Tendering , Bidding and

Contracting

by
Prof. Prahlad R
 Contents

Indian Contract Act

Tender as a basis of contract

Preparing tender document

Detailing of complex work

Tender for LCB, NCB and ICB

Rights and obligation in tendering

Pre bid conference, site survey

Preparation of prequalification documents

payment terms, E- Tendering Bid/no Bid

Contract conditions for bidding
 REFERENCES
1. “Building and Engineering Contracts” by B.S Patil
2. “Law of Contract and Specific Relief” by Avtar Singh
3. http://www.vakilno1.com/bareacts/indiancontracta
ct/indiancontractact.html#6_Revocation_how_mae
 Introduction
• Law is a system of rules and guidelines, usually enforced
through a set of institutions.
• It shapes politics, economics and society in numerous ways
and serves as a social mediator of relations between people
• A bill is essentially a proposal to make a new law.
• If the Parliament passes a bill, it is sent to the President of
India for his assent. If he assents to it, the bill becomes an
Act
 Indian Contract Act 1872
Section 1
Short Title : This Act may be called the Indian Contract Act, 1872
 Applicable to whole Indian except the state of Jammu &
Kashmir
 It shall come into force on the first day of September 1872
 Prior to this English law of contract was followed in India and
it had 11 chapters
Indian Contract Act consists of the following two parts:
(a) General principals of the Law of Contract.
(b) Special kinds of contracts
a) The general principals of the Law of Contract are contained
in Sections 1 to 75 of the Indian Contract Act
b) Special contracts are contained in Sections 124 to 238 of the
Indian Contract Act
Section 2 : Interpretation

