfer the property once the mortgagor
repays the amount as agreed on a particular date.
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Personal Liability
In an English mortgage, there is a personal liability of the mortgagor to
repay the amount of mortgage debt on a certain date as agreed. An
agreement to pay is an important part of such a mortgage.
Remedy Available
In case of default by the mortgagor, the remedy available with the
mortgagee is to sell off the mortgaged property and recover himself.
No Absolute Interest
The property is transferred absolutely but it is subject to the provision of
re-transfer of that property if the mortgagor repays the amount. Therefore,
interest is transferred which is subject to the right of redemption.
Where the mortgagor absolutely transfers the property to the mortgagee
and the mortgagor is committed to repaying the money to the mortgagee
on a fixed date. Two circumstances are prevalent in this scenario:
1. Mortgagor repays the amount: If the mortgagor repays the
agreed upon to the mortgagee on the date specified, the
property which was absolutely transferred by him shall be
reconveyed to the mortgagor.
2. Mortgagor makes default in payment: If the mortgagor does
not repay the amount on the mentioned date, then the remedy
with the mortgagee is to sell off the property and recover its
debt. However, there is a personal liability on the mortgagor to
pay the debt.
Right of the Mortgagee
The mortgagee in this form of mortgage gets the right of possession
whether the right of entry is expressed or not, and can retain the same till
the said amount is not paid to him. But when the mortgagor is in
possession he is entitled to profit but is not accountable to the mortgagee.
However, where the mortgagee is in possession and is enjoying the
profits from such property, it shall apply them in reduction to mortgagees
dues.
For instance, B, a mortgagor absolutely sells the property to A through a
sale deed. Here if B makes any default, A has to do nothing except
registration of the sale deed, as an absolute right has been given to A.
Mortgage by deposit of title deeds (Equitable Mortgage) [Section 58(f)]
Clause (f) of Section 58 reads :
Mortgage by deposit of title-deeds.—Where a person in any of the
following towns, namely, the towns of Calcutta, Madras, and Bombay,
and in any other town which the State Government concerned may, by
notification in the Official Gazette, specify in this behalf, delivers to a
creditor or his agent documents of title to immovable property, with
intent to create a security thereon, the transaction is called a mortgage by
deposit of title-deeds.
In English Law, this type of mortgage is called an ‘equitable mortgage’ as
opposed to a ‘legal mortgage’ because there is just a deposit of a
document of the title without writing or without any other additional
formalities. The intention of the legislature in providing such a mortgage
is to give facilities to the mercantile community in situations where it
may be necessary to raise money all of a sudden before any opportunity
Personal Liability
In an English mortgage, there is a personal liability of the mortgagor to
repay the amount of mortgage debt on a certain date as agreed. An
agreement to pay is an important part of such a mortgage.
Remedy Available
In case of default by the mortgagor, the remedy available with the
mortgagee is to sell off the mortgaged property and recover himself.
No Absolute Interest
The property is transferred absolutely but it is subject to the provision of
re-transfer of that property if the mortgagor repays the amount. Therefore,
interest is transferred which is subject to the right of redemption.
Where the mortgagor absolutely transfers the property to the mortgagee
and the mortgagor is committed to repaying the money to the mortgagee
on a fixed date. Two circumstances are prevalent in this scenario:
1. Mortgagor repays the amount: If the mortgagor repays the
agreed upon to the mortgagee on the date specified, the
property which was absolutely transferred by him shall be
reconveyed to the mortgagor.
2. Mortgagor makes default in payment: If the mortgagor does
not repay the amount on the mentioned date, then the remedy
with the mortgagee is to sell off the property and recover its
debt. However, there is a personal liability on the mortgagor to
pay the debt.
Right of the Mortgagee
The mortgagee in this form of mortgage gets the right of possession
whether the right of entry is expressed or not, and can retain the same till
the said amount is not paid to him. But when the mortgagor is in
possession he is entitled to profit but is not accountable to the mortgagee.
However, where the mortgagee is in possession and is enjoying the
profits from such property, it shall apply them in reduction to mortgagees
dues.
For instance, B, a mortgagor absolutely sells the property to A through a
sale deed. Here if B makes any default, A has to do nothing except
registration of the sale deed, as an absolute right has been given to A.
Mortgage by deposit of title deeds (Equitable Mortgage) [Section 58(f)]
Clause (f) of Section 58 reads :
Mortgage by deposit of title-deeds.—Where a person in any of the
following towns, namely, the towns of Calcutta, Madras, and Bombay,
and in any other town which the State Government concerned may, by
notification in the Official Gazette, specify in this behalf, delivers to a
creditor or his agent documents of title to immovable property, with
intent to create a security thereon, the transaction is called a mortgage by
deposit of title-deeds.
In English Law, this type of mortgage is called an ‘equitable mortgage’ as
opposed to a ‘legal mortgage’ because there is just a deposit of a
document of the title without writing or without any other additional
formalities. The intention of the legislature in providing such a mortgage
is to give facilities to the mercantile community in situations where it
may be necessary to raise money all of a sudden before any opportunity
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of preparing a mortgage deed can be afforded. Thus, this type of
mortgage does not require any writing, and being an oral transaction is
not affected by the Law of Registration.
The basic elements of this type of mortgage are:
1. There must be a debt.
2. There must be a deposit/delivery of the title deeds.
3. There is an intention that the deeds shall be security for the
debt; and
4. Territorial restrictions
It is important to note that such a mortgage can be made only in certain
areas and not everywhere in India. The said restriction to certain areas
means the place where the deeds are to be delivered and not the situation
of the property mortgaged. Also, a deposit of deeds beyond that area will
neither create a mortgage nor an exchange.
Existence of Debt
A debt may be existing or future in nature. A transfer of an interest in any
property to secure the payment of money advanced or to be advanced, or
an existing or future debt, or the performance of any engagement which
results in a pecuniary obligation is said to be a mortgage and clause (f)
containing equitable mortgage gives just one of the modes of creating
mortgage.
Deposit of Title-Deeds
It is not necessary to make physical delivery of documents, a constructive
delivery of documents is sufficient. A valid equitable mortgage does not
require all the documents of title to be deposited or the documents
deposited to show a complete title. It is sufficient if the deposited deeds
are bona fide, relate to the property, and are material evidence of title. If
any title of deed is not shown at all in the deposited document and there
are documents in existence showing his title to the property but they are
not deposited then an equitable mortgage is not created.
Intention to Create Security
The gist of the transaction lies in the intention that the title deeds shall be
security for the money borrowed (debt). Merely handing over the title
deeds to Mr. X by Mr. Z does not create a mortgage. The deeds need to
be delivered in the performance of that agreement that they are security
for the debt.
The intention for creating security is a question of fact, not of law, which
needs to be determined in all cases just like any other fact-based on
presumptions and oral, documentary, or circumstantial evidence.
Anomalous Mortgage [Section 58(g)]
Clause (g) of Section 58 reads:
Anomalous mortgage.—A mortgage that is not a simple mortgage, a
mortgage by conditional sale, a usufructuary mortgage, an English
mortgage, or a mortgage by deposit of title deeds within the meaning of
this section is called an anomalous mortgage.
In order to protect various customary mortgages prevailing in different
parts of the country, clause (g) was enacted by the legislation. An
anomalous mortgage is said to be a combination of two or more
mortgages.
of preparing a mortgage deed can be afforded. Thus, this type of
mortgage does not require any writing, and being an oral transaction is
not affected by the Law of Registration.
The basic elements of this type of mortgage are:
1. There must be a debt.
2. There must be a deposit/delivery of the title deeds.
3. There is an intention that the deeds shall be security for the
debt; and
4. Territorial restrictions
It is important to note that such a mortgage can be made only in certain
areas and not everywhere in India. The said restriction to certain areas
means the place where the deeds are to be delivered and not the situation
of the property mortgaged. Also, a deposit of deeds beyond that area will
neither create a mortgage nor an exchange.
Existence of Debt
A debt may be existing or future in nature. A transfer of an interest in any
property to secure the payment of money advanced or to be advanced, or
an existing or future debt, or the performance of any engagement which
results in a pecuniary obligation is said to be a mortgage and clause (f)
containing equitable mortgage gives just one of the modes of creating
mortgage.
Deposit of Title-Deeds
It is not necessary to make physical delivery of documents, a constructive
delivery of documents is sufficient. A valid equitable mortgage does not
require all the documents of title to be deposited or the documents
deposited to show a complete title. It is sufficient if the deposited deeds
are bona fide, relate to the property, and are material evidence of title. If
any title of deed is not shown at all in the deposited document and there
are documents in existence showing his title to the property but they are
not deposited then an equitable mortgage is not created.
Intention to Create Security
The gist of the transaction lies in the intention that the title deeds shall be
security for the money borrowed (debt). Merely handing over the title
deeds to Mr. X by Mr. Z does not create a mortgage. The deeds need to
be delivered in the performance of that agreement that they are security
for the debt.
The intention for creating security is a question of fact, not of law, which
needs to be determined in all cases just like any other fact-based on
presumptions and oral, documentary, or circumstantial evidence.
Anomalous Mortgage [Section 58(g)]
Clause (g) of Section 58 reads:
Anomalous mortgage.—A mortgage that is not a simple mortgage, a
mortgage by conditional sale, a usufructuary mortgage, an English
mortgage, or a mortgage by deposit of title deeds within the meaning of
this section is called an anomalous mortgage.
In order to protect various customary mortgages prevailing in different
parts of the country, clause (g) was enacted by the legislation. An
anomalous mortgage is said to be a combination of two or more
mortgages.
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This section shall be read with Section 98 of the TPA which reads :
Rights and liabilities of parties to anomalous mortgages.—In the case of
an anomalous mortgage the rights and liabilities of the parties shall be
determined by their contract as evidenced in the mortgage deed, and, so
far as such contract does not extend, by local usage.
Such agreement which is made between the mortgagor and the mortgagee
according to their terms and conditions is called an anomalous mortgage.
Where it is not a simple, usufructuary, mortgage by conditional sale, etc.
is termed as an anomalous mortgage.
For instance, a usufructuary mortgage may also have the right of sale (as
stated above, a usufructuary mortgage only possession is given to the
mortgagee and it does not have the right of sale). Here, possession of the
property is given to the mortgagee for a certain period with a condition
that on non-repayment of debt the mortgage shall be deemed as mortgage
by conditional sale. Thus, making it a usufructuary mortgage as well as a
mortgage by conditional sale, making such mortgage an anomalous
mortgage.
Remedy Available
In this case, the mortgage has the right of ‘foreclosure’ as well as ‘sale’ if
the agreement of mortgage permits the same; and if the debt is not repaid,
the mortgagee would become the owner of the property.
Mortgagor’s Right of Redemption
The right of redemption can be exercised by the mortgagor through
mortgage deed and can be exhausted only if there is an agreement
between the parties, or by way of a decree of the court, or through any
statutory provision which prohibits the mortgagor from redeeming the
mortgage. The redemption right of mortgagor comes into existence when
payment is made to the mortgagee, it is only when this right can not be
exercised is due to the act of parties.
There are two other terms as well which are used in relation to mortgage,
which the reader must know. These are:
Sub mortgage
Where a mortgaged property is mortgaged again is termed as sub
mortgage, or where the mortgagee mortgages its interest in the said
property.
For instance, where Mr. X mortgages his house to Mr. Z for ₹15,000 and
Mr. Z further mortgages its mortgagee rights( it can be the right to sue the
mortgagor in case of default or possession, rents, etc) on the property to
Ms. B for ₹5,000. Here Mr. Z created a Sub Mortgage.
Puisne mortgage (also called pari pasu mortgage)
When the mortgagor mortgage a property to one person and mortgages
the same property to another person in order to secure another loan, the
second mortgage is termed as Puisne Mortgage.
For instance, the property value of ‘Z’ is ₹1,00,00,000 (1 crore) has been
given as security to the ‘Bank of Baroda’ for the loan of ₹10,00,000 (10
lakh). If an additional loan is required, the same can be taken from
another bank due to the difference in interest rate. So here the same
property can be used as security for securing another loan from
‘Syndicate Bank’ of ₹5,00,000 (5 lakh). This transaction of taking a loan
from ‘Bank of Baroda’ would be referred to as the first mortgage while
the loan from ‘Syndicate Bank’ would be referred to as the second or
puisne mortgage. Here syndicate bank becomes puisne mortgagee and
This section shall be read with Section 98 of the TPA which reads :
Rights and liabilities of parties to anomalous mortgages.—In the case of
an anomalous mortgage the rights and liabilities of the parties shall be
determined by their contract as evidenced in the mortgage deed, and, so
far as such contract does not extend, by local usage.
