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LAW lawful. A contract without consideration

Law is a basic necessity of every civilized is not a contract at all.
society. Law is the bundle of rules and 3.Capacity of parties: The parties to an
principles to be followed by the members of agreement must be capable of entering
the society. When there is a law in a country, into a valid contract.
it brings uniformity and balance in human (a) Persons of unsound mind
actions, and provides justice to the aggrieved (b) Persons disqualified by law
persons. (c ) Minors
Definition 4. Free consent: For the formation of a
According to Holland, “Law is a rule of contract one person must give his consent
external human action enforced by the to another person. The consent thus
sovereign political authority.” obtained must be a free consent. Consent
COMMERCIAL LAW OR MERCANTILE LAW is said to be free if it is not caused by
Business law governs and regulates the coercion, undue influence, fraud,
trade, the auxiliaries of trade and industry. misrepresentation or mistake.
Auxiliaries of trade are transportation, 5. Consensus ad idem: It means the two
banking, finance warehousing and insurance parties of the contract must agree upon
etc. the subject matter of the contract in the
INDIAN CONTRACT ACT 1872 same manner and in the same sense. That
The law relating contract in India is is there must be identity of minds among
contained in the Indian contract Act, which the parties regarding the subject matter
came in to force on the first day of Sept 1872. of the contract.
The act is extended to the whole of India 6. Lawful object: The object of an
except the state of Jammu and Kashmir. agreement must be lawful. It must not be
CONTRACT – Definition illegal or immoral or opposed to public
Generally contract may be defined as an policy. If it is unlawful, the agreement
agreement which creates rights and becomes void.
obligations between the parties. According 7. Not declared to be void: There are
to Salmond, “A contract is an agreement certain agreements which have been
creating and defining obligation between the expressly declared void by the law. It
parties.” includes:
Section 8(h) of the Indian Contract Act (a)Wagering agreement
defines contract as an agreement which is (b) Agreement in restraint to
enforceable by law. marriage
AGREEMENT (c ) Agreement in restraint of trade
The term agreement is defined to sec 2 (e) of etc.
the Indian contract Act as “Every promise or 8. Certainty and possibility of
set promises, forming the consideration for performance: - The terms of the contract
each other” Agreement involves a valid offer must be preciseand certain. They should
by one party a valid acceptance by the other not be vague. The terms of agreement
party. must be capable of performance.
ELEMENTS OF CONTRACT 9. An intention to create legal
1. Agreement or Offer and acceptance: - relationship: - There should be an
There must be an agreement between the intention between the parties to create a
parties of a contract. Agreement is created legal relationship. Mere informal promise
by offer and acceptance. Therefore an is not to be enforced. Social agreements
agreement is = offer +acceptance. are not to be enforced as they do not
2. Lawful consideration: Consideration create any legal obligations.
means something in return. It may be past,
present or future and must be real and
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TYPES OF AGREEMENTS d. Bilateral contract –when the

Void agreements: “An agreement not obligation of both parties is outstanding
enforceable by law is said to be void”. A void at the time of formation of the contract, it
agreement has no legal significance from the is known as bilateral contract.
beginning. No contract comes out from a III. ON THE BASIS OF EXTEND OF
void agreement ie it is void ab initio VALIDITY:-
Illegal agreements: - An agreement which a. Valid contract:- Contract is said to be
is either prohibited by law or otherwise valid if it satisfies all conditions required
against the policy of law is an Illegal for its enforceability. In other words an
agreement. All illegal agreements are null agreement enforceable by law is a valid
and void but void agreements are not illegal. contract.
CLASSIFICATION OF CONTRACTS b. Void Contract: A contract which ceases
Contracts made by the parties can be to be enforceable by law become void. No
classified into different types on the party has right to claim it in the court of
following bases law. A void contract not necessarily be
1. Formation of Contract unlawful but it has no legal effects.
2. Performance of Contract c. Voidable contract:- According to
3. Extend of validity of Contract sec.2(i) “ An agreement which is
I. ON THE BASIS OF FORMATION:-On this enforceable by law at option of one or
basis, contracts may be grouped into three more parties, but not at the option of
a. Express contract: - These are the other or others is a voidable contract.”
contracts, which are entered into between Generally a contract becomes voidable
the parties, by words spoken or written. when the consent of one of the parties to
b. Implied contract: - Implied contracts are the contract is obtained by coercion,
formed on the basis of implied promises on undue influence or misrepresentation.
the part of parties. When the proposal or d. Illegal contracts: - The contract is said
acceptance is made otherwise than in to be illegal, if its object is illegal.
words, the contract formed is called implied e. Unenforceable contract: - It is a
contract. contract, which is valid, but not capable of
c. Quasi contracts:-In certain circumstances being enforced in a court of law because
law itself creates legal rights and of some technical defects. Technical
obligationsagainst the parties. These reasons affecting validity of contract may
obligations are known as quasi contracts. It be that contract is not in writing or is not
is also known as constructive contract. registered or has no adequate stamp duty
II. ON THE BASIS OF PERFORMANCE:- It on it etc.
includes “All contracts are agreements but all
a. Executed Contract:-Executed contract is agreements are not contracts”
one that has been performed. If both parties According to section 2 (h) of the Indian
of a contract have performed their Contract Act, “an agreement enforceable
respective obligations, contract is known as by law is acontract”. That is all
executed contract. agreements are not contract. An
b. Executory contract:-An executor contract agreement, in order to become a contract
is one in which both the parties have not yet must satisfy certain conditions which are
performed their obligations either wholly or the essential elements of a contract.
partly DIFFERENCE BETWEEN AGREEMENT
c. Unilateral contract – where one part has AND CONTRACT
performed his obligation either before or at Every promise and every set of promises
the time of when the contract comes into forming the consideration for each other
existence. is an agreement while, an agreement
which is enforceable by law is contract.
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Agreement is sum total of offer and ELEMENTS OF AN OFFER:

acceptance, on the other hand, contract is  In an offer one party must express
the agreement and its enforceability at law. his willingness for doing or not
Certain agreement may not create any doing a thing
legal obligation while, all contracts  It must be made to another person
necessarily create legal obligations.  Offer is made with a view to know
An agreement is not always binding the assent of the other person.
the contract but a contract is always binding  There must be an intention to
on the concerned parties create legal relationship.
All agreement are not contract, on the CLASSIFICATION OF OFFER:
other hand all contracts certainly become 1. Express offer – an offer made by
agreement. words, spoken or written is an express
DIFFERENCE BETWEEN VOID CONTRACT offer.
AND VOIDABLE CONTRACT 2.Implied offer - An implied offer is one
A contract become void when it ceases which may be gathered from the conduct
to enforceable by law, while an agreement of the party or the circumstances of the
which is enforceable by law at the option of case
one party, but not the others is a voidable 3.Specific offer: - When an offer is made
contract to a specific person or class of persons,
A void contract cannot be enforced such offer is known as specific offer. The
but a voidable contract can be enforced if the specific offer can be accepted only by that
aggrieve party elects to carry out the particular person or organization.
contract 4. General offer: It is an offer which is
A void contract is valid at the time of made to a group of people or public at
formation but later it becomes void due large. Such offer can be accepted by any
certain reason while a contract is voidable member of that group.
because the consent of one part is not a free 5. Cross offer: - When two parties
consent. exchange identical offers with each other,
No party gains any option and it has in ignorance of each other’s offer, the
no legal effects, but aggrieved has the option offers are cross offer.
either elect to be continue the contract or to 6. Counter offer: Incomplete and
cancel. conditional acceptance of an offer is
A void contract is void in itself and a known as counter offer. In other words,
voidable contract can be void at the option of when an original offer is rejected and a
aggrieved party. new offer is made, it is known as counter
OFFER AND ACCEPTANCE offer.
OFFER OR PROPOSAL 7. Standing offer (Tender):- An offer for
According to sec. 2 (a) of the Contract Act, a continuous supply of a certain article at
“When one person signifies to another his a certain rate over a definite period is
willingness to do or abstain from doing called a standing offer.
anything, with a view to obtaining the assent ESSENTIALS OF VALID OFFER
of that other to such act or abstinence, he is The following characteristics are
said to make a proposal.” necessary to create a valid offer.
Offer is one of the essential elements of a 1.The terms of an offer must be clear
contract. The person making the offer or and certain: - The terms of an offer
proposal is called the offeror proposer or should not be indefinite, vague or loose.
promisor and the person to whom the 2.Offer may be express or implied: -
proposal is made iscalled ‘the propose’ or 3. The offer must be communicated to
offeree. the offeree: - An offer must be
communicated to the offeree. Until an
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offer is made known to the offeree, he does offeree must send his acceptance.7.
not know what he has to accept. Subsequent Illegality or destruction of
4. Legal relationship is required: - A subject matter: - An offer lapses, if it
proposal will not become a promise even becomes illegal after it is made but before
after it has been accepted unless it was made it is accepted.
with a view to create legal obligations. 8. By rejection
5. Offer may be conditional: - An offer can ACCEPTANCE
be made subject to a condition. It can be According to section 2(b) a proposal or
accepted only subject to those conditions offer is said to have been accepted when
6. Offer must be made with a view to the personto whom the proposal is made,
obtaining the assent of the other party signifies his assent to the proposal. An
7. Invitation to an offer is not an offer:- offer when acceptedbecomes a promise.
Offer is different from invitation to an offer. Offer and Acceptance in a contract are like
Quotations, catalogues of goods, two sides of a coin and the absence of any
advertisement for tender etc are not actual one will not create any contractual
offer. They are mere invitation to offer. relationship between these parties.
8. Offer may be specific or general: - The DEFINITION
offer being made to a particular individual or According to William Anson, “acceptance
organization is known as specific offer. On is to offer what is a lighted match is to a
the other hand, if an offer has been made to a train of gun powder.” An acceptance can
group of people or public at large, such offer be made by words spoken or written. It
is known as general offer. can be made by conduct also. It can be
WHEN DOES AN OFFER COMES TO AN accepted only by the person to whom it is
END? / REVOCATION OF OFFER/LAPSES made.
OF OFFER:-. ESSENTIALS OF A VALID ACCEPTANCE:-
1. Revocation by Communication of notice 1. Acceptance must be absolute and
(Sec. 6(1):- A person who makes an offer unconditional: - Partial and conditional
can withdraw it at any time before or qualified acceptance will not be a valid
acceptance. Such revocation may be express acceptance.
or implied. 2. Acceptance must be given in a
2. By lapse of time (Sec.6 (2):- An offer prescribed mode or manner: -
lapses if it is not accepted within the 3. Time of Acceptance: - Acceptance
prescribed time. Where no time is fixed, it must be made within the time allowed.
should be accepted within a reasonable time. When no time is specified, acceptance
3. Death or insanity of an offeror:- An offer must be given within reasonable period of
lapses by the death or insanity of the offeror, time.
if the fact of his death or insanity comes to 4. Acceptance must be communicated:
the notice of the acceptor before acceptance. Acceptance to be legally effective must be
4. Non fulfillment of pre requisite communicated and brought to the
conditions: - When the offeror has put some knowledge of the offeror
conditions, which are prerequisites to 5. Acceptance may be express or
acceptance, such conditions must be fulfilled implied: - When an acceptance is made
before accepting offer. Non fulfillment of by words spoken or written, it is an
such conditions will lead to revocation of an express acceptance. If it is accepted by
offer. conduct, it is an implied acceptance.
5. By counter offer: - The offer will be 6. Acceptance must be made before
revoked if the offeree makes a counter offer. offer is revoked: - The acceptance of an
6. Offer not accepted according to the offer must be done before the offer lapses
mode prescribed:- Sometimes the offer or or is withdrawn or cancelled.
may prescribe particular mode in which
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7. Acceptance must be made by the ESSENTIALS OF CONSIDERATION:-

