THE CONTRACT ACT-1872

SECTION DESCRIPTION
 Proposal: When one person signifies to another
his willingness to do or to abstain from doing
anything, with a view to obtaining the assent of
that other to such act or abstinence, he is said to
make proposal.

 Acceptance: When the person to whom proposal

is made signifies his assent, the proposal is said
to be accepted.

 Promise: A proposal, when accepted becomes

promise.

 Promisor: The person making the proposal is

called promisor.

 Promisee: The person accepting the proposal is

called the promisee.

 Consideration: When at the desire of the

promisor, the promisee or any other person has
done or abstained from doing or promises to do
2: INTERPRETATION or to abstain from doing something, such act or
CLAUSE: promise is called a consideration for promise.

 Agreement: Every promise forming the

consideration for each other is an agreement.
Promise + Consideration= Agreement.

 Reciprocal Promises: Promises which from the

consideration for each other are called reciprocal
promises.

 Void Agreement: An agreement not enforceable

by law.

 Contract: An agreement enforceable by law.

 Voidable Contract: An agreement which is

enforceable by law at the option of one or more
of the parties, but not at the option of the other or
others is a voidable contract.

 Void Contract: A contract which ceases to be

enforceable by law be comes void when it ceases
to be enforceable.
  The communication of a proposal is complete
when it comes to the knowledge of the person to
whom it is made;

 The communication of acceptance is complete;

 as against the proposer, when it is put in

a course of transmission to him, so as to
be out of the power of the acceptor,
4: Communication when  As against the acceptor, when it comes to
Complete: the knowledge of the proposer.
 The communication of a revocation is complete;

 As against the person who makes it,

when it is put into a course of
transmission to the person to whom it is
made, so as to be out of the power of the
person who makes it.
 As against the person to whom it is made,
when it comes to his knowledge.
 A proposal may be revoked at any time before
the communication of its acceptance is complete
as against the proposer, but not afterwards.
5: Revocation of proposals and
acceptance:
 An acceptance may be revoked at any time
before the communication of the acceptance is
complete as against the acceptor, but not
afterwards.
 A proposal is revoked by following manners;
 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 prescribed, by the lapse of a
6: Revocation how made: reasonable time, without communication
of the acceptance,

 By the failure of the acceptor to fulfil a

condition precedent to acceptance,

 By the death or insanity of the proposer,

if the fact comes to the knowledge of the
acceptor before acceptance.
 All the agreements are contracts, if they are
made by;
10: What agreements are  Free consent of parties,
contracts:  Competent to contract,
 For a lawful consideration,
 With a lawful object
  And not hereby expressly declared to be
void.
 Every person is competent to contract who is;
 Of the age of majority,
11: Who are competent to
 Of the sound mind,
contract:
 Not disqualified from contracting by any
law to which he is subject.
 A person is said to be of sound mind for the
purpose of making a contract if, at the time when
he makes it, he is capable of understanding it and
of forming a rational judgment as to its effect
upon his interest,
12: What is sound mind for the  A person who is usually of unsound mind, but
purposes of contracting: occasionally of sound mind, may make a
contract when he is of sound mind,

 A person who is usually of sound mind, but

occasionally of unsound mind, may not make a
contract when he is of unsound mind.
 Consent is said to be free, when it is not caused
by;
 Coercion,
14: Free Consent defined:  Undue influence,
 Fraud,
 Misrepresentation,
 Mistake.
 Coercion is the committing or threating to
commit any act forbidden by the Pakistan Penal
15: Coercion defined: Code or the unlawful detaining or threatening to
detain, with the intention of causing any person
to enter into an agreement.
 A contract is said to be induced by “undue
influence” where the relations subsisting,
 between the parties are such that one
party is in position to dominate the will
of the other
 and uses that position to obtain an unfair
advantage over the other.

 A person is deemed to be in position to dominate

16: Undue Influence defined:
the will of another;
 Where he holds a real or apparent
authority over the other or where he
stands in a fiduciary relation to the other,

 Where he makes a contract with a person

whose mental capacity is temporarily or
permanently affected by reasons of age,
illness or mental or bodily distress.
  Fraud means and includes any of the following
acts committed by a party to a contract with
intent to deceive another party to enter into a
contract:
 The suggestion, as a fact of that which is
not true, by one who does not believe it
to be true,

17: Fraud defined:  The active concealment of a fact by one

having knowledge or belief of the fact,

 A promise made without any intention of

performing it,

 Any other act fitted to deceive,

 Any such act or omission as the law

specially declares to be fraudulent.
 Misrepresentation means and includes;
 The positive assertion in a manner not
warranted by the information of the
person making it, of that which is not
true, though he believes it to be true.