Such agreement which is made between the mortgagor and the mortgagee
according to their terms and conditions is called an anomalous mortgage.
Where it is not a simple, usufructuary, mortgage by conditional sale, etc.
is termed as an anomalous mortgage.
For instance, a usufructuary mortgage may also have the right of sale (as
stated above, a usufructuary mortgage only possession is given to the
mortgagee and it does not have the right of sale). Here, possession of the
property is given to the mortgagee for a certain period with a condition
that on non-repayment of debt the mortgage shall be deemed as mortgage
by conditional sale. Thus, making it a usufructuary mortgage as well as a
mortgage by conditional sale, making such mortgage an anomalous
mortgage.
Remedy Available
In this case, the mortgage has the right of ‘foreclosure’ as well as ‘sale’ if
the agreement of mortgage permits the same; and if the debt is not repaid,
the mortgagee would become the owner of the property.
Mortgagor’s Right of Redemption
The right of redemption can be exercised by the mortgagor through
mortgage deed and can be exhausted only if there is an agreement
between the parties, or by way of a decree of the court, or through any
statutory provision which prohibits the mortgagor from redeeming the
mortgage. The redemption right of mortgagor comes into existence when
payment is made to the mortgagee, it is only when this right can not be
exercised is due to the act of parties.
There are two other terms as well which are used in relation to mortgage,
which the reader must know. These are:
Sub mortgage
Where a mortgaged property is mortgaged again is termed as sub
mortgage, or where the mortgagee mortgages its interest in the said
property.
For instance, where Mr. X mortgages his house to Mr. Z for ₹15,000 and
Mr. Z further mortgages its mortgagee rights( it can be the right to sue the
mortgagor in case of default or possession, rents, etc) on the property to
Ms. B for ₹5,000. Here Mr. Z created a Sub Mortgage.
Puisne mortgage (also called pari pasu mortgage)
When the mortgagor mortgage a property to one person and mortgages
the same property to another person in order to secure another loan, the
second mortgage is termed as Puisne Mortgage.
For instance, the property value of ‘Z’ is ₹1,00,00,000 (1 crore) has been
given as security to the ‘Bank of Baroda’ for the loan of ₹10,00,000 (10
lakh). If an additional loan is required, the same can be taken from
another bank due to the difference in interest rate. So here the same
property can be used as security for securing another loan from
‘Syndicate Bank’ of ₹5,00,000 (5 lakh). This transaction of taking a loan
from ‘Bank of Baroda’ would be referred to as the first mortgage while
the loan from ‘Syndicate Bank’ would be referred to as the second or
puisne mortgage. Here syndicate bank becomes puisne mortgagee and
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can recover its debt once the first mortgagee i.e. Bank of Baroda claims
its money.
A puisne mortgage is allowed only after the 1st mortgagee permits to use
the same property as security for another loan, by the valuation of the
mortgaged property.
Conclusion
Hence, a mortgage is defined as an express transfer of an interest in
immovable property as collateral for a loan. The most important feature
of a mortgage is that it is a transfer of a legal interest in the property with
a provision for redemption, which means that the transfer will become
void or the interest will be re-conveyed upon repayment of the debt.
UNIT-IV
AGENCY
can recover its debt once the first mortgagee i.e. Bank of Baroda claims
its money.
A puisne mortgage is allowed only after the 1st mortgagee permits to use
the same property as security for another loan, by the valuation of the
mortgaged property.
Conclusion
Hence, a mortgage is defined as an express transfer of an interest in
immovable property as collateral for a loan. The most important feature
of a mortgage is that it is a transfer of a legal interest in the property with
a provision for redemption, which means that the transfer will become
void or the interest will be re-conveyed upon repayment of the debt.
UNIT-IV
AGENCY
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Based on Authority Based on Function
An agent is a Peron employed to do any act for another or to represent another in
dealings with third person. The function of an agent is to bring his principle into contractual
relationship with third parties. But servants, employees are not agents.
The Latin maxim.
'Qui facit per aluimfacit per se"
Means He who acts through another does the act himself.
Principal
The person for whom such act is done or who is so represented. A Wife is not agent of the
husband except under special circumstances and for special circumstances and for special
purposes. Similarly, a guardian is not an agent of a Minor.
Kinds of agency
General Special Universal Mercantile Non-Mercantile
AgentAgent Agent Agent Agent
Broker
Factor
Commission agent
Del Credere agent
Auctioners
BASED ON AUTHORITY
(i) General Agent
To act for their Principal in all matters or in the Ordinary course on their trade,
Profession or business as agent It continuous until it is terminated.
(ii) Special Agent
Special agents are authorized to do only some particular act or to act on some
particular occasion.
(iii) Universal agent
One who is authorized to transact all the business of his principal of every kind and to
do all the act.
Based on Authority Based on Function
An agent is a Peron employed to do any act for another or to represent another in
dealings with third person. The function of an agent is to bring his principle into contractual
relationship with third parties. But servants, employees are not agents.
The Latin maxim.
'Qui facit per aluimfacit per se"
Means He who acts through another does the act himself.
Principal
The person for whom such act is done or who is so represented. A Wife is not agent of the
husband except under special circumstances and for special circumstances and for special
purposes. Similarly, a guardian is not an agent of a Minor.
Kinds of agency
General Special Universal Mercantile Non-Mercantile
AgentAgent Agent Agent Agent
Broker
Factor
Commission agent
Del Credere agent
Auctioners
BASED ON AUTHORITY
(i) General Agent
To act for their Principal in all matters or in the Ordinary course on their trade,
Profession or business as agent It continuous until it is terminated.
(ii) Special Agent
Special agents are authorized to do only some particular act or to act on some
particular occasion.
(iii) Universal agent
One who is authorized to transact all the business of his principal of every kind and to
do all the act.
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BASED ON FUNCTIONS
A. Mercantile
agents Broker
BASED ON FUNCTIONS
A. Mercantile
agents Broker
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They are mere medium of communication between buyer and seller. He has no
possession of goods. He is paid commission for his services.
Factor
To whom the possession of goods is given for the purpose of selling the same. He is
authorized to sell in his own name.
Commission Agent
He may or may not be in actual possession of goods. He buys or sells goods on behalf
of his principal. He is paid commission for his services.
Del credereAgen
While acting as an agent on the principal's behalf, he guarantees and makes himself
liable as a surety to the extent of any default which may be committed by such persons
i.e. buyer.
Auctioners
Auctioneers are agents whose ordinary course of business is to sell by public auction goods
or other property.
B.Non - Mercantile Agents
They include Advocates, Insurance agent, Solicitor, etc.
CREATION OF AGENCY
AGENCY BY EXPRESS AGREEMENT (SEC 186)
A Contract of agency may be created by express words, written or oral. Generally, a
written agreement is the power of attorney executed on a stamped paper in favour of the
agent. It may be general or special. It is a document which gives an authority or power to a
person to act, on behalf ofthe principal in accordance with the terms and conditions
mentioned in it.
BY IMPLIED AGREEMENT (SEC 187)
An authority is said to be implied when it is to be inferred from the circumstances of
the case. Implied agency arises from the conduct, situation or relationship of parties.
Example: An owns a shop in serampur, living himself in Calcutta and visiting the shop
occasionally. The shop is managed by 'B' and he is in the habit of ordering goods from 'c' in
the name of 'A' for the purpose of the shop, and paying for them out of 'A' s funds with 'A' s
knowledge. 'B' has an implied authority from 'A' to order goods from 'C' in the name of 'A'
They are mere medium of communication between buyer and seller. He has no
possession of goods. He is paid commission for his services.
Factor
To whom the possession of goods is given for the purpose of selling the same. He is
authorized to sell in his own name.
Commission Agent
He may or may not be in actual possession of goods. He buys or sells goods on behalf
of his principal. He is paid commission for his services.
Del credereAgen
While acting as an agent on the principal's behalf, he guarantees and makes himself
liable as a surety to the extent of any default which may be committed by such persons
i.e. buyer.
Auctioners
Auctioneers are agents whose ordinary course of business is to sell by public auction goods
or other property.
B.Non - Mercantile Agents
They include Advocates, Insurance agent, Solicitor, etc.
CREATION OF AGENCY
AGENCY BY EXPRESS AGREEMENT (SEC 186)
A Contract of agency may be created by express words, written or oral. Generally, a
written agreement is the power of attorney executed on a stamped paper in favour of the
agent. It may be general or special. It is a document which gives an authority or power to a
person to act, on behalf ofthe principal in accordance with the terms and conditions
mentioned in it.
BY IMPLIED AGREEMENT (SEC 187)
An authority is said to be implied when it is to be inferred from the circumstances of
the case. Implied agency arises from the conduct, situation or relationship of parties.
Example: An owns a shop in serampur, living himself in Calcutta and visiting the shop
occasionally. The shop is managed by 'B' and he is in the habit of ordering goods from 'c' in
the name of 'A' for the purpose of the shop, and paying for them out of 'A' s funds with 'A' s
knowledge. 'B' has an implied authority from 'A' to order goods from 'C' in the name of 'A'
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for the purpose of the shop.
Implied agency may be of the following types
(i) Agency by Estoppel
When a person has by his conduct or statements induced others to believe that a certain
person is his agent, he is estopped from subsequently denying it.
(ii) Agency by Holding out
for the purpose of the shop.
Implied agency may be of the following types
(i) Agency by Estoppel
When a person has by his conduct or statements induced others to believe that a certain
person is his agent, he is estopped from subsequently denying it.
(ii) Agency by Holding out
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An agency by holding out requires some affirmative or positive act or conduct by the
principal to establish agency subsequently.
A is the domestic servant of B. Generally, B Purchase goods from C for A. C can
assume that A is B's implied agent. Subsequently A Use B 's authority to purchase goods for
his own use. C can recover the price from B.
(iii) Agency by Necessity
In certain circumstances the law confers an authority in one person to act as agent for
another without requiring the consent of the Principal.
where a horse sent by rail was not taken delivery of by the owner, the station master
had to feed the horse. It was held that the station master become an agent of necessity and the
owner is liable for the charges incurred by him - G. N. Railway vsSwaffield.
The following Conditions must be satisfied
Must be impossible to get principal's Instructions.
Must be the only Practicable one.
Necessity must be act honesty.
There must be real emergency and necessity.
BY OPERATION OF LAW
An agency is also constituted by the operation of law. Promoter of a new company is
Its agent.
Agency by Ratification
Ratification means subsequent acceptance by the principal in respect of an act done
by the agent without authority. It is also known as export facto agency. Ratification has got
retrospective effect.
This is in accordance with the maxim,
“Omnis ratithabitioretrotrahitur
et Priori mandate oaequiparatur”
(Every ratification has a retrospective effect and is equal to a previous mandate)
Essentials of valid Ratification
The agent must act on behalf of the principal.
The Principal must be in existence at the time of contract.
The Principal must have contractual capacity.
The Principal must have full knowledge of material facts.
An agency by holding out requires some affirmative or positive act or conduct by the
principal to establish agency subsequently.
A is the domestic servant of B. Generally, B Purchase goods from C for A. C can
assume that A is B's implied agent. Subsequently A Use B 's authority to purchase goods for
his own use. C can recover the price from B.
(iii) Agency by Necessity
In certain circumstances the law confers an authority in one person to act as agent for
another without requiring the consent of the Principal.
where a horse sent by rail was not taken delivery of by the owner, the station master
had to feed the horse. It was held that the station master become an agent of necessity and the
owner is liable for the charges incurred by him - G. N. Railway vsSwaffield.
The following Conditions must be satisfied
Must be impossible to get principal's Instructions.
Must be the only Practicable one.
Necessity must be act honesty.
There must be real emergency and necessity.
BY OPERATION OF LAW
An agency is also constituted by the operation of law. Promoter of a new company is
Its agent.
Agency by Ratification
Ratification means subsequent acceptance by the principal in respect of an act done
by the agent without authority. It is also known as export facto agency. Ratification has got
retrospective effect.
