Unit-I: Law of Contract – Definition, Essentials of valid contract, Kinds of contact, Offer,

Acceptance, consideration, Capacity of Parties to contract, Free Consent, Stranger to the

Contract.

Unit-II: Contingent Contracts, Performance of Contract, Discharge of Contract, Quasi

Contracts, Breach of Contracts and remedies.

Unit-III: Specific Contract – Contract of Indemnity, Guarantee Contract, Contract of

Bailment, Pledge, Contract of Agency.

Unit-IV: Sale of Goods Act – Meaning and definition, Essentials of sale contract, sale and
agreement to sale, conditions and warranties, unpaid seller, Rules of transfer of property.

Unit-V: The essential Commodity Act. Right to information Act.The Consumer Protection
Act, 1986.

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Unit-I: Law of Contract – Definition, Essentials of valid contract, Kinds of contract,
Offer, Acceptance, consideration, Capacity of Parties to contract, Free Consent,
Stranger to the Contract.

Definition of Contract
Section 2(h) of the Indian Contract Act provides that, “An Agreement enforceable by law is a
contract”. Therefore in a contract there must be (1) an agreement and (2) the agreement must
be enforceable by law.

An agreement comes into existence whenever one or more persons promise to one or others,
to do or not to do something, “Every promise and every set of promises, forming the
consideration for each other, is an agreement. Some agreements cannot be enforced thought
he courts of law, e.g., an agreement to play cards or go to a cinema. An agreement, which can
be enforced through the courts of law, is called contract.

Object and Scope

The Law of Contract deals with agreements which can be enforced through courts of law.

The Law of Contract is the most important part of commercial law because every commercial
transaction starts from an agreement between two or more persons.

According to Salmond a contract is an “agreement creating and defining obligations between

the parties.” According to Sir William Anson, “A contract is an agreement enforceable at law
made between two or more persons, by which rights are acquired by one or more to acts or
forbearances on the part of the other or others.

The object of the Law of Contract is to introduce definiteness in commercial and other
transactions. How this is done can be illustrated by an example. X enters into a contract to
deliver 10 tons of coal of Y on a certain date. Since such a contract is enforceable by the
courts, Y can plan his activities on the basis of getting the coal on the fixed date. If the
contract is broken, Y will get damages from the court and will not suffer any loss.

Sir William Anson observes as follows: “As the law relating to property had its origin in the
attempt to ensure that what a man has lawfully acquired he shall retain, so the law of contract
is intended to ensure that what a man has been led to expect shall come to pass; and that what
has been promised to him shall be performed.”

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Application
The Indian Contract Act of 1872 (Act IX of 1872) lays down certain general rules regarding
contracts. The Act is not exhaustive. There are other Acts relating to particular types of
contracts e.g. the Negotiable Instruments Act, Transfer of Property Act, etc.

The Contract Act does not affect nay usage or custom of trade, or any incident of any contract
not inconsistent with the provisions of the Act.

The Essential Elements of a Contract

“All agreements are not contracts, but all contracts are agreements”. Discuss the statement
explaining essential elements of a valid contract.

Features of Valid Contract

Features of Valid Contract can be clearly known under the heads

1. Consensus ad idem, ( Offer and Acceptance)

2. Certainty,
3. Free Consent,
4. Capacity of Parties,
5. Consideration,
6. Legal Formalities,
7. Lawful Object,
8. Legal Obligations,
9. Possibility of Performance and
10. Agreements not declared void.

Consensus ad idem: Consensus ad idem means identity of minds. That means there should
be no difference between ways of thinking of offerer & offeree. Both of them should
understand the same thing in the same way. In the absence of consensus ad idem, the contract
is not valid.

Example: A has two houses – one at City A and the other at City B. He wants to sell his
house situated at City A. Now he is making an offer to B to sell away one of his house to
which he gives his acceptance. Here A is thinking about house at City A and B has given
acceptance with a view to purchase house at City B. Here is no consensus ad idem.

A case on this point is Raffels Vs Wichelhaus. In this case there is a contract between A & B
according to the terms of which A has to supply raw cotton to B in peerless ship. There are
two ships with the same name. While entering into the contract A thinks about second

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peerless and B thinks about first peerless. Here court decides that their contract has no
consensus ad idem & hence it is void.

Certainty: The wording used in the contract must be certain. Uncertain wording makes the
Contract Void.

Related case is Taylor Vs Portington. In this case there is a Contract between A and B
according to which A has to modernize his house and B has to join as tenant. If the mode of
modernization is satisfactory to B. Here court decides that their is no Certainty and therefore
it is Void.

Free Consent: Both parties should enter into the Contract with Free Consent. There should
be no physical pressure (coercion) or mental pressure (undue influence). Absence of free
consent makes the Contract Voidable. A Voidable Contract may become either Valid or void
depending upon intention of the suffering party.

A case on this point is Ranganayakamma Vs Alwar Setty. In this case B gives a threatening
to A saying that he (B) will not allow cremation of dead body of A`s husband, unless A
adopts B`s sons. Here it is decided that there is no free consent from the side of A. There it is
voidable, at the option of A.

Capacity of Parties: Both parties should have eligibility or qualification to enter into a
Contract. Such eligibility is called Capacity of Contract. Minor insolvent person`s, lunatic
persons etc have no capacity to contract.

Related case is Mohiribeabee Vs Dharmades Ghosh. In this case A is a money lender and B is
a minor. A Contract gets formed between them according to which B has to pledge his
property with A to obtain a loan. On that occasion the minor executes a deed also saying that
money lender has write off lien on the pledged property till settlement of debt. There after the
minor sues to get in his property back without settling the debt. Money lender claims that he
has write-off lien as per the deed. Here court decides that the deed executed by minor is void
and therefore lender has no lien.

Consideration: Both parties presenting the Contract should get benefited mutually.
Consideration may be in the form of cash or goods or act or abstinence. Consideration need
not be adequate.

Legal Formalities: Contract may be oral or documentary. In case where it is oral, the
concept of legal formalities is not applicable. If the contract is of documentary nature, all

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legal formalities like stamp duty etc must be properly fulfilled. If legal formalities are not
satisfied the contract becomes unenforceable.

Example: A and B have written their agreement on Rs. 10/- stamp where it is to be written
actually on Rs. 100/- stamp. It is not Valid Contract.

Lawful Object: To attain validity object of the contract must be lawful. Un-lawful object
makes the contract illegal & hence void.

Example: There is a contract between X and Z according to which Z has to murder Y for a
consideration of Rs. 10000/- from X. It is unlawful object.

Legal Obligations: To attain validity contract must be capable of creating legal obligations.
One directional consideration leads to friendly relations and two directional consideration
leads to legal relations.

A case on this point is Balfour Vs Balfour. In this case A and B are husband and wife
respectively. As per their contract, husband has to send money to his wife at regular intervals
of time for the purpose of medical treatment. Here Court decides that there is only one
directional consideration and hence their contract is not creating legal relations. So, their
contract is held to be void.

Possibility of Performance: It should be possible to perform the event agreed in the

contract. Impossibility makes the contract void.

Example: A contract to join two parallel lines, has no possibility for performance and hence
such a type of contract is void.

Agreement not declared void: Certain types of agreements are declared to be void by
statues. As such agreements are harmful to society and they are named as Agreement
opposed to public policy. Agreements in restraint of trade, Agreements in restraint of
marriage, Agreements in restraint of personnel freedom etc come under Agreement opposed
to public policy.

A case of this occasion is Madhav Vs Rajkumar. In this case a contract gets formed between
A and B according to which B has to stop his business and for that A has to pay Rs. 900/- to
B. There-after B stops his business and A fails to pay. B Sue’s for recovery. Court decides
that it is agreement in restraint of trade and hence void.

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If an agreement satisfies all these features, then it becomes a contract. So All Contracts are
agreements, but all agreements are not Contracts.

According to Sec. 10 of Indian Contract Act – All agreements are contracts if they are made
by free consent of the parties, competent to contract, with a lawful object, for lawful
consideration and are not hereby expressly declared to be void

Types of Contracts

In connection with contracts, there are four types of classifications. Types of contracts in
contract law are as follows;

 On the basis of Formation,

 On the basis of Nature of Consideration,
 On the basis of Execution and
 On the basis of Validity.

Types of Contracts on the basis of Formation

On this base Contracts can be classified into three groups, namely Express, Implied, Quasi
Contracts.

Express Contracts: The Contracts where there is expression or conversation are called
Express Contracts. For example: A has offered to sell his house and B has given acceptance.
It is Express Contract.

Implied Contract: The Contracts where there is no expression are called implied contracts.
Sitting in a Bus can be taken as example to implied contract between passenger and owner of
the bus.

Quasi Contract: In case of Quasi Contract there will be no offer and acceptance so, Actually
there will be no Contractual relations between the partners. Such a Contract which is created
by Virtue of law is called Quasi Contract. Sections 68 to 72 of Contract Act read about the
situations where court can create Quasi Contract.

Sec. 68: When necessaries are supplied

Sec. 69: When expenses of one person are paid by another person.

Sec. 70: When one party is benefited by the activity of another party.

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Sec. 71: In case of finder of lost tools.

Sec. 72: When payment is made by mistake or goods are delivered by mistake.

Example: A case on this occasion is Chowal Vs Cooper. In this case A`s husband becomes no
more. She is very poor and therefore not capable of meeting even cost of cremation. B, one of
her relatives, understand`s her position and spends his own money for cremation. It is done so
without A`s request. Afterwards B claims his amount from A where A refuses to pay. Here
court applies Sec. 68 and creates a Quasi Contract between them.

Types of Contracts on the basis of Nature of Consideration

On this base, Contracts are of two types. Namely Bilateral Contracts and Unilateral
Contracts.

Bilateral Contracts: If considerations in both directions are to be moved after the contract, it
is called Bilateral Contract.

Example: A Contract has got formed between X and Y on 1st Jan, According to which X has
to deliver goods to Y on 3rd Jan and Y has to pay amount on 3rd Jan. It is bilateral contract.

Unilateral Contract: If considerations is to be moved in one direction only after the

Contract, it is called Unilateral Contract.

Example: A has lost his purse and B is its finder. There after B searches for A and hands it
over to A. Then A offers to pay Rs. 1000/- to B to which B gives his acceptance. Here, after
the Contract consideration moves from A to B only. It is Unilateral Contract.

Types of Contracts on the basis of Execution On this base Contracts can be classified into
two groups. namely, Executed and Executory Contracts. If performance is completed, it is
called executed contract. In case where contractual obligations are to be performed in future,
it is called executor contract.

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Types of Contracts On the basis of Validity

On this base Contracts can be classified into 5 groups. namely Valid, Void, Voidable, Illegal
and Unenforceable Contracts.

Valid: The Contracts which are enforceable in a court of law are called Valid Contracts. To
attain Validity the Contract should have certain features like consensus ad idem, Certainty,
free consent, two directional consideration, fulfillment of legal formalities, legal obligations,
lawful object, capacity of parties, possibility of performance, etc.

Example: there is a Contract between X and Y and let us assume that their contract has all
those above said features. It is Valid Contract.

Void: A Contract which is not enforceable in a court of law is called Void Contract. If a
Contract is deficient in any one or more of the above features (Except free consent and legal
formalities). It is called Void Contract.

Example: there is a Contract between X and Y where Y is a minor who has no capacity to
contract. It is Void Contract.

Voidable: A Contract which is deficient in only free consent, is called Voidable Contract.
That means it is a Contract which is made under certain pressure either physical or mental. At
the option of suffering party, a voidable contract may become either Valid or Void in future.
For example: there is a Contract between A and B where B has forcibly made A involved in
the Contract. It is voidable at the option of A.

Illegal: If the contract has unlawful object it is called Illegal Contract.

