The Contract Act, 1977

Short title, extent and commencement.-(1) This Act may be called the Contract Act, 1977.

1. (2) It extends to the whole of Jammu and Kashmir State.

Enactments repealed A. Enactment repealed-.Nothing, herein contained shall affect the provisions of any Act not hereby expressly repealed, nor any usage or custom of trade, nor any incident of any contract, not inconsistent with the provisions of this Act.

Interpretation clause.-In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context :—

1. (a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.
2. (b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to he accepted. A proposal, when accepted, becomes a promise.
3. (c) The person making the proposal is called the "promisor" and the person accepting the proposal is called the "promisee".
4. (d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.
5. (e) Every promise and every set of promises, forming the consideration for each other, is an agreement.
6. (f) Promises which form the consideration or part of the consideration for each other are called reciprocal promises.
7. (g) An agreement not enforceable by law is said to be void,
8. (h) An agreement enforceable by law is a contract.
   • (i) An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract.
9. (j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.

Communication, acceptance and revocation of proposals.-The communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it.

Communication when complete.—The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.

The communication of an acceptance is complete-

as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor; as against the acceptor, when it comes to the knowledge of the proposer.

The communication of a revocation is complete-

as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it; as against the person to whom it is made, when it comes to his knowledge.

Revocation of proposals and acceptance.— A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.

Revocation how made Revocation How made.— A proposal is revoked-

1. (1) by the communication of notice of revocation by the proposer to the other party ;
2. (2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance;
3. (3) by the failure of the acceptor to fulfill a condition precedent to acceptance; or
4. (4) by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.

Acceptance must be absolute.—In order to convert a proposal into a promise, the acceptance must-

1. (1) be absolute and unqualified;
2. (2) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner and not otherwise ;but if he fails to do so, he accepts the acceptance.

Acceptance by performing conditions, or receiving consideration —Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.

Premises, express and implied.—In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express.

What agreements are contracts What agreements are contracts.-All agreements are contracts, if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and or not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in the State and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents.

Who are competent to competent.-Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.

What is a sound mind for the purposes of contracting — A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.

A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.

"Consent" defined "Consent"defined.-Two or more persons are said to consent when they agree upon the same thing in the same sense.

"Free consent defined.-Consent is said to be free when it is not caused by-

1. (1) coercion, as defined in section 15,or
2. (2) undue influence, as defined in section 16,or
3. (3) fraud, as defined in section 17,or
4. (4) misrepresentation, as defined in section 18,or
5. (5) mistake subject to the provisions of sections 20,21 and 22.

"Coercion" defined "Coercion" defined.—"Coercion "is the committing, or threatening to commit, any act forbidden by the Ranbir Penal Code or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.

Explanation.-It is immaterial whether the Ranbir Penal Code is or is not in force in the place where the coercion is employed.

Illustrations.

A, on board ship on the high seas causes B to enter into an agreement by an act amounting to criminal intimidation under the Ranbir Penal Code.

A afterwards sues B for breach of contract at Calcutta.

"Undue influence" defined "Undue influence" defined.-(l) 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 uses that position to obtain an unfair advantage over the other reality of the foregoing principle a person is deemed to be in reality of the foregoing principle, a person is deemed to be in a position to dominate the will of another —

1. (a) where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or
2. (b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.

1. (2) Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shah lie upon the person in a position to dominate the will of the other. Nothing in this sub-section shall affect the provisions of section 111 of the Evidence Act. Illustrations.
   • (a) A, having advanced money to his son, B, during his minority, upon B's coming of age obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence.
   • (b) A, a man enfeebled by disease or age, is induced, by B's influence over bun as his medical attendant, to agree to pay B an unreasonable sum for his professional services. B employs undue influence.
   • (c) A being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appears to be unconscionable. It lies on B to prove that the contract was not induced by undue influence.
   • (d) A applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms.

"Fraud" defined "Fraud" defined.-"Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract :-

1. (1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
2. (2) the active concealment of a fact by one having knowledge or belief of the fact;
3. (3) a promise made without any intention of performing it;
4. (4) any other act fitted to deceive;
5. (5) any such act or omission as the law specially declares to be fraudulent. Explanation.-Mere, silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself equivalent to speech. Illustrations.
   • (a) A sells, by auction, to B a horse which A knows to be unsound, A says nothing to B about the horse's unsoundness. This is not fraud in A.
   • (b) B is A's daughter and has just come of age. Here, the relation between the parties would make it A's duty to tell 8 if the horse is unsound.
   • (c) B says to A "if you do not deny it, I shall assume that the horse is sound.” A says nothing. Here A's silence is equivalent to speech.
   • (d) A and B, being traders, enter upon a contract. A has private information of a change in prices which would affect B's willingness to proceed with the contract.

"Misrepresentation" "Misrepresentation ".-"Misrepresentation" means and includes-

1. (1) the positive assertion, in a manner not warranted by the information
2. (2) of the person making it, of that which is not true, though he believes it to be true;
3. (3) any breazch of duty which, without an intent to deceive, gains an advantage to the person committing it, or, any one claiming under him, by misleading another to his prejudice or to the prejudice of any one claiming under him;
4. (4) causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.

Voidability of agreements without free consent.-When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option -of the party whose consent was so caused.

A party, to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true.

Exception.-If such consent was caused by misrepresentation or by silence fraudulent within the. meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.

Explanation.-A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such fraud was practiced, or to whom such misrepresentation was made, does not render a contract voidable.

Illustrations.

1. (a) A, intending to deceive B, falsely represents that five hundred maunds of indigo are made annually at A's factory, and thereby induces B to buy the factory. The contract is voidable at the option of B.
2. (b) A, by a misrepresentation, leads B erroneously to believe that five hundred maunds of indigo are made annually at A's factory. B examines the accounts of the factory, which show that only four hundred maunds of indigo have been made. After this B buys the factory. The contract is not voidable on account of A's misrepresentation.
3. (c) A, fraudulently informs B that A's estate is free from encumbrance. B, thereupon buys the estate. The estate is subject to a mortgage. B may either avoid the contract or may insist on its being carried out and the mortgage-debt redeemed.
4. (d) B, having discovered a vein of ore on the estate of A, adopts means to conceal, and does conceal, the existence of the ore from A. Through A's ignorance B is enabled to buy the estate at an undervalue. The contract is voidable at the option of A.
5. (e) A is entitled to succeed to an estate at the death of B ;B dies ;C having received intelligence of B's death, prevents the intelligence reaching A, and thus induces A to sell him his interest in the estate.

Power to set aside contract induced by undue influence A.Power to set aside contract induced by undue influence.-When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused.

Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the Court may seem just. Illustrations.

1. (a) A's son has forged B's name to a promissory note. B, under threat of prosecuting A's son, obtains a bond from A for the amount of the forged note. If B sues on this bond, the Court may set the bond aside.
2. (b) A, a money-lender, advances Rs.100 to B, an agriculturist, and by undue influence, induces B to execute a bond for Rs.200 with interest at 6 per cent per month. The Court may set the bond aside, ordering B to repay Rs.100 with such interest as may seem just.

Agreement void where both parties are under mistakes as to matter of fact.-Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.

Explanation.-An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement is not to be deemed a mistake as to a matter of fact

Illustrations.

1. (a) A, agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of the fact. The agreement is void.
2. (b) A, agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain though neither party was aware of the fact. The agreement is void.
3. (c) A, being entitled to an estate for the life of B, agrees to sell it to C. B was dead at that time of agreement, but both parties were ignorant of the fact.

Effect of mistakes as to law Effect of mistakes as to law.- A contract is not voidable because it was caused by a mistake as to any law in force in the State but a mistake as to a law not in force in the State has the same effect as a mistake of fact.

Illustrations.

A and B make a contract grounded on the erroneous belief that a particular debt is barred by the Law of Limitation.

Contract caused by mistake of one party as to matter of fact Contract caused by mistake of one party to matter of fact.-A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.

What considerations and objects are lawful, and what not. —The consideration or object of an agreement is lawful, unless-it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful.

Agreements void, if considerations and objects unlawful in part Agreements void, if consideration and objects unlawful in part.-If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void,

Agreement without consideration void unless it is in writing and registered.—An agreement made without consideration is void, unless —

1. (1) it is expressed in writing and registered under the law for the time being in force for the registration of documents and is made on account of natural love and affection between parties standing in a near relation to each other; or unless
2. (2) or is a promise to compensate for something done.—It is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor or something which the promisor was legally compellable to do; or unless
3. (3) or is a promise to pay a debt barred by limitation law-It is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorised in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.

Agreement in restraint of marriage void Agreement in restraint of marriage void.-Every agreement in restraint pf the marriage of any person other than a minor is void.

