PAHUJA LAW ACADEMY

Bullet Notes

Lecture No.- 14

MAINS QUESTIONS

1. Explain with the help of decided case ‘An anticipatory breach of contract.

2. A undertakes to repay B a loan of Rs. 1000 in 5 equal monthly installments of months with the stipulation that in default of payment of any installment, the whole sum shall become due. Can the contract be enforced according to its terms. Give reasons.

3. Plaintiff who was tailor delivered a sewing machine and some clothes to defendant railway co. to be sent to a place where he expected to carry on his business with special profit by reason of a forthcoming festival. Through the fault of Company’s servants the goods were delayed in transmission and were not delivered until some days after the conclusion of festival. Plaintiff had given no notice to company of his special purpose. He claimed as damages the expenses of his travelling upto the place of festival and loss of profits which he would have earned. Decide.

4. A, having contracted with B to supply with 1000 tons of iron at Rs.100 /ton , to be delivered at a stated time, contracts with C for the purchase of 1000 Rs. Tons , to be delivered at a started time, contracts with C for the purposes of 1000 tons of iron at 80Rs. /tons , telling C that he does so for the purpose of performing his contract with B . C fails to perform his contract with A, who cannot procure other iron, and B in consequences, rescinds the contract. Decide.

 

5. A gives B a bond for the payment of Rs.1,000 with interest at 12 per cent at the end of six months, with a stipulation that in case of default, interest shall be payable at the rate of 75 per cent from the date of default. Decide.

Para : (1) & (2)

Para : (3)

Para : (4)

Damages for the Breach

What is Damages? Who can claim it?

• Damages means compensation in terms of money for the loss suffered by injured party.
• In every case of assessment of damages, there are two problems:-

There are two types of damages

• General
• Special

Para : (5)

Measure of Damages

Para : (6)

What are liquidated damages, how they are different from penalty?

In Dunlop Pnumatic Tyre Co. Ltd v. New garage & Motor Co. Ltd.,

Following acts have been laid down:

1. The expression used by the parties is not conclusive. The court must find out whether the payment stipulated is in truth a penalty or liquidated damages.
2. The question whether a sum stipulated is a penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract.
3. To assist this task, various tests have been suggested:
4. It will be a penalty if the stipulated sum is extravagant and unconscionable in amount in comparison with the greatest loss that could followed from the breach
5. It will be a penalty if the breach consists only in not paying a sum of money and the sum stipulated is a sum greater than the sum which ought to have been paid.
6. The penalty may be presumed when a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion a serious and others but trifling damages.

PAHUJA LAW ACADEMY

Bullet Notes

Lecture No.- 14

PRELIMINARY QUESTIONS

1. Which of the following is the most common remedy for breach of contract

(a) Damages

(b) Specific performance

(c) Injunction

(d) Quantum meruit

2. Hadley v. Baxendale is a leading case on

(a) Anticipatory breach

(b) Remoteness of damages

(c) Breach of implied term

(d) All of the above

3. Special damages will be awarded in case of a breach of contract,

(a) Only when the special circumstances causing loss of profit resulting from the breach of contract were brought to the notice of the party committing the breach at the time of the formation of the contract.

(b) Only when the court of law thinks fit in the special circumstances of the case

(c) Always in the special circumstances leading to the formation of the contract

(d) Only when the contracting parties express the same while entering into contract.

4. When the damages cannot be assessed, the party may be awarded by the court

(a) Actual damages

(b) Liquidated damages

(c) Exemptory damages

(d) Nominal damages

5. In the matter of liquidated damages

(a) The plaintiff is entitled to recover the agreed amount of compensation for the loss suffered.

(b) The plaintiff is not entitled to recover the agreed amount of compensation for the loss suffered

(c) The plaintiff is entitled to recover the agreed amount of compensation by proving the exact loss suffered

(d) The plaintiff is entitled to recover the agreed amount of compensation without having to prove the exact loss suffered.

6. A undertakes to repay B a loan of Rs. 1,000 in five equal monthly installments with a stipulation that in default of payment of any installments, the whole sum shall become due. A defaults

(a) The stipulation is in the nature of a penalty and cannot be enforced

(b) The stipulation is not a penalty, and can be enforced

(c) Only reasonable compensation, as decided by the court, could be given

(d) No compensation, but only due sum could be given

7. A gives a recognizance binding him in a penalty of Rs. 500 to appear in the court on a certain day. A fails to appear in the court.

(a) A is liable to pay the whole penalty

(b) A is liable to pay such compensation not exceeding Rs. 500 as the court consider reasonable

(c) A is liable to pay such compensation as the court considers reasonable

(d) None of the above

8. An injunction

(a) Is a preventive relief

(b) Is appropriate in cases of anticipatory breach of contract, where damages would not be an adequate relief

(c) Is appropriate in contracts for personal service

(d) All of the above

9. Under section 74 the court cannot award damages

(a)more than the amount stated in the contract

(b)equal to the amount stated in the contract

(c)less than the amount stated in the contract

(d) None of the above

10. A sum fixed before hand as amount of compensation payable in the event of breach of contract is called

(a)penalty

(b)liquidated damages

(c)neither (a) nor (b)

(d)either (a) or (b)

11. Where one party to a contract fails or refuses to do his part of the promises it is called

(a)Breach of contract

(b)Cancelation of contract

(c)Either (a) or (b)

(d)Neither (a) nor (b)

12. Actual Breach may take place

(a)Expressly

(b)Impliedly

(c)Either (a) or (b)

(d)Neither (a) nor (b)

13. Actual Breach may take place

(a)on the due date of performance

(b)during the course of performance

(c)neither (a) or (b)

(d)either (a) or (b)

14. Where one party to a contract declares his intention of not performing the contract before the performance is due, it is called

(a)Actual Breach

(b)Anticipatory Breach

(c)Either (a) or (b)

(d)Neither (a) nor (b)

15. Anticipatory Breach may take place

(a)Expressly

(b)Impliedly

(c)Either (a) nor (b)

(d)Neither (a) nor (b)

(a)Expressly

(b)Impliedly

(c)Either (a) nor (b)

(d)Neither (a) nor (b)

17. A agreed to supply certain goods to B which were to be imported by C. But C failed to import the goods. In this case, the contract is

(a)Discharged

(b)Not discharged

(c)Voidable

(d)Impossible to perform

18. The breach of contract means the

(a)Performance of contract by both the parties

(b)Failure of a party to perform his obligations

(c)Payment of compensations due to nonperformance

Postponement of the performance of contract

19. A contracted to supply 200 bags of rice to B on 30th December, 2008. After supplying 20 bags of rice. A informed B that he will not supply remaining bags of rice to B. In this case,

(a)There is anticipatory breach of contract

(b)There is actual breach of contract

(c)Both of the above

(d)None of the above

20. A contract stands discharged

(a)By performance of the contract

(b)By breach of the contract

(c)By agreement

(d)All of the above

PAHUJA LAW ACADEMY

FRUSTRATION

MAINS QUESTION

1. What do you understand by Frustration of contract? How is it different from commercial hardships?

2. ‘A’ a female singer agreed to sing in theatre of ‘B’ for two days in September 1984. One day before the programme was scheduled, she attended a party and took lots of ice-cream. The result was that her voice was cracked and she was unable to sing on the days agreed upon in B’s theatre. B sued A for damages. Can B succeed.

