Legal Environment of Business

Definition of law:
The term law is used to denote rules of conduct emanated from & enforced by the state. People living in
an organized society have to follow certain common rules, otherwise peaceful living is impossible. It is
the function of the state to enforce these rules.

According to Holland, Law is the rule of external human action enforced by the sovereign political
authority.

According to Woodrow Wilson, Law is that portion of the established thought & habit which has found
a distinct & formal recognition in the shape of uniform rules backed by the authority & power of the
government.

Object of Law: Law is enforced by the state. The objective of law is to bring order in the society
with a view to enable its members to progress & develop with some sort of security regarding the
future.

Anson states objects of law as follows:

The object of law is Order, & the result of order is that men are enabled to look ahead with some sort
of security as to the future. Although human action cannot be reduced to the uniformities of nature,
men have yet endeavored to reproduce by Law something approaching to this uniformity.

Rule of Law: There are three rules of law:

1. Abolition of Autocracy: No man is above law. Every citizen is subject to the ordinary law of the
land & the citizen has to face trial in the same law courts, irrespective of his status or position in
the society.
2. Punishment subject to prove: There must be supremacy of law. No one shall be punished except
for definite breach of law & the breach of law must be proved in a duly constituted court of law.
3. Origin of Constitutional Law: The rule of law is the result of statutes & judicial decisions
determining the rights of private persons. Thus the constitutional law of the country follows
from the ordinary law of the land.

Legal Environment of Business in Bangladesh:
The term business law is used to include only the rules relating to industry, trade, & commerce. Business
law is mainly of two types:
Commercial Law
Industrial Law




Commercial Law: Commercial law may be defined as that part of law which regulates the
transactions of the mercantile community.

Scope of commercial Law: The scope of commercial law in Bangladesh is as follows:
1. The Contract Act-1872
2. The Sale of Goods Act-1930
3. The Partnership Act-1932
4. The Negotiable Instrument Act-1881
5. The Company Act-1994
6. Carriage of Goods Act:
* The Common Carriers Act-1865
* The Railway Act-1890
* The Carriage of Gods by Sea Act-1925
* The Carriage by Air Act-1934
7. The Insurance Act-1938
8. The Insolvency Act-1997

Sources of Commercial Law:
The sources of commercial law in Bangladesh are as follows:
1. Parliament
2. English Mercantile Law
3. Customs & usages
4. Judicial decisions
5. Scientific commentaries

Industrial Law: The term industrial law is used to denote laws passed for the purpose of regulating
the conditions under which work is carried on in factories & other establishments & the relationship
between employers & employees.

Objective of Industrial law: Industrial law has a two-fold objective:

1. The preservation of the health, safety, & welfare of workers , and
2. The maintenance of good relations between employers & employees.

Scope of Industrial law: Industrial law in Bangladesh can be classified under the following headings:

1. Laws regulating the nature of work in factories & establishment: There are three types of such
law:
i) The Factories Act-1965
ii) The Mines Act- 1923
iii) The Mines Labour Act-1934

2. Laws relating to wages:
i) The Payment of Wages Act-1936
ii) The minimum Wages Ordinance-1961
iii) The Provident Fund act-1925
3. Laws relating to industrial relations:
i) The Industrial Relation Ordinance- 1969
ii) The Industrial Relation (Amendment) Ordinance- 1989
4. Laws relating to social insurance:
i) The Workmen Compensation Act-1923
ii) The Employers Liabilities Act- 1938
iii) The Workmens Security Act-1934

5. Laws regulating the conditions of employment:
i) The Employment of labour (Standing Order) Act, 1965
ii) The Shops & Establishment Act-1965

Necessity or Importance of Industrial Law in the Context of Bangladesh:
Industry is the process of producing something with a view to earning profit. Industrial legislation is
necessary for the following reasons:
Maintenance of workmens security
Increase the awareness of the workers
Assurance of workers health & welfare
Maintenance of social security
Establishment of dignity of workers
Change of owners outlook
Development of industrial relations
Settlement of industrial dispute
Development of industry
National development


















Contract Act-1872

Definition of contract: Section 2 (h) of the Contract Act-1872 provides that An agreement
enforceable by law is a contract. Therefore in a contract there must be (i) an agreement and (ii) the
agreement must be enforceable by law.

