Contract Act 1872

Contract Act 1872

Law: Law is the set of principles, rules and regulations, statutory orders, which is applicable to the members of the society. Law gives rights and imposes duties to everyone. No one can deprive others from their rights. Everyone have the right of life.

Sovereignty: Superman or Supreme Power or Blind Force or Historical Necessity, who is not subject to people but people are subject to him, is called Sovereignty.

In Islam only Allah Almighty is the Sovereign Power. The entire rest world accepts the Parliament as Sovereign Power.

Society is composed of people and determinant of law of rights and duties. All people have to respect and fulfill law. Law is concerned with people and property.

There are many conflicts and disputes among the people. Law of contract relates with the matters of two or more than two people with each other.

Muslim and Non-Muslim countries have same systems, but they have not the same law. Every offence has some ingredients.

Private law does not applicable until it is accepted while public law is enforceable to the society as a whole. Act is collection of law, rules and regulations, statutory orders.

There are many our daily routine different activities, i.e., repairing of motor cycle, borrowing something, traveling, purchase of rice etc. Expressive form: If you say something very clear and openly.

Intention and act form crime. Intention is determined by acts he performs. Contract is created with the intention of legal rights and liabilities. Act is determined by the acts. Contract is a promise or set of promises that have consideration. Contract should fulfill law’s requirements. Selling of book is a contract. No one is bound to make contract in written form. Valid contract is that which fulfills all the necessary legal requirements. Contract contains Offer and Acceptance and Consideration. Consideration does mean something that is exchange or return. In selling of book consideration is money which is given in response of selling of book. Also interest is consideration.

All contacts are agreements but all agreements are not contracts. Agreement, which is enforceable by law, is contract.

Contract is proposal to proposee with consideration. Contract should be of free consents of the parties including capacity of contract, and law-full contract. How the consideration is un-law-full? Selling of book on the price of heroin or any other prohibited thing. Intention is a state of mind, which determine something. Contract must include capability, peaceful purpose, lawful, consideration, and invitation. Requirement of contract must be fulfilled. Implied form of contract is that is known or recognized by the conduct or behavior.

Over-hurt of acceptance is not acceptance in case of proposal is toward a specific person is made. In some cases invitation to world at large is not invitation but proposal. If something is lost, one who will bring the lost thing will be considered proposee. It is not invitation. One who performs condition is called proposee. Performance is acceptance. Upon receiving the first information, proposal becomes invoked. One who inform or obtain first with the information of invitation, only he will form the contract. Proposal can be revoked.

How and when the acceptance can be revoked? Proposal can be revoked before acceptance is made. Communication must be made for the revocation of the acceptance.

1.      If the specific time is given and acceptance is not made then it stands revoked.

2.      If the specific method is given in offer then it should be followed.

3.      After reasonable time it can be revoked.

4.      Specific amount till due date should must be deposited.

5.      Upon death or insanity (unsound mind) it is revoked.

6.      Upon counter offer it may be revoked. Death or unsoudness, should must be communicated to the Proposee then revocation occurs otherwise it stands valid.

Communication is compulsory to Proposee to form a contract. Acceptance also must be communicated to Proposer. Proposee can not revoke his acceptance after it is made and communicated but there is slot of receiving of acceptance but before the acceptance is reached to Proposer he can revoke it by using the faster means of communication and it will stands revoke. Law provides an opportunity to revoke acceptance. If the acceptance is sent by post, then acceptance has been completed on the part of Proposee but not on the part of Propser. Contract cannot be formed between Husband and Wife. But there is a promise. It is just moral obligation but not legal obligation. If there is not legal agreement there is not contract. Consideration is integral part of contract. Consideration/interest is a price of contract. S. 25 of Contract Act, 1872, provides certain exception whether contract can be formed without consideration.

1.      Natural love and affection: Within relationship something can be gifted without consideration. It should be within close relatives. This gift may contain gift on birthday etc.

2.      Voluntarily: Transfer of gift or land to others without consideration on the basis of any help, assistance, or service which has been rendered to Promisor without any return. It should contain some ingredients, i.e., help has been rendered in past, it was rendered in past without return, and there was not legally obligation to render service. Suppose a man is not legally bound to save a life of the person who is being beaten/pounded. If he helps him, he may form the contract without consideration, but in other case where pounded person has a personal or official guard, he may not form contract because he was legally bound to rescue him and it was his duty.

3.      Where there is time barred receivable loan: Suppose A had granted loan of Rs. 100 to B, and B fails to repay the amount within the stipulated time period. A, forms a contract with B to pay this amount within fixed time, this contract will be called Contract without consideration.

4.      S. 127 – Contracts without consideration u/s 25 are void, but where benefit or interest of the principal debtor is sufficient consideration on the part of surety, for the purpose of guarantee.

5.      Consideration for the creation of an agency is immaterial.

All contracts should be in written form and be registered.

Agreements, which are enforceable at law, are as follows:

1.      Free consents.

2.      Purpose is lawful.

3.      Lawful consideration.

4.      Competent of contract. Who is not competent? All are competent except Minor, Unsound Mind, and Disqualified by the law. Insolvent or Bankrupt are deprived by the law to form contract.

Unsound mind: At the material time during the formation of agreement he was able to understand the contents of agreement, so he is considered of sound mind and his contract will be valid and enforceable at law.

A person who is of unsound mind may form contract while he is in the state of sound mind. When he is occasionally of unsound mind, he may not make a contract when he is of unsound mind. During the state of unsound mind, other people will fulfill the terms of the contract of unsound mind and if the other people are not available then Court of justice will act as guardian of the unsound mind.

Age of Majority: As per Majority Act, 1875 age of majority is 18 years and in case of Ward the age will be 21 years.