3. A 16 year old agreed by contract to play the drums for the defendant band for 7 nights per week for 5 days. The claimant suffered a mental breakdown and was told by his doctor that he should not perform more than 4 nights per week. The band dismissed him. He brought a claim for wrongful dismissal.

4. Dev Contractors agreed to build 78 houses for Civil society within 8 months for an agreed price of Rs.85,000. Due to a shortage in skilled labour and material, the contract was completed in 22 months and was much more expensive than anticipated. Dev Contractors were paid the contractually agreed price but bought an action arguing for more money based on the fact that the contract had become frustrated and therefore they were entitled to further payment based on a quantum meruit basis.

5. What do you understand by Quasi-Contract? Elaborate the relevant provisions under Indian Contract Act, 1872?.

PAHUJA LAW ACADEMY

Bullet Notes:

SECTION – 56

PHYSICAL IMPOSSIBILITY

It covers

1. Death of the promisor
2. Personal Incapacity
3. Destruction of subject matter
4. One party turns to be enemy national
5. Acquisition of Property by the Government in public interest.

• LEGAL IMPOSSIBILITY

Where act becomes impossible due to change of law

• PRACTICAL IMPOSSIBILITY

Where act becomes impossible because the object on which such contract is based frustrated.

• PRACTICAL IMPOSSIBILITY

Where act becomes impossible because the object on which such contract is based frustrated.

• Known as frustration under English Law.

This theory of frustration was propounded in England in the case of Krell vs. Henry.

• Following impossibilities not covered under section 56(2)

• Self induced impossibilities
• Event within the Control of promisor
• Commercial Hardship/ Impossibility
• Performance becomes expensive
• Temporary Acquisition of property.

PAHUJA LAW ACADEMY

Bullet Notes:

Dissolution of contractual obligations

Frustration of Contracts

Preliminary – Questions

1. Mark the incorrect statement:

(a) The ‘doctrine of frustration’ is known to the English law.

(b) In India, it is known as ‘doctrine of impossibility of performance’.

(c) The Indian doctrine is wider in scope than the English doctrine.

(d) The Indian doctrine is narrower in scope than the English doctrine.

2. The first case on the ‘doctrine of frustration’ as decided by the Supreme Court6 of India is:

(a) Basanti Bastralaya v. River Steam Navigation Co. Ltd.

(b) Raja Dhurav Dev v. Raja Harmohinder Singh

(c) Sushila Devi v. Hari Singh

(d) Satyabrata Ghose v. Mugneeram

3. In India, the doctrine of impossibility of performance rendering contracts void is based

(a) On the theory of implied term

(b) On the theory of just and reasonable solution

(c) On supervening impossibility or illegality as laid down in sec. 56, Indian Contract Act.

(d) On the principle of unjust enrichment.

4. The doctrine of impossibility of performance covers

(a) An agreement to do an act impossible in itself (Initial impossibility).

(b) A contract to do an act afterwards becoming impossible or unlawful (supervening impossibility).

(c) Both (a) and (b)

(d) Only (b)

5. ‘X’ a magician agrees with ‘Z’ to discover treasure by magic. The agreement is

(d) Voidable at the option of ‘Z’

(d) Illegal

(d) Impossible in itself and void

(d) Enforceable

6. The doctrine of supervening impossibility comes into play when

(a) The performance becomes physically impossible because of the disappearance of subject matter

(b) The object the parties had in mind failed to materialize, though the performance was physically or legally possible.

(c) The contract has been frustrated.

(d) Both (a) and (b)

7. The effect of frustration of contract is that

(a) The dissolution of the contract occurs automatically.

(b) The contract becomes void on the happening of an event rendering contract impossible or illegal of performance

(c) Contract becomes voidable at the option of the promisor.

(d) Both (a) and (b) are correct

8. When a contract becomes impossible or illegal of performance.

(a) The promisor is excused from the performance.

(b) The promisor is excused from the performance.

(c) Both the promisee and promisor are excused from the performance.

(d) None of the above.

9. Where the promisor knew the act to be impossible or unlawful, at the time of making of the contract, he ………….

(a) Must compensate the promisee for the non-performance

(b) May not compensate the promisee

(c) It depends on the facts of each case

(d) None of the above.

10. When a contract becomes frustrated, the party who has received the benefits

(a) Must restore them to the other party.

(b) May not restore them to the other party, as it is not a breach of the contract on his part.

(c) It depends on the facts of each case

(d) None of the above

11.   In course of time, some specific grounds of frustration have becomes well established. These are:

I.Destruction of the subject matter

II Change of circumstances

III Commercial hardship

IV Non-occurrence of a contemplated event

V. Dearth of incapacity of party

VI Government or legislative intervention/Intervention of war.

Codes:

(a) I, II, III, IV and V

(b) I, III, IV, V and VI

(c) I, II, IV, V and VI

(d) All of the above

12. Where the Court orders the defaulting party to carry out the promise according to the terms of the contract, it is called

(a)Quantum Meruit.

(b)Rescission.

(c)Injunction

(d)Specific Performance

13. Which remedy for breach of contract may be ordered by the court?

(a)specific performance.

(b)injunction.

(c)either (a) or (b)

(d)both (a) or (b)

14. Specific Performance may be ordered by the Court when

(a)the contract is voidable.

(b)damages are an adequate remedy.

(c)damages are not an adequate remedy

(d)Quantum meruit is not possible

15. Specific Performance can be granted by court where

(a)monetary compensation is not an adequate relief.

(b)it is not possible to measure the actual damages.