The Essential Elements of a Contract:

The essential elements of contract are explained below:

1. Plurality of Member: A contract must have at least two parties.
2. Offer & Acceptance: There must be a lawful offer by one party & a lawful acceptance of the
offer by other party or parties.
3. Intention to Create Legal Relationship: There must be an intention among the parties that the
agreement shall result in or create legal relations.
4. Lawful Consideration: An agreement to do something for nothing is usually not enforceable by
law. The something given or obtained is called consideration.
5. Capacity of parties: The parties to an agreement must be legally capable of entering into an
agreement; otherwise it cannot be enforced by a court of law. Want of capacity arises from
minority, lunacy, idiocy, drunkenness, & other similar factors.
6. Free Consent: In order to be enforceable, an agreement must be based on the free consent of
all the parties.
7. Legality of the Object: The object for which the agreement has been entered into must not be
illegal, or immoral or opposed to public policy.
8. Certainty: The agreement must not be vague. It must be possible to ascertain the meaning of
the agreement, for otherwise it cannot be enforced.
9. Possibility of performance: The agreement must be capable of being performed. A promise to
do an impossible thing cannot be enforced.
10. Writing, Registration, & Legal Formalities: An oral contract is a perfectly good contract, except
in those cases where writing and/or registration is required by some statue. The terms of an oral
contract are sometimes difficult to prove. Therefore, important agreements are usually entered
into in writing even in cases where writing is not compulsory.

An agreement which fulfils all the essential elements is enforceable by law & is called a contract.
From this we can say that, all agreements are not contracts, but all contracts are agreement.




Contract & Agreement:
An agreement enforceable by law is a contract. An agreement which does not satisfy the essential
elements of a contract may be either void or voidable. The different types of agreement are described
here:
1. Void Agreement
2. Voidable Agreement
3. Unenforceable Agreement
4. Illegal Agreement
Void Agreement: An agreement not enforceable by law is said to be void.Section 2(g). A void
agreement has no legal effect.
For example, an agreement made by minor; agreements without consideration; certain agreements
against public policy; etc. are void ab initio, i.e., void from the beginning.

Voidable Agreement: A voidable agreement is one which can be avoided. An agreement which is
enforceable by law at the option of one or more of the parties thereto, but not at the option of the
other or others, is a voidable contract.

Unenforceable Agreement: Unenforceable agreement means an agreement which cannot be enforced
in a court of law because of some technical defects. For example, want of registration, or nonpayment
of the requisite stamp duty.
Illegal Agreement: An illegal agreement is one which is against the law in-force in a country. For
example, an agreement to commit murder.

Valid Contract: An agreement which satisfies all the essential elements of a contract, & which is
enforceable through the courts is called valid contract.


Offer & Acceptance:

Definition of Offer:
An offer involves the making of a proposal.
The term proposal is defined in the Contract Act as follows: When one person signifies to another his
willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other
to such act or abstinence, he is said to make a proposal

The promisor or the person making the offer is called the offeror. The person to whom the offer is made
is called the offeree.

Acceptance: When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted. A proposal when accepted becomes a promise-Sec. 2 (b)

The person making the proposal is called the promisor and the person accepting the proposal is called
the promisee

Rules regarding offer:
The Contract Act contains various rules regarding offer or proposal. They can be summed up as follows:
1. An offer may be expressed or may be implied from the circumstances.
2. An offer may be made to a definite person; to some definite class of persons; or to the world at
large.
3. The offer must be capable of creating legal relationship.
4. The terms of offer must be certain, definite, unambiguous, & not vague.
5. An offer must be communicated to the offeree.
6. An offer may be conditional
7. Offer can be revoked before acceptance
8. Any offer is not stand for ever.

Rules regarding Acceptance:
1. Acceptance always must be unconditional & absolute.
2. Acceptance must be furnished in an usual & reasonable way
3. Acceptance must be made while the given offer is enforced
4. Mere a mental or unnoticed acceptance is not acceptance
5. Acceptance before proposal is not valid
6. Acceptance must be made by related actual person
7. Acceptance must be communicated
8. Acceptance can be revoked or cancelled before its communication.



How is an offer to be communicated?
An offer is made when, and not until, it is communicated to the offeree. A person cannot accept an offer
unless he knows of the existence of the offer.
For example, P offers a reward to anyone who returns his lost dog. Q finding the dog brings it to P
without having heard of the offer. Held, he was not entitled to the reward.

An offer can be communicated to the offeree or offerees by word of mouth, by writing or by conduct.

Section-4 states that: The communication of a proposal is complete when it comes to the knowledge of
the person to whom it is made.






