CONTRACT

What is a Contract?
A contract is an agreement between two parties that creates an obligation to perform (or not perform) a particular duty. A legally enforceable contract requires: 1. An Offer (Ill mow your lawn this weekend, if you
3000) 2. An Acceptance (Youve got a deal). 3. Consideration (The value received and given the lawn mowed). 4. Enforceable by Law. 5. Offer should be clear & Definitive 6. Acceptance should be clear, definitive and with meeting of the money and

pay me Rs

minds of the parties.

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THE INDIAN CONTRACT ACT, 1872

One of the oldest in Indian Law Regime : Passed by Legislature of Pre-independence India and got its Assent on 25th April 1872. Private Law as it does not involve state or person or parties which are not the parties to the contract. The statute contains number of principles for the formation of contract. Parties Under contract may create rights and duties for themselves thus it is voluntary and requires the will of Parties to execute it.

Shylock & Antonio

Establishing Offer and Acceptance: A Meeting of the Minds

A legally recognized offer and an acceptance creates a meeting of the minds, or mutual assent, between the parties. Mutual Assent requires the presence of the following factors:
1. Both parties must exhibit a contractual intent [words spoken in jest or frustration will lack the requisite intent]; 2. The terms of the offer must be clear and definite; 3. The acceptance must be clearly communicated.
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The Requirement for Clear and Definite Terms

Required Clarity: For terms to be legally valid, a reasonable person must be capable of readily understanding them.

Four primary areas in determining definite terms:

1. the parties;
2. time for performance (term or service schedule); 3. the price; and 4. the subject matter or scope of service.
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Consideration: The Importance of the Bargained Exchange.

Consideration must be mutual.

Both parties must receive something of value. Involvement of money is not required. Contracts vs. Gifts :
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Types of Contracts

OFFER - According to Sec.2(a), when a person made a proposal, when

he signifies to another his willingness to do or to abstain from doing something.

PROMISE -

According to sec.2(b), when a person made a proposal to another to whom proposal is made, if proposal is assented there to.

AGREEMENT - According to sec.2(e), every promise or set of promises

forming consideration for each other.

CONTRACT - According to sec.2(h), a contract is defined as an

agreement enforceable before the law.

AGREEMENT = OFFER + ACCEPTANCE

CONSENSUS AD IDEM
:

Meeting of minds or identity of minds or receiving the same thing in same sense at same time.

Agreement

Legal Obligation

Contract

All agreements are contracts but all contracts are not agreements.
CONTRACT = AGREEMENT + ENFORCEABILITY BEFORE LAW

ESSENTIAL ELEMENTS OF A VALID CONTRACT (Sec. 10)

1. Offer & acceptance. 2. Intention to create legal relationship. 3. Consensus - ad - idem. 4. Consideration. 5. Capacity to contract. 6. Free consent. 7. Legality of object. 8. Possibility of performance. 9. Writing & registration.

Types of Contract on the basis of Validity Formation

Express Contract Implied Contract

Performance
Executed Contract Executory Contract Unilateral Contract Bilateral Contract

Valid Contract
Void Contract

Voidable Contract
Illegal Agreement Unenforceable Agreement
Quasi Contract Tacit Contract

Illegal contract Section 2 (g){An

agreement not enforceable under law due to unlawfulness of object and consideration of the contract is illegal and thus void }

An agreement

Is void (Void-ab-initio) which is not valid from the beginning.

Becomes void -

An agreement which is valid in

the beginning but due to some supervening impossibility the contract becomes void.

Contract Act 1872, the following agreement are treated as void i. Agreements made with the parties having no capacity to contract e.g. minor and person of unsound mind. (Section 11) ii. Agreements which are made under mistake of fact. (Section 20) iii. Agreements with unlawful consideration or object. (Section 23) iv. An agreement, whose consideration or object is unlawful in part. (Section 24) v. Agreement having no consideration. (Section 25) vi. Agreement in restraints of marriage. (Section 26) vii. Agreement in restraint of trade. (Section 27) viii. Agreement in restraint of legal proceedings. (Section 28) ix. Agreement, the meaning of which is uncertain. (Section 29) x. Agreement by way of wager. (Section 30) xi. Agreement to do impossible acts. (Section 56)