Agreement in restraint of trade void.—Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any land is to that extent void. Exception 1.-Saving of agreement not to carry on business of which goodwill is. –One who sells the good-will of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the good-will from hud, carries on a like business therein:

Agreements in restraint of legal proceeding void Agreements in restraint of legal proceeding void.-Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent. Exception 1-Saving of contract to refer to arbitration dispute that may arise.-Thus section shall not render illegal a contract by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred. 2[x x x x ]. Exception 2- Saving of contract to refer questions that have already arisen.—Nor shall this section render illegal any contract in writing by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to references to arbitration.

Agreements void for uncertainty.-Agreements, the meaning of which is not certain, or capable of being made certain, are void.

Agreements by way of wager void-Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made. Exception in favour of certain prizes for horse-racing.—"Has section shall not be deemed to render unlawful a subscription, or contribution, or agreement to subscribe or contribute, made or entered into for or towards any plate, prize or sum of money, of the value or amount of five hundred rupees or upwards, to be awarded to the winner or winners of any horse-race. Section 294-A of the Ranbir Penal Code not affected.-Nothing in this section shall be deemed to legalize any transaction connected with horse-racing, to which the provisions of section 294-A of the Ranbir Penal Code apply.

"Contingent contract" defined-A "Contingent contract" is a contract to do or not to do something, if some event collateral to such contract does or does not happen.

Enforcement of contracts contingent on an event happening.-Contingent contracts to do or not to do anything if an uncertain future event happens cannot be enforced by law unless and until that event has happened.

Enforcement of contract contingent on an event not happening Enforcement of contract contingent on an event not happening.- Contingent contract to do or not to do anything if an uncertain future event does not happen can be enforced when the happening of that event becomes impossible, and not before.

When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person.—If the future event on which a contract is contingent is the way in which a person will act at an unspecified time, the events shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies.

When contracts become void which are contingent on happening of specified event within fixed time.—Contingent contracts to do or not to do anything if a specified uncertain event happens within a fixed time become void, if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event becomes impossible. When contracts may be enforced which are contingent on specified event not happening within fixed time.—Contingent contracts to do or not to do anything if a specified uncertain event does not happen within a fixed time may be enforced by law when the time fixed has expired and such event has not happened, or before the time fixed has expired, if it becomes certain that such event will not happen.

Agreements contingent on impossible events void.—Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made.

Obligation of parties to contracts.—The parties to a contract must either perform or offer to perform their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law. Promises bind the representatives of the promisors in case of the death of such promisor before performance, unless a contrary intention appears from the contract.

Effect of refusal to accept offer of performance Effect of refusal to accept offer of performance.—Where a promisor has made an offer of performance to the promisee and the offer has not been accepted, the promisor is not responsible for non-performance, nor does he thereby lose his rights under the contract. Every such offer must fulfill the following conditions:—

1. (1) it must be unconditional;
2. (2) it must be made at a proper time and place, and under such circumstances that the person to whom it is made may have a reasonable opportunity of ascertaining that the person by whom it is made is able and willing there and then to do the whole of what he is bound by his promise to do;
3. (3) if the offer is an offer to deliver anything to the promisee, the promisee must have a reasonable opportunity of seeing that the thing offered is the thing which the promisor is bound by his promise to deliver.

Effect of refusal of party to perform promise wholly Effect of refusal of party to perform promise wholly.—When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified by words or conduct, his acquiescence in its continuance.

Person by whom promise is to be performed.—If it appears from the nature of the case that it was the intention of the parties to any contract that any promise contained in it should be performed by the promisor himself, such promise must be performed by the promisor.

Effect of accepting performance from third person Effect of accepting performance from third person.—When a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor.

Devolution of joint liabilities.—When two or more persons have made a joint promise, then unless a contrary intention appears by the contract, all such persons, during their joint lives, and after the death of any of them, his representative jointly with the survivor or survivors and after the death of the last survivor, the representatives of all jointly, must fulfill the promise.

Any one of joint promisors may be compelled to perform.—When two or more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any (one or more) of such joint promisors to perform the whole of the promise. Each promisor may compel contribution.—Each of two or more joint promisors may compel every other joint promisor to contribute equally with himself to the performance of the promise, unless a contrary intention appears from the contract. Sharing of loss by default in contribution.—If any one of two or more joint promisors makes default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares. Explanation.—Nothing in this section shall prevent a surety from recovering from his principal, payments made by the surety on behalf of the principal, or entitle the principal to recover anything from the surety on account of payments made by the principal.

Effect of release of one joint promisor.—Where two or more persons have made a joint promise, a release of one of such joint promisors by the promisee does not discharge the other joint promisor or joint promisors; neither does it free the joint promisor so released from responsibility to the other joint promisor or joint promisors.

Devolution of joint rights.—When a person has made a promise to two or more persons jointly, then, unless a contrary intention appears from the contract, the right to claim performance rests, as between him and them, with them during their joint lives, and after the death of any of them, with the representative of such deceased person jointly with the survivor or survivors, and, after the death of the last survivor, with the representatives of all jointly.

Time for performance of promise where no application is to be made and no time is specified.—Where, by the contract, a promisor is to perform his promise without application by the promisee, and no time for performance is specified, the engagement must be performed within a reasonable time. Explanation.—The question "what is a reasonable time" is, in each particular case, a question of fact.

Time and place for performance of promise where time is specified and no application to be made.—When a promise is to be performed on a certain day, and the promisor has undertaken to perform it without application by the promisee, the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed.

Application for performance on certain day to be at proper time and place.—When a promise is to be performed on a certain day and the promisor has not undertaken to perform it without application by the promisee, it is the duty of the promisee to apply for performance at a proper place and within the usual hours of business. Explanation.—The question "what is a proper time and place" is, in each particular case, a question of fact.

Place for performance of promise where no application to be made and no place fixed for performance.—When a promise is to be performed without application by the promisee, and no place is fixed for the performance of it, it is the duty of the promisor to apply to the promisee to appoint a reasonable place for the performance of the promise and to perform it at such place.

Performance in manner or at time prescribed or sanctioned by promisee.-The performance of any promise may be made in any manner, or at any time which the promisee prescribes or sanctions.

Illustrations.

1. (a) B owes A 2,000 rupees. A desires B to pay the amount to A's account with C, a banker. B, who also banks with C, orders the amount to be transferred from his account to A's credit, and this is done by C. Afterwards, and before A knows of the transfer, C fails. There has been a good payment by B.
2. (b) A and B are mutually indebted. A and B settle an account by setting off one item against another, and B pays A the balance found to be due from him upon such settlement. This amounts to a payment by A and B, respectively, of the sums which they owed to each other.
3. (c) A owes B 2,000 rupees. B accepts some of A's goods in reduction of the debt. The delivery of the goods operates as a part payment.
4. (d) A desires B, who owes him Rs.100 to send him a note for Rs.100 by post.

Order of performance of reciprocal promises Order of performance of reciprocal promises.-Where the order in which reciprocal promises are to be performed is expressly fixed by the contract, they shall be performed in that orders ;and where the order is not expressly fixed by the contract, they shall be performed in that order which the nature of the transaction requires.

Illustrations.

1. (a) A and B contract that A shall build a house for B at a fixed price. A's promise to build the house must be performed before B's promise to pay for it.
2. (b) A and B contract that A shall make over his stock-in-trade to B at a fixed price, and B promises to give security for the payment of the money. A's promisor need not be performed until the security is given, for the nature of the transaction requires that A should have security before he delivers up his stock..

Liability of party preventing event on which contract is to take effect —When a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the party so prevented, and he is entitled to compensation from the other party for any loss which he may sustain in consequence of non-performance of the contract.

Illustration. A and B contract that B shall execute certain work for A for a thousand rupees. B is ready and willing to execute the work accordingly but A prevents him from doing so.

Effect of default as to that promise which should be first performed in contract consisting of reciprocal promises Effect of default as to that promise which should be first performed in contract consisting of reciprocal promises.-When &contract consists of reciprocal promise such that one of them cannot be performed, or that its performance cannot be claimed till the other has been performed, and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract.

Illustrations.

1. (a) A hires B's ship to take in and convey from Calcutta to the Mauritius, a cargo to be provided by A,B receiving a certain freight for its conveyance. A does not provide any cargo for the ship, A cannot claim the performance of B's promise, and must make compensation to B for the loss which B sustains by the non-performance of the contract.
2. (b) A contracts with B to execute certain builder's work for a fixed price, B supplying the scaffolding and timber necessary for the work. B refuses to furnish any scaffolding or timber, and the work cannot be executed. A need not execute the work, and B is bound to make compensation to A for any loss caused to him by the non-performance of the contract.
3. (c) A contracts with B to deliver to him, at a specified price, certain merchandise on board a ship which cannot arrive for a month, and B engages to pay for the merchandise within a week from the date of the contract. B does not pay within the week. A's promise to deliver need not be performed, and B must make compensation.
4. (d) A promises B to sell him one hundred bales of merchandise to be delivered next day, and B promises A to pay for them within a month. A does not deliver according to his promise.

