INDIAN CONTRACT ACT 1872

INTRODUCTION
The law relating to contracts is governed by the
Indian Contract Act 1872 and is applicable to whole
of India except State of Jammu and Kashmir
The constituents of the working of contracts can be
identified as :
Formation of Agreement enforceable by law is a
contract
A legally binding agreement is a contract
An agreement creating an obligation is a contract.

Thus there are two distinct parts- Agreement and

Obligation
An Agreement occurs when two minds meet upon a
common purpose i.e. they mean the same thing in
the same sense and at the same time. The meeting
of minds is called Consensus ad idem i.e. consent
to the matter.
An Obligation is a legal duty to do or abstain from
doing what one has promised to do or abstain from
doing. A contractual obligation arises from a
bargain between the parties to the agreement who
are called the promisor and the promisee.
Rights & Obligations : where the parties have made
binding contracts they have created rights and
obligations between themselves.
Agreement is genus of which contact is the
species hence all contracts are agreements but
all agreements are not contracts. e.g.
Agreement relating to social matters two
persons agreeing to go together to cinema or
walk or trip etc.
Domestic arrangement between husband and
wife if husband is paying allowances for
maintenance to wife and on his knowledge that
wife is unfaithful he discontinues the said
allowance.
Formation of Contracts must have the following
ingredients:
An agreement
Based on genuine consent of the parties
Supported by consideration
Made for lawful objects
Between competent parties
Essential Elements of Valid Contract
Sec.10 of the Indian Contract Act 1872, provides
all agreements are contracts if they are made
by free consent of parties competent to contract
for lawful consideration and with lawful object,
and are not hereby expressly declared to be
void.

Thus the essential elements of valid contract as

follows:
 An offer or proposal by one party and an
acceptance of that offer by another party
resulting in an agreement Consensus ad idem.
(Latin term for meeting of minds)
1. Genuine consent between parties
2. An intention to create legal relations
3. The parties to contract are legally capable of
contracting.
4. The object of the contract is legal and not
opposed to public policy.
5. The agreement is supported by consideration.
6. The agreement is capable of being performed
7. The terms of the contract are certain
 OFFER OR PROPOSAL AND ACCEPTANCE
An offer is a proposal by one person , whereby he
expresses his willingness to enter into a contractual
obligation in return for a promise, act or forbearance.
A valid offer must comply with following rules:
An offer must be clear, definite, complete and final.
An offer must be communicated to the offeree. An
offer becomes effective only then it has been
communicated to the offeree so as to give him an
opportunity to accept or reject.
A communication of an offer may be made by express
words- oral or written- or may be implied by conduct.
Communication of the offer may be particular or
general. An offer is particular when made to a
particular person. Its general when it is communicated
to generally to world at large.
An offer must be distinguished from the following:
1.An invitation to treat or an invitation to make an
offer, e.g.
an auctioneers request for bids.
the display of goods in a shop window with prices
marked upon them
the display of priced goods in self-service store.
2. A mere statement of intention : e.g.
An announcement of up coming auction sale.
3. A mere communication of information in the course
of negotiation. e.g.
A statement of price at which one is prepared to
consider negotiating the sale of goods.
An offer that has been communicated properly
continues as such until it lapses or until it is revoked
by the offerer, or rejected or accepted by the offeree.

An offer lapses when:

If either the offerer or the offeree dies before
acceptance.
If it is not accepted in specified time.
If it is not accepted in specified mode prescribed or if
no mode is prescribed, then in some reasonable
manner like letter or email etc.
If the offeree rejects it by distinct refusal to accept it.
If the offeree make a counter offer, this amounts to
rejection of the offer and an offer by the offeree may
be accepted or rejected by the offerer.
BUSINESS CONTRACTS
Incorporated Bodies like Companies, Partnerships, Association of
Persons, etc. are treated by law as a person for practical purpose. Once
an incorporated body then it can like a natural person own property,
have bank account, buy & sell, lease and hire.
Standard Form of Contract- e.g. loan agreements, courier receipts,
lease agreement, General Conditions of the Contract (GCC) , Special
Conditions of the Contract (SCC) etc. A person who signs , a
document containing contract terms is normally bound by them even
though he has not read them, and even though he is ignorant of their
precise legal effect.
Auction in this highest price offer could be rejected & Auction
without reserve- in this the reserve price is informed, in case the
highest price is lower than the reserve price the offer can be rejected.
Tender- Tender Notice, Technical Bid, Finance / Commercial Bid . GCC,
SCC.
Expression of Interest / Empanelment of Vendors
Revocation of Offer by the Offerer:
An offer may be revoked by the offerer any time
before acceptance.
However revocation must be communicated to the
offeree, as it does not take effect until it is actually
communicated to the offeree.
Before its actual communication, the offeree may
accept the offer and create a binding contract.
The revocation must reach the offeree before he
sends out the acceptance.
Acceptance
Under Sec. 2(b) of the Act when a person to whom the proposal is made
signifies his assent thereto, the proposal is to be accepted.
Rules governing acceptance of proposal:

Acceptance may be oral, written or implied from conduct.

Offer must be accepted in the prescribed manner as required by the
offerer.
Acceptance must be unqualified and absolute and must correspond with
all the terms of the offer.
A counter offer or conditional acceptance operates as a rejection of the
offer, and causes to lapse.
Acceptance must be communicated to the offerer, for acceptance is
complete the moment it is communicated .
Mere silence on part of the offeree does not amount to acceptance.
If the offer is one which is to be accepted by being acted upon, no
communication of acceptance to the offerer is necessary e.g. award for
finding lost item.
Acceptance must be done before the offer lapses or is revoked . An offer
becomes irrevocable once accepted.
REJECTION & COUNTER OFFER
Rejection outright rejection
Implied rejection- rejection by action or implied
communication
Bargaining
Lapse of Offer
Long Silence
TIME & PLACE OF CONTRACT
The agreement is formed when proposer receives the
communication of acceptance and the place of formation of
the contract is where the offeror is locate.

Jurisdiction of the Court

The place where the contract was formed is the place the
cause of action arises.
However agreements are voluntary acts, hence all the written
contracts stipulates on the jurisdiction of the courts over any
dispute regarding the contract to avoid confusion later.
Any dispute, controversy or claim arising out of or relating to
the contract shall be subject to the jurisdiction of Court of
Mumbai.
This agreement shall be construed in accordance with the
applicable laws of India. The Court at Mumbai shall have
exclusive jurisdiction in any proceedings arising out of this
agreement.
Unilateral Contracts

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 CAPACITY TO CONTRACT
Every person is competent to contract who is of the
age of majority according to law to which he is
subject, and who is of sound mind and is not
disqualified from contracting by any law to which
he is subject to.
In law, persons are either natural or artificial.
A person is said to be of sound mind for the
purpose of making a contract if, at the time when
he it, he is capable of understanding it and of
forming a rational judgment as to its effect upon
his interest.
 All natural persons have full capacity to make binding
contracts. But Indian Contract Act has following exceptions:
Minors
Lunatic
Person disqualified from contracting by any law to which
he is subject.
Minors Contracts
According to Indian Contract Act , a minor is a person, male
or female, who has not completed the age of 18 years. In
case a guardian has been appointed to the minor or where
minor is under guardianship of the Court, the person
continues to be minor until he completes his age of 21 yrs.
Thus no person is competent to enter into a contract who
is not of the age of majority.
The following are important points with respect to
the minors contracts:
a. A minors contract is altogether void in law, and
hence a minor cannot bind himself in contract.
b. Since the contract is void (cancel) ab initio it
cannot be ratified (valid) by the minor on
attaining the age of majority.
c. A minor can always plead minority and is not
estopped ( important principle of law of
evidence) from doing so even where he has
entered contract by false representation that
he was of full age, when really he was a minor.
d. A minors estate is liable to pay a reasonable price
for necessaries supplied to him or to anyone whom
the minor is bound to support.
e. Since an agreement by minor is void , the Court will
never direct specific performance of the contact.
f. A minor can be an agent but not a principal nor can
he be partner, but can be admitted to the benefits of
partnership.
g. A minor can never to adjudicated as insolvent since
he personally never liable.
h. An agreement by parents or guardian entered into
on behalf of the minor is binding on him provided it is
for his benefit or is a legal necessity.
Lunatics Agreement
A person of unsound mind is a lunatic, that is a person at
the time of making a contract he is incapable of
understanding it and of forming rational judgment as to its
effect upon his interest.
Even a sane man who is delirious (disturbed state of mind)
from fever, or who is so drunk that he cannot understand
the terms of a contract or form a rational judgment as to its
effect on his interests, cannot contract while such delirious
or state of drunkenness lasts.
A person under the influence of hypnotism is temporarily of
unsound mind.
Mental decay brought about by old age or disease also
comes within this definition.
Agreements entered by persons of unsound mind are void.
CONSIDERATION OF CONTRACT
Is a bare promise binding on the promisor ? No.
Sec 2 (c) of the Indian Contract Act defines
consideration as when at the desire of the
promisor, the promisee , or any other person has
done or abstained from doing or does or abstain
from doing, or promises to do or abstain from
doing something, such act or abstinence or
promise is called a consideration for the promise.