Consideration:

Consideration is an essential element in a contract. Subject to certain exceptions, an agreement is not
enforceable unless each party to the agreement gets something. This something is called
consideration.
Section 2(d) of the Contract Act defines consideration as follows: when, at the desire of the promisor,
the promisee or any other person has done or abstained from, doing something, such act or
abstinence or promise is called a consideration for the promise

Types of consideration:
Past consideration: When the consideration of one party was given before the date of the promise,
it is said to be past.
Present consideration: Consideration which moves simultaneously with the promise is called
present consideration.
Future consideration: when consideration is to move at a future date, it is called future
consideration.

Rules regarding consideration: The following rules may be laid down regarding consideration:
Consideration must be made according to the desire of the promisor.
Consideration may come from the promisee or any other person
Consideration must be realistic
Consideration need not be adequate
Consideration should be lawful
Consideration may be present, past, & future.


No Consideration No Contract- Exceptions to the Rule:

Explanation: Consideration is essential for the validity of a contract. A promise without consideration is
a gift. But there are some exceptional cases where a contract is enforceable even though there is no
consideration. They are as follows:
1. Contract of Natural love & affection: An agreement without consideration is valid under Section
25(1) only if the following requirements are complied with:
I. The agreement is made by a written document
II. The document is registered according to the law relating to registration in force at the
time
III. The agreement is made on account of natural love & affection
IV. The parties to the agreement stand in a near relation to each other

2. Compensational Promise for Voluntary Service: A promise made without any consideration is
valid if, it is a promise to compensate wholly or in part, a person who has already voluntarily
done something for the promisor or something which the promisor was legally compellable to
do.
3. Time-barred debt: A promise to pay a debt which is barred by the law of limitation can be
enforced if the promise is in writing & is signed by the debtor or his authorized agent.
4. Agency: No consideration is required to create an agency
5. Completed gift: The rule no consideration, no contract does not apply to completed gifts.


Capacity of Parties:

Definition of Capacity:
According to the Section-11 of the Contract Act, Every person is competent to contract who is of the
age of majority according to the law, & who is of sound mind, and is not disqualified from contracting by
any law.
A person is incapable of entering into contracts under the following circumstances:
I. If he has not attained the age of majority according to the law
II. If he is not of sound mind
III. If he is disqualified from contracting by any law
Minority: A minor is one who has not completed his /her 18
th
years of age. So, a person becomes a
major after the completion of 18
th
year of life.

The law regarding minors agreement:
The law regarding minors agreement may be summarized as follows:
Contract of minors void ab initio
A minor is exempted from the liabilities of estoppel
The minors property is liable for the payment of a reasonable price for necessaries supplied to
the minor
A minor cannot be compelled to compensate or refund any benefit which he has received under
a void agreement.
A minor on attaining majority cannot ratify an agreement entered into while he was a minor.
An agreement by minor being void, the court will never direct specific performance of such an
agreement by him.
A minor cannot be declared as insolvent
A minor cannot enter into a contract of partnership
A minor can be an agent
An agreement by a minor is void but an agreement by his guardian on his behalf is valid
provided the obligations undertaken are within the powers of the guardian.
A minor cannot apply for and be a member of a company.






Persons of Unsound Mind:
Definition of sound mind: A person is said to be of sound mind for the purpose of making a contract
if, at the time when he makes it, he is capable of understanding, it & of forming a rational judgment as
to its effect upon his interest.

A person who is usually of unsound mind, but occasionally of sound mind may make a contract
when he is of sound mind.
A person who is usually of sound mind, but occasionally of unsound mind may make a contract
when he is of sound mind.
A person who is usually of sound mind, but occasionally of unsound mind may not make a
contract when he is of unsound mind.
Unsoundness of mind may arise from-
Insanity or lunacy
Idiocy
Drunkenness & similar factors

Effects of Agreement made by persons of unsound mind: Agreements by persons of unsound mind are
void. But an agreement entered into by a person of unsound mind for the supply of necessaries for
himself or for persons whom he is bound to support is valid.

Disqualified persons: A disqualified person is incapable of entering into a contract. Disqualified persons
are:
Aliens (citizen of a foreign country) Enemies: An alien means a citizen of a foreign state.
Contracts with aliens are valid. But contracts with alien enemies are void.
Foreign sovereigns or ambassadors: Foreign sovereigns or governments cannot be used unless
they voluntarily submit to the jurisdiction of the local court.
Convict: A convict is one who is found guilty & is imprisoned. During the period of
imprisonment, a convict cannot enter into contract cannot sue to contracts made before
conviction.
Married women: Married women cannot enter into contracts with respect to their husbands
properties.











