PART I - INTRODUCTION AND FORMATION OF CONTRACT

1. Nature, Meaning and Essentials of a Valid Contract

• Enacted on 25 April 1872 and brought into force on 1 September 1872.
• Section 2(h): A contract is an agreement enforceable by law.
• Section 2(e): Every promise and every set of promises forming consideration for each other is an agreement.
• Section 2(b): When the person to whom a proposal is made signifies their assent, the proposal is accepted. An accepted proposal becomes a promise.
• Section 2(a): Proposal means expressing willingness to do or abstain from doing something with a view to obtaining another person's assent.

• Offer and valid acceptance.
• Intention to create legal relations.
• Lawful consideration.
• Competency of parties.
• Free consent.
• Lawful object.
• Agreement must not be expressly declared void.
• Compliance with applicable legal formalities, wherever required.

• Balfour v. Balfour (1919): Domestic arrangements between spouses ordinarily do not create an intention to enter into legally enforceable contracts.
• Carlill v. Carbolic Smoke Ball Co.: A sufficiently definite advertisement can constitute a general offer when it demonstrates an intention to be legally bound.

Basics of Valid Contract under the Indian Contract Act, 1872

2. Offer or Proposal

• Section 2(a) - Definition of proposal
• Section 3 - Communication of proposal, acceptance and revocation
• Section 4 - When communication is complete
• Section 5 - Revocation of proposals and acceptances
• Section 6 - Modes of revocation

• It must demonstrate willingness to do or abstain from doing something.
• It must be made with a view to obtaining the other party's assent.
• Its terms must be sufficiently certain.
• It must be communicated to the offeree.
• It must not merely invite negotiations.
• The offeror must intend to create legal consequences upon acceptance.

• Express offer: Made through spoken or written words.
• Implied offer: Inferred from conduct or circumstances.
• Specific offer: Made to a particular person.
• General offer: Made to the public at large.
• Cross-offer: Identical offers made by two parties to each other without knowledge of the other's offer. They do not constitute acceptance.
• Counter-offer: An offer made in response to an earlier offer, proposing different terms. It generally amounts to rejection of the original offer.
• Standing offer: An offer which remains open for acceptance over a specified period, often through successive orders.

• Carlill v. Carbolic Smoke Ball Co.: General offers can be accepted through performance of the stipulated conditions.
• Lalman Shukla v. Gauri Dutt: A person cannot accept an offer without knowledge of its existence.
• Harvey v. Facey: Merely stating the lowest price at which one is willing to sell does not necessarily constitute an offer.
• Hyde v. Wrench: A counter-offer destroys the original offer.
• Felthouse v. Bindley: Silence cannot ordinarily be imposed as acceptance.

3. Communication and Revocation of Offer and Acceptance

1. Communication of notice of revocation.
2. Lapse of prescribed or reasonable time.
3. Failure to fulfil a condition precedent.
4. Death or insanity of the proposer, if the acceptor comes to know of it before acceptance.

• Concerned formation of a contract through telephone communication.
• The Supreme Court distinguished instantaneous communication from postal acceptance.
• In instantaneous communication, acceptance must be received by the offeror; the contract is ordinarily concluded where acceptance is received.

4. Acceptance of an Offer

• Section 2(b) - Acceptance
• Section 7 - Acceptance must be absolute
• Section 8 - Acceptance by performing conditions or receiving consideration
• Section 9 - Express and implied promises

1. Acceptance must be absolute and unqualified.
2. It must correspond with the terms of the offer.
3. It must be communicated, unless the offer expressly or impliedly permits acceptance by conduct.
4. It must be made in the prescribed manner, where specified.
5. It must be made while the offer remains open.
6. It must be made with knowledge of the offer.

• Section 7: Acceptance must be absolute and unqualified.
• Section 8: Performance of the conditions of a proposal or acceptance of consideration offered with a proposal amounts to acceptance.
• Section 9: Promises may be express or implied.

• Carlill v. Carbolic Smoke Ball Co.: Performance can amount to acceptance of a general offer.
• Lalman Shukla v. Gauri Dutt: Knowledge of the offer is essential.
• Felthouse v. Bindley: Silence is not ordinarily acceptance.