This is in accordance with the maxim,
“Omnis ratithabitioretrotrahitur
et Priori mandate oaequiparatur”
(Every ratification has a retrospective effect and is equal to a previous mandate)
Essentials of valid Ratification
The agent must act on behalf of the principal.
The Principal must be in existence at the time of contract.
The Principal must have contractual capacity.
The Principal must have full knowledge of material facts.
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Whole transaction must be ratified.
Ratification must be made within reasonable time.
Act to be ratified should not be void or illegal.
Ratification must not injure a third person.
Ratification must be express or implied.
Whole transaction must be ratified.
Ratification must be made within reasonable time.
Act to be ratified should not be void or illegal.
Ratification must not injure a third person.
Ratification must be express or implied.
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Examples
A without authority, buys goods for B. Afterwards B sell them to C on his own
account. B s conduct implies a ratification of the purchase made for him by A.
A Without B's authority lends B's money to C. Afterward B accepts interest on the
money from C. B's Conduct implies a ratification of the loan.
Between husband and wife, the authority may be express or implied or that of necessity
Wife has an implied authority by necessity to pledge her husband's credit under the
following circumstances
When she is living with her husband.
When she is living separate and claiming maintenance.
She can pledge to a reasonable extent and in reasonable manner for ordinary
household expenses.
Only for necessity, it depends on circumstances of each case.
DUTIES OF AN AGENT
Section 211 to 216 and 190,192, 193 explain about agent'sduties
To Conduct the business of agency according to instructions - Lilley vs Double day.
To follow customs in absence to instruction.
To carry out the business with skill and diligence - PannalalJankidasvsmohanlal.
To render proper accounts to the Principal.
To Communicate with the Principal, in case of difficulty.
To pay sums to the principal received for him.
To Protect and preserve the interest of the principal.
Not to deal on his own account.
Not to make unauthorized profit from agency.
Not to use information obtained in the course of business against the principal.
Not to delegate authority.
Not to setup adverse title.
RIGHTS OF AN AGENT
To receive remuneration agreed upon.
To retain principal's money due to himself.
To be indemnified against lawful acts.
To be indemnified against consequences of acts done in good faith.
Right to lien on the possession of goods.
To stop goods in transit.
To claim compensation for injury by the principal's negligence.
To protect principal's property from loss.
To be liable for his misconduct.
To claim compensation for premature termination of agency.
Examples
A without authority, buys goods for B. Afterwards B sell them to C on his own
account. B s conduct implies a ratification of the purchase made for him by A.
A Without B's authority lends B's money to C. Afterward B accepts interest on the
money from C. B's Conduct implies a ratification of the loan.
Between husband and wife, the authority may be express or implied or that of necessity
Wife has an implied authority by necessity to pledge her husband's credit under the
following circumstances
When she is living with her husband.
When she is living separate and claiming maintenance.
She can pledge to a reasonable extent and in reasonable manner for ordinary
household expenses.
Only for necessity, it depends on circumstances of each case.
DUTIES OF AN AGENT
Section 211 to 216 and 190,192, 193 explain about agent'sduties
To Conduct the business of agency according to instructions - Lilley vs Double day.
To follow customs in absence to instruction.
To carry out the business with skill and diligence - PannalalJankidasvsmohanlal.
To render proper accounts to the Principal.
To Communicate with the Principal, in case of difficulty.
To pay sums to the principal received for him.
To Protect and preserve the interest of the principal.
Not to deal on his own account.
Not to make unauthorized profit from agency.
Not to use information obtained in the course of business against the principal.
Not to delegate authority.
Not to setup adverse title.
RIGHTS OF AN AGENT
To receive remuneration agreed upon.
To retain principal's money due to himself.
To be indemnified against lawful acts.
To be indemnified against consequences of acts done in good faith.
Right to lien on the possession of goods.
To stop goods in transit.
To claim compensation for injury by the principal's negligence.
To protect principal's property from loss.
To be liable for his misconduct.
To claim compensation for premature termination of agency.
103
RIGHTS OF A PRINCIPAL
To enforce all the duties of the agent.
May repudiate the transaction.
RIGHTS OF A PRINCIPAL
To enforce all the duties of the agent.
May repudiate the transaction.
104
Entitled to claim agency's benefit, if the agent deals the business of agency without
the knowledge of the principal.
Entitled to Compensation for any loss.
Entitled to demand proper accounts from the agent.
Entitled to compensation of the agent's negligence.
Right to refuse remuneration.
To ratify or to disown agent acts.
May revoke the authority.
To give instruction in case of difficulty.
LIABILITY OF THE PRINCIPAL
The Principal is not bound by unauthorized acts of his agent.
But can repudiate the whole transaction.
The Knowledge of the agent is the knowledge of the principal.
Liable to compensate for the loss caused by a false representation of the agent while
doing authorized dealing.
To make compensation for any loss or damage incurred by the agent while doing
authorized dealing.
If fraud or misrepresentation committed by the agent beyond the agency he is
personally liable to third parties.
The Principal is not bound by the acts of the sub agent. If not authorized to appoint.
Principal is liable for the negotiable instrument given by the agent when authorised.
DELECATION OF
AUTHORITY OR
DELEGATUS NON POTEST DELEGARE
An agent who has the authority from another to do an act must do it himself and
cannot delegate his authority to another.
This is based on the maxim "delegatus non potestdelegare". A delecateCannot
further delegate.
But there are certain exceptions
If the principal expressly authorized to appoint a sub - agent.
If the Principal came to know the intention of agent to appoint sub - agent, But the
principal does not object it, If the Principal does not object, after Knowing the
intention of agent is to appoint a sub agent.
Sub agent may be employed by the ordinary custom of trade,
Eg.Architects may generally appoint draftsmen.
If Unforeseen emergencies arises.
If it is necessity to appoint a sub agent to do the nature of work.
Sub agent
Entitled to claim agency's benefit, if the agent deals the business of agency without
the knowledge of the principal.
Entitled to Compensation for any loss.
Entitled to demand proper accounts from the agent.
Entitled to compensation of the agent's negligence.
Right to refuse remuneration.
To ratify or to disown agent acts.
May revoke the authority.
To give instruction in case of difficulty.
LIABILITY OF THE PRINCIPAL
The Principal is not bound by unauthorized acts of his agent.
But can repudiate the whole transaction.
The Knowledge of the agent is the knowledge of the principal.
Liable to compensate for the loss caused by a false representation of the agent while
doing authorized dealing.
To make compensation for any loss or damage incurred by the agent while doing
authorized dealing.
If fraud or misrepresentation committed by the agent beyond the agency he is
personally liable to third parties.
The Principal is not bound by the acts of the sub agent. If not authorized to appoint.
Principal is liable for the negotiable instrument given by the agent when authorised.
DELECATION OF
AUTHORITY OR
DELEGATUS NON POTEST DELEGARE
An agent who has the authority from another to do an act must do it himself and
cannot delegate his authority to another.
This is based on the maxim "delegatus non potestdelegare". A delecateCannot
further delegate.
But there are certain exceptions
If the principal expressly authorized to appoint a sub - agent.
If the Principal came to know the intention of agent to appoint sub - agent, But the
principal does not object it, If the Principal does not object, after Knowing the
intention of agent is to appoint a sub agent.
Sub agent may be employed by the ordinary custom of trade,
Eg.Architects may generally appoint draftsmen.
If Unforeseen emergencies arises.
If it is necessity to appoint a sub agent to do the nature of work.
Sub agent
105
Sub agent is a person appointed by the original agent to act in the business of agency.
Sub agent may be appointed by the agent properly or improperly.
Sub agent is a person appointed by the original agent to act in the business of agency.
Sub agent may be appointed by the agent properly or improperly.
If properly appointed
The Principal is bound for the acts of a sub agent.
The agent is responsible for the acts of the sub - agent.
If improperly appointed
The Principal is not bound by the acts of such sub – agent.
The sub - agent is responsible to the agent as his principal.
The sub - agent is not responsible to the Principal.
Substituted agent
Where an agent, holding an express or implied authority to name another person to
act for the principal in the business of the agency. Such person is called as substituted
agent.
'A' authorizes 'B' to recover loan from 'C' B instructs 'D' a solicitor to take legal
proceedings against 'C' D is substituted agent.
TERMINATION OF AGENCY
Sec 201 to 210 of Indian Contract Act deals with termination of
agency. An agency may be terminated or revoked in any of the
following ways: -
(i) By the act of the Parties.
(ii) By the operation of law.
(i) By the act of Parties
May be terminated at any time and at any stage by the mutual agreement.
The Principal may revoke the agency. But the agency is a continuous one,
notice is necessary.
The agent also may revoke in the above said manner.
(ii) By the operation of law
Completion of agency business.
Expiry of time.
Death of either Party.
Insanity of either Party.
Insolvency of the Principal.
Destruction of the subject - matter.
Principal or agent becomes alien enemy.
Dissolution of a company.
The Principal is bound for the acts of a sub agent.
The agent is responsible for the acts of the sub - agent.
If improperly appointed
The Principal is not bound by the acts of such sub – agent.
The sub - agent is responsible to the agent as his principal.
The sub - agent is not responsible to the Principal.
Substituted agent
Where an agent, holding an express or implied authority to name another person to
act for the principal in the business of the agency. Such person is called as substituted
agent.
'A' authorizes 'B' to recover loan from 'C' B instructs 'D' a solicitor to take legal
proceedings against 'C' D is substituted agent.
TERMINATION OF AGENCY
Sec 201 to 210 of Indian Contract Act deals with termination of
agency. An agency may be terminated or revoked in any of the
following ways: -
(i) By the act of the Parties.
(ii) By the operation of law.
(i) By the act of Parties
May be terminated at any time and at any stage by the mutual agreement.
The Principal may revoke the agency. But the agency is a continuous one,
notice is necessary.
The agent also may revoke in the above said manner.
(ii) By the operation of law
Completion of agency business.
Expiry of time.
Death of either Party.
Insanity of either Party.
Insolvency of the Principal.
Destruction of the subject - matter.
Principal or agent becomes alien enemy.
Dissolution of a company.
Termination of Sub - agent's authority.
The agency is irrevocable in the following cases
If agency coupled with interest,
Eg: - A gives authority to B to sell A's land and Received amount. A
cannot revoke this authority, nor can it be terminated by his insanity or
death.
If agent exercised authority partly.
If there is personal liability,
The termination is effective from the time when it comes to the knowledge of the agent or third
parties
UNIT-V
Sale of Goods Act, 1930
In trade and commerce, sales and purchase of goods are very common transactions. Originally,
the transactions related to sale and purchase of goods was regulated by Chapter VII (Sections 76
to 123) of the Indian Contract Act 1872 – which was broadly based on English common law.
A separate act, the Sales of Goods Act 1930 came into force on 1st July 1930. It extends to the
whole of India. It does not affect rights, interests, obligations and titles acquired before the
commencement of the Act. The Act deals with the sale but not with mortgage or pledge of the
goods.
Contract of Sale
A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a price [Sec.4]. A contract of sale may be absolute or
conditional.
Definitions
Buyer – Sec 2 (1)
Buyer means a person who buys or agrees to buy goods.
Delivery- Sec 2 (2)
Deliverable state- Sec 2 (3)
Goods are said to be in a “deliverable state” when they are in such state that the buyer would
under the contract be bound to take delivery of them.
Document of Title- Sec 2 (4)
A document of the title to goods may be described as any document used as proof of the
possession or control of goods, authorizing or purporting to authorize, either by endorsement or
by delivery, the possessor of the document to transfer or receive goods thereby represented.
Fault – Sec 2 (5)
Fault means wrongful act or default.
Future goods- Sec 2 (6)
The agency is irrevocable in the following cases
If agency coupled with interest,
Eg: - A gives authority to B to sell A's land and Received amount. A
cannot revoke this authority, nor can it be terminated by his insanity or
death.
If agent exercised authority partly.
If there is personal liability,
The termination is effective from the time when it comes to the knowledge of the agent or third
parties
UNIT-V
Sale of Goods Act, 1930
In trade and commerce, sales and purchase of goods are very common transactions. Originally,
the transactions related to sale and purchase of goods was regulated by Chapter VII (Sections 76
to 123) of the Indian Contract Act 1872 – which was broadly based on English common law.