Effect of failure to perform at fixed time in contract in which time is essential Effect of failure to perform at fixed time in contract in which time is essential.—When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.

Effect of such failure when time is not essential.—If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified time ;but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure.

Effect of acceptance of performance at time other than that agreed upon.-If,in case of a contract voidable on account of the promisor's failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of such acceptance, he gives notice to the promisor of his intention to do so.

Agreement to do impossible act.-An agreement to do an act impossible in itself is void.

Contract to do act afterwards becoming impossible or-unlawful.-A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

Compensation for loss through non-performance of act known to be impossible or unlawful.-Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise.

Illustrations.

1. (a) A agrees with B to discover treasure by magic. The agreement is void.
2. (b) A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The contract becomes void.
3. (c) A contracts to marry B, being already married to C, and being forbidden by the law to which he is subject to practice polygamy .A must make compensation to B for the loss caused to her by the non-performance of his promise.
4. (d) A contracts to take in cargo for B at a foreign port. A's Government afterwards declares war against the country in which the port is situated. The contract becomes void when war is declared.
5. (e) A contracts to act at a theatre for six months in consideration of a sum paid in advance by B. On several occasions A is too ill to act.

Reciprocal promise to do things legal, and also other things illegal Reciprocal promise to do things legal, and also other things illegal.—Where persons reciprocally promise, firstly, to do certain things which are legal, and secondly, under specified circumstances to do certain other things which are illegal, the first set up promises is a contract, but the second is-a void agreement.

Illustration. A and B agree that A shall sell B a house for 10,000 rupees, but that, if B uses it as a gambling house, he shall pay A,50,000 rupees for it. The first set of reciprocal promises, namely, to sell the house and to pay 10,000 rupees for it, is a contract.

Alternative promise, one branch being illegal Alternative promise, one branch being illegal.—In the case of an alternative promise, one branch of which is legal and the other illegal, the legal branch alone can be enforced.

Illustration. A and B agree that A shall pay B 1,000 rupees, for which B shall afterwards deliver to A either rice or smuggled opium.

Application of payment where debt to be discharged is indicated Application of payment where debt to be discharged,indicated.-Where a debtor, owing several distinct debts to one person, makes a payment to him, either with express intimation, or under circumstances implying that the payment is to be applied to the discharge of some particular debt, the payment, if accepted, must be applied accordingly.

Illustrations.

1. (a) A owes B, among other debts, 1,000 rupees upon a promissory note which falls due on die first June. He owes B no other debt of that amount: On the first June A pays to B 1,000 rupees. The payment is to be applied to the discharge of the promissory note.
2. (b) A owes to B, among other debts, the sum of 567 rupees. B writes to A and demands payment of this sum. A sends to B 567 rupees.

Application of payment where debt to be discharged is not indicated Application of payment where debt to be discharged is not indicated.-Where the debtor has omitted to intimate and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits.

Application of payment where neither party appropriates.—Where neither party makes any appropriation the payment shall be applied in discharge of the debts in order of time, whether they are or are not barred by the law in force for the tune being as to the limitation of suits.

Effect of novation, rescission and alteration of contract Effect of novation,,rescision and alteration of contract .-If the parties to a contract agree to substitute a new contract for it or to rescind or alter it, the original contract need not be performed.

Illustrations.

1. (a) A owes money to B under a contract. It is agreed between A,B and C that B shall thenceforth accept C as his debtor, instead of A. The old debt of A to B is at an end, and a new debt from C to B has been contracted.
2. (b) A owes B 10,000 rupees. A enters into an agreement with B, and gives B a mortgage of his (A's) estate for 5,000 rupees in place of the debt of 10,000 rupees. This is a new contract and extinguishes the old.
3. (c) A owes B 1,000 rupees under a contract. B owes C 1,000 rupees. B orders A to credit C with 1,000 rupees in his books, but C does not assent to the agreement.

Promisee may dispense with or remit performance of promise Promisee may dispense with or remit performance of promise.—Every promisee may dispense with or remit wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.

Illustrations.

1. (a) A promises to paint a picture for B.B afterwards forbids him to do so. A is no longer bound to perform the promise.
2. (b) A owes B 5,000 rupees. A pays to B and B accepts, in satisfaction of the whole debt, 2,000 rupees paid at the time and place at which the 5,000 rupees were payable. The whole debt is discharged.
3. (c) A owes B 5,000 rupees. C pays to B 1,000 rupees and B accepts them, in satisfaction of his claim on A. This payment is a discharge of the whole claim.
4. (d) A owes B, under a contract, a sum of money, the amount of which has not been ascertained. A without ascertaining the amount gives to B, and B in satisfaction thereof, accepts, the sum of 2,000 rupees. This is a discharge of the whole debt, whatever may be its amount.
5. (e) A owes B 2,000 rupees, and is also indebted to other creditors. A makes an arrangement with his creditors, including B, to pay them, a composition of eight annas in the rupee upon their respective demands.

Consequences of rescission of voidable contract Consequences of rescission of voidable contract.-When a person at whose option a contract is voidable rescinds it, 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 may be, to the person from whom it was received.

Obligation of person who has received advantage under void agreement or contract that becomes void.-When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.

Illustrations.

1. (a) A pays B 1,000 rupees in consideration of B's promising to marry C, A's daughter. C is dead at the time of the promise. The agreement is void but B must repay A the 1,000 rupees.
2. (b) A contracts with B to deliver to him 250 maunds of rice, before the first of May. A delivers 130 maunds only before that day. and none after. B retains the 130 maunds after the first of May. He is bound to pay A for them.
3. (c) A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two months, and B engages to pay her a hundred rupees for each night's performance. On the sixth nigh, A willfully absents herself from the theatre, and B, in consequence, rescinds contract. B must pay A for the five nights on which she had sung.
4. (d) A contracts to sing for B at a concert for 1,000 rupees, which are paid in advance. A is too ill to sing.

Mode of communicating or revoking rescission of voidable contract Mode of communicating or revoking rescission of voidable contract.—The rescission of a voidable contract may be communicated or revoked in the same manner, and subject to the same rules, as apply to the communication or revocation of a proposal.

Effect of neglect of promisee to afford promisor reasonable facilities for performance.-It any promisee neglects or refuses to afford the promise or reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to any non-performance caused thereby.

Illustration.

A contracts with B to repair B's house.

B neglects or refuses to point out to A the places in which his house requires repair.

Claim for necessaries supplied to person incapable of contracting or on his account Claim for necessaries supplied to person incapable of contracting or on his account.-If a person, incapable of entering into a contract, or any one whom he is legally bound to support is supplied by another person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.

Illustrations.

1. (a) A supplies a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B's property.
2. (b) A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition in life.

Reimbursement of person paying money due by another in payment of which he is interested Reimbursement of person paying money due by another in payment of which he is interested.- A person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other.

Illustration.

B holds land in Bengal, on a lease granted by A, the zamindar. The revenue payable by A to the Government being in arrear, his land is advertised for sale by the Government. Under the revenue law, the consequence of such sale will be the annulment of B's lease. B, to prevent the sale and the consequent annulment of his own lease, pays to the Government the sum due from A.A is bound to make good to B the amount so paid.

Obligation of person enjoying benefit of non-gratuitous act.-Where a person, lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered.

Illustrations.

1. (a) A, a tradesman, leaves goods at B's house by mistake. B treats the goods as his own. He is bound to pay A for them.
2. (b) A saves B's property from fire.

Responsibility of finder of goods Responsibility of finder of goods.-A person who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a bailee.

Liability of person to whom money is paid, or thing delivered, by mistake or under coercion.— A person to whom money has been paid or anything delivered by mistake or under coercion, must repay or return it.

Illustrations.

1. (a) A and B jointly owe 100 rupees to C.A alone pays the amount to C and B not knowing this fact, pays 100 rupees over again to C.C is bound to repay the amount to B.
2. (b) A railway company refuses to deliver up certain goods to the consignee, except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods.

Compensation for loss or damage caused by breach of contract Compensation for loss or damage caused by breach of contract-When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation, for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

Compensation for failure to discharge obligation resembling those created by contract.-When an obligation resembling those created by contract has been incurred and has not been discharged,any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default as if such person had contracted to discharge it and had broken his contract.

Explanation.—In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.

Illustrations.