Example: There is a contract between X and Z according to which Z has to murder Y for a
consideration of Rs. 10000/- from X. It is illegal contract.

Unenforceable: A contract which has not properly fulfilled legal formalities is called
unenforceable contract. That means unenforceable contract suffers from some technical
defect like insufficient stamp etc. After rectification of that technical defect, it becomes
enforceable or valid contract.

Example: A and B have drafted their agreement on Rs. 10/- stamp where it is to be written
actually on Rs. 100/- stamp. It is unenforceable contract.

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Void Contracts and Illegal Contracts

All illegal Contracts are void, but all void contracts are not illegal: An illegal Contract will
not be implemented by court. So, illegal contract is Void. A void contract may not be illegal
because its object may be lawful.

The Contracts which are collateral to illegal contract are void, But the contracts which are
collateral to Void contract may be Valid: An illegal makes not only itself Void but also the
contracts connected to it. But a contract collateral to void contract may attain Validity
because object of main contract is lawful.

Void Contracts and Voidable Contracts

Becoming Valid: A Voidable Contract may become Valid at the option of suffering party.
But a Void Contract can never and never become Valid.

Third Party Rights: In case of Voidable Contracts third party may attain rights on
concerned property, If the third party gets the property before the Voidable Contracts gets
declared as Void. But in case of Void Contract third party cannot get any right.

STRANGER TO CONTRACT

Stranger to Contract cannot sue upon the Contract - Stranger to Contract means a person who
is not a party to the Contract. He is neither offerer nor offeree. That means Stranger is an
outsider or a third party. As he is not party to the Contract he cannot file a suit in connection
with the Contract.

Related case is Dunlop Pneumatic Type Company [A] (Vs) Selfridge and Company [B]. In
this case A sends goods to their agent Due and Company [C]. C sell those goods and has to
remit amount to A. On account of excessive work load, C appoints B as its sub-agent, without
having any relationship with A. As per the agency contract formed between C and B, if B
sells goods below the specified price, B has to pay five pounds per unit to C. Thereafter, B
sells two units below the specified price and also fails to pay ten pounds to C. A files a suit
against B to arrange that amount to C. Here Court decides that A is a stranger and therefore
its suit is not supportable.

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Exceptions to the Statement 'Stranger to Contract cannot sue upon the Contract'

Trust deeds: In case of trust arrangements, the beneficiary, though he is a stranger to the
contract, can file suit in case where trustee comes across breach of trust.

Example: A has a Son namely B who is a minor. For the sale of B, A has executed a trust
deed, appointing C as trustee. Here A is trust maker, C is trustee and B is beneficiary. Here
actually the Contract between A and C. But B can proceed legally if C breaches the trust.

Stranger is authorized: When stranger is authorized by party to the contract, then stranger`s
suit becomes supportable.

When charge on property is made: In case where charge is created on property, stranger can
file a suit.

A case on this point is Khaja Mohammed (Vs) Hussend Begum. In this case B is A`s Son and
C is B`s wife. A contract gets formed between A and B according to which A has to provide
for C`s betel box expenses, out of the proceeds which A gets from his property A fails to pay
and C sues. Court decides that C`s suit is supportable though it is stranger`s suit because there
is charge on property.

Agency Contract: In case of agency contract, the principle, though he is a stranger can file a
suit. Here condition is the contract made by the agent should be in his capacity as agent.

Family Arrangements: In case of family arrangements the dependent person can file a suit,
though they are strangers.

A case on this point is Shuppa Ammal (Vs) Subramanyan. In this case Shuppa Ammal has
two sons. A contract gets formed between those brothers according to which each of them has
to contribute certain amount for their mother`s livelihood. The contract gets breached and
Shuppa Ammal files a suit. Her suit is given validity under this exception.

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Unit-II: Contingent Contracts, Performance of Contract, Discharge of Contract, Quasi
Contracts, Breach of Contracts and remedies.

CONTINGENT CONTRACT

Basing on the presence or absence of Conditions, Contracts can be classified into two groups
namely; Absolute Contracts and Contingent Contracts. In case where there is no
condition, it is called Absolute Contract. As there is no condition, absolute contract is to be
performed under all circumstances.

In case where there is condition, then such contract is called Contingent Contract. Therefore
Contingent Contract means Conditional Contract. When imposed and condition is fulfilled,
the Contingent Contract becomes valid and then parties have to perform their obligations. If
imposed and Condition is not fulfilled, the Contingent Contract become Void and then it need
not be performed. So Contingent Contract is to be performed under some circumstances only.

Example: There is a Contract between A and B according to which A has to sell his goods
which are in voyage, to B if the ship reaches the harbor safely. Here condition can be seen
and it is Contingent Contract. All indemnity contracts, guarantee contracts and insurance
contracts are Contingent Contracts. According to Sec. 31 of Indian Contracts Act, a Contract
performance of which depends upon happening or non happening of an un-certain event is
called Contingent Contract.

TYPES OF CONTINGENT CONTRACTS

Depending Upon Happening of an Uncertain Event: Sometimes Contingent Contract

depends upon happening of uncertain event. Then if such uncertain event takes place, the
Contingent Contract becomes valid and if that uncertain event does not take place, the
Contingent Contract is Void.

Example: According to Contract formed between A and B, A has to sell goods to B, if ship
comes there safely, their Contract is valid and if the ship gets drowned, their Contract is void.

Depending upon non-happening of an uncertain event: At times the Contingent Contract

may depend upon non-happening of uncertain event. Then if that event does not happen, the
Contract is Valid and if that event takes place, the contract is void.

Example: There is a contract between A and B according to which A has to sell goods to B, if
the ship does not come back. Here, if the ship come back, the Contract is void and if the ship
gets drowned away, then it is valid.

Depending upon happening of an Uncertain event in a fixed period: At times Contingent

Contract may depend upon happening of uncertain event in a fixed period. If such event
happens within fixed period, the contract is Valid. If such event does not take place with in
fixed period, the contract is void.

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Example: As per the contract formed between A and B, A has to sell goods to B, if the ship
comes back within 10 days. If it comes on 8th day (or) 9th day, the contract is valid and if it
comes back on 12th day (or) 13th day, the contract is void.

Depending upon non-happening of an uncertain event in a fixed period: At times the

Contingent Contract may depend upon non-happening of uncertain event in a fixed period
then if such event place within that fixed period, the contract is void and if that event does not
takes place within agreed period, then it is valid.

Example: A has to sell goods to B if the ship does not come back within 10 days. If it comes
on 8th day (or) 9th day, the contract is void and if it comes back on 12th day (or) 13th Day,
the contract is valid.

Depending upon an Impossible Event: Sometimes the Contingent Contract may depend
upon impossible event. Such a type of Contingent Contract is abinitio void.

Example: there is a contract between A and B where A will pay Rs.100000/- to B if B marry
C. Assume that C was dead 5 years ago, now element of impossibility can be seen and their
contract is abinitio void.

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PERFORMANCE OF CONTRACT | MEANING | TYPES OF PERFORMANCE

Introduction
A contract places a legal obligation upon the contracting parties to perform their mutual
promises, and it carries on until the discharge or termination of the contract. The most natural
and usual mode of discharging a contract is to perform it. A person who performs a contract
in accordance with its terms is discharged from any further obligations. As a rule, such
performance entitles him to receive the other party’s performance.

Exact and complete performance by both the parties puts an end to the contract. In expecting
exact performance, the courts mean that, performance must match contractual obligations.
In requiring a contract to be complete, the law is merely saying that any work undertaken
must be carried out to the end of the obligations.

A contract should be performed at the time specified and at the place agreed upon. When
this has been accomplished, the parties are discharged automatically and the contract is
discharged eventually. There are, however, many other ways in which a discharge may be
brought about. For example, it may result from an excuse for non-performance. In certain
cases attempted performance may also operate as a substitute for actual performance, and can
result in complete discharge of the contract.

What is Performance of Contract?

The term ‘Performance of contract‘ means that both, the promisor, and the promisee have
fulfilled their respective obligations, which the contract placed upon them. For
instance, A visits a stationery shop to buy a calculator. The shopkeeper delivers the calculator
and A pays the price. The contract is said to have been discharged by mutual performance.

Section 27 of Indian contract Act says that

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
any other law.
Promises bind the representatives of the promisor in case of the death of the latter before
performance, unless a contrary intention appears in the contract.

Thus, it is the primary duty of each contracting party to either perform or offer to perform
its promise. For performance to be effective, the courts expect it to be exact and complete,
i.e., the same must match the contractual obligations. However, where under the provisions of
the Contract Act or any other law, the performance can be dispensed with or excused, a party
is absolved from such a responsibility.
Example
A promises to deliver goods to B on a certain day on payment of Rs 1,000. Aexpires before
the contracted date. A‘s representatives are bound to deliver the goods to B, and B is bound to
pay Rs 1,000 to A‘s representatives.

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Types of Performance
Performance, as an action of the performing may be actual or attempted.

Actual Performance
When a promisor to a contract has fulfilled his obligation in accordance with the terms of the
contract, the promise is said to have been actually performed. Actual performance gives a
discharge to the contract and the liability of the promisor ceases to exist. For example, A
agrees to deliver10 bags of cement at B’s factory and B promises to pay the price on delivery.
A delivers the cement on the due date and B makes the payment. This is actual performance.

Actual performance can further be subdivided into substantial performance, and partial
Performance

Substantial Performance
This is where the work agreed upon is almost finished. The court then orders that the money
must be paid, but deducts the amount needed to correct minor existing defect. Substantial
performance is applicable only if the contract is not an entire contract and is severable. The
rationale behind creating the doctrine of substantial performance is to avoid the possibility of
one party evading his liabilities by claiming that the contract has not been completely
performed. However, what is deemed to be substantial performance is a question of fact to be
decided in both the case. It will largely depend on what remains undone and its value in
comparison to the contract as a whole.

Partial Performance
This is where one of the parties has performed the contract, but not completely, and the other
side has shown willingness to accept the part performed. Partial performance may occur
where there is shortfall on delivery of goods or where a service is not fully carried out.

There is a thin line of difference between substantial and partial performance. The two
following points would help in distinguishing the two types of performance.

Partial performance must be accepted by the other party. In other words, the party who is
at the receiving end of the partial performance has a genuine choice whether to accept or
reject. Substantial performance, on the other hand, is legally enforceable against the other
party.
Payment is made on a different basis from that for substantial performance. It is made
on quantum meruit, which literally means as much as is deserved. So, for example, if half of
the work has been completed, half of the negotiated money would be payable. In case of
substantial performance, the party that has performed can recover the amount appropriate to
what has been done under the contract, provided that the contract is not an entire contract.
The price is thus, often payable in such circumstances, and the sum deducted represents the
cost of repairing defective workmanship.
Attempted Performance
When the performance has become due, it is sometimes sufficient if the promisor offers to
perform his obligation under the contract. This offer is known as attempted performance or

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more commonly as tender. Thus, tender is an offer of performance, which of course, complies
with the terms of the contract. If goods are tendered by the seller but refused by the buyer, the
seller is discharged from further liability, given that the goods are in accordance with the
contract as to quantity and quality, and he may sue the buyer for.breach of contract if he so
desires. The rationale being that when a person offers to perform, he is ready, willing and
capable to perform. Accordingly, a tender of performance may operate as a substitute for
actual performance, and can effect a complete discharge.

In this regard, Section 38 of Indian Contract Act says:

‘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. For example, A contracts to deliver to B, 100 tons of basmati
rice at his warehouse, on 6 December 2015. A takes the goods to B‘s place on the due date
during business hours, but B, without assigning any good reason, refuses to take the delivery.
Here, A has performed what he was required to perform under the contract. It is a case of
attempted performance and A is not responsible for non-performance of B, nor does he
thereby lose his rights under the contract.’