Void contract is that which is not enforceable at law. There are two categories of void contracts Ab initio: Those that are void right from the time of formation or by the change of law of government and Void-able Contracts which have option to void. All contracts in which consent of a party are not free. If the delivery of books is not made within the stipulated time period, it becomes void-able contract except buyer accepts it. Void contracts are those that are bastered since their birth while void-able contracts are those, which can be, proven bastered after they are born.

All the contracts made in the interest of minor will be enforceable at law, and contracts made by minor which damage or injure the interest or benefit of the minor will be void. Simply on the ground of the minority contracts cannot be void.

Free Consents: Word of intention is not used in S. 10 of The Contract Act, 1872, but the word consent is equivalent to intention. Consents form law. They create rights and obligation. Consents should be free and independently. This is important on the part of valid contract. If the consents are obtained without free environment, they are not supposed free and do not form a contract. All consents should be free. It seems not good to mention all the consents, which are not free, and Contract Act mentions only them. Contrary to capacity of minority age in which Contract Act has mentioned only what the age of majority, and simply mentioned the age of majority considering the capacity of contract, Contract Act does not mentioned the list of free consents but which are not free. So we shall discuss the consents which are not free.

Void-able Contracts:

1.      Consents, which are obtained under coercion defined in S. 15 as the consents obtained without willingness, on gun point, forcefully, by the threat of evil consequences, unlawfully commission of acts, are coercion. Abuses, lowing, beating, and all the acts forbidden by the Pakistan Penal Code are coercion.

Two Pakistanis form a contract for the purchase of a piece of land situated in Lahore with no free consents in Iraq. Both reaches Lahore and buyer insist the compliance of the contract and the seller refuses to enforce the contract claiming the consents under coercion are void-able contract.

2.      Undue influence defined in S. 16 as the dominating role of a party over other and uses the position to obtain an unfair advantage over the other. Relationship of two in which one is superior and second one is subordinate, i.e., employer and employee, master and servant, father and issues. Orders that are according to law passed by the superior to subordinate are not under influence. But the orders that are not according to law are undue influence. If a Pir orders to his disciple (Murid) to give his land to him is called dominating authority. Person should be in position who can dominate others and obtain advantages which is undue. Where a person holds an authority or making a contract with a person whose mental capacity temporarily or permanently affected by the age factor, illness, and mental or bodily distress.

A person who is affected with a disease is forced by a doctor to enter into a contract for the medical treatment on unreasonable sum of amount for his professional services. Doctor employs undue influence.

Dominating role of a party also constitutes a contract under influence.

Also it is a kind in which advantage is obtained that is undue. If the higher authority by using influence pays market price to purchase of a piece of land from subordinate, will not be considered an undue influence. Who has onus/burden to prove whether undue influence has used. As a general matter of principle onus of proof lies on the person who alleges or claims the undue influence, whose consents are taken by dominating party, and who alleges the existence or non-existence of the agreement. But S. 16, which has special provision to establish evidence, provides, that onus of proof lies on the person who takes consents with undue influence. He has to prove that he has not exercised the undue influence. Special law prevails on general law. Special laws are preferred on general law and exclude the law of evidence. Special law is applicable on coercion and undue influence cases only. General law will deal all the rest cases.

3.      Fraud: Where there consents are obtained fraudulently, that is not contract being no free consents. A & B enter into contract while A obtains consents from B fraudulently. B alleges/claims consents are obtained fraudulently.

Illustration: A is selling a pen claiming it made in USA. It is known at the end of seller that it is not made in USA, but it is made in China. He himself has no belief on its USA make. He knows that fraudulent statement. He knows that if he will express China make, people will not attract towards its purchase. And if he will say USA makes, people will come to enter into contract for the purchase of 100 units. In order to obtain consents by the statement passed wrongly is fraud. In other words if there is difference in reality and statement, that is fraud. Seller himself has not belief that it is made in USA.

Active Concealment of Fact: A thing, which, is intends to be sold having defects, is called active concealment of fact. A is going to sell piece of land, which is already mortgaged. Seller is responsible to disclose this fact to buyer before it is sold. All the consents, which depend on the disclosure of fact, if not disclosed, are active concealment of fact.

If a seller intends to sell a piece of land worth of which is Rs. 1,500,000/- in market on a price of Rs. 1,200,000/- which is less than actual rate, with an intention that he will run away after receiving of token money or full payment, is fraud. All the consents, which are obtained with an intention that the purpose would not be fulfilled, are fraud. All such acts constitute fraud. Coercion and fraud are also offence and are liable to start criminal proceeding against offenders. These contracts are void-able.

4.      Misrepresentation: Consents that are obtained on the base of wrong statement. How the misrepresentation is constituted?  What are its ingredients? We are referred to S. 18 that define misrepresentation. For example, a man passes a statement, he has belief on its truth, he has no intention of misleading, deceives, but there is moral fault in it and second party for which statement is passed, mis-leaded. In other words it is a pure accident. If a party willfully makes a wrong statement about the subject matter for the purpose of other party to give consents, this conduct amount a fraud, and if this representation is passed innocently, this amounts misrepresentation. Generally speaking it is an untrue statement but one believes it to be true. This statement is passed without solid source of information. All the given information is supposed true but actually they are untrue.

Two parties are going into contract. If there is no relationship or trust, other party will go to investigate the authentic statement, but if the first party is trustworthy then it is moral obligation on the part of first party to disclose whether any flaw exists in the matter. If the defects are not disclosed then first party constitutes the breach of duty, which it is also, an offence. A man was going to elsewhere by air, and there was short time. Another person brought a document for signature, he signed the document being in hurry without checking it which beard some mistakes or faults. Held that it was breach of duty. Where there is no disclosure of faults or defects, that is called misrepresentation.

If a party commits mistake even innocently regarding the subject matter to obtain consents for agreement is also a misrepresentation. In a case party gone into contract for the purchase of a boiler. Seller was responsible to deliver the boiler at the destination of buyer. Buyer innocently represented that there is practicable road all the way, while, as a matter of fact, at one point there was a suspended bridge not capable of bearing the load of boiler. Held void-able agreement on the option of seller or defendant.