1. (a) A contracts to sell and deliver 50 maunds of saltpeter to B, at a certain price to be paid on delivery. A breaks his promise, B is entitled to receive from A, by way of compensation, the sum, if any, by which the contract price falls short of the price for which B might have obtained 50 maunds of saltpeter of like quality at the time when the saltpeter ought to have been delivered.
2. (b) A hires B's ship to go to Bombay, and there takes on board, on the first January, a cargo which A is to provide and to bring it to Calcutta, the freight to be paid when earned. B's ship does not go to Bombay, but A has opportunities of procuring suitable conveyance for the cargo upon terms as advantageous as those on which he had chattered the ship. A avails himself of those opportunities, but is put to trouble and expense in doing so. A is entitled to receive compensation from B in respect of such trouble and expense.
3. (c) A contracts to buy of B, at a stated price, 50 maunds of rice, no time being fixed for delivery. A afterwards informs B that he will not accept the rice if tendered to him. B is entitled to received from A, by way of compensation, the amount, if any, by which the contract price exceeds that which B can obtain for the rice at the time when A informs B that he will not accept it.
4. (d) A contracts to buy B's ship for 60,000 rupees, but breaks his promise. A must pay to B by way of compensation, the excess, if any, of the contract price over the price which B can obtain for the ship at the time of the breach of promise.
5. (e) A, the owner of a boat, contracts with B to take a cargo of jute to Mirzapur, for sale at that place starting on a specified day. The boat, owing to some avoidable cause, does not start at the time appointed, whereby the arrival of the cargo at Mirzapur is delayed beyond the time when it would have arrived if the boat had sailed according to the contract. After that date and before the arrival of the cargo, the price of jute falls. The measure of the compensation payable to B by A is the difference between the price which B could have obtained for the cargo at Mirzapur at the time when it would have arrived if forwarded in due course, and its market price at the time when it actually arrived.
6. (f) A contracts to repair B's house in a certain manner, and receives payment in advance. A repairs the house, but not according to contract. B is entitled to recover from A the costs of making the repairs conform to the contract.
7. (g) A contracts to let his ship to B for a year, from the first of January, for a certain price. Freights rise, and, on the first of January, the hire obtainable for the ship is higher than the contract price. A breaks his promise. He must pay to B, by way of compensation, a sum equal to the difference between the contract price and the price for which B could hire a similar ship for a year on and from the first of January.
8. (h) A contracts to supply B with a certain quantity of iron at a fixed price, being a higher price than that for which A could procure and deliver the iron. B wrongfully refuses to receive the iron. B must pay to A, by way of compensation, the difference between the contract price of the iron and the sum for which A could have obtained and delivered it.
   • (i) A delivers to B a common carrier, a machine, to be conveyed, without delay, to A's mill, informing B that his mill stopped for want of the machine. B unreasonably delays the delivery of the machine, and A, in consequence, loses a profitable contract with the Government. A is entitled to receive from B, by way of compensation, the average amount of profit which would have been made by the working of the mill during the time that delivery of it was delayed, but not the loss sustained through the loss of the Government contract.
9. (j) A, having contracted with B to supply B with 1,000 tons of iron at 100 rupees a ton, to be delivered at a stated time, contracts with C for the purchase of 1,000 tons of iron at 80 rupees a ton, telling C that he does so for the purpose of performing his contract with B,C fails to perform his contract with A, who cannot procure other iron, and B, in consequence, rescind the contract. C must pay to A 20,000 rupees, being the profit which A would have made by the performance of his contract with B.
10. (k) A contracts with B to make and deliver to B, by a fixed day for a specified price, a certain piece of machinery. A does not deliver the piece of machinery at the time specified, and, in consequence of this, B is obliged to procure another at a higher price than that which he was to have paid to A, and is prevented from performing a contract which B had made with a third person at the time of his contract with A (but which had not been then communicated to A),and is compelled to make compensation for breach of that contract. A must pay to B, by way of compensation, the difference between the contract price of the piece of machinery and the sum paid by B for another, but not the sum paid by B to the third person by way of compensation.
11. (l) A, a builder, contracts to erect and finish a house by the first of January in order that B may give possession of it at that time to C, to whom B has contracted to let it. A is informed of the contract between B and C A builds the house so badly that, before the first of January, it falls down and has to be re-built by B, who, in consequence, loses the rent which he was to have received from C, and is obliged to make compensation to C for the breach of his contract. A must make compensation to B for the cost of re-building the house, for the rent lost and for the compensation made to C.
12. (m) A sells certain merchandise to B, Warranting it to be of a particular quality ;and B, in reliance to upon this warranty, sells it to C with a similar warranty. The goods prove to be not according to the warranty, and any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract, reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

Compensation for breach of contract where penalty stipulated for.-When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract, reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

Explanation.-A stipulation for increased interest from the date of default may be a stipulation by way of penalty.

Exception.-When any person enters into any bail-bond, recognizance or other instrument of the same nature or under the provisions of any law, or under the order of [the Government] gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.

Explanation.-A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested.

Illustrations.

1. (a) A contracts with B to pay B Rs.1,000 if he fails to pay B Rs.500 on a given day. A fails to pay Rs.500 on that day. B is entitled to recover from A such compensation, not exceeding Rs.1,000, as the Court considers reasonable.
2. (b) A contracts with B that if A practices as a surgeon within Calcutta, he will pay B Rs.5,000. A practices as a surgeon in Calcutta. B is entitled such compensation, not exceeding Rs.5,000, as the Court considers reasonable.
3. (c) A gives a recognizance binding him in a penalty of Rs.500 to appear in Court on a certain day. He forfeits his recognizance. He is liable to pay the whole penalty.
4. (d) A gives B a bond for the repayment of Rs.1, 000 with interest at 12 per cent, at the end of six months, with a stipulation that in case of default interest shall be payable at the rate of 75 per cent, from the date of default. This is a stipulation by way of penalty, and B is only entitled to recover from A such compensation as the Court considers reasonable.
5. (e) A, who owes money to B, a money lender, undertakes to repay him by delivering to him 10 maunds of grain on a certain date, and stipulates that in the event of his not delivering the stipulated amount by the stipulated date, he shall be liable to deliver 20 maunds. This is a stipulation by way of penalty and B is only entitled to reasonable compensation in case of breach.
6. (f) A undertakes to repay B a loan of Rs.1,000 by five equal monthly installments with a stipulation that, in default of payment of any installment, the whole shall become due. This stipulation is not by way of penalty, and the contract may be enforced according to its terms.
7. (g) A borrows Rs.100 from B and gives him a bond for Rs.200 payable by five yearly installments of Rs.40 with a stipulation that, in default of payment of any installment, the whole shall become due.

Party rightfully rescinding contract entitled to compensation Party rightfully rescinding contract entitled to compensation.—A person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfillment of the contract.

Illustration.

A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two months, and B engages to pay her 100 rupees for each night's performance. On the sixth night A willfully absents herself from the theatre, and B, in consequence, rescinds the contract.

"Contract of indemnity" defined "Contract of indemnity" defined.—A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a "contract of indemnity".

Illustration. A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of 200 rupees.

Rights of indemnity holder when sued Rights of indemnity-holder when sued.—The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor-

1. (1) all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies;
2. (2) all costs which he may be compelled to pay in any such suit, if, in bringing or defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorised him to bring or defend suit;
3. (3) 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, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorised him to compromise the suit. The promisor in a contract of indemnity, who has indemnified the promisee is entitled to the rights of a surety as defined in section 141. Any contract of indemnity which has been obtained by means of misrepresentation, made by the promisee or with his knowledge or assent, concerning a material part of the transaction is invalid. Explanation.—Keeping silence as to material circumstance is such misrepresentation.

"Contract of guarantee", "surety", "principal debtor" and "creditor".—A "contract of guarantee" is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the "surety"; the person in respect of whose default the guarantee is given is called the "principal debtor", and the person to whom the guarantee is given is called the "creditor".

Consideration for guarantee Consideration for guarantee.—Anything done, or any promise made, for the benefit of the principal debtor may be a sufficient consideration to the surety for giving the guarantee.

Illustrations.

1. (a) B requests A to sell and deliver to him goods on credit. A agrees to do so provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of A's promise to deliver the goods. This is a sufficient consideration for C's promise.
2. (b) A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the debt for a year, and promises that if he does so, C will pay for them in default of payment by B. A agrees to forbear as requested. This is a sufficient consideration for C's promise.
3. (c) A sells and delivers goods to B. C afterwards, without consideration, agrees to pay for them in default of B.

Surety's liability Surety's liability.—The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.

Illustration. A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is dishonoured by C.

Continuing guarantee Continuing guarantee.—A guarantee which extends to a series of transactions is called a "continuing guarantee".

Illustrations.

1. (a) A, in consideration that B will employ C in collecting the rents of B's zamindari, promises B to be responsible to the amount of 5,000 rupees, for the due collection and payment by C of those rents. This is a continuing guarantee.
2. (b) A guarantees payment to B, a tea-dealer, to the amount of £100 for any tea he may from time to time supply to C. B supplies C with tea to above the value of £100, and C pays B for it. Afterwards B supplies C with tea to the value of £200. C fails to pay. The guarantee given by A was a continuing guarantee, and he is accordingly liable to B to the extent of £100.
3. (c) A guarantees payment to B of the price of five sacks of flour to be delivered by B to C and to be paid for in a month. B delivers five sacks to C. C pays for them. Afterwards B delivers four sacks to C, which C does not pay for.