A separate act, the Sales of Goods Act 1930 came into force on 1st July 1930. It extends to the
whole of India. It does not affect rights, interests, obligations and titles acquired before the
commencement of the Act. The Act deals with the sale but not with mortgage or pledge of the
goods.
Contract of Sale
A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a price [Sec.4]. A contract of sale may be absolute or
conditional.
Definitions
Buyer – Sec 2 (1)
Buyer means a person who buys or agrees to buy goods.
Delivery- Sec 2 (2)
Deliverable state- Sec 2 (3)
Goods are said to be in a “deliverable state” when they are in such state that the buyer would
under the contract be bound to take delivery of them.
Document of Title- Sec 2 (4)
A document of the title to goods may be described as any document used as proof of the
possession or control of goods, authorizing or purporting to authorize, either by endorsement or
by delivery, the possessor of the document to transfer or receive goods thereby represented.
Fault – Sec 2 (5)
Fault means wrongful act or default.
Future goods- Sec 2 (6)
Future goods mean goods to be manufactured or produced or acquired by the seller after the
making of the contract of sale.
Goods- Sec 2 (7)
Goods mean every kind of movable property other than actionable claims and money; and
includes stock and shares, growing crops, grass, and things attached to or forming part of the
land which are agreed to be severed before sale or under the contract of sale.
Insolvent- Section 2 (8)
A person is said to be “insolvent” who has ceased to pay his debts in the ordinary course of
business or cannot pay his debts as they become due, whether he has committed an act of
insolvency or not.
Mercantile agent- Section 2 (9)
Mercantile agent means a mercantile agent having in the customary course of business as such
agent authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods,
or to raise money on the security of goods.
Price – Section 2(10)
Price means the money consideration for a sale of goods.
Property- Section 2(11)
Property means the general property in goods and not merely a special property.
Seller- Section 2 (13)
Seller means a person who sells or agrees to sell goods.
Specific goods- Section 2(14)
Specific goods mean goods identified and agreed upon at the time a contract of sale is made.
A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a price. There may be a contract of sale between one part-
owner and another.Sec. 4 (1), The Sale of Goods Act, 1930
Seller means a person who sells or agrees to sell goods.
Elements of Contract of Sale
The five essentials of valid sales act of sale are as discussed below:
1. Two parties
2. Goods
3. Price
4. Transfer of General Property
5. Valid Contract
making of the contract of sale.
Goods- Sec 2 (7)
Goods mean every kind of movable property other than actionable claims and money; and
includes stock and shares, growing crops, grass, and things attached to or forming part of the
land which are agreed to be severed before sale or under the contract of sale.
Insolvent- Section 2 (8)
A person is said to be “insolvent” who has ceased to pay his debts in the ordinary course of
business or cannot pay his debts as they become due, whether he has committed an act of
insolvency or not.
Mercantile agent- Section 2 (9)
Mercantile agent means a mercantile agent having in the customary course of business as such
agent authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods,
or to raise money on the security of goods.
Price – Section 2(10)
Price means the money consideration for a sale of goods.
Property- Section 2(11)
Property means the general property in goods and not merely a special property.
Seller- Section 2 (13)
Seller means a person who sells or agrees to sell goods.
Specific goods- Section 2(14)
Specific goods mean goods identified and agreed upon at the time a contract of sale is made.
A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a price. There may be a contract of sale between one part-
owner and another.Sec. 4 (1), The Sale of Goods Act, 1930
Seller means a person who sells or agrees to sell goods.
Elements of Contract of Sale
The five essentials of valid sales act of sale are as discussed below:
1. Two parties
2. Goods
3. Price
4. Transfer of General Property
5. Valid Contract
You may form a mental model of the formation of contract. In other words, you will deal with
four main concepts of the formation of a contract.
FEATURES EXPLANATION EXAMPLE
Two parties There must by two parties, buyer and
seller, to contract.
You go to a dealer and buy a computer
and pay for it. The dealer is the seller and
you are the buyer.
Movable
Goods
Any goods that are movable and the
ownership is transferred. (Immovable
property does not come under the Sales of
Goods Act.)
When you fly, the airline sells you the
service to take you from one place to
another; it does not sell you the aircraft.
So also when you buy grain, you only
buy grain and not the land of the farmer.
Price Sale is about exchange goods for money.
Under Contract Act it is termed as
consideration, but this consideration must
be only in money. Exchange of goods for
goods is barter and not sale.
You buy a computer and pay money for it
as the price for the value you
four main concepts of the formation of a contract.
FEATURES EXPLANATION EXAMPLE
Two parties There must by two parties, buyer and
seller, to contract.
You go to a dealer and buy a computer
and pay for it. The dealer is the seller and
you are the buyer.
Movable
Goods
Any goods that are movable and the
ownership is transferred. (Immovable
property does not come under the Sales of
Goods Act.)
When you fly, the airline sells you the
service to take you from one place to
another; it does not sell you the aircraft.
So also when you buy grain, you only
buy grain and not the land of the farmer.
Price Sale is about exchange goods for money.
Under Contract Act it is termed as
consideration, but this consideration must
be only in money. Exchange of goods for
goods is barter and not sale.
You buy a computer and pay money for it
as the price for the value you
FEATURES EXPLANATION EXAMPLE
Transfer of
General
Property
Property is distinguished as general
property and special property. General
property consists of as goods owned and
special property as goods under
possession.
You own a clock. It is a general property.
You pledge the clock to a pawn shop—
the shop owner is in possession of your
property which is owned by you; it is a
special property for the shop owner.
Valid Contract
The principles of valid contract are
applicable to sale of contract.
The principles of contract that are
enshrined in the Contract Act: offer,
acceptance, consideration,
communication, and competency to
contract.
Two parties
There must be a seller as well as a buyer. ‘Buyer’ means a person who buys or agrees to buy
goods [Section 2 (1)]. ‘Seller’ means a person who sells or agrees to sell goods [Section 2(13)].
A person cannot be a seller as well as a buyer as a person cannot buy his own goods.
Goods
There must be some goods. ‘Goods’ means every kind of movable property other than actionable
claims and money and includes stock and shares, growing crops, grass and things attached to or
forming part of the land which are agreed to be severed before sale or under the contract of sale
[Sale 2(7)]. Contracts relating to actionable claims, immovable property and services are not
covered by this Act.
The ‘actionable claims’ mean a claim which can be enforced through the courts of law. Eg., a
due from one person to another is an actionable claim.
The ‘money’ here means the legal tender (i.e., currency of the country) and not old coins.
Transfer of Property
Property means the general property in goods, and not merely a special property [Section 2(11)].
General property in goods means ownership of the goods. Special property in goods means
possession of goods.
Thus, there must be either a transfer of ownership of goods or an agreement to transfer the
ownership of goods. The ownership may transfer either immediately on completion of sale or
sometime in future in agreement to sell.
Price
There must be a price. Price here means the money consideration for a sale of goods. When the
consideration is only goods, it amounts to a ‘barter’ and not sale.
When there is no consideration, it amounts to gift and not sale. However, the consideration may
be partly in money and partly in goods because the law does not prohibit as such.
How the Contract of Sale Comes About
Transfer of
General
Property
Property is distinguished as general
property and special property. General
property consists of as goods owned and
special property as goods under
possession.
You own a clock. It is a general property.
You pledge the clock to a pawn shop—
the shop owner is in possession of your
property which is owned by you; it is a
special property for the shop owner.
Valid Contract
The principles of valid contract are
applicable to sale of contract.
The principles of contract that are
enshrined in the Contract Act: offer,
acceptance, consideration,
communication, and competency to
contract.
Two parties
There must be a seller as well as a buyer. ‘Buyer’ means a person who buys or agrees to buy
goods [Section 2 (1)]. ‘Seller’ means a person who sells or agrees to sell goods [Section 2(13)].
A person cannot be a seller as well as a buyer as a person cannot buy his own goods.
Goods
There must be some goods. ‘Goods’ means every kind of movable property other than actionable
claims and money and includes stock and shares, growing crops, grass and things attached to or
forming part of the land which are agreed to be severed before sale or under the contract of sale
[Sale 2(7)]. Contracts relating to actionable claims, immovable property and services are not
covered by this Act.
The ‘actionable claims’ mean a claim which can be enforced through the courts of law. Eg., a
due from one person to another is an actionable claim.
The ‘money’ here means the legal tender (i.e., currency of the country) and not old coins.
Transfer of Property
Property means the general property in goods, and not merely a special property [Section 2(11)].
General property in goods means ownership of the goods. Special property in goods means
possession of goods.
Thus, there must be either a transfer of ownership of goods or an agreement to transfer the
ownership of goods. The ownership may transfer either immediately on completion of sale or
sometime in future in agreement to sell.
Price
There must be a price. Price here means the money consideration for a sale of goods. When the
consideration is only goods, it amounts to a ‘barter’ and not sale.
When there is no consideration, it amounts to gift and not sale. However, the consideration may
be partly in money and partly in goods because the law does not prohibit as such.
How the Contract of Sale Comes About
As you have learnt in the Contract Act, no particular form is necessary to constitute a contract of
sale.
There are offer and acceptance, the communication may be formal, informal, or implied. The
sale and transfer may occur immediately before, after simultaneous, or payment in instalments.
In order to understand exactly how the contract of sale comes about, you must learn some
fundamental distinctions. Table: distinguishes between each of the following:
1. Sale and agreement to sell
2. Sale and hire-purchase
3. Agreement to sell and hire-purchase
4. Sale and bailment
5. Sale and contract for work and materials
The table is a logical consequence of the principles of contract that you studied in Contract Act
Chapter which covered the Contract Act, 1872.
It goes to prove that both the Contract Act and Sale of Goods Act are complementary and both
are based fundamentally on the same principles.
Difference Between Sale And Agreement To Sell
A contract of sale is a generic term and includes both an actual sale and an agreement to sell.
Section 4 provides that if the property in goods is transferred from the seller to the buyer under a
contract, the contract is called a sale.
Where the transfer of the property in the goods will take place at a future time or is subject to
some condition which has to be fulfilled, the contract is called an agreement to sell.
BASIS OF
DISTINCTION
SALE AGREEMENT TO SELL
Meaning When in a contract of sale, the
exchange of goods for money
consideration takes place
immediately, it is known as Sale.
When in a contract of sale the parties to
contract agree to exchange the goods for
a price at a future specified date is
known as an Agreement to Sell.
Nature Absolute Conditional
Type of Contract Executed Contract Executory Contract
Transfer of risk Yes No
Title In sale, the title of goods transfers
to the buyer with the transfer of
goods.
In an agreement to sell, the title of goods
remains with the seller as there is no
transfer of goods.
sale.
There are offer and acceptance, the communication may be formal, informal, or implied. The
sale and transfer may occur immediately before, after simultaneous, or payment in instalments.
In order to understand exactly how the contract of sale comes about, you must learn some
fundamental distinctions. Table: distinguishes between each of the following:
1. Sale and agreement to sell
2. Sale and hire-purchase
3. Agreement to sell and hire-purchase
4. Sale and bailment
5. Sale and contract for work and materials
The table is a logical consequence of the principles of contract that you studied in Contract Act
Chapter which covered the Contract Act, 1872.
It goes to prove that both the Contract Act and Sale of Goods Act are complementary and both
are based fundamentally on the same principles.
Difference Between Sale And Agreement To Sell
A contract of sale is a generic term and includes both an actual sale and an agreement to sell.
Section 4 provides that if the property in goods is transferred from the seller to the buyer under a
contract, the contract is called a sale.
Where the transfer of the property in the goods will take place at a future time or is subject to
some condition which has to be fulfilled, the contract is called an agreement to sell.
BASIS OF
DISTINCTION
SALE AGREEMENT TO SELL
Meaning When in a contract of sale, the
exchange of goods for money
consideration takes place
immediately, it is known as Sale.
When in a contract of sale the parties to
contract agree to exchange the goods for
a price at a future specified date is
known as an Agreement to Sell.
Nature Absolute Conditional
Type of Contract Executed Contract Executory Contract
Transfer of risk Yes No
Title In sale, the title of goods transfers
to the buyer with the transfer of
goods.
In an agreement to sell, the title of goods
remains with the seller as there is no
transfer of goods.
BASIS OF
DISTINCTION
SALE AGREEMENT TO SELL
Right to sell Buyer Seller
Consequences of
subsequent loss or
damage to the goods
Responsibility of buyer Responsibility of Seller
Tax VAT is charged at the time of sale. No tax is levied.