5.      Mistake of law and fact: Mistake of fact: Agreement becomes void if both the parties are under mistake as to a matter of fact essential to the agreement.

Illustration: A, makes an agreement in Japan for the purchase of 100 Suzuki Cars. He receives documents of contract in Lahore on January 05, 1999, that ship has been departed from Japan on January 01, 1999, and will reach at Karachi port on January 10, 1999. A agrees to sell B 100 cars that are in transit. Later it comes to know that ship was sink before making agreement. The agreement is void because both the parties were under mistake of fact. It is important to mention that there are two types of mistakes of facts, i.e., Unilateral mistake of fact in which only one party commits mistake of fact, and Bilateral mistake of fact, in which both the parties commit mistake of fact. A makes an agreement with B to sell the goods to be imported from Japan. Later importer comes to know that he has to pay a certain tax in Japan and he is not going to fulfill the agreement. This is unilateral mistake of fact which do not makes agreement void. A has to bear such loss. Consents of B are free so contract will be lawful.

A, purchases a cloth from a shop which seemed to be made in England, but later disclosed it was made in Pakistan, is unilateral mistake of fact. Seller has not sold the cloth claiming made in England, so it is valid contract.

A is going to make contract with B for the sale of a certain horse. It turns out that the horse was dead at the time of bargain and both the parties were unaware of fact. This contract is void.

A, son of B, make an agreement to sell his father’s property to C, but father of A dies before making agreement will make it void.

Mistake of Law: It is presumed that every man knows the law and does not commit mistake upon its execution. Mistake of law is culpable negligence on his part. It is generally said that ignorance of law is no excuse. A person commits a mistake of law and later says I was unaware and if I had knowledge I must refrain to commit it. It is not a defence. This is not acceptable and maintainable. Consents are given without knowledge of law is considered free consents.

A makes an agreement with B. At the time of execution of agreement seller says that at the time of agreement I was unaware that I have to pay certain tax which is not affordable for me, so my consents were not free. This contract is no void and A is liable to pay damages. Onus of proof upon who alleges/claims. Since foreign law is not enforceable in our country so all contracts on the base of mistake on foreign law would be treated as mistake of fact rather than mistake of law.

Upon the mistake of fact both parties are provided opportunity for plea. If one party decide to remain continue the contract and other one decides contrary, it will come void.

Void Contracts:

1.      Unlawful at Law: Consideration and objects are unlawful in part. An agreement of manufacturing of indigo, DOP, and Heroin against salary of Rs. 100,000/- is void, because it involves unlawful object in part that is prohibited at law.

2.      Without consideration: If there is no consideration, there is no contract. For instance, A promise to give Rs. 100/- to B, without consideration other than natural affection, is a void contract.

3.      Restraint of Marriage: Everyone has liberty of marriage with his own option except minor. If any contract restrains anybody who is major, from marriage, is void contract.

4.      Restraint of Trade: Restriction on any lawful business, profession, or trade is void except where the goodwill has been sold. He can be refrained to carry on the similar business within special local limit.

5.      Restrain of Legal Proceedings: Everyone has right of legal proceedings upon dispute in the Court of law. But there is an exception. If dispute arises, then they will be bound before going to Court, to decide by way of arbitration. Decision by way of arbitration is called award. When it comes to the rule of Court, then it is enforced.

6.      Uncertain Agreements: All the agreements meaning of which are not certain, are void. Example: A agrees to sell B, 100 tons oil. This agreement is void on the ground of uncertainty because kind of oil is not specified. But if A has only one kind of oil for which he is popular, then there is no uncertainty to make the agreement void.

7.      Agreement by Way of Wager: It means contract by A to pay money B on the happening of a given event, in consideration of B paying to him money on the even not happening. A promise to give money or money’s worth upon the determination of an uncertain event.

8.      Agreement to do impossible act: It is itself void. Agreement of magic is void.

9.      Contract to be married become void when one of them becomes mad. Contract of second marriage where polygamy is forbidden is void. Trade with the country against, which war has been declared, is void.

10.  Contrary reciprocal contract: All contracts which have promise, one set of which is legal, and other one is illegal is void. For instance, A agrees to sell to B and a car against an amount of Rs. 50,000/- and 1 kilogram heroin. Set of first contract is valid but second one is void.

11.  Alternative promise, one branch being illegal: Promise in which one branch is legal and other one is illegal, the legal branch can be enforced. Example, A agrees to deliver to B for Rs. 50,000/- either wheat or wine. First branch of this contract can be enforced while second one is void.

12.  If there is provision in contract that promisor will provide facilities for the execution of contract to promisor, contract will become void upon refusal of such facilities. If, for the purpose of whitewash, promisor fails to provide ladder and brushes to promisee, under the provisions of the contract, contract will become void. Promisee may claim damages against the breach of contract.

13.  If time is essential as per contract then other party is at liberty to get the contract revoked and can claim damages and if time factor is not important then other party cannot repeal the contract and cannot claim damages.

For example, A agrees to B for the supply of 100 Books on February 01, 2000, and he fails to do so. It now on B to claim damages or compels A to perform the contract. It does not matter that the price of the books have been increased or decreased.

14.  Obligation of a person, who has received advantage under void agreement or contract, that becomes void. For instance, Ali pays to Zahid Rs. 100,000/-, in consideration of Zahid’s promising to marry Najma, Ali’s daughter. Najma died at the time of promise. The agreement is void, and Zahid is bound to repay Rs. 100,000/- to Ali.

15.  Collateral agreements are those which are related to others. For example, A makes an agreement with B for the construction of a home without mentioning the mode of payment. A makes another agreement stating as to how the payment of the work done in first agreement will be made. This agreement is called collateral agreement. This is dependent agreement. This agreement is also void if the principal agreement is void. Past collateral agreement are those fact of which for both parties is uncertain. Receiving of the amount of the agreement made by way of wager is void. Legal representative, guardian, executor, successor are not liable for the compliance of the agreement having nature of wager. It will be void. Where there is no right and obligations are created, there is no liability. All the agreements that are ab initio, are void right from that time/formation. Ab initio are those which become void by an act of God or State.