Free Consent
An agreement is valid only when it is the result of the free consent of all the parties to it.
Definition of Consent:
Section 13 of the Contract Act defined consent as Two or more persons are said to consent when
they agree upon the same thing in the same sense.
Definition of Free Consent: Section 14 states that Consent is said to be free when it is not
caused by-
1. coercion
2. undue influence
3. misrepresentation
4. fraud
5. Mistake.

Coercion: Coercion is the committing, or threatening to commit, any act forbidden by the Penal
Code or the unlawful detaining, or threatening to detain, any property, to the prejudice of any
person whatever with the intention of causing any person to enter into an agreement. Sec. 15
The above definition can be analyzed as follows:
1. Coercion implies-
a) Committing or threatening to commit any act forbidden by the Penal Code, or
b) Unlawful detaining or threatening to detain any property with the intention of causing
any person to enter into an agreement
2. The act constituting coercion must be directed at any person
3. It does not matter whether the Penal Code is or is not in force in the place where the coercion is
employed.

Effect of Coercion: A contract brought about by coercion is voidable at the option of the party
whose consent was so caused.

Undue Influence: A contract is said to be induced by undue influence where-
(i) One of the parties is in a position to dominate the will of the other &
(ii) He uses the position to obtain an unfair advantage over the other.

Effect of Undue Influence: A contract brought about by undue influence is voidable at the option of
the party whose consent was so caused.

Misrepresentation: A representation when wrongly made, either innocently or intentionally is
termed as a misrepresentation.
Three cases of misrepresentation are:
1. Unwarranted Assertion
2. Breach of duty
3. Innocent mistake
Consequence of misrepresentation: In cases of misrepresentation the aggrieved party can:
i) Avoid the agreement, or
ii) Insist that the contract be performed and that he shall be put in the position in which he
would have been if the misrepresentation made had been true.
Fraud: The term fraud includes all acts committed by a person with a view to deceive another
person. To deceive means to induce a man to believe that a thing is true which is false.
Fraud includes any of the following acts:
1. False Statement
2. Active concealment
3. Intentional non-performance
4. Deception
5. Fraudulent act or omission
Consequence of fraud: A party who has been induced to enter into an agreement by fraud has the
following remedies open to him:
1. he can avoid the performance of the contract
2. He can insist that the contract shall be performed & that he shall be put in the position in which
he would have been if the representation made had been true.
3. The aggrieved party can sue for damages.
Mistake: Mistake may be defined as an erroneous belief concerning something. Consent cannot be
free when an agreement is entered into under mistake.
Classification of mistake: Mistake may be:
1. Mistake of fact: Where both the parties to an agreement are under a mistake as to matter of fact
essential to the agreement, the agreement is void. Mistake of fact may be:
i) Bilateral or
ii) Unilateral.
Bilateral mistakes arise when both the parties of the contract make mistakes. Bilateral mistakes may
include the followings:
Mistake regarding the existence of the things
Mistake regarding the subject matter
Mistake regarding the identity of a thing
Mistake regarding the quality of the subject matter
Mistake regarding the quantity of the subject matter
Mistake regarding the price of the subject matter
Mistake regarding the title to the subject matter

Unilateral mistake arises from one of the parties of the contract. A contract is not voidable merely
because it was caused by one of the parties to it being under a mistake as to a matter of fact. Some
examples of unilateral mistake of facts are given here:
Mistake occurred by fraud e.g., mistake regarding identity of a person, mistake
regarding nature of contract.
Mistake regarding price of the subject matter
Mistake regarding the identity of the subject matter


2. Mistake of law: A contract is not voidable because it was caused by a mistake as to any law in force in
Bangladesh, but a mistake as to a law not in force in Bangladesh has the same affect as a mistake of fact.
Mistake of law may be:
iii) Mistake as to law in force in a country
iv) Mistake as to a law not in force in a country.


Consequence of mistake: Consequence of mistake varies depending on the types & nature of mistakes.
The consequence is given here:
1. The contract which become void because of mistake are:
a) Bilateral mistakes of fact e.g.,
Mistakes regarding subject matter
Mistake regarding the existence of the things
Mistake regarding the identity of a thing
Mistake regarding the quality of the subject matter
Mistake regarding the quantity of the subject matter
Mistake regarding the price of the subject matter
Mistake regarding the ownership of the subject matter

b) Mistake occurred by fraud e.g.,
Mistake regarding identity of a person,
Mistake regarding nature of contract.
c) Mistake as to a law not in force in a country.

2. The contract which remain valid:
a) Unilateral mistake e.g.,
Mistake regarding price of the subject matter
Mistake regarding the identity of the subject matter

b) Mistake as to law in force in a country















Legality of Object & Consideration

Unlawful consideration & object:
An agreement will not be enforced by the court if its object or consideration is unlawful. By the
expression, Object of an agreement is meant its purpose or design. The object & the consideration
must both be lawful, otherwise the agreement is void.