a) When one person signifies to another his willingness to do

or to abstain from doing anything, with a view to obtaining

the assent of that other person either to such act or

abstinence, he is said to make a proposal

a) When a 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

b) The person making the proposal is called the "promisor",

and the person accepting the proposal is called "promisee",

c) When at the desire of the promisor, the promisee or any

other person has done or abstained from doing something

or does or abstains from doing something or promises to do

or abstain from doing something, such act or abstinence or

promise is called a consideration for the promise

d) Every promise and set of promises forming the consideration
for each other, is an Agreement
Agreement = Promise + Consideration
f) Promises which form the consideration or part of the
consideration for each other, are called reciprocal promises;
g) An agreement not enforceable by law is said to be void;
h) An agreement enforceable by law is a contract;
i) An agreement which is enforceable by law at the option of one or
more of the parties thereto, but not at the option of the other or
others, is a voidable contract
j) A contract which ceases to be enforceable by law becomes void
when it ceases to be enforceable.
 Communication, acceptance and revocation of
proposals
• The communication of a proposal is complete when it comes to
the knowledge of the person to whom it is made (sec 4)
• An offer is accepted when the acceptance is communicated (sec 4)
• A proposal may be revoked at any time before the communication
of its acceptance is complete as against the proposer, but not
afterwards. (sec 5)
• An acceptance may be revoked at any time before the
communication of the acceptance is complete as against the
acceptor, but not afterwards. (sec 5)
6. A proposal can be revoked in the following
 by the communication of notice of revocation by the proposer to
the other party
 by the lapse of the time prescribed in such proposal for its
acceptance, or, if no time is so prescribed, by the lapse of a
reasonable time, without communication of the acceptance
 by the failure of the acceptor to fulfil a condition precedent to
acceptance; or
 by the death or insanity of the proposer, if the fact of the death
or insanity comes to the knowledge of the acceptor before
acceptance
7. Acceptance must be absolute, unqualified
 Offer and acceptance must be based or founded on three
components—Certainty, commitment and communication.
 If any one of three components is lacking either in the
offer or in the acceptance there cannot be a valid contract
 An acceptance with a variation is no acceptance; it is simply
a counter proposal which must be accepted by the original
promisor before a contract is made
9. Promise, express and implied
 In so far as the proposal or acceptance of any promise is
made in words, the promise is said to be express
 In so far as such proposal or acceptance is made otherwise
than in words, the promise is said to be implied.
 Chapter II - CONTRACTS, VOIDABLE CONTRACTS AND VOID
AGREEMENTS
10. All agreements are contracts if they are made by the free consent
of parties competent to contract, for a lawful consideration and
with a lawful object, and are not hereby expressly declared to be
void
Essentials of a valid contract
1. There must be an agreement or meeting of minds.
2. The agreement must be between parties competent to enter into
a contract.
3. The parties must give their free consent.
4. The agreement must be supported by consideration, which must
also be lawful
5. Subject matter of the agreement must be definite and lawful
 Every person is competent to enter into a contract if he is not
a minor or is not of unsound mind or MP/MLA
 Consent: Two or more person are said to consent when they
agree upon the same thing in the same sense
 Consent is said to be free when it is not caused by
(1) coercion, as defined in section 15, or
(2) undue influence, as defined in section 16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined in section 18, or
(5) mistake, subject to the provisions of section 20,21, and 22
15. “Coercion” is the committing, or threatening to commit, any act
forbidden by the Indian 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
16. “Undue influence”— A contract is said to be induced by “under influence”
where the relations subsisting between the parties are such that one of
the parties is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other
17. Fraud is a deliberate misstatement of a material fact
18. Misrepresentation is a bonafide representation of misstatement believing
it to be true which turns out to be untrue.
In fraud the aggrieved party can claim damages for any loss sustained
19. When consent to an agreement is caused by coercion, fraud or misrepresentation,
the agreement is a contract voidable at the option of the party whose consent was
so caused
20. Agreement void where both parties are under mistake as to matter of fact
Where both the parties to an agreement are under a mistake as to a matter of fact
essential to the agreement, the agreement is void.
21. Effect of mistake as to law
A contract is not voidable because it was caused by a mistake as to any law in force in
India, but mistake as to a law not in force in India has the same effect as a mistake of
fact
22. Contract caused by mistake of one party as to matter of fact
A contract is not voidable merely because it was caused by one of the parties to it
being under a mistake as to a matter of fact
Types of Contracts
On the basis of the validity
 Valid Contract: An agreement which is binding and enforceable is a
valid contract. It contains all the essential elements of a valid
contract
 Void : It is a contract without any legal effect and cannot be
enforced in a court of law
 Voidable contract: A contract later may become void due to the
reasons as specified in section 14
 Illegal Agreement: It is a contract which the law forbids to be made.
The court will not enforce such a contract
 Unenforceable Agreement: where a contract is good substance but
because of some technical defect one or both the parties cannot
sue upon
On the basis of formation
Express Contract: A contract which is made by words either spoken
is said to be an express contract
Implied Contract: implied contract come into existence by
implication. Most often the implication is by law and or by action.
Tacit Contracts: Tacit contracts are those that are inferred through
the conduct of parties.
Quasi contract: A quasi-contract is not an actual contract but it
resembles to a contract. It is created by law under certain
circumstances the law creates and enforce legal rights and
obligation when no real contract exists. Such obligations are known
as quasi contracts
On the basis of performance of the contract
 Executed contract: if the consideration for the promise in a contract
is given or executed, such type of contract is called contract with
executed consideration.
 Executory contract: A contract in which both the parties have still to
fulfilled their obligations.
 Unilateral contract: A unilateral contract is a one sided contract in
which only one party has to perform his promise or obligation to do
 Bilateral Contract: Where the obligation or prommise in a contract
is outstanding on the part of both the parties, it is known as
bilateral contract
24. Agreements void, if consideration are objects unlawful in part
25. Agreement without consideration, void, unless it is in writing and registered
or is a promise to compensate for something done or is a promise to pay a
debt barred by limitation law
27. Agreement in restraint of trade, void
Constitution of India has protected the freedom of trade and commerce as
individual’s right . Legislature can not take away individual ‘s freedom of trade by
way of any legislation
28. Agreements in restrain of legal proceedings, void
Every agreement, by which any party thereto is restricted absolutely from
enforcing his rights under or in respect of any contract, by the usual legal