Voidable contract

An agreement which is enforceable by law at the option of one party but not At the option of other party is a voidable contract. A contract which is valid unless until avoided by either the party. Section 2(i)

Unenforceable contract defects are removed

It is valid but

due to some technical defect the contract becomes void. In case

the contract is enforceable. (lack of

registration, lack of signature etc.,)

Void & Voidable Contracts : Distinction

Basis of Difference Void Contract Voidable Contract

Definition

Contract ceases enforceable by Law

to

be Contract is enforceable at the option of the aggrieved Party

Nature

Contract becomes void either because of sudden and unexpected events or of law changes, before the performance becomes due.

Contracts becomes voidable when it is caused by coercion, undue influence, fraud and misrepresentation.

Rights

Does not provide any legal The aggrieved gets a right to remedy for the parties to the rescind the contract and to contract. declare it void otherwise it remains valid.

Void & Illegal Contract

Basis of Difference
Scope Nature

Void Agreement
Void is not necessarily Illegal. Not forbidden under Law.

Illegal Agreement
Illegal is always void. Forbidden under Law.

Punishment

Parties are not liable for any Parties to illegal punishment under Law. agreement are liable for punishment.
Not necessary that Agreements collateral to agreements collateral to void illegal agreements are agreements may also be void. always void. It may be valid also. Void agreements may not be Illegal agreements are void~ab~initio. void~ab!initio.

Collateral Agreement

Effects

TYPES OF CONTRACTS
VALID CONTRACTS - If all the condition are fulfilled it is called as a valid
contract. Absolute contract : A contract which is not dependent on fulfillment of any condition. In an absolute contract, every covenant (Promise) is independent and the breach of one does not relieve the obligation of another. Contingent contract(Sec. 9) In a contract to do or not to do something, if an event is collateral, does or doesn't happen. Contingent contracts can be likened

unto if-then agreements that state which actions under certain conditions will
result in specific outcomes. E.g.,
The employee will receive full insurance coverage after

having worked at the company for one full year, with less than five sick days.

Express contract: When contracts are either in writing or in oral. Implied/Quasi contract(Sec. 9) When contracts are neither in writing nor in oral. Example: The obligation of finder of lost goods to return to the actual Owner or Liability of returning excess amount received by mistake

Executed contract - In a contract where both the parties have performed their

obligation, there is remaining nothing to perform. Example: When a merchant sells rice on
cash payment it is executed contract because both parties have done what they were to do under the contract. Executory contract - In a contract where both the parties are yet to perform their obligation. Bilateral & Executory are same and inter - changeable. Unilateral contract - In a contract one party has performed his obligation and other person is yet to perform his obligation. Example: Police announced a reward of 5 Lacs to one

who helps in arresting Criminal A. Mr B helped Police in arresting Criminal A but he is yet to get the
reward. Bilateral contract Where the obligation or promise in a contract is outstanding on the part of both the parties. For example, if A offered to sale his house to B for Rs 20 lacs but B pays only 5 Lacs

and promises to pay balance by next Monday. And B promises to sign the sale deed on Monday after
receiving the final payment. Bilateral & Executory are same and inter - changeable. Tacit Contract: When it has to infer from the act/conduct of the parties: Sale at fall of hammer , ATM

OFFER
According to Sec.2 (a), when a person made a

proposal , when he signifies to another his

willingness to do or to abstain from doing

something with a view to obtaining assent of

other

A valid offer must comply with the following rules:

(a) An offer must be clear, definite, complete and final. It must not be vague. For example, a promise to pay an increased .price for a horse if it proves lucky to promiser, is too vague and is not binding.
(b) An offer must be communicated (Express or Implied) to the offeree. The communication of an offer may be made by express words-oral or written-or it may be implied by conduct. A offers his car to B for Rs. 10,000. It is an express offer. A bus plying on a definite route goes along the street. This is an implied offer on the part of the owners of the bus to carry passengers at the scheduled fares for the various stages. (c) Offer must be capable of creating legal relationship. (d) The communication of the offer may be general or specific. Where an offer is made to a specific person it is called specific offer and it can be accepted only by that person. But when an offer is addressed to an uncertain body of individuals Le. the world at large, it is a general offer and can be accepted by any member of the general public by fulfilling the condition laid down in the offer. The leading case on the subject is Carlill v. Carbolic Smoke Ball Co. But if the offer of reward is for seeking some information or seeking the restoration of missing thing, then the offer can be accepted by one individual who does it first of all. The condition is that the claimant must have prior knowledge of the reward before doing that act or providing that information. Example: A advertise in the newspapers that he will pay rupees one thousand to anyone who restores to him his lost son. B without knowing of this reward"finds A's lost son and restore him to A. (e) An offer must be distinguished from invitation to offer: An advertisement for sale of goods . (f) offer must be made with the intent to obtain consent/assent.

TYPES OF OFFER
Express offer Implied offer Specific offer General offer Cross offer Counter offer Standing offer

TYPES OF OFFER
Express offer
Implied offer

- When offer is given to another person either in writing or in oral.

A

- When offer is given to another person neither in writing nor in oral. E.g.,

bid to an auction is an implied offer to buy.

Specific offer

A advertise in the newspapers that he will pay rupees one thousand to anyone who restores to him his lost son. B without knowing of this reward" finds A's lost son and restore him to A. In this case since B did not know of the reward, he cannot claim it from A even though he finds A's lost son and restores him to A.

- When offer is given to a specific person.

General offer - When offer is given to entire world at a large.(Mrs. Carlill Vs. Carbolic
smoke ball Co., / Lalman Shukla Vs Gauri Dat. )

Cross offer - When both the persons are making identical offers to each other in ignorance of others
offer. A offers to B by writing a letter for selling a machine of A at Rs. 1, 00,000. In the same time, B also offers to A by writing a letter for selling a same type of machine at same price.

Counter offer - When both the persons are making offers to each other which are not identical in
ignorance of others offer. A offers to B for selling a machine of A at Rs. 1, 000/-. B agrees to buy it for 800/It may result in termination of Offer of A. And if B agrees later to buy at 1000/- A may refuse.

Standing offer - An offer which remains continuously enforceable for a certain period of time. Where a
person offers to another to supply specific goods, up to a stated quantity or in any quantity which may be required, at a certain rate, during a fixed period, he makes a standing offer. Thus, a tender to supply goods as and when required, amounts to a standing offer.

Carlill Vs. Carbolic smoke ball Co.

Facts Carbolic Smoke Ball Co. (D) manufactured and sold The Carbolic Smoke Ball. The company placed ads in various newspapers offering a reward of 100 pounds to any person who used the smoke ball three times per day as directed and contracted influenza, colds, or any other disease. After seeing the ad Carlill (P) purchased a ball and used it as directed. Carlill contracted influenza and made a claim for the reward. Carbolic Smoke Ball refused to pay and Carlill sued for damages arising from breach of contract. Judgment for 100 pounds was entered for Carlill and Carbolic Smoke Ball appealed. Issue Does one who makes a unilateral offer for the sale of goods by means of an advertisement impliedly waive notification of acceptance, if his purpose is to sell as much product as possible? Holding and Rule (Lindley) Yes. One who makes a unilateral offer for the sale of goods by means of an advertisement impliedly waives notification of acceptance if his purpose is to sell as much product as possible. The court held that a person who makes an offer may decline to require notice of acceptance if he or she wishes. One who makes an offer dispenses with the requirement of notice of acceptance if the form of the offer shows that notice of acceptance is not required. To accept an offer, a person need only follow the indicated method of acceptance. If the offeror either expressly or impliedly intimates in his offer that it will be sufficient to act without giving notice of acceptance, performance is sufficient acceptance without notification. The court held that an advertisement is considered to be an offer when it specifies the quantity of persons who are eligible to accept its terms. If such an advertisement requires performance, the offeree is not required to give notice of his performance. The court addressed the issue of whether the ad was intended to be a promise or whether it was merely puffing. The court pointed to Carbolic Smoke Balls claim in the advertisement that it had deposited 1000 pounds with Alliance Bank, which the court decided was intended to demonstrate the companys sincerity in paying the reward. Concurring (Bowen) Notification of acceptance is required under our law. The person who makes the offer may dispense with notice to himself if he thinks it desirable to do so. He may expressly or impliedly create any method of acceptance for his offer. An offeree need only follow the method indicated for acceptance. The requirement of notice of acceptance to the offeror must be determined by an objective reasonable person standard. In the advertisement case, it seems to me that an inference may be drawn from the transaction itself that a person is not to notify his acceptance of the offer before he performs the condition, but that if he performs the condition notification is dispensed with. We must look to the essence of the transaction and what the offeror is bargaining for under the circumstances. Under these facts, the defendant impliedly indicated that it did not require notification of acceptance of the offer. Disposition - Appeal dismissed.