Unlawful Agreements: The consideration & the object of an agreement are unlawful in the following
cases:
1. If it is forbidden by law
2. If it is of such nature that, if permitted, it would defeat the provisions of any law.
3. If it is fraudulent
4. If it involves or implies injury to the person or property of another,
5. If the court regards it as immoral,
6. If the court regards it as opposed to public policy.
Agreements opposed to public policy:
The following agreements have been held to be against public policy:
1. Trading with alien enemy
2. Agreement interfering with the course of justice
3. Traffic in public offices
4. Agreement creating an interest opposed to duty
5. Agreements retraining personal freedom
6. Agreements interfering with parental duties.
7. Agreements interfering with marital duties
8. Marriage brokerage agreements
9. Agreement for paying dowry.


Performance of Contract:
Definition: Performance of a contract means the carrying out of these obligations. Each party must
perform the promise which he has made.
According to the section-37 of the Contract Act- The parties to a contract must either perform, or offer
to perform, their respective promises, unless such performance is dispensed with or excused under the
provisions, of this act, or of any other law.

The offer to perform contract: The offer to perform the contract is called tender. To be legally
valid a tender must fulfill the following conditions:
1. It must be unconditional
2. Offer must be made at a proper time & place.
3. The person to whom a tender is made must be given a reasonable opportunity of ascertaining
that the person by whom it is made is able & willing there & then, to do the whole of what he is
bound by his promise to do.
4. An offer to perform a part of the promise is not a valid tender.
5. If the offer is an offer to deliver anything to the promisee, the promisee must have a reasonable
opportunity of seeing that the thing offered is the thing which the promisor is bound by his
promise to deliver.
6. Tender money, must be in legal tender money, not any foreign money, or promissory note or
cheque
Consequence of refusal of tender:
Where a promisor has made an offer of performance to the promisee & the offer has not been
accepted, the promisor is not responsible for nonperformance, nor does he thereby lose his rights under
the contract.
Effect of refusal of party to perform promise: When a party to a contract has refused to perform, or
disabled himself from performing his promise in its entirely, the promisee may put an end to the
contract, unless he has signified by words or conduct, his acquiescence in its continuance.





Who is to perform the contract?
1. Personal performance
2. Performance by representatives
3. Performance by third party
4. Performance of promise after the death of the promisor
5. Performance of joint promise.
Reciprocal promise:
A contract consists of reciprocal promises when one party makes a promise (to do or not to do
something in future) in consideration of a similar promise (to do or not to do something in future) made
by the other party. Such contract is an exchange of promises.

Classification of reciprocal promise:
Reciprocal promises can be divided into three types:
1. Reciprocal but individual promise
2. Reciprocal & interdependent promise
3. Reciprocal & present promise.

Rules regarding the performance of reciprocal promise:
The rules regarding the performance of reciprocal promises are given here:

1. Promisor is not bound to perform, unless the reciprocal promisee is ready & willing to perform
his reciprocal promise.

2. Where the order in which reciprocal promises are to be performed expressly fixed by the
contract, they shall be performed in that order, & where the order is not expressly fixed by the
contract, they shall be performed in that order which the nature of the transaction requires.

3. When one party to the reciprocal contract prevents the other from performing his promise, the
contract becomes voidable at the opinion of the party so prevented; & he is entitled to
compensation from the other party for any loss which he may sustain in consequence of the
non-performance of the contract.

4. An agreement to do an impossible act is void

5. When persons reciprocally promise, firstly to do certain things which are legal, & secondly,
under specified circumstances, to do certain other things which are illegal, the first set of
promises is a contract, but the second is a void agreement.

Assignment of Contract: Assignment means transfer. The rules regarding assignment of contract are
given here:
1. Contracts involving personal skill, ability, credit, or other personal qualifications, cannot be
assigned. For example, a contract to marry; a contract to paint a picture.
2. The liabilities & burden under the contract cannot be transferred
3. A contract may be performed through the agency of a competent person, if the contract does
not contemplate performance by the promisor personally.
4. The rights & benefits under a contract can be assigned
5. Assignment by operation of law occurs in cases of death or insolvency.