proceedings in the ordinary tribunals, or which limits the time within which
he may thus enforce his rights, is void to the extent.
Exception 1: Saving of contract to refer to arbitration dispute
that may arise
Exception 2: Saving of contract to refer question that have
already arisen
29. Agreements void for uncertainty
30. Agreements by way of wager, void
Literally the word ‘wager’ means ‘a bet’ something stated to be lost
or won on the result of a doubtful issue, and, therefore, wagering
agreements are nothing but ordinary betting agreements
 Chapter III- contingent contracts
A contract may be absolute or a contingent. An absolute contract is one
where the promisor undertakes to perform the contract in any event
without any condition.
31. A “contingent contract” is a contract to do or not to do something, if
some event, collateral to such contract, does or does not happen.
Ex: contracts of Insurance
32. Enforcement of Contracts contingent on an event happening
Contingent contracts to do or not to do anything in an uncertain
future event happens, cannot be enforced by law unless and until
that event has happened. If the event becomes impossible, such
contracts become void.
33. Enforcement of contract contingent on an event not happening
Contingent contracts to do or not to do anything if an uncertain
future event does not happen, can be enforced when the
happening of that event becomes impossible, and not before
34. When event on which contract is contingent to be deemed
impossible, if it is the future conduct of a living person
 If the future event on which a contract is contingent is the
way in which a person will act at an unspecified time, the
event shall be considered to become impossible when such
person does anything which renders it impossible that the
should so act within any definite time, or otherwise than
under further contingencies
Ex: A agrees to pay B a sum of money if B marries C, C marries D. The
marriage of B to C must now be considered impossible, although it is
possible that D may die and that C may afterwards marry B
35.When contracts become void, which are contingent on
happening of specified event within fixed time
36. Agreements contingent on impossible event void
Contingent agreements to do or not to do anything, if an
impossible event happens, are void, whether the impossibility
of the event is known or not to the parties to agreement at
the time when it is made.
 Chapter IV – Of the performance of contracts which
must be performed
Contract Creates a legal obligation , which subsist until discharge.
Performance of the promise or promises to be performed is the
principal and most usual mode of discharge.
37. The parties to a contract must either perform, or offer to perform,
their respective promises, unless such performance in dispensed
with or excused under the provision of this Act, or of any other law
Ex: A promises to deliver goods to B on a certain day on payment of Rs.1,000.
A dies before that day. A’s representatives are bound to deliver the goods to
B, and B is bound to pay the Rs. 1,000 to A’s representatives.
38. Effect of refusal to accept offer of performance
Where a promisor has made an offer of performance to the
promisee, and the offer has not been accepted, the promisor
is not responsible for non-performance, nor does he thereby
lose his rights under the contract.
40. Person by whom promises is to be performed
If it appears from the nature of the case that it was the intention of the parties to
any contract that any promise contain in it should be performed by the promisor
himself, such promise must be performed by the promisor.
This means contracts which involve the exercise of personal skill or diligence
Ex. A promises to paint a picture for B by a certain day, at a certain price. A dies
before the day. The contract cannot be enforced either by A’s representatives or by B
42. Devolution of joint liabilities
When two or more person have made a joint promise, then, unless a
contrary intention appears by the contract, all such persons, during their
joint lives, and, after the death of any of them, his representative jointly
with the survivor or survivors, and, after the death of the last survivor the
representatives of all jointly, must fulfil the promise.
44. Where two or more persons have made a joint promise, a release of one of such
joint promisors by the promisee does not discharge the other joint promisor,
neither does it free the joint promisor so released from responsibility to the other
joint promisor or joint promisors
52. Order of performance of reciprocal promises
Where the order in which reciprocal promises are to be performed is expressly
fixed by the contract, they shall be performed in that order, and where the orders
is not expressly fixed by the contract, they shall be performed in that order which
the nature of transaction requires
53. Liability of party preventing event on which contract is to take effect
When a contract contains reciprocal promises and one party to the contract
prevents the other from performing his promise, the contract becomes voidable at
the option of the party so prevented; and he is entitled to compensation from the
other party for any loss which he may sustain in consequence of the non-
performance of the contract
54. Effect of default as to the promise which should be performed, in
contract consisting or reciprocal promises
A contracts with B to execute certain builder’s work for a fixed price, B supplying
the scaffolding and timber necessary for the work. B refuses to furnish any
scaffolding or timber, and the work cannot be executed. A need not execute the
work, and B is bound to make compensation to A for any loss caused to him by the
non-performance of the contract
Time as the essence of the contract
Where time is essence – the concerned parties must perform their
respective promises within the specified time
Time is generally considered to be the essence of the contract :-
(A) where the parties have expressly agreed to treat as the essence of the
contract.
(b) Delay operates as an injury to the party and
(c) Nature and necessities of the contracts requires it to be performs within the
specified time
55. Effect of failure to perform a fixed time, in contract in which time is
essential
When a party to a contract promises to do a certain thing at or before a
specified time, or certain things at or before a specified time and fails to
do such thing at or before a specified time, the contract or so much of it as
has not been performed, becomes voidable at the option of the promisee,
if the intention of the parties was that time should be of essence of the
contract.
Effect of such failure when time is not essential: the contract does not
become voidable by the failure to do such thing at or before the specified
time; but the promisee is entitled to compensation from the promisor for
any loss occasioned to him by such failure
56. Agreement to do impossible act
An agreement to do an act impossible in itself is void.
Contract to do act afterwards becoming impossible or unlawful: A contract
to do an act which, after the contract is made, becomes impossible or, by
reason of some event which the promisor could not prevent, unlawful,
becomes void when the act becomes impossible or unlawful
Compensation for loss through non-performance of act known to be
impossible or unlawful: Where one person has promised to be something
which he knew or, with reasonable diligence, might have known, and
which the promisee did not know to be impossible or unlawful, such
promisor must make compensation to such promise for any loss which
such promisee sustains through the non-performance of the promise
57. Reciprocal promise to do things legal, and also other things illegal
Where persons reciprocally promise, firstly to do certain things which are
legal, and, secondly under specified circumstances, to do certain other
things which are illegal, the first set of promise is a contract, but the
second is a void agreement
Appropriation of Payments