offeree: - Acceptance must be made only by 1. Consideration must move at the
the person to whom the offer is made and desire of the promisor: - It is essential
not by others. that promisee should perform his part of
8. Acceptance is not implied from silence the promise only at the desire of the
of the party: - Generally, silence on the part promisor. The desire of the promisor may
of offeree regarding the offer in no case may be express or implied.
amount to acceptance. 2. Consideration may move from the
COMMUNICATION OF OFFER AND promisee or any other person:-
ACCEPTANCE According to Indian law, the
Communication of offer and acceptance is consideration may proceed either from
necessary for forming a contract. The the promisee or any other person. Under
communication of an offer is complete as the English law, consideration must move
soon as it comes to the knowledge of the from the promisee.
offeree. 3. Consideration may be past, present
Communication of acceptance is complete or future: - If the promisor had received
1. as against the proposer, when it is put the consideration before the date of the
in a course of transmission to him. promise, it is known as past
2. as against the acceptor, when it comes consideration. If the promisor receives
to the knowledge of the proposer. consideration simultaneously with his
REVOCATION OF OFFER AND promise, it is known as present
ACCEPTANCE:- consideration. When the consideration on
An Offer may be revoked at any time before both sides is to move at a future date, it is
the communication of its acceptance is calledfuture consideration. However,
complete as against the proposer, but not according to English Mercantile law,
afterwards. So an offer can be revoked at any consideration may be present or future
time before the letter of acceptance has been only.
posted by the accepter. 4. Consideration need not be
An Acceptance may be revoked at any time adequate:-According to Indian contract
before the communication of the acceptance Act, it is not necessary that the value of
is complete as against acceptor, but not promise should be equal to the value of
afterwards. consideration.
CONSIDERATION 5. Consideration must be real and not
Consideration is one of the essential illusory: - Consideration must have some
elements of valid contract. According to sec. value inthe eyes of law. It must not be
25 of the Indian Contract Act, an agreement illusory, fictitious, fraudulent and
made without consideration is void. Every uncertain.
agreement must be supported by 6. Consideration must be lawful:-
consideration to become a contract. In true Consideration is said to be unlawful if
sense consideration means “something in 1. If it is forbidden by law.
return” to the promisor (quid pro quo). 2. It is fraudulent
DEFINITION 3. It involves or implies injury to the
The term consideration is defined in sec.2 person or property of another person.
(d) of the Indian Contract Act as,” when at 4. It is regarded by court as criminal
the desire of the promisor, the promisee or 5. It is regarded by the court as being
any other person has done or abstained from against the public policy.
doing, or promise to do or to abstain from A STRANGER TO A CONTRACT/
doing something, such act, abstinence or PRIVITY OF CONTRACT
promise is called a consideration for the A stranger to a contract is a person who is
promise.” not a party to the Contract. Such a party
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neither makes nor accepts any offer. Privity 1.Agreement based upon love and
of contract states that the contract confers affection:- Here the essentials of the
right and obligations on contracting parties agreements includes:
only. Therefore stranger to a contract cannot a. It must be expressed in writing
sue on the contract. b. It should be registered under the law
A STRANGER TO CONSIDERATION/ for the time being in force
PRIVITY OF CONSIDERATION: c. It should be made on account of natural
When consideration is furnished not by the love and affection, and
promisee but by a third person, the promise d. The parties should stand in a near
becomes a stranger to consideration. Under relation to each other.
the Indian contract Act, consideration may 2. Promise to compensate for Past
move from the promisee or any other voluntary services: - If a person has
persons. So in India, a consideration made by already voluntarily done something for
the stranger is lawful and enforceable. the promisor and the promisor agrees to
Exceptions to the rule that a stranger to a compensate wholly or in part, the
contract cannot sue: agreement is valid even though it is
1. Beneficiary of a trust: - Trust is an without consideration.
arrangement whereby some property is 3. Agreement to pay time barred debt:-
handed over to trustee by the owner. This A promise by a debtor to pay a time
property is to be managed by the trust for barred debt is enforceable provided it is
the benefit of the party known as made in writing and is signed by the
beneficiary. Here the beneficiary can sue to debtor or by his agent authorized in that
enforce his rights under the trust, though he behalf. An oral promise to pay a time
is not a party to a contract. barred debt is unenforceable.
2. Contracts through an agent: - Contracts 4. Agency: - According to sec 185 of the
which are entered into through an agent can Indian Contract Act, no consideration is
be enforced by his principal. Here the necessary to create an agency.
principal can file suit against third party or 5. Completed gifts: - Gift once made
can be sued by third party. cannot be recovered on the ground of
3. Marriage settlement, partition or other absence of consideration.
family arrangement: - If an agreement has CAPACITY OF PARTIES
made for the above purpose, in such According to section 10 of the contract
agreement provision may be made for the Act, parties making an agreement must
benefit of a particular member. Such person, have the contractual capacity. Thus every
who is beneficiary in the agreement, can person is competent to enter into a
maintain a suit. contract if,
4. Estoppels to acknowledgment:-When a a. he has attained the age of majority
party admits liability in a contract to third b. he is of sound mind, and
party, then if he denies it on any ground, he c. he is not disqualified by any law from
will be stopped from doing so. His liability contracting
would continue towards third party. MINOR
5. an assignee can also sue on the basis of A person who has not attained the age of
assignment:- majority is a minor. According to the
EXCEPTION TO THE RULE ‘NO Indian Majority Act 1875, a person who
CONSIDERATION NO CONTRACT’ has not completed his 18th year of age is
Generally a promise without consideration is considered to be a minor. But if a minor is
null and void. It is a ‘naked promise’ under the care and custody of the court
or‘NudumPactum’ . But sec. 25 of the and a guardian is appointed by the court
contract Act given some exceptions to this for the minor, then the minor becomes
rule. major only on the completion of the age of
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21 years. occasionally of sound mind may make a

LAW REGARDING MINOR’S AGREEMENT:- contract when he is of sound mind. A
1. An agreement with a minor is void ab person who is usually of sound mind but
initio: A minor does not have the contractual occasionally of unsound mind, may not
capacity and when he makes agreements, make a contract when he is of unsound
such agreements are void and cannot be mind.
enforced in the court of law. TYPES OF PERSONS OF UNSOUND
2. Minor can be a promisee or beneficiary: MIND:
- A minor cannot be stopped from getting 1. Idiots: A person who has completely
benefits in an agreement. If in a contract, lost his mental powers and incapable of
minor is a beneficiary or suffered loss or he forming a rational judgment is called an
is a promisee, he can demand the idiot. All agreements other than of
enforcement of agreement. necessaries of life, with idiots are
3. Ratification on attaining the majority is absolutely void.
not allowed: A minor cannot ratify a 2. Lunatic: A lunatic person is a person
promise entered into during his minority, who suffers a serious mental disorder due
after attaining majority. to some mental strain or mental shock or
4. Minor is not bound to return the any highly tragic event. A lunatic is not
benefits received: - If a minor retained any liable for agreements entered into during
benefit under the agreement, he is not liable the period of his madness.
for repay or compensate the same. The 3. Drunken persons: A drunken person
reason is that the original contract is void in suffers from temporary incapacity to
the beginning itself. contract. An agreement by a drunken
5. The principles of estopel is not person is void because during his
applicable to minor: - The general principle drunkenness he cannot understand the
of estopel is not applicable to a minor. business and its implications.
6. A minor is liable for necessaries PERSONS DISQUALIFIED BY OTHER
supplied: According to sec 68, “if a person, LAWS
incapable 1. Alien enemies: - A person who is not a
of entering into a contract or any one whom citizen of India is called alien. No contract
he is legally bound too support, is supplied can be made with an alien enemy during
by another person with necessaries suited to the subsistence of war
his condition in his life, the person who has 2. Foreign sovereigns, and
furnished such supplies, is entitled to be ambassadors:- In the case of
reimbursed from the property of such Ambassadors and foreign sovereigns,
incapable person. according to sec 86 of the civil
7. Minor can be an agent: A minor can act procedures, previous sanction of the
as an agent and bind his principal by his acts. central government is to be obtained .
8. He cannot be adjudged insolvent: A 3. Insolvents: When a debtor is adjudged
minor cannot adjudge insolvent as he is not as insolvent his property vests in the
competent to enter into contracts for debts. official Receiver and thereby he cannot
9. Minor- as partner: A minor cannot be a enter into a contract. This disqualification
partner, but he may be admitted to the is automatically removed after he is
benefit of a partnership. His liabilities are discharged.
limited to the extent of his interest in the 4. Convicts:- A convict when undergoing
partnership. imprisonment is incapable of entering in
PERSONS OF UNSOUND MIND to a contract. When the period of sentence
In order to be competent to contract, a expires, the incapacity to contract
person must be of sound mind. A person disappears.
who is usually of unsound mind and
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5. Corporations: A company or corporation THREAT TO COMMIT SUICIDE IS A

can enter into contracts only through its COERCION
agents, such as Board of Directors, Managing Threat to commit suicide is also one of the
Directors etc in accordance with its mode of coercion, hence it is treated
Memorandum of Associations. Any contract voidable contract at the option of one
beyond the Memorandum is not valid. party.
6. Married women: They are competent to EFFECT OF COERCION
enter into a contract with respect to their Section 19 of the contract Act lies down
separate properties. But she cannot enter that when the consent of a party to a
into contracts with respect to their contract is obtained by coercion, it is
husbands’ property. voidable contract at the option of
FREE CONSENT aggrieved party.”
According to Sec13 of the Contract Act DURESS
defined consent as, “two or more persons It is an equivalent term to coercion as per
are said to consent when they agree upon English law.
the same thing in the same sense.” Without UNDUE INFLUENCE:
free consent of the parties, an agreement It is the improper use of any power
does not acquire legal sanctity and possessed over the mind of the
consequences. contracting party.
Section 14 of this act states that, ‘Consent is Section 16(1) of the Contract Act defines
said to be free when it is not caused by, undue influence as follows:- “ A contract
1. Coercion is said to be induced by undue influence,
2. Undue influence where the relations subsisting between
3. Misrepresentation the parties are such that one of the
4. Fraud parries is in a position to dominate the
5. Mistake will of the other and uses that position to
In the first four cases, the contract is obtain an unfair advantage over the
voidable, but in the last case, the contract is other”..
void ab initio EFFECT OF UNDUE INFLUENCE: -
An agreement caused by undue influence
ELEMENTS OF FREE CONSENT shall be voidable at the option of the party
whose consent has been so obtained.
A.COERCION PERSONS IN DOMINANT POSITION
Coercion implied use of some kind of  He hold a real or apparent
physical force by doing some act forbidden authority over the other eg
law to seek consent of the other party. If the manager and worker
consent to an agreement is obtained by  He stand in a fiduciary relation to
coercion, the contract is voidable at the the other eg – parent and child
option of the party whose consent is so  Person whose mental capacity is
obtained. It includes: temporarily or permanently
a. The committing of any act forbidden by affected eg Doctor and patient
the Indian Penal Code. CONDITION UNDER WHICH UNDUE
b. The unlawful detaining or threatening INFLUENCE IS SUSPECTED
of any property of another person.  Inadequacy of consideration
c. intention of causing any person to enter  Fiduciary relationship between the
into an agreement. parties
d.can be applied either a party to the  Inequalities between the parties
contract or even by a stranger.  Pardnashin Women
e. the place of coercion is immaterial.  Unfair bargaining
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NO PRESUMPTION OF DOMINANT  Promise made without intention of

POSITION performing it
 Husband and wife  Made with an intention to deceive
 Creditor and debtor the other party.
 Landlord and tenant  Representation must relate to a
 Principal and agent fact.
CONTRACT WITH A PARDANASHIN  The other party must have been
WOMEN deceived
A pardanashin woman is one who observes  Must have suffered some loss
complete seclusion because of the custom of EFFECT OF FRAUD:
the particular community to which he If the consent to an agreement is caused
belongs. She is a lady under parda. She is not by fraud, the contract is voidable at the
allowed to mix up with outsiders. She is option of the party, whose consent was so
deemed to ignorant of outside tricks. Any caused. In case of fraud, the aggrieved
person who enters into a contract with a party has the following remedies:-
pardanashin women has to prove that no a. He can cancel the contract within a
undue influence was exercised in obtaining reasonable time.
her consent. He has to satisfy the court that b. He can sue for damage
terms and conditions of the contract have c. He can insist on specific performance of
been explained to her and they were the contract on the condition that he shall
understood properly by the women. be put in position in which he would have
DIFFERENCE BETWEEN COERCION AND been if the representation made had been
UNDUE INFLUENCE: true.
1. Coercion implies the use of physical force SILENCE AS FRAUD:
or threat to cause consent. While undue Mere silence or non-disclosure of
influences involve use of moral or mental facts normally does not constitute fraud
pressure to cause consent. unless party keeping silence is under legal
2. Coercion involves a criminal act while obligation to speak or his silence is
there is no criminal act in undue influence. equivalent to speech.
3. in coercion, the consent of aggrieved party But this rule has certain exceptions.
is given under threat wherein undue 1. Contract of uberrimaefidei(at most
influence the consent of aggrieved party is good faith) – eg marriage contract
obtained by misusing the dominant position. 2. Silence maintained by the party is
4. In case of coercion, the threat may come equivalent to speech
from a third party who is a stranger to the 3. Fiduciary Relationship
contract. While on the other hand, the undue D.MISREPRESENTATION:
influence must be exercised by or against a It is a misstatement of material facts. The
person who is a party to the contract. party making untrue statement believes
C.FRAUD: that the statement is true, but in reality
When a wrong representation is made statement turns to be incorrect. It also
by a party with the intention to deceive the includes non-disclosure of material facts
other party or to cause him to enter in to a and facts without any intention to deceive
contract, it is said to be fraud. the other party.
ELEMENTS OF FRAUD EFFECTS OF MISREPRESENTATION:
 The fraudulent act must have been When consent of the party is caused by
committed by a party to the contract the misrepresentation made by another
 There must be a false representation party, the contract is voidable at the
 There must be active concealment of option of the aggrieved party whose
fact consent was caused by misrepresentation.
He has the right to May avoid or rescind
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the contract that, “where both the parties to an