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(DISCHARGE )TERMINATION OF CONTRACT
Contract creates relation between the parties and binds them over. Termination of such
contractual relations is called discharge of contract. The following are different modes of
discharge or termination of contract.

1. Discharge by Performance.
2. Discharge by Breach of Contract.
3. Discharge by Impossibility.
4. Discharge by Operation of Law.
5. Discharge by Lapse of Time.
6. Discharge by Mutual understanding or by Agreement.

1. Discharge of contract by Performance

As said by Salmond, contract creates obligations to parties. If both parties perform their
contractual obligations promptly, the contract is said to be discharged by performance. It is
the ideal method that number of contracts gets terminated in this way.

2. Discharge of contract by Breach

Failure in performance of contractual obligation is called breach of contract. Discharge of

contract takes place by breach of contract also. Breach of contract is of two types. Namely;

Actual breach and

Anticipatory breach.

In case where contract is breached by party on the date of performance, it is called actual
breach. If breach of Contract takes place before data of performance, it is called anticipatory
breach.

3. Discharge of contract by Impossibility

The element of impossibility terminate contractual relations. impossibility is of two types.

Namely;

Pre Contractual impossibility and

Post Contractual impossibility.

If impossibility has already come into force before the contract itself, it is called Pre
Contractual impossibility. Here discharge of Contract takes place soon after formation of
Contract.

The impossibility which comes into force after the contract is called Post-Contractual
Impossibility. Here contractual relations will exists only up to occurrence of impossibility.

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 4. Discharge of contract by lapse of time

Limitation act has specified duration to perform different contracts. The duration thus
specified is called limitation period. Soon after expiry of limitation period, the contract gets
discharged.

Example: There is a contract of loan between A and B. Her limitation period is 3 years. After
completion of 3rd year discharge of contract takes place and debtor – creditor relationship
comes an end. Thus it becomes time bared debt which cannot be recovered by means of legal
proceedings.

5. Discharge of contract by Operation of law

This can be as following;

By Death: Whenever one of the parties comes across death, contractual relations will come
to an end.

By Insolvency: When one of the parties to the contract becomes insolvent, he forgoes
capacity to contract and those contracts which were made by that person will get discharge.

By lunacy: When one of the parties gets attached by lunacy discharge of contract takes place.

Right and liability going into the hands of same party: Contract creates right to one party
and liability to the other when right and liability reach the same person, the result is discharge
of contract.

Example: X has drawn a bill on Y. Here X has right to collect amount on the bill and Y has
liability to pay. There after X has endorsed the bill to Z. Where Z has got the right and
liability is with Y. Assume that Z has endorsed the bill to Y. Now right as well as liability are
with Y. This situation discharges the contract.

6. Discharge of contract by Agreement

This can be as following;

By Alterations: Whenever Material alterations in contract are made, then it is said that old
contract has got discharged and a new contract has come into force.

By Renewal: At times parties to the contracts may substitute completely new contract in the
place of old contract. Now the old contract has got discharged.

By Recession: In case of recession old contract gets discharged and there will be no
formation of new contract.

Example: There is a contract between A and B according to which A has to supply 100 pairs
of ready made dresses to B on 10th January. Where date of formation of contractee`s 1st
January. On 2nd January A says to B that those dresses have become out of fashion and
hence not possible to assemble 100 pairs. Still B says that though he (B) supplies 100 pairs by

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taking a lot of risk, B cannot sell them because they are outdated. Thus by mutual
understanding, they have terminated their contract.

BREACH OF CONTRACT

When any party to a contract, whether oral or written, fails to perform any of the contract’s
terms, they may be found in breach of contract. While there are many ways to breach a
contract, common failures include failure to deliver goods or services, failure to fully
complete the job, failure to pay on time, or providing inferior goods or services. In other
words, a breach of contract is a broken promise to do or provide something. To explore this
concept, consider the following breach of contract definition

Definition of Breach of Contract

 An unjustifiable failure to perform terms of a contract.

 A violation of contract through failure to perform, or through interference with the
performance of the contractual obligations

REMEDIES FOR BREACH OF CONTRACT

Whenever contract is breached by one of the Party in a contract, the other party comes across
some suffering. Therefore, contract act has given certain rights to such suffering party. Those
rights are called remedies for breach of contract. Those are given below:

 Right to sue for Damages.

 Rights to sue for Specific Performance.
 Rights to sue for Injunction Order.
 Rights to sue for Quantum Meruit.
 Rights to sue for Recession of Parties.

1. Right to sue for Damages

Damages in legal terms called Compensation. Whenever one of the party in the Contract
comes across breach of Contract, the other party rights to sue for damages.

Types of Damages in Contract Law

The term damages is to be understood as Compensation. Whenever one of the party in the
Contract comes across breach of Contract, the other party has some rights. Out of those
rights, they has the right to sue for damages i.e. damages for breach of contract. The objective
of court in arranging for compensation is to bring the situation as if there is no Contract
between the parties. The following are different types of damages in contract law.

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  General Damages
 Specific Damages
 Nominal Damages
 Vindictive Damages
 Liquidated Damages.

General Damages

The loss arising out of breach of Contract Can be divided into two parts, namely direct loss
and indirect loss. If only direct loss is compensated it is called general damages.

A case on this Point is Hobbs Vs London and South Western Railway Company. In this case
Mr. A Travels by train along with his wife, to reach a particular destination. On account of
main repair, the train gets stopped. Then it becomes inevitable choice to go on Foot. Thus
they have taken risk physically. In the mean by, it rains heavily and A`s wife gets caught by
cough and cold. A files a Suit on Railway Company claiming compensation for physical risk
as well as illness. Here physical risk is direct loss and illness is indirect loss. Court decides
only general damages here.

Specific Damages

In case where indirect loss also is Compensated besides loss, it is called Specific Damages.
To get specific damages, concerned special situation must be communicated.

A case on this point is Simpson Vs London and North Western Railway Company. In this
case Mr. A is a farmer he wants to sell his agriculture products in an agricultural fair which is
going on at a particular place. For the purpose of transportation, A handover his agricultural
Products to a Railway Company. While making delivery to the Railway Company, he gives
clear instructions to the same in connection with transportation, without any delay. But, the
Railway Company makes delay and the goods reach the destination after closure of fair. A
claims Compensation to inconvenience which is direct loss. And also loss of profit which is
indirect loss. A`s special situation is Communicated, Court arranges for specific damages.

Nominal Damages

At times, on account of breach of Contract, the other party may not come across any loss.
Though it is the situation, the other party can file a Suit. Then Court decides a very little
amount of Compensation. It is called nominal damages. Generally this type of damages will
be fixed in case of anticipatory breach.

Vindictive Damages

It is otherwise known as penalty damages. Here Contract will be breached by one of the
parties and the other party comes across heavy suffering which cannot pressured in the form

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of money. Then Court decides heavy amount as Compensation. This type of damages will be
decided on the following occasions.

Breach of marriage agreements and Wrongful dishonor of Cheque by banker.

A case on this point is David Son Vs Barclays Bank. In this case Mr. A is a book seller and
he is customer of Barclays Bank. On one day he issued a cheque amounting to 2 pounds, to
one of his Creditors. But the Banker dishonors the cheque negligently though there is
sufficient credit to his account. As a result A`s business as well as personal reputation gets
destructed. There after A files a Suit and gets penalty damages amounting to 250 pounds,
from his banker.

Liquidated Damages

It is otherwise known as predetermined damages. The terms of Contract determine the

amount of Compensation.

A case on this point is Dunlop Pnumatic Tyre Company Vs New Garage and motor
Company. In this case there is a Contract of agency between DNT Company and NGM
Company where DNT Company is Principle and NGM Company is its agent. Per the terms of
their Contract if NGM Company sells goods below the listed Price, NGM Company has to
pay five pound per unit thus sold. Two units are sold below Specified Price. Court arranges
for 10 pounds as determined by Contract.

2. Rights to sue for Specific Performance

At times the suffering party may file a suit claiming specific performance form the party
which has breached the contract. But this type of suit very rarely becomes successful. The
following are some circumstances where suit for specific performance will not be taken into
consideration.

Example 1: When performance depends upon personal talent and the party has list Such
talent.

Example 2: When court thinks that it is just and equitable to arrange for compensation.

3. Rights to sue for Injunction Order

The order issued by court restrict in a person from doing a particular thing is called injunction
order. Upon breach of contract the suffering party may proceed legally for injunction order.

A case on this point is Barner Bros.Vs Nelson. In this case a contract gets formed between A
and B according to which B has to conduct his dance programs at A`s theater only for certain
period. But B breaches the contract and arranges his programs at other theaters also before
expiry of agreed period. A`s sues for injunction order. Then court issues injunction order

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saying that B should not conduct his programs at other theaters before expiry of agreed
period.

4. Rights to sue for Quantum Meruit

Whenever a party performs the contract partially and then the other party breaches the
contract, Suit can be filed claiming proportionate remuneration. It is called suit for quantum
meruit.

A case on this point is Flanch Vs Karlbarn. In this case A is editor of a magazine and B is a
writer. According to their contract B has to supply story to A`s magazine for certain number
of weeks for a particular consideration. B supplies story for some weeks and there after A
closes down his magazine. B sue`s for proportionate remuneration and it is allowed by court.

5. Rights to sue for Recession of Parties

At times, the suffering party may sue for recession for contract.

Example: A contract has got formed between A and B on 1st January. According to their
contract A has to supply 100 pairs of ready made dresses to B, on 1st April on 28th March
strike by transport companies is announced which will be called off on 3rd April. It should be
noted that A cannot supply on 1st April. But B is in need of those dresses only on 1st April.
Hence B can sue for recession on contract.

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 QUASI CONTRACTS

In case of Quasi Contract, there will be no offer and no acceptance either on express base or
on implied base. But under certain circumstances Court creates contract between the parties
artificially and thus binds over the parties. Such contracts which are created by virtue of law
are called Quasi Contracts. Section 68 to 72 of Contract Act read about the situations where
court can create Quasi Contract.

Section 68 - when necessaries are supplied: When one party supplies necessaries to the other
(without request), a quasi contract comes into force.

A case on this point is Chaval Vs Cooper.

Section 69 - When expenses of one person are paid by the other: When expenses which are to
be paid one party are paid by another party, the parties are said to be under quasi contract.

A case on this point is Hazarilal Vs Navaranglal. In this case B purchases A`s agricultural
land. On that land cess is in arrears for a longer period which are actually to be cleared by A,
But B pays that amount. Here Court creates a quasi contract between them under

Section 69 and thus capacitates B to recover that amount from A.

Another case on this point is Govindram Govardhan Das Vs State of Gondal.

Section 70 - When one party is benefited by the activity of another party: When one party
Conducts an activity and its benefit is attained by another party, then also Court can create a
quasi Contract.

A Case on this point is DamodarModaliar Vs Secretary of State for India. In this case A is
resident of a Village. The local government conducts repairs to the tank situated at A`s
village. As a result A gets benefited because the surrounding lands belong to A. Here Court
creates a Quasi Contract and decides that A has to bear cost of repairs.

Section 71 - In case of finder of lost goods: Court can create a quasi contract in case of finder
of lost goods.

Related case is Hallius Vs Fowler. In this case B finds a diamond at A`s shop and hands it
over to A, requesting A to send the diamond to true owner. True owner is not found. When
true owner is not found. Finder gets the title. No one can claim share in it. Here court creates
a bailment contract between B and A and thus capacitates B to get diamond back.

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Section 72 - When payment is made by mistake: When ever payment is made by mistake or
goods are delivered by mistake , Court can create a quasi Contract.