Revocation of continuing guarantee Revocation of continuing guarantee.—A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor.

Illustrations.

1. (a) A, in consideration of B's discounting, at A's request, bills of exchange for C, guarantees to B for twelve months, the due payment of all such bills to the extent of 5,000 rupees. B discounts bills for C to the extent of 2,000 rupees. Afterwards, at the end of three months, A revokes the guarantee. This revocation discharges A from all liability to B for any subsequent discount. But A is liable to B for the 2,000 rupees, on default of C.
2. (b) A guarantees to B, to the extent of 10,000 rupees, that C shall pay all the bills that B shall draw upon him. B draws upon C. C accepts the bill. A gives notice of revocation. C dishonours the bill at maturity.

Revocation of continuing guarantee by surety's death Revocation of continuing guarantee by surety's death.—The death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions.

Liability of two persons primarily liable, not affected by arrangement between them that one shall be surety on others default.—Where two persons contract with a third person to undertake a certain liability, and also contract with each other that one of them shall be liable only on the default of the other, the third person not being a party to such contract, the liability of each of such two persons to the third person under the first contract is not affected by the existence of the second contract, although such third person may have been aware of its existence.

Illustration. A and B make a joint and several promissory note to C. A makes it, in fact as surety for B, and C knows this at the time when the note is made.

Discharge of surety by variance in terms of contract Discharge of surety by variance in terms of contract.—Any variance, made without the surety's consent, in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance.

Illustrations.

1. (a) A becomes surety to C for B's conduct as a manager in C's bank. Afterwards B and C contract without A's consent, that B's salary shall be raised, and that he shall become liable for one-fourth of the losses on overdrafts. B allows a customer to overdraw; and the bank loses a sum of money. A is discharged from his surety-ship by the variance made without his consent, and is not liable to make good this loss.
2. (b) A guarantees C against the misconduct of B in an office to which B is appointed by C and of which the duties are defined by an Act of Legislature. By a subsequent Act, the nature of the office is materially altered. Afterwards B misconducts himself. A is discharged by the change from future liability under his guarantee, though the misconduct of B is in respect of a duty not affected by the later Act.
3. (c) C agrees to appoint B as his clerk to sell goods at a yearly salary upon A's becoming surety to C for B's duly accounting for moneys received by him as such clerk. Afterwards, without A's knowledge or consent, C and B agree that B should be paid by a commission on the goods sold by him and not by a fixed salary. A is not liable for subsequent misconduct of B.
4. (d) A gives to C a continuing guarantee to the extent of 3,000 rupees for any oil supplied by C to B on credit. Afterwards B becomes embarrassed and without the knowledge of A, B and C contract that C shall continue to supply B with oil for ready money, and that the payments shall be applied to the then existing debts between B and C. A is not liable on his guarantee for any goods supplied after this new arrangement.
5. (e) C contracts to lend B 5,000 rupees on the 1st March. A guarantees repayment. C pays the 5,000 rupees to B on the 1st January.

Discharge of surety by release or discharge of principal debtor Discharge of surety by release or discharge of principal debtor.—The surety is discharged by any contract between the creditor and the principal debtor by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor.

Illustrations.

1. (a) A gives a guarantee to C for goods to be supplied by C to B. C supplies goods to B, and afterwards B becomes embarrassed and contracts with his creditors (including C) to assign to them his property in consideration of their releasing him from their demands. Here B is released from his debt by the contract with C and A is discharged from his surety-ship.
2. (b) A contracts with B to grow a crop of indigo on A's land and to deliver it to B at a fixed rate, and C guarantees A's performance of this contract. B diverts a stream of water which is necessary for irrigation of A's land and thereby prevents him from raising the indigo. C is no longer liable on his guarantee.
3. (c) A contracts with B for a fixed price to build a house for B within a stipulated time, B supplying the necessary timber. C guarantees A's performance of the contract. B omits to supply the timber.

Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor.-A contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue the principal debtor, discharges the surety, unless the surety assents to such contract.

Surety not discharged when agreement made with third person to give time to principal debtor.—Where a contract to give time to the principal debtor is made by the creditor with a third person, and not with the principal debtor, the surety is not discharged.

Illustration. C, the holder of an overdue bill of exchange drawn by A as surety for B, and accepted by B, contracts with M to give time to B.A is not discharged.

Creditor's forbearance to sue does not discharge surety.-Mere forbearance on the part of the creditor to sue the principal debtor, or to enforce any other remedy against him does not in the absence of any provision in the guarantee to the contrary, discharge the surety :

Provided that by such forbearance the suit or remedy does not become barred by the Law of Limitation for the time being in force.

Illustration. B owes to C a debt guaranteed by A. The debt becomes payable. C does not sue B for a year after the debt has become payable.

Release of one co-surety does not discharge others Release of one co-surety does not discharge others.—Where there are co-sureties, a release by the creditor of one of them does not discharge the others ;neither does it free the surety so released from his responsibility to the other sureties.

Discharge of surety by creditor's act or omission impairing surety's eventual remedy.-If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.

Illustrations.

1. (a) B contracts to build a ship for C for a given sum, to be paid by installments as the work reaches certain stages. A becomes surety to C for B's due performance of the contract. C, without the knowledge of A, prepays to B the last two installments. A is discharged by this prepayment.
2. (b) C lends money to B on the security of a joint and several promissory note made in C's favour by E and by A as surety for B, together with a bill of sale of B's furniture, which gives power to C to sell the furniture and apply the proceeds in discharge of the note. Subsequently C sells the furniture, but owing to his misconduct and willful negligence, only a small price is realized. A is discharged from liability on the note.
3. (c) A puts M as apprentice to B and gives a guarantee to B for M's fidelity. B promises on his part that he will, at least once a month, see M make up the cash. B omits to see this done as romised, and M embezzles.

Rights of surety on payment or performance Rights of surety on payment or performance.—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 the rights which the creditor had against the principal debtor.

Surety's right to benefit of creditor's securities.— A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of surety-ship is entered into, whether the surety knows of the existence of such security or not ;and, if the creditor loses or, without the consent of the surety, parts with such security, the surety is is charged to the extent of the value of the security.

Illustrations.

1. (a) C advances to B, his tenant,2,000 rupees on the guarantee of A.C has also a further security for the 2,000 rupees by a mortgage of B's furniture. C cancels the mortgage. B becomes insolvent, and C sues A on his guarantee. A is discharged from liability to the amount of the value of the furniture.
2. (b) C, a creditor, whose advance to B is secured by a decree, receives also a guarantee for that advance from A.C afterwards takes B's goods in execution under he decree and then without the knowledge of A withdraws the execution. A is discharged.
3. (c) A, as surety for B, makes a bond jointly with B to C, to secure a loan from C to B. Afterwards C obtains from B a further security for the same debt, Subsequently, C gives up the further security.

Guarantee obtained by misrepresentation invalid Guarantee obtained by misrepresentation invalid.-Any guarantee which has been obtained by means of misrepresentation made by the creditor, or with his knowledge and assent, concerning a material part of the transaction, is invalid.

Guarantee obtained by concealment invalid.—Any guarantee which the creditor has obtained by means of keeping silence as to material circumstances is invalid.

Illustrations.

1. (a) A engages B as a clerk to collect money for him. B fails to account for some of his receipts, arid A in consequence calls upon him to furnish security for his duly accounting. C gives his guarantee for B's duly accounting. A does not acquaint C with B's previous conduct. B afterwards makes default. The guarantee is invalid.
2. (b) A guarantees to C payment for iron to be supplied by him to B to the amount of 2,000 tons. B and C have privately agreed that B should pay five rupees per ton beyond the market price, such excess to be applied in liquidation of an old debt. This agreement is concealed from A.A is not liable as a surety.

Guarantee on contract that creditor shall not act on it until co-surety joins.—Where a person gives a guarantee upon a contract that the creditor shall not act upon it until another person has joined in it as co-surety, the guarantee is not valid if that other person does not join.

Implied promise to indemnify surety.-In every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety ;and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee, but no sums which he has paid wrongfully.

Illustrations.

1. (a) B is indebted to C, and A is surety for the debt. C demands payment from A, and on his refusal sues him for the amount. A defends the suit, having reasonable grounds for doing so, but is compelled to pay the amount of the debt with costs. He can recover from B the amount paid by him for costs as Well as the principal debt.
2. (b) C lends B a sum of money, and A, at the request of B, accepts a bill of exchange drawn by B upon A to secure the amount, C, the holder of the bill demands payment of it from A and on A's refusal to pay, sues him upon the bill A, not having reasonable grounds for so doing, defends the suit, and has to pay the amount of the bill and costs. He can recover from B the amount of the bill, but not the sum paid for costs, as there was no real ground for defending the action.
3. (c) A guarantees to C, to the extent of 2,000 rupees, payment for rice to be supplied by C to B.C supplies to B rice to a less amount than 2,000 rupees but obtains from A payment of the sum of 2,000 rupees in respect of the rice supplied.