DISTINCTION BETWEEN FRAUD AND agreement are under a mistake as to a
MISREPRESENTATION matter of fact essential to the agreement,
1. Fraud implies an intention to deceive the agreement is void”
and in misrepresentation there is CONDITIONS OF BILATERAL MISTAKE
intention to deceive.  Mistake must be mutual
2. In fraud person making the wrong  Mistake must be of fact and not law
statement does not believes it to be  Fact which must be essential to the
true wherein misrepresentation, the agreement
person making wrong statement it to TYPES OF BILATERAL MISTAKE
be true.  Mistake as to subject matter
3. In the case of fraud aggrieved party o Regarding the existence of
can cancel the contract and also he subject matter
can claim damages while in the case of o Regarding the identity of
misrepresentation, the aggrieve party subject matter
can cancel the contract but cannot sue. o Regarding the title of the
4. In case fraud the contract is voidable subject matter
at the option of aggrieved party even o Regarding the quantity of the
though it discovered the truth, but in subject matter
misrepresentation aggrieve party o Regarding the quality of
cannot avoid the contract if subject matter
discovered the truth. o Regarding the price of
5. In case of fraud the person making the subject matter
representation have full knowledge  Mistake as to possibility of
that it is not true and in performance
misrepresentation, the wrong o Physical impossibility
statement is made without the o Legal impossibility
knowledge of the fact. b. Unilateral mistake: - In this case only
E.MISTAKE one party is under a mistake. In other
A mistake means that parties intending to do words, if there is a mistake on the part of
nothing have by intentional error done one party alone and the other party does
something else. If the agreement is made not know the mistake, then it is called
under a mistake, it means that there is no unilateral mistake.
consent and when the consent is nullified by UNLAWFUL CONSIDERATION AND
such mistake, and then the agreement has no UNLAWFUL OBJECT:
legal effect. Under the following circumstances an
CLASSIFICATION OF MISTAKE: agreement would be unlawful:
 Mistake of law 1. It is forbidden by law:-If the object or
 Mistake of fact consideration of an agreement is
Mistake of Law:- Mistake of law may be of forbidden by law, the agreement is void.
two types: 2. It defeats the provisions of any other
 1. Mistake of Indian Law law:-Where the enforcement of a
2. Mistake of foreign law particular is of such a nature that it would
Mistake of Fact:-Mistake relating to terms defeat the provisions of any statutory law
and conditions or any facts essential to the which is in force, the agreement is void.
agreement is known as mistake of facts. 3. It is fraudulent: - Fraud is punishable
Mistake of facts may be under the provisions of the law. Thus an
a. Bilateral mistake:- A bilateral mistake is agreement made with an object of
one where both the parties are under a defrauding or deceiving another will be
mistake. Section 20 of the Act lays down void.
 BRF – (Al Jamia Arts and Science College, Poopalam)

4. It involves an injury to a person or either of them will win or lose.

property of other:- 4. Control over the event:-Neither of the
5. It is Immoral: - If the object of an parties should have any control over the
agreement is considered as immoral in the event.
opinion of the court, such agreement will be 5. Payment of money: - The two persons
void on account of unlawful object. agree that dependent on the
6. It is against public policy: - Any determination of that.
agreement which goes against public policy EFFECT OF WAGERING AGREEMENTS:
and adversely affect public welfare public 1. Wagering agreements are void.
decency and public interest will be void. The Therefore the winner cannot recover
court has declared the following agreements amount which other party had to pay.
oppose to public policy. 2. Agreement by way of wager is just void
 Trading with alien enemy and unenforceable. The collateral
 agreement to commit a crime transactions based on such agreement are
 Interfering with course of justice not affected and thus are valid.
 . Marriage brokerage agreements EXCEPTION TO THE WAGERING
 Agreement for stifling prosecution AGREEMENT:
 Agreement of champerty and 1. Speculative transactions
maintenance 2. Commercial transaction
 Agreement for sale of public offices, 3. Horse racing
titles and appointments 4. Lotteries
 Agreement in restraint of parental 5. Prize competitions
rightsAgreement restraining personal 6. Athletic competition
liberty CONTRACT OF INSURANCE:
 Agreement restraining trade Insurance contract is a contract whereby
the insurance company in consideration
 Agreement to defraud the creditors
of payment of premium from the insured
 Agreement to create monopolies
promises to compensate his losses arising
 Agreement not to bid
out of insured cause. These contracts are
 Agreement to influence election valid.
WAGERING AGREEMENT DIFFERENCES BETWEEN INSURANCE
According to Anson,” wager means promise CONTRACT AND WAGERING
to give money or money’s worth upon the CONTRACT
determination of an uncertain event in 1. Contract of insurance is a
which the parties have no material interest contract of indemnity while a
and with mutual chances of gain or loss.” wagering contract is not a
Thus in simple words, Wagering agreement contract of indemnity.
is one in which money is to be paid by one to 2. In insurance contract there is
another party or vice versa on the happening insurable interest, but in
or non-happening of future uncertain event. wagering contract there is no
ESSENTIALS OF WAGERING AGREEMENT: insurable interest.
1. Mutual gain or losses: - There are two 3. A wager will arise only if one
parties in wagering agreement. One of the party losses and another gains
parties will win and another party will lose. while in insurance contract no
2. Uncertain event: - The performance of winning or losing.
wagering agreement depends on happening 4. A contract of insurance is legal
or non-happening of a future uncertain and enforceable while a
event. wagering contract is void.
3. Interest of the parties: - The parties must
not have any other interest in the happening
of the event except the sum of money which
 BRF – (Al Jamia Arts and Science College, Poopalam)

5. In insurance contract the amount happening of that event. But in contingent

of premium is determined contract, one or both the parties may have
scientific way, but in a wagering some interest on the event.
agreement, to determine amount 4. In wagering agreement future event is
of loss or gain has no basis at all. determining factor, but in contingent
CONTINGENT CONTRACT contract future event is collateral to a
Contract is mutual exchange of promise contract.
between the parties. A contract may be 5. a contingent contract is not a wagering
absolute or contingent. An absolute contract nature, but a wagering agreement is
is one in which the promisor must perform essentially of a contingent nature.
the contract in all events. QUASI CONTRACTS
CONTINGENT CONTRACT: - meaning The obligations which are created and
A contract is said to be contingent when its imposed by law in the absence of any
performance depends upon the happening contract to that effect are called quasi
or non-happening of a future event. contracts. Quasi contracts are also called
Definition constructive contracts.
According to section 31 of the Indian TYPES OF QUASI-CONTRACTS:
Contract Act, “a contingent contract is a 1. Supply of necessaries to the person
contract to do or not to do something, if having no contractual capacity or to his
some event collateral to such contract does dependent:-
or does not happen.” Contingent contract are 2. Reimbursement of payment made by a
called conditional contracts in English law. person who is interested but which
Contract of indemnity and guarantee is a anotherperson is legally bound to pay
contingent contract.. 3. Obligation to pay for non- gratuitous
ESSENTIALS OF A CONTINGENT act or service:-
CONTRACT:- 4. Rights and duties of the finder of lost
1. future event. goods:
2. uncertain event 5. Liability of persons to whom money is
3. Collateral event paid or things delivered by mistake or
RULES REGARDING CONTINGENT under coercion.
CONTRACT: DISCHARGE OF CONTRACT
1. Contingency on Happening of an event: Discharge of contract means terminations
2. Contingency on non-happening of an of the contractual relationship between
event: the parties. On the termination of such
3. Contingency on the happening of an event relationship the parties are released from
within stipulated time: their obligations in the contract.
4. Contingency on non-happening of an event Modes of discharging Contract:
within the stipulated time: A contract may be discharged in any one
5. Contingency on the non-happening of of the following ways.
impossible event A. Discharge of contract by
DIFFERENCE BETWEEN WAGER AND performance: - This is the most popular
CONTINGENT AGREEMENT: and usual way of discharging contracts.
1. There are mutual promises in a wagering When the parties to a contract fulfill their
agreement. While it is not necessary in a obligations arising under the contract
contingent contract. within the time, and in the manner
2. Wagering agreements are void. But prescribed, it is known as discharge of
contingent contracts are valid subject to performance.
conditions. B. Discharge of contract by mutual
3. In wagering agreements parties do not agreement:
have any interest on the happening or non-
 BRF – (Al Jamia Arts and Science College, Poopalam)

1. By Novation (Substitution of a new E. Discharge by Impossibility of

contract):-Under the method of novation, Performance: -The impossibility of
existing contract is replaced by new one performance of a contract may be initial
either between same parties or between new impossibility and subsequent
parties. It discharges an existing contract impossibility.
and brings new contract into existence. 1. Initial impossibility
2. By alteration:-Alteration of contract may When both the contracting parties are
take place when one or more of the terms of aware of impossibility of performance of
the contract altered by the mutual consent of the contract even at the time of formation
the parties to the contract. of the contract itself, then the agreement
3. By Rescission:-Rescission means becomes void ab initio.
cancellation of the contract. If the parties to a  Known impossibility
contract agree to rescind it, the original  Unknown impossibility
contract need not be performed. Rescission 2.Supervening impossibility
may either be total or partial. subsequent impossibility/Doctrine of
 By mutual consent frustration: / In certain cases, the
 By aggrieve party contract at the time of formation is
 By failure to perform capable of being performed. Subsequently
4. By remission: - Remission means after the formation, its performance
acceptance of lesser performance than what becomes impossible or illegal. This kind of
was actually due under the contract. impossibility is known as Supervening
5. By waiver: - When both parties, by impossibility and such contract becomes
mutual consent, agree to abandon their void.
respective rights, the contract need not be A contract is discharged due to
performed and the same is discharged. It is supervening impossibility under the
called waiver. following situations:-
6. Merger – Merging of two contracts into a. Destruction of subject matter: - If the
one is merger. subject matter of the contract is
C. Discharge by lapse of time: - destroyed or perished subsequent to the
If the contract is not performed and the formation of the contract without the
promisee fails to take any action within the fault of either party to the contract, the
period of limitation, then the contract is contract need not be performed and it is
terminated or discharged by lapse of time. discharged.
D. Discharge by Operation of Law:- A b. Death or personal incapacity of the
contract may discharged by the operation of promisor:-A promise requiring personal
law in the following cases: skill and ability may become physically
a. By Death:-Where performance of a incapable of performance by reasons of
contract is required to be made in person the death or incapacity of the same
and the personal skill and qualification of the person. Such impossibility discharges the
promisor are important, the death of the promisor from liability.
promisor discharges the contract. c. Change of Law: - Change of law, after
b. By insolvency: When a person is the formation of a contract, if renders
adjudged insolvent, he is discharged from all performance of contract unlawful; such
the liabilities incurred before the contract is discharged on the ground of
adjudication. supervening impossibility.
c. By Merger of rights: This is a condition by e. Declaration of war: When a war is
which, an inferior right contract merges into declared after the formation of a contract,
a superior right contract. In this case, the all pending contracts with the residents of
inferior right contract stand discharged enemy country remains suspended.
automatically.
 BRF – (Al Jamia Arts and Science College, Poopalam)

EXCEPTIONS TO THE DOCTRINE OF identified clearly

SUPERVENING IMPOSSIBILITY b. Special damages: - These damages are
1. Difficulty of performance: - Difficulty is those which arise from the breach of
no excuse for performance contract under special circumstances.
2. Commercial impossibility: - When the Under this, actual loss cannot be
performance of a promise becomes costlier, identified
non -profitable and more risky, such c. Exemplary damages or vindictive
contract will not be discharged. damages: - These damages are awarded
3. Strikes, lock-outs,:- A contract is not with a view to punish the defaulting party
discharged automatically on the ground of who injured the feelings of the others.
supervening impossibility due to strike. d. Nominal damages: Nominal damages
s 4. Impossibility due to failure of third are awarded in cases where the injured
party: - Failure of third party or his inability party is able to prove a breach of contract,
will not be considered sufficient ground for but he has not suffered any real and
discharging a contract. substantial loss.
5. Partial impossibility: When a contract is C. Suit for Specific Performance: In
entered into for several objectives, failure of certain cases, damages is not an adequate
one of the objects does not terminate the remedy for the breach of the contract. In
contract. such circumstances, the court directs the
6. Self- induced impossibility defaulting party, to carry out the
F. Discharge by Breach of Contract: - A performance of the contract specifically.
contract can be discharged by not This is known as specific performance.
performing it. Breach of contract means court may be granted specific
refusal of performance on the part of the performance in the following cases:
parties. a. Where monetary compensation is not
BREACH OF CONTRACT AND REMEDIES an adequate remedy for breach of
FOR BREACH contract.
Breach of contract may of two types; actual b. Where there is no standard for
breach and anticipatory breach. Actual ascertaining the actual damage, caused by
breach of contract takes place when the non-performance of promise by the party.
promisor fails to perform his obligation or c. When it is probable that monetary
refuses to do so on the due date of consideration on non-performance of the
performance. act cannot be obtained.
In anticipatory breach of contract, the D. Suit for Injunction: - In a contract if
promisor either refuses to perform or makes the party has made a promise for not
himself unable to perform a promise before doing something, and the party makes a
due date of performance. breach of contract by doing that thing. To
The various remedies available to an prevent such party from doing that act an
injured are: order of injunction may be claimed by an
A. Rescission of the Contract: - Where one aggrieved party. Injunction is a preventive
of the parties to a contract commits breach, relief and is generally issued in cases
the other party treats the contract as rescind where the compensation in terms of
or cancelled and refuses the further money is not an adequate relief.
performance. E. Suit upon quantum meruit:-The
B. Suit for damages: - When a contract is quantum meruit literally means ‘as much
broken, the injured party can claim damages as earned’ or ‘in proportion to work
from the other party. There are different done’. That is when a person had done
types of damages. some work under a contract and the other
a. Ordinary/ compensatory damages – party repudiated the contract, then the
under this, the actual damage can be party who has performed the work can
 BRF – (Al Jamia Arts and Science College, Poopalam)