A case on this point is Khaniyalal Vs Sales Tax Officer of the Banaras. In this case Mr. A
pays Sales tax by mistake though he is need to pay. Here Court creates a quasi Contract and
capacitates A to recover that amount.

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Unit-III: Specific Contract – Contract of Indemnity, Guarantee Contract, Contract of
Bailment, Pledge, Contract of Agency.

“The term ‘Indemnity` Simply means ‘Making Somebody Safe` or ‘Paying Somebody
back`.”

Indemnity Contract

In the contract of Indemnity, a person agrees to rescue another person who is a party of some
other contract and come across any loss out of the same. The loss can be incurred from the
act of any party or by any means in that contract. In the indemnity contract, the person who
comes to the rescue of the other person to make good the loss is known as Indemnifier. The
other one whose loss is made good is known as Indemnified or also called as Indemnity-
Holder.

Example: A and B are in the contract of Indemnity. B is in a contract with C regarding a sum
of Rs 10000/-. According to the contract of indemnity between A and B, A agrees to rescue B
from any consequence that occurs from the contract of B’s of Rs 10000/- with C.

Types of Indemnity

1. The Express Contract of Indemnity

2. The Implied Contract of Indemnity

Express Contract of Indemnity: When the contract of indemnity is written or orally

consented, then such indemnity contracts are said to be Express Contract of Indemnity.

Example: A and B are into the contract of Indemnity. A agrees to reimburse the loss incurred
by B from a contract with C of some so-called amount.

Implied Contract of Indemnity: When the contract of indemnity is applied by a statute or

by a common law that is in existence, then such indemnity contracts are said to be Implied
Contract of Indemnity.

Example: A and B are agent and principal. A has to supply goods to B for his business. A
supplied goods but B did not want them and denied taking the same. A can sell the goods and
if he incurs any loss while selling them, then B has to make good the loss of A and the statue
or the common law will ensure the same.

In Indian Law, the express contract of indemnity is only covered and the implied contract of
indemnity is also covered by the decision of the court. The law in India says that the loss that
incur shall be due to the conduct of the person. The claim is actionable in India. The contract
of indemnity do not applies to the contract of Insurance.

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In English law, both the express and the implied contracts of indemnities are covered. The
loss that was incurred can be in any way. The law also states that the indemnity can be
assigned. The insurance contract is an indemnity contract in English Law.

GUARANTEE CONTRACT
The object of the contract of guarantee is to enable. A person to obtain an employment, or a
loan, or some goods or service on credit.

According to section 126 of the contract Act ‘‘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’ or ‘guarantor’ & the person in
respect of whose default the guarantee is given is called the principal debtor or he is the party
on whose behalf. Guarantee is given and the person to whom the guarantee is given is called
the ‘Creditor’.

Essential features of a Guarantee Contract

1. Three parties
2. Three agreement
3. Concurrence of the three parties
4. Control may be experts or implies
5. It may be oral or written
6. Liability of surety is secondary is dependent on principal debtor’s default.
7. Guarantee must be in the knowledge of debtor.
8. All essential of a valid contract.
9. Guarantee must not be obtained by means of misrepresentation.
10. Existence of a primary liability.

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BBA BUSINESS LAW
KINDS OF GUARANTEE

Specific or Simple Guarantee: When a guarantee is given in respect to a single debt or

specific transaction is to come to an end when the guarantee debt is paid or the promise is
duly performed. It is called a specific or simple guarantee.

Continuing guarantee: Section 129, of the contract Act defines a guarantee which towards
to a series of transaction, is called a continuing guarantee, thus, a continuing guarantee is not
confined to a single transaction but keeps on moving to several transaction continuously.

Revocation of Guarantee

Revocation of guarantee means cancellation of guarantee already accrued, it may be noted

that the specific guarantee cannot be revoked if the liability has already secured. However a
continuing guarantee can be revoked and on the revocation of such a guarantee. The liability
of the surely or guarantor comes to an end for the future transaction. The surety continues to
be liable for the transactions which have taken place up to the time of revocation. A
continuing guarantee may be revoked in any of the following waysA Guarantee may be
revoked in any of the following ways-

 By notice of revocation.
 By death of surely.
 By discharge of surely in various circumstances
 By novation (Sec.62)
 By variance in terms (Sec. 133)
 By release/discharge of principal Debtor (Sec.-134)
 When the creditor events in to an agreement with the principal debtors (Sec.13..)
 By creditor act or omission impairing surety’s eventual remedy (Sec. 139)
 By loss of security “(Sec. 141)
 By invalidation of contract (Sec.142,143,144)

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BAILMENT
Bailment the world ‘bailment’ is derived from the French world the French world ‘baillier’
which means ‘to deliver Etymologically, it means any kind of handling over’. In legal sense,
it involves change of possession of goods from one person to another for some specific
purpose.

Definition of Bailment

Sec. 148 defines Bailment as” 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’ and the person the person to whom they are
delivered is called the ‘bailee’.

Consideration in a contract of bailment

In a contract of bailment, the consideration is generally in the form money payment either by
the bailor or the bailee, as for example, when A gives his bicycle to B for repair, or when A
gives his car to B on hire. Such consideration in money form, however, is not necessary to
support the promise on the part of the bailee to return to goods. The detrainment suffered by
the bailor, in parting with possession of the goods, is a sufficient consideration to support the
contract of bailment.

1. Agreement

There must be an agreement between the bailor and the bailee.This agreement may be either
express or implied.However,a bailment may be implied by law also. For example,bailment
between a finder of goods and owner of goods.

2. Delivery of Goods

There must be delivery of goods.It means that the possession of goods must be transferred.In
this this connection,The following points may be noted:

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i. The delivery must be voluntary,for example the delivery of jewellery by its owner to a thief
who shows a revolver,does not create a bailment because the delivery is not voluntary.

ii. Delivery may be actual or constructive.

3. Purpose

The delivery of goods must be for some intented purpose.For example,wrong delivery of
goods to Jaipur Golden Roadways instead of Patel Roadways,does not create any bailment.

4. Return of specific Goods

The goods which form the subject matter of a bailment must be returned to the bailor or
otherwise disposed off according to the directions of the bailor,after the accomplishment of
purpose or after the expiry of period of the bailment.it may be noted that the same goods must
be returned in their original form or desired.

i. On the basis of reward

a) Gratuitous Bailment: It is a contract of bailment where no consideration passes between

the bailor and the bailee.

b) Non-gratuitous Bailment: It is a contract of bailment where some consideration passes

between the bailor and the bailee.

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ii. On the basis of Benefit

a) Bailment for the exclusive benefit of the bailor It is a contract of bailment which is
executed only for the benefit of the bailor and the bailee does not derive any benefit from it.

b) Bailment for the exclusive benefit of the bailee: It is a contract of bailment which is
executed only for the benefit of the bailee and the bailor does not derive any benefit from it.

c) Bailment for the mutual benefit: It is a contract of bailment which is executed for the
mutual benefit of bailor and bailee.

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 PLEDGE
Pledge implies a contract, in which an article is delivered or say deposited with the money
lender, as security for repayment of a debt owed by him/her or performance of promise.

Pledge is a special kind of bailment in which a person transfers the possession of his property
to another for securing the loan taken from the other. The pledge is a variety of bailment in
which goods are transferred from one party to another party as security for the payment
against debts owed by him.

SECTION 172
Section 172 of the Indian Contract Act 1872, defines pledge as follows,
The bailment of goods as s security for the payment of the debt or performance of a promise
is called Pledge. The bailor in this case is called Pawnor and the bailee is called Pawnee.

J shelat in Lallan Prasad vs. Rahmat Ali AIR 1967, observed that pledge is a bailment of
personal property as a security for some debt or engagement

ESSENTIALS
 It is a special kind of bailment. In other words, it is referred to as a species of bailment
 A pledge can be of movable property only but those goods which cannot be the subjected to
sale cannot be pledged.
 The purpose of pledge is to make the goods bailed to as security for the payment of a debt or
performance of a promise.
 The pledgee is bound to return or redeliver the goods pledged on the satisfaction of the debt
or the performance of the promise.

DIFFERENCE BETWEEN PLEDGE AND BAILMENT

In simple terms, bailment refers to hand over or assignment the goods, which involves
change in possession but not in the ownership of goods. It is the transfer of goods from one
party to another party for some specific purpose. It is not same as pledge, which is just a
variant of bailment. Pledge implies a contract, in which an article is delivered or say
deposited with the money lender, as security for repayment of a debt owed by him/her or
performance of promise.

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 The following are the major differences between Bailment and Pledge

1. A Bailment is a contract in which goods are transferred from one party to another party for a
short period for a specific objective. The Pledge is a kind of Bailment in which goods are
pledged as security against payment of debt.
2. A Bailment is defined under section 148 while Pledge is defined under section 172 of the
Indian Contract Act, 1872.
3. In bailment, the consideration may or may not be present, but in the case of a pledge, the
consideration is always present.
4. The objective of bailment is safe custody or repairing of goods delivered. On the other hand,
the sole purpose of delivering the goods is to act as security against the debt.
5. The receiver has no right to sell the goods in case of bailment whereas if Pawnor does not
redeem the goods within the reasonable time, the Pawnee can sell the goods after giving
notice to him.
6. In bailment, the goods are used by the bailee only for the said purpose. Conversely, in pledge,
Pawnee has no right to use the goods.

SIMILARITIES BETWEEN BAILMENT AND PLEDGE

1. Both are created by agreements between the parties

2. Both involve transfer of possession of goods
3. Both bailment and pledge have movable goods as subject matter of contract
4. In both the cases, the right to lien may be exercised by the concerned parties, i.e. the bailee
and the Pawnee.
5. In both the cases, goods are to be returned
In pledge, by the pledgee on satisfaction of the debt or
In bailment, by the bailee on accomplishment of the purpose or expiry of the time of
bailment

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CONTRACT OF A G E N C Y
Meaning of Agency: Agency is relation between an agent his principal created by an
agreement. Section 182 of the Contract Act defines an Agent as ‘‘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 whom is so represented is called the principal”.

Essential Features of Agency

1. The principal
2. The agent
3. An agreement
4. Consideration not necessary
5. Representative capacity
6. Good faith
7. The competence of the principal

1. Agency by express agreement[Section 186 and 187] A contract of agency may be made
by express words, whether written or oral.

2. Agency by implied agreement[Section 187]

‘‘An authority is said to be implied when it is to be inferred from the circumstances of the
case.

(a) Agency by estoppels : When a principal by his conduct or act cause a third person to
believe that a certain person is his authorized agent the agency is aid to be an agency by
estoppels.

(b) Agency by necessity : It mean the agency which comes into existence when certain
circumstances compel a person to act as an agent for an other without his express authority.

(c) Agency by holding out : When a principal by his active conduct or act and without any
objection permits another to act as his agent, the agency is the result of principal’s conduct as
to the agent.

3. Agency by ratification [Section 196]

Ratification means confirmation of an act which has already been done. Sometimes, an act is
done by a person on behalf of another person but without another person’s knowledge and
authority. If he accepts and confirm the act, he is said to have ratified it.

4. Agency by operation of law: In certain circumstances the law treats a person as an agent
of another person.

For example, (a) when a partnership is formed, every partner automatically becomes agent o
another partner. (b) when a company is formed its promoters are treated as its agents by
operation of law

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RIGHTS AND DUTIES OF AGENT
Rights of an Agent

1. Right to retain money received on principal’s account.

2. Right to receive remuneration.
3. Right of lien on principal’s property.
4. Right to be indemnified.
5. Right to compensation for injury caused by principal’s neglet.