Appropriation means application of payments

where a person [Debtor] owes several distinct debts to another person
[Creditor] and when he makes a certian payment which is insufficient to
satisfy all the debts. In such a case, a question arises as to which particular
debt the payment is to be appropriated.

This issue is considered and answered in section 59-61
59. Application of payment where debt to be discharged is indicated

Where a debtor, owing several distinct debts to one person, makes a

payment to him, either with express intimation, or under circumstances

implying, that the payment is to be applied to the discharge of some

particular debt, the payment if accepted, must be applied accordingly

60.Application of payment where debt to be discharged is not indicated

Where the debtor has omitted to intimate, and there are no other

circumstances indicating to which debt the payment is to be applied, the

creditor may apply it at his discretion to any lawful debt actually due and

payable to him from the debtor, whether its recovery is or is not barred by

the law in force for the time being as to the limitations of suits
61. Application of payment where neither party appropriates

Where neither party makes any appropriation, the payment

shall be applied in discharge of the debts in order of time,
whether they are or are not barred by the law in force for
the time being as to the limitation of suits. If the debts are
of equal standing, the payment shall be applied in
discharge of each proportionally.
DISCHARGE OF A CONTRACT
62. Effect of novation, rescission, and alteration of contract
If the parties to a contract agree to substitute a new contract for it, or to
rescind or alter it, the original contract need not be performed.

Novation means substitution of a new contract in the place of the original

contract. new contract entered into in consideration of discharge of the old
contract
new contract may be between same parties or different parties
Ex : A owes money to B under a contract. It is agreed between A, B and C,
that B shall thenceforth accept C as his debtor, instead of A. The old debt of
A to B is at an end, and a new debt from C to B has been contracted
Following conditions must satisfy
– All the parties must consent to novation
– The novation must take place before the breach of original contract.
– The new contract must be valid and enforceable

Rescission means cancellation of the contract by any party or all the parties
to a contract
Alteration means a change in one or more of the terms of a contracts with
mutual consent of parties the parties of new contracts remains the same
63. Promise may dispense with or remit performance of promise
Every promise may dispense with or remit, wholly or in part, the
performance of the promise made to him, or may extend the time for such
performance, or may accept instead of it any satisfaction which he thinks fit
 (a) A promises to paint a picture for B. B afterwards forbids him to do so. A
is no longer bound to perform the promise.
(b) A owes B 5,000 rupees. A pays to B, and B accepts, in satisfaction of the
whole debt, 2,000 rupees paid at the time and place at which the 5,000
rupees were payable. The whole debt is discharged.
(c) A owes B 5,000 rupees. C pays to B 1,000 rupees, and B accepts them,
in satisfaction of his claim on A. This payment is a discharge of the whole
claim
64. Consequence of rescission of voidable contract
When a person at whose option a contract is voidable rescinds it, the
other party thereto need to perform any promise therein contained in
which he is the promisor.
 The party rescinding a voidable contract shall, if he have received
any benefit there under from another party to such contract restore
such benefit, so far as may be, to the person from whom it was
received.
71. Responsibility of finder of goods
A person who finds goods belonging to another, and takes them
into his custody, is subject to the same responsibility as a bailee
72.Liability of person to whom money is paid, or thing delivered, by
mistake or under coercion
A person to whom money has been paid, or anything delivered, by
mistake or under coercion, must repay or return it.
 Chapter VI – Of the consequences of breach of
contract
Breach means failure of a party to perform his or her obligation under a
contract.
Breach of contract may arise in two ways
 Anticipatory Breach of contract
 Actual Breach of contract