Contingent Contracts: § 31 to 36 deals with contingent agreements. Two parties make an agreement performance of which is connected with an uncertain or collateral is called contingent contract. Happening of a particular uncertain event is regarded as contingency to the contract. This is a contract in which created rights are enforceable at the happening of a particular event, and in the inverse situation it shall not be enforceable. It the particular event takes place, then it is performed, otherwise it is not enforced. If the house is burnt then payment will be made and if there is no fire, there is no performance of contract. Insurance is common example of contingent contract except death insurance because death is not uncertain matter. It is definite event.

Performance of contracts: If the time of payment of money is mentioned in agreement then no dispute arises. But if the said object is not provided then definitely dispute will arise. It requires to be decided. Contract Act assists us in this case by providing us guiding principles. Business on a particular place or market sets particular principles. These practices are followed in the solution of cases. Law determines the rights and obligations of the parties, which are not incorporated in contract. If a seller sells goods and buyer not pays the price, seller has right of stoppage of goods in transit. This is determined in law. If buyer has credit of six months, then this practice cannot be followed. Rights given by law, but not incorporated in contract do not mean that they have been lost. A machine is given to mechanic for repair. His is responsible for repair and may retain the object on demand until payment is made.

Frustration of contract: These are the contracts that are impossible to perform by an act of God or State. These are beyond the control of parties.

How a contract is discharged:

1.      By performance: When a valid contract is performed as per all the terms and conditions, and its compliance is completed, objectives are achieved, then it is discharged.

2.      Death: Generally death does not cause to discharge contract, but the agreement where particular skill is involved, death discharges the contract. For instance, A agrees to file law suit on certain date, but he dies before the date. Representatives are not responsible.

3.      Breach of contract: Where the requisite performance is not made, second party is at liberty to put it an end if contract is not continued after break.

4.      Frustration of contract: It puts contract to end when an act of God or State come into force or anything occurs which is beyond the control of party. Compulsion makes contract abolish.

5.      Procedure: If contract lacks to provide necessary ingredients of the contract that may include, date, time, place etc. may discharge the contract. Readily available principles or practices and standard of reasonableness may solve this problem.

6.      By excuse of party: If one party excuses performing then contract will be the part of dustbin.

Liability of third person or party: A contract of sale is made by A with B. B is bound to deliver goods to A on certain date. B dies before delivery. A cannot compel to perform contract to third party. But if C gets inheritance of B, then C being legal heir or successor or representative is liable to perform the contract of B.

A borrows Rs. 50,000/- from B and dies before repayment. Successor of A, C is liable to repay loan to B. But if C gets nothing in inheritance, then C is not liable. If C gets Rs. 25,000/- from A, liability of C rests upto Rs. 25,000/- and not upto Rs. 50,000/-.

This is general rule that rights and liabilities go together. Both cannot exceed each other. Rights/Inheritance of Rs. 25,000/- cannot create liability of Rs. 50,000/-. It shall remain upto Rs. 25,000/-.

Collective responsibility: Responsibility in the contracts where two or more promisee are bound to complete the job jointly and fails to do the job, all or one of them can be sued. No one can put his responsibility to other one. A contract of building is given to three persons. They could not complete the building. All or one of them can be sued. They all are responsible to pay damages even only one is sued.

If all of them are assigned three different jobs to perform, then all are responsible to do their particular job. If one of them remains unable to perform job, he solely will be responsible. But if a contract is given to three partners and they made another contract among them to do particular job by all of three and consequently one of them fails to do job, all can be sued. But two of them, who have been done their own job can sue to defaulter to do his job or pay compensation.

Appropriation of debt: Where a creditor issues more than one debts to debtor under one or more contract and in which method of payment and/or appropriation (settlement) is not mentioned, there § 59 to 61 are applied.

S. 59 deals with the case where debtor repays his debt and particularly mentions as to against which this repayment is to be appropriated. Law gives authority to creditor to appropriate the repayment at his option or discretion. Debtor cannot compel creditor to appropriate as per his will.

S. 60 deals with the case where debtor repays the debt and do not mention as to which debt this repayment is to be appropriated. Here creditor again has discretion to appropriate the debt, as he wants.

S. 61 deals with the situation where neither debtor nor creditor mentions the appropriation for the repaid debt. If dispute arises then creditor will be provided full opportunity to appropriate the debt in series as they were issued. First debt will be appropriated first, and then second and at last third loan will be appropriated.

Novation of contract: Contracts which, are not to be performed while compliance of a valid contract is a legal duty. If the valid contract is not performed, it is regarded as breach of contract. Any contract entered into validly, needs not to be performed and it non-compliance is not regarded breach of contract. S. 62 mentions that change or alteration or modification in same contract with the same subject matter and with the same parties is called novation of contract. A enters into contract with B for rental of a house. Both agree on Rs. 500/- per month rent for a year. Now both are obliged to perform the contract. After passing some time, both alter this contract with monthly rent Rs. 1,000/- per month, for three years. Parties and subject matter is same and this similarity has Novated the first contract with second one. If the subject matter is same but parties are different or parties are same and subject matter is different, in both cases novation does not take place and appears that compliance of both contract, i.e., first and second is compulsory.

S. 63 deals with the situation where performance of originally validated contract is remitted. If tenant becomes fail to perform the contract due the reasons uncertain, it will be regarded breach of contract. But if promisor remits, it will not be breach of contract and its performance will not be compulsory. A agrees to sell B a horse. Afterwards B refuses to purchase it. A is no longer bound to perform the promise. In second instance if A offers employment to B and issues letter of appointment but later B does not join the employment, A is no bound to perform the contract.