(c)either (a) or (b)

(d)neither (a) or (b)

16. In case of breach of contract of sale of some antique goods, the Court may grant

(a)Quantum Meruit.

(b)Rescission.

(c)Specific Performance

(d)Injunction

17. 17.In which of the following situations, specific Performance is not granted?

(a)where monetary compensation is an adequate relief.

(b)where the contract is impersonal in nature .

(c)where monetary compensation is not an adequate relief

(d)Both (a) and (b)

18. In which of the following situations specific performance is not granted?

(a)where monetary compensation is an adequate relief .

(b)where the contract is of a personal skill .

(c)either (a) or (b)

(d)neither (a) or (b)

19. In which of the following situations, specific Performance is not granted?

(a)where it is not possible for the Court to supervise Performance of contract.

(b)where the contract is ultra-vires.

(c)either (a) or (b)

(d)neither (a) or (b)

20. …………. means an order of the Court restraining a person from doing what he promised not to do.

(a)Quantum Meruit.

(b)Rescission.

(c) Injunction

(d)Specific Performance

PAHUJA LAW ACADEMY

Section 30

This section only says that “an agreement by way of wager are void.” It does not define wage.

As per William Anson it is a promise to give money or money’s worth upon the determination or ascertainment of an uncertain event.

•  It is an agreement based on an uncertain event.
•  On the determination of that event, one to give money or money’s worth to the other.
•  One to win and other to loose
•  No interest other than winning.

If either of the partly may win but cannot loose, it is not a wagering contract.

• Uncertain Event

The performance of the bargain must depend upon the determination of an uncertain event. Event can be past, present or future provided in case of past event parties are not aware of the result.

Generally, wager contemplates future event; but it may even relates to past event provided parties are not aware of its result.

• Mutual Chances of Gain or Loss

one to win and other to loss. If there are no such mutual chances of gain or loss, there is no wager.

Babasaheb vs. Rajaram [1931 Bom] Two wrestlers agreed to play on condition that the party failing to appear on the day fired was to forfeit Rs.500 to the opposite party, and the winner to receive Rs.1125 out of get money. Defendant failed to appear and the plaintiff sued him for Rs.500.

It was held that the agreement could not be looked upon as wagering agreement because the essence of wager is that each side should stand to win or lose according to the result of the uncertain event.

In the present case neither side stood to lose according to the result of the match. The stakes did not come out of the parties, but had to be paid from the gate money provided by the public.

•  A chit fund is not a wager. It is true that some chance of gain may come to some of the members, but none of them stakes to lose his money, for his periodical deposits are refunded to him at the end of the scheme.
• Neither party to have control over the event.
• No other interest in the event. Neither party should have any interest in the happening of the event other than the stake he will win or lose. Contract of insurance are different from wagering agreement on this ground only.

Exceptions

• Crossword competitions and lottery.

The literary Competition which involve the appointing of skill and in which an effort is made to select the best competitor are not wager.

But where Prizes depends upon chance that is a lottery. A suit for recovering of price money, an agreement for payment of prize money on a lottery ticket are wager.

Subhash Kumar Manwan vs. State of M.P. [2000] State lottery was not illegal, it was no netheless in the nature of the wager.

B.R. Enterprises vs. State of U.P., [1999 S.C.] Supreme Court refused to recognise lottery as a trade or profession. Even the state sponsored lotteries have the same element of chance. There being no appointing of skill in either case.

Although there are some restrictions on gambling in India, legislation for lotteries and gambling in general is set by each individual state and there are many states which allow people to play lotteries both online and offline.

Lottery is legal in 13 states banned in rest.

• Gambling is a state subject and only state are entitled to formate laws for gambling activities within their respective states.
• Horse race

The section does not render void a subscription or contribution, towards prize or sum of money, of the value or amount of five hundred rupees or upwards to the winner or winners of any horse races.

Effect of wagering agreement on collateral transactions:

Wagering agreements are void but not forbidden by law. The transaction collateral to main transaction are enforceable. [Gherulal Parekh vs. Mahadeo Das (1959) SC]

In Shibho Mal vs. Lachman Das:

In this case ‘A’ appoints ‘C’ as his commission agent and entrust him with a duty to collect money won on wagering agreement entered by him with B. Here wagering agreement between A and B was held to be void, but agreement between A and C was held to be valid.

PAHUJA LAW ACADEMY

Contract

Section- 56 ‘Law of impossibility’

 Section- 56 para 1 deals with initial impossibility. It lays down that an agreement to do an impossible act itself is void. Section 56 para 2 lays down the effect of supervening impossibility performance ie the performance of a contract is Quite possible when it is made by the parties but some event subsequently happened which renders its performance impossible or unlawful, in which case contract becomes void.

Example:- where a singer contracts to sing and becomes too ill to perform before the date of performance.

In the first known – case of paradine vs. Jane (1647), It was pointed out that contract has to be performed in every case there was no such situation like impossibility.

Later on, common law modified this absolute contract theory in the case of taylor vs. Caldwell (1863). In this case it was held that, in case of subsequent impossibility, contract becomes void. The rule of absolute contract theory is only applicable when contract is positive and absolute and not subject to any condition either expires or implied. Like in this case, contract was not absolute, its performance dependent upon the continue existence of the hall.

Facts:- Defendant had agreed to let the plaintiff the use of his music hall between certain dates for the purpose of holding a concert. But before that day the hall was destroyed by fire.

The promisor is excused by law under 56 para 2 to perform such contract. The doctrine of supervening impossibility as laid down under 56 para 2 is similar to the doctrine of frustration known to the English law.

However, the law under Indian law is much more wider than the frustration order English law. As impossibility under India law is not confined to physical impossibility or legal impossibility. It extend also to cases where performance of the contract is physically possible but the object, the parties had in mind has failed to materialize (practical impossibility)

1. N. Mukherjee justice in the case of Satya Bhrata Ghose vs. Mungneeram banqur & Co. (1954), held that section 56 is a complete law on the subject of impossibly therefore we need not to borrow English law on this matter.

Types of Impossibility  

1. Practical impossibility- some time, the performance of an act is physically and legally possible but it may be impracticable and useless from point of view of the object and purpose which the parties had in their mind, because of an event or change of circumstances, the object of the contract can’t be achieved.

In such of frustration, It is necessary that the object should be the foundation of the contract. This theory of frustration was first propounded in England in the case of Krell vs. Henry.