Duties of an Agent

1. To follow the direction of the principal.

2. To conduct the business of agency with reasonable skill and diligence.
3. To render accounts on demand
4. To communicate with the principal.
5. Not to deal on his own account
6. To pay the amounts received for the principal
7. Not to delegate his authority
8. Not to act in excess of authority
9. Duty on termination of agency by principal’s death or insanity.

TERMINATION OF AGENCY

Termination of agency means revocation (cancellation) of authority of the agent the modes of
termination of agency may be classified are as :

(a) Termination of Agency by the act of the Parties.

 By revocation o authority by the principal

 By renunciation (giving up) of business of agency by the agency
 By mutual agreement

(b) Termination of agency by Operation of Law

1. Completion of business of agency

2. Death or insanity of principal or agent
3. Insolvency of the principal
4. Destruction of subject matcer
5. Expiry of time
6. Agency subsequently becoming unlawful.
7. Termination of sub agent’s authority

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Unit-IV: Sale of Goods Act – Meaning and definition, Essentials of sale contract, sale
and agreement to sale, conditions and warranties, unpaid seller, Rules of transfer of
property.

Sale of Goods Act 1930

Till 1930,transactions relating to sale and purchase of goods were regulated by the Indian
Contract Act,1872.In 1930,Sections 76 to 123 of the Indian Contract Act, 1872 were repealed
and a separate Act called ‘The Indian Sale of Goods Act,1930 was passed.It came into force
on 1st July,1930.With effect from 22nd September,1963,the word ‘Indian’was also
removed.Now,the present Act is called’The sales of goods act,1930’. This Act extends to the
whole of India except the State of Jammu and Kashmir.

Scope of the Act The sale of Goods Act deals with ‘Sale of Goods Act,1930,’contract of sale
of goods is a contract whereby the seller transfers or agrees to transfer the property in goods
to the buyer for a price.” ‘Contract of sale’ is a generic term which includes both a sale as
well as an agreement to sell.

ESSENTIAL ELEMENTS OF CONTRACT OF SALE

1. Seller and buyer

There must be a seller as well as a buyer.’Buyer’ means a person who buys or agrees to buy
goods[Section 2910].’Seller’ means a person who sells or agrees to sell goods [Section
29(13)].

2. Goods

There must be some goods.’Goods’ means every kind of movable property other than
actionable claims and money includes stock and shares,growing crops,grass and things
attached to or forming part of the land which are agreed to be severed before sale or under the
contract of sale[Section 2(7)].

3. Transfer of property

Property means the general property in goods,and not merely a special property[Section
2(11)].General property in goods means ownership of the goods. Special property in goods
means possession of goods.Thus,there must be either a transfer of ownership of goods or an
agreement to transfer the ownership of goods.The ownership may transfer either immediately
on completion of sale or sometime in future in agreement to sell.

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4. Price

There must be a price.Price here means the money consideration for a slae of goods[Section
2(10)].When the consideration is only goods,it amounts to a ‘barter’ and not sale.When there
is no consideration ,it amounts to gift and not sale.

5. Essential elements of a valid contract

In addition to the aforesaid specific essential elements,all the essential elements of a valid
contract as specified under Section 10 of Indian Contract Act,1872 must also be present since
a contract of sale is a special type of a contract.

"" According to section 4(1) of the Indian sales of goods act, a contract of sales means such
contract by which the seller transfer the title or ownership of the goods to the buyer or makes
an agreement to transfer it against a fixed price ""

1. Buyer A person who buys or agrees to buy goods.

2. Seller A person who sells or agrees to sell goods.

3. Goods Every kind of movable property other than actionable things and money.

4. Existing goods Goods which are in existence at the time of contract of sale.

5. Future goods Goods which are to be manufactured /produced by seller after making
contract of sale.

6. Specific goods Goods which are identified & agreed upon at the time of contract of sale
has been made..

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SALE AND ARGREEMENT TO SALE

Sale: If the property in the goods is transferred (transfer of ownership) from the seller to the
buyer immediately it is known as sale.

Agreement to Sell: If the property in goods is to be transferred to the buyer in future or

subject to the fulfillment of certain conditions it is known as an agreement to sell.

Differences between Sale and Agreement to Sell

Sale Agreement to Sell

1. The ownership rights are transferred Here, the ownership rights are transferred to
to the buyer immediately. the buyer only in future.

2. If the goods are destroyed, the loss If the goods are destroyed, the loss will fall
will fall on the buyer even if the goods on the seller even if the goods are in the
are in the possession of the seller. possession of the buyer.

3. If the buyer fails to pay the price, the In a similar case, the seller can only sue the
seller can sue him for the price. buyer for damages.

4. The seller cannot re-sell the goods (if In case of re-sale by the seller, the second
he is keeping possession). If he does so, buyer gets a good title provided he buys in
the second buyer does not get a good good faith. The first buyer can only sue the
title. seller for damages.

5. It creates 'jus in rem' (right against It creates 'jus in personam' (right against a
the world) i.e., right to a enjoy the person) i.e., right to the buyer to sue the
goods against the whole world. seller for damages.

6. If the buyer becomes insolvent before

If the buyer becomes insolvent before paying
paying the price, the seller can get only
the price, the seller is not bound to part with
a rateable dividend from the buyer's
the goods.
estate towards the price.

If the buyer has already paid the price and

7. If the seller becomes insolvent, the
the seller has become insolvent, the former
buyer can recover the goods from the
can claim only a rateable dividend from the
Official Receiver.
latter's estate and not the goods.

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CONDITIONS AND WARRANTIES IN SALE OF GOODS

Sale of Goods Act is one of very old mercantile law. Earlier this was a part of Indian Contract
Act, 1872 in chapter VII (sections 76 to 123). But after the completion of it’s half century, the
then legislature found that Sale of Goods is one of the special types of Contract and in
perspective of it’s huge use, a special enactment to this effect is necessary. Thus, the
abovementioned relevant sections in Contract Act were dug out, and separate Sale of Goods
Act was passed in 1930.The Sale of Goods Act is complimentary to Contract Act. Though it
is a special law but it has the root in Contract Act and so basic provisions of Contract Act
apply to contract of Sale of Goods also.

Now it’s time to know the history of Condition and warranty, which has a very long history
in India. We can found the same in famous “Arthasashtra" written by the great Koutilya or
Chanakya in almost 4th Century B.C. Arthasastra is considered as one of the best book on
“science of political economy" system has ever written.

CONDITIONS AND WARRANTIES It is usual for both seller and buyer to make
representations to each other at the time of entering into a contract of sale. Some of these
representations are mere opinions which do not form a part of contract of sale.Whereas some
of them may become a part of contract of sale.Representations which become a part of
contract of sale are termed as stipulatuins which may rank as condition and warranty e.g. a
mere commendation of his goods by the seller doesn’t become a stipulatuin and gives no
right of action to the buyer against the seller as such representations are mere opinion on the
part of the seller.But where the seller assumes to assert a fact of which the buyer is ignorant,it
will amount to a stipulation forming an essential part of the contract of sale.

Meaning of Conditions [Section 12(2)]

A condition is a stipulation

1. Which is essential to the main purpose of the contract

2. The breach of which gives the aggrieved party a right to terminate the contract.

Meaning of Warranty[Section 12(3)]

A warranty is a stipulation

1. Which is collateral to the main purpose of the contract

2. The breach of which gives the aggrieved party a right to claim damages but not a right
to reject goods and to terminate the contract.

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 Conditions to be treated as Warranty[Section 13]

In the following three cases a breach of a condition is treated as a breach of a warranty:

1. Where the buyer waives a conditions; once the buyer waives a conditions,he cannot
insist on its fulfillment e.g. accepting defective goods or beyond the stipulated time
amount to waiving a conditions.
2. Where the buyer elects to treat breach of the condition as a breach of warranty;e.g.
where he claims damages instead of repudiating the contract.
3. Where the contract is not severable and the buyer has accepted the goods or part
thereof,the breach of any condition by the seller can only be treated as breach of
warranty.It can not be treated as a gorund for rejecting the goods unless otherwise
specified in the contract.Thus,where the buyer after purchasing the goods finds that
some condition is not fulfilled,he cannot reject the goods.He has to retain the goods
entitling him to claim damages.

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EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES

In a contract of sale of goods,conditions and warranties may be express or implied.

1. Express Conditions and Warranties.

These are expressly provided in the contract.For example,a buyer desires to buy a Sony TV
Model No. 2020.Here,model no. is an express condition.In an advertisement for Khaitan
fans,guatantee for 5 years is an express warranty.

2. Implied Conditions and Warranties

These are implied by law in every contract of sale of goods unless a contrary intention
appears from the terms of the contract.The various implied conditions and warranties have
been shown below:

Implied Conditions

1. Conditions as to title [ Section 14 (a)] There is an implied condition on the part of the
seller that

 In the case of a sale,he has a right to sell the goods,and

 In the case of an agreement to sell,he will have a right to sell the goods at the time
when the property is to pass.

2. Condition in case of sale by description [Section 15]

Where there is a contract of sale of goods by description,there is an implied condition that the
goods shall correspond with description.The main idea is that the goods supplied must be
same as were described by the seller.Sale of goods by description include many situations as
under:

i. Where the buyer has never seen the goods and buys them only onm the basis of description
given by the seller.

ii. Where the buyer has seen the goods but he buys them only on the basis of description
given by the seller.

iii. Where the method pf packing has been described.

3. Condition in case of sale by sample [Section 17]

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A contract of sale is a contract for sale by sample when there is a term in the contract, express
or implied,to that effect.Such sale by sample is subject to the following three conditions:

1. The goods must correspond with the sample in quality.

2. The buyer must have a reasonable opportunity of comparing the bulk with the sample.

3. The goods must be free from any defect which renders them unmerchantable and which
would not be apparent on reasonable examination of the sample.Such defects are called latent
defects and are discovered when the goods are put to use.

4. Condition in case of sale by description and sample [Section 15]

If the sale is by sample as well as by description, the goods must correspond with the sample
as well as the description.

5. Condition as to quality or fitness [Section 16(1)]

There is no implied condition as to the quality or fitness for any particular purpose of goods
supplied under a contract of sale.In other words,the buyer must satisfy himself about the
quality as well as the suitability of the goods.

Exception to this rule:

There is an implied condition that the goods shall be reasonably fit for a particular purpose
described if the following three conditions are satisfied:

1. The particular for which goods are required must have been disclosed(expressly or
impliedly) by the buyer to the seller.
2. The buyer must have relied upon the seller’s skill or judgement.
3. The seller’s business must be to sell such goods.

6. Condition as to merchantable quality[Section 16(2)]

Where the goods are bought by description from a seller who deals in goods of that
description,there is an implied condition that the goods shall be of merchantable quality.The
expression ‘ merchantable quality’ means that the quality and condition of the goods must be
such that a man of ordinary prudence would accept them as the goods of that
description.Goods must be free from any latent or hidden defects.

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7. Condition as to wholesomeness

In case of eatables or provisions or foodstuffs,there is an implied condition as to

wholesomeness.Condition as to wholesomeness means that the goods shall be fit for human
consumption.

8. Coditions implied by custom [Section 16(3)]

Condition as to quality or fitness for a particular purpose may be annexed by the usage of
trade.

IMPLIED WARRANTIES

a)Warranty as to quiet possession [Section14(b)]

There is an implied warranty that the buyer shall have and enjoy quiet possession of the
goods.The reach of this warranty gives buyer a right to claim damages from the seller.

b)Warranty of freedom from encumbrances [Section 14(c)]

There is an implied warranty that the goods are free from any charge or encumbrance in
favour of any third person if the buyer is not aware of such charge or encumbrance.The
breach of this warranty gives buyer a right to claim damages from the seller.

Warranty as to quality or fitness for a particular purpose annexed by usage of

trade[Section 16(3)]

Warranty to disclose dangerous nature of goods

In case of goods of dangerous nature the seller fails to do so, the buyer may make him liable
for breach of implied warranty.