If acceptance is refused, no contract is formed and if under the contract facilities are not provided then also it needs not to be performed. A enters with B in contract for whitewash with certain facilities to be provided by B to A. B does not provide such facilities. A is not bound to perform the contract.

If a contract, later, becomes void-able or void, benefit received under these contracts can be recovered. According to S. 64 if contract becomes void-able and according to S. 65 becomes void, benefits received under both cases, may be recovered. Plaintiff can sue u/s 64 and u/s 65.

S 66 – Under void-able contract, if promisor wants to revoke the contract, must communicate to promisor. Simply silence is not acceptable. Party who wants to make agreement void-able should communicate the revocation in the same manner whereby it was communicated for acceptance. There is no contract between the parties where acceptance is not communicated.

S 68 – People like minor and unsound mind have not capacity or competency to enter in contract, but they also need their survival. All the agreements, which are made for the benefit for them can be executed. These people are incapable to enter into contract, but they need necessities besides contract. This non-contractual relationship is enforceable u/s 68 of Contract Act. There are certain relationships, which are non-contractual, but are similar to contractual relationship, and are enforceable. There are certain limitations on the non-contractual relationships to get it executed. Things provided under this relationship should be necessities for life and secondly it should be suited to his condition in life. Social standard must be taken into consideration. A poor student needs a bicycle to get education to go to school five kilometer away. Cost of cycle can be recovered from his property or a person who is legally bound to support him. If a poor child buys mineral water rather than bread, cost cannot be recovered because it is not suited to his condition of life.

S 69 – There are certain other relationships which are non-contractual but can be enforced. Where a party is legally bound to pay money and other party has interest in the payment of money, is enforceable non-contractual relationship, which amount quasi contract.

For instance, A is owner of shop and has leased it to B. There are some liabilities toward A, an owner. He is defaulter and cannot pay outstanding dues. Orders of auction are issued of A’s shop and Rs. 50,000/- are payable. In case on non-payment shop will be forfeitures. B has interest to pay Rs. 50,000/- to save his interest as tenant to carry on his business. B pays Rs. 50,000/- and forfeiture is ceases. B can claim this money from A. It is quasi contract u/s 69 and thus enforceable. There are two conditions, which make quasi contract. There should be legal duty of payment and there should be interest or benefit of other party otherwise quasi contract will not form.

S 70 – Where there are benefits derived from anything are enjoyed non-gratuitously, it also forms non contractual relationship. Person who gets benefits must pay compensation to other party. Where there is no title, there is no transfer. Stolen goods cannot be sold. Finder of lost goods is called bailee. One who transfers goods to another is regarded as bailer and this act is called bailment. A person leaves something to B’s house, and B get benefit from it, B is liable to pay compensation to A. If A saves B’s property from fire gratuitously, there is no compensation.

S 71 – Finder of lost goods is treated as bailee and he is obliged to return goods to its principle owner. Lost goods can be recovered.

S 72 – Where money is paid to wrong person or to actual person but wrongfully paid, can be recovered u/s 72. Double payment, wrong payment, excess payment to anybody is recoverable under this section. There also is no contract but amount is recoverable.

There are certain reasons, which render contract discharge, e.g., non-performance, excuse, and compromise etc. Breach of contract is one of example which renders contract into breach, but it does not render the contract fully into breach, it remains into force and enforceable. Remedy of breach of contract is available by two ways, i.e., by the § 73, 74, & 75, and by The Specific Relief Act, 1877. A agrees with B to sell certain books @         Rs. 50/- per book. Books are not supplied at the required time and place thus contract is breached. The Specific Relief Act, 1877, comes into operation to get the said contract enforced. Court orders to A to fulfill the requirements of the contract. If B purchases the same books from elsewhere on payment of Rs. 80/- per book, his loss recoverable will be upto the extent of Rs. 30/- per book. Actual loss always equal to actual damages.

Second way is to claim damages, which are incurred in result of breach of contract. One who breaches the contract is liable to pay compensation to the party suffered from loss. There is a company involved in selling of medicines and has reputation. They purchase medicines from whole seller. He supplies them one defective medicine. Quality Control department raids and consequently Medicine Company held guilty for the selling, medicine forfeitures and punishment is awarded. Later on Medicine Company files a lawsuit of damages against wholesaler. Company has suffered from closure of shop, destitution of expected profit, damage of reputation, prosecution expenses are incurred, mental suffering, career’s loss, sale of property, loss of children’s education and business etc. There should be a clear-cut line between the immediate and remote losses. This is the job of Court of draw a line between them. S. 73 says that direct or immediate damages are awarded and not the remote or indirect damages.

S. 73 applies where damages are not mentioned in contract while S. 74 applies where damages are stipulated and party of contract may claim, upon breach. Quantum of damages is determined by Court.

S. 74 – Parties decided damages in contract, which are liquidated. Liquidated damages are those which are described in contract and un-liquidated damages are those amount of which is post determined. One, who commits breach of contract, is liable to pay penalty, damages, or compensation upto the extent of stipulation. Sale of property agreement is one of example.

A agrees to sell to B a house on Rs. 100,000/-. B pays to A Rs. 50,000/- as token money. Later on A refuses to sell house to B. B will get double compensation from A, i.e., Rs. 100,000/-, provided in contract. If B commits breach of contract, then A will forfeit the token money of B, i.e., Rs. 50,000/-, being the part of contract. This is contractual right and liability. These are predetermining and liquidated. In an other situation if the similar type of house in the same locality gets price of Rs. 150,000/- and A commits breach, B cannot demand Rs. 150,000/-, being market value, and his liability will be restricted upto Rs. 100,000/-, B cannot invoke u/s 73, it will become inoperative.

Breach of contract u/s 75, applies where performer revokes or commits breach and receive damages, too, if provided in contract.

For instance, A agrees to provide to B, 100 books, in five equal installments. Payment of each installment becomes due on delivery and before next installment, B fails to pay amount against first installment.