Defendant agreed to hire from plaintiff, a flat to see corronation procession of the king. But the procession having being cancelled owing to the kings illness, the defendant refuse to pay the money. Though in this case, the performation of contract was legally and physically possible but the real object of the contract was frustrated by non happening of the coronation. Therefore plaintiff was not entitled to recover.

For the application of this theory it is important that the object of the contract should be disclosed at the time of contract and must be made the root of the contract.

This principle was applied by Punjab H.C. in case of Purushotam Das vs. Municipal Committee Batla.

Fact:- Municipal committee leased out certain tonga stand to the plaintiff for Rs.5000. But no tonga driver came forward to use the stand throughout the year and plaintiff could not realize anything. He sued defendant for refund of his money.

It was held that frustration applied with full force as plaintiff obtained the lease and committee granted the lease on the assumption that stand would be used by the drivers, but for reasons which both sides could not help, the driver did not use the land.

2. Legal impossibility:- When contract was made the act was lawful, subsequently due to change in law or any policy of law the performance of act become impossible.

Example:- where a contract is made for import of goods and import is thereafter forbidden by law.

3. Physical impossibility:- Where performance of the contract becomes physically impossible because of destruction of subject matter etc.

Example – Taylor vs. Caldwell (Discussed)

Grounds of Impossibility:- It is not possible to lay down an exhaustive list of situation in which the doctrine of impossibility is going to be applied so as to excuse the performance. Yet the following grounds have become well established.

• Destruction of subject matter :-

Eg. A contracted to sell a specified quantity of potato to be grown on his field, but failed to supply them as the crop was destroyed by the disease.

This problem has to be read along section 8 of SOGA.

What if subject matter is reconstructed:- than also no liability arises. Example when the tenanted premises was completely destroyed the tenancy seized. No right was available to the tenant to apply for possession if the land lord reconstructed the premises.

B. Khadi and Village industries board vs. Sagore Banerjee (2003)

• If reasonable care had not be taken to prevent supervening impossibility the denfence of frustration failed.
• Non- occurrence of contemplated event:-

Cases where performance of a contract remains entirely possibly, but owing to the non-occurance of the event contemplated by both parties as the reason for the contract, the value of the performance is destroyed.

Eg.- Krell vs. Henry (Discussed)

• Death or incapacity of the party:- A party is excused from performance if it depends upon the existence of a given person. If that person perishes or become too ill to performs.
• Government, Administrative or Legislative intervention:- A contract will be dissolved when legislative or administrative intervention has so directly operated upon the fulfillment of the contract for a specific work so as to transform the contemplated condition of performance.

Example- Vendor of land could not execute the sale deed because he seized to be the owner by operation of law.

But an intervention of a temporary nature which does not uproot the foundation of the contract, will not have the dissolving effect.

• Intervention of war or war like situation.
• Change of circumstances:- A contract will frustrate where circumstances arise which make the performance impossibility in the manner fact the time contemplated. If there is entirely unanticipated change of circumstances, the question will have to consider by the court whether this change of circumstance has affected the performance of the contract to such on extent as to make it impossible or extremely difficult.

Example- Where A ship was chartered to load a cargo but on the day before the voyage an explotion occurred in the auxiliary boiler which made it impossible to take the ship for voyage at the schedule time.

Effect of frustration:-

On frustration, the dissolution of contract occurs automatically. It is one of the mode of Discharge of contract.

Restoration of Benefit in cases of frustration:-

As per section 65 any party who has received the any benefit under any contract which becomes void is bound to restore such benefit to the other party. Following impossibilities are not covered (56)(2).

1. Self induced impossibilities

Example- party failed to obtain license necessary for the performance of the contract

2. Event within the contract of promisor.
3. Tempory acquisition of property by the government- house contract b/w A & B, acquired by government.
4. Commercial hardship or inconvenience or impossibility.

Some delay is very common in all human affairs and the contract would not be frustrated merely because on account of an uncontemplated event which make the performance of the contract difficult, unprofitable or more expensive. It is not sufficient to excuse the performance of contract.

Sachindranath vs. Gopal Chandra

Plaintiff let a premises to the defendant for a restaurant business, at a higher rate of rent. The defendant agreed to pay the amount because the army troops were stationed in the town which results in extra income  but latter on the locality was declared out of the bounce of the army troops.

It was held that, though he suffered loss but theory of frustration will not apply as the object of the contract was to open restaurant business and not to open that business for military people.

PAHUJA LAW ACADEMY

INDIAN CONTRACT ACT

This principle was applied by Punjab High Court in case of Purushottam Das vs. Municipal Committee, Batala.

Fact:- Municipal committee leased out certain tonga stand to the plaintiff for Rs.5,000/-. But no tonga driver came forward to use the stand throughout the year and plaintiff could not realize anything, he sued defendant for refund of his money.

It was held that frustration applied with full force as plaintiff obtained the lease and committee granted the lease on the assumption that stand would be used by the drivers, but for reasons which both sides could not help, the driver did not use the laud.

 Legal Impossibility:-

When contract was made, the act was lawful, subsequently due to change in law or any policy of law the performance of act become impossible.

Example:- where a contract is made for import of goods and import is thereafter forbidden by law.

 Physical Impossibility:-

Where performance of the contract becomes physically impossible because of destruction of subject matter etc.

Example: Taylor vs. Caldwell (Discussed)

Grounds of Impossibility:-

It is not possible to lay down an exhaustive list of situation in which the doctrine of impossibility is going to be applied so as to excuse the performance, yet the following grounds have become well established.

• Destruction of Subject Matter:-

e.g. A contracted to sell a specified quantity of potato to be grown on his farm. But failed to supply them as the crop was destroyed by the disease.

This problem has to be read along Section 8 of SOGS.

•  What if subject matter is reconstructed:- than also no liability arises. Example when the tenanted premises was completely destroyed, the tenancy seized. No right was available to the tenant to apply for possession if the landlord constructed the premises. In Held West Bengal khadi and village Industries Board vs. Sagore Banerjee [2003 Cal HC]
•  If reasonable case had not be taken to prevent supervening impossibility the defence of frustration failed.

• Non-occurrence of contemplated event:-

Cases where performance of a contract remains entirely possible, but owing to the non-occurrence of the event contemplated by both parties as the reason for the contract, the value of the performance is destroyed. e.g. Krell vs. Henry (Discussed)

• Death or incapacity of the party:-

A party is excused from performance, if it depends upon the existence of a given person, if that person punishes or become too ill to perform. [Read with Section 40]

• Government, Administrative or Legislative intervention:-

A contract will be dissolved when legislative or Administrative intervention has so directly operated upon the fulfillment of the contract for a specific work so as to transform the contemplated condition of performance.