Co-sureties liable to contribute equally Co-sureties liable to contribute equally.-Where two or more persons are co-sureties for the same debt or duty, either jointly or severally, and whether under the same or different contracts, and whether with or without the knowledge of each other, the co-sureties, in the absence of any contract to the contrary, are liable as between themselves, to pay each an equal share of the whole debt, or of that part of it which remains unpaid by the principal debtor.

Illustrations.

1. (a) A, B and C are sureties to D for the sum of 3,000 rupees lent to E.E makes default in payment. A, B and C are liable as between themselves to pay 1,000 rupees each.
2. (b) A, B and C are sureties to D for the sum of 1,000 rupees lent to E and there is a contract between A,B and C that A is to be responsible to the extent of one-quarter, B to the extent of one-quarter and C to the extent of one-half. E makes default in payment.

Liability of co-sureties bound in different sums Liability of co-sureties bound in different sums.—Co-sureties who are bound in different sums are liable to pay equally as far as the limits of their respective obligations permit.

Illustrations.

1. (a) A, B and C as sureties for D, enter into three several bonds each in a different penalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees, C in that of 40,000 rupees, conditioned for D's duly accounting to E.D makes default to the extent of 30,000 rupees A, B and C are each liable to pay 10,000 rupees.
2. (b) A,B and C as sureties for D, enter into three several bonds, each in a different penalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees, C in that of 40,000 rupees, conditioned for D's duly accounting to E.D makes default to the extent of 40,000 rupees. A is liable to pay 10,000 rupees, and B and C 15,000 rupees each.
3. (c) A, B and C as sureties for D, enter into three several bonds, each in a different penalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees, C in that of 40,000 rupees, conditioned for D's duly accounting to E.D makes default to the extent of 70,000 rupees.

"Bailment", "Bailor" and "Bailee" defined "Bailment","Bailor"and "Bailee" defined.-A "bailment" is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the "bailor". The person to whom they are delivered is called the "bailee".

Explanation.—If a person already in possession of the goods of another contracts to hold them as a bailee, he thereby becomes the bailee, and the owner becomes the bailor, of such goods although they may not have been delivered by way of bailment.

Delivery to bailee how made.-The delivery to the bailee may be made by doing anything which has the effect of putting the goods in the possession of the intended bailee or of any person authorised to hold them on his behalf.

Bailor's duty to disclose faults in goods bailed.-The bailor bound to disclose to the bailee faults in the goods bailed, of which the bailor is aware, and which materially interfere with the use of them, or expose the bailee to extraordinary risks ;and if he does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults. If the goods are bailed for hire, the bailor is responsible for such damage, whether he was or was not aware of the existence of such faults in the goods bailed.

Illustrations.

1. (a) A lends a horse, which he knows to be vicious, to B. He does not disclose the fact that the horse is vicious. The horse runs away. B is thrown and injured. A is responsible to B for damage sustained.
2. (b) A hires a carriage of B. The carriage is unsafe, though B is not aware of it, and A is injured.

Care to be taken by bailee Care to be taken by bailee.—In all cases of bailment the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods bailed.

Bailee when not liable for loss, etc. of thing bailed.—The bailee, in the absence of any special contract, is not responsible for the loss, destruction or deterioration of the thing bailed if he has taken the amount of care of it described in section 151.

Termination of bailment by bailee's act inconsistent with conditions.— A contract of bailment is voidable at the option of the bailor, if the bailee does any act with regard to the goods bailed, inconsistent with the conditions of the bailment.

Illustration. A lets to B, for hire, a horse for his own riding. B drives the horse in his carriage.

Liability of bailee making unauthorized use of goods bailed Liability of bailee making unauthorized use of goods bailed.-If the bailee makes any use of the goods bailed which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them.

Illustrations.

1. (a) A lends a horse to B for his own riding only. B allows C, a member of his family, to ride the horse. C rides with care, but the horse accidentally falls and is injured. B is liable to make compensation to A for the injury done to the horse.
2. (b) A hires a horse in Calcutta from B expressly to march to Benaras. A rides with due care but marches to Cuttack instead. The horse accidentally falls and is injured.

Effect of mixture, with bailor's consent, of his goods with bailee's Effect of mixture, with bailor's consent, of his goods with bailee's.-If the bailee, with the consent of the bailor, mixes the goods of the bailor with his own goods, the bailor and the bailee shall have an interest, in proportion to their respective shares, in the mixture thus produced.

Effect of mixture, without bailor's consent, when the goods can be separated.—If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, and the goods can be separated or divided, the property in the goods remains in the parties respectively ;but the bailee is bound to bear the expenses of separation or division, and any damage arising from the mixture.

Illustration. A bails 100 bales of cotton marked with a particular mark to B. B, without A's consent, mixes the 100 bales with other bales of his own bearing a different mark.

Effect of mixture, without bailor's consent, when the goods cannot be separated Effect of mixture, without bailor's consent, when the goods cannot be separated.—If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, in such a manner that it is impossible to separate the goods bailed from the other goods and deliver them back, the bailor is entitled to be compensated by the bailee for the loss of the goods.

Illustration. A bails a barrel of Cape flour worth Rs.45 to B. B, without A's consent, mixes the flour with country flour of his own worth only Rs.25 a barrel.

Repayment by bailor of necessary expenses Repayment by bailor of necessary expenses.--Where, by the conditions of the bailment, the goods are to be kept or to be carried, or to have work done upon them by the bailee for the bailor and the bailee is to receive no re-numeration, the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of the bailment.

Restoration of goods lent gratuitously.—The lender of a thing for use may at any time require its return if the loan was gratuitous, even though he lent it for a specified time or purpose. But if, on the faith of such loan made for a specified time or purpose, the borrower has acted in such a manner that the return of the thing lent before the time agreed upon would cause him loss exceeding the benefit actually derived by him from the loan, the lender must, if he compels the return, indemnify the borrower for the amount in which the loss so occasioned exceeds the benefit so derived.

Return of goods bailed on expiration of time or accomplishment of purpose.-It is the duty of the bailee, to return, or deliver according to the bailor's directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired or the purpose for which they were bailed has been accomplished.

Bailee's responsibility when goods are not duly returned.—If, by the default of the bailee, the goods are not returned, delivered or tendered at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of the goods from that time. If a bailor omits or refuses to take the goods at the proper time from the bailee who is ready and willing to deliver them, he is responsible for any necessary expenses of and incidental to their proper custody.

Termination of gratuitous bailment by death.— A gratuitous bailment is terminated by the death either of the bailor or of the bailee.

Bailor entitled to increase or profit from goods bailed —In the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions any increase or profit which may have accrued from the goods bailed.

Illustration. A leaves a cow in the custody of B to be taken care of. The cow has a calf.

Bailor's responsibility to bailee Bailor's responsibility to bailee.—The bailor is responsible to the bailee for any loss which the bailee may sustain by reason that the bailor was not entitled to make the bailment, or to receive back the goods or to give directions respecting them.

Bailment by several joint owners.--If several joint owners of goods bail them, the bailee may deliver them back to, or according to the directions of, one joint owner without the consent of all, in the absence of any agreement to the contrary.

Bailee not responsible on redelivery to bailor without title.—If the bailor has no title to the goods, and the bailee, in good faith, delivers them back to, or according to the directions of the bailor, the bailee is not responsible to the owner in respect of such delivery.

Right of third person claiming goods bailed.—If a person, other than the bailor, claims goods bailed, he may apply to the Court to stop the delivery of the goods to the bailor, and to decide the title to the goods.

Right of finder of goods ;may sue for specific reward offered —The finder of goods has no right to sue the owner for compensation for trouble and expense voluntarily incurred by him to preserve the goods and to find out the owner; but he may retain the goods against the owner until he receives such compensation ;and, where the owner has offered a specific reward for the return of goods lost, the finder may sue for such reward, and may retain the goods until he receives it.

When finder of thing commonly on sale may sell it.-When a thing which is commonly the subject of sale is lost, if the owner cannot, with reasonable diligence, be found, or if he refuses, upon demand, to pay the lawful charges of the finder, the finder may sell it —

1. (1) when the thing is in danger of perishing or of losing the greater part of its value, or
2. (2) when the lawful charges of the finder, in respect of the thing found, amount to two-thirds of its value.

Bailee's particular lien.-Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.

Illustrations.

1. (a) A delivers, a rough diamond to B, a jeweler, to be cut and polished, which is accordingly done. B is entitled to retain the stone till he is paid for the services he has rendered.
2. (b) A gives cloth to B, a tailor, to make into a coat. B promises A to deliver the coat as soon as it is finished, and to give A three month's credit for the price.