Anticipatory breach of contract occurs when the party declares his
intention of not performing the contract before the performance is due

If a party fails or neglects or refuses to perform his obligation on the
due date of performance or during performance. It is called as actual
breach.
73. Compensation of loss or damage caused by breach of contract
• When a contract has been broken, the party who suffers by such
breach is entitled to receive, from the party who has broken the
contract, compensation for any loss or damage caused to him thereby,
which naturally arose in the usual course of things from such breach,
or which the parties knew, when they made the contract, to be likely to
result from the breach of it
• Such compensation is not to be given for any remote and indirect loss
of damage sustained by reason of the breach
Breach of contract entitles the injured party to file a suit for damages, which
are the monetary compensation awarded to a person.
 Liability for ordinary damages: These damages arises in the ordinary
course of events from the breach of contact. These damages constitute the
direct loss suffered by the injured party
 Liability for special damages: where a party to a contract receives a notice
of special circumstances affecting the contract, he will be liable not only
for damages arising naturally and directly from the breach but also for
special damages
Examples:
1. A contracts to buy B’s ship for 60,000 rupees, but breaks his promise. A
must pay to B, by way of compensation, the excess, if any, of the contract
price over the price which B can obtain for the ship at the time of the
breach of promise
2. A contracts to repair B’s house in a certain manner, and receives payment

in advance. A repairs the house, but not according to contract. B is

entitled to recover from A the cost of making the repairs conform to the

contract

3. A, a builder, contracts to erect and finish a house by the first of January,

in order that B may give possession of it at that time to C, to whom B has

contracted to let it. A is informed of the contract between B and C. A

builds the house so badly that, before the first of January, it falls down

and has to be re-built by B, who, in consequence, loses the rent which he

was to have received from C, and is obliged to make compensations to C

for the breach of his contract. A must make compensation to B for the

cost of rebuilding of the house, for the rent lost, and for the

compensation made to C
74. Compensation of breach of contract where penalty stipulated for
When a contract has been broken, if a sum is named in the contract
as the amount be paid in case of such breach, or if the contract
contains any other stipulation by way of penalty, the party
complaining of the breach is entitled, whether or not actual
damage or loss or proved to have been caused thereby, to receive
from the party who has broken the contract reasonable
compensation not exceeding the amount so named or, as the case
may be, the penalty stipulated for.
75. Party rightfully rescinding contract, entitled to compensation
• A person who rightfully rescinds a contract is entitled to
consideration for any damage which he has sustained through the
no fulfilment of the contract
 SPECIAL CONTRACT
Chapter VI – Indemnity and Guarantee
Sections 124-147