claim remuneration for the work has already anticipated loss. A contract of fire
done. insurance and marine insurance is a
CLAIM FOR QUANTUM MERUIT: Claim for contract of indemnity. The person who
quantum meruit arises in the following promises to save the other from the loss is
cases: called indemnifier. The person to whom
a. When a contract is found to be void: the promise is made, is called indemnified
When a contract is discovered to be or indemnity holder.
unenforceable for some technical reasons, FEATURES OF INDEMNITY CONTRACT:
any person who has received any advantage 1. Express contract of indemnity: -
under such contract is bound to restore it. Where the terms of the contract of
b. When something is done without any indemnity are either in oral or in written,
intention to do so gratuitously: -when a it is called an express contract of
person does some work for or delivers indemnity.
something to another person with the 2. Implied contract of indemnity: -
intention of receiving payment for the same Where the contract of indemnity inferred
then such other person is bound to make from the circumstances of the case, or
payment if he accepts such services or goods from the relationship of parties, is called
or enjoys their benefit. an implied contract of indemnity.
c. When a contract is divisible: When a 3. Compensation of loss: - In the case of
contract is divisible and the party no in contract of indemnity, there is a
default has enjoyed the benefit of the part compensation for the loss suffered by the
performance, the party in default may sue on indemnified.
quantum meruit. 4. Essentials of a valid contract: A
d. When one party abandons or refuses to contract of indemnity is also required to
perform the contract:- When a party of a possess all the essentials of a valid
contract performs a part of the contract, contract.
abandons it without completing or refuses to RIGHTS OF AN INDEMNITY HOLDER:-
perform the remaining part, then, the other 1. Right to recover damages: - All
party can claim, compensation for the work damages which he may be compelled to
done on the basis of quantum meruit. pay in any suit of any matter to which he
e. When an indivisible contract is promise to indemnify applies.
performed badly: - When an indivisible 2. Right to recover cost:
contract for lump sum has been completely 3. Right to recover all sum paid: - He is
performed but badly, the person performing entitled to recover all the sums which he
it is entitled to claim the whole amount; but may have paid under the terms of any
the other party can make a deduction for a compromise of any such suit.
bad work. RIGHTS OF AN INDEMNIFIER:
CONTRACT OF INDEMNITY AND 1. Right to subrogation: - On payment of
GUARANTEE the amount of loss or liability to the
A contract of indemnity is a contract in indemnified the indemnifier is subrogated
which one party promises to compensate or to all the rights of indemnified.
protect the other party from the losses 2. Right to equities: - After making
arising in future. According to section 124 of payment to the indemnified for the loss,
Indian Contract Act,” a contract of indemnity indemnifier is entitled for all equities
is a, contract by which one party promises to which indemnified could have enforced
save the other from loss caused to him either against the third party liable for loss.
by the conduct of the promisor himself or 3. Right to refuse indemnity: The
buy the conduct of any third party.” indemnifier has the right to refuse
The object of a Contract of Indemnity indemnity provided the loss caused to the
is essentially to protect the promisee against indemnity holder is beyond the scope of
 BRF – (Al Jamia Arts and Science College, Poopalam)

the contract. liability of a third person, in case of his

CONTRCT OF GUARANTEE default.
Where a person gives a guarantee to 6. Consideration:-Like all other
another person, either to (a) performing a contracts, the contract guarantee must be
promise or(b) discharging the liability of a supported by alawful consideration. It is
third person, there arises a “Contract of not necessary that the surety must get
Guarantee” some consideration directly from the
DEFINITION creditor.
According to section 126 of the 1. free consent
Contract Act, “A contract of guarantee is a 2. writing is not necessary
contract to perform the promise or 3. at the request of principal debtor
discharge the liability of a third person in
case of his default.” KINDS OF GUARANTEE:
The person who gives the guarantee is
called the surety or guarantor, and the Guarantee may be classified in the
person in respect of whose default the following ways:
guarantee is given is called the principal 1. On the basis of purpose: There are
debtor, and the person to whom the three types of guarantees on this basis
guarantee is given is called the creditor. a. For Payment of debt:-A guarantee may
Essential features of a contract of be for payment of debt or loan.
guarantee:- b. For price: A guarantee may be for the
The essential features of a contract of payment of price of the goods to be sold
guarantee are as follows:- on credit.
1. Three parties: - There must be three c. For honesty: A guarantee given for the
parties in a contract of guarantee, namely honesty or good conduct is known as
the principal debtor, the creditor and the fidelity guarantee.
surety. 2. On the basis of transaction: : It may
2. Three contracts: There are three be
contracts in a contract of guarantee, namely, a. Simple or specific guarantee: - When
contract between principal debtor and a guarantee is given in respect of a single
creditor, contract between principal debtor debt or specific transaction, it is called a
and surety, andcontract between creditor specific or simple guarantee.
and surety. b. Continuing guarantee: When a
3. Capacity to contract: In a contract of guarantee extends to a series of
guarantee, the principal debtor may not be a transactions, it is called a continuing
person competent to contract, but his guarantee.
incapacity should be in the knowledge of the
surety. In such case, the surety is regarded as REVOCATION OF A CONTINUING
the principal debtor and is personally liable GUARANTEE:
to pay the debt, although the principal A continuing guarantee as regards future
debtor is not liable to pay. transaction may be revoked under the
4. Concurrence: The contract of guarantee following circumstances.
requires concurrences of all the three parties 1. By notice of revocation by the surety:
ie, creditor, Principal debtor and the surety. 2. By the death of the surety
It may be either express or implied by the 3. By novation: - Novation means
circumstances of the case. substitution of a new contract in the place
5. Liability: A contract of guarantee pre of an old one.
supposes a liability enforceable by law. That 4. By altering the terms of contract:
is in a contract of guarantee, the surety 5. By release of Principal debtor:
undertakes to pay a debt or discharge a
 BRF – (Al Jamia Arts and Science College, Poopalam)

DISTINCTION BETWEEN A CONTRACT OF RIGHTS OF SURETY:

INDEMNITY AND CONTRACT OF A surety has certain rights against (1) the
GUARANTEE: creditor (2) the debtor (3) the co-sureties
Contract of Contract of 1. Rights against creditor:-
indemnity guarantee A .Right to be set-off: On being sued by
1 A contract by contract to the creditor the surety may plead any set
which one party perform the of or counter claim which the debtor has
promise to save promise or against the creditor.
the other from discharge the B. right of subrogation
loss caused liability of a third C. right to securities 2. Rights against
person in case of principal debtor:-
his default. a. Right of subrogation: - Where a
2 In a contract of In a contract of guaranteed debt has become due and the
indemnity there guarantee, there surety has paid all that he is liable for, he
are only two are three parties is invested with all the rights which the
parties. creditor had against the principal debtor.
3 In a contract of The liability of the b. Right to indemnity: In every contract
indemnity, the surety is of guarantee there is an implied promise
liability of the secondary and by the principal debtor to indemnify the
indemnifier is dependent surety and the surety is entitled to
primary and recover from the principal debtor all
independent. payments properly made.
4 There is only one In a contract of 3. Rights against co-sureties:
contract in a guarantee, there When a debt is guaranteed by two or
contract of are three contracts more sureties, they are called co-sureties.
indemnity. The co sureties are liable to contribute, as
5 Consideration is Consideration is agreed, towards the payment of the
must not must guaranteed debt.
6 It is not necessary It is necessary that a. Co-sureties liable to contribute
for the the surety should equally: - Where there are two or more
indemnifier to act give the guarantee co-sureties for the same debt and the
at the request of at the request of principal debtor has committed a default,
the indemnity the debtor the co-sureties in the absence of any
holder. contract to the contrary, is liable to
7 The indemnifier entitled to sue contribute equally to the extent of default.
cannot sue third against the b. Liabilities of co-sureties bound in
parties for loss principal debtor in different sums (sec.147): Where the co-
his own name. sureties have agreed to guarantee
8 The object of a The object of a different sums, they have to contribute
contract of contract of equally subject to the maximum amount
indemnity is to guarantee is to guaranteed by each one.
save the promisee provide an c. Release of co-surety: Where there are
form loss. assurance co-sureties, a release by the creditor of
9 Both the parties Principal debtor one of them does not discharge the
must have need not others, nor does it free the surety so
contractual necessarily be released from his responsibility to the
capacity. competent to other sureties.
contract. d. Right to share benefits of securities.
 BRF – (Al Jamia Arts and Science College, Poopalam)

DISCHARGE OF SURETY FROM 11. Lack of any essential element of

LIABILITIES: contract: A contract of guarantee like any
The following are the circumstances under other contract must has all the essential
which a surety is discharged from his elements of a valid contract. If any of the
liability. elements is notpresent, the contract is
1. Revocation by giving notice: - In the case void and the surety is discharged.
of continuing guarantee, by giving notice of CONTRACT OF BAILMENT AND
revocation by the surety, he can be relieved PLEDGE:
from his liability with respect to future The word ‘bailment’ is derived from a
transactions. French word ‘Bailer’ which means ‘to
2. Revocation by death of surety: - In the deliver’. Inlegal sense, it has been defined
case of continuing guarantee the death of a as voluntary change of possession of
surety discharges him from all liabilities as goods from one person toanother for
regards transactions after his death. some purpose.The person who delivered
4. Novation: A surety is discharged when a the good is called bailer and the person to
new contract of guarantee is substituted for whom they aredelivered is called the
an old one. bailee. The transaction is called bailment.
5. Release or discharge of the principal ESSENTIALS OF BAILMENT:
debtor: - The surety is discharged by any 1. There must be a delivery of goods: -
contract between the creditor and the Delivery of goods from one person to
principal debtor, by which the principal another forsome specific purpose is very
debtor is released, or by any act or omission essential for bailment. Mere custody
of the creditor; the legal consequences of without possession does not create
which is the discharge ofthe principal bailment.
debtor. 2. Specific purpose: - Delivery of goods
6 Variation in terms of contract: A surety should be made for some specific
will be discharged from his entire liabilities purpose. If the goods are delivered to a
if the terms of original contract between the particular person by mistake, there is no
principal debtor and the creditor have bailment at all.
beenaltered in any way without his consent. 3. Return of goods: - When the purpose
7. Loss of securities: If the creditor losses or is accomplished the same goods are to be
parts with the securities belonging to returned.
theprincipal debtor without the consent of 4. Ownership: In the bailment, ownership
the surety, then the surety will be discharged is not transferred from the bailer to the
to theextent of the value of the surety. bailee. Possession alone is transferred.
8. Guarantee obtained by 5. Movable goods: Bailment is concerned
misrepresentation: If the surety’s consent with only movable goods. It is important
to guarantee isobtained by the creditor by to note that money is not included in the
his misrepresentation then the contract category of movable goods.
becomes invalid and thesurety gets 6.Contract: bailment arises express or
discharged. implied contract
9. Guarantee obtained by concealment-: KINDS OF BAILMENT :
The surety is discharged if the guarantee On the basis of reward
isobtained by the creditor by means of 1. Gratuitous bailment it is one were no
keeping silence as to material fact, as the consideration or remuneration passes
contractbecomes invalid. between bailor and bailee.
10. Failure of consideration: The surety 2. Non gratuitous bailment- it is one
will be discharged on a substantial failure were some considerations passes
ofconsideration. between bailor and bailee.
 BRF – (Al Jamia Arts and Science College, Poopalam)

On the basis of benefit received – bailee.

1. Bailment for the exclusive benefit of 4. Right to recall goods at any time in a
the bailor – it is a bailment where the goods gratuitous bailment: When goods are
are delivered only for the benefit of the lent gratuitously, the bailor can demand
bailor himself. the return whenever he pleases, even
2. Bailment for exclusive benefit of bailee though he had lent them for a specified
- it is a bailment where the goods are period.
delivered only for the benefit of the bailee. 5.Right to claim compensation
3. Bailment for the mutual benefit - it is a To claim increase of profit from the goods.
bailment where the goods are delivered for 6. Enforcement of right: - The bailor has
the mutual benefit of bailor and bailee. a right to enforce by suit all the liabilities
DUTIES OF A BAILER: or duties of the bailee.
1. Duty to disclose known defects:-It is the DUTIES OF A BAILEE:
duty of the bailor to disclose all the known 1. To take reasonable care of the goods
defects inthe goods bailed to the bailee. If he bailed: - The most important duty of the
fails to do so, he is responsible for any bailee is to take care of the goods
damage caused to the bailee directly from entrusted to him.
such defects. 2. Not to mix the goods bailed and his
2. Duty to bear extraordinary expenses: - own goods: - The bailee must keep his
Where the bailment is gratuitous and the own goods
bailee is to receive no remuneration the separately from the goods of bailor.
bailor shall pay the bailee all the necessary 3. Not make an unauthorized use of
expenses incurred for thepurpose of goods: - If the bailee makes unauthorized
bailment. use of goods, he is responsible for all
3. Duty to indemnify bailee: - Sec. 164 of damages to the goods and must pay
the act says that the bailor should indemnify compensation to the bailor.
the bailee for any cost or costs incurred 4. Not to set up an adverse title: - It is
because of the defective title of the bailor to the duty of the bailee to return the goods
the goods bailed. only to the bailo
4. Duty to receive back the goods bailed: reven though any third person is claiming
When the bailee returns the goods after the the title over them.
purpose is fulfilled or the time is expired, it 5. Return the goods: - According to sec.
is the duty of the bailor to receive back the 160, it is the duty of the bailee to return
goods. or deliver according to bailor’s directions,
5.Duty to bear normal risks the goods bailed, without demand, as
RIGHTS OF BAILOR: soon as the time for which they were
1. Entitled to get back the goods:-He is bailed has expired.
entitled to get back the goods bailed as soon 6. Return the additions or profit: -
as the time for which they were bailed has According to sec 163, in the absence of
expired or the purpose for which they were any contract to the contrary, the bailee is
bailed has been accomplished. bound to deliver to the bailor, or
2. Right to terminate the contract: The according to his directions, any increase
bailor can terminate the contract if the bailee of profit which may have acquired from
does, with regard to the goods bailed, any act the goods bailed.
which is inconsistent with the terms of the Rights of a bailee:-
bailment. 1. Right to enforce the duties of the
3. Right to claim damages: The bailor has bailor: - The bailee, by suit enforce the
an inherent right to claim for damages for duties of the bailor.
any loss that might have been caused to the
goods bailed, due to the negligence of the
 BRF – (Al Jamia Arts and Science College, Poopalam)