5. Consideration

• Section 2(d) - Definition of consideration
• Section 23 - Lawful consideration and object
• Section 25 - Agreement without consideration is void, subject to exceptions

1. It must move at the desire of the promisor.
2. It may move from the promisee or any other person.
3. It may be past, present or future.
4. It must be real and not illusory.
5. It must be lawful.
6. It need not be adequate, provided consent is freely given.

• Must be in writing.
• Must be registered.
• Must be between parties standing in near relation to each other.

• A person voluntarily does something for the promisor.
• The promisor subsequently promises to compensate them.

• Must be in writing.
• Must be signed by the debtor or their authorised agent.
• Must relate to a debt which could have been enforced but for limitation.

• Durga Prasad v. Baldeo: Consideration must move at the desire of the promisor.
• Chinnaya v. Ramaya: Consideration may move from a third person.
• Kedarnath Bhattacharji v. Gorie Mohamed: A promise to subscribe to a charitable fund became enforceable when liability was incurred on the faith of the subscription.
• Abdul Aziz v. Masum Ali: A mere promise to subscribe, without consideration or liability incurred, was unenforceable.

6. Doctrine of Privity of Contract

• Privity of consideration: Who must provide consideration?
• Privity of contract: Who can enforce the contractual obligation?

• Under Section 2(d), consideration may move from the promisee or any other person.
• However, a stranger to a contract ordinarily cannot sue upon it.

1. Tweddle v. Atkinson (1861): A person who was not a party to an agreement could not enforce the promise made for his benefit.
2. Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. (1915): A stranger to the contract cannot sue for its breach.
3. Jamna Das v. Ram Autar Pande (1911): A mortgagee could not enforce a personal promise made by the purchaser to pay the mortgage debt when the mortgagee was not a party to that promise.
4. M.C. Chacko v. State Bank of Travancore (1969): The Supreme Court reaffirmed the doctrine of privity of contract.

1. Beneficiary under a trust.
2. Family arrangements and marriage settlements.
3. Acknowledgment or estoppel.
4. Assignment of contractual rights.
5. Agency: A principal may enforce contracts entered into by an authorised agent.
6. Covenants running with land, where applicable.

Privity of Contracts: Why Strangers Can't Cash In on Your Deal.

7. Capacity to Contract

1. Have attained the age of majority.
2. Are of sound mind.
3. Are not disqualified from contracting by any law applicable to them.

• Understanding the contract.
• Forming a rational judgment about its effect upon their interests.

• A minor mortgaged his property to secure a loan.
• The lender's agent knew that the borrower was a minor.
• The Privy Council held that an agreement with a minor is void ab initio.
• A minor's agreement is not merely voidable; it is void from the beginning.

1. No personal contractual liability can ordinarily be imposed on the minor.
2. A minor cannot ratify an agreement upon attaining majority; a fresh contract supported by fresh consideration is required.
3. The doctrine of estoppel cannot ordinarily be used to make a minor liable on an otherwise void agreement.
4. A minor may be a beneficiary under a contract.
5. Under Section 68, necessaries supplied to a minor can be reimbursed from the minor's property.
6. A minor can act as an agent under Section 184, but cannot be held personally responsible to the principal under the ordinary rules of agency.
7. A minor can be admitted to the benefits of partnership under Section 30 of the Indian Partnership Act, 1932, subject to its conditions.

• Mohori Bibee v. Dharmodas Ghose: Minor's agreement is void ab initio.
• Srikakulam Subrahmanyam v. Kurra Subba Rao (1948): A guardian may enter into a contract on behalf of a minor where it is within the guardian's authority and for the minor's benefit.
• Leslie v. Sheill (1914): A minor cannot be made indirectly liable for a contractual loan by disguising the claim as restitution.

• Section 12 determines contractual capacity at the time of contracting.
• A person incapable of understanding the contract or forming a rational judgment cannot enter into a valid contract at that time.
• A person experiencing a temporary lucid interval can contract during that interval.

• Alien enemies, during the relevant period of hostilities.
• Foreign sovereigns and diplomats, subject to applicable law and immunities.
• Convicts, subject to statutory restrictions.
• Insolvents, regarding property vested in the insolvency administration, subject to applicable insolvency law.
• Corporations acting beyond their legal capacity or statutory powers.