Example- Vendor of land could not execute the Sale deed because he seized to be the owner by operation of law.

But an intervention of a temporary nature which does not uproot the foundation of the contract will not have the dissolving effect.

• Intervention of war or war like situation:-

• Change of circumstance:-

A contract will frustrate where circumstances arise which make the performance impossible in the matter at the time contemplated. If there is entirely unanticipated change of circumstance, the question will have to consider by the court whether this change of circumstance has affected the performance of the contract to such our extent as to make it impossible or extremely difficult.

Example:- Where A ship was chartered to load a cargo but on the day before the voyage an explosion occurred in the auxiliary boiler which made impossible to take the ship for voyage at the schedule time.

Effect of Frustration:-

On frustration, the dissolution of contract occurrences automatically. It is one of the mode of discharge of contract.

 Restoration of Benefit in cases of Frustration:-

As per Section 65 any party who has received the any benefit under any contract which becomes void, is bound to restore such benefit to the other party.

Following impossibilities are not covered [Section 56(2)]

• Self- induced impossibilities

e.g. Party failed to obtained licence necessary for the performance of the contract.

• Event with in the control of Promisor-
• Temporary acquisition of Property by the govt.
• Commercial hardship or inconvenience or impossibility

Some delay or some changes is very common in all human affairs and the contract would not be frustrated necessarily because on account of an uncontemplated event which make the performance of the contract difficult, unprofitable or more expensive. It is not sufficient to excuse the performance of contract.

# Sachindranath vs. Gopal Chandra

Plaintiff let a premises to the defendant for a restaurant business at a higher rate of rent, the defendant agreed to pay the amount because the army troops were stationed in the town which results in extra income but later on the locality wad declared out of the bounce of the army troops.

It was held that though he suffered loss but theory of frustration will not apply as the object of the contract was to open restaurant business and not to open that business for military people.

For both the cases the principle for measuring damages are to be regulated by Section 73.

Meaning of Breach of Contract:–

It means non- fulfillment of promise without my legal justification e.g. frustration, novation [Section 62 and 63]. It is the most unfortunate method of discharge of contract.

Remedies available with the aggrieved party in case of Breach of contract:-

• Compensation under section 73
• Specific performance
• Injunction

Hadley vs. Baxendale [1854]

Plaintiffs mill was stopped due to breakage of a machine- defendants were engaged to carry the machine to the manufacturer for repair- Plaintiff’s servant told the defendants that the mill was stopped and that the machine must be sent immediately- defendant delayed the delivery, thus the mill remain stopped for a longer time. The action brought for the loss of profit arising out of the delay.

The defendants were not held liable for the loss of profits because it is not expected in the ordinary circumstances that the mill was stopped due to non-availability of machine.

The fact that the mill was out of action for the want of machine was a special circumstance affecting the plaintiff’s mill and the same should have been pointed out to the defendant in clear terms.

This section incorporates two rules [Hadley vs. Baxendale]

• It declares that compensation not to be given for any remote or indirect loss or damage. sustained by reason of the breach. The same principle will apply when there has been a breach of a Quasi Contractual obligation. Compensation is recoverable for any loss or damage.

• Which the parties knew at the time of contract as it likely to result from the breach.

This first rule is objective [reasonable] i.e. it makes the liability to depend upon reasonable, men’s foresight of the loss that will naturally result from the breach of contract.

The second rule is subjective i.e. the liability depends upon the knowledge of the party at the time of the contract about the probable result of the breach.

The burden of proof lies on the plaintiff to show the loss sustain.

The extent of liability in ordinary cases is what may be foreseen by a reasonable man as arising naturally in the usual course of thing.

In Madras Railway Company vs. V. Govinda Rao [(1890) plaintiff  (Tailor)] delivered a sewing machine and some cloth to the defendants railway company to be sent to a place where he expected to carry on his business with special profit by reason of a forth coming festival. Through the fault of the defendant company, the goods were delayed and delivered after the conclusion of the festival.

Important Point

• If the special circumstances are already within the knowledge of the party breaking the contract, the formality of communication of such special circumstance may not be necessary.

• Loss of profits is a special loss which can be recovered only if it is communicated to the other party.

Measure of damages:-

• Damages are compensatory and not punitive:-

Main purpose of awarding damages to the aggrieved party is to put him in the same position, he would be in if the contract had been performed. Thus the damages are given by way of compensation for the loss suffered, by the aggrieved party not to punish guilty party.

But the inconvenience caused by the breach may be taken into consideration while granting damages.

Example:- due to the negligence of the defendant railway company the plaintiff and his family were set down at the wrong railway station. Neither any nearby hotel nor any conveyance available to them and they had to walk several miles in rain.

The plaintiff was entitled to substantial damages for inconvenience caused to the family.

The expenditure incurred by one party to the contract before the contract was entered into, came claiming such amount as damages if it was within the contemplation of the parties.

• Mental Pain or Suffering:-

Ordinarily damages for mental pain and suffering are not allowed for the breach of commercial contract. But they may be allowed in special cases. In other cases, whether damages for mental suffering are to be given or not is on the discretion of the court.

Diesen vs. Samson (1971):- Photographer failed to appear at wedding, as a result of which the bride has no photograph of her wedding. She was allowed damages for the resulting injury to her feelings.

Gaziabad development authority vs. Union of India (2003 SC) The Gaziabad Development Authority- announced scheme for allotment of developed plot- unreasonable delay by the authority in completing scheme. Complainants filed petition on ground of excessive delay and also claiming compensation for mental agony suffered by the claimants.

The SC observed, that the principle underline the assessment of damages is to put the aggrieved party in the same position as far as possible in which he would have been if the contract had been performed. Therefore mental agony can’t be a head of damages for the breach of ordinarily commercial contract. Thus in this case damages for mental agony was not allowed.

• Nominal Damages:-

Where the plaintiff suffered no loss, the court may still award him nominal damages in recognisation of his right. However Section 73 does not give any cause of action unless and until loss is actually suffered.

• Exemplary or Vindictive Damages:-

There are awarded with a view to punishing guilty party for the breach and not by way of compensation. These damages have no place in section 73. There are, However certain exceptional cases i.e. where the reputation of aggrieved party is lost because of breach of contract e.g. breach of contract to marry etc.