2. Right to deliver goods to one of the DISTINCTION BETWEEN PARTICULAR

joint owners: - In the absence of an LIEN AND GENERAL LIEN:
agreement tocontrary, when several joint Particular lien General lien
owners of goods bail them to a bailee, the 1 Right to retain Right to retain all
bailee has a right todeliver back the goods to particular goods the goods of the
anyone of the joint bailers without the until claims on other party until
consent of all. account of those all the claims of
3. Right to claim damages: - According to goods are paid the holder are
sec 150, if the bailee has suffered any loss paid.
due tothe non-disclosing of facts by the 2 Available to all Available to
bailor, he has a right to claim damages to bailees limited number
that of Bailees
.4. Right to indemnify: - If any loss is caused 3 Can be Can be exercised
to the bailee due to the demand made by the exercised in against all goods
bailor for return of goods before the those goods in lying under the
specified time, the bailee has a right to be respect of which possession of the
indemnified by the bailor. labour or skill bailee
5. Right to sue: - Bailee can file a suit against has been
a person who has wrongfully deprived him exercised by the
of the use or possession of the goods bailed bailee
or has done them an injury. TERMINATION OF BAILMENT:
6. Right of lien: - Where the bailee has A contract of bailment will be terminated
rendered any service in accordance with the in the following circumstances:
purpose of the bailment involving the 1. On the expiry of time: - If the contract
exercise of labour or skill, he has a right to of bailment is for a stipulated time period,
retain such goods until he receives the due on theexpiry of the time, it will be
remuneration for the services he has terminated automatically.
rendered in respect of them. 2. Accomplishing the objectives: - If the
7. Right to claim necessary expenses: bailment is for a specific purpose, it
8. Right to recover loss due defective title terminate as soon as the purpose is
of the bailor. fulfilled.
LIEN 3. Destruction of subject matter: - When
Lien is a right by which one person is the subject matter of the bailment is
entitled to retain the possession of some destroyed, a bailment is terminated.
goods belonging to another, until the 4. Death of bailor or bailee: - A
demands of the person in possession are gratuitous bailment is terminated by the
satisfied. This right is sometimes called death of either the bailor or the bailee.
‘possessory Lien’. 5. Misuse of the goods: If the bailee does
Lien may be of two types, Particular lien and any act in respect of goods bailed against
General lien. the terms of bailemet, the contract of
1. Particular or special lien:-This is a right bailment becomes voidable at the option
to retain particular goods until claims arising of the bailor.
on those goods are satisfied. 6. Demand of goods by gratuitous
2. General Lien: - A general lien is a right to bailor.
retain any goods belonging to the other as FINDER OF LOST GOODS
security for a general balance of accounts. A finder of goods is a person who finds
The right of a general lien is given only to goods belonging to anther and takes them
particular person. The persons entitled to into custody. Generally there is no
general lien are bankers, factors. obligation on the part of a person who
finds goods, but if he picks them up or to
 BRF – (Al Jamia Arts and Science College, Poopalam)

take charge of the goods, he becomes the 2. Right to redeem debt: - The pawner
bailee of those goods. should repay the loan and take back the
Rights of the finder of lost goods:- delivery of the goods from the pawnee
Right of lien within the stipulated time.
Right to claim reward 3. Rights of an ordinary debtor: - The
Right of sale of goods pawner as a debtor has various rights
OBLIGATION OF FINDER OF LOST given to him by statute for the protection
GOODS:- of debtors.
1. He must take reasonable care of the goods. 4.preservation and maintenance Right
2. He should not use the goods for his own to receive any increase of profit
use. DIFFERENCE BETWEEN BAILMENT
3. He must try to find out the true owner of AND PLEDGE
the goods
PLEDGE OR PAWN Bailment pledge
According to sec. 172, “The bailment of 1 Any kind of Purpose is to
goods as security for payment of debt or purpose such as secure the
performance of promise is called pledge or safe custody, repayment of
pawn” The bailor here is the pawner and the repair, use etc. debt.
bailee is the pawnee. 2 Bailee may have Does not have
ESSENTIALS OF PLEDGE the right to use any right to use
1. Delivery of goods the goods the goods.
2. Returning the goods 3 Bailee has no Pledgee has the
3. Movable goods right to sell the right to sell the
4. Existing goods goods goods
5. Contract 4 Lien can be Can be exercised
6. Transfer of possession exercised only even for non -
7. Delivery of goods by way of security for the labour payment of debt.
8. Security is meant for the payment of and skill spent.
debt 5 Consideration Consideration
RIGHTS OF A PAWNEE/PLEDGEE: may or may not always exist
1. Rights of retainer: The pawnee has a exist
right to retain the goods pledged not only for 6 The bailee is Pawnee is not
the payment of debt, but also for its interest. liable to return
liable to retain
2. Retainer of subsequent advances: When the goods on the goods
the pawnee lends money to the same demand by the delivered unless
pawner after the date of the pledge, it is bailor. until the debt is
presumed that the right of retainer over the repaid.
pledged goods extends to subsequent 7 Discharged Discharged with
advances also. when purpose is the payment of
3. Right to extra ordinary expenses: - The accomplished. debt.
pawnee has a right to receive from the
pawner, extra ordinary expenses incurred by
him for the preservation of the goods
pledged.
RIGHTS OF PAWNER OR PLEDGER:
1. Right to get back goods: - The pawner in
entitled to get back the goods pledged.
 BRF – (Al Jamia Arts and Science College, Poopalam)

DIFFERENCES BETWEEN PLEDGE AND or a drunken person cannot employ an

LIEN: agent.
Pledge Lien 2. An agreement: Agency should be
1 Purpose is to Purpose is to retain created by an agreement between the
secure the someone’s property principal and the agent. Such agreement
repayment of to recover the may be either express or implied.
debt. remuneration. 3. Intention of the agent: Intention of the
2 Pledge arises out Lien arises out of agent to act on behalf of the Principal is
of an agreement law also an essential feature of the contract of
3 Goods are bailed It has only a right to agency.
as a promise and retain without a 4. No consideration is necessary:-
it gives a right to right to sell According sec.185, No consideration is
sell. necessary to create an agency. Generally
4 It is terminated The right of a lien is an agent is remunerated by way of
when the goods lost when the commission for service rendered.
are returned to possession of goods 5. Free consent: An agreement of agency
the owner is lost. depends up on free consent of the
PLEDGE BY NON OWNERS:- principal and agent.
In the following cases, one who is not an 6. Other essentials: a valid agency must
owner can make a valid pledge have all other essentials of a valid
1. A mercantile agent, -who is with the contract.
consent of the owner in possession of the CREATION OF AN AGENCY:
goods or of the documents of title to goods, An agency may be created in any of the
can make a valid pledge of the goods while following ways:-
acting in the ordinary course of business of a 1. Agency by express agreement: -
mercantile agent. When an agent is appointed by words,
2. A person having a possession of goods- spoken or written is called agency by
under a voidable contract can make a valid express agreement.
pledge of the goods so long as the contract is 2. Agency by implied agreement:-It
not rescinded. includes
3. Where the person pledges goods in a) Agency by estoppels: agency may be
which he has only a limited interest - the created by estoppel. Where a person by
pledge is valid to the extent of that interest. his conduct or statements induced others
4. If one of several co-owners - is in sole to believes that certain person is his
possession of the goods with the consent of agent.
the owners, he can make a valid pledge of b). Agency by holding out:-It is a branch
the goods. of the agency by estoppels. In this case
CONTRACT OF AGENCY some affirmative conduct by the principal
It is a contract which creates the relationship is necessary. Where a person permits
of agent with principal is known as agency. another by a long course of conduct to
According to sec.182 of the Contract Act, “an pledge his credit for certain purposes, he
agent is a person employed to do or to is bound by the act of such person in
represent another in dealings with third pledging his credit for similar purposes,
person. The person for whom such act is though in some cases without the
done or who so represented, is called the previous permission of his master.
principal. c. Agency by necessity: In some extra
ESSENTIAL FEATURES OF AGENCY: ordinary circumstances, a person who is
1. The principal should be competent to not really an agent should act as an agent
contract: Any person who is major and of of another. Such an agency is called
sound mind can employ an agent. A lunatic agency by necessity.
 BRF – (Al Jamia Arts and Science College, Poopalam)

Agency by ratification (Ex-post facto bound to take on behalf of the

agency):Ratification means subsequent representatives of his late principal, all
acceptance by the principal in all respect of reasonable steps for the protection and
an act done by the agent without authority. preservation of the interest entrusted to
Sometimes the agent may act without the him.
authority of the principal. If the principal 8. Duty not to disclose confidential
accepts or ratify subsequently the act of the information: It is very important not to
agent, he is said to have ratified the act. disclose the confidential information
Agency by operation of law –agency may relating to the business of agency.
also be created by operation of law. In such a 9. Duty not to deal on his own account:
case, law presumes a person as an agent of An agent should not deal on his own
another. account in the business of agency. If an
DUTIES AND RIGHTS OF AN AGENT: agent, without the knowledge of his
principal, deals in the business of the
DUTIES OF AN AGENT TO PRINCIPAL: agency on his own account, the principal
1. Duty to follow directions given: An may either repudiate the transaction or
agent must conduct the business of the claim from the agent any benefit which
principal according to the directions given may have resulted to him from the
by the principal. In the absence of any transactions.
direction, should conduct according to the RIGHTS OF AN AGENT:
custom. 1. Rights to remuneration: Where
2. Duty to act with skill and diligence: - An services rendered by agent are gratuitous,
agent is bound to conduct business of the he is entitled to receive the agreed
agency with as much skill as is generally remuneration or if nothing has been
possessed by persons engaged in similar agreed, a reasonable remuneration.
business unless the principal has notice of 2. Right of retainer: The agent has a right
his want of skill. to retain his principal’s money until his
3. Duty to render accounts: It is the duty of claim in respect of his remuneration or
an agent to keep the money and property of advances made or expenses properly
the Principal separate and to keep true and incurred in conducting the business of
correct accounts. agency are paid.
4. Duty to communicate in case of 3. Right of lien: An agent has a right to
difficulty: In cases of difficulty it is the duty retain goods, papers and other movable
of the agent to communicate with his or immovable property of the principal
principal and get his instruction. received by him until the amount due to
5. Duty to pay the amounts received for him had been paid or accounted for.
the principal: It is the duty of the agent to 4. Right of indemnification: An agent
pay overall money received on behalf of the had a right to be indemnified by the
principal subject to any lawful deductions principal against the consequences of
for remunerations or expenses properly lawful acts done in exercise of his
incurred. authority.
6. Duty not to delegate his authority: An 5. Rights of compensation:- An agent is
agent cannot delegate his authority to entitled to claim compensation from the
another person unless authorized or principal in respect of any injury caused
warranted by the usage of trade or nature of to the agent by the negligence of the
the agency. principal or want of skill.
7. Duty on termination of agency by RIGHTS AND DUTIES OF A PRINCIPAL
principal’s death or insanity:- When an RIGHTS OF A PRINCIPAL:
agency is terminated by the principal’s death 1. The principal is entitled to
or becoming of unsound mind, the agent is compensation for any breach of duty by
 BRF – (Al Jamia Arts and Science College, Poopalam)

the agent. proceed against him and hold him

2. The principal has a right to give proper responsible for the contract entered into
directions to the agent for the conduct of the by the agent.
business. LIABILITY OF AGENT TO THIRD
3. The principal is entitled to receive proper PARTIES:-
accounts from his agent 1. Where the agent acts for foreign
4. He is entitled to get profit, the agent principal: - Where the contract is made
makes by dealing with the principal’s goods by an agent for the sale or purchase of
on the agent’s own account. goods for a merchant residing abroad, in
5. He has the right to receive any secret such cases the agent would be personally
profit made by the agent out of the agency. liable.
6. He can revoke the authority of the agent 2. Where the agent acts for an
under certain circumstances. undisclosed principal: - Where the agent
7. The principal has a right to receive all acts for an undisclosed principal, he is
sums received on his account by the agent, personally liable.
after deducting the lawful remuneration and 3. When acting for a principal who
expenses incurred thereon. cannot be sued: Where the principal,
DUTIES OF THE PRINCIPAL: though disclosed, cannot be sued, the
1. Duty to pay remuneration agent is personally liable.
2. Duty to indemnify the agent against the 4. Where money is paid by mistake or
consequences of all lawful acts done in fraud: - Where third party pays money to
exercise of his duty. the agent by mistake or fraud, they can
3. Duty to give compensation to the agent sue the agent personally.
in respect of any injury caused to such agent 5. Where the agent exceeds his
by the principal’s neglect. authority: When the agent acts without
Liabilities of principal to third parties:- or beyond his authority and in this way
1. All acts of agent done within his commits a breach of warranty of
authority:-The principal is liable for the acts authority, he can be held personally liable.
of the agent if they are done within the scope 6. Where the agents’ authority is
of his authority and in the course of his coupled with interest: -Where the agent
employment as an agent. has himself interest in the subject matter
2. Misrepresentation or fraud of the of agency, he shall be personally liable to
agent: - The principal is responsible for and that extend.
is bound by misrepresentation or frauds 7. When the agent signs the negotiable
committed by the agent in respect of matters instrument in his own name: - When an
falling within his authority. agent signs a negotiable instrument in his
3. Information obtained by the agent: - own name without making it clear that he
Where an agent receives any information the is signing as an agent, he is personally
presumption is that the agent communicates liable for the instrument.
the same to his principal and it is construed 9. When the contract expressly
that the principal has taken notice of it even provides: Where the contract with the
though the agent did not in fact, parties especially stipulates that the agent
communicate the information. It is called should be personally liable, in such cases
doctrine of ‘constructive notice’. the agent would be personally liable.
4. Where the agent acts for an unnamed 10.Where misrepresentation
or undisclosed principal:-Undisclosed committed outside the scope of his
principal means principal whose existence authority
and name both have not been disclosed by 11.Where an agent act for a non -
the agent. In this case, third parties have a existent principal
right to discover the principal and to
 BRF – (Al Jamia Arts and Science College, Poopalam)