Suit for breach of
contract by the seller
The buyer can claim damages
from the seller and proprietary
remedy from the party to whom
the goods are sold.
Here the buyer has the right to claim
damages only.
Right of unpaid seller Right to sue for the price. Right to sue for damages
Difference Between Sale and a Hire Purchase
A Hire purchase agreement is an agreement for hire of goods where the person who hires the
goods has an option to purchase the goods at the end. The possession of the goods is delivered to
such a hirer and he has to pay via instalments. The property in the goods passes to the hirer on
the payment of the last instalments.
A Hire purchase agreement is an agreement for hire of goods where the person who hires the
goods has an option to purchase the goods at the end. The possession of the goods is delivered to
such a hirer and he has to pay via instalments. The property in the goods passes to the hirer on
the payment of the last instalments.
last instalments.
BASIS OF
DISTINCTION
SALE HIRE-PURCHASE
Law A contract of sale is governed by the
Sale of Goods Act, 1930.
They are governed by Hire Purchase Act,
1972
Nature of Contract It may be written, oral or implied. It is an agreement to hire and an agreement
to sell. It has to be in writing.
Possession Possession may or may not transfer
immediately.
Possession passes immediately
DISTINCTION
SALE AGREEMENT TO SELL
Right to sell Buyer Seller
Consequences of
subsequent loss or
damage to the goods
Responsibility of buyer Responsibility of Seller
Tax VAT is charged at the time of sale. No tax is levied.
Suit for breach of
contract by the seller
The buyer can claim damages
from the seller and proprietary
remedy from the party to whom
the goods are sold.
Here the buyer has the right to claim
damages only.
Right of unpaid seller Right to sue for the price. Right to sue for damages
Difference Between Sale and a Hire Purchase
A Hire purchase agreement is an agreement for hire of goods where the person who hires the
goods has an option to purchase the goods at the end. The possession of the goods is delivered to
such a hirer and he has to pay via instalments. The property in the goods passes to the hirer on
the payment of the last instalments.
A Hire purchase agreement is an agreement for hire of goods where the person who hires the
goods has an option to purchase the goods at the end. The possession of the goods is delivered to
such a hirer and he has to pay via instalments. The property in the goods passes to the hirer on
the payment of the last instalments.
last instalments.
BASIS OF
DISTINCTION
SALE HIRE-PURCHASE
Law A contract of sale is governed by the
Sale of Goods Act, 1930.
They are governed by Hire Purchase Act,
1972
Nature of Contract It may be written, oral or implied. It is an agreement to hire and an agreement
to sell. It has to be in writing.
Possession Possession may or may not transfer
immediately.
Possession passes immediately
BASIS OF
DISTINCTION
SALE HIRE-PURCHASE
Transfer of
ownership
The ownership of goods is
transferred immediately.
It transferred only when the option to
purchase is exercised and the last payment
is made.
Buyer The buyer becomes the full owner of
the goods
The hirer is a bailee, and not the owner until
he pays all the instalments of the price in
full or exercises the option to purchase.
Transfer to third
parties
The buyer can transfer a good title to
third parties because ownership of
goods has been transferred.
The hirer cannot transfer a good title to a
third party as ownership has not been
transferred.
Right to repossess The seller can sue for price but he
cannot repossess the goods.
The hire vendor has a right to repossess the
goods if the hirer defaults in the payments.
Right to terminate In a sale, there is no option to the
buyer to return the goods bought.
The hirer can terminate the agreement
before the ownership is transferred.
Sales tax In case of sale of taxable goods,
sales tax is levied.
Even if taxable goods are hired, sales tax is
not levied.
Difference Between Sale and a Bailment
Sale and Bailment are two different types of contracts. A contract of sale is a straight forward
contract where a person may buy goods, services or property from a seller in exchange for
remuneration, usually in the form of money. Essentially, in a bailment contract, the bailor gives
the goods, assets or property to the bailee for a specific amount of time. However, the goods,
assets or property still belongs to the bailor.
belongs to the bailor.
BASIS OF
DISTINCTION
SALE BAILMENT
Act Sale is defined under Sec. 4(3)
of the Sale of Goods Act, 1930.
Bailment is defined under Sec. 148 of the Indian
Contract Act, 1872.
Ownership of
Goods
The buyer becomes the owner
of goods.
The bailee does not become the owner of goods.
Use of Goods In a sale, the buyer may use the
goods in any way he likes.
In bailment, the bailee can use the goods only
accordingly to the direction of the bailor.
Consideration In a sale, the consideration is
always in terms of money.
In a Bailment, the consideration need not be
money as it may be the understanding to return
DISTINCTION
SALE HIRE-PURCHASE
Transfer of
ownership
The ownership of goods is
transferred immediately.
It transferred only when the option to
purchase is exercised and the last payment
is made.
Buyer The buyer becomes the full owner of
the goods
The hirer is a bailee, and not the owner until
he pays all the instalments of the price in
full or exercises the option to purchase.
Transfer to third
parties
The buyer can transfer a good title to
third parties because ownership of
goods has been transferred.
The hirer cannot transfer a good title to a
third party as ownership has not been
transferred.
Right to repossess The seller can sue for price but he
cannot repossess the goods.
The hire vendor has a right to repossess the
goods if the hirer defaults in the payments.
Right to terminate In a sale, there is no option to the
buyer to return the goods bought.
The hirer can terminate the agreement
before the ownership is transferred.
Sales tax In case of sale of taxable goods,
sales tax is levied.
Even if taxable goods are hired, sales tax is
not levied.
Difference Between Sale and a Bailment
Sale and Bailment are two different types of contracts. A contract of sale is a straight forward
contract where a person may buy goods, services or property from a seller in exchange for
remuneration, usually in the form of money. Essentially, in a bailment contract, the bailor gives
the goods, assets or property to the bailee for a specific amount of time. However, the goods,
assets or property still belongs to the bailor.
belongs to the bailor.
BASIS OF
DISTINCTION
SALE BAILMENT
Act Sale is defined under Sec. 4(3)
of the Sale of Goods Act, 1930.
Bailment is defined under Sec. 148 of the Indian
Contract Act, 1872.
Ownership of
Goods
The buyer becomes the owner
of goods.
The bailee does not become the owner of goods.
Use of Goods In a sale, the buyer may use the
goods in any way he likes.
In bailment, the bailee can use the goods only
accordingly to the direction of the bailor.
Consideration In a sale, the consideration is
always in terms of money.
In a Bailment, the consideration need not be
money as it may be the understanding to return
BASIS OF
DISTINCTION
SALE BAILMENT
the goods bailed on accomplishment of the
purpose.
Return of goods In a sale, there is no return of
goods from the buyer to the
seller, unless there is a breach.
In a bailment, the goods are necessarily returned
after the specified time or accomplishment of the
purpose.
Conditions and Warranties
Conditions and Warranties
The Sale of Goods Act, identifies the terms, “Conditions and Warranties” as being of a prime
significance in a contract of sale.
A stipulation in a contract of sale with reference to goods which are the subject thereof may be a
condition or a warranty.
– Sec. 12, The Sale of Goods Act, 1930
A stipulation is a prerequisite or a provision or qualification that is attached to a contract.
A stipulation may be condition or warranty depends upon its importance in relation to a contract.
A stipulation which is essential to the main purpose of a contract is known as a condition.
A stipulation which is collateral to the main purpose of the contract is a warranty.
The conditions and warranties may be express or implied.
Express conditions and warranties are those, which the parties agree expressly, i.e. orally or
in writing.
Implied conditions are those, which are implied by the law in the absence of any
agreement to the contrary.
Implied Conditions
Following are the implied conditions which are contained in the Sales of Goods Act:
1. Implied condition as to title (Sec. 14 A)
2. Implied condition in a sale by description (Sec. 15)
3. Implied condition in sale by sample (Sec. 17)
4. Implied condition in a sale by sample as well as by description (Sec. 15)
5. Implied condition as to fitness or quality (Sec. 16)
6. Implied Condition as to merchantability (Sec. 16)
7. Implied condition as to wholesomeness
Implied condition as to title
DISTINCTION
SALE BAILMENT
the goods bailed on accomplishment of the
purpose.
Return of goods In a sale, there is no return of
goods from the buyer to the
seller, unless there is a breach.
In a bailment, the goods are necessarily returned
after the specified time or accomplishment of the
purpose.
Conditions and Warranties
Conditions and Warranties
The Sale of Goods Act, identifies the terms, “Conditions and Warranties” as being of a prime
significance in a contract of sale.
A stipulation in a contract of sale with reference to goods which are the subject thereof may be a
condition or a warranty.
– Sec. 12, The Sale of Goods Act, 1930
A stipulation is a prerequisite or a provision or qualification that is attached to a contract.
A stipulation may be condition or warranty depends upon its importance in relation to a contract.
A stipulation which is essential to the main purpose of a contract is known as a condition.
A stipulation which is collateral to the main purpose of the contract is a warranty.
The conditions and warranties may be express or implied.
Express conditions and warranties are those, which the parties agree expressly, i.e. orally or
in writing.
Implied conditions are those, which are implied by the law in the absence of any
agreement to the contrary.
Implied Conditions
Following are the implied conditions which are contained in the Sales of Goods Act:
1. Implied condition as to title (Sec. 14 A)
2. Implied condition in a sale by description (Sec. 15)
3. Implied condition in sale by sample (Sec. 17)
4. Implied condition in a sale by sample as well as by description (Sec. 15)
5. Implied condition as to fitness or quality (Sec. 16)
6. Implied Condition as to merchantability (Sec. 16)
7. Implied condition as to wholesomeness
Implied condition as to title
“In the case of sale, it is implied that the seller has the right to sell the goods as he is the rightful
owner/authorized agent. In the case of an agreement to sell, the seller has the right to sell the
goods at the time of sale.”
This term ensures that the buyer can terminate the contract if the seller does not have the rightful
ownership or authority to sell the goods.
Case law: Rowland bought a second hand car from Divall, a car dealer. After a few months, the
police took the car away as it was a stolen one. The Court observed
that it was a breach of condition as to title as Divall had no right to sell the car. It was held that
Rowland could recover full price of the car from Divall. (Rowland v. Divall)
Implied condition in a sale by description
Where there is a contract of sale of goods by description, there is an implied condition that the
goods shall correspond with the description. Example: a sale of ‘seedless pears’ signifies that the
fruit will have no seeds. If it turns out to be a fruit with seeds, the buyer reserves the right to
reject the contract. If later on, the buyer finds that the goods are not as per description, he may
reject the goods and claim a refund of the price.
Implied condition in sale by sample
Where a sample of the ordered product is provided to the buyer, and the parties treat the sample
as of a standard quality for the sale, there is a condition that the goods will conform to the
sample. Such sale is termed as a ‘sale by sample’.
In the case of a contract for sale by sample, there is an implied condition:
that the major part of the product shall correspond with the sample in quality;
that the buyer shall have the opportunity of comparing the major part of the product with the
sample;
that the goods shall be free from any defect, making them unmerchantable, which would not
be apparent from a reasonable examination of the samples.
Case law: Ruben agreed to buy some rubber material from Fair Bros. The sample of the rubber
was shown to Ruben. On receiving the material, Ruben found that the
Implied condition in sale by sample
Where a sample of the ordered product is provided to the buyer, and the parties treat the sample
as of a standard quality for the sale, there is a condition that the goods will conform to the
sample. Such sale is termed as a ‘sale by sample’.
In the case of a contract for sale by sample, there is an implied condition:
that the major part of the product shall correspond with the sample in quality;
that the buyer shall have the opportunity of comparing the major part of the product with the
sample;
that the goods shall be free from any defect, making them unmerchantable, which would not
be apparent from a reasonable examination of the samples.
Case law: Ruben agreed to buy some rubber material from Fair Bros. The sample of the rubber
was shown to Ruben. On receiving the material, Ruben found that the
owner/authorized agent. In the case of an agreement to sell, the seller has the right to sell the
goods at the time of sale.”
This term ensures that the buyer can terminate the contract if the seller does not have the rightful
ownership or authority to sell the goods.