Contracts results only when one promise is made in

exchange for something in return. The something in
return is called Consideration. Consideration is
essential in most contracts and the Court will not
enforce a simple contract unless it is supported by
consideration.
Kinds of Considerations:
Executory or future which takes the form of a
promise to be performed in the future , e.g. as
engagement to marry.
Executed or present in which an act constituting
consideration is wholly or completely performed
e.g. advance payment in advance of the delivery
of goods.
Past which means that the promise took place
before the promise is made.
Rules Governing Consideration
a. Every simple contract must be supported by
valuable consideration otherwise the contract is
void.
b. There must be mutuality, i.e., each party must
agree to do something.
c. Consideration must be real, not vague, indefinite
or illusory.
d. Although consideration must have some value, it
need not be adequate (satisfactory).
e. Consideration must be lawful, if the same is
unlawful the agreement is void.
f. Consideration must be something more than the
promisee is already bound to do for the
promisor.
When consideration not necessary:
The Indian Contract Act has made three exceptions
which makes promise without consideration valid and
binding.
1. It is expressed in writing and registered and is
made out of natural love and affection between
parties standing in near relation to each other.
2. It is made to compensate a person who has
already done something voluntarily for the
promisor, or done something which the promisor
was legally compellable to do
3. If it is a promise in writing and signed by the
person to be charged therein or by his agent, to
pay a debt barred by the law of limitation
Terms of Contract
The parties must agree on the terms of their
contract. They must make their intention clear in
the contract.
The Court will not enforce a contract terms which
are uncertain.
Thus an agreement to agree in the future will not
constitute a binding contract.

Hence a contract to contract is not a contract.

So far we have discussed that a contract is always
based upon :
1. Agreement i.e. an unqualified acceptance of a
definite offer.
2. An intent to create legal obligation and
3. Consideration
However there are circumstances under which a
contract made under these rules may still be bad,
because there is a flaw or error somewhere. As a
result of such flaw, the apparent agreement is not
real agreement, e.g. a party may have deceived
(deliberately cause or personal gain) the other, there
is a mistake, incapacity enter into contract.