8. Free Consent

• Section 13 - Consent
• Section 14 - Free consent

1. Coercion.
2. Undue influence.
3. Fraud.
4. Misrepresentation.
5. Mistake, subject to Sections 20, 21 and 22.

A. Coercion - Section 15

• An unlawful act or threat.
• Unlawful detention of property or threat thereof.
• Intention to cause a person to enter into an agreement.
• The coercion need not necessarily be directed against the contracting party.
• Ranganayakamma v. Alwar Setti (1889): Preventing a widow from removing her husband's dead body for cremation until she consented to an adoption amounted to coercion.
• Chikkam Ammiraju v. Chikkam Seshamma (1917): Threatening suicide was treated as coercion under the then applicable interpretation of Section 15.

B. Undue Influence - Section 16

1. One party is in a position to dominate the will of another.
2. That position is used to obtain an unfair advantage.

• Parent and child.
• Doctor and patient.
• Guardian and ward.
• Spiritual adviser and disciple.
• Trustee and beneficiary.

• They hold real or apparent authority over the other.
• They stand in a fiduciary relationship.
• They contract with a person whose mental capacity is affected by age, illness or mental or bodily distress.

• Raghunath Prasad v. Sarju Prasad (1924): Established the three-stage approach: determine dominance, examine its use, and assess whether an unfair advantage was obtained.
• Subhas Chandra Das Mushib v. Ganga Prosad Das Mushib (1967): Explained the requirements for establishing undue influence and the shifting of the burden of proof.

C. Fraud - Section 17

1. Suggestion of a fact which is untrue by someone who does not believe it to be true.
2. Active concealment of a fact by someone having knowledge or belief of that fact.
3. A promise made without any intention of performing it.
4. Any other act fitted to deceive.
5. Any act or omission specially declared fraudulent by law.

• There is a duty to speak.
• Silence is equivalent to speech.
• The circumstances create a duty of disclosure.

• Derry v. Peek (1889): Fraudulent misrepresentation involves knowledge of falsity, absence of honest belief in truth, or recklessness as to truth.
• Ningawwa v. Byrappa (1968): Distinguished fraud concerning the character of a document from fraud concerning its contents.

D. Misrepresentation - Section 18

1. An incorrect positive assertion made by someone who believes it to be true, though it is not justified by the information available.
2. A breach of duty which, without an intention to deceive, gains an advantage by misleading another.
3. Innocently causing a party to make a mistake regarding the substance of the subject matter.

E. Mistake - Sections 20, 21 and 22

• Mistake regarding existence of the subject matter.
• Mistake regarding identity of the subject matter.
• Mistake concerning the fundamental nature of the transaction.

Landmark Cases on the Indian Contract Act - Part 1: Formation, Capacity and Free Consent.

PART II - VOID AGREEMENTS AND CONTINGENT CONTRACTS

9. Lawful Object and Consideration - Section 23

1. It is forbidden by law.
2. It defeats the provisions of any law.
3. It is fraudulent.
4. It involves injury to the person or property of another.
5. The court regards it as immoral.
6. It is opposed to public policy.

• Concerned wagering agreements and public policy.
• The Supreme Court held that wagering agreements are void under Section 30.
• However, wagering agreements are not necessarily illegal under Section 23.
• A collateral transaction is not automatically void merely because it relates to a wagering agreement.

10. Agreements Expressly Declared Void

A. Restraint of Marriage - Section 26

B. Restraint of Trade - Section 27

• Niranjan Shankar Golikari v. Century Spinning (1967): A negative covenant operating during the subsistence of an employment contract may be enforceable if reasonable and not unconscionable.
• Superintendence Company of India v. Krishan Murgai (1981): Post-employment restraints are generally void under Section 27.
• Gujarat Bottling Co. Ltd. v. Coca Cola Co. (1995): A negative stipulation during the subsistence of a commercial agreement is not necessarily a restraint of trade prohibited by Section 27.

C. Restraint of Legal Proceedings - Section 28

• Absolutely restrict a party from enforcing contractual rights through ordinary legal proceedings.
• Unlawfully limit the time within which contractual rights may be enforced.
• Extinguish contractual rights or discharge liability after a specified period so as to restrict enforcement, subject to statutory exceptions.

D. Uncertainty - Section 29

E. Wagering Agreements - Section 30

1. There must be an uncertain event.
2. Each party must stand to win or lose.
3. Neither party must have control over the outcome.
4. The parties must have no genuine interest in the event other than the stake.