A not only can revoke contract, but also can claim damages for the loss of contract. In the reverse example, if A fails to provide first installment at stipulated time, B can revoke the agreement with the claim of damages.

Indemnity u/s 124 is the promise or commitment to pay compensation to whom suffers from loss. A person who pays compensation is named indemnified, one who receives compensation is called indemnity holder, and this process is called contract of indemnity.

A has to dispatch some goods to other city through a transport company. Transport Company commits A to compensate in case his goods suffers from any loss or hazard. A is indemnity holder, i.e., may receive compensation upon the occurrence of loss to goods, transport company is indemnified and this agreement is called contract of indemnity. Payment of rent is consideration.

S. 125 deals with receiving of compensation. B is an agent of A. A third party C sues B in connection with his business, that is carried by B. B defends A in legal proceedings and some expenses are incurred to save the interest of A. Although there is no contract between A & B to recover these sort of damages, but S. 125 provides this facility. B can recover these expenses from A. B also can claim damages for which he was compelled to pay. If B settles a matter with C, also he can receive damages from A.

B cannot recover indemnity from A, if A has specified specially not to do certain things or he has incurred unreasonable amount to settle a matter.

Guarantee u/s 126 is a contract to perform the promise or discharge liability of a third person in case of his default.

Party who gives loan to second party is called creditor. A person who receives the loan or the person in respect of whose default the guarantee is given is called the principal debtor. A person who gives the guarantee is called the surety. A guarantee may be either oral or written. Introduction in account opening process is not a guarantee.

A principal debtor can be compelled to discharge his liability in case of default. Liability of principal debtor is not discharged if surety runaways. If contract of guarantee is fulfilled, then the surety is discharged, too.

Difference between guarantee and indemnity:

1.      There are three parties in guarantee while two in indemnity.

2.      Guarantee agreement is security of creditor while indemnity is reimbursement of loss.

3.      Guarantee is relationship with creditor and surety indirectly while indemnity is direct engagement between two parties.

4.      In guarantee surety can be sued while in indemnity, indemnified cannot sue.

5.      Guarantee is crated by third party while nothing is third party in indemnity.

6.      Guarantee is written while indemnity may be oral.

S. 127 – Contracts without consideration u/s 25 are void, but where benefit or interest of the principal debtor is sufficient consideration on the part of surety, for the purpose of guarantee.

S. 128 – Surety’s Liability: Liability of surety is co-extensive, unless it is otherwise provided by the contract. If A lends Rs. 50,000/- to B, on the guarantee of C, a surety, and B defaults in repayment, C is liable to pay Rs. 50,000/- to A. If B pays Rs. 20,000/- and then commits default, C will pay remaining liability of Rs. 30,000/-. Liability of debtor is liability of surety. If contract provides that liability of surety will remain upto Rs. 25,000/- in deal of Rs. 50,000/- then liability of surety will remain upto Rs. 25,000/-. Then it will not co-extensive. If principal debtor fails to repay or commits default, liability of principal debtor will transfer to surety along-with rights of principal debtor. If A lends Rs. 50,000/-to B with personal guarantee of C along-with security of ornaments worth Rs. 20,000/- and B commits default then not only liability of B will transfer toward surety but rights of principal debtor, too. If B fails to repay and creditor returns ornament to B, C can sue A in Court of law. This guarantee is applicable in single transaction.

S. 129 deals with continuing guarantee which extends over a series of transactions.

Illustration: A employees B on the guarantee of C, for the collection of rent due upto Rs. 5,000/- and A will pay him fixed salary Rs. 1,000/-. This is continuing guarantee because it spreads over number of series.

In another illustration, B supplies tea to A, worth Rs. 5,000/- on the guarantee of C. A pays B the whole amount. Afterwards B supplies to A tea above the value of Rs. 5,000/- and A fail to pay. The guarantee given by C has a continuing guarantee, and he is accordingly liable to B to the extent of Rs. 5,000/-.

Revocation of guarantee: Continuous guarantee, at any time, may be revoked by the surety, as to future transactions, and must be served a notice to principal creditor. Guarantee for single transaction may also be revoked at any time with a prior notice to the principal creditor.

If ten transactions are to be made under the continuing guarantee and six of them transactions have been made, surety may revoke guarantee for rest of four transactions with prior notice to the principal creditor.

Death in case of continuous guarantee is considered revoked, so far as future transactions are concerned. Any contract can be altered at any time but this variance must be communicated to surety and his consents must be obtained, otherwise liability of surety u/s 132 will be discharged.

If the principal creditor releases the debtor from his obligation or liability, then surety automatically will be discharged u/s 134.

If principal creditor compounds to give more time other than contract to debtor for not to sue, discharges the surety, unless the surety assents to such contract. Time variance under contract shall not discharge surety u/s 136.

If the repayment of debt becomes due and debtor commits default and creditor does not sue after due payment, does not discharge surety’s liability u/s 137.

Where there are more than one sureties and creditor release one or more than one of them, will not affect remaining sureties’ liability. If two sureties give guarantee of Rs. 50,000/- loan, both will be liable equally for Rs. 25,000/- each, in case of default of debtor. If guarantee varies, as Rs. 30,000/- for A and Rs. 20,000/- for B, both will be responsible upto the extent of contracted guarantee.

Rights of principal debtor are transferred towards surety upon the commission of debtor’s default. Guarantee, which is obtained by misrepresentation, is invalid u/s 142. If the facts of guarantee are concealed from surety renders it to invalid.

Surety can recover, whatsoever he has paid to principal creditor, in case of debtor’s default, from debtor even it is not mentioned in contract. But the amount paid by surety wrongfully cannot be recovered.

Co-sureties are liable upto the defined extent of liability. And if percentage is defined, they will liable upto the defined percentage to each of them.