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TRANSFER OF PROPERTY IN GOODS

Meaning of Passing of Property/Transfer of Property

Passing of property implies transfer of ownership and not the physical possession of
goods.For example,where a principal sends goods to his agent,he merely transfers the
physical possession and not the ownership of goods.Here,the principal is the owner of the
goods but is not having possession of goods and the agent is having possession of goods but
us not the owner.

Significance of Transfer of Property

The time of transfer of ownership of goods decides various rights and liabilities of the seller
and the buyer.Thus,it becomes very important to know the exact time of transfer of
ownership of goods from seller to buyer to answer the following questions:

1. Who shall bear the risk?

It is the owner who has to bear the risk and not the person who merely has the
possession.

2. Who can take action against third party?

It is the owner who can take action and not the person who merely has the possession.

3. Whether a seller can sue for price?

The seller can sue for the price only if the ownership of goods has been transferred to the
buyer.

4. In case of insolvency of a buyer whether the official receiver or assignee can take the
possession of goods from seller?

The Official Receiver or Assignee can take the possession of of goods from seller only if the
ownership of goods has been transferred to the buyer.

5. In case of insolvency of a seller whether the official receiver or assignee can take the
possession of goods from buyer?

The official receiver or assignee can take the possession of goods from buyer onlu if the
ownership of goods has not been transferred to the buyer.

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Rules relating to Passing of Property/Transfer of Ownership from seller to buyer

For the purposes of ascertaining the time at which the ownership is transferred from seller to
the buyer,the goods have been classified into the following three categories:

a) Specific or ascertained goods Specific goods mean goods identified and agreed upon at
the time when a contract of sale is made.[Section 2(14)]

b) Unascertained goods

c) Goods sent ‘on approval’ or ‘on sale on return’ basis.

PERFORMANCE OF THE CONTRACT

It is the duty of the seller and buyer that the contract is performed. The duty of the seller is to
deliver the goods and that of the buyer to accept the goods and pay for them in accordance
with the contract of sale.

Unless otherwise agreed, payment of the price and the delivery of the goods and concurrent
conditions, i.e., they both take place at the same time as in a cash sale over a shop counter.

Delivery (Sections 33-39) Delivery is the voluntary transfer of possession from one person to
another. Delivery may be actual, constructive or symbolic. Actual or physical delivery takes
place where the goods are handed over by the seller to the buyer or his agent authorized to
take possession of the goods.

Constructive delivery takes place when the person in possession of the goods acknowledges
that he holds the goods on behalf of and at the disposal of the buyer. For example, where the
seller, after having sold the goods, may hold them as bailee for the buyer, there is
constructive delivery.

Symbolic delivery is made by indicating or giving a symbol. Here the goods themselves are
not delivered, but the “means of obtaining possession” of goods is delivered, e.g, by
delivering the key of the warehouse where the goods are stored, bill of lading which will
entitle the holder to receive the goods on the arrival of the ship.

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RULES AS TO DELIVERY

The following rules apply regarding delivery of goods:

(a) Delivery should have the effect of putting the buyer in possession.

(b) The seller must deliver the goods according to the contract.

(c) The seller is to deliver the goods when the buyer applies for delivery; it is the duty of the
buyer to claim delivery.

(d) Where the goods at the time of the sale are in the possession of a third person, there will
be delivery only when that person acknowledges to the buyer that he holds the goods on his
behalf.

(e) The seller should tender delivery so that the buyer can take the goods. It is no duty of the
seller to send or carry the goods to the buyer unless the contract so provides. But the goods
must be in a deliverable state at the time of delivery or tender of delivery. If by the contract
the seller is bound to send the goods to the buyer, but no time is fixed, the seller is bound to
send them within a reasonable time.

(f) The place of delivery is usually stated in the contract. Where it is so stated, the goods must
be delivered at the specified place during working hours on a working day. Where no place is
mentioned, the goods are to be delivered at a place at which they happen to be at the time of
the contract of sale and if not then in existence they are to be delivered at the place at which
they are manufactured or produced.

(g) The seller has to bear the cost of delivery unless the contract otherwise provides. While
the cost of obtaining delivery is said to be of the buyer, the cost of the putting the goods into
deliverable state must be borne by the seller. In other words, in the absence of an agreement
to the contrary, the expenses of and incidental to making delivery of the goods must be borne
by the seller, the expenses of and incidental to receiving delivery must be borne by the buyer.

(h) If the goods are to be delivered at a place other than where they are, the risk of
deterioration in transit will, unless otherwise agreed, be borne by the buyer.

(i) Unless otherwise agreed, the buyer is not bound to accept delivery in instalments.

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ACCEPTANCE OF GOODS BY THE BUYER

Acceptance of the goods by the buyer takes place when the buyer:

(a) intimates to the seller that he has accepted the goods; or

(b) retains the goods, after the lapse of a reasonable time without intimating to the seller that
he has rejected them; or

(c) does any act on the goods which is inconsistent with the ownership of the seller, e.g.,
pledges or resells. If the seller sends the buyer a larger or smaller quantity of goods than
ordered, the buyer may: (a) reject the whole; or

(d) accept the whole; or

(e) accept the quantity be ordered and reject the rest. If the seller delivers with the goods
ordered, goods of a wrong description, the buyer may accept the goods ordered and reject the
rest, or reject the whole.

Where the buyer rightly rejects the goods, he is not bound to return the rejected goods to the
seller. It is sufficient if he intimates the seller that he refuses to accept them. In that case, the
seller has to remove them.

Instalment Deliveries

When there is a contract for the sale of goods to be delivered by stated instalments which are
to be separately paid for, and either the buyer or the seller commits a breach of contract, it
depends on the terms of the contract whether the breach is a repudiation of the whole contract
or a severable breach merely giving right to claim for damages.

Suits for Breach of Contract Where the property in the goods has passed to the buyer, the
seller may sue him for the price.

 Where the price is payable on a certain day regardless of delivery, the seller may sue
for the price, if it is not paid on that day, although the property in the goods has not
passed.
 Where the buyer wrongfully neglects or refuses to accept the goods and pay for them,
the seller may sue the buyer for damages for non-acceptance.
 Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the
buyer may sue him for damages for non-delivery.

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  Where there is a breach of warranty or where the buyer elects or is compelled to treat
the breach of condition as a breach of warranty, the buyer cannot reject the goods. He
can set breach of warranty in extinction or dimunition of the price payable by him and
if loss suffered by him is more than the price he may sue for the damages.

If the buyer has paid the price and the goods are not delivered, the buyer can sue the seller for
the recovery of the amount paid. In appropriate cases the buyer can also get an order from the
court that the specific goods ought to be delivered.

Anticipatory Breach

Where either party to a contract of sale repudiates the contract before the date of delivery,
the other party may either treat the contract as still subsisting and wait till the date of
delivery, or he may treat the contract as rescinded and sue for damages for the breach.

In case the contract is treated as still subsisting it would be for the benefit of both the parties
and the party who had originally repudiated will not be deprived of:

(a) his right of performance on the due date in spite of his prior repudiation; or

(b) his rights to set up any defence for non-performance which might have actually arisen
after the date of the prior repudiation.

Measure of Damages The Act does not specifically provide for rules as regards the measure
of damages except by stating that nothing in the Act shall affect the right of the seller or the
buyer to recover interest or special damages in any case were by law they are entitled to the
same. The inference is that the rules laid down in Section 73 of the Indian Contract Act will
apply.

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UNPAID SELLER AND HIS RIGHTS Meaning of an Unpaid Seller [Sec 45(1)(2)]

The seller of goods is deemed to be an ‘unpaid seller’-

1. When the whole of the price has not been paid or tendered
2. When a bill of exchange or other negotiable instrument(such as cheque) has been
received as conditional payment,and it has been dishonoured[Section 45(1)].
3. The term ‘seller’includes any person who is in the position of a seller(for instance,an
agent of the sellerto whom the bill of lading has been endorsed,or a consignor or agent
who has himself paid,or is directly responsible for the price) [Section 4592)].

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Rights of an Unpaid Seller [Section 46-52,54-56,60-61]

The rights of an unpaid seller can broadly be classified under the following two categories:

 Rights against the goods

 Rights against the buyer personally

I Rights against the goods where the property in the goods has passed to the buyer

a) Right of Lien [Section 47,48 and 49]

Meaning of Right of Lein:

The right of lien means the right to retain the possession of the goods until the full price is
received.

Three circumstance under which right of lien can be exercised[Section 47(1)]

 Where the goods have been sold without any stipulation to credit;
 Where the goods have been sold on credit,but the term of credit has expired;
 Where the buyer becomes insolvent.

Other provisions regarding right of lien[Sections 47(2),48,49(2)]

1. The seller may exercise his right of lien,even if he possesses the goods as agent or
bailee for buyer[Section 47(2)]
2. Where an unpaid seller has made part delivery of the goods,he may exercise his right
of lien on the remainder,unless such part delivery has been made under such
circumstances as to show agreement to waive the lien[Section 48].
3. The seller may exercise his right of lien even though he has obtained a decree for the
price of the goods[Section 49(2)].

Circumstances under which right of lien in the following cases:

 When he delivers the goods to a carrier or other bailee for the purpose of transmission
to the buyer without reserving the right of disposal of the goods[Section 49(1)(a)].
 When the buyer or his agent lawfully obtains possession of the goods [Section
49(1)(b)]
 When the seller waives his right of lien[Section 49(1)(c)].
 When the buyer disposes of the goods by sale or in any other manner with the consent
of the seller[Section 53(1)].

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  Where document of title to goods has been issued or lawfully transferres to any
person as buyer or owner of the goods and that person transfers the document by way
of sale,to a person who takes the document in good faith and for
consideration.[Proviso to Section 53(1)].

b) Right of Stoppage of Goods in Transit

The right of stoppage of goods means the right of stopping the goods while they are in
transit,to regain possession and to retain them till the full price is paid.

Conditions under which right of stoppage in transit can be exercised[Section 50]

The unpaid seller can exercise the right of stoppage in transit only if the following conditions
are fulfilled:

1. The seller must have parted with the possession of goods,i.e. the goods must not be in
the possession of seller.
2. The goods must be in the course of transit.
3. The buyer must have become insolvent.

c)Right of Resale[Section 46(1) and 54]

An unpaid seller can resell the goods under the following three circumstance:

1. Where the goods are of a perishable nature.

2. Where the seller expressly reserves a right of resale if the buyer commits a default in
making payment.
3. Where the unpaid seller who has exercised his right of lien or stoppage in transit gives
a notice to the buyer about his intention to resell an dbuyer does not pay or tender
within a reasonable time.

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II Rights against the goods where the property in the goods has not passed to the buyer

Right of withholding delivery[Section 46(2)]

Where the property in the goods has not been passed to the buyer, the unpaid seller, cannot
exercise right of lien, but get a right of withholding the delivery of goods, similar to and co-
extensive with lien and stoppage in transit where the property has passed to the buyer.

Rights of Unpaid Seller against the Buyer Personally

The unpaid seller, in addition to his rights against the goods as discussed above, has the
following three rights of action against the buyer personally:

1. Suit for price (Sec. 55). Where property in goods has passed to the buyer; or where the
sale price is payable ‘on a day certain’, although the property in goods has not passed; and the
buyer wrongfully neglects or refuses to pay the price according to the terms of the contract,
the seller is entitled to sue the buyer for price, irrespective of the delivery of goods. Where
the goods have not been delivered, the seller would file a suit for price normally when the
goods have been manufactured to some special order and thus are unsaleable otherwise.