• Wagering agreements are void.
• Winnings cannot ordinarily be recovered through a suit.
• Collateral transactions are not automatically illegal under the central Act.

• Gherulal Parakh v. Mahadeodas Maiya (1959): Wagering agreements are void but not necessarily illegal.
• State of Bombay v. R.M.D. Chamarbaugwala (1957): Considered the distinction between gambling activities and competitions involving substantial skill.

11. Contingent Contracts

12. Performance of Contracts

• Section 38: Effect of refusal to accept a valid offer of performance.
• Section 39: Effect of refusal to perform a promise wholly.
• Section 40: Person by whom promise is to be performed.
• Section 41: Acceptance of performance from a third person.
• Section 42: Devolution of joint liabilities.
• Section 43: Any one of joint promisors may be compelled to perform the whole promise.
• Section 44: Effect of release of one joint promisor.
• Section 46: Time for performance where no time is specified.
• Section 47: Time and place where time is specified.
• Section 48: Application for performance on a particular day.
• Section 50: Performance in manner or at time prescribed by promisee.
• Section 51: Reciprocal promises to be performed simultaneously.
• Section 52: Order of performance of reciprocal promises.
• Section 53: Liability of party preventing the event on which contract is to take effect.
• Section 54: Effect of default in performing the promise which should be performed first.
• Section 55: Effect of failure to perform at a fixed time.
• Section 60: Application of payment where debt to be discharged is not indicated.
• Section 62: Novation, rescission and alteration.
• Section 63: Promisee may dispense with or remit performance.
• Section 64: Consequences of rescission of a voidable contract.
• Section 65: Obligation of person who has received advantage under void agreement or contract that becomes void.
• Section 67: Effect of neglect of promisee to afford reasonable facilities for performance.

• Be unconditional.
• Be made at a proper time and place.
• Give the promisee a reasonable opportunity to inspect the performance.
• Be made to the proper person.

• Simultaneous promises: Neither party needs to perform unless the other is ready and willing.
• Sequential promises: The party required to perform first must perform before demanding performance from the other.
• Prevention: A party cannot rely on non-performance where their own conduct prevented performance.

13. Discharge of Contracts

1. Performance.
2. Mutual agreement.
3. Impossibility or frustration.
4. Operation of law.
5. Breach of contract.
6. Lapse of limitation, affecting the remedy.

• Section 62: Novation, rescission and alteration.
• Section 63: Remission or dispensation of performance.
• Section 64: Consequences of rescinding a voidable contract.
• Section 65: Restitution where an agreement is discovered to be void or a contract becomes void.

1. An agreement to do an act impossible in itself, which is void.
2. A contract which becomes impossible or unlawful after formation, which becomes void when the act becomes impossible or unlawful.
3. Compensation for loss where the promisor knew or should have known of the impossibility or unlawfulness, but the promisee did not.

1. Satyabrata Ghose v. Mugneeram Bangur & Co. (1954): Impossibility under Section 56 is not confined to literal physical impossibility; practical impossibility may also be covered. Frustration operates under Indian statutory law.
2. Naihati Jute Mills Ltd. v. Khyaliram Jagannath (1968): Mere difficulty or commercial inconvenience does not constitute frustration.
3. Boothalinga Agencies v. V.T.C. Poriaswami Nadar (1969): Subsequent statutory prohibition can render performance unlawful and frustrate a contract.
4. Energy Watchdog v. Central Electricity Regulatory Commission (2017): A rise in the cost of procuring imported coal did not automatically frustrate power purchase agreements. Express force majeure clauses are governed by Section 32, whereas frustration outside the contract is considered under Section 56.
5. Alopi Parshad & Sons Ltd. v. Union of India (1960): A contract is not frustrated merely because performance becomes more onerous or expensive.
6. Taylor v. Caldwell (1863): Destruction of the essential subject matter without fault can discharge a contract under the English doctrine of frustration.
7. Krell v. Henry (1903): Frustration of the common foundation or purpose of a contract.

• Actual breach: Failure to perform when performance becomes due.
• Anticipatory breach: Refusal or disabling conduct before the date of performance.

Landmark Cases on the Indian Contract Act - Part 2: Void Agreements, Frustration and Discharge.