General lien of bankers, factors, wharfingers and policy brokers General lien of bankers, factors, wharfingers and policy brokers.— Bankers, factors, wharfingers and policy-brokers may, in the absence of a contract to the contrary, retain as a security for a general balance of account, any goods, bailed to them ;but no other persons have a right to retain, as a security for such balance, goods bailed to them unless there is an express contract to that effect.

"Pledge","pawnor"and "pawnee" defined.-The bailment of goods as security for payment of a debt or performance of a promise is called "pledge". The bailor is in this case called the "pawnor".

Pawnee's right of retainer Pawnee's right of retainer.-The pawnee may retain the goods pledged, not only for payment of the debt or the performance of the promise, but for the interest of the debt, and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged.

Pawnee not to retain for debt or promise other than that for which goods-pledged. Presumption in case of subsequent advances.-The pawnee shall not, in the absence of a contract to that effect, retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged; but such contract, in the absence of anything to the contrary, shall be presumed in regard to subsequent advances made by the pawnee.

Pawnee's right as to extra-ordinary expenses incurred.--The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged.

Pawnee's right where pawnor makes default.-If the pawnor makes default in payment of the debt or performance, at the stipulated time, of the promise in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise and retain the goods pledged as a collateral security ;or he may sell the things pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance.

Defaulting pawnor's right to redeem Defaulting pawnor's right to redeem.- a time is stipulated for the payment of the debt, or performance of the promise, for which the pledge is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them ;but he must, in that case, pay, in addition, any expenses which have arisen from his default.

Pledge by mercantile agent.-Where a mercantile agent is, with the consent of the owner, in possession of goods or the documents of title to goods, any pledge made by him, when acting in the ordinary course of business of a mercantile agent shall be as valid as if he were expressly authorised by the owner of the goods to make the same ; provided that the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has not authority to pledge. Explanation.-In this section, the expressions "mercantile agent" and "documents of title" shall have the meanings assigned to them in the Jammu and Kashmir Sale of Goods Act, Samvat 1996 (II of 1996) .]

A. Pledge by person in possession under voidable contract-When the pownor has obtained possession of the goods pledged by him under a contract voidable under section 19 or section 19-A,but the contract has not been rescinded at the time of the pledge, the pawnee acquires a good title to the goods, provided he acts in good faith and without notice of the pawnor's defect of title.]

Pledge where pawnor has only a limited interest.-Where a person pledges goods in which he has only a limited interest, the pledge is valid to the extent of that interest.

Suit by bailor or bailee against wrong-doer.-If a third person wrongfully deprives the bailee of the use or possession of the goods bailed, or does them any injury, the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment had been made ; and either the bailor or the bailee may bring a suit against a third person for such deprivation or injury.

Apportionment of relief or compensation obtained by such suits.-Whatever is obtained by way of relief or compensation in any such suit shall, as between the bailor and the bailee, be dealt with according to their respective interests.

"Agent" and "principal" defined.-An "agent" is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the "principal."

Who may employ agent.-Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent.

Who may be an agent.-As between the principal and third persons any person may become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained.

Consideration not necessary —No consideration is necessary to create an agency.

Agent's authority may be expressed or implied.-The authority of an agent may be expressed or implied.

Definitions of express and implied authority.-An authority is said to be express, when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case ;and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case. Illustration. A owes a shop in Serampur, living him himself in-Calcutta, and visiting the shop occasionally. The shop is managed by B, and he is in the habit of ordering goods from C in the name of A for the purpose of the shop, and of paying for them out of A's funds without A's knowledge.

Extent of agent's authority Extent of agent's authority.-An agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do such act. An agent having an authority to carry on a business has authority to do every lawful thing necessary for the purpose, or usually done in the course of conducting such business. Illustrations.

1. (a) A is employed by B, residing in London, to recover at Bombay a debt due to B.A may adopt any legal process necessary for the purpose of recovering the debt, and may give a valid discharge for the same.
2. (b) A constitutes B his agent to carry on his business of a ship-builder.

Agent's authority in an emergency Agent's authority in an emergency.—An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances. Illustrations.

1. (a) An agent for sale may have goods repaired if it be necessary.
2. (b) A consigns provisions to B at Calcutta, with directions to send them immediately to C at Cuttack, B may sell the provisions at Calcutta, if they will not bear the journey to Cuttack without spoiling.

When agent cannot delegate.-An agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may, or, from the nature of the agency, a sub-agent must be employed.

"Sub-agent" defined.-A "sub-agent" is a person employed by, and acting under the control of, the original agent in the business of the agency.

Representation of principal by sub-agent properly appointed.-Where a sub-agent is properly appointed the principal is, so far as regards third persons, represented by the sub-agent, and is bound by and responsible for his acts, as If he were an agent originally appointed by the principal. Agent's responsibility for sub-agent —The agent is responsible to the principal for the acts of the sub-agent. Sub-agent's responsibility.-"The sub-agent is responsible for his acts to the agent, but not to the principal, except in case of fraud or willful wrong.

Agent's responsibility for sub-agent appointed without authority.-Where an agent, without having authority to do so, has appointed a person to act as a sub-agent, the agent stands towards such person in the relation of a principal to an agent, and is responsible for his acts both to the principal and to third persons ;the principal is not represented by or responsible for the acts of the person so employed, nor is that person responsible to the principal.

Relation between principal and person duty appointed by agent to act in business of agency.-Where an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him. Illustrations.

1. (a) A directs B, his solicitor, to sell his estate by auction, and to employ an auctioneer for the purpose. B names C, an auctioneer, to conduct the sale. C is not a sub-agent, but is A's agent for the conduct of the sale.
2. (b) A authorises B, a merchant in Calcutta,to recover the moneys due to A from C and Co. B instructs D, a solicitor, to take legal proceedings against C and Co. for the recovery of the money.D is not a sub-agent, but is solicitor for A.

Agent's duty in naming such person.-In selecting such agent for his principal, an agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his own case ;and if he does this he is not responsible to the principal for the acts or negligence of the agent so selected.

Illustrations.

1. (a) A instructs B, a merchant, to buy a ship for him. B employs a ship surveyor of good reputation to choose a ship for A. The surveyor makes the choice negligently and the ship turns out to be unseaworthy and is lost. B is not, but the surveyor, is responsible to A.
2. (b) A consigns goods to B, a merchant, for sale. B, in due course, employs an auctioneer in good credit to sell the goods of A, and allows the auctioneer to receive the proceeds of the sale. The auctioneer afterwards becomes insolvent without having accounted for the proceeds.

Right of person as to acts done for him without his authority Right of person as to acts done for him without his authority. Effect of ratification.-Where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to dis-own such acts.

Ratification may be expressed or implied Ratification may be expressed or implied.-Ratification may be expressed or may be implied in the conduct of the person on whose behalf the acts are done.

Illustrations.

1. (a) A, without authority, buys goods for B. Afterwards B sells them to C on his own account ;B's conduct implies a ratification of the purchase made for him by A.
2. (b) A, without B's authority, lends B's money to C. Afterwards B accepts interests on the money from C.B's conduct implies a ratification of the loan.

Knowledge requisite for valid ratification.-No valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.

Effect of ratifying unauthorised act forming part of transaction.-A person ratifying any unauthorised act done on his behalf ratifies the whole of the transaction of which such act formed a part.

Ratification of unauthorized act cannot injure third person.-An act done by one person on behalf of another, without such other person's authority, which, if done with authority, would have the effect of subjecting a third person to damages, or of terminating any right or interest of a third person, cannot by ratification, be made to have such effect.

Illustrations.

1. (a) A, not being authorised thereto by B, demands on behalf of B, the delivery of a chattel, the property of B, from C, who is in possession of it. This demand cannot be ratified by B, so as to make C liable for damages for his refusal to deliver.
2. (b) A holds a lease from B, terminable on three month's notice C, an unauthorised person, gives notice of termination to A.

Termination of agency Termination of agency.-An agency is terminated by the principal revoking his authority ;or by the agent renouncing the business of the agency; or by the business of the agency being completed ;or by either the principal or agent dying or becoming of unsound mind ;or by the principal being adjudicated an Insolvent under the provisions of any Act, for the time, being in force for the relief of insolvent debtors.

Termination of agency where agent has an interest in subject-matter.-Where the agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.

Illustrations.

1. (a) A gives authority to B to sell A's land, and to pay himself, out of the proceeds, the debts due to him from A.A cannot revoke this authority, nor can it be terminated by his insanity or death.
2. (b) A consigns 1,000 bales of cotton to B, who has made advances to him on such cotton, and desires B to sell the cotton, and to repay himself out of the price, the amount of his own advances.