Contract of hire-purchase: Agreement by which an owner lets chattels of any description out on hire to the hirer, and further agrees that the chattels shall become the property of the hirer when the payments of hire-rental have reached a sum equal to the amount of the purchase price stated in the agreement, or upon the payment of a stated sum.

Bailment: We give and take many things in our routine life daily. Many of them delivers gratuitous and many non-gratuitous. We owe movies, pressure cooker, fan, book, and car etc. In all instances possession is changed from one to another. This is temporary possession or transfer of possession. When other party fulfills his object, goods are returned to the party who had transferred the possession. Titled goods are transferred temporarily and after accomplishment goods are returned is called contract of bailment. One who transfers the possession is called bailor and in favour of whom possession is transferred is called bailee.

Goods are delivered to bailee by bailor directly or one whom does the bailor authorizes. A being bailor bails a movie one rent to B. Later C comes to A to have such movie on rent, A says to B to deliver movie to C being authorization to B to deliver goods on bailor’s behalf.

Bailor is bound to disclose faults in goods, to bailee. In contrast bailee can claim damages on the occurrence of injury to him. Bailor should not be negligent and must be vigilant u/s 150 at the time of delivery of goods without faults.

Duty of bailee is defined u/s 151. Bailee is duty bound to take care of goods bailed to him in a manner as he takes care of his own goods, as reasonable man and in reasonable manner.

If bailee takes care as defined u/s 151, he is no more liable to pay damages to bailor u/s 152, if occurred. Normal depreciation is acceptable.

If bailee does not act for which bailment is made, bailment would become void-able at option of bailor. Example, A, lets a horse to B for his own riding. B drives the horse in his carriage in-spite of riding. It becomes void-able at the option of A being violation of the bailment u/s 153.

Damages are recoverable upon the unauthorized use of bailment, if injury occurred. If goods bailed are used other than bailee and loss occurred, bailee is liable u/s 154.

Goods of bailor and bailee can be mixed with consents of bailor either separable or non-separable u/s 155. No liability arises if loss occurs.

If bailee mixes the goods bailed without consents of bailor and goods are separable, expenses will be borne by the bailee for separation or division u/s 156.

Goods of bailor, which are inseparable, if mixed with the goods of bailee, bailee is liable for loss of mixing, if the mixing is without consents of bailor u/s 157.

If the necessary expenses are incurred on the goods bailed by bailee, bailor is liable to pay such expenses u/s 158.

It is duty of the bailee to return the goods bailed to him after accomplishment of the purpose, soon, irrespective that bailor demands or not u/s 160. If duty u/s 160 is not performed then bailee is responsible for the loss u/s 161.

Death either of bailor or bailee terminates the gratuitous bailment u/s. 162.

Bailor is entitled to receive any increase or profit, which is attached to the bailment, if contrary is not provided. Pregnant cow will be returned with young cow (calf) if she delivers before return u/s 163.

Finder of lost goods may retain the goods to receive the reward specific from the bailor u/s 168.

Finder of lost goods may sell goods if they are perishable or if lawful charges are equal to 2/3^rd. of the value of goods found u/s 169.

Bailee can retain goods bailed to him in order to receive remuneration against services involving the exercise of labour or skill, if applicable u/s 170.

A, a motorcycle bailed to B for repair. After duly repair B can retain motorcycle until the services rendered are recovered.

Bankers, commission agents, god-own owners, advocates of High Court, and insurance agents can retain goods bailed to them until they are paid against the services they have rendered by them to bailor u/s 171.

Pledge is delivery of goods, as security against loan. These goods are also called pawn and are returnable after the debt is retired. Pledge is applied on moveable property. The person who pledges his moveable property or bailor is called pawnor and the person, in whom favour goods are bailed, is called Pawnee.

Pawnee’s rights: They are as follows:

1.      Retention of goods: Pawnee can retain goods until the promise is performed or debt it retired, interest, if any, is received, necessary expenses which were incurred have been received for the purpose of preservation of goods.

If the cow was bailed as pledge, the expenses incurred on green fodder, which are necessary and are perceivable at the time of pledge, can be claimed as ordinary expenses.

2.      Recovery of extraordinary expenses: Pawnee also can sue for the recovery of extraordinary expenses incurred beyond the perception. In above example medical treatment, which cannot be foreseen at the time of making pledge, can be recovered through Court.

3.      Selling of goods: If pawnor commits default to pay back debt or in performance of promise, Pawnee can sue or sell the goods to recover debt. If the amount received form sale proceeding is less than the debt, rest amount can be claimed either by demand or sue. Reasonable notice must be served to the pawnor before sale proceedings.

Pawnor’s rights:

1.      Release of goods: Pawnee is bound by law to release the goods of pawnor whenever debt is retired or promise is performed. Pawnee cannot retain the goods of pawnor for the purpose other than debt for which goods were bailed.

2.      Surplus of sale proceedings: If Pawnee sells goods and amount recovered is surplus of actual debt, the rest amount is right of the pawnor.

3.      Redemption of goods: Pawnor at any time can pay back debt after the date of payment is expired, before proceedings of sale. If the goods are not sold and are in the hands of Pawnee, Pawnee cannot say that time has been expired, and now goods must be sold. Law gives right to pawnor for the redemption of goods. But pawnor is obliged to pay the interest accumulated and necessary expenses incurred on the goods bailed.

The period for a suit against a Pawnee to recover the things pledged is thirty years from the date of the pawn.

4.      Pledge for the benefit of pawnor: A mercantile agent may pledge goods of his principal for the benefit of his business with the knowledge of principal.

5.      Possession under void-able contract: Pawnee can obtain pledge under void-able contract from pawnor in the absence of knowledge of void-able contract.

In case if third person deprives to pawnee to use his goods, or injures them, pawnee can claim damages being the owner of the goods or both pawnor and pawnee can sue against him.

Amount received from lawsuit is disburse-able in both proportionately.