PART III - BREACH OF CONTRACT AND REMEDIES

14. Breach of Contract

• Occurs on the date performance becomes due.
• A party fails or refuses to fulfil contractual obligations.

• Occurs before the date fixed for performance.
• A party expressly refuses to perform or acts in a manner that makes performance impossible.
• Section 39 - Refusal to perform promise wholly.

15. Damages for Breach of Contract

A. Section 73 - Compensation for loss or damage

1. Losses which naturally arise in the usual course of things from the breach.
2. Losses which the parties knew, when making the contract, were likely to result from the breach.

• The plaintiffs operated a mill whose crankshaft had broken.
• The defendants delayed transporting the shaft required for manufacturing a replacement.
• The mill remained closed for additional days.
• The plaintiffs claimed loss of profits.
• The court refused to award the loss because the defendants had not been informed that the mill would remain shut.

1. Damages arising naturally in the usual course of things.
2. Special damages which were within the reasonable contemplation of both parties at the time of contracting.

• Murlidhar Chiranjilal v. Harishchandra Dwarkadas (1962): Damages should ordinarily be assessed with reference to the market price at the place and time of delivery; special losses must satisfy the remoteness principle.
• Victoria Laundry v. Newman Industries (1949): Ordinary lost profits may be recoverable where foreseeable, but unusual or extraordinary profits require knowledge of special circumstances.

B. Section 74 - Liquidated damages and penalty

• The amount mentioned in the contract is the maximum limit, not an automatic entitlement.
• The court awards reasonable compensation.
• Actual loss is relevant.
• Where loss is difficult or impossible to quantify, a genuine pre-estimate may be considered.
• A party cannot automatically recover the stipulated amount merely because the contract labels it liquidated damages.

• Section 74 applies to stipulated sums and penalties.
• The court must award reasonable compensation.
• The contractual amount is only the upper limit.

• Where actual loss can be calculated, proof of loss is generally required.
• Forfeiture of security deposits may attract Section 74.

• The Supreme Court recognised enforcement of genuine pre-estimated damages where loss is difficult to quantify.
• Compensation must still be reasonable and consistent with Section 74.

• Damage or loss is a sine qua non for compensation under Section 74.
• Where loss can be proved, it should ordinarily be proved.
• The mere existence of a forfeiture clause does not justify automatic forfeiture.

C. Section 75 - Compensation after rightful rescission

16. Types of Remedies for Breach of Contract

• Ordinary or general damages.
• Special damages.
• Nominal damages.
• Exemplary damages, exceptionally.
• Liquidated damages, subject to Section 74.

• Section 65 - Restitution.
• Section 70 - Non-gratuitous acts.
• Section 75 - Compensation after rightful rescission.

Notes on Breach of Contract: Types, Effects and Remedies.

PART IV - QUASI-CONTRACTS

17. Quasi-Contracts: Sections 68-72

Five categories under the Indian Contract Act

• Food.
• Clothing.
• Medical treatment.
• Essential accommodation.
• Other genuine necessities.

• The other person must be legally bound to pay.
• The claimant must have an interest in making the payment.
• The claimant must actually pay the amount.

1. The act or delivery must be lawful.
2. It must not be intended to be gratuitous.
3. The other person must enjoy the benefit.

• The contractor constructed certain works for the government.
• The works were accepted and enjoyed by the government.
• The Supreme Court held that compensation could be claimed under Section 70.
• A valid formal contract under Article 299 of the Constitution was absent, but the requirements of Section 70 were independently satisfied.

• Taking reasonable care.
• Not misappropriating the goods.
• Making reasonable efforts to locate the true owner.
• Returning the goods to the rightful owner.

• Duplicate payment of an invoice.
• Payment of a tax under a mistake of law or fact, subject to applicable constitutional and statutory limitations.
• Goods delivered to the wrong person.

• The Supreme Court interpreted Section 72 broadly.
• The expression mistake includes mistake of law as well as mistake of fact.
• Money paid under a mistake of law could be recovered, subject to applicable legal limitations.

• Fibrosa Spolka Akcyjna v. Fairbairn Lawson (1943): Recognised restitution where a contract became frustrated and the basis for payment failed.
• Moses v. Macferlan (1760): An early English authority on restitution and unjust enrichment.