124. A contract by which one party promises to save the other

from loss caused to him by the contract of the promisor himself,
or by the conduct of any other person, is called a "contract of
indemnity".
A contractor is required under certain provisions incorporated in the
construction contracts to indemnify the owner against any loss caused
by the contractor's men or machinery to the property of others
Indemnity Meaning
• To make good the loss incurred by another person
• To compensate the party who has suffered some loss
• To protect a party from incurring a loss
 There are two parties in this form of contract. The party who promises to
indemnify/ save the other party from loss is known as “indemnifier”,
where as the party who is promised to be saved against the loss is known
as “indemnified”.
125. Right of indemnity-holder
• The indemnity holder has the right to recover all the damages which he is
compelled to pay in any suit in respect of any matter covered by the
contract of indemnity
• The indemnity holder has the right to recover all the costs which he is
compelled to pay in bringing or defending such suit
• The indemnity holder has the right to recover all the sums which he has
paid under the terms of a compromise of such suit.
126. "Contract of guarantee", "surety", "principal debtor" and
"creditor“
• A "contract of guarantee" is a contract to perform the promise, or
discharge the liability, of a third person in case of his default.
• The person who gives the guarantee is called the "surety", the
person in respect of whose default the guarantee is given is called
the "principal debtor", and the person to whom the guarantee is
given is called the "creditor". A guarantee may be either oral or
written
127. Anything done, or any promise made, for the benefit of the
principal debtor, may be a sufficient consideration to the surety for
giving the guarantee
128. Surety's liability
The liability of the surety is co-extensive with that of the principal debtor,
unless it is otherwise provided by the contract.
129. Continuing guarantee
A guarantee which extends to a series of transaction, is called, a
"continuing guarantee".
130. Revocation of continuing guarantee
A continuing guarantee may at any time be revoked by the surety, as to
future transactions, by notice to the creditor.
133. Discharge of surety by variance in terms of contract
Any variance made without the surety's consent, in the terms of the
contract between the principal debtor and the creditor, discharges the
surety as to transactions subsequent to the variance.
134. Discharge of surety by release or discharge of principal debtor -
The surety is discharged by any contract between the creditor and the principal
debtor, by which the principal debtor is released, or by any act or omission of the
creditor, the legal consequence of which is the discharge of the principal debtor
135. Discharge of surety when creditor compounds with, gives time to, or agrees not
to sue, principal debtor
A contract between the creditor and the principal debtor, by which the creditor
make a composition with, or promises to give time, or not to sue, the principal
debtor, discharges the surety, unless the surety assents to such contract.
139. Discharge of surety by creditor's act or omission impairing surety's eventual
remedy -
If the creditor does any act which is inconsistent with the right of the surety, or
omits to do any act which his duty to the surety requires him to do, and the
eventual remedy of the surety himself against the principal debtor is thereby
impaired, the surety is discharged
140. Rights of surety on payment or performance -

Where a guaranteed debt has become due, or default of the principal debtor

to perform a guaranteed duty has taken place, the surety upon payment or

performance of all that he is liable for, is invested with all the rights which the

creditor had against the principal debtor

141. Surety's right to benefit of creditor's securities -

A surety is entitled to the benefit of every security which the creditor has

against the principal debtor at the time when the contract of surety ship

entered into, whether the surety knows of the existence of such security or

not; and if the creditor loses, or without the consent of the existence of such

security or not; and if the creditor loses, or without the consent of the surety,

parts with such security, the surety, the surety is discharged to the extent of

the value of the security.

145. In every contract of guarantee there is an implied promise by the

principal debtor to indemnify the surety, and the surety is entitled to recover

from the principal debtor whatever sum he has rightfully paid under the

guarantee, but no sums which he has paid wrongfully

 Chapter IX – Of bailment
148. A ‘bailment’ is the delivery of goods by one person to another for some
purpose, upon a contract that they shall, when the purpose is accomplished, be
returned or otherwise disposed of according to the directions of the person
delivering them
 The person delivering the goods is called the ‘bailor’. The person to whom they
are delivered is called the ‘bailee’
CLASSIFICATION OF BAILMENT

Gratuitous bailment Non – gratuitous bailment

Bailment without any charges or Bailment for some charges or

reward, i.e. – reward, i.e.-

No hire charges are paid by bailee; Hire charges are paid by bailee; or

and No custody charges are paid Custody charges are paid by

by bailor. bailor.
DUTIES OF A BAILOR:
[ Sec. 150, 158, 159 and 164]
• The bailor must disclose all defects/faults in the goods bailed. If the bailor
does not disclose, he would be responsible for any loss or damage
suffered by the bailee while keeping the goods in his custody [sec.150]
• Where the bailment is gratuitous, the bailor must reimburse the bailee for
any expenditure incurred in keeping the goods. [158]
• The bailor should reimburse any expense which the bailee may incur by
way of loss in the process of returning the goods or complying with other
directions for returning the goods.
• The bailor must compensate the bailee for the loss or damage suffered by
the bailee that is in excess of the benefit received, where he had lent the
goods gratuitously and decides to terminate the bailment before the
expiry of the period of bailment.
• The bailor is bound to accept the goods after the purpose is accomplished.
If bailor fails, he is responsible for any loss or damage to the goods and
has to reimburse for expenses incurred by the bailee for keeping the
goods safely.