2. Suit for damages for non-acceptance (Sec. 56). Where the buyer wrongfully neglects or
refuses to accept and pay for the goods, the seller may sue him for damages for non-
acceptance. The seller’s remedy in this case is a suit for damages rather than an action for the
full price of the goods.

3. Suit for Interest[Section 61(2)]

In case of breach of the contract on the part of seller,the buyer may sue the seller for interest
from the date on which the payment was made.

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Unit-V: The essential Commodity Act. Right to information Act. The Consumer
Protection Act, 1986.

ESSENTIAL COMMODITIES ACT

The Essential Commodities Act is an act of Parliament of India which was established to
ensure the delivery of certain commodities or products, the supply of which if obstructed
owing to hoarding or blackmarketing would affect the normal life of the people. This
includes foodstuff, drugs, fuel (petroleum products) etc.

The ECA was enacted way back in 1955. It has since been used by the Government to
regulate the production, supply and distribution of a whole host of commodities it declares
‘essential’in order to make them available to consumers at fair prices.

The list of items under the Act include drugs, fertilisers, pulses and edible oils, and petroleum
and petroleum products. The Centre can include new commodities as and when the need
arises, and take them off the list once the situation improves.

Here’s how it works. If the Centre finds that a certain commodity is in short supply and its
price is spiking, it can notify stock-holding limits on it for a specified period. The States act
on this notification to specify limits and take steps to ensure that these are adhered to.
Anybody trading or dealing in a commodity , be it wholesalers, retailers or even importers are
prevented from stockpiling it beyond a certain quantity.

A State can, however, choose not to impose any restrictions. But once it does, traders have to
immediately sell into the market any stocks held beyond the mandated quantity. This
improves supplies and brings down prices. As not all shopkeepers and traders comply, State
agencies conduct raids to get everyone to toe the line and the errant are punished. The excess
stocks are auctioned or sold through fair price shops.

Importance
The ECA gives consumers protection against irrational spikes in prices of essential
commodities. The Government has invoked the Act umpteen times to ensure adequate
supplies. It cracks down on hoarders and black-marketeers of such commodities.

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But there is another side to the story. Given that almost all crops are seasonal, ensuring
round-the-clock supply requires adequate build-up of stocks during the season. So, it may not
always be possible to differentiate between genuine stock build-up and speculative hoarding.
Also, there can be genuine shortages triggered by weather-related disruptions in which case
prices will move up. So, if prices are always monitored, farmers may have no incentive to
farm.

With too-frequent stock limits, traders also may have no reason to invest in better storage
infrastructure. Also, food processing industries need to maintain large stocks to run their
operations smoothly. Stock limits curtail their operations. In such a situation, large scale
private investments are unlikely to flow into food processing and cold storage facilities.

The Act, or the government, also seem to be ineffective in controlling rampant profiteering
being indulged in by numerous companies in the name of "organic" or unprocessed
foodstuffs. For example, it is unbelievable but true that unprocessed rice (a.k.a. brown rice)
bears a price that is two to three times the price of milled or polished rice, though the trading
companies make extra profit by selling the bran resulting from milling as well at a hefty
price.

One also finds that foods labeled as 'organic' are sold at astronomical prices in most parts of
the country, though in a few places like Pune these are available at prices that even the poor
are able to afford. Unfortunately, despite such clear evidence of profiteering by companies at
the cost of customers, the government seems either unwilling or unable to stop such
malpractices under the Act.

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 RIGHT TO INFORMATION (RTI)
Right to Information (RTI) is an Act of the Parliament of India to provide for
setting out the practical regime of right to information for citizens and replaces the erstwhile
Freedom of information Act, 2002. Under the provisions of the Act, any citizen of India may
request information from a "public authority" (a body of Government or "instrumentality of
State") which is required to reply expeditiously or within thirty days. The Act also requires
every public authority to computerise their records for wide dissemination and to proactively
certain categories of information so that the citizens need minimum recourse to request for
information formally.

This law was passed by Parliament on 15 June 2005 and came fully into force on 12
October 2005. The first application was given to a Pune police station. Information disclosure
in India was restricted by the Official Secrets Act 1923 and various other special laws, which
the new RTI Act relaxes. It codifies a fundamental right of citizens.

Scope

The Act covers the whole of India except Jammu and Kashmir, where J&K Right to
Information Act is in force. It covers all constitutional authorities, including the executive,
legislature and judiciary; any institution or body established or constituted by an act of
Parliament or a state legislature. It is also defined in the Act that bodies or authorities
established or constituted by order or notification of appropriate government including bodies
"owned, controlled or substantially financed" by government, or non-Government
organizations "substantially financed, directly or indirectly by funds"

Objective of the Right to Information Act :

The basic object of the Right to Information Act is to empower the citizens,promote
transparency and accountability in the working of the Government,contain corruption, and
make our democracy work for the people in real sense.It goes without saying that an
informed citizen is better equipped to keep necessary vigil on the instruments of governance
and make the government more accountable to the governed.The Act is a big step towards
making the citizens informed about the activities of the Government.

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 THE CONSUMER PROTECTION ACT was passed by the
Parliament in 1986 and it came into force from 1987. Its purposes to protect consumers
against defective goods, unsatisfactory services, unfair trade practices, etc. The Act provides
for three-tier machinery consisting of District Forum, State Commission and National
Commission. It also provides for the formation protection councils in every state.
The consumers can file their complaints at the appropriate forum for quick redressal.
The complaint may relate to defective refrigerator or TV set, non-functional telephone, lack
of due cares in medical treatment and so on. Any service or product given free of charge is
not covered by the Act.
Definitions of Important Terms
Before studying the provisions of the CPA, it is necessary to understand the terms
used in the Act. Let us understand some of the more important definitions.
Complainant means:
1. A consumer; or
2. Any voluntary consumer association registered under the Companies Act, 1956 or
under any other law for the time being in force; or
3. The Central Government or any State Government, who or which makes a complaint;
or one or more consumers where there are numerous consumers having the same
interest.
Complaint means any allegation in writing made by a complainant that:
1. An unfair trade practice or a restricted trade practice has been adopted by any trader.
2. The goods bought by him or agreed to be bought by him suffer from one more
defects.
3. The services hired or availed of or agreed to be hired or availed of by him suffer from
deficiency in any respect.
4. The trader has charged for the goods mentioned in the complaint a price excess. of the
price fixed by or under any law for the time being in force or displayed on the goods
or any package containing such goods.
Goods which will be hazardous to life and safety when used, are being offered for sale
to the public in contravention of the provisions of any law for the time being in force,
requiring traders to display information in regard to the contents, manner and effect of use of
such goods; with a view to obtaining any relief provided by law under the CPA.
Consumer means any person who:
1. buys any goods for a consideration which has been paid or promised or partly paid
and partly promised, or under any system of deferred payment (for example hire
purchase or installment sales) and includes any other user of such goods when such
use is made with the approval of the buyer, but does not include a person who obtains
such goods for resale or for any commercial purpose; or
2. hires or avails of any services for a consideration which has been paid or promised, or
partly paid and partly promised, or under any system of deferred payment and
includes any beneficiary of such services when such services are availed of with the
approval of the first mentioned person

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 For the purposes of this definition "commercial purpose" does not include use by a
consumer of goods bought and used by him exclusively for the purpose of earning his
livelihood by means of self-employment.
Goods mean goods as defined in the Sale of Goods Act, 1930. Under that act, goods means
every kind of movable property other than actionable claims and money and includes stocks
and shares, growing crops, grass and things attached to or forming part of the land which are
agreed to be severed before sale or under the contract of sale.
Service is defined to mean service of any description which is made available to potential
users and includes the provision of facilities in connection with banking, financing,
insurance, transport, processing, supply of electrical or other energy, board or lodging or
both, housing construction, entertainment, amusement or the purveying of news or other
information but does not include the rendering of any service free of charge or under a
contract of personal service.
Consumer dispute means dispute where the person against whom a complaint has been made,
denies or disputes the allegation contained in the complaint.
Restrictive Trade Practice means any trade practice which requires a consumer to buy, hire,
or avail of any good or as the case may be, services as a condition precedent for buying,
hiring or availing of any other goods or services.
Unfair Trade Practice means unfair trade practice as defined under the Monopolies and
Restrictive Trade Practices Act. The MRTP act has defined certain practices to be unfair
trade practices.
Defect means any fault, imperfection or shortcoming in the quality, quantity, potency, purity
or standard which is required to be maintained by or under any law for the time being in force
or under any contract, express or implied, or as is claimed by the trade in any manner
whatsoever in relation to any goods.
Deficiency means any fault, imperfection or shortcoming or inadequacy in the quality, nature
and manner of performance which is required to be maintained by or under any law for the
time being in force or has been undertaken to be performed by a person in pursuance of a
contract or otherwise in relation to any service. A consumer is a user of goods and services.
Any person paying for goods and services, which he uses, is entitled to expect that the goods
and services be of a nature and quality promised to him by the seller.
The earlier principle of "Caveat Emptor" or "let the buyer beware" which was
prevalent has given way to the principle of "Consumer is King". The origins of this principle
lie in the fact that in today's mass production economy where there is little contact between
the producer and consumer, often sellers make exaggerated claims and advertisements, which
they do not intend to fulfill. This leaves the consumer in a difficult position with very few
avenues for redressal. The onset on intense competition also made producers aware of the
benefits of customer satisfaction and hence by and large, the principle of “consumer is king"
is now accepted.
Objects of the Consumer Protection Act, 1986
The preamble to the Act states that the Act is legislated to provide for better
protection of the interests of consumers and for that purpose to make provision for the
establishment of consumer councils and other authorities for the settlement of consumer's

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disputes and for matters connected therewith. The CPA extends to the whole of India except
the State of Jammu and Kashmir and applies to all goods and services unless otherwise
notified by the Central Government.
The basic rights of consumers as per the Consumer Protection Act (CPA) are:
1. Right to safety.
2. Right to be informed.
3. Right to choose.
4. Right to representation (or to be heard).
5. Right to seek redressal.
6. Right to consumer education.
1. Right to Safety :
It is the consumer right to be protected against goods and services which is hazardous
to health or life.
2. Right to be Informed:
The consumer has the right to be informed about the quality, quantity, purity,
standard and price of goods he intends to purchase. Therefore, the manufacture must
mention complete information about the product, its ingredients, date of manufacture,
price, precaution of use, etc. on the label and package of the product.
3. Right to Choose:
The consumer should be assured of freedom to choose from a variety of products at
competitive prices. Every consumer wants to buy a product on his free will. There
should be free competition in the market so that the consumer may make the right
choice in satisfying his needs.
4. Right to Representation (or to be Heard):
The consumer has right to register dissatisfaction with any product and get his
complaint heard. Most of the reputed firms have set up consumer service cells to
listen to the consumer’s complaint and take appropriate steps to redress their
grievances.
5. Right to Seek Redressal:
It is the right to seek redressal against any defect in goods or unfair trader suffered by
the consumer. If the quality and performance of a product falls short of seller’s
claims, the consumer has a right to certain remedies. The Consumer Protection Act
requires that the product must be repaired, replaced or taken back by the seller as
provided under the contract between the buyer and the seller.

6. Right to Consumer Education:

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 It means right of acquiring knowledge and being a well-informed consumer
throughout his life. He should also be made aware of his rights and the remedies
available through publicity in the mass media.
Consumer Responsibilities
(i) To provide adequate information to the seller: The consumer has the responsibility to
provide adequate information about his needs and expectation to the sellers.
(ii) To exercise caution in purchasing: The consumer must try to get full information on
the quality, design, utility, quantity, price, etc. of the product before purchasing it.
(iii) To insist on cash memo or receipt: The consumer must get a cash memo or receipt as
a proof of purchase of goods from the seller. This would help him in making a
complaint to the seller in case of any defect in the goods.
(iv) To file complaint against genuine grievance: The consumer must file a complaint
with the seller or manufacturer about any defects or shortcoming in the products and
services.
(v) To be quality conscious: The consumer should never compromise on the
quality of goods. While making purchases, the consumers must look for standard
quality certification marks such as ISI, Agmark, Woolmark, FPO, etc. For example,
electric iron must carry ISI mark.