Kinds of Agent: DIFFERENCE BETWEEN SUB AGENT

1. On the basis of extend of their AND SUBSTITUTED AGENT
authority: SUB AGENT SUBTITUTED
a. General agent – who is employed to AGENT
transact generally for all the business of the 1 A sub agent is Named by the
principal appointed by the agent and
b. Special agent – is to do some particular act agent appointed by the
or represent his principal. principal
c. Universal agent – authorized to transact all 2 Under the Under the
the business of his principal of every kind control of agent directions of
and to do all the acts which the principal can principal
lawfully do and can delegate. 3 Agent is liable An agent is not
2. On the basis of nature of work for the act of sub liable for the act
performed:- agent of a substituted
a. Commercial agent/mercantile agent – agent.
authority to sell goods on behalf of 4 There is no There is a
principal contract contract between
(i)Auctioneers – employed for the owner to between sub substituted agent
sell his property publically by calling on the agent and and principal
public to bid for it. principal
(ii)Broker–who brings buyer and seller into 5 Sub agent has no Substituted agent
contract with one another. right to demand has the right to
(iii)Commission agent – do a certain act for for the demand for the
his principal in return for a commission. remuneration remuneration
(iv) Delcredere agent – who work for extra from the from the
remuneration guarantees the performance principal principal
of the contract 6 In case of In case of
(v)Factor – mercantile agent with whom appointment of appointment of
goods are kept for sale. sub agent, the substituted
b. Non mercantile agent original agent agent, the
Estate agents, house agents, wife etc. delegates his original agent
Sub Agent: A sub agent is a person own authority. delegates the
employed by, and acting under the control of principal
the original agent in the business of the authority.
agency. The agent is responsible to the 7 Sub agent is A co- agent is
principal for the acts of the subagent. accountable to fully accountable
the principal to the principal
Substituted agent (Co-agent) only for his for his each and
According to section 194 of the Contract Act, wrongful acts or every act.
“When an agent has an express or implied fraud
authority of his principal to name another TERMINATION OF AGENCY:-
person to act for the principal and the agent Termination of agency means cancellation
names another person accordingly, such of authority of the agent. A contract of
person is known as substituted agent. Such a agency may be terminated either by the
person is an agent of the Principal and is act of parties or by the operation of law.
responsible to him. The principal can sue the 1. Termination by the act of parties: -
substituted agent for accounts or damages. An agency may be terminated either by
the principal or by the agent or both in
the following ways.
 BRF – (Al Jamia Arts and Science College, Poopalam)

a. By Agreement: - An agency contract can known to him.

be terminated at any time and at any stage
by the mutual agreement between the IRREVOCABLE AGENCY:
principal and the agent. Agency cannot be revoked in the
b. Revocation by the principal: - Principal following cases:-
may either expressly or impliedly after 1. When the agency is coupled with
giving reasonable notice; revokes the interest: - When the agent is personally
authority of the agent before it has been interested in the subject matter of agency,
exercised by the latter so as to bind the it is said to be agency coupled with
former. interest. Agency is irrevocable during the
c. By renunciation of agency: - The agent existence of such interest.
himself may renounce the agency after 2. When the agent has incurred
giving a reasonable notice to the principal. If liability: - Where the agent has incurred a
the contract of agency is for a fixed period, personal liability in the contract of
the agent cannot renounce it before that agency, the agency becomes irrevocable
period without any sufficient cause for the and the principal will not be permitted to
same. revoke the agency leaving the agent
2. Termination by operation of law:-An exposed to risk.
agency may terminated by operation of law 3. When the agent has partly exercised
in any of the following ways. his authority: - The principal cannot
A. By expiry of time: - Where the agent is revoke the authority given to his agent
appointed for a fixed period, it terminates on after the authority has been partly
the expiry of that time. exercised by the agent.
B. By destruction of the subject matter: - If MODULE III
the subject matter of the agency is SALE OF GOODS ACT 1930
destroyed, the agency comes to an end. The Sale of goods Act contains certain law
c. Insolvency of the principal: - If the relating to sale of movable properties. The
principal is adjudicated as insolvent, the Act covers topics such as the concept of
agency terminates, but insolvency of the sale of goods, warranties and conditions
agent does not terminate the agency. arising out of sale, delivery of goods and
d. Principal becoming an alien enemy:- passing of property and other obligations
The principal and the agent belong to of the buyer and the seller, the documents
different countries and war breaks out to title to goods and the transfer of
between those two countries, contract of ownership on the basis of such
agency is terminated documents. This act came into force on1st
e. Death or insanity of the Principal or July 1930, and it extends to the whole of
agent: - According to sec. 201, death or India, except the state of Jammu and
insanity of principal or agent automatically Kashmir. A contract of sale has some
terminate the agency. special features which are not common to
performance of contract all contracts.
dissolution of the company: - When a
company is dissolved, the contract of agency GOODS:
automatically comes to an end. The goods include every kind of movable
REVOCATION OF AGENCY: property other than actionable claim or
The principal may revoke his agent’s money. Actionable claims are claims
authority and that puts an end to the agency. which can be enforced only by taking
Revocation of agency takes effect not from action in a court of law. Goods also
the moment of revocation, but when it include stocks, shares, growing crops etc.
becomes known to the agent and with
regard to third persons when it becomes
 BRF – (Al Jamia Arts and Science College, Poopalam)

CONTRACT OF SALE: DISTINCTION BETWEEN SALE AND

According to section 4 of the sale of Goods AGREEMENT TO SELL:
Act, “A contract of sale of goods is a contract Sale Agreement to sell
whereby the seller’s transfers or agrees to 1 Where the If the seller
transfer the property in goods to the buyer ownership of goods promises to
for a price.” is transferred just transfer it at some
A Contract of sale may be absolute of at the time of future date, it is
conditional. In absolute sale the property in making a contract known as
it is known as ‘sale’ ‘agreement to
the goods passes from the seller to the buyer
sell’.
immediately and nothing remains to be done 2 Sale is an executed an agreement to
by the seller. In conditional contract of sale, contract sell is an
the property in the goods does not pass to executory
the buyer absolutely until a certain contract
conditions fulfilled. 3 gives right to the gives a right to
buyer to enjoy the the buyer against
ESSENTIAL FEATURES OF A CONTRACT goods as against the seller to sue
OF SALE: the world at large. for damage.

1. Contract: - A contract of sale is a contract 4 Buyer becomes the Risk of loss is not
and must fulfill all the requirements of a owner and he has transferred to the
valid contract. to suffer the loss if buyer
the goods are
damaged or
2. Two parties: - The sale requires existence destroyed.
of two parties, the seller and the buyer. The 5 Existing and Future and
seller is a person who sells or agrees to sell specific goods contingent goods
goods. The buyer is a person who buys or 6 in case of breach by The seller may
agrees to buy goods. It is necessary that the the buyer, the sue for damages
same person cannot be both a seller and a seller can sue for only and not for
purchaser. price of the goods the price
7 if the seller makes the buyer can
3. Movable goods: - The subject matter of breach of contract, only claim for
the contract of sale must be in the form of The buyer can file damages
movable goods. Sale and purchase of suit against seller
immovable property are covered under the for damages and
can also use the
Transfer of Property Act 1882.
rights to follow
property
4. Transfer of ownership: It is the element 8 if the seller become If seller becomes
which distinguishes a sale from several other insolvent, the insolvent the
classes of contract like bailment, lease etc. buyer is entitles to buyer can claim
Hence, in a sale, ownership must be recover the goods only a ratable
transferred from the seller to the buyer. form the assignee dividend and not
or official receiver the goods.
5. Price: - Price means money consideration 9 if the buyer If the buyer
for sale of goods. In a contract of sale money become insolvent becomes
must be paid or promised. If there is no the seller is insolvent before
money consideration, the transaction is not a entitled to a ratable he pays for the
contract of sale. dividend for the goods, the seller
price of the goods. may refuses to
sell the goods
6. Form – implied or expressed
 BRF – (Al Jamia Arts and Science College, Poopalam)

DIFFERENCE BETWEEN SALE & HIRE 3. Return of goods: - In a sale goods are
PURCHASE not returned to the seller. But in bailment,
Sale Hire purchase when the purpose is over the goods are
1 Under sales Under hire returned to the bailor according to his
ownership is purchase instruction.
transferred at the ownership is 4. Consideration: - In a sale,
time of purchase. transferred only consideration given to the seller in the
after paying last form of money. But in bailment,
installment consideration may or may not be present
2 In the case of sale, In case of hire in the form of money.
payment of price purchase payment Use of goods: - In a sale, the buyer is
is generally paid of price is always entitled to possess and use the goods at
in lump sum made by his own. But in bailment goods will be
installments used according to instructions and terms
3 The buyer can hire The buyer cannot and conditions of bailment.
out and sell the hire out or sell the
goods before goods until the full SUBJECT MATTER OF CONTRACT OF
paying the full amount is paid. SALE:
amount due.
4 In the case of sale If the buyer fails to Goods may be divided into three types,
on credit the seller pay any 1. Existing goods: - Goods owned and
can sue the buyer installment, the possessed by the seller at the time of
for the payment of seller can making of the contract of sale are called
price due repossess the existing goods.. Existing goods may be
goods either specific, ascertained or
5 In sales position is In hire purchase unascertained:
like owner position is like a. Specific goods: - ‘Specific goods’ means
bailee goods identified and agreed upon at the
6 In case of cash But under H.P time a contract of sale is made
sale, price does system the b. Ascertained goods: - It means goods
not include installment identified in accordance with the
interest includes interest agreement after the contract of sale is
SALE AND BAILMENT made
Bailment is a contract to deliver the goods by c. Unascertained goods: - these are the
one person to another for some purpose on goods which are not specifically identified
the conditions that when the purpose is and agreed at the time when the contract
over, the goods will be returned to the of sale is made.
person delivering them. The bailment 2. Future goods: - Sec. 2(6) of sale of
contract differs with ‘sale’ on the following goods act defines future goods as ,”Future
grounds. goods means goods to be manufactured
1. Transfer of property: - In a sale, the or produced or acquired by the seller
general property in goods is transferred to after making of the contract of sale.”
buyer at the time of making a contract. But in Future goods are not in existence at the
bailment specific property in goods passes to time of contract of sale.
baileefor a temporary period. 3. Contingent goods: - It is a type of
2. Transfer of possession: - In a sale, future goods, the acquisition of which by
possession of goods may or may not be the seller depends upon a contingency
transferred immediately at the time of which may or may not happen.
making a contract. While in bailment goods
are immediately handed over to the bailee.
 BRF – (Al Jamia Arts and Science College, Poopalam)

CONDITIONS AND WARRANTIES CONSEQUENCES OF BREACH OF

CONDITION: WARRANTY :
A condition is a stipulation essential to the  cancel the contract
main purpose of the contract, the breach of  claim damages
which gives rise to a right to treat the  treat condition as warranty and
contract as repudiated. If a condition is claim damages
broken, the buyer has the right to terminate  no remedy when the seller is
the contract to refuse the goods, and if he excused by law.
has already paid for them, then to recover Express and Implied Conditions and
the goods. Warranty:
ESSENTIAL FEATURES In a contract of sale of goods, conditions
and warranties may be express or
1. It is essential to the main purpose of the implied. Express conditions and
contract warranties are those which have been
2. The non –fulfillment of condition causes expressly agreed upon by the parties at
irreparable damage to the aggrieved party the time of contract of sale. They are
3. The breach of condition gives a right to stated in definite words as the basis of the
terminate the contract to the aggrieved contract. When the conditions and
party. warranties are not written in the contract,
WARRANTY: but applied to the contract either by
A warranty is a stipulation collateral to the operation of law or by trade or custom,
main purpose of the contract, the breach of they are called implied conditions and
which gives rise to a claim for damages but warranties.
not to a right to reject the goods and treat IMPORTANT IMPLIED CONDITIONS:-
the contract repudiated. In short, breach of 1. Conditions as to title of goods sold: -
warranty will only give rights to claim for The first implied condition in the part of
damages, while a breach of condition would the seller is that, in the case of a sale, he
entitle the other party to avoid the contract has a right to sell the goods and that in the
altogether. case of an agreement to sell, he will have a
DIFFERENCE BETWEEN CONDITION & right to sell the goods at the time when
WARRANTY the property is to pass. If the title of the
Condition Warranty seller turns out to be defective, the buyer
1 It is fundamental in It is supportive and is entitled to reject the goods and can
nature and collateral to the recover the whole amount.
essential for main contract 2. Goods sold should correspond to
purpose of description: - Where there is a contract
contract. of sale of goods by description, there is an
2 Due to breach of Breach of warranty implied condition that the goods shall
condition, the may give a right to correspond with the description.
contract may be claim for 3. Sale by sample:-If the goods are
avoided compensation. supplied in a contract of sale, according to
3 Breach of condition Breach of warranty sample agreed upon, the implied
can be treated as cannot be treated as
conditions are:
breach of warranty breach of condition
4 The main purpose Fulfillment of a
a. The bulk shall correspond with the
of contract cannot contract does not sample
be fulfilled unless depend on the b. the buyer shall have a reasonable
the condition is fulfillment of a opportunity of comparing the bulk with
fulfilled warranty the sample, and
c. the goods supplied shall be free from
any defect.
 BRF – (Al Jamia Arts and Science College, Poopalam)