Quantum Meruit 

1. Where a contract is discovered to be void.
2. Where a contract becomes void.
3. Where one party prevents the other from completing performance.
4. Where a divisible contract has been partly performed and the circumstances permit payment.
5. Where a person lawfully provides non-gratuitous services and the requirements of Section 70 are fulfilled.

Quasi-Contracts: The Silent Chapter That Trips Up Every CLAT PG Aspirant.

PART V - SPECIAL CONTRACTS

18. Contract of Indemnity

• Indemnifier: Person who promises to compensate.
• Indemnity-holder: Person protected against loss.

1. Damages which they may be compelled to pay in a suit concerning a matter covered by the indemnity.
2. Costs incurred in bringing or defending such proceedings, subject to the statutory conditions.
3. Sums paid under a compromise, subject to the statutory conditions.

• The Bombay High Court recognised that the indemnity-holder need not always wait until actual payment is made.
• Where liability has become absolute, the indemnity-holder may seek relief to protect themselves against that liability.

19. Contract of Guarantee

1. Surety: Person giving the guarantee.
2. Principal debtor: Person whose default is guaranteed.
3. Creditor: Person to whom the guarantee is given.

• Between creditor and principal debtor.
• Between creditor and surety.
• Between principal debtor and surety.

• The Supreme Court held that the creditor is not required to exhaust remedies against the principal debtor before proceeding against the surety.
• The surety's liability arises upon default, subject to the guarantee's terms.

• Section 130: A continuing guarantee may be revoked by notice regarding future transactions.
• Section 131: Death of the surety operates as revocation of a continuing guarantee for future transactions, unless there is a contract to the contrary.

• Material variance without consent - Section 133.
• Release of principal debtor - Section 134.
• Composition, giving time or agreement not to sue - Section 135.
• Impairment of surety's eventual remedy - Section 139.
• Loss of security - Section 141.

1. Right of subrogation - Section 140.
2. Right to benefit of securities - Section 141.
3. Right of indemnity against principal debtor - Section 145.
4. Right of contribution against co-sureties - Sections 146–147.

• State Bank of India v. Indexport Registered (1992): The creditor can proceed against the guarantor without necessarily first proceeding against the principal debtor.
• Industrial Investment Bank of India Ltd. v. Biswanath Jhunjhunwala (2009): Reaffirmed the co-extensive nature of surety liability.
• Lalit Kumar Jain v. Union of India (2021): Approval of a resolution plan in relation to a corporate debtor does not, by itself, discharge the personal guarantor.

20. Indemnity vs Guarantee

Contract of Guarantee and Indemnity under the Indian Contract Act.

21. Bailment

• Bailor: Person delivering goods.
• Bailee: Person receiving goods.

1. Delivery of possession of movable goods.
2. Delivery for a particular purpose.
3. Contract, express or implied.
4. Obligation to return or dispose of goods according to directions.
5. Ownership remains with the bailor; possession transfers to the bailee.

• Disclose known material defects - Section 150.
• Bear necessary expenses in gratuitous bailment - Section 158.
• Indemnify the bailee for losses arising from defective title or other applicable liabilities.

• Take reasonable care - Section 151.
• Avoid unauthorised use - Section 154.
• Not mix goods without consent - Sections 155-157.
• Return goods upon completion - Section 160.
• Deliver any increase or profit from the goods - Section 163.

• Right to recover necessary expenses.
• Right to compensation for premature termination in certain gratuitous bailments.
• Right to particular lien under Section 170.
• Right to general lien under Section 171, for specified classes of bailees.

22. Pledge

• Pawnor: Person who pledges goods.
• Pawnee: Person who receives goods as security.

1. Delivery of possession of goods.
2. Goods must be delivered as security.
3. There must be a debt or promise.
4. Ownership generally remains with the pawnor.
5. Pawnee receives a special interest in the pledged goods.

1. Pawnee may sue the pawnor for the debt and retain the goods as collateral security.
2. Pawnee may sell the pledged goods after giving reasonable notice of sale.
3. If sale proceeds are insufficient, the pawnor remains liable for the balance.
4. If sale proceeds exceed the debt, the surplus must be returned to the pawnor.