• Due to mitigate [Explanation to Section 73]

As per this explanation the injured party has to made reasonable effort to avoid the losses resulting from the breach so that his as well as defaulting party’s loss is kept to the minimum. The plaintiff is debarred from claiming any part of the damage which is due to his neglect to make such efforts. The burden of proof is on the defendant to show that the plaintiff has failed in his duty of mitigation.

Section 73- loss for the purposes of Section 73 has to be calculated on the basis of difference between the contract price and current market price.

Section 74- Sometime a contract contain a secondary clause which fixes the amount of damages payable in the event of breach of contract.

If the same to be paid in case of breach of contract, is a genuine Pre-estimate of loss than it is known as be liquidated damages. But if such sum is excessive or unreasonable amount to terrorise the party than it is known as penalty.

Now the question arises whether such secondary clause is binding on parties. Section 74 answer this question and as per this section such secondary clause is not binding as it allows court to grant reasonable damages which shall be less than or equal to the amount stated in the contract. The importance of such secondary clause is that it limits the maximum compensation to be paid in case of breach of contract.

• The amount of damages fixed under this section is known as named/ agreed/ fixed damages

Under English law

• If secondary clause contains liquidated damages than it is binding on the parties.
• If such an amount is by way of penalty then it is not binding on parties. In such cases defaulting party has to pay reasonable compensation which is to be determined by the court.

Section 62:- Section 62 applies when both the parties want a release from there respective obligation. It is a discharge of contract by mutual agreement. There are 3 modes, provided under this section by which the original contract need not to be performed.

• Novation- In novation original contract is substituted by a new contract with the consent of both the parties. In such a case the liability of the parties as regard the original contract is extinguished and in its place they become bound by the new contract.

Requirement of Novation (i) Original contract must be subsisting and valid.

• The new contract should also be valid and enforceable.
• Novation may involve change of parties to the contract i.e. between some parties or different parties. e.g. A is a debtor and the creditor agrees to accept B in his place, as the debtor. The original contract between the creditor and A is at end.

For novation new contract must contain a clause and reference that it is in place of old contract. Novation does not occur automatically.

Rescission:- In rescission there are 2 contracts

• Original contract
• Contract of rescission

A contract may be discharged by agreement between the parties that it shall no longer bind them.

Alteration:- Means change in one or more of the material term of a contract the parties to the contract remains same.

Section 63:- Change of obligation of one party only.

• Promisee is in dominating position
• Promisor is not in a condition to perform
• Promisor request promisee
• Promisee is not bound to give the relief to the promisor under this section. There are 3 modes in which the promisee can relief the promisor (no new contract arise out of it)

• Promisee may dispense it or remit the performance
• Promisee execuse the promisor
• Wholly or partly
• Without any consideration
• Known as waiver of right or discharge of contract by waiver.

Example:- A owes Rs.5,000 to B. B may accept from A Rs.2,000 in satisfaction of whole of the claim.

• Promisee may extend the time of performance.

The promisee may grant extension of time for the performance of the contract and no consideration is needed for the same. (To prevent breach of contract)

• Contract is not discharged
• Rights and obligation of parties remains same.
• Consent of other party is also necessary

• Promisee may accept any other satisfaction in lieu of agreed performance and this would discharge the promisor. It is known as theory of accord and satisfaction under English Law.

PAHUJA LAW ACADEMY

Bailment

Mains Questions

1. Define Bailment.

2. What are the duties of Bailor and Bailee?

lecture notes

BAILOR

  BAILMENT

 Delivery of goods by bailor for a definite purpose on condition of their return or disposal, when purpose is accomplished (Section 148).

Classification: (i) for hire (Section 150)(ii) for custody (Section 158)(iii) for carriage (Section 158)(iv) to have work; labour and skill done thereon (Sections 158, 170)(v) for loan (Section 159)(vi) Gratuitous (Sections 159, 162)(vii) for security form repayment of debt (Section 172)(viii) for security for performance of promise (Section 172)

Voidable; Bailor may avoid bailment accomplished if bailee wrongfully used or disposes of goods (Section 153).

Determination; When purpose is accomplished or goods are returned (S. 160); Gratuitous bailment by death of bailor/ bailee (Section 162).

“Bailment”, “bailor” and “bailee” defined. (Section 148)

Nature of the transaction.- “Bailment” is a technical term of the Common Law, though etymologically it might mean any kind of handing over (Fr. Bailor). It involves change of possession. One who has custody without possession, like a servant, or a guest using his host’s goods, is not a bailee. But constructive delivery will create the relation of bailor and the bailee as well as actual, as stands in the Explanation.

BAILEE

PAHUJA LAW ACADEMY

PLEDGE

Pledge is a special kind of bailment. The main difference between Ordinary bailment and pledge is the object of the contract. Where the object of the delivery of goods is to provide a security for a loan or fulfillment of our obligation, than that kind of bailment is known as pledge.

Essential of pledge

• Delivery of Possession:– the property pledged delivered to the pawnee. Delivery of possession may be:-
• Actual
• Constructive
• By attornment (Acknowledgement on behalf of pawnee)

Where goods are in the possession of a 3^rd person, who, on the direction of the pledger consent to hold, them persuance on pledgee’s behalf.

• In persuance of Contract:- it is not necessary that delivery of possession and the loan should be contemporaneous i.e. a pledge may be perfected by delivery made before or after the advance is made.

KIND OF PAWNEE

Right of retainer:- Section 173 and 174

As per Section 173 pawnee has a right to retain the goods pledged until his dues are paid. He can exercise, this right not only for the payment of the debt or performance of the promise but also for:-

• Interest due on the debt
• Necessary expenses incurred for the preservation of goods.

As per Section 174 pledgee can retain goods only for the payment of that particular debt and not for any other debt or performance, unless there is a contract to the contrary.

Where, however after a pledge is created, A subsequent advance is made without any security, right to retain the same goods shall be presumed. The right of retainer under this section is in the nature of particular lien.

• Right to extraordinary Expenses:- Section 175

He is entitled to extraordinary expenses incurred by him for the preservation of goods for such expenses. He does not have a right to retain the goods rather he can only sue to recover them.

• Right to Sell:– Section 176

Upon default, the pledgee gets following right:-

• The pledgee may sue upon the debt and retain goods as a collateral security.
• He may sell the goods after reasonable notice of the intended notice to the pawnor.