 Any breach of duty which, without an

intent to deceive gains an advantage to
18: Misrepresentation defined: the person committing it or any one
claiming under him by misleading
another to his prejudice or to the
prejudice of any one claiming under him,

 Causing however innocently a party to an

agreement to make a mistake as to the
substance of the thing which is subject of
the agreement.
20: Agreement void where both  Where both the parties to an agreement are under
parties are under mistake as to a mistake as to matter of fact essential to the
matter of fact: agreement, the agreement is void.
 The consideration or object of an agreement is
lawful unless, it is forbidden by law,

 Or is of such a nature that, if permitted, it would

defeat the provisions of any law,
23: What considerations and
objects are lawful and what not:  Is fraudulent,

 Involves injury to the person or property of

another, or the Court regards it as immoral or
opposed to public policy,
  In each of these cases, the consideration or
object of an agreement is said to be unlawful.
Every
agreement of which the object or consideration is
unlawful is void.
VOID AGREEMENTS
 If any part of a single consideration for one or
24: Agreements void, if
more objects or any part of several
consideration and object unlawful
considerations for a single object is unlawful, the
in parts:
agreement is void.
 An agreement made without consideration is
void,
 Exceptions:
 It is expressed in writing and registered
under the law and is made on account of
25: Agreement without
natural love and affection between
consideration is void, unless it is
parties.
in writing and registered or is a
 It is a promise to compensate, a person
promise to compensate for
who has already voluntarily done
something done or is a promise to
something for the promisor or something
pay a debt barred by limitation
which the promisor was legally
law:
compellable to do,
 It is a promise, made in writing and
signed by the person to be charged to pay
a debt of which the creditor might have
enforced payment but for the for the
limitation of suits.
 Every agreement in restraint of the marriage of
26: Agreement in restraint of
any person is void, Exception: other than a
marriage is void:
minor.
 Every agreement by which anyone is restrained
from exercising a lawful profession, trade or
business is void.
27: Agreement in restraint of
 Exception: One who sells the good-will of a
trade is void:
business may agree with the buyer to refrain
from carrying on a similar business, within
specific local limits.
 Every agreement by which any party is restricted
from enforcing his rights under or in respect of
any contract by usual legal proceeding in the
ordinary tribunal is void.

 Exception: This section shall not render illegal a

contract by which two or more persons agree
28: Agreement in restraint of legal
that any dispute which may arise between them
proceeding void:
in respect of subject of contract shall be referred
to the arbitration, and that only amount awarded
in such arbitration shall be recoverable in respect
of the dispute so referred.

 Exception-II: Nor shall this section render

illegal any contract in writing by which two
or more
 persons agree to refer to arbitration any question
between them which has already arisen as to
references to arbitration.
29: Agreement void for  Agreements, the meaning of which is not certain
uncertainty: or capable of being made certain are void.
 Agreements by way of wager are void,
30: Agreements by way of wager
 And no suit shall be brought for recovering
void:
anything alleged to be won on any wager.
CONTIGENT CONTRACTS
 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.
31: Contingent contract defined:
 Contracts depends upon some condition or
happening of some event.
 Contingent Contracts depends of anything if an
uncertain future event happens cannot be
enforced by law unless and until that uncertain
32: Enforcement of contracts
future event has happened.
contingent on an event
happening:
 If the event becomes impossible, such contract
becomes void.
 Contingent contracts depends upon an uncertain
33: Enforcement of contracts
future event does not happen can be enforced
contingent on an event not
when the happening of that event becomes
happening:
impossible, but not before that.
 If the future event on which a contract
34: When event on which contract contingent is the way in which a person will act
is contingent to be deemed at an unspecified time, the event shall be
impossible, if it is the future considered to become impossible when such
conduct of living person: person does anything which renders it
impossible, that he should so act within any
definite time.
 Contingent contracts to do or not to do anything
if a specified uncertain event happens within a
fixed time becomes void if at the expiration of
time fixed such event has not happened or if
before the time fixed such event becomes
impossible.
35: When contracts become void
which are contingent on  When Contracts may be enforced which are
happening of specified event contingent on specified event not happening
within fixed time: within fixed time: Contingent contracts to do or
not to do anything if a specified uncertain event
does not happen within a fixed time may be
enforced by law when the time fixed has expired
and such event has not happened or before the
time fixed has expired, if it becomes certain that
event will not happen.
36: Agreement contingent on  Contingent agreements to do or not to do
impossible events void: anything, if an impossible event happens are
 void, whether the impossibility of the event is
known or not to the parties to the agreement at
the time when it is made.
 The parties to a contract must either perform or
offer to perform their respective promises, unless
such performance is dispensed with or excused
under the provisions of this act.
37: Obligation of parties to
Contracts
 Promises bind the representatives of the
promisor in case of the death of such promisors
before performance, unless a contrary intention
appears from the contract.
 If the parties to a contract agree to substitute a
62: Effect of Novation, rescission
new contract for it, or to rescind or alter it, the
and alteration of Contract:
original contract need not be performed.
 A person who finds goods belonging to another
71: Responsibility of finder of
and takes them into his custody, is subject to the
goods:
same responsibility as a bailee.
 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
73: Compensation for loss or
compensation for any loss or damage caused to
damage caused by breach of
him thereby, which naturally arose in the usual
contract:
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.
 Where a contract has been broken, if a sum is
named in the contract as the amount to paid in
case of such breach or if the contract contains
any other stipulation by way of penalty, the party
74: Compensation for breach complaining of the breach is entitled, whether or
where penalty stipulated for: not actual damage or loss is 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.
 A person who rightly rescind a contract is
75: Party right fully rescinding entitled to compensation for any damage
contract entitled to compensation: which he has
sustained through the non-fulfilment of the
contract.