Case law: Rowland bought a second hand car from Divall, a car dealer. After a few months, the
police took the car away as it was a stolen one. The Court observed
that it was a breach of condition as to title as Divall had no right to sell the car. It was held that
Rowland could recover full price of the car from Divall. (Rowland v. Divall)
Implied condition in a sale by description
Where there is a contract of sale of goods by description, there is an implied condition that the
goods shall correspond with the description. Example: a sale of ‘seedless pears’ signifies that the
fruit will have no seeds. If it turns out to be a fruit with seeds, the buyer reserves the right to
reject the contract. If later on, the buyer finds that the goods are not as per description, he may
reject the goods and claim a refund of the price.
Implied condition in sale by sample
Where a sample of the ordered product is provided to the buyer, and the parties treat the sample
as of a standard quality for the sale, there is a condition that the goods will conform to the
sample. Such sale is termed as a ‘sale by sample’.
In the case of a contract for sale by sample, there is an implied condition:
that the major part of the product shall correspond with the sample in quality;
that the buyer shall have the opportunity of comparing the major part of the product with the
sample;
that the goods shall be free from any defect, making them unmerchantable, which would not
be apparent from a reasonable examination of the samples.
Case law: Ruben agreed to buy some rubber material from Fair Bros. The sample of the rubber
was shown to Ruben. On receiving the material, Ruben found that the
Implied condition in sale by sample
Where a sample of the ordered product is provided to the buyer, and the parties treat the sample
as of a standard quality for the sale, there is a condition that the goods will conform to the
sample. Such sale is termed as a ‘sale by sample’.
In the case of a contract for sale by sample, there is an implied condition:
that the major part of the product shall correspond with the sample in quality;
that the buyer shall have the opportunity of comparing the major part of the product with the
sample;
that the goods shall be free from any defect, making them unmerchantable, which would not
be apparent from a reasonable examination of the samples.
Case law: Ruben agreed to buy some rubber material from Fair Bros. The sample of the rubber
was shown to Ruben. On receiving the material, Ruben found that the
Implied condition in a sale by sample as well as by description
When the sale is by sample as well as by description, it is not sufficient that the bulk of the goods
correspond with the sample only and not with the description. Thus, the bulk of goods should
correspond with both, the sample as well as the description.
Implied condition as to fitness or quality
Usually, there is no implied condition that the goods supplied by the seller should be fit for the
particular purpose of the buyer. The rule ‘Caveat emptor’ applies instead.
This means that while purchasing the goods, it is the responsibility of the buyer to check whether
the goods he is buying are fit for his purpose. However, in the following situations, the
responsibility as to fitness of goods is on the seller:
the buyer makes known to the seller the particular purpose for which the goods are required
the buyer relies on the expertise and judgment of the seller, and
the seller’s business is to deliver and supply such goods whether he is the manufacturer or
producer or not.
It is important that the specific purpose for which the goods can or are to be used should be made
known to the seller.
Implied Condition as to merchantability
Where goods are bought by description from a seller who deals in goods of that description (he
may or may not be the manufacturer or producer), there is an implied condition that the goods
shall be of merchantable quality.
Merchantability means that there is no defect in the goods, which renders them unfit for sale.
Thus, a watch that will not keep time and a pen that will not write cannot be regarded as
merchantable.
If a buyer examines the goods before purchasing them, and the defects are evident, then the
condition of merchantability does not apply to the extent of such defects.
However, if some defects are noticed later as they were not evident but latent, then the condition
of merchantability would apply, even if the buyer had inspected the goods properly.
Example: A radio set was sold to a layman. The set was defective. It did not work in spite of
repairs, Held, the buyer could return the set and claim refund.
Implied condition as to wholesomeness
In the case of eatable and food stuff, there is an implied condition that the goods shall be
wholesomeness, i.e., free from any defect which renders them unfit for human consumption.
Example: A Purchased milk from B, a milk dealer. The milk contained typhoid germs. A’s wife
on taking the milk got infected and died. Held, A was entitled to get damages – Frost vs
Aylesbury Dairy Co. Ltd.
Implied Warranties
When the sale is by sample as well as by description, it is not sufficient that the bulk of the goods
correspond with the sample only and not with the description. Thus, the bulk of goods should
correspond with both, the sample as well as the description.
Implied condition as to fitness or quality
Usually, there is no implied condition that the goods supplied by the seller should be fit for the
particular purpose of the buyer. The rule ‘Caveat emptor’ applies instead.
This means that while purchasing the goods, it is the responsibility of the buyer to check whether
the goods he is buying are fit for his purpose. However, in the following situations, the
responsibility as to fitness of goods is on the seller:
the buyer makes known to the seller the particular purpose for which the goods are required
the buyer relies on the expertise and judgment of the seller, and
the seller’s business is to deliver and supply such goods whether he is the manufacturer or
producer or not.
It is important that the specific purpose for which the goods can or are to be used should be made
known to the seller.
Implied Condition as to merchantability
Where goods are bought by description from a seller who deals in goods of that description (he
may or may not be the manufacturer or producer), there is an implied condition that the goods
shall be of merchantable quality.
Merchantability means that there is no defect in the goods, which renders them unfit for sale.
Thus, a watch that will not keep time and a pen that will not write cannot be regarded as
merchantable.
If a buyer examines the goods before purchasing them, and the defects are evident, then the
condition of merchantability does not apply to the extent of such defects.
However, if some defects are noticed later as they were not evident but latent, then the condition
of merchantability would apply, even if the buyer had inspected the goods properly.
Example: A radio set was sold to a layman. The set was defective. It did not work in spite of
repairs, Held, the buyer could return the set and claim refund.
Implied condition as to wholesomeness
In the case of eatable and food stuff, there is an implied condition that the goods shall be
wholesomeness, i.e., free from any defect which renders them unfit for human consumption.
Example: A Purchased milk from B, a milk dealer. The milk contained typhoid germs. A’s wife
on taking the milk got infected and died. Held, A was entitled to get damages – Frost vs
Aylesbury Dairy Co. Ltd.
Implied Warranties
Whenever a product is sold, it is assumed that there are certain Warranties that are given by the
seller. It is a warranty which the law implies into the contract of sale. It can be stated that it is the
stipulation, which has not been included in the contract of sale in express words.
It may be noted that sometimes there is a conflict between the express and the implied
warranties. In such cases, the express terms shall prevail and the implied terms shall not be
considered.
Warranty as to quiet possession [Sec. 14(b)]
Warranty as to the non-existence of encumbrances [Sec 14 (c)]
Warranty as to quality and fitness by usage of Trade [Sec 16(3)]
Warranty to disclose dangerous nature of goods
Warranty as to quiet possession
There is an implied warranty that the buyer shall have and enjoy, quiet possession of the goods.
The breach of this warranty gives the buyer a right to claim damages from the seller.
Case law: Burmingham sold a second-hand radio to Mason, who spent Rs.100 on the repairs of
this radio. This radio was seized by the police as it was a stolen one. Mason filed a suit against
Burmingham including the cost of repairs. It was held that Mason was entitled to recover the
same. (Mason v. Burmingham)
Warranty as to non-existence of encumbrances
There is an implied warranty that the goods are free from any charge or encumbrance in favour
of any third person if the buyer is not aware of such charge or encumbrance. The breach of this
warranty gives the buyer a right to claim damages from the seller.
Example: Ramesh borrowed Rs.5000 from Shankar and hypothecated his radio with Shankar as
security. Later on, Ramesh sold his radio to Subodh who bought the same in good faith. Here,
Subodh can claim damages from Ramesh because his possession is disturbed since the radio had
been kept with Shankar.
Warranty as to quality and fitness by usage of Trade
This relates to the quality or fitness for a particular purpose which may be attached by the usage
of trade.
Example: Mohan buys 100 shares through a share broker. Later he requests for those shares to
be registered in his name. However, the shares are received by him without registration and are
marked as ‘bad delivery’. Mohan can claim the damages from the broker because in accordance
with the trade usage, it is the responsibility of the broker to ensure that there is no loss caused as
a result of ‘bad deliveries’ of the shares purchased through him.
Warranty to disclose dangerous nature of goods
In the case of goods of dangerous nature, the seller must disclose or warn the buyer of the
probable danger. If the seller fails to do so, the buyer may make him liable for breach of implied
warranty.
Difference Between Conditions and Warranties
seller. It is a warranty which the law implies into the contract of sale. It can be stated that it is the
stipulation, which has not been included in the contract of sale in express words.
It may be noted that sometimes there is a conflict between the express and the implied
warranties. In such cases, the express terms shall prevail and the implied terms shall not be
considered.
Warranty as to quiet possession [Sec. 14(b)]
Warranty as to the non-existence of encumbrances [Sec 14 (c)]
Warranty as to quality and fitness by usage of Trade [Sec 16(3)]
Warranty to disclose dangerous nature of goods
Warranty as to quiet possession
There is an implied warranty that the buyer shall have and enjoy, quiet possession of the goods.
The breach of this warranty gives the buyer a right to claim damages from the seller.
Case law: Burmingham sold a second-hand radio to Mason, who spent Rs.100 on the repairs of
this radio. This radio was seized by the police as it was a stolen one. Mason filed a suit against
Burmingham including the cost of repairs. It was held that Mason was entitled to recover the
same. (Mason v. Burmingham)
Warranty as to non-existence of encumbrances
There is an implied warranty that the goods are free from any charge or encumbrance in favour
of any third person if the buyer is not aware of such charge or encumbrance. The breach of this
warranty gives the buyer a right to claim damages from the seller.
Example: Ramesh borrowed Rs.5000 from Shankar and hypothecated his radio with Shankar as
security. Later on, Ramesh sold his radio to Subodh who bought the same in good faith. Here,
Subodh can claim damages from Ramesh because his possession is disturbed since the radio had
been kept with Shankar.
Warranty as to quality and fitness by usage of Trade
This relates to the quality or fitness for a particular purpose which may be attached by the usage
of trade.
Example: Mohan buys 100 shares through a share broker. Later he requests for those shares to
be registered in his name. However, the shares are received by him without registration and are
marked as ‘bad delivery’. Mohan can claim the damages from the broker because in accordance
with the trade usage, it is the responsibility of the broker to ensure that there is no loss caused as
a result of ‘bad deliveries’ of the shares purchased through him.
Warranty to disclose dangerous nature of goods
In the case of goods of dangerous nature, the seller must disclose or warn the buyer of the
probable danger. If the seller fails to do so, the buyer may make him liable for breach of implied
warranty.
Difference Between Conditions and Warranties
DISTINCTION
CONDITION
WARRANTY
Stipulation Essential to the main purpose of the
contract, e.g., hotel room will be booked
only if payment reaches in advance.
Collateral to the main purpose of
contract, e.g., The goods will be
replaced only if there is a technical fault
within six months.
Breach Breach gives right to repudiate the
contract and also to claim damages, e.g.,
if the promised goods have not been
delivered as per contract, one has the right
to rescind the contract and claim loss.
Breach gives right to damages only,
e.g., the failure to replace goods results
in paying only the damages.
Treatment (Sec.
13)
Breach of condition may be treated as
breach of warranty.
Breach of warranty is not breach of
condition.
Express (similar
in both)
Conditions which have been well-
announced, articulated, or written into a
contract.
As directly communicated in the
contract.
Implied (Sec. 14–
17)
1. Condition as to title:
a) In case of sale: seller has the full right
to sell;
Quiet possession: a characteristic of
title; the buyer has the enjoyment of the
goods.
b) In case of agreement to sell has the
right to sell when the property has to be
transferred.
2. Sale by description: the goods shall
correspond with the description, e.g.,
quality and quantity of goods.
2. Freedom from encumbrances: the
buyer has the complete freedom over it
and no third party is involved, e.g.,
when one and the same house is sold to
two people, there is an encumbrance.
3. Condition as quality and fitness:
although caveat emptor applies, the seller
3. Quality or fitness of usage of trade:
the goods bought are of reasonable
CONDITION
WARRANTY
Stipulation Essential to the main purpose of the
contract, e.g., hotel room will be booked
only if payment reaches in advance.
Collateral to the main purpose of
contract, e.g., The goods will be
replaced only if there is a technical fault
within six months.
Breach Breach gives right to repudiate the
contract and also to claim damages, e.g.,
if the promised goods have not been
delivered as per contract, one has the right
to rescind the contract and claim loss.
Breach gives right to damages only,
e.g., the failure to replace goods results
in paying only the damages.
Treatment (Sec.