4. Conditions as to quality or fitness: - means ‘let the buyer beware’. This

Normally in a contract of sale there is no principle states that, at the time of buying
implied condition as to quality or fitness of goods, the buyer must make reasonable
the gods for a particular purpose. But there examination of the goods as to satisfy
is an implied condition that the goods sold himself regarding suitability of goods for
are reasonably fit for the purpose for which the purpose , he buys for and as to
they are discover the defects. If the goods turn out
purchased for. to be defective or do not suit his purpose,
a. The goods are needed for a particular the buyer cannot hold the seller liable for
purpose which the buyer brings to the the same. It is the duty of the buyer to
knowledge of the seller, either expressly or ensure that the goods are in good
impliedly. condition and suitable for his purposes.
b. The buyer relies on seller’s skill and EXCEPTIONS:
judgment and The following are the exceptions to the
c. It is sellers duty to supply by description, rule of caveat emptor:
then there is an implied condition that the 1. Fitness for buyers purpose:- When
goods should be reasonably fit for that the buyer, expressly or impliedly, make
purposes. known to the seller the particular purpose
5. Condition as to merchantability: Where for which he requires the goods and relies
goods are bought by description, there is an on the sellers skill or judgment the goods
implied condition that the goods shall must be suitable for buyers purpose. In
bemercantile quality. such cases the doctrine of caveat emptor
6. Conditions as to wholesomeness: In a does not apply.
contract of sale of eatables and provisions, 2. Sale under a patent or trade name:-
there is an implied condition on the part of In the case of a contract for the sale by a
the seller that the goods shall be wholesome. specified article under its patent or other
It means, the goods supplied by the seller trade name, there is an implied condition
must not be dangerously adulterer and must that the goods shall be reasonably fit for
be fit for human consumption. any particular purpose.
IMPORTANT IMPLIED WARRANTIES: 3. Merchantable quality: Where the
1. Warranty for quiet possession: - Where goods are purchased by description from
the buyer has obtained possession of the a seller who deals in goods of such
goods and if the buyer is in any way description, there is an implied
disturbed in the enjoyment of goods, the consideration is that the goods shall be of
buyer has a right to sue the seller for merchantable quality.
damages cause 4. Usage of trade: An implied warranty
2. Implied warranty against or condition as to quality or fitness for a
encumbrance: - There is also an implied particular
warranty in all cases of sale that the goods purpose may be annexed by the usage of
are not subject to any charge in favour of trade.
third parties which is not disclosed or 5. Consent by fraud: Where the consent
known to the buyer before or at any time of the buyer is obtained by the seller or
when the contract is made. where the seller conceals a defect, the
3. Implied warranty as to usage of trade: - doctrine of caveat emptor does not apply.
An implied warranty as to quality or fitness 6. Sale by Sample: Where the goods are
for a particular purpose may be fixed by the bought by sample the doctrine does not
usage of trade. apply, if the bulk does not correspond
DOCTRINE OF CAVEAT EMPTOR: with the sample.
It is an important doctrine in connection
with sale of goods. The term ‘Caveat emptor’
 BRF – (Al Jamia Arts and Science College, Poopalam)

SALE BY NON OWNERS 7. Sale under provisions of other acts:-

The general rule is that if a person, a. Sale by a finder of lost goods under
who has no right or title to the goods, sold certain circumstances
the same, thebuyer cannot obtain any right b. Sale by a pawnee or pledge under
or title to the goods which he purchased certain circumstances
even though he may have acted honestly and c. Sale by an official assignee or liquidator
paid the value for the goods. of companies.
According to sec. 27 of the sale of RULES REGARDING DELIVERY: -
goods act, a buyer cannot get a good title to Following are the provision relating to the
the goods unless he has purchased the same delivery of goods by theseller to the
from the owner. buyer:
EXCEPTIONS TO THE GENERAL RULE 1. Possession of goods: Delivery should
1. Title by estoppels: - When the owner by have the effect of putting the buyer in
his conduct, or by an act, leads the buyer to possession ofthe goods. So a delivery to
believe that the seller has the authority to anyone other than the buyer or his agent
well, then subsequently he may be stopped is insufficient.
from denying the seller’s authority to sell. 2. Delivery and payment are
2. Sale by a mercantile agent: - The concurrent conditions:-The seller
mercantile agent is a person who has should be ready to handover the
authority, in the customary course of possession of goods and the buyer should
business, either to sell goods or to consign be ready to pay the price.
goods for the purpose of sale or to buy goods 3. Part delivery: A delivery of part of the
or to raise money on the security of goods. goods has the effect as delivery of the
3. Sale by one of the joint owners: - If one whole; such partdelivery is made in
of the several joint owners of goods has the progress of the delivery of the whole.
sole possession of the goods by permission 4. Buyer to apply for delivery: Unless
of the co-owners, her have an exception to expressly agreed to the contract, the
the general rule. seller is notbound to deliver them until
4. Sale of goods obtained under a voidable the buyer applies for delivery.
agreement: - When the buyer of goods has 5. Time of delivery: - in a contract of sale,
obtained possession thereof under a the delivery of goods should be made
voidable agreement but the agreement has within areasonable time unless a time is
not been rescinded at the time of sale, the fixed in the contract.
buyer obtains a good title of the goods 6. Place of delivery: - Where the place of
provided he buys them in good faith and delivery is stated in the contract, the
without notice of the seller’s defect of title. goods must bedelivered at the specified
5. Sale by the seller in possession of goods place during working hours on a working
after sale: - Where a seller, having sold day.
goods, continuous to be in possession of the 7. Goods in possession of third person:
goods or of documents of title to the goods - When the goods at the time of sale are
and re sells them either himself or through a inpossession of a third person, delivery
mercantile agent in the same good faith and takes place only, if such third person
value without notice of previous sale, the acknowledges to thebuyer that he holds
new buyer gets good title. the goods on his behalf.
6. Re sale by an unpaid seller: - An unpaid 8. Expenses of delivery: - The seller
seller of goods who has exercised his right should bear the expenses of putting the
oflien or stoppage in transit resells the goods into adeliverable state and also the
goods; the buyer acquires a good title to the incidental expenses unless otherwise
goods asagainst the original buyer. agreed.
 BRF – (Al Jamia Arts and Science College, Poopalam)

9. Installment delivery: - Unless both the conditions are satisfied.

parties agree, the buyer of goods is not i. The seller must be an unpaid seller
bound to accept delivery thereof by ii. Goods must be in transit
installments. iii. The buyer must have become insolvent
10. Delivery to a carrier by wharfinger: c. Right of resale(sec. 54): An unpaid
Delivery of goods to a carrier for the purpose seller can re -sell the goods:
of transmission to the buyer for safe custody i. If the goods are of a perishable nature
is prima facie deemed to be delivery of the ii. When the unpaid seller notice of his
goods to the buyer. intention to sell
11. Buyer right of examining the goods: - iii. Where the seller expressly reserves a
Where the goods are delivered to the buyer right of re sale in case the buyer makes
which he has not previously examined, he is default.
entitles to examine them for his satisfaction. 2. Rights of an unpaid seller against the
12. Return of rejected goods: - A mere fact buyer personally:- The unpaid seller can
that goods have been received does not lead exercise the following rights against the
to acceptance. In certain cases, buyer has a buyer personally
right to reject the goods after having a. Suit for price: - When the property has
received them. In such cases, the buyer is not passed to the buyer, and the buyer
bound to return the goods to the seller. It wrongly neglects or refuses to pay, the
should be sufficient if he intimate his seller can sue him for the price.
rejection. b. Suit for damages: - When the buyer
14. When wrong quantity is delivered: - wrongfully refuses to accept the goods,
Where the quantity delivered is different the seller may sue him for damages for
from the quantity contracted then, the buyer non -acceptance.
accepts the goods which are in accordance c. Suit for repudiation: - If buyer
with the contract and reject the rest. repudiates the contract before the date of
15. Liability of buyer for neglecting or delivery the seller may treat the contract
refusing delivery of goods: - the buyer fails as subsisting and wait till the date of
to take delivery within a reasonable time of delivery, or may treat the contract as
that request, the buyer is liable to rescinded and sue for damages for breach.
compensate the seller for any loss arising d. Suit for interest: - The seller has a
due to his neglect or refusal. right to get interest from the buyer on the
UNPAID SELLER: price of goods.
An unpaid seller is a seller who has not been AUCTION SALE:
paid the whole of the price or any other An Auction sale is a public sale, where the
negotiable instrument which is subsequently goods are offered to be taken by the
dishonored.Under sale of goods act, the highest bidder from among the public.
unpaid seller has rights against goods and The person who sells goods through
against the buyer personally. auction is known as auctioneer. The
1. Right s of an unpaid seller against the relationship between the owner of the
goods:-It includes goods and the auctioneer is that of the
a. Right of lien (sec.47 to 49):- In the case of principal and agent.
unpaid vendor’s lien, the seller is entitled to MODULE IV
retain the goods of the buyer until the whole CONSUMER PROTECTION ACT, 1986
price is paid even though the ownership is The consumer protection act is a
passed from the seller to the buyer milestone in the history of socio-
b. Right of stoppage of goods in transit economic legislation ofthe country. It is
(sec.50 to 52): It is only an extension of the one of the most progressive and
unpaid seller’s right of lien. This right can be comprehensive piece of legislations
exercised only when the following enacted for the protection of consumer.
 BRF – (Al Jamia Arts and Science College, Poopalam)

The consumer protection act was passed on and partly promised, or under any system
5thDecember 1986. ThisAct was amended of deferred payment.
in the year 1991, 1993 and 2002.This Act b. Hires or avails of any services for a
tries to help a consumer when the goods consideration which has been paid or
purchased are defective or the promised or partly paid and partly
servicesrendered to him are unsatisfactory. promised, or under any system of deferred
Prior to enactment of this Act, consumer payment.
disputes had to besettled only through civil 4. CONSUMER DISPUTES: - Consumer
courts which are very expensive. disputes means a disputes where the
Definitions of Important terms:- person against whom a complaint has been
1. COMPLAINANT:-According to Section made, denies or disputes the allegations
2(1) (b) “Complainant” means (i) a contained in the complaint.
consumer or (ii) any voluntary consumer 5. DEFECT:- Defect means any fault,
association registered under the imperfection or short coming in the quality,
Companies Act, 1956 or under any other quantity, potency or standard which is
law for the time being in force or (iii) the required to be maintained in relation to the
central govt. or any state government, goods.
which makes a complaint (iv) one or more 6. DEFICIENCY:-It means any fault,
consumers, if there are a number of imperfection, shortcoming or inadequacy in
consumers and have the same interest. the quality, nature and manner of
2. COMPLAINT:- A complaint means any performance which is required to bein
allegation in writing made by a relation to any service.
complainant that a. An unfair trade practice 7. GOODS:- According to the sale of goods
or a restrictive trade practice has been act, goods means every kind of movable
adopted by any trader or service provider. property other than actionable claims and
b. The goods bought by him suffer from one money ie, legal tender. It includes shares,
or more defects. patent rights, copy rights trademarks,
c. The services hired by him suffer from fruits, minerals, water, electricity etc.
deficiency in any respect; 8. MANUFACTURER:-A manufacturer as
d. A trader or the service provider, as the per sec2 ((1)(j) is a person who
case may be, has charged for the goods or a. Makes or manufacture any goods or part
for the services mentioned in the thereof or
complaint, a price in excess of the price b. Does not make or manufacture any good
fixed. but assembles part thereof.
e. Goods which will be hazardous to life and c. Puts or causes to be put his own mark on
safety any goods made or manufactured by any
Complaint should contain other manufacturer and claims such goods
 Name and address of complainant to be goods made or manufactured by him.
 Name and address of opposite part 9. RESTRICTIVE TRADE PRACTICES:-
 Description of goods and services Restrictive trade practice means a trade
 Quality and quantity practice which tends to bring about
 Price manipulation of price or its condition of
 Date and proof of purchase delivery or to affect flow of supplies in the
 Fact relating to complaint market relating to goods or services.
 Relief which is seeking 10. SERVICE:-According to section 2(1) (o)’
3 CONSUMER: - According to this Act, includes the provisions of facilities in
“Consumer may consumer of goods or connection with banking, financing,
consumer of service insurance, transport, supply electrical or
a. Buys any goods for a consideration which other agency, boarding and lodging or both,
has been paid or promised or partly paid housing construction entertainment,
 BRF – (Al Jamia Arts and Science College, Poopalam)