The requirement of reasonable notice is a statutory obligation and therefore can’t be excluded by a contract to the contrary. Reasonable notice should be actually effective so as to afford an opportunity to the debtor to pay the amount within the time mentioned in the notice.

Section 177:- Right to redeem – it is open to the pledgor to redeem the pledge by full payment of the amount for which pledge has been made, at any time, if no period is fix for redemption or at any time after the fixed time and this right continues until the thing pledged is lawfully sold. Where the pawner redeems after the expiry of the specified time he is bound to pay such expenses as have arisen on account of default.

WHO CAN PLEDGE:-

Ordinarily goods may pledged by the owner or by any person with the owner’s authority but section 178-A, 178 and section 179 provides for the circumstances in which a valid pledge may be created without owner’s authority.

• Pledge by mercantile agent:– Section 178 requirement are:-
• Mercantile agent
• In possession of goods with owners consent
• Possession of document of title to goods.
• In the ordinary course of business.
• Pledge acted in good faith and without notice.

If all the above conditions are fulfilled than pledge shall be deemed to be valid though it was made without owners consent.

• Section 178-A where goods are pledged by a person who has obtained possession under a voidable contract, pledge is valid provided:-
• Contract has not been rescinded at the time of the pledge.
• The pledgee has acted in good faith and without notice of the pledgor’s defect of title.

• Pledge by Pledgee : Section 179

Where a pledgee further pledges the goods, the pledge will be valid only to the extent of his interest and his interest is the amount for which the goods have been given to him as a security.

Exceptions under Sale of Goods Act

• Pledge by a Seller remaining in possession after Sale [Section 30(1) SOGA]
• Pledge by a buyer obtaining possession before Sale [Section 30(2) SOGA]
• Pledge by one of the joint owners.

Qus. H and W are bathing in the river, W slips into the water and B (A boat man) is able to save W’s life and H promises to pay him Rs.500 for saving her life. Subsequently refuses to pay said amount to B. on which B sued H. Decide.

Ans. Issue:– whether H is liable to compensate B or not

Relevance: the provision relevant to the above problems is 25(2). Which states that when promisee

done something to the promisor.

PAHUJA LAW ACADEMY

Definition of Agency

• An agent is a person employed to do any act for another as to represent another in dealing with 3^rd
• The person for whom such acts are done or who is represented is called the principal.
• The contract which creates relationship of principal & agent is called an Agency.

Essential and legal rules

1. There should be an agreement between the principal and the agent.

2. The agent must act in the representation capacity.
3. The principal must be competent to contract
4. The agent need not be competent to contract.
5. The consideration is not necessary.

General rules of Agency

1. Whatever a person can lawfully do himself, he may also do the same through an Agent.
2. He who acts through another does by himself.

Distinction B/W

Agent and Servant

• Who may employ an Agent?

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

• Who may be an Agent?

As between the principal and third persons any person may become an agent.

Test of Agency

The question as to whether a particular person is an agent can be verified by finding out if his acts binds the principal or not?

Creation of Agency

1. Agency by express Agreement

Appointment in writing or by words of Month

2. Agency by implied agreement

Due to the conduct of the parties or the course of dealings between the parties or the situation of a particular case

Agencies by an Implied agreement includes

Agency by Estoppel

Where a person by his words or conduct has willfully led another to believe that certain set of circumstances on facts exist, and the other person has acted on that belief, he is estoppel from denying the truth of such statement although such a state of things did not in fact exist.

1. Agency by holding out:-

More than estoppel- positive or affirmative conduct of the principal is required.

2. Agency by necessity:-

Due to extraordinary circumstances person may be compelled to act without requiring the consent or authority.

Conditions:-

• There must be real emergency to act on behalf of the principal.
• Agent not in a position to obtain instructions
• Acting honestly and in the interest of the principal.
• Adopting reasonable and practice course of action.

Cases:-

1. Where the agent exceed his authority bona fide in an emergency.
2. Where the carrier of goods acting as a bailee, does anything to protect or presence the goods.

Agency by ratification

A person does same acts on behalf of another person without his knowledge or authority.

Another person subsequently accepts the acts then: agency by ratification also known as ex-post afcts agency (Agency arising after the event.)

Conditions for valid ratification

1. The agent must act on behalf of the principal.
2. The principal must be competent to contract and is existence at the time of contract by the agent.
3. There should be an act capable of ratification.
4. The principal must have fall knowledge of the national facts
5. Whole transaction must be ratified.
6. Within a reasonable time.
7. Ratification must not injure a 3^rd

Kinds of agent

From the point of view of the extent of their authority

1. General Agent:- Is one employed acts connected with a particular business or employment. e.g. manager of a person
2. Special agent:- Employed to do some particular act or represent his principal in some particular transaction. E.g. Agent employed to sell a motor car.
3. Universal Agent:- Whole authority is unlimited. He enjoys extensive powers to transact every kind of business on behalf of principal.

From the point of view of the nature of work performed by them

1. Mercantile Agent:-

An agent dealing in the buying and selling of the goods, an agent who has the authority either to sell the goods, as to consign the goods for the purpose of Sale or to buy the goods or to raise the money on the security of the goods on behalf of his principal.

Duties of an Agent

1. Duty to follow the instructions of the principal- if not
2. Duty to carry out the work with care and skill
3. Duty to render accounts to the principal
4. Duty to communicate with principal if no time
5. Duty not to deal on his own account
6. Duty not to make secret profits from agency.
7. Duty to pay the amount received for the principal.
8. Duty not to use the information received in the course of agency against the principal.
9. Duty to protect the interest of the principal in case of his death or insanity.
10. Duty not to delegate authority (Delegates non protect delegates)

Rights of an Agent

1. Right to retain money due from the principal
2. Right to receive remuneration
3. Right of heir- The agent has the right to retain goods, papers & other property.
4. Right to be indemnified against consequences of lawful acts.
5. Right to compensation
6. Rights to be indemnified against consequences of acts done in good faith
7. Right of stoppage of goods in transit.
8. Principal becomes insolvent
9. Agent has bought goods out of his own money.

Rights of principal

1. Recover damages from agent if he disregards directions of principal
2. Obtain accounts from Agent.
3. Recover moneys collected by Agent on behalf of principal.
4. Obtain details of secret profit made by agent and recover it from him.
5. Forfeit remuneration of Agent if he misconducts the__________

Duties of principal

1. Pay remuneration for agent
2. Indemnify agent for lawful acts done by him as agent
3. Indemnify agent for all acts done by him in good faith.