13)
Breach of condition may be treated as
breach of warranty.
Breach of warranty is not breach of
condition.
Express (similar
in both)
Conditions which have been well-
announced, articulated, or written into a
contract.
As directly communicated in the
contract.
Implied (Sec. 14–
17)
1. Condition as to title:
a) In case of sale: seller has the full right
to sell;
Quiet possession: a characteristic of
title; the buyer has the enjoyment of the
goods.
b) In case of agreement to sell has the
right to sell when the property has to be
transferred.
2. Sale by description: the goods shall
correspond with the description, e.g.,
quality and quantity of goods.
2. Freedom from encumbrances: the
buyer has the complete freedom over it
and no third party is involved, e.g.,
when one and the same house is sold to
two people, there is an encumbrance.
3. Condition as quality and fitness:
although caveat emptor applies, the seller
3. Quality or fitness of usage of trade:
the goods bought are of reasonable
DISTINCTION
CONDITION
WARRANTY
must ensure reasonably good quality. quality and fit for the purpose for which
they have been bought.
4. Condition as to merchantability: the
goods must be free from any latent or
hidden defects.
4. Disclose dangerous nature of goods:
the seller shall declare if the goods sold
by him are capable of causing harm,
e.g., when pesticides are sold the buyer
must clearly be told of its poisonous
nature.
5. Condition implied by custom: goods
have their particular purpose which is
implied without expressly saying while
buying, e.g., a car is bought for
commuting.
6. Condition implied by sample: there is
typical expected nature of product—bulk
corresponds to individual specimen,
buyer is able to satisfy himself with the
specific product and that it is free from
defects.
7. Condition as to wholesomeness: the
goods be speak of their integrity as whole
and complete and not partial and unfit.
Transfer of Property
What is Transfer of Property?
The transfer of property (or ownership) is important as it determines who owns the goods at a
particular point during the contract.
CONDITION
WARRANTY
must ensure reasonably good quality. quality and fit for the purpose for which
they have been bought.
4. Condition as to merchantability: the
goods must be free from any latent or
hidden defects.
4. Disclose dangerous nature of goods:
the seller shall declare if the goods sold
by him are capable of causing harm,
e.g., when pesticides are sold the buyer
must clearly be told of its poisonous
nature.
5. Condition implied by custom: goods
have their particular purpose which is
implied without expressly saying while
buying, e.g., a car is bought for
commuting.
6. Condition implied by sample: there is
typical expected nature of product—bulk
corresponds to individual specimen,
buyer is able to satisfy himself with the
specific product and that it is free from
defects.
7. Condition as to wholesomeness: the
goods be speak of their integrity as whole
and complete and not partial and unfit.
Transfer of Property
What is Transfer of Property?
The transfer of property (or ownership) is important as it determines who owns the goods at a
particular point during the contract.
The term transfer of property implies transfer of ownership and not physical possession of
goods.
Transfer of Property Definition
In the following sections “transfer of property” means an act by which a living person conveys
property, in present or in future, to one or more other living persons, or to himself and one or
more other living persons; and “to transfer property” is to perform such act.
In this section “living person includes a company or association or body of individuals, whether
incorporated or not, but nothing herein contained shall affect any law for the time being in force
relating to transfer of property to or by companies, associations or bodies of individuals.
Sections 18 to 25 of Sales of Goods Act 1930 lay down the rules which determine when
ownership of the property passes from the seller to the buyer.
1. Transfer of Property in Specific Goods i.e. Ascertained Goods
2.
Ownership is transferred at the time of making contract [Sec 20]
Ownership is transferred when goods are put in deliverable state [Sec 21]
Ownership is transferred when goods in the deliverable state put to weighted or measured to
ascertained price [Sec 22]
2. Transfer of Property in Uascertained Goods
Goods are ascertained (valid appropriation)
3. Transfer of Property in Sale on approval [Sec. 24]
1. Transfer of Property in Specific Goods i.e. Ascertained Goods
Ownership is transferred at the time of making contract [Sec 20]
Ownership is transferred when goods are put in deliverable state [Sec 21]
Ownership is transferred when goods in the deliverable state put to weighted or measured to
ascertained price [Sec 22]
2. Transfer of Property in Uascertained Goods
Goods are ascertained (valid appropriation)
3. Transfer of Property in Sale on approval [Sec. 24]
4. Transfer of Property When Right of Disposal is Reserved [Sec. 25]
By taking a document of title in his own name or his agent’s name [Sec. 25(2)]
When the bills of exchange along with the RR/bill of lading is sent to the buyer [Sec. 25(3)]
Transfer of Property in Specific Goods
In case of the sale of specific goods, the rules relating to the transfer of ownership are contained
in Sections 20-22 of the Sales of Goods Act which may be discussed as under:
Ownership is transferred at the time of making contract
The ownership is transferred immediately at the time of making the contract if all the following
conditions are satisfied:
a. The contract is for specific goods.
b. The goods are in a deliverable state.
c. The goods are not required to be weight or measured for determining the price.
goods.
Transfer of Property Definition
In the following sections “transfer of property” means an act by which a living person conveys
property, in present or in future, to one or more other living persons, or to himself and one or
more other living persons; and “to transfer property” is to perform such act.
In this section “living person includes a company or association or body of individuals, whether
incorporated or not, but nothing herein contained shall affect any law for the time being in force
relating to transfer of property to or by companies, associations or bodies of individuals.
Sections 18 to 25 of Sales of Goods Act 1930 lay down the rules which determine when
ownership of the property passes from the seller to the buyer.
1. Transfer of Property in Specific Goods i.e. Ascertained Goods
2.
Ownership is transferred at the time of making contract [Sec 20]
Ownership is transferred when goods are put in deliverable state [Sec 21]
Ownership is transferred when goods in the deliverable state put to weighted or measured to
ascertained price [Sec 22]
2. Transfer of Property in Uascertained Goods
Goods are ascertained (valid appropriation)
3. Transfer of Property in Sale on approval [Sec. 24]
1. Transfer of Property in Specific Goods i.e. Ascertained Goods
Ownership is transferred at the time of making contract [Sec 20]
Ownership is transferred when goods are put in deliverable state [Sec 21]
Ownership is transferred when goods in the deliverable state put to weighted or measured to
ascertained price [Sec 22]
2. Transfer of Property in Uascertained Goods
Goods are ascertained (valid appropriation)
3. Transfer of Property in Sale on approval [Sec. 24]
4. Transfer of Property When Right of Disposal is Reserved [Sec. 25]
By taking a document of title in his own name or his agent’s name [Sec. 25(2)]
When the bills of exchange along with the RR/bill of lading is sent to the buyer [Sec. 25(3)]
Transfer of Property in Specific Goods
In case of the sale of specific goods, the rules relating to the transfer of ownership are contained
in Sections 20-22 of the Sales of Goods Act which may be discussed as under:
Ownership is transferred at the time of making contract
The ownership is transferred immediately at the time of making the contract if all the following
conditions are satisfied:
a. The contract is for specific goods.
b. The goods are in a deliverable state.
c. The goods are not required to be weight or measured for determining the price.
Example: A sold to B, 100 bales of cotton lying in his warehouse. Before the bales could be
identified and separated, all the bales were destroyed on the fire. Here, the seller is liable for
damage because the ownership is not transferred.
Ownership is transferred when goods are put in a deliverable state
If the goods are not ready in the deliverable state at the time of making the contract of sale, the
ownership of goods is transferred after the formation of the contract of sale when the following
conditions are satisfied:
a) The contract is for specific goods.
b) The goods are put in a deliverable state by the seller.
c) The fact that the goods are put into a deliverable state has come to the knowledge of the buyer.
Example: A certain quantity of oil was purchased by A. The oil was to be filled in tins. B filled
up some of the tins and informed A to take the delivery. In the meantime, a fire destroyed the
entire quantity of oil. Held, A will bear the loss of the oil which was filled in the tins and the
seller must bear the loss of the balance.
Ownership is transferred when goods in the deliverable state put to weighted or measured
to ascertained price
If the goods are not weighed or measured at the time of making a contract of sale, the ownership
of the goods is transferred after the formation of the contract of sale when the following
conditions are satisfied:
a) The contract is for specific goods.
b) At the time of formation, the price is not determined. It is determined later by the weight or
measurement.
c) The goods are put in a deliverable state by the seller.
d) The fact that goods have been weighted or measured in order to determine the price has come
to the knowledge of the buyer.
Ownership is transferred when goods in the deliverable state put to weighted or measured
to ascertained price
If the goods are not weighed or measured at the time of making a contract of sale, the ownership
of the goods is transferred after the formation of the contract of sale when the following
conditions are satisfied:
a) The contract is for specific goods.
b) At the time of formation, the price is not determined. It is determined later by
the weight or measurement.
c) The goods are put in a deliverable state by the seller.
d) The fact that goods have been weighted or measured in order to determine the
price has come to the knowledge of the buyer.
Example: A sold 10 Kg of sugar. The sugar was to be weighted. Before the sugar was weighted,
it was carried away by the flood. Held, the ownership of the sugar was left with the seller and it
did not pass to the buyer.
identified and separated, all the bales were destroyed on the fire. Here, the seller is liable for
damage because the ownership is not transferred.
Ownership is transferred when goods are put in a deliverable state
If the goods are not ready in the deliverable state at the time of making the contract of sale, the
ownership of goods is transferred after the formation of the contract of sale when the following
conditions are satisfied:
a) The contract is for specific goods.
b) The goods are put in a deliverable state by the seller.
c) The fact that the goods are put into a deliverable state has come to the knowledge of the buyer.
Example: A certain quantity of oil was purchased by A. The oil was to be filled in tins. B filled
up some of the tins and informed A to take the delivery. In the meantime, a fire destroyed the
entire quantity of oil. Held, A will bear the loss of the oil which was filled in the tins and the
seller must bear the loss of the balance.
Ownership is transferred when goods in the deliverable state put to weighted or measured
to ascertained price
If the goods are not weighed or measured at the time of making a contract of sale, the ownership
of the goods is transferred after the formation of the contract of sale when the following
conditions are satisfied:
a) The contract is for specific goods.
b) At the time of formation, the price is not determined. It is determined later by the weight or
measurement.
c) The goods are put in a deliverable state by the seller.
d) The fact that goods have been weighted or measured in order to determine the price has come
to the knowledge of the buyer.
Ownership is transferred when goods in the deliverable state put to weighted or measured
to ascertained price
If the goods are not weighed or measured at the time of making a contract of sale, the ownership
of the goods is transferred after the formation of the contract of sale when the following
conditions are satisfied:
a) The contract is for specific goods.
b) At the time of formation, the price is not determined. It is determined later by
the weight or measurement.
c) The goods are put in a deliverable state by the seller.
d) The fact that goods have been weighted or measured in order to determine the
price has come to the knowledge of the buyer.
Example: A sold 10 Kg of sugar. The sugar was to be weighted. Before the sugar was weighted,
it was carried away by the flood. Held, the ownership of the sugar was left with the seller and it
did not pass to the buyer.
Transfer of Property in Uascertained Goods
The goods are not transferred to the buyer until and unless they are ascertained.
Example: You buy 100 bags of cement and pay for it and take it away; you promise to take
another 100, but you have not ascertained unconditionally, that is, you may take them if you
need—there is no contract for the next 100 bags.
How goods are ascertained? – By valid appropriation
Appropriation
Appropriation means selection of goods with the mutual consent of the parties.
The following are the
Example: The cement dealer selected 100 bags that you approved, paid, and took away. Upon
your consent, he set apart another 100 bags, but you failed to take them away and they got
damaged. You are liable for the damage because you had consented to take them although the
payment was pending.
Transfer of Property in Sale on approval
When the goods are delivered to the buyer on approval basis, from the moment of approval or
‘on sale or return,’ or on other similar terms, the goods transferred to the ownership of the buyer.
Example: A bookseller sends a consignment of books to the library; the librarian approves some
and keeps them and sends back the rest.
Transfer of Property When Right of Disposal is Reserved
The object of reserving the right of disposal of goods is to secure that the price is paid before the
property passes to the buyer.
For example, under the VPP (Value Pre Paid) system the ownership passes to the buyer when the
price is paid against the delivery of goods, till then the seller retains control over the goods.
Section 25(1) lays down that – — in a contract for the sale of specific goods or where goods are
subsequently appropriated to the contract,
the seller may reserve the right of disposal of the goods until certain conditions are fulfilled.