All these are called FLAWS in contract or VICES of

contract.
Flaws in Contract
The main flaws in contract are:
1. Incapacity
2. Mistake
3. Misrepresentation
4. Fraud
5. Undue Influence (advantage of position of
power)
6. Coercion (by using force or threats)
7. Illegality
8. Impossibility
In all the above cases there is no real agreement,
and where is there is no agreement , the law has
three remedies (treatment):
The agreement may be treated as of no effect,
and it will then be known as void agreement.
The law may give the party aggrieved (unfairly
treated) the option of getting out of his bargain,
and the contract is known as voidable.
The party at fault may be compelled to pay
damages to the other party.
Void Contracts(illegal):
A void contract is one which is short of all legal effect. It
cannot be enforced and confers no rights on either party.
Every agreement of which the objects or consideration is
unlawful is void.
The consideration or object of agreement is lawful unless:
it is forbidden (banned) by law ,or if permitted it would
defeat the provision of law, or
is fraudulent
Involves or implies injury to the person or property of
another or,
The court regards it as immoral or opposed to public
policy.
Contracts that restrict legal proceedings are void, except
the Arbitration proceedings.
Voidable Contracts
When consent(give permission) to the agreement is
caused by coercion, fraud , misrepresentation or
undue influence the agreement is a contract
voidable at the option of the party whose consent
was so caused. The contract will however be
binding, if the party affected does not exercise the
option to avoid the agreement within a reasonable
time.
The party to contract whose consent was caused by
any of the causes then he may if he thinks fit insist
that the contract shall be performed and he shall
be put in the position in which he would have been
if the representation made had been true.
Flaws in Capacity
All natural person have full capacity to make
binding contracts, but the Act admits exception
in following cases:
Minors
Lunatics
Person disqualified from contracting by law to
which he is subject.
Mistake
The contract is agreeing of both the parties on the
offer and acceptance. The law states that it will not
aid any one to evade(avoid) consequences on the
plea that he was mistaken. However law recognises
mistake in contracts which could be about the
identity of the contracting parties or the subject
matter of the contract.
Effect of Mistake
A mistake in the nature of miscalculation or error of
judgment by one or both the parties has no effect on
the validity of the contract.
Mistake must be vital operative mistake, i.e. it must
be a mistake of fact which is fundamental to the
contract
To be operative so as to render the contract void
the mistake must be :
a. Of facts and not of law or opinion
b. The fact must be essential to agreement
c. Must be on the part of both the parties.
Thus where both the parties to an agreement
are under mistake as to a matter of fact,
essential to agreement , then the agreement is
void.
Mutual Mistake
1. Mistake as to existence of subject-matter: where both
parties believe the subject matter of the contract to be
existence but in fact, it is not in existence at the time of
making the contract, there is mistake and the contract
is void.
2. Mistake as to identity of subject matter: where the
parties are not in agreement to the identity of subject
matter, i.e. one means one thing and other means
another thing, the contract is void.
3. Mistake as to quantity of subject matter: there may be
mistake as to the quantity of the subject matter , which
will render the contract void, even if the mistake was
caused by the negligence of third party.
4. Mistake as to quality of subject matter or promise:
Mistake as to quality raises difficult questions, If
mistake is on the part of both the parties the contract is
void.
Unilateral Mistake
The general rule is that a person who signs an
instrument is bound by its terms even if he has not
read it. But a person who signs a document under
a fundamental mistake as to its nature may have it
avoided provided the mistake was due to either:
The blindness illiteracy or senility of the person
signing.
A fraudulent misrepresentation as to the nature of
the document.
Misrepresentation
The term misrepresentation is ordinarily used to
connote(imply) both innocent representation and
dishonest representation i.e. fraud.
Innocent Misrepresentation :
If a person makes representation believing what
he says is true he commits innocent
misrepresentation. The effect of innocent
representation is that the party mislead by it can
avoid the contract but cannot sue(appeal) for
damages, in the normal circumstances.
Willful Misrepresentation Fraud
Fraud id an untrue statement made knowingly, or without
belief in its truth or reckless, careless, whether it be true or
false with intent to deceive. The main criteria of fraud are :
1. A false representation or assertion of facts
2. With an intention that it should be acted upon.
3. The representation must have actually induced the other
party to enter into the contract and so deceived him
4. The statement must have been made either with the
knowledge that it was false , without caring to check
whether the statement is true or false.
The party defrauded (affected) can avoid the contract and
can also claim damages.
Contracts Uberrimae Fidei:
These are contracts in which the law imposes a
special duty to act with the utmost faith, i.e. to
disclose all material information. Failure to
disclose such information will render the contract
void at he option of the other party, like:
1. Contracts of Insurance of all kinds
2. Company Prospectus
3. Contract of sale of land.
4. Contracts of family arrangements.
Difference between fraud and innocent
misrepresentation
Fraud implies an intent to deceive(deliberately
cause).
In case of misrepresentation , the defendant can
take a good plea that the plaintiff had means of
discovering the truth with ordinary diligence.
Misrepresentation may lead to avoidance of
contract. In fraud the plaintiff can claim damages
as well.
If there is fraud it may lead to prosecution for an
offence of cheating under IPC.
Coercion
The committing or threatening to commit any act
forbidden by the IPC, or unlawful detaining or
threatening to detain, any property to the prejudice
of any person whatever with the intention of
causing any person to enter an agreement , i.e.
doing anything forbidden by IPC.
Undue Influence
As per the Act a contract is said to be induced by
undue influence where the relations subsisting
between the parties are such that one of the
parties is in a position to dominate the will of the
other and used that position to obtain an unfair
advantage over the other.
A person is deemed to be in a position to dominate the will of
the other :
Where he holds a real or apparent authority over the other or
where he stands in a fiduciary relation to the other .e.g. minor
& guardian , trustee and beneficiary(receive distribution from
trust), solicitor(deals in legal matter) and client.
When he makes contract with a person whose mental capacity
is temporarily or permanently affected by reasons of age ,
illness or mental or bodily distress e.g. doctor and patient.