PERFORMANCE OF CONTRACTS:
If the time of payment of money is mentioned in agreement then no dispute arises.
But if the said object is not provided then definitely dispute will arise. It requires to be
decided. Contract Act assists us in this case by providing us guiding principles. Business on a
particular place or market sets particular principles. These practices are followed in the
solution of cases. Law determines the rights and obligations of the parties, which are not
incorporated in contract.
If a seller sells goods and buyer not pays the price, seller has right of stoppage of goods in
transit. This is determined in law. If buyer has credit of six months, then this practice cannot
be followed. Rights given by law, but not incorporated in contract do not mean that they have
been lost. A machine is given to mechanic for repair. His is responsible for repair and may
retain the object on demand until payment is made.

FRUSTRATION OF CONTRACT:
These are the contracts that are impossible to perform by an act of God or State. These
are beyond the control of parties.

HOW A CONTRACT IS DISCHARGED:

 By performance: When a valid contract is performed as per all the terms and conditions,
and its compliance is completed, objectives are achieved, then it is discharged.

 Death: Generally death does not cause to discharge contract, but the agreement where
particular skill is involved, death discharges the contract. For instance, A agrees to file
law suit on certain date, but he dies before the date. Representatives are not responsible.

 Breach of contract: Where the requisite performance is not made, second party is at
liberty to put it an end if contract is not continued after break.

 Frustration of contract: It puts contract to end when an act of God or State come into
force or anything occurs which is beyond the control of party. Compulsion makes
contract abolish.

 Procedure: If contract lacks to provide necessary ingredients of the contract that may
include, date, time, place etc. may discharge the contract. Readily available principles or
practices and standard of reasonableness may solve this problem.

 By excuse of party: If one party excuses performing then contract will be the part of
dustbin.

APPROPRIATION OF DEBT:
 Where a creditor issues more than one debts to debtor under one or more contract and
in which method of payment and/or appropriation (settlement) is not mentioned, there section
59 to 61 are applied.
 Section- 59 deals with the case where debtor repays his debt and particularly mentions as
to against which this repayment is to be appropriated. Law gives authority to creditor to
appropriate the repayment at his option or discretion. Debtor cannot compel creditor to
appropriate as per his will.

 Section-60 deals with the case where debtor repays the debt and do not mention as to
which debt this repayment is to be appropriated. Here creditor again has discretion to
appropriate the debt, as he wants.

 Section-61 deals with the situation where neither debtor nor creditor mentions the
appropriation for the repaid debt. If dispute arises then creditor will be provided full
opportunity to appropriate the debt in series as they were issued. First debt will be
appropriated first, and then second and at last third loan will be appropriated

INDEMNITY:
Section 124, it is the promise or commitment to pay compensation to whom suffers
from loss. A person who pays compensation is named indemnified, one who receives
compensation is called indemnity holder, and this process is called contract of indemnity.
Example: A has to dispatch some goods to other city through a transport company. Transport
Company commits A to compensate in case his goods suffers from any loss or hazard. A is
indemnity holder, i.e., may receive compensation upon the occurrence of loss to goods,
transport company is indemnified and this agreement is called contract of indemnity.
Payment of rent is consideration.