When principal may revoke agent's authority When principal may revoke agent's authority.-The principal may, save as is otherwise provided by the last preceding section, revoke the authority given to his agent at any time before the authority has been exercised so as to bind the principal.

Revocation where authority has been partly exercised.-The principal cannot revoke the authority given to his agent after the authority has been partly exercised so far as regards such acts and obligations as arise from acts already done in the agency.

Illustrations.

1. (a) A authorises B to buy 1,000 bales of cotton on account of A, and to pay for it out of A's money remaining in B's hands. B buys 1,000 bales of cotton in his own name, so as to make himself personally liable for the price. A cannot revoke B's authority so far as regards payment for the cotton.
2. (b) A authorises B to buy 1,000 bales of cotton on account of A, and to pay for it out of A's money remaining to B's hands. B buys 1,000 bales of cotton in A's name and so as not to render himself personally liable for the price.

Compensation for revocation by principal or renunciation by agent Compensation for revocation by principal or renunciation by agent.- Where there is an express or implied contract that the agency should be continued for any period of time, the principal must make compensation to the agent, or the agent to the principal, as the case may be, for any previous revocation or renunciation of the agency without sufficient cause.

Notice of revocation or renunciation.-Reasonable notice must be given of such revocation or renunciation ;otherwise the damage thereby resulting to the principal or the agent, as the case may be, must be made good to the one by the other.

Revocation and renunciation may be expressed or implied.-Revocation and renunciation may be expressed or may be implied in the conduct of the principal or agent respectively.

Illustration.

A empowers B to let A's house. Afterwards A lets it himself.

When termination of agent's authority takes effect as to agent, and as to third person When termination of agent's authority takes effect as to agent, and as to third person.-The termination of the authority of an agent does not, so far as regards the agent, take effect before it becomes known to him, or, so far as regards third persons before it becomes known to them.

Illustrations.

1. (a) A directs B to sell goods for him, and agrees to give B five per cent, commission on the price fetched by the goods. A afterwards, by letter revokes B's authority. B, after the letter is sent, but before he receives it, sell the goods for 100 rupees. The sale is binding on A and B is entitled to five rupees as his commission.
2. (b) A, at Madras, by letter directs B to sell for him some cotton lying in a warehouse in Bombay, and afterwards, by letter, revokes his authority to sell, and directs B to send the cotton to Madras B, after receiving the second letter, enters into a contract with C, who knows of the first letter, but not of the second, for the sale to him of the cotton, C pays B the money, with which B absconds. C's payment is good as against A.
3. (c) A directs B, his agent, to pay certain money to C.A dies and D takes out probate to his will B, after A's death, but before hearing of it, pays the money to C.

Agent's duty on termination of agency by principal's death or insanity Agent's duty on termination of agency by principal's death or insanity.-When an agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take on behalf of the representative of his late principal, all reasonable steps for the protection and preservation of the interests entrusted to him.

Termination of sub-agent's authority.-The termination of the authority of an agent causes the termination (subject to the rules herein contained regarding the termination of an agent's authority) of the authority of all sub-agents appointed by him.

Agent's duty in conducting principal's business.-An agent is bound to conduct the business of his principal according to the directions given by the principal, or, in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and, if any profit accrues, he must account for it.

Illustrations.

1. (a) A, an agent engaged in carrying on for B a business, in which it is the custom to invest from time to time, at interest, the moneys which may be in hand, omits to make such investment. A must make good to B the interest usually obtained by such investments.
2. (b) B, a broker, in whose business it is not the custom to sell on credit, sells goods of A on credit to C, whose credit at the time was very high. C, before payment, becomes insolvent.

Skill and diligence required from agent Skill and diligence required from agent.-An agent is bound to conduct the business of the agency with as much skill as is generally possessed by persons engaged in similar business, unless the principal has notice of his want of skill. The agent is always bound to act with reasonable diligence, and to use such skill as he possesses ;and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill or misconduct.

Illustrations.

1. (a) A merchant in Calcutta, has an agent, B in London to whom a sum of money is paid on A's account with orders to remit. B retains the money for a considerable time. A, in consequence of not receiving the money, becomes insolvent. B is liable for the money and interest from the day on which it ought to have been paid, according to the usual rate, and for any further direct loss-as e.g. by variation of rate of exchange-but not further.
2. (b) An agent for the sale of goods, having authority to sell on credit, sells to B on credit, without making the proper and usual enquiries as to the solvency of B. B, at the time of such sale, is insolvent. A must make compensation to his principal in respect of any loss thereby sustained.
3. (c) A, an insurance-broker employed by B to effect an insurance on a ship, omits to see that the usual clauses are inserted in the policy. The ship is afterwards lost. In consequence of the omission of the clauses nothing can be recovered from the underwriters. A is bound to make good the loss to B.
4. (d) A, a merchant in England, directs B, his agent at Bombay, who accepts the agency, to send him 100 bales of cotton by a certain ship. B, having it in his power to send the cotton, omits to do so. The ship arrives safely in England. Soon after her arrival the price of cotton rises.

Agent's accounts Agent's accounts.-An agent is bound to render proper accounts to his principal on demand.

Agent's duty to communicate with principal.-It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions.

Right of principal when agent deals on his own account in business of agency without principal's consent.

Principal's right to benefit gained by agent dealing on his own account in business of agency.

Agent's right of retainer out of sums received on principal's account.

Agent's duty to pay sums received for principal.

When agent's remuneration becomes due.

Agent not entitled to remuneration for business misconducted.

Agent's lien on principal's property.

Agent to be indemnified against consequences of lawful acts.

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

Non-liability of employer of agent to do a criminal act.

Compensation to agent for injury caused by principal's neglect.

Enforcement and consequences of agent's contracts.

Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences, as if the contracts had been entered into and the acts done by the principal in person.

Principal how far bound when agent exceeds authority.

Illustration.

A being owner of ship and cargo, authorizes B to procure an insurance for 4,000 rupees on the ship. B procures a policy for 4,000 rupees on the ship, and another for the like sum on the cargo.

Principal not bound when excess of agent's authority is not separatable Principal not bound when excess of agent's authority is not separatable.

Illustration.

A authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for one sum of 6,000 rupees.

Consequences of notice given to agent Consequences of notice given to agent.

Any notice, given to or information obtained by the agent, provided it be given or obtained in the course of the business transacted by him for the principal, shall, as between the principal and third parties, have the same legal consequence as if it had been given to or obtained by the principal.

Illustrations.

1. (a) A is employed to B to buy from C certain goods, of which C is the apparent owner, and buys them accordingly. In the course of the treaty for the sale, A learns that the goods really belonged to D, but B is ignorant of that fact B is not entitled to set-off a debt owing to him from C against the price of the goods.
2. (b) A is employed by B to buy from C goods of which C is the apparent owner. A was, before he was so employed, a servant of C, and then learn that the goods really belonged to D, but B is ignorant of that fact.

Agent cannot personally enforce, nor be bound by contracts on behalf of principal Agent cannot personally enforce, nor be bound by contracts on behalf of principal.

In the absence of any contract to that effect, an agent cannot personally enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them.

Presumption of contract to contrary.

Such a contract shall be presumed to exist in the following cases:-

1. (1) where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad;
2. (2) where the agent does not disclose the name of his principal;
3. (3) where the principal, though disclosed, cannot be sued.

Rights of parties to a contract made by agent not disclosed.

If an agent makes a contract with a person who neither knows, nor has reason to suspect, that he is an agent, his principal may require the performance of the contract; but the other contracting party has, as against the principal, the same rights as he would have had as against the agent if the agent had been principal. If the principal discloses himself before the contract is completed, the other contracting party may refuse to fulfill the contract, if he can show that, if he had known who was the principal in the contract, or if he had known that the agent was not a principal, he would not have entered into the contract.

Performance of contract with agent supposed to be principal Performance of contract with agent supposed to be principal.

Right of person-dealing with agent personally liable.

Consequences of inducing agent or principal to act on belief that principal or agent will be held exclusively liable.

Liability of pretended agent.

Person falsely contracting as agent not entitled to performance.

Liability of principal inducing belief that agent's unauthorized acts were authorised.

Effect on agreement, of misrepresentation or fraud by agent.

238. Effection agreement, of misrepresentation or fraud by agent .-Misrepresentations made, or frauds committed, by agents acting in the course of their business for their principals, have the same effect on agreements made by such agents as if such misrepresentations or frauds had been made or committed by the principals ;but misrepresentations made, of frauds committed, by agents, in matters which do not fall within their authority, do not affect their principals.

Illustrations.

1. (a) A, being B's agent for the sale of goods, induces C to buy them by a misrepresentation, which he was not authorised by B to make. The contract is voidable, as between B and C, at the option of C.
2. (b) A, the captain of B's ship, signs bills of lading without having received on board the goods mentioned therein. The bills of lading are void as between B and the pretended consignor.