In such a case, even if the goods are delivered to the buyer himself, or to a carrier or other
bailee for transmission to the buyer, the buyer does not acquire ownership until the conditions
imposed by the seller are satisfied.
For example, X sends certain goods by lorry to Y and instructs the lorry driver not to deliver the
goods until the price is paid by Y to the lorry driver. The property passes only when the price is
paid.
The goods are not transferred to the buyer until and unless they are ascertained.
Example: You buy 100 bags of cement and pay for it and take it away; you promise to take
another 100, but you have not ascertained unconditionally, that is, you may take them if you
need—there is no contract for the next 100 bags.
How goods are ascertained? – By valid appropriation
Appropriation
Appropriation means selection of goods with the mutual consent of the parties.
The following are the
Example: The cement dealer selected 100 bags that you approved, paid, and took away. Upon
your consent, he set apart another 100 bags, but you failed to take them away and they got
damaged. You are liable for the damage because you had consented to take them although the
payment was pending.
Transfer of Property in Sale on approval
When the goods are delivered to the buyer on approval basis, from the moment of approval or
‘on sale or return,’ or on other similar terms, the goods transferred to the ownership of the buyer.
Example: A bookseller sends a consignment of books to the library; the librarian approves some
and keeps them and sends back the rest.
Transfer of Property When Right of Disposal is Reserved
The object of reserving the right of disposal of goods is to secure that the price is paid before the
property passes to the buyer.
For example, under the VPP (Value Pre Paid) system the ownership passes to the buyer when the
price is paid against the delivery of goods, till then the seller retains control over the goods.
Section 25(1) lays down that – — in a contract for the sale of specific goods or where goods are
subsequently appropriated to the contract,
the seller may reserve the right of disposal of the goods until certain conditions are fulfilled.
In such a case, even if the goods are delivered to the buyer himself, or to a carrier or other
bailee for transmission to the buyer, the buyer does not acquire ownership until the conditions
imposed by the seller are satisfied.
For example, X sends certain goods by lorry to Y and instructs the lorry driver not to deliver the
goods until the price is paid by Y to the lorry driver. The property passes only when the price is
paid.
Rights of Unpaid Seller | Sale of Goods Act, 1930
Rights of Unpaid Seller
The seller of goods is deemed to be an ‘unpaid seller’ within the meaning of this Act —
(a) When the whole of the price has not been paid or tendered.
(b) When a bill of exchange or other negotiable instrument has been received as conditional
payment, and the conditions on which it was received has not been fulfilled by reason of the
dishonour of the instrument or otherwise.
– Sec. 45(1), The Sale of Goods Act, 1930
Who is unpaid seller?
The seller to whom the full price of the goods sold has not been paid the price is known as an
unpaid seller.
A seller of goods is deemed to be unpaid in the following cases:
1. The price must be due but not paid.
2. A negotiable instrument like cheque and bill of exchange was received but the same has been
dishonoured.
A seller of goods is deemed to be unpaid in the following cases:
1. The price must be due but not paid.
2. A negotiable instrument like cheque and bill of exchange was received but the same has been
dishonoured.
3. The seller who has obtained a decree for the price of the goods will also be an unpaid seller if
the decree has not been satisfied.
4. When the seller has been paid a large amount but a small portion of the payment remains to be
paid.
5. When the price has been paid but some other expenses which were payable to
the seller has not been paid.
6. The seller must have an immediate right of action for the price.
Example: A sells goods worth Rs 1,00,000 to B on the credit of six months. After six months, B
did not pay the price. A shall be regarded as an unpaid seller.
Rights of Unpaid Seller
The seller of goods is deemed to be an ‘unpaid seller’ within the meaning of this Act —
(a) When the whole of the price has not been paid or tendered.
(b) When a bill of exchange or other negotiable instrument has been received as conditional
payment, and the conditions on which it was received has not been fulfilled by reason of the
dishonour of the instrument or otherwise.
– Sec. 45(1), The Sale of Goods Act, 1930
Who is unpaid seller?
The seller to whom the full price of the goods sold has not been paid the price is known as an
unpaid seller.
A seller of goods is deemed to be unpaid in the following cases:
1. The price must be due but not paid.
2. A negotiable instrument like cheque and bill of exchange was received but the same has been
dishonoured.
A seller of goods is deemed to be unpaid in the following cases:
1. The price must be due but not paid.
2. A negotiable instrument like cheque and bill of exchange was received but the same has been
dishonoured.
3. The seller who has obtained a decree for the price of the goods will also be an unpaid seller if
the decree has not been satisfied.
4. When the seller has been paid a large amount but a small portion of the payment remains to be
paid.
5. When the price has been paid but some other expenses which were payable to
the seller has not been paid.
6. The seller must have an immediate right of action for the price.
Example: A sells goods worth Rs 1,00,000 to B on the credit of six months. After six months, B
did not pay the price. A shall be regarded as an unpaid seller.
Rights of an unpaid seller against the goods
In some cases after the sale of goods the seller continues to have possession of the sold goods. At
such times, an unpaid seller has certain rights against the goods.
These can be further studied under two heads;
Property has passed to the buyer
When the ownership of goods is transferred to the buyer, there are three rights of an unpaid
seller. These are:
1. Right of Lien – [Sections 47-49]
2. Right of stoppage in transit – [Sections 50-52]
3. Right of Re-sale
Property has not passed
When the ownership of goods is not transferred to the buyer, there are two rights of an unpaid
seller. These are:
1. Withhold Delivery
2. Stoppage in transit
Rights of unpaid seller against the buyer
An unpaid seller has the following rights against the defaulting buyer:
1. Suit for damages for non-delivery – [Sec. 56]
2. Suit for price – [Sec. 55]
In some cases after the sale of goods the seller continues to have possession of the sold goods. At
such times, an unpaid seller has certain rights against the goods.
These can be further studied under two heads;
Property has passed to the buyer
When the ownership of goods is transferred to the buyer, there are three rights of an unpaid
seller. These are:
1. Right of Lien – [Sections 47-49]
2. Right of stoppage in transit – [Sections 50-52]
3. Right of Re-sale
Property has not passed
When the ownership of goods is not transferred to the buyer, there are two rights of an unpaid
seller. These are:
1. Withhold Delivery
2. Stoppage in transit
Rights of unpaid seller against the buyer
An unpaid seller has the following rights against the defaulting buyer:
1. Suit for damages for non-delivery – [Sec. 56]
2. Suit for price – [Sec. 55]
3. Suit for specific performance
4. Suit for breach of warranty
5. Suit for damages for repudiation of contract before due date – [Sect. 60]
6. Suit for interest – [Sec. 61]
Right of Lien
The Right of Lien means, the right to retain the possession of the goods until the charges or the
full price has been paid.
This right is available to the unpaid seller where the goods have been transferred to the buyer.
This is because lien depends on possession. Even if the seller has handed over the documents of
title to the buyer, the lien is not affected.
“According to Section 47, the unpaid seller can exercise a lien, only when the following
conditions are satisfied:
Where the goods have been sold without stipulation as to credit; or
Where the goods have been sold on credit but the term of credit has expired; or
When the buyer has become insolvent.”
“If in such case where the unpaid seller has made only a part of the delivery of the goods he has
the right of lien on the rest of the goods unless such part delivery has been made under an
agreement to waive the lien” [Section 48].
Auction Sale
We have all come across an auction at some time. Auctions have certain distinct characteristics like
the bidding process, the hammer, the whole setting is quite interesting. Did you know that such
auction sale is covered under the Sale of Goods Act? Let us have a look at the rules of an auction
sale.
Auction Sale
An auction sale is a public sale. The goods are sold to all members of the public at large who are
assembled in one place for the auction. Such interested buyers are the bidders.
Rules of an Auction Sale
As we saw previously, the rules regarding an auction sale are found in the Sale of Goods Act.
Section 64 of the Act specifically deals with the rules governing an auction sale. Let us take a brief
look.
4. Suit for breach of warranty
5. Suit for damages for repudiation of contract before due date – [Sect. 60]
6. Suit for interest – [Sec. 61]
Right of Lien
The Right of Lien means, the right to retain the possession of the goods until the charges or the
full price has been paid.
This right is available to the unpaid seller where the goods have been transferred to the buyer.
This is because lien depends on possession. Even if the seller has handed over the documents of
title to the buyer, the lien is not affected.
“According to Section 47, the unpaid seller can exercise a lien, only when the following
conditions are satisfied:
Where the goods have been sold without stipulation as to credit; or
Where the goods have been sold on credit but the term of credit has expired; or
When the buyer has become insolvent.”
“If in such case where the unpaid seller has made only a part of the delivery of the goods he has
the right of lien on the rest of the goods unless such part delivery has been made under an
agreement to waive the lien” [Section 48].
Auction Sale
We have all come across an auction at some time. Auctions have certain distinct characteristics like
the bidding process, the hammer, the whole setting is quite interesting. Did you know that such
auction sale is covered under the Sale of Goods Act? Let us have a look at the rules of an auction
sale.
Auction Sale
An auction sale is a public sale. The goods are sold to all members of the public at large who are
assembled in one place for the auction. Such interested buyers are the bidders.
Rules of an Auction Sale
As we saw previously, the rules regarding an auction sale are found in the Sale of Goods Act.
Section 64 of the Act specifically deals with the rules governing an auction sale. Let us take a brief
look.
1] Goods Sold in Lots
In an auction sale, there can be many goods up for sale of many kinds. If some particular goods are
put up for sale in a lot, then each such lot will be considered a separate subject of a
separate contract of sale. So each lot ill prima facie be the subject of its own contract of sale.
2] Completion of Sale
The sale is complete when the auctioneer says it is complete. This can be done by actions also – like
the falling of the hammer, or any such customary action. Till the auctioneer does not announce the
completion of the sale the prospective buyers can keep bidding.
3] Seller may Reserve Right to Bid
The seller may reserve his right to bid. To do so he must expressly reserve such right to bid. In this
case, the seller on any person on his behalf can bid at the auction.
4] Sale Not Notified
If the seller has not notified of his right to bid he may not do so under any circumstances. Then
neither the seller nor any person on his behalf can bid at the auction. If done then it will be unlawful.
The auctioneer also cannot accept such bids from the seller or any other person on his behalf. And
any sale that contravenes this rule is to be treated as fraudulent by the buyer.
5] Reserve Price
An auction sale may be subject to a reserve price or an upset price. This means the auctioneer will
not sell the goods for any price below the said reserve price.
6] Pretend Bidding
But if the seller or any other person appointed by him employs pretend bidding to raise the price of
the goods, the sale is voidable at the option of the buyer. That means the buyer can choose to honor
the contract or he can choose to void it.
7] No Credit
The auctioneer cannot sell the goods on credit as per his wishes. He cannot accept a bill of
exchange either unless the seller is expressly fine with it.
In an auction sale, there can be many goods up for sale of many kinds. If some particular goods are
put up for sale in a lot, then each such lot will be considered a separate subject of a
separate contract of sale. So each lot ill prima facie be the subject of its own contract of sale.
2] Completion of Sale
The sale is complete when the auctioneer says it is complete. This can be done by actions also – like
the falling of the hammer, or any such customary action. Till the auctioneer does not announce the
completion of the sale the prospective buyers can keep bidding.
3] Seller may Reserve Right to Bid
The seller may reserve his right to bid. To do so he must expressly reserve such right to bid. In this
case, the seller on any person on his behalf can bid at the auction.
4] Sale Not Notified
If the seller has not notified of his right to bid he may not do so under any circumstances. Then
neither the seller nor any person on his behalf can bid at the auction. If done then it will be unlawful.
The auctioneer also cannot accept such bids from the seller or any other person on his behalf. And
any sale that contravenes this rule is to be treated as fraudulent by the buyer.
5] Reserve Price
An auction sale may be subject to a reserve price or an upset price. This means the auctioneer will
not sell the goods for any price below the said reserve price.
6] Pretend Bidding
But if the seller or any other person appointed by him employs pretend bidding to raise the price of
the goods, the sale is voidable at the option of the buyer. That means the buyer can choose to honor
the contract or he can choose to void it.
7] No Credit
The auctioneer cannot sell the goods on credit as per his wishes. He cannot accept a bill of
exchange either unless the seller is expressly fine with it.
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