General rules regarding the time & place of performance: The time & place of performance of a
contract must be determined by the parties by agreement. The rules regarding the time & place of
performance are given here:

1. Time for performance without application: Where a promisor is to perform his promise without
application by the promisee, & no time for performance is specified, the engagement must be
performed within a reasonable time.
The question what is reasonable time is, in each particular case, a question of fact. Normally
the following things are considered in determining the reasonable time:
Nature of the product
Distant of place for sending the product
Nature of place for sending the product
Nature of road & transport

2. Time & place, where time is specified: When the time & place is specified, & the promisor has
undertaken to perform it without application by the promisee, the promisor may perform it at
any time during the usual hours of business within the specified time & place.
3. Application for performance of promise on a certain day: When a promise is to be performed on
a certain day, & the promisor has not undertaken to perform it without application from the
promisee, it is the duty of the promisee to apply for performance at a proper place & within the
usual hours of business.
4. Performance may be made by the sanction of promisee.

Contracts which need not to be performed: The contracts need not to be performed in the following
cases:

1. Discharge by mutual agreement
2. Remit the performance of promise
3. Voidable contract when declared void
4. Lack of facilities for performance.











Termination of Contract

Methods of termination: When the obligations created by a contract come to an end, the
contract is said to be discharged or terminated. The methods of termination of contract are given here:
1. By performance of the promise
2. By mutual agreement
3. By substituting a new agreement in place of the old
4. By impossibility of performance
5. By operation of law i.e. Death, insolvency, etc.
6. By lapse of time
7. By material alteration without the consent of the other parties
8. By breach made by one party.


Effects of Subsequent or Supervening Impossibility:
An agreement to do an act impossible in itself is void. But there are some acts which are possible to
perform at the time of contract but may become subsequently impossible. The effects of subsequent
impossibility are projected here:
1. Agreement is void for supervening impossibility
2. Compensation must be given for contract of impossible or illegal act with knowledge
3. When contract become void, person who has received any advantage under such agreement is
bound to restore the advantage

The doctrine of frustration: When the common object of a contract can no longer be carried
out, the court may declare the contract to be at an end. This is known as the doctrine of frustration.
Lord Loreburn says that, the doctrine of frustration is only a special case of the discharge of a contract
by impossibility of performance arising after the contract was made.
Causes of frustration:
1. Destruction of an object
2. Change of law
3. Failure of pre-conditions
4. Death or personal incapacity
5. Outbreak of war.

Basis of the doctrine of frustration:
The basis of the doctrine of frustration is given here:
1. Hypothesized condition
2. Destruction of the essential subject of contract
3. Occurrence of conditional events
4. Alteration of condition


Limits of application of the doctrine of frustration:
1. If the frustration is self-induced by the party the contract is not frustrated
2. The frustrating event should defeat the common intention of the parties. There cannot be
frustration on one side only.

Effects of the doctrine of frustration:
1. the contract terminates automatically & immediately
2. All future obligations are discharged
3. Some relieves have been given by the Law Reform Act, 1943.



Breach of Contract & its Remedies
When a contract is broken by one party, the other party or parties are freed from the obligations of
performing the contract. They can also take the remedial measures to which they are entitled.
Breach of contract may arise in two ways:
1. by anticipatory breach and
2. by actual breach or present breach

Anticipatory Breach of Contract:
Anticipatory breach of contract occurs when a party repudiates his liability under the contract before
the time for performance is due or when a party by his own act disables himself from performing the
contract.

For example, X agrees to marry Y. Before the agreed date of marriage, he marries Z. This is an
anticipatory breach of contract.

Consequences of Anticipatory breach of contract:
When anticipatory breach occurs, the aggrieved party can take the following steps:
I. He can revoke the liability of performance
II. He can file a suit for damages
III. He can refuse the breach of contract.

Actual Breach of Contract:
Actual breach of contract occurs when during the performance of the contract or at the time when the
performance of the contract is due; one party either fails or refuses to perform his obligations under the
contract.

For example, D agrees to deliver to B, 5 tons of sugar on 1
st
December. He fails to do so on 1
st
December.
There is a breach of contract by D.

The refusal of performance may be expressed, implied or abstaining from doing something.
Remedies for Breach of Contract:
When a breach of contract occurs, the aggrieved or the injured party becomes entitled to the following
relieves:
1. Rescission of the contract: The aggrieved party is freed form all his obligations under the
contract.
2. Suit for damages: The aggrieved party is entitled to receive compensation for any loss or
damage caused to him by the breach of the contract & can file a suit for getting the damages.
Damages can be of different types such as Compensatory damages, Nominal damages,
Liquidated damages, Punitive damages etc.
3. Suit upon Quantum Meruit: Quantum meruit refers to As much as he has earned. When a
contract has been partly performed the aggrieved party can file a suit for the price of the
services performed before the breach of the contract.
4. Specific performance of the contract: In certain special cases the court can direct a party to
perform the contract according to the agreed terms.
5. Injunction: Under certain circumstances the court can issue an order upon a party whereby he is
prohibited from doing something which amounts to a breach of contract.
Quasi-Contract

What is meant by Quasi-Contract?
When one person obtains a benefit at the expense of another & the circumstances are such that he
ought, equitable, to pay for it, the law will compel payment, even though there is no contract
between the parties by which payment is promised. The parties will be put in the same position as
they would have occupied if there was a contract between them. Such cases are called quasi
contracts because the relationship between the parties in such cases resembles those created by
contracts.