Care to be taken by Bailee:

151. The bailee is bound to take as much care of the goods bailed to him as a
man of ordinary prudence with regard to quantity, bulk and value would
take.
152. The bailee, in the absence of any special contract, is not responsible for
the loss, destruction or deterioration of the thing bailed, if he has taken
the amount of care of it described in section 151
Rights of Bailor:
 right to claim damages for loss caused to the goods by the negligence of bailee;
 right to claim compensation for loss caused by an unauthorized use of the goods
bailed;
 right to claim damages arising out of mixing the goods of the bailor with his own
goods.
 Bailor has a right to terminate the contract if the bailee does anything which is
inconsistent with the conditions of bailment.lor with his own goods.
 Bailor in the case of gratuitous bailment has a right to demand the goods back
even before the expiry of the period of bailment. If in the process, loss is caused to
the bailee, bailor is bound to compensate.
 Bailor has a right to claim the increase or profit from the goods bailed which may
have occurred from the goods value.
Duties and Rights of a Bailee.
 Bailee has no right to make unauthorized use of goods bailed
 Bailee has no right to mix the goods bailed with his own goods without the
consent of the bailor.
 Bailee has to return the goods on expiration of period of bailment
 Bailee has a duty to return any extra profit accruing from goods bailed.
Ex:Where A bails his cow to ‘B’ and if the cow gives birth to a calf, ‘B’ must
return both the cow and the calf to ‘A’
 Bailee has duty not to do anything inconsistent with the condition of
bailment.
Rights of bailee
 To claim compensation for any loss arising from non-dislosure of known
defects in the goods
 To claim indemnification for any loss or damage as a result of defective title
 To deliver back the goods to joint bailors according to the agreement or
directions
 To deliver the goods back to the bailor whether or not the bailor has the
right to the goods
 To exercise his ‘right of lien’. This right of lien is a right to retain the goods
and is exercisable where charges due in respect of goods retained have
not been paid. The right of lien is a particular lien for the reason that the
bailee can retain only these goods for which the bailee has to receive his
fees/remuneration.
 To take action against third parties if that party wrongfully denies the
bailee of his right to use the goods
 Chapter X – Agency, Appointment and Authority of
Agents
182. An “agent” is a person employed to do any act for another, or to
represent another in dealing with third persons. The person for
whom such act is done, or who is so represented, is called the
“principal”.
SALIENT FEATURES OF AGENCY (Sec. 183, 184, 185 and 226)
• The principal is liable for all the acts of an agent which are lawful
and within the scope of agent’s authority.
• The contracts entered into by the agent on behalf of the principal
have the same legal consequences as if these contracts were made
by the principal himself
Who may employ an agent?
Any person may employ an agent if –
He is of the age of majority; and
He is of sound mind.
Who can be an agent?
Any person may become an agent.
Even a minor or a person of unsound mind can become an agent
Liability of agent
Generally an agent is liable to the principal
An agent is not liable to the principal if he is a minor or is of unsound mind.
Requirement of consideration
No consideration is necessary for creating an agency
MODES OF CREATION OF AGANCY (Sec.187, 189, 196, 214 and 237)
Agency by actual authority: A contract of agency can be express or implied. While the
express contract is often expressed in clear terms, implied contracts are created by
circumstances
Agency by ratification
If -
a person (viz., pretended agent) acts on behalf of another person (viz, the principal)
the pretended agent acts without the knowledge or consent of the principal; and
Afterwards, the principal accepts such act.
Then –
Agency by ratification comes into existence
Effects of ratification
The principal is bound by the acts ratified by him as if such acts had been performed
by his authority.
Ratification relates back to the actual date of the act that is ratified and not from the
date when the act ratified
Essentials of Ratification [Sec. 197 to 200]

(i) Ratification can be made only by a person who was in existence at the time of act.

(ii) Ratification must be by a person for whom the act was done, professing him to be

a principal. This implies competency on the part of the person ratifying the act.

(iii) Ratification would date back to the date of the act, and validate it

(iv) Ratification may either be express or even implied by the conduct of the person on

whose behalf the act was done.

(v) Ratification must be of the whole act and not just for a part of the act.

(vi) Ratification [by the purported principal] of the acts of an agent can not be such as

to create any liability to third parties or cause any injury or damage to third parties

(vii) Ratification cannot be done if the person ratifying is in knowledge of facts which

are materially defective.

(viii) Illegal acts cannot be ratified.