SECTION-125:
The promisee in a contract of indemnity, actingwithin the scope of his authority, is entitled to
recover from the promisor:
 all damages which he may be compelled to pay in any suit in respect of any matter to
which the promise to indemnify applies;
 all costs which he may be compelled to pay in any such suit if, in bringing or defending it
he did not contravene the orders of the promisor, and acted as it would have been prudent
 for him to act in the absence of any contract of indemnity, or if the promisor authorized
him to bring or defend the suit;
 all sums which he may have paid under the terms of any compromise of any such suit, if
the compromise was not contrary to the orders of the promisor, and was one which it
would have been prudent for the promisee to make in the absence of any contract of
indemnity, or if the promisor authorized him to compromise the suit

GUARANTEE:
Under section 126 is a contract to perform the promise or discharge liability of a third
person in case of his default.
Party who gives loan to second party is called creditor. A person who receives the loan or
the person in respect of whose default the guarantee is given is called the principal debtor. A
person who gives the guarantee is called the surety. A guarantee may be either oral or
written. Introduction in account opening process is not a guarantee.
A principal debtor can be compelled to discharge his liability in case of default. Liability of
principal debtor is not discharged if surety runaways. If contract of guarantee is fulfilled, then
the surety is discharged, too.

DIFFERENCE BETWEEN GUARANTEE AND INDEMNITY:

 There are three parties in guarantee while two in indemnity.
 Guarantee agreement is security of creditor while indemnity is reimbursement of loss.
 Guarantee is relationship with creditor and surety indirectly while indemnity is direct
engagement between two parties.
 In guarantee surety can be sued while in indemnity, indemnified cannot sue.
 Guarantee is created by third party while nothing is third party in indemnity.
 Guarantee is written while indemnity may be oral.
SECTION: 127: Contracts without consideration u/s 25 are void, but where benefit or
interest of the principal debtor is sufficient consideration on the part of surety, for the purpose
of guarantee.

SECTION: 128: SURETY’S LIABILITY:

Liability of surety is co-extensive, unless it is otherwise provided by the contract. If A
lends Rs. 50,000/- to B, on the guarantee of C, a surety, and B defaults in repayment, C is
liable to pay Rs. 50,000/- to A. If B pays Rs. 20,000/- and then commits default, C will pay
remaining
liability of Rs. 30,000/-. Liability of debtor is liability of surety. If contract provides that
liability of surety will remain upto Rs. 25,000/- in deal of Rs. 50,000/- then liability of surety
will remain upto Rs. 25,000/-. Then it will not co-extensive. If principal debtor fails to repay
or commits default, liability of principal debtor will transfer to surety along-with rights of
principal debtor. If A lends Rs. 50,000/-to B with personal guarantee of C along-with security
of ornaments worth Rs. 20,000/- and B commits default then not only liability of B will
transfer toward surety but rights of principal debtor, too. If B fails to repay and creditor
returns ornament to B, C can sue A in Court of law. This guarantee is applicable in single
transaction.

SECTION-129: deals with continuing guarantee which extends over a series of transactions.
Illustration: A employees B on the guarantee of C, for the collection of rent due upto Rs.
5,000/- and A will pay him fixed salary Rs. 1,000/-. This is continuing guarantee because it
spreads over number of series.

REVOCATION OF GUARANTEE: Continuous guarantee, at any time, may be revoked

by the surety, as to future transactions, and must be served a notice to principal creditor.
Guarantee for single transaction may also be revoked at any time with a prior notice to the
principal creditor.
If ten transactions are to be made under the continuing guarantee and six of them transactions
have been made, surety may revoke guarantee for rest of four transactions with prior notice to
the principal creditor.
Death in case of continuous guarantee is considered revoked, so far as future transactions are
concerned. Any contract can be altered at any time but this variance must be communicated
to surety and his consents must be obtained, otherwise liability of surety u/s 132 will be
discharged.
If the principal creditor releases the debtor from his obligation or liability, then surety
automatically will be discharged u/s 134.
If principal creditor compounds to give more time other than contract to debtor for not to sue,
discharges the surety, unless the surety assents to such contract. Time variance under contract
shall not discharge surety u/s 136.
If the repayment of debt becomes due and debtor commits default and creditor does not sue
after due payment, does not discharge surety’s liability u/s 137.
Where there are more than one sureties and creditor release one or more than one of them,
will not affect remaining sureties’ liability. If two sureties give guarantee of Rs. 50,000/-
loan, both
will be liable equally for Rs. 25,000/- each, in case of default of debtor. If guarantee varies, as
Rs. 30,000/- for A and Rs. 20,000/- for B, both will be responsible upto the extent of
contracted guarantee.
Rights of principal debtor are transferred towards surety upon the commission of debtor’s
default. Guarantee, which is obtained by misrepresentation, is invalid u/s 142. If the facts of
guarantee are concealed from surety renders it to invalid.
Surety can recover, whatsoever he has paid to principal creditor, in case of debtor’s default,
from debtor even it is not mentioned in contract. But the amount paid by surety wrongfully
cannot be recovered.
Co-sureties are liable upto the defined extent of liability. And if percentage is defined, they
will liable upto the defined percentage to each of them.
Contract of hire-purchase: Agreement by which an owner lets chattels of any description out
on hire to the hirer, and further agrees that the chattels shall become the property of the hirer
when the payments of hire-rental have reached a sum equal to the amount of the purchase
price stated in the agreement, or upon the payment of a stated sum.