Redressal Machinery under the Act

Consumer Protection Councils
The interests of consumers are enforced through various authorities set up under the
CPA. The CPA provides for the setting up of the Central Consumer Protection Council, the
State Consumer Protection Council and the District Forum.
Central Consumer Protection Council
The Central Government has set up the Central Consumer Protection Council, which
consists of the following members:
(a) The Minister in charge of Consumer Affairs in the Central Government who is its
Chairman, and
(b) Other official and non-official members representing varied interests. The Central
council consists of 150 members and its term is 3 years. The Council meets as and
when necessary but at least one meeting is held in a year.
State Consumer Protection Council
The State Council consists of:
(a) The Minister in charge of Consumer Affairs in the State Government who is its
Chairman, and
(b) Other official and non-official members representing varied interests. The State
Council meets as and when necessary but not less than two meetings must be held
every year.

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Redressal Machinery under the Act
The CPA provides for a 3-tier approach in resolving consumer disputes. The District
Forum has jurisdiction to entertain complaints where the value of goods / services
complained against and the compensation claimed is less than Rs. 20 lakhs, the State
Commission for claims exceeding Rs. 20 lakhs but not exceeding Rs. 1crore and the National
Commission for claims exceeding Rs.1 crore.
District Forum
Under the CPA, the State Government has to set up a district Forum in each district of
the State. The government may establish more than one District Forum in a district if it
deems fit.
Each District Forum consists of:
(a) A person who is, or who has been, or is qualified to be, a District Judge who shall be
its President
(b) Two other members who shall be persons of ability, integrity and standing and have
adequate knowledge or experience of or have shown capacity in dealing with
problems relating to economics, law, commerce, accountancy, industry, public affairs
or administration, one of whom shall be a woman.
Appointments to the State Commission shall be made by the State Government on the
recommendation of a Selection Committee consisting of the President of the State
Committee, the Secretary - Law Department of the State and the secretary in charge of
Consumer Affairs
Every member of the District Forum holds office for 5 years or up to the age of 65
years, whichever is earlier and is not eligible for re-appointment. A member may resign by
giving notice in writing to the State Government whereupon the vacancy will be filled up by
the State Government.
The District Forum can entertain complaints where the value of goods or services and
the compensation, if any, claimed is less than rupees twenty lakhs. However, in addition to
jurisdiction over consumer goods services valued upto Rs.20 lakhs, the District Forum also
may pass orders against traders indulging in unfair trade practices, sale of defective goods or
render deficient services provided the turnover of goods or value of services does not exceed
rupees twenty lakhs.
A complaint shall be instituted in the District Forum within the local limits of whose
jurisdiction-
(a) The opposite party or the defendant actually and voluntarily resides or carries on
business or has a branch office or personally works for gain at the time of institution
of the complaint; or
(b) Any one of the opposite parties (where there are more than one) actually and
voluntarily resides or carries on business or has a branch office or personally works
for gain, at the time of institution of the complaint provided that the other opposite
party/parties acquiescence in such institution or the permission of the Forum is
obtained in respect of such opposite parties; or
(c) The cause of action arises, wholly or in part.
State Commission

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 The Act provides for the establishment of the State Consumer Disputes Redressal
Commission by the State Government in the State by notification.
Each State Commission shall consist of:
(a) A person who is or has been a judge of a High Court appointed by State Government
(in consultation with the Chief Justice of the High Court ) who shall be its President;
(b) Two other members who shall be persons of ability, integrity, and standing and have
adequate knowledge or experience of, or have shown capacity in dealing with,
problems relating to economics, law, commerce, accountancy, industry, public affairs
or administration, one of whom must be a woman.
Every appointment made under this is made by the State Government on the
recommendation of a Selection Committee consisting of the President of the State
Commission, Secretary -Law Department of the State and Secretary in charge of Consumer
Affairs in the State.
Every member of the District Forum holds office for 5 years or upto the age of 65 years,
whichever is earlier and is not eligible for re-appointment. A member may resign by giving
notice in writing to the State Government whereupon the vacancy will be filled up by the
State Government.
The State Commission can entertain complaints where the value of goods or services and
the compensation, if any, exceeds Rs. 20 lakhs but does not exceed Rs. 1crore.
The State Commission also has the jurisdiction to entertain appeal against the orders of
any District Forum within the State
The State Commission also has the power to call for the records and appropriate orders in
any consumer dispute which is pending before or has been decided by any District Forum
within the State if it appears that such District Forum has exercised any power not vested in it
by law or has failed to exercise a power rightfully vested in it by law or has acted illegally or
with material irregularity.
National Commission
The Central Government provides for the establishment of the National Consumer
Disputes Redressal Commission. The National Commission shall consist of:-
(a) A person who is or has been a judge of the Supreme Court, to be appoint by the
Central Government (in consultation with the Chief Justice of India ) who be its
President;
(b) Four other members who shall be persons of ability, integrity and standing and have
adequate knowledge or experience of, or have shown capacity in dealing with,
problems relating to economics, law, commerce, accountancy, industry, public affairs
or administration, one of whom shall be a woman

Appointments shall be by the Central Government on the recommendation of a

Selection Committee consisting of a Judge of the Supreme Court to be nominated by the
Chief Justice of India, the Secretary in the Department of Legal Affairs and the Secretary in
charge of Consumer Affairs in the Government of India.

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 Every member of the National Commission shall hold office for a term of five years
or upto seventy years of age, whichever is earlier and shall not be eligible for reappointment.
The National Commission shall have jurisdiction:
(a) to entertain complaints where the value of the goods or services and the
compensation, if any, claimed exceeds rupees one crores:
(b) to entertain appeals against the orders of any State Commission; and
(c) to call for the records and pass appropriate orders in any consumer dispute which is
pending before, or has been decided by any State Commission where it appears to the
National Commission that such Commission has exercised a jurisdiction not vested in
it by law, or has failed to exercise a jurisdiction so vested, or has acted in the exercise
of its jurisdiction illegally or with material irregularity.
Complaints may be filed with the District Forum by:
1. The consumer to whom such goods are sold or delivered or agreed to be sold or
delivered or such service provided or agreed to be provided
2. Any recognized consumer association, whether the consumer to whom goods sold or
delivered or agreed to be sold or delivered or service provided or agreed to be
provided, is a member of such association or not
3. One or more consumers, where there are numerous consumers having the same
interest with the permission of the District Forum, on behalf of or for the benefit of,
all consumers so interested
4. The Central or the State Government. On receipt of a complaint, a copy of the
complaint is to be referred to the opposite party, directing him to give his version of
the case within 30 days. This period may be extended by another 15 days. If the
opposite party admits the allegations contained in the complaint, the complaint will be
decided on the basis of materials on the record. Where the opposite party denies or
disputes the allegations or omits or fails to take any action to represent his case within
the time provided,
The dispute will be settled in the following manner:
In case of dispute relating to any goods: Where the complaint alleges a defect in the
goods which cannot be determined without proper analysis or test of the goods, a sample of
the goods shall be obtained from the complainant, sealed and authenticated in the manner
prescribed for referring to the appropriate laboratory for the purpose of any analysis or test
whichever may be necessary, so as to find out whether such goods suffer from any other
defect. The appropriate laboratory' would be required to report its finding to the referring
authority, i.e. the District Forum or the State Commission within a period of forty- five days
from the receipt of the reference or within such extended period as may be granted by these
agencies.

Limitation period for filing of complaint:

The District Forum, the State Commission, or the National Commission shall not
admit a complaint unless it is filed within two years from the date on which the cause of
action has arisen. However, where the complainant satisfies the District Forum / State

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Commission, that he had sufficient cause for not filing the complaint within two years; such
complaint may be entertained by it after recording the reasons for condoning the delay.
Powers of the Redressal Agencies:
The District Forum, State Commission and the National Commission are vested with
the powers of a civil court under the Code of Civil Procedure while trying a suit in respect of
the following matters:-
1. The summoning and enforcing attendance of any defendant or witness examining the
witness on oath;
2. The discovery and production of any document or other material producible as
evidence;
3. The reception of evidence on affidavits:
4. The requisitioning of the report of the concerned analysis or test from the appropriate
laboratory or from any other relevant source;
5. Issuing of any commission for the examination of any witness; and
6. Any other matter which may be prescribed.
Under the Consumer Protection Rules, 1987, the District Forum, Commission and the
National Commission have the power to require any person: -
(i) to produce before, and allow to be examined by an officer of any authorities, such
books of accounts, documents or commodities as may be required and to keep such
book, documents etc. under its custody for the purposes of the Act;
(ii) to furnish such information which may be required for the purposes to any officer so
specified.
They have the power to:
(i) To pass written orders authorizing any officer to exercise power of entry and search
of any premises where these books, papers, commodities, or documents are kept if
there is any ground to believe that these may be destroyed, altered, falsified or
secreted. Such authorized officer may also seize books, papers, documents or
commodities if they are required for the purposes of the Act, provided the seizure is
communicated to the District Forum / State Commission / National commission
within 72 hours. On examination of such documents or commodities, the agency
concerned may order the retention thereof or may return it to the party concerned.
(ii) to issue remedial orders to the opposite party.
(iii) to dismiss frivolous and vexatious complaints and to order the complainant to make
payment of costs, not exceeding Rs. 10,000 to the opposite party.
Remedies Granted under the Act :
The District Forum / State Commission / National Commission may pass one or more
of the following orders to grant relief to the aggrieved consumer: -
1. To remove the defects pointed out by the appropriate laboratory from goods in
question;
2. To replace the goods with new goods of similar description, which shall be free from
any defect;

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 3. To return to the complainant the price, or, as the case may be, the charges paid by the
complainant;
4. To pay such amount as may be awarded by it as compensation to the consumer for
any loss or injury suffered by the consumer due to negligence of the opposite party;
5. To remove the defects or deficiencies in the services in question;
6. To discontinue the unfair trade practice or the restrictive trade practice or not to repeat
them;
7. Not to offer the hazardous goods for sale:
8. To withdraw the hazardous goods from being offered for sale:
9. To provide for adequate costs to parties.
Appeals :
Any person aggrieved by an order made by the Forum may prefer an appeal to the
State Commission in the prescribed form and manner. Similarly, any person aggrieved by any
original order of the State Commission may prefer an appeal to the National Commission in
the prescribed form and manner. Any person aggrieved by any original order of the National
Commission may prefer an appeal to the Supreme Court.
All such appeals are to be made within thirty days from the date of the order provided
that the concerned Appellate authority may entertain an appeal after the said period of thirty
days if it is satisfied that there was sufficient cause for not filling it within that period. The
period of 30 days is to be computed from the date of receipt of the order by the appellant.
Where no appeal has been preferred against any of the orders of the authorities, such
orders would be final. The District Forum, State Commission or National Commission may
enforce respective orders as if it was a decree or order made by a Court and in the event of
their inability to execute the same; they may send the order to the Court for execution by it as
if it were a Court decree or order.
Penalties :
Failure or omission by a trader or other person against whom a complaint is made or
the complainant to comply with any order of the State Commission or the National
Commission shall be punishable with imprisonment for a term which shall not be less than
one month but which may extend to 3 years, or with fine of not less than Rs. 2,000 but which
may to Rs. 10000 or with both.
However, if it is satisfied that the circumstances of any case so requires, then the
District Forum or the State Commission or the National Commission may impose a lower
fine or a shorter term of imprisonment.

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