(ix) Acts which are void ab initio cannot be ratified

Agency by estoppel
If –
• a person makes a representation (by his words or conduct) to a third person that a
certain person is his agent; and
• the third party believing such representation to be true, enters into a contract with
the pretended agent.
Then –
the person making the representation is prevented from denying the truth of agency.
He may be held liable as a principal by such third party
Agency of holding out
Such an agency comes into existence when a person by his affirmative or positive
conduct leads third persons to believe that person doing some act on his behalf is
doing with authority
Agency by operation of law
Agency by operation of law arises where the law treats one person as an agent of
another.
DUTIES OF AN AGENT (Sec. 209 to 218) :
1. To conduct the business in accordance with the directions given by the principal
2. To work with reasonable diligence, care and skill.
3. To render proper accounts to the principal on demand.
4. To communicate with his principal in case of difficulty and seek his instructions.
5. Not to deal on his own account unless all the material facts have been disclosed to the
principal and consent of the principal has been obtained.
 If the agent, without the knowledge of the principal, deals in the business of agency
on his own account, the principal has the following rights:
(a) He may repudiate the transaction, if the agent dishonestly conceals any material
facts or the dealings of the agent prove to be disadvantageous to him.
(b) He may claim from the agent the agency business other than the agreed
remuneration.
6. Not to make any secret profit out of the agency business other than the agreed
remuneration
7. To remit to the principal all the sums received in the principal’s accounts in
accordance with the terms and conditions of contract of agency.
8. Not to delegate authority or appoint sub – agent.
9. To protect and preserve the interest on behalf of the principal’s
representative in case of his death or insolvency of the principal.
10. Not to use information obtained in the course of the agency against the
principal.
LIABILITY OF PRINCIPAL TO THIRD PARTIES FOR THE ACTS OF AGENT: (Sec. 226 to 228)
• The principal is liable for all the acts of an agent which are lawful and
within the scope of agent’s authority.
• The contracts entered into by the agent on behalf of the principal have the
same legal consequences as if these contracts were made by the principal
himself.
TERMINATION OF AGENCY (Sec.201 to 210)
By agreement
 The principal and the agent may mutually agree to terminate the agency,
at anytime.
By revocation
 When the agency is coupled with interest, the principal cannot revoke the
agency to the prejudice of such interest.
 The principal can revoke the authority at anytime before, the authority
has been exercised so as to bind the principal.
 The principal cannot revoke the authority given to his agent after the
authority has been partly exercised.
 When agency if for fixed period, the principal must make compensation to
the agent for premature revocation of agency without sufficient cause.
 Revocation may be expressed or implied from the conduct of the principal
By the agent renouncing the business of agency
 Renunciation may be expressed or implied from the conduct of the agent.
 When agency is for fixed period, the agent must make compensation to
the principal for premature renunciation of agency without sufficient
cause.
By operation of law
 Completion of business of agency
 Death or insanity of the principal or agent
 Where the principal or the agent, being a company is dissolved
 Destruction of subject matter of agency
 Principal becoming insolvent
 6. Expiration of period where agency was for a fixed period.
Agency by necessity – Conditions

There was an actual and definite necessity for acting on behalf of the
principal.

The agent was not in a position to communicate with the principal.

The act was done for the purpose of protecting the interest of his
principal.

The agent has exercised such reasonable care as a man of ordinary
prudence would have exercised in his own case.

The act was done bonafide
 CONTRACT TO BE IN WRITING
• lt is not a legal necessity that a building or engineering contract, except
when it is with a corporation or Government, should be in writing.
• However, owing to the complex nature of building and engineering
contracts, it is advisable that they should be expressed in writing.
• Written agreement would eliminate many grounds of future disputes
between the parties
• Examples of agreements, which must necessarily be in writing, are listed
below
• Agreements without consideration made on account of natural love and
affection. (Section 25 of the Indian Contract Act.)
• An agreement to refer to arbitration any question between parties (to the
agreement), which has already arisen. Section 28 exception 2 of the Indian
• Memorandum of Association, Articles of Association of a company and
contracts by companies (S. 15, 30 and 46 of the Indian Companies Act of
1956).
• Creation of a trust (S. 5 of the Indian Trusts Act).
• A sale, a mortgage, a lease and a gift governed by the provisions of the
Transfer of Property Act.
• Agreements made with a corporation, which must contract in writing or
under seal in regard to the subject matters of such agreements