BAILMENT:
We give and take many things in our routine life daily. Many of them delivers
gratuitous and many non-gratuitous. We owe movies, pressure cooker, fan, book, and car etc.
In all instances possession is changed from one to another. This is temporary possession or
transfer of possession. When other party fulfills his object, goods are returned to the party
who had transferred the possession.
Titled goods are transferred temporarily and after accomplishment goods are returned
is called contract of bailment. One who transfers the possession is called bailor and in favour
of whom possession is transferred is called bailee.

Bailor is bound to disclose faults in goods, to bailee. In contrast bailee can claim damages on
the occurrence of injury to him. Bailor should not be negligent and must be vigilant u/s 150 at
the time of delivery of goods without faults.

Duty of bailee is defined u/s 151. Bailee is duty bound to take care of goods bailed to him in a
manner as he takes care of his own goods, as reasonable man and in reasonable manner.
If bailee takes care as defined u/s 151, he is no more liable to pay damages to bailor u/s 152,
if occurred. Normal depreciation is acceptable.
If bailee does not act for which bailment is made, bailment would become void-able at option
of bailor. Example, A, lets a horse to B for his own riding. B drives the horse in his carriage
in-spite of riding. It becomes void-able at the option of A being violation of the bailment u/s
153.

Damages are recoverable upon the unauthorized use of bailment, if injury occurred. If goods
bailed are used other than bailee and loss occurred, bailee is liable u/s 154.

Goods of bailor and bailee can be mixed with consents of bailor either separable or non-
separable u/s 155. No liability arises if loss occurs.

If bailee mixes the goods bailed without consents of bailor and goods are separable, expenses
will be borne by the bailee for separation or division u/s 156.

Goods of bailor, which are inseparable, if mixed with the goods of bailee, bailee is liable for
loss of mixing, if the mixing is without consents of bailor u/s 157.

If the necessary expenses are incurred on the goods bailed by bailee, bailor is liable to pay
such expenses u/s 158.

It is duty of the bailee to return the goods bailed to him after accomplishment of the purpose,
soon, irrespective that bailor demands or not u/s 160. If duty u/s 160 is not performed then
bailee is responsible for the loss u/s 161.

Death either of bailor or bailee terminates the gratuitous bailment u/s. 162.

Bailor is entitled to receive any increase or profit, which is attached to the bailment, if
contrary is not provided. Pregnant cow will be returned with young cow (calf) if she delivers
before return u/s 163.

Finder of lost goods may retain the goods to receive the reward specific from the bailor u/s
168.
Finder of lost goods may sell goods if they are perishable or if lawful charges are equal to
2/3rd. of the value of goods found u/s 169.

Bailee can retain goods bailed to him in order to receive remuneration against services
involving the exercise of labour or skill, if applicable u/s 170.
A, a motorcycle bailed to B for repair. After duly repair B can retain motorcycle until the
services rendered are recovered.

Bankers, commission agents, god-own owners, advocates of High Court, and insurance
agents can retain goods bailed to them until they are paid against the services they have
rendered by them to bailor u/s 171.

PLEDGE:
Pledge is delivery of goods, as security against loan. These goods are also called pawn
and are returnable after the debt is retired. Pledge is applied on moveable property. The
person who pledges his moveable property or bailor is called pawnor and the person, in
whom favour goods are bailed, is called Pawnee.

PAWNEE’S RIGHTS: They are as follows:

 Retention of goods: Pawnee can retain goods until the promise is performed or debt it
retired, interest, if any, is received, necessary expenses which were incurred have been
received for the purpose of preservation of goods.
 Recovery of extraordinary expenses: Pawnee also can sue for the recovery of
extraordinary expenses incurred beyond the perception. In above example medical
treatment, which cannot be foreseen at the time of making pledge, can be recovered
through Court.