The presumption of undue influence can be rebutted by

showing any of the following:
Full disclosure of the material facts was made.
The consideration was adequate
The weaker party was in receipt of independent legal advise.
Legality of Object
All agreement are contracts if they are made by free consent
of parties, competent to contract for lawful consideration
and with lawful objects. Hence objects for which an
agreement is made is unlawful it is not a contract.
Sec. 23 of the Act provides that the consideration or objects
of an agreement is lawful unless it is:
Forbidden(banned) by law
It is of such a nature that if permitted it would defeat the
provisions of law
Is fraudulent(criminal)
Involves or implies injure(physical harm) to the person or
property of another
The court regards it as immoral or opposed to public policy.
Hence every agreement of which the object or
consideration is unlawful is void.
Consequences of illegal agreement
1. An illegal agreement is entirely void
2. No action can be brought by a party to an illegal.
3. Money paid or property transferred under illegal
agreement cannot be recovered.
4. Where agreement consist of two parts, one legal
and other illegal & that both are separable, then
Court will enforce legal one & incase the two parts
are not separable then the entire agreement is
illegal.
5. Any agreement which is collateral(repayment of
loan) to illegal agreement is treated as illegal
though it would have been lawful by itself.
Discharge of Contracts
Contracts may be discharged or terminated by any of the
following modes:
Performance i.e. fulfillment of the duties
Mutual consent or agreement.
Lapse of time
Operation of law
Impossibility of performance
Breach(breaking or falling of law)
Sec.37 of the Act provides that the parties to a contract
must either perform or to perform their promises, unless
such performance is dispensed.
In case of death of the promisor before performance, the
representative of the promisor are bound to perform the
promise unless a contrary intention appears from the
contact
Discharge by Impossibility
Where at the outset it is clearly impossible to
perform a contract such contracts lacks
essential elements, that is, intention of the
parties , and is void.
However sometimes a contract is possible when
made, subsequently becomes illegal or
impossible to perform, this is described as
supervening impossibilities or supervening
illegality which makes the contract void in
certain circumstances and hence discharged.
Remedies for Breach
In case of breach of contract the injured party
may:
1. Rescind(revoke) the contract and refuse
further performance
2. Sue for damages
3. Sue for specific performance
4. Sue for an injunction to restrain the breach of
a negative term
5. Sue on quantum meruit.
Rescission
Sec.65 states that when a party treats the contract as
rescind, he makes himself liable to restore any benefits he
has received under the contract to the party from whom
such benefits were received.
Sec. 75 if person rightfully rescinds a contract he is
entitled to a compensation for any damages which he has
sustained through the non fulfillment of the contract by
other party.
Sec.64 when a person at whose option a contract is
voidable rescinds, the other party thereto need not
perform any promise therein contained in which he is
promisor. The party rescinding a voidable contract shall, if
he has received any benefit thereunder, from another
party to such contract , restore such benefit so far as my
be, to the person from whom it was received.
Damage for Breach of Contract
Sec. 73 when a contract has been broken, a party
who suffer by such breach is entitled, from the
party who has broken the contract compensation
for any loss or damage, caused to him thereby. Such
compensation is not to be given for any remote and
indirect loss or damage sustained by reasons of the
breach.
Liquidated and Unliquidated damages: where the
contracting parties agree in advance the amount
payable in the event of breach, the sum payable is
called liquidated damages.