LEGAL RULES FOR OFFER

Offer must be given with an intention to create a legal relationship.(Balfour Vs. Balfour)
Offer must be definite.(Taylor Vs. Portington) There is a clear cut difference between offer, invitation to offer, invitation to sale. (Harris Vs. Nickerson)

ACCEPTANCE
According to sec.2(b), when a person made a proposal to another to whom proposal is made, if proposal is assented there to, it is called acceptance.

LEGAL RULES FOR ACCEPTANCE

Acceptance must be given as per the mode prescribed by the offerer.

Acceptance must be given before the lapse of time or within reasonable time.
Acceptance must be unconditional.

Acceptance may be given by any person in case of general offer.

 Acceptance may be given by any specific person in case of specific offer. Acceptance must be communicated. (Bordgon Vs. Metropolitan Rly. Co.) Mental acceptance is no acceptance or acceptance must not be derived from silence. Acceptance must not be precedent to offer.

CONSIDERATION

CONSIDERATION According to sec 2(d) consideration is

defined as when at the desire of the promisor , or promisee or any other

person has done or abstained from doing

or

does

or

abstains

from

doing

,or

promises to do or to abstain from doing ,

something , such an act or absinence or

promise is called a consideration for the promise .

When a party to an agreement promises to do something he must get something in return .This something is defined as consideration.

LEGAL RULES AS TO CONSIDERATION

1)It must move at the desire of the promisor. [Durga Prasad v. Baldeo ] 2)It may move by the promisee . [Chinnaya v. Ramayya ] 3)It must be past ,present or future . 4)It need not be adequate . Consideration need not be adequate:
Under Section 20 of the Indian Contract Act, 1872,

5)It must be real . 6)It must not be illegal , immoral or opposed to public policy .

STRANGER TO CONTRACT
It is general rule of contract that only parties to contract can sue & be sued on that contract . This rule is known as Doctrine of privity i.e relationship between the parties to contract . Exceptions 1)A trust or a charge . 2)Marriage settlement , partition or other family arrangements . 3)Estoppel :
a legal rule that prevents somebody from stating a position inconsistent with one

previously stated, especially when the earlier representation has been relied upon by others.

4)Assignment of contract . 5)Contract with agent .

Contract without consideration is void Exceptions

Love & affection . [Venkataswamy v. Rangaswamy] Compensation for voluntary service . Promise to pay a time barred debt . Completed gift . Agency sec (185) . Charity . Contract of bailment sec(148 ) .

Important cases:
1.Chikkim Ammiraju vs. Seshamma: In this case a person threatened his wife and son that he would suicide if she doesnt transfer her property in his brothers favour. The wife and son executed the release of the deed under the threat . Held the threat of suicide amounted to coercion within Sec 15 and the release deed was therefore voidable. This also is a very important case to prove that threat to commit suicide amounts to coercion .

2.

Ranganayakamma

vs.

Alwar

Setty:

A young widowed girl of 13 years was forced to adopt a boy by her relatives who prevented the removal of his body for cremation until she consented. Held the consent was not free but was induces by coercion.Consequently the adoption was set aside.

An agreement forbidden by law [Sec 23]

An agreement defecting any provisions of law [Sec 24]

Case: Alexander vs. Rayson :

A leased a flat to R at a rent of 1,200 pounds. with the object of deceiving the rating authority two agreements were entered, one for 450 pounds and one for 750 pounds. A sued R for recovery of an installment of 750 pounds. Held A could not recover and R was entitled to remain in possession of the flat.