PAHUJA LAW ACADEMY

Definition of Agency

Mains Question

 1. Explain the duties of an agent towards his principal.

 2. What do you mean by agency by ratification? State the conditions that must be fulfilled before

          the doctrine of ratification can apply to an agent’s act.

 3. Discuss fully the nature and extent of an agent’s authority to act on behalf of his principal.

PAHUJA LAW ACADEMY

GUARANTEE AND INDEMNITY

CONTRACT OF GUARANTEE:- SECTION- 126

The purpose of Contract of guarantee is to enable a person to get a loan or goods on credit or an employment etc. It is collateral undertaking to be liable for the default of another (principal debtor). The person who gives the guarantee is known as surety, the person in whose respect, it is given is known as principle debtor and the person to whom the guarantee is given is known as the creditor.

It has to be distinguished from independent liabilities example A and B went to the C’s store A said to C. Let B take anything he wants, I will pay for the same.

ESSENTIALS OF A GUANTEE:-

• Principal debt:- The purpose of a guarantee being to secure the payment of the debt, the existence of a recoverable debt is necessary. It there is no principal debt there can be no valid guarantee.

# Swan vs. Bank of Scotland

The payment of the overdraft of a bank’s customer was guaranteed by the defendant. The overdraft was contrary to a statute which made such overdraft void. The customer having defaulted, the surety was sued for the loss. But he was held not liable.

In India where a minor’s debt has been knowingly guaranteed, the surety should be held liable as a principle debtor himself.

• Consideration:– A contract of guarantee should also Section 127 be supported by some consideration.
• Misrepresentation and Concealment:- Section 143 and 142

A contract of guarantee is not a contract Ubberima-fides. (utmost good faith) yet these section put a duty on the party taking the guarantee to put the surety in possession of all the facts likely to affect the degree of his responsibility and if he neglects to do so, it is at is peril (risk).

As per Section- 142 any guarantee obtained by misrepresentation by creditor or with his knowledge concerning a material part of the transaction is invalid.

As per Section- 143 Any guarantee which the creditor obtained by means of keeping silence as to material circumstance is invalid.

• Contract of guarantee can be oral or written (Section- 126)

Extent of Surety liability:-

• The liability of surety is co-extensive with the liability of principal debtor- Section 128

The word co-extensive show the maximum extent of surety’s liability. Example:– In section 144.

As per section 144 where there is a condition precedent to surety liability, he will not be liable unless that condition is first fulfilled.

Example- Section 144, it is provided that where a person gives guarantee upon a contract that creditor shall not act upon it, until another person joined in it as a co-surety, the guarantee is not valid if that other person has not joined.

• Surety can limit his liability or make it conditional:-

It is open to the surety to place a limit upon his liability. Example he may expressly declare his guarantee to be limited to a fixed amount. In such a case the liability of the surety can’t go beyond the sum so specified.

• Liability under continuing guarantee- Section 129:-

The essence of continuing guarantee is that it applies not to a specific number of transaction but to any number of them and makes the surety liable for the unpaid balance at the end of the guarantee.

Discharge of Surety liability:-

• By revocation- Section 130:-

Ordinarily, a guarantee is not revocable when once it is acted. But section 130 provides for revocation of continuing guarantee. Revocation under this section becomes effective for the future transaction while the surety remains liable for transaction already under gone.

• By death of Surety- Section- 131:–

A continuing guarantee can also be determined by the death of the surety unless there is an agreement to the contrary with respect to future transaction.

The liability of the deceased surety can be imposed against his legal heirs but only to the extent of the property inherited by them. [Held in the case of R.K. Diwan vs. State of U.P. (2005)] Allahabad H.C.

• By Variance:- Section- 133:-

A surety is considered a favoured debtor and his liability is in “Stricitisimmi juris” which means you bind him to the letter of engagement. Initially a contract of guarantee is not the one of utmost good faith but once it is form the duty of utmost good faith is imposed upon the creditor. Therefore in cases where without his consent the creditor makes any change in the nature of the term of his contract with the principal debtor, the surety is discharged as soon as the original contract is altered.

One of the question that concerns the court is that where a variation is not substantial or material or is beneficial to the surety, will he be discharged? The Supreme Court in case of M.S. Anirudhan vs. Thomco Bank Ltd. (1963), held by majority that the surety is not discharged in such cases.

• Release or discharge of principal debtor- Section 134:

This sections provides 2 kinds of discharge from liability.

• If the creditor makes any contract with the principal debtor by which the latter is released the surety is discharged.

Example:- Illustration – A

• The second ground provided under this section is that when any creditor does any act or omission the legal, consequence of which is discharge of principle debtor, in such cases the surety will also be discharged for his liability.

Example:- Illustration – C

• Composition, Extention of time and Promise not to sue- Section 135:-

This section provides 3 modes of Discharge of liability.

• Composition:– It involves variation of the original contract and therefore the surety is discharged. This amounted to novation of a contract between creditor and principal debtor.

• Promise to give time:- When the time for the payment of the guaranteed debt comes the surety has a right to require the principal debtor to pay off his debt. Therefore it is one of the duty of the creditor not to allow the principal debtor more time for payment. If he does so even for the benefit of the surety without his consent, results in discharge of surety.

• Promise not to sue:- If the creditor under an agreement with the principal debtor promises not to sue him, the surety is discharged. Reason being the surety is entitle at any time to require the creditor to call upon the principal debtor to any off the debt where it is due. This right is violated when the creditor promises not to sue the principal debtor.

This has to be read along with Section 137 which provides creditors forbearance to sue does not discharge surety. A promise not to sue should be distinguished from a mere forbearance to sue. “A promise not to sue” is an engagement which lies the hand of the creditor which is not the case in forbearance.

• By impairing Surety’s remedy- Section 139:-

A surety is entitled after paying of the creditor, to his indemnity from the principal debtor. If the creditor act or omission deprives the surety of the benefit of this remedy the surety is discharged.

Example:- The principal debtor was a shareholder in a company. His share was partly paid and the

payment of unpaid balance was guaranteed by the surety the shareholder defaulted in the payment and the company forfeited his share. By reason of the forfeiture the share become the property of the company. If they had not been forfeited they would have belong to the surety for the payment of the debt. This forfeiture results in discharge of surety.

Right of Surety against principal debtor:-

• Right of subrogation Section- 140
• Right to indemnity Section- 145.