Rules regarding quasi-contract:
1. Supply of necessaries for incapable person
2. Reimbursement of interested persons
3. Liability of the finder of goods
4. Returned interest which was lodged by mistake or coercion.








Indemnity & Guarantee
Contract of Indemnity: Contract of indemnity is a contract by which one party promises to
save the other party from loss caused to him by the conduct of the promisor himself or by the
conduct of any other person.
In this contract there are two parties-
1. Indemnifier
2. Indemnity holder
Characteristics of the contract of Indemnity:
1. Contract of indemnity must satisfy all the essential elements of a contract
2. The contract may be expressed or implied
3. The payment is to be given to a person interested
4. The party must be bound to pay be law
5. The payment is for the protection of his own interest.
6. The person is entitled to repayment.
Contract of Guarantee:
A contract of guarantee is a contract to perform the promise or discharge the liability, of a third
person in case of his default.

Difference between contract of indemnity contract of guarantee:

1. In a contract of indemnity, there are two parties: the indemnifier & the indemnity holder. In a
contract of guarantee there are three parties: the creditor, the principal debtor, & the surety.

2. In a contract of indemnity it is necessary to have only one contract, i,e,. between the
indemnifier & the indemnity holder. On the other hand, in a contract of guarantee, it is
necessary to have three contracts between the parties.

3. In a contract of indemnity, the liability of the indemnifier is primary. On the other hand, in a
contract of guarantee, the liability of the surety is secondary.

4. In a contract of indemnity, the liability of the indemnifier arises only on the happening of a given
contingency. In a contract of guarantee there is a existing debt or duty, the performance of
which is guaranteed by the surety.

5. In a contract of indemnity the indemnifier can sue only the indemnity holder for his loss. In a
contract of guarantee the surety can proceed against the principal debtor.

6. In a contract of indemnity the loss falls on the indemnifier except in certain special cases. On the
other hand, in a contract of guarantee the surety, after he discharges the debt owing to the
creditor, can proceed against the principal debtor.



Bailment & Pledge

Definition of Bailment: A bailment is the delivery of goods by one person to another for some
purpose, upon a contract they shall be returned or otherwise disposed of according to the directions
of the person delivering them.

The person delivering the goods is called the bailor& the person to whom they are delivered is
called the bailee.

Example of bailment includes- safe custody, use against hire, bailment as pledge, bailment for
carriage, bailment for repair, etc.

Essential Features of Bailment:
Bailment has the following essential features:

1. Delivery: It is the delivery of goods by one person to another
2. Purpose: The goods are delivered for some purpose
3. Return: When the purpose is accomplished the goods are to be returned
4. Contract: Bailment arises from express or implied contract.
5. Ownership: In bailment the bailor continues to be the owner of goods.
6. Movable Goods: Bailment is concerned with only moveable goods.



Definition of Pledge:
The bailment of goods as security for payment of a debt or performance of a promise is called pledge.
The bailor in this case is called the pledgor, & the bailee is called the pledgee.
Difference between Bailment & Pledge:
Pledge is a particular kind of bailment. The difference between pledge & other kinds of bailment lies in
the purpose or the objective of the transaction. The purpose of a pledge is to provide security for a debt
or the performance of a promise. In other kinds of bailment there are other purposes for example,
repair, self-custody etc. The pledgor & the pledgee have certain special rights & duties.

Contract of agency

Definition & Nature of Agency:
An agent is a person employed to do any act for another in dealings with third persons.-Sec.182
The person for whom such act is done is called the Principal.
P appoints X to buy 10 tons of sugar on his behalf. Here, P is the principal & X is his agent.
Who can appoint an agent?
Any person who is of the age of majority according to the law to which he is subject, & who is of sound
mind, may employ an agent.
Who may be an agent?
Any person may be an agent, even a minor. A minor acting an agent can bind the principal to third
parties. But a minor is not himself liable to his principal.
Power of Attorney:
An agent may be appointed by the principal, executing a written & stamped document. Such document
is called Power of Attorney. There are two kinds of Power of Attorney: General & Special.
A general power is one by which the agent is given an authority to do certain general objectives. e.g.,
managing an estate or a business.
A special or particular power may be appointed by which an agent is authorized to do a specific thing.
e.g., selling some goods.