Where the amount of compensation claimed for

breach of contract is left to Court , damages
claimed are called Unliquidated Damages.
Liquidate Damages and Penalty
Sec.74 provides for reasonable compensation upto the
stipulated amount whether it is by way of liquidated
damages or penalty.
Specific Performance
It means the actual carrying out by the parties of their
contract, and in proper cases Court will insist upon the
parties carrying out this agreement. Specific performance
is usually granted in contracts connected with land & in
case of sale of goods it will only be granted if the goods
are unique and cannot be purchased in the market.
Injunction: is a mode of securing specific performance of
a negative term of the contract. When the contracting
party is in breach of the negative term of the contract,
the Court may in its discretion issue an order to the
defendant restraining him from doing what he promises
not to do.
Contract of Indemnity
Contract of Indemnity
This is the contract by which one party promises to
save the other party from loss caused to him by the
conduct of the promisor himself, or by the conduct
of any other person.
The person who promises to indemnify or make
good the loss is called indemnifier and the person
whose loss is made good is called indemnified or
the indemnity holder.
The contracts 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 event or accidents which do not depend on the
conduct of any person, cannot be sought to be
reimbursed under the contract of indemnity.
Rights of Indemnity Holder .
Sec.125 the promisee in a contract of indemnity,
acting within the scope of his authority, is entitled to
recover from the promisor, the following:
All damages which he may be compelled to pay in any
suit in respect of any matter to which the promise to
indemnify applies.
All cost which he may be compelled to pay in such suit
if in bringing or defending it , he did not contravene
the orders.
All sums which he may have paid under the terms of
any compromise of any such suit, if the compromise
was not contrary to the orders of the promisor.
Contract of Guarantee
Contract of Guarantee
It is a contract to perform the promise, or discharge
the liability if a third person in case of his 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 creditor.
A guarantee must also satisfy all the essential of valid
contract.
Sec.127 any thing done or any promise made for the
benefit of the principal debtor may be a sufficient
consideration to the surety for giving the guarantee.
Extent of Suretys Liability
The liability of the surety is co-extensive with
that of the principal debtor unless the contract
otherwise provides.
A creditor is not bound to proceed against the
principal debtor , but he can sue the surety
without suing the principal debtor.
As soon as the debtor has made default in
payment of debt , the surety is immediately
liable. But until default the creditor cannot call
upon surety to pay, hence the nature of the
suretys liability is secondary.
Rights of Surety on Payment or Performance
Sec. 140. Where a guaranteed debt has become due, or
default of the principal debtor to perform a guaranteed duty
has taken place, the surety, upon payment or performance of
all that he is liable for, is invested with all rights which the
creditor has against the principal debtor.
Sec.141. A surety is entitled to the benefits of ever security
which the creditor has against the principal debtor at the
time when the contract of suretyship is entered into,
whether the surety knows of the extent of such surety or
not, and , if the creditor loses, or without the consent of the
surety , parts with the security, the surety is discharged to
the extent of the value of the security.
The surety never intended to absolutely take liability of the
principal debtor. The surety , having paid the creditor
acquires all the rights of the creditor against the principal
debtor.
Kinds of Guarantee
A contract of guarantee may be for an existing debt
or for the future debt. It may be specific guarantee
or it may be continuing guarantee. A continuing
guarantee is one which extends to a series of
transactions. The continuing guarantee is revoked
by any of the following ways:
By notice of revocation by the surety, however he
continues to be liable for the transactions entered
into prior to the notice
By the death of the surety, but for all the
transactions prior to the death of the surety, his
estate will be liable.
Discharge of Surety
The surety may be discharged from the liability under the
following circumstances:
By notice of revocation- as regards future transactions.
By the death of surety
Any variation in the terms of the contract between
creditor and the principal debtor, without the consent of
the surety.