There are many duties, which are to be performed by a person. A single person cannot perform some duties. To get the different jobs done, authority to do is delegated to a person. A person employed to do any act for another or represent another in dealings with third person is called an agent. The person, who employs an agent and delegates him some powers or who is so represented, is called principal. An agent creates relationship between the principal and third person in dealing certain matters. The relationship between principal and agent is also contractual.

Who may employ an agent: Following are the pre-qualifications of the principal for the creation of an agency:

i)        An agent should attain age of majority before appointment.

ii)      Person of sound mind may be an agent.

Consideration for the creation of an agency is immaterial.

Principal may delegate authority to his agent expressively or implied. Authority is express, when it is given by words or written while it is implied, when it is left to be inferred from circumstances of the case or the course of dealings between the parties. If an agent performs an act, which is in the knowledge of his principal, is an implied authority.

Extent of agent’s authority: An agent can take every lawful measure to carry on business of his principal for which he is so authorized. For example, A constitutes B as an agent to build a house. B can purchase building material and employs workforce, for the purpose of carrying on the business.

In case of emergency an agent is allowed to do every lawful and possible act to protect the interest of his principal in a way as his own interest. It should be done reasonably.

A gives a parcel to B to sent it to Karachi within twelve hours. B can sent it by speedy courier service, despite ordinary mail, even on higher rates.

Sub agency can be created if principal allows expressively or implied or nature of business or customs of trade permits.

A sub agent is a person employed by the agent on the behalf of principal. A principal is responsible for the acts of sub agent where sub agency is created properly and where sub agent represents his principal.

Sub agent is answerable to agent and agent is an answerable to principal. Principal and agent are liable for the commission of fraud of the sub agent. A sub agent appointed by an agent without authority is not liability of principal and agent is sole responsible for his acts.

If principal names a person to employ by agent is not sub agent, but the agent of principal. Agency can be created with or without consents of the principal. If principal authorizes agent to employ sub agent then principal is responsible vicariously for the acts of sub agent being an agent. If principal names the sub agent then agent is not responsible for the acts of sub agent.

If principal does not name the sub agent but specifies some qualifications or conditions and an agent employ the sub agent of specific skills in good faith, likely his own interest, the agent is not responsible for the act of sub agent because he has taken due care for the appointment of sub agent as per principal’s order. For example, an agent employs a sub agent of good repute to construct a house and house gets fall down after construction. Agent is not liable but sub agent is responsible. If the sub agent employed by an agent is incompetent then an agent is liable for his wrong acts.

If an agent or sub agent performs their duties with lawful authority, express or implied, principal is liable for the consequences, and in contrast principal is free from burden and concerned individual is responsible. Principal is not responsible for unauthorized acts but he can ratify such acts and then principal will be responsible as that acts were authorized.

Essentials of ratification: There are some prerequisites of the act of ratification as follows:

1.      Act must have been done for and in the name of principal.

2.      The principal should know facts and figures and his knowledge must not be defective. If there is concealment of facts, ratification would become void.

3.      Since the effects of ratification take place in back dates, so ratifier is supposed major at the date of ratification. A principal ratifies certain acts of an agent or sub agent from back date says January 01, 1980, it should be assured that principal was then competent to authorize the acts ratified.

4.      Ratifier should live at the time of ratification. Written statement of dead person is invalid.

5.      Only lawful act can be ratified thus forged signatures are not ratified.

6.      Whole and not partly transactions must be ratified.

7.      An act of ratification must be completed within reasonable time. Reasonable time is a question of fact.

8.      Ratification may be expressed or implied.

9.      If the right of interest or benefit was terminated in back date then it cannot be granted.

10.  Transaction void ab initio cannot be ratified.

11.  Act, which injures third person’s interest, cannot be ratified.

Revocation of authority: Following are the ways to terminate or revoke the authority given by principal to his an agent:

1.      After accomplishment of task or business matter or object, authority is automatically terminated. An agency will stand terminate if it was created for the accomplishment for specific purpose and purpose has been achieved.

2.      If the agency is created for specific time period and that time has expired, it will stand terminate.

3.      If the agent is so lazy, incompetent, duty does not comply with duty etc. an agency will be terminated.

4.      By either party agency can be terminated by giving notice to one another. If breach of contract is committed then defaulter must pay compensation to other party.

5.      Where principal does not pay compensation to his agent, then an agent may terminate an agency.

6.      Before start up of subject matter, an agency can be terminated.

7.      Part of authority exercised cannot be revoked but rest of the authority can be revoked.

8.      Where the interest of an agent is involved, an agency can be terminated with the consents of an agent otherwise death or insanity does not provide ground to revoke the authority.

9.      Death or insanity terminates the principal’s authority. But an agent is bound to carry on business or protect interest of his late principal until the business is succeeded.

10.  An agent can resign.

11.  An operation of law terminates the agency.

Duty of an agent to his principal:

1.      An agent is bound to conduct the business of his principal according to the directions given to him by principal or in such absence, according to prevailed customs of the business at that place.

2.      He is duty bound to receive instructions from his principal, if and when required.

3.      Skill and diligence, which is essential requirement of the business, must be performed.

4.      Consequences of neglect must be borne by an agent.

5.      An agent is bound to render proper accounts to his principal on demand.

6.      In case of difficulty, an agent is bound to obtain instructions from his principal.

7.      An agent cannot use his own name in the business of his principal if so benefit derived will be given to his principal.

8.      An agent is bound to pay all sums received on his account after making necessary legal deductions.

Duty of principal towards his agent:

1.      Principal is obliged to pay to his agent, remuneration and all legal expenses incurred to carry on business.

2.      Payment of commission, disbursements, and services to agent is duty of principal.

3.      All lawful acts of an agent must be indemnified.

4.      Agent to be indemnified against consequences of acts done in good faith.

5.      Principal is not bound to indemnify an agent of his criminal act even committed on express or implied consents.

6.      Principal is obliged to make compensation to his agent in respect of injury caused to such agent by the neglect of principal or want of skill.