Test of Agency: Agency exists whenever a person can bind another person by acts done on his
behalf. When this power does not exist the relationship is not one of agency. Thus a wife is not the
agent of the husband except under special circumstances & for special purpose.

Types of Agents:
The different types of agents are described here:
1. Broker: A broker is one who brings buyers & sellers into contract with one another. His duties
are at an end when the parties are brought together.

2. Factor: A factor is a mercantile agent with whom goods are kept for sale. He has got
discretionary powers to enter into contracts of sale with the third parties.

3. Commission Agent: A commission agent is one who secures buyers for a seller of goods &
sellers for a buyer of goods in return for a commission on the sale.

4. Auctioneer: An auctioneer is one who is authorized to sell goods of his principal by auction.

5. Del-credere agent: A del-credere agent is one who, for extra remuneration, guarantees the
performance of the contract by the other party. If the other party fails to pay the price or
otherwise causes damages to the principal, the del-credere agent must pay compensation to the
principal.

6. General agent: A general agent is one who represents the principal in all matters concerning a
particular business

7. Particular agent: A particular agent is one who is appointed for a specific purpose. e.g., to sell a
particular article.







Methods of creating an agency:

Agency may be created in any of the following ways:

1. Agency by express agreement: A contract of agency may be created by express agreement. The
agreement may be either oral or written.

2. Agency by implied agreement: An agency agreement may be implied under certain
circumstances from the conduct of the parties or the relationship between them. Agency by
Estoppel & agency of necessity are cases of implied agency.

3. Agency by Estoppels or holding out: Agency may be created by Estoppel. When a man by his
conduct or statements induced others to believe that a certain person is his agent, he is
precluded from subsequently denying it.

For example, Y allows his servant X to buy goods for him on credit regularly. On one occasion
the servant buys some goods not ordered by his master, on credit. Y is responsible to the
shopkeeper for the price because X will be deemed to be his agent by estoppels.

4. Agency created by necessity: Circumstances sometimes force a person to act on behalf of
another without any express authority from him. In such cases, an agency of necessity is said to
be created.
Three conditions must be satisfied before an agency can be created by necessity:
It must be impossible to get the principals instructions
There must be an actual necessity for acting on his behalf
The agent of necessity must act honestly in the interest of the parties concerned.

5. Agency created by ratification: Ratification means the subsequent adoption & acceptance of an
act originally done without instructions or authority.

For example, P buys ten maunds of wheat on behalf of Q. Q did not appoint P as his
agent & did not instruct him to buy wheat for him. Q may, upon hearing of the transaction,
accept it. If he does so, the act is ratified & P becomes his agent with retrospective affect.

Agents authority:
The authority of an agent may be expressed or implied. The authority is said to be express when it is
given by words spoken or written. The authority is said to be implied when it is to be inferred from
the circumstances of the case.

Extent of agents authority:

1. General authority: An agent having an authority to carry on a business has authority to do every
lawful thing which is necessary for the purpose, or usually done in the course of conducting such
business.
2. Limits of authority in an emergency: An agent has authority, in an emergency to do all such acts
for the purpose of protecting his principal from loss as would be done by a person of ordinary
prudence, in his own case, under similar circumstances.
Agents Duties/ Responsibilities:

1. Conduct the business according to the direction of the principal or custom
2. To carry out the business with reasonable care & skill.
3. Render proper accounts
4. Communicate with principal and seeking instruction
5. Showing honesty to deal on his own account
6. Refund the benefit for illegal transaction on his own account
7. Agents duty to pay sums received for principal
8. Protection of interest at the death or insanity of the principal.
9. Supply information to the principal

Agents rights:
1. Right to retain credit
2. Right to receive remuneration
3. Right to be indemnified
4. Right to receive damages for neglect or inefficiency of the principal

Termination of agency:
An agency may be terminated by two ways:

1. Termination by the act of the parties: An agency may be terminated by the following acts of the
parties:
Mutual agreement
Revocation of agents authority by principal
Renounce of authority by agent

2. Termination by operation of law:
By fulfillment of objectives
By lapse of time
By death or insanity of any party
By insolvency of the principal
By principal becoming an alien enemy
By supervening impossibility
By destruction of the subject matter