If the creditor releases the principal debtor, or acts or
makes an omission which results in discharge of the
principal debtor.
Where the creditor without the consent of the surety
makes an arrangement with the principal debtor for the
composition, or promises to give him time or not to sue
him, the surety will be discharged.
Contract of Agency
Contract of Agency
An agent is a person who is employed to bring his
principal into contractual relations with third
parties
Agency is that whatever a man sui juris ( i.e. a
person possessing capacity to contract) may
lawfully do by himself or he may do by another, i.e.
a person competent to contract may act through an
agent.
The act of agent are acts of the principal, he who
acts through an agent is himself acting.
Thus both the principal and third party must have
capacity to contract, hence the agent need not have
capacity to contract as his act is deemed to be the
act of his principal.
Creation of Agency
The contract of agency may be express or
implied, but consideration is not an essential
element in this contract.
Express Agency:
A contract of agency may be made orally or in
writing. The usual form of written contract of
agency is the Power of Attorney, which gives
authority to act on behalf of his principal in
accordance with the terms and conditions
therein.
Implied Agency
Agency by Estoppel : this arises when you are
precluded from denying the truth of anything
which you have represented as a fact.
Wife as Agent: where husband and wife are
living together, the wife is presumed to have her
husbands authority to pledge his credit for the
purchase of necessaries of life suitable to their
standard of living,
Classes of Agents : may be special, general or
mercantile agents:
Special agent: is one who is appointed to do a
specified act, or to perform a specified function.
General agent: is appointed to do anything within the
authority given to him by the principal in all
transactions related to specified trade or matter.
Mercantile agent: defined as per sales of goods act as
an agent having in the customary course of business as
such agent authority either to sell goods to consign
goods for the purpose of sale or to buy goods, or to
raise money on the security of goods , e.g. brokers,
auctioneers , commission agents, factors, partner,
bankers.
Duties of Agent
1. An agent acts within the scope of the authority conferred
upon him and carry out instructions of the principal.
2. In the absence of express instruction, he must follow the
custom prevailing in the same kind of business at place the
agent conducts business.
3. He must do the work with reasonable skill & diligence.
4. He must disclose promptly any material information coming
to the principal in making of the contract.
5. He must not disclose confidential information entrusted to
him by his principal ( CDA).
6. He must not his interest to conflict with his duty.
7. He must keep true accounts, and must be prepared on
reasonable notice to render accounts.
8. He must not make secret profits.
9. He must not delegate his authority to a sub-agent
Rights of Agent
The agent is entitled to receive the agreed
remuneration.
The agent has a right to be indemnified by the
principal against any charges, expenses, and
liabilities properly incurred by him in the course of
the agency.
In case the agent is acting as Factor then, he has
lien on the goods or property in respect of the their
remuneration and expensed and liabilities
incurred. The agent has also a right to stop the
goods in transit where he is unpaid seller.
Agents Authority
The authority of an agent depends upon the
terms expressed in his appointment or it may be
implied by the circumstances of the case. The
contractual authority is real, but the implied
authority is to do whatever is incidental to carry
out the real authority.
An agent has authority to do all such things which
may be necessary to protect the principal from
loss in an emergency and which he would do to
protect his own property under similar
circumstances.
Termination of Agency
1. By performance of the contract of agency
2. By agreement between the principal and agent.
3. By expiration of the period fixed in the contract.
4. By the death of the principal or agent.
5. By the insanity of either the principal or agent.
6. By the insolvency of the principal or agent and
in case of incorporated company by its
dissolution.
7. By the destruction of the subject matter.
8. By the renunciation or revocation of his
authority by his principal.
Termination of Agency
Termination of agency takes effect or is
complete, as regards the agent when it becomes
known to the agent.
As regards third party the termination takes
effect when it comes to their knowledge.
The termination of an agents terminates the
authority of the sub-agent appointed by the
agent.