DISCHARGE OF A CONTRACT

DISCHARGE OF A CONTRACT
DISCHARGE BY PERFORMANCE DISCHARGE BY AGREEMENT OR CONSENT DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE DISCHARGE BY LAPSE OF TIME DISCHARGE BY OPERATION OF LAW DISHARGE BY BREACH OF CONTRACT

MODE OF DISCHARGE OF CONTRACT:

(A) Discharge by performance : Performance implies doing the obligation of the contract. Performance must be completed according to the real intentions of the agreement. Performance must be done according to time and manner prescribed.

Performance of contract may be of two types. Such as

1) Actual performance: - When all parties perform the respective promises, the contract is said to be discharged. Performance done by the parties must be according to time and terms of contract.
2) Attempted performance: - It is also called tender. Tender is not an actual performance. It is only an offer to perform the obligation by the promisor which may be refused by the promisee. In such a case tender becomes equivalent to actual performance except in the case of tender of money.

(B) By agreement on consent: Agreement between the parties can find then to perform the contract. Because a contract is created by an agreement, hence in the same way, it can be discharged by an agreement. In this connection the rule of law is as follows. Eodem modo qus and quide constituitor, eodem modo destruitur, the meaning of which is that a thing may be destroyed in the same manner, in which, it is constituted. The consent may be of the following types. Such as i) Express: Express consent may be given at the time of formation of the contract or subsequent to its formation. ii) Implied : The contracts are also discharged by implied consent, different modes of discharged by implied consent are mention below a) Novation b) Alteration e) Rescission d) Remission e) Accod and Satisfaction f) Waiver g) Merger.

DISCHARGE BY (b) AGREEMENT OR CONSENT

NOVATION
contract with the same or different parties. are cancelled.

(Sec 62): New contract substituted for old

RESCISSION (Sec 62) : When some or all terms of a contract ALTERATION (Sec 62):When one or more terms of a contract

is/are altered by the mutual consent of the parties to the contract. promise made.

REMISSION (Sec 63) :Acceptance of a lesser fulfillment of the WAIVER :Mutual abandonment of the right by the parties to
contract

MERGER :When an inferior

right accruing to a party to contract merges into a superior right accruing to the same party

DISCHARGE BY (c) IMPOSSIBILITY OF PERFORMANCE A contract may be discharged (settled) if its performance becomes impossible. The rule of impossibility of performance is based on the following maxims. Such as (i) the law does not recognize what is impossible and (ii) what is impossible does not create an obligation. According to the Section 56 of the Act, all acts to do impossible acts are void.

There are two types of impossibility of performance such as

i) Impossibility existing at the time of agreement.

ii) Impossibility arising subsequent to the formation of contract.

DISCHARGE BY (c) IMPOSSIBILITY OF PERFORMANCE

On the other hand, impossibility of performance existing at the time of performance of a contract may be either (a) known to the parties or (b) not known to the parties. Likewise impossibility arising subsequent to the formation of a contract or supervening impossibility may be (a) By some act either of the promisor or of the promisee. (b) By some event beyond the control of the parties, Destruction of subject matter Non-existance of state of things Death or incapacity of personal services Change of law Outbreak of war

DISCHARGE BY (D) lapse of time:

THE LIMITATION ACT 1963, CLEARLY STATES THAT A CONTRACT SHOULD BE PERFORMED WITHIN A SPECIFIED TIME CALLED PERIOD OF LIMITATION IF IT IS NOT PERFORMED AND IF THE PROMISEE TAKES NO ACTION WITHIN THE LIMITATION TIME, THEN HE IS DEPRIVED OF HIS REMEDY AT LAW

DISCHARGE BY (e) OPERATION OF LAW

i) By death: - If the contracts depend on the personal skill or ability then such contract may be discharged on the death of the promisor.

ii) By merger: - Merger will take place when an inferior right accruing to the same party either under the same or another contract.
iii) By insolvency: - An insolvent is discharged from all liabilities incurred prior to his adjudication. iv) Unauthorized alteration of the terms of a contract: - If one party makes any material alteration in the contract without the consent of the other party, then the other party can avoid the contract. v) Right and liabilities vesting in the same person: - Where the right and liability become vested in the same person, the other parties are discharged.