amusement etc. REMEDIES TO CONSUMERS: - The

11. PERSONS:-Person includes consumer protection act provides the
a. A firm whether registered or not following remedies to consumers:
b. A Hindu undivided family a) Removal of defects from goods.
c. A co-operative society b) Replacement of defective goods
d. Every other association c) Refund against defective goods or
12. TRADER:-Trader in relation to any deficient services.
goods means a person who sells or d) Award of compensation for the loss or
distributes any goods for sale and includes injury suffered
the manufacture. e) Removal of defects or deficiencies in the
13. UNFAIR TRADE PRACTICES:- Unfair services
trade practice means a trade practice which f) Discontinuance of unfair trade practices
for thepurpose of promoting the sale, use or restrictive trade practices
or supply of any goods or for the provision g) Prohibition on sale of hazardous goods.
of any service, adopts any unfair method or CONSUMER PROTECTION COUNCILS: -
unfair or deceptive practices. The Act provides the establishment of a
RIGHTS AND REMEDIES OF CONSUMERS: Central Consumer Protection Council by
According to section 6 of the Consumer the Central Government and the state
Protection Act, the following rights are consumer protection council in each state
available to consumers by the respective state government.
1. Rights to be protected or right to Central Consumer Protection Council: -
safety: - Every consumer has the right to The central government shall, by
be protected against the marketing of notification, establish with effect from such
goods and services which are hazardous to date as it may specify in such notification, a
life and property. council to be known as the Central
2. Right to be informed: - Every consumer Consumer Protection Council.
has the right to be informed about the Constitution
quality, quantity, potency, purity standard Minister in charge – chairman and other
and price of the goods or services as the official and non- official members
case may be, so as to protect the consumer Terms and conditions of members of the
against the unfair trade practices. Central Council:
3. Right to be assured: - Every consumer The term of the council shall be three years.
has a right to be assured, wherever Any member may, by writing under his
possible, access to a variety of goods and handto the chairman of the central council,
services at competitive prices. resign from the council.
4. Right to be heard: - Every consumer has Objectives of the Central Council:-
a right to be heard and to be assured that 1. The right to be protected against the
consumers interest will receive due making of goods and services which are
consideration at appropriate forums. hazardous tolife and property.
5. Right to seek redressal: - Every 2. The right to be informed about the
consumer has a right to seek redressal quality, quantity, potency, purity standard
against unfair trade practices or restrictive and price ofgoods or services as the case
trade practices or exploitation of may be so as to protect against unfair trade
consumers. practices.
6. Right to consumer education: - Every 3. The right to be assured, wherever
consumer has a right to consumer possible, access to a variety of goods and
education, which will help the consumer to services at competitive prices.
know his rights and duties. 4. The right to be heard, and to be assured
that consumers’ interest will receive
dueconsideration at appropriate forums.
 BRF – (Al Jamia Arts and Science College, Poopalam)

5. The right to seek redressel against unfair Meetings: The District Council shall meet
trade practices or restrictive trade as and when necessary but not less than
practices two meetingsshall be held every year. The
6. The right to consumer education. District Council shall meet as such time and
MEETINGS place within thedistrict as the chairman.
The meetings of the central council shall be Objects: - The objects of every District
presided over by the Chairman. In the Council shall be to promote and protect
absenceof the chairman, the vice chairman within the districtthe rights of the
shall preside over the function. The central consumers.
council shall meet as and when necessary, Redressal Agencies for Consumer
but at least one meeting of the council shall Disputes:
be held every year The consumer protection act provides for
The state Consumer Protection Council: three tier quasi- judicial redressal
-The state government shall by notification machinery at the District, State and
establish with effect from such date as it National levels for redressal of consumer
may specify in such notification, a council disputes and grievances. Accordinglysec. 9
to be known as the State Consumer provides for the establishment of the
Protection Council. following agencies.
Members of the Council:- a. A consumer Dispute Redressal Forum to
1. The minister in charge - chairman be known as the “District Forum”
2. member of other officials or non-official established ineach district of the State by
members representing by the State notification. The State Government is
Government. empowered to establishmore than one
3. Such member of other official or non- District Forum in a district.
official members, not exceeding b. A consumer Disputes Redressal
tennominated by the Central Government. Commission to be known as the “State
Meeting of the Council: - The State Council Commission”established by the state
shall meet as and when necessary, but not Government.
less thantwo meeting shall be held every c. A national Consumer Disputes Redressal
year. The state council shall meet at such Commission established by the
time and place as theChairman may think CentralGovernment.
fit and shall observe such procedure in DISTRICT FORUM:
regard to the transaction of itsbusiness as Composition: - Each district forum shall
may be prescribed by the State consist of
Government a. District judge as president b. Two other
Objects: members, who shall be person of ability,
The objects of State Consumer Protection integrity and standing and haveadequate
Council shall be to promote and protect knowledge or experience, and one of whom
withinthe state the rights of the consumers shall be a woman.
as laid down in sec.6. Which are same as Tenure of office: Every member of the
those of the central council. District Forum shall hold office for a term
The District Consumer Protection of five years orup to the age of sixty five
Council:- it shallconsist of the following years.
members. Office and Place of sitting of the District
1. The District Collector, who shall be its Forum: - The office of the District Forum
chairman. shall be located atthe head -quarters of the
2. Such member of other official and non- District.
official members representing such interest Jurisdiction of the District Forum: - The
as maybe prescribed by the state District Forum shall have a jurisdiction to
Government. entertain complaints where the value of the
 BRF – (Al Jamia Arts and Science College, Poopalam)

goods or services and the compensation, if shall have the following qualifications,
any, claimed does not exceed rupeesfive namely
lakhs. a. To be persons of ability, integrity and
Powers of the District Forum: standing and have adequate knowledge and
1. Discover and produce any document or experienceof at least ten years I dealing
other material object producible as with problems relating to economics, law,
evidence. commerce, accountancy etc
2. Reception of evidence on affidavits b. Be not less than thirty five years of age,
3. Requisition of report of the concerned and
analysis from the appropriate laboratory or c. Possess a bachelor’s degree from a
from any otherrelevant source. recognized university
4. Any other matter which may be Monetary limit:-The National commission
prescribed shall have jurisdiction entertain complaints
State Commission: - Each state where the valueof the goods or services
commission consist of and compensation, if any claimed exceeds
1. A person who is or has been a judge of a Rs. One crore.
High Court, appointed by the State MODULE V
Government -president CYBER LAWS IN INDIA
2. Not less than two and not more than (Information Technology Act 2000)
such number of members as may be Introduction
prescribed, and one ofwhom shall be a Digital technology and new communication
woman, and who Shall have the following system have made dramatic changes in our
qualification: life style.Now business men and consumers
a. Not less than 35 years of age are increasingly using computers to create,
b. Possess a bachelor degree from a transmit and storeinformation in the
recognized university electronic form instead of traditional paper
c. To be persons of ability, integrity and documents, as it is cheaper, easier
standing and have adequate knowledge and andspeedier.Though people were aware of
experience ofat least ten years I dealing the advantages of electronic medium, they
with problems relating to economics, law, were unwilling toconduct business due to
commerce, accountancy etc lack of appropriate legal framework.
Office and Place of sitting of State Therefore the laws and rules became
Commission:Office of the state necessary to facilitate electronic medium.In
Commission shall be located atthe capital of 1996, the United Nations Commission on
the State. International Trade Law adopted the Model
Monetary limit: - The state commission Law onElectronic Commerce. The United
shall have jurisdiction to entertain States by its regulation in 1997
complaints where the valueof goods or recommended that the states shall
services and compensation, if any, claimed givefavorable consideration to this Model
exceeds Rs. Twenty lakhs but does not Law.
exceeds Rs. One crore. In discharge of its international
National Commission: The National responsibility, the Government of India
Commission shall consist of enacted a Law in 2000known as
1. A person who is or has been a judge of Information Technology Act 2000. The act
the Supreme Court, to be appointed by the extends to the whole of India and it applies
CentralGovernment, who shall be its also toany offence or contravention
President. thereon committed outside India by any
2. Not less than four, ad not more than such person.
number of members, as may be prescribed,
and one ofwhom shall be a woman, who
 BRF – (Al Jamia Arts and Science College, Poopalam)

DIGITAL SIGNATURE: DSC is to be suspended for a period

As per section 2(1) (p) of the act, a exceeding fifteen days. The DSC can be
digital signature means an authentication revoked in two different cases.
of any electronic record by a subscriber by Firstly, it may be revoked either on
means of an electronic method or the request or death of the subscriber or
procedure in accordance with the other when the subscriber is a firm or company,
provisions of the act. on the dissolution of the firm or Secondly,
Thus a subscriber can authenticate according to section 38(2), the CA may suo
an electronic record by affixing his digital motto revoke it if some material fact in the
signature. Sec.5 provides that when any DSC is false or has been concealed by the
information or other matter needs to be subscriber or the requirements for issue of
authenticated by the signature of a person, the DSC are not fulfilled or the subscriber
the same can be authenticated by means of has been declared insolvent or dead.
the digital signature affixed in a manner REGULATION OF CERTIFYING
prescribed by the central government. AUTHORITIES:
DIGITAL SIGNATURE CERTIFICATE: A CA is a person who has been granted a
Any person may make an application to the license to issue digital signature
certifying authority for the issue of a digital certificates. These CAs are to be supervised
signature certificate in such form as may be by the Controller of CAs as appointed by
prescribed by the Central Government. the Central Government. The Controller
Every such application shall be will normally regulate and monitor the
accompanied by required fee and activities of the CAs and lay down the
certification practice statement. On receipt procedure of their conduct. The CA s has to
of application, the certifying authority may, follow certain prescribed rules and
after considering certification practice procedures and must comply with the
statement and after making necessary provisions of the Act.
enquiries, grant the digital signature ELECTRONIC GOVERNANCE
certificate. 1. Legal recognition of electronic record.
Issuance, suspension and revocation of 2. Legal recognition of digital signature [
Digital Signature Certificate: 3. Use if electronic records and digital
As per Sec. 35, any interested person signatures in government. :
shall make an application to the CA for a 4. Retention of electronic records:
Digital Signature Certificate. The 5. Publication of rules, regulations etc in
application shall be accompanied by filling Electronic Gazette:
fees not exceeding Rs. 25,000 and a 6. Power to make rules by Central
certification practice statement or in the government in respect of digital
absence of such statement; any other signature(sec.10)
statement containing such particulars as REGULATION OF CERTIFYING
may be prescribed by the regulations. AUTHORITIES
After scrutinizing the application, Certifying Authority is a person who has
the CA may either grant the Digital been granted a license to issue a digital
Signature Certificate or reject the signature. The certifying authorities are
application furnishing reasons in writing under the supervision of Controller of
for the same. Certifying Authorities including Deputy
The CA also has the power to Controllers and Assistant Controllers.
suspend the DSC in public interest on the Appointment of Controller Certifying
request of the subscriber listed in the DSC Authorities(sec17)
or any person authorized on behalf of the (a) The central government may, by
subscriber. However, the subscriber must notification in the Official Gazette, appoint a
be given an opportunity to be heard if the Controller of Certifying Authorities and
 BRF – (Al Jamia Arts and Science College, Poopalam)

such number of Deputy Controllers a and to ten years and shall also be liable to fine.
Assistant Controllers as it deems fit. 5. Misrepresentation:- For obtaining any
(b) The Controller shall discharge his license or Digital Signature Certificate, if
functions subject to the general control and any person makes any misrepresentation
directions of the central government while or suppress any material fact, they shall be
the Deputy Controllers and Assistant punished with imprisonment up to two
Controllers shall perform the functions years or with a fine up to one lakh rupees
assigned to them by the Controller. or with both.
(c) The Controller may, in writing, 6. Breach of confidentiality and privacy:-
authorize the Deputy Controller, Assistant Any person commits breach of
Controller or any officer to exercise any of confidentiality and privacy of electronic
his powers (sec27). information or documents shall be
(d) There shall be seal of the Office of the punished with imprisonment for a term
Controller (sec17(b)) which may extend to two years, or with fine
OFFENCES AND PENALTIES UNDER IT which may extend to one lakh rupees or
ACT 2000 with both.
Cyber- crime can be defined as unlawful 7. Publishing digital signature certificate
acts where in the computer are either a tool false in certain particulars: - If any
or target or both. person publishes or otherwise makes
1. Tampering with computer source available a Digital Signature Certificate for
documents: - If a person intentionally any fraudulent or unlawful purpose shall
conceals, destroys or alters or causes be punished with imprisonment for a term
another to conceal, destroy or alter any which may extend to two years, or with fine
computer source code used for a computer, which may extend to one lakh rupees, or
computer programme, computer network, with both.
he shall punishable with imprisonment up 8. Confiscation:- Any computer, computer
to three years with a fine up to two lakh system, CDs or any other accessories
rupees or with both related there to, in respect of which a
2. Hacking with computer system: - contravention of the Act has occurred shall
Hacking means destroying, deleting or be liable to confiscation.
altering any information residing in a MUHAMMED RIYAS N
computer resource. It is punishable with ASST. PROF.
imprisonment up to three years or with AL JAMIA ARTS AND SCIENCE COLLEGE
fine which may extend up to two lakh POOPALAM. PERINTHALMANNA
rupees or with both. PH: 97477997772
3. Publishing of information which is EMAIL:
obscene in electronic form: - Publishing [email protected]
and transmitting information, which is
obscene in electronic form, shall be
punishable with imprisonment up to five
years or with a fine up to Rupees one lakh
and for second conviction with
imprisonment up to 10 years and with a
fine up to rupees two lakh.
4. Securing access to protected system
contravened: - Any person who secures
access to a protected computer system in
contravention of the provisions of this
section shall be punished with
imprisonment for a term which may extend
BRF – (Al Jamia Arts and Science College, Poopalam)