• Lallan Prasad v. Rahmat Ali (1967): A pawnee must be able to return the pledged goods when the pawnor redeems them; the pawnee cannot retain the goods and simultaneously obtain a decree for the debt in circumstances where such retention defeats the pawnor's rights.
• Bank of Bihar v. State of Bihar (1971): A pawnee has a special property in pledged goods and a preferential right over them, subject to applicable law.
• Morvi Mercantile Bank Ltd. v. Union of India (1965): Examined the rights of a pledgee in relation to railway receipts representing goods.

• Section 178: Mercantile agent in possession with the owner's consent, acting in the ordinary course of business and with the pawnee acting in good faith without notice of lack of authority.
• Section 178A: Person in possession under a voidable contract, before rescission, subject to statutory conditions.
• Section 179: Person having only a limited interest can pledge to the extent of that interest.

23. Bailment vs Pledge

Bailment and Pledge under the Indian Contract Act, 1872.

PART VI - AGENCY

24. Contract of Agency

• Agent: A person employed to do an act for another or to represent another in dealings with third persons.
• Principal: Person for whom the act is done or who is represented.

1. Agency creates a representative relationship.
2. The agent acts on behalf of the principal.
3. Consideration is not necessary to create agency.
4. The principal must be competent to contract.
5. An agent need not necessarily be competent to contract personally.

A. Creation of Agency

1. Express agency: Created through spoken or written words.
2. Implied agency: Inferred from conduct or circumstances.
3. Agency by necessity: Created in exceptional emergency situations.
4. Agency by estoppel: Principal's conduct creates an appearance of authority on which a third party reasonably relies.
5. Agency by ratification: Principal subsequently approves an act done without prior authority.

B. Agency by Ratification - Sections 196-200

• The act must have been done on behalf of the principal.
• The principal must have existed and had capacity at the relevant time.
• The principal must have knowledge of material facts.
• Ratification must relate to the whole transaction.
• Ratification cannot be used to injure third-party rights.

C. Duties of an Agent

D. Rights of an Agent

• Section 217: Right to retain sums due.
• Section 219: Right to remuneration.
• Section 220: Agent not entitled to remuneration for business misconduct.
• Section 221: Right of lien over principal's property in appropriate circumstances.
• Section 222: Right to indemnity for lawful acts.
• Section 223: Indemnity for acts done in good faith.
• Section 225: Compensation for injury caused by principal's neglect.

E. Principal's Liability for Acts of Agent

• Section 226: Contracts entered into through an authorised agent have the same legal consequences as if entered into by the principal.
• Section 227: Principal bound where agent exceeds authority but the authorised part can be separated.
• Section 228: Principal not bound where authorised and unauthorised parts cannot be separated.
• Section 229: Notice given to an agent may operate as notice to the principal in relevant circumstances.
• Section 230: Agent is generally not personally liable on contracts entered into on behalf of the principal, subject to exceptions.
• Section 231: Rights of parties where agent contracts without disclosing the principal's existence.
• Section 232: Performance where the existence of the principal is disclosed before completion.
• Section 233: Right of third party to proceed against agent or principal in relevant cases.
• Section 234: Consequences of inducing belief that either agent or principal alone will be held liable.
• Section 235: Liability of pretended agent.
• Section 236: Pretended agent cannot demand performance.
• Section 237: Liability of principal where agent creates an appearance of authority.
• Section 238: Misrepresentation or fraud by agent affects agreements in the same manner as if committed by the principal in the relevant circumstances.

F. Termination of Agency - Sections 201–210

1. Revocation by principal.
2. Renunciation by agent.
3. Completion of the business of agency.
4. Death or insanity of principal or agent.
5. Insolvency of principal, subject to applicable law.
6. Expiry of the agreed period.
7. Destruction of the subject matter, where applicable.

• Section 202: Agency coupled with interest cannot ordinarily be terminated to the prejudice of that interest.
• Section 203: Principal may revoke authority before it has been exercised so as to bind the principal, subject to Section 202.
• Section 204: Revocation cannot affect acts already done.
• Section 205: Compensation for premature revocation or renunciation in specified circumstances.
• Section 206: Reasonable notice of revocation or renunciation.
• Section 207: Revocation or renunciation may be express or implied.
• Section 208: Termination takes effect against agent and third parties when it becomes known to them.
• Section 209: Agent's duty upon principal's death or insanity.
• Section 210: Termination of sub-agent's authority.

Agency under the Indian Contract Act, 1872: Complete Guide for CLAT PG.