DISCHARGE BY (f) BREACH OF CONTRACT

ACTUAL BREACH : At the time of performance During the performance ANTICIPATORY BREACH By the act of promisor (implied repudiation) By renunciation of obligation (express repudiation)

REMEDIES FOR BREACH OF CONTRACT

REMEDIES OF INJURED PARTY

A remedy is a means given by law for the enforcement of a right. Following are the remedies-

Rescission (an act of cancelling) of damages: The abrogation of a contract, effective

from its inception, thereby restoring the parties to the positions they would have occupied if no contract had ever been formed. If a contract is rescinded, it is set aside and treated as though it had never existed. The court will seek to restore the parties to the position they would have been in had they never signed the contract. For example, if a seller made false representations about his goods and the contract was rescinded as a result, the seller would be compelled to take back the goods and refund the purchase price to the buyer. If the buyer had incurred additional expenditure in relation to the contract, such as warehousing costs, then he would also be entitled to reimbursement of these, to ensure that he was not adversely impacted by having entered into the contract. The circumstances may prevent the court from being able to rewind time in this way. If the buyer had sold on the goods in this example, they would not be available for return to the seller and rescission would be impossible. An award of rescission is therefore always at the courts discretion. Where rescission is not available, the innocent party will still be entitled to damages. Rescission is generally only available in limited circumstances, such as where there has been misrepresentation, fraud or mistake - matters which affect its formation. This can be varied by agreement between the parties; some contracts set out circumstances in which the agreement will be capable of rescission. Conversely, the right to rescind can also be expressly excluded by contract. M promises N to supply him a motor car on 1st January 2007, and N promises to pay for the motor car on 1st January 2007. Motor car is not found of quality as mentioned in contract. N is absolved from paying its price.

 Suit upon quantum meruit:

The phrase quantum meruit literally means as much as earned. A right to sue on a quantum meruit arises when a contract, partly performed by one party, has been discharged by breach of contract by the other party. This right is performed not on original contract but on implied promise by other party for what has been done.

Suit for specific performance:

In certain cases of breach of contract damages are not an adequate remedy. The court may, in such cases, direct the party in breach to carry out his promise according to terms of the contract. This is a direction by the court for specific performance of the contract at the suit of the party not in breach; Cases for specific performance to be enforced (1)when the act agreed to be done is such that compensation is not adequate relief. (2)when there is no standard for ascertaining the actual damage, (3)when it is probable that compensation cannot be agreed to be done.

Suit for injunction:

When a party is in breech of a negative term of contract the court may, by issuing an order, restrain him by doing what he promised him not to do. Such an order of the court is called injunction. Court refuses grant of injunction [1] whereby a promisor undertakes not to do something [2] which is negative in substance though not in form.

Considering a case : Discharge of contract -

(a) X, a singer enters into a contract with Y, the manager of a theatre to sing at his theatres two nights in every week during the next two months, and Y engaged to pay her Rs. 100 for each nights performance. On the sixth night X willfully absents herself form the theatre. Y is at liberty to put an end to the contract. . (b) If in the above illustration, with the assent of Y, X sings on the seventh night, Y is presumed to have signified his acquiescence in the continuance of the contract and cannot put an end to it; but is entitled to compensation for the damages sustained by him through X's failure to sing on the sixth night.

INDEMNITY

INDEMNITY (Sec 124)

A CONTRACT BY WHICH ONE PARTY PROMISES TO ANOTHER TO SAVE HIM FROM LOSS CAUSED TO HIM BY THE CONDUCT OF THE PROMISOR HIMSELF , OR BY THE CONDUCT OF ANY OTHER PERSON IS CALLED A CONTRACT OF INDEMNITY .

The person who promises to indemnify or make good the loss is called the indemnifier and the person whose loss is made good is called the indemnified or the indemnity holder. Under the Indian Contract Act, the contract of indemnity is restricted to such cases only where the loss, promised to be reimbursed, is caused by the conduct of the promisor or of any other person. The loss caused by events or accidents which do not depend on the conduct of any person, it seems, cannot be sought to be reimbursed under a contract of indemnity.

ESSENTIAL FEATURES OF INDEMNITY

There are two persons , the indemnifier the indemnified or the indemnity holder There must be loss either by the promisors conduct or by any other persons conduct It is a contingent contract by nature It may be express or implied
Sec125 deals with the commencement of the indemnifiers liability. His liability commences when the event causing the loss occurs or when the event saving the indemnified from the loss becomes impossible

GUARANTEE

GUARANTEE (Sec 126)

A contract of guarantee is a contract to perform the promise, or discharge the liability of a third person in case of is default. The person who gives the guarantee is called the Surety, the person for whom the guarantee is given is called the Principal Debtor; and the person to whom the guarantee is given is called the Creditor (Section 126). A advances a loan of Rs. 5,000 to B and C promises to A that if B does not repay the loan, C will do so. This is a contract of guarantee. Here B is the principal debtor, A is the creditor and C is the surety or guarantor. A GUARANTEE MAY BE EITHER ORAL OR WRITTEN. Extent of Surety's liability: The liability of the surety is co-extensive with that of the principal debtor unless the contract otherwise provides (Section 128). A creditor is not found to proceed against the principal debtor. He can sue the surety without suing the principal debtor. As soon as the debtor has made default in payment of the debt, the surety is immediately liable. But until default the creditor cannot call upon the surety to pay. In this sense, the nature of the surety's liability is secondary.

A special feature with regard to consideration

The consideration received by the principal debtor is Sufficient for surety. Section 127 provides that anything done or any promise made for the benefit of the principal debtor may be a, sufficient consideration to the surety for giving the, guarantee. '
Illustration

(i) B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of A's promise to deliver the goods. This is sufficient consideration for C's promise. (ii) A sells and delivers goods to B, C afterwards requests A to abstain to sue B for the debt for a year, and promises that if he does so C will pay for them in default of payment by B, A agrees to forbear as requested. This is sufficient consideration for C's promise.

ESSENTIAL FEATURES OF GUARANTEE

Concurrence of three contracts Primary liability is that of the principal debtor In case the debtor is a minor , the suretys liability becomes primary All the essentials of a valid contract It may be in writing or oral There need not be full disclosure of facts to the surety before he gives the guarantee

TYPES OF GUARANTEE
SPECIFIC GUARANTEE : When a guarantee extends to a single transaction or debt it is known as a specific or simple guarantee.
CONTINUING GUARANTEE : When a guarantee extends to a series of transactions It is called continuing guarantee

BAILMENT

BAILMENT Sec 148

The word Bailment is derived from the French word ballier which means to deliver . Bailment means delivery of goods by one person to another for some purpose ,upon a contract ,that they shall ,when the purpose is accomplished ,be returned or otherwise disposed of according to the instructions of the person delivering them. The person delivering the goods is called the bailor and the person to whom they are delivered is called the bailee.

Essentials of bailment
There are two persons namely Bailor and Bailee. Bailor means the person delivering the goods, Bailee means the person to whom the goods are delivered. Their must be delivery of goods . The goods must be in deliverable condition.

Only the goods are delivered but not the ownership of goods, their must be purpose. Bailey can use the goods. Goods must be returned or disposed off after the purpose is accomplished.

Duties and rights of Bailor and Bailee

Duties of bailor. To disclose known faults. To bear extraordinary expenses of bailment.

To indemnify bailee for loss in case of pre mature termination

of gratuitous bailment. To receive back the goods. To indemnify the bailee.

Rights of bailor
1. Enforcement of rights. 2. Avoidance of contract. (Sec153)

3. Return of goods lent gratuitously. (Sec 159)

4. Compensation from a wrong doer. (Sec
180)

Rights of bailee
Delivery of goods to one of several joint bailor
of goods. (Sec 165).

Delivery of goods to bailor without title. (Sec 166).

Right to apply to court to stop delivery.
(Sec 167)

Right to action against trespassers. (Sec 180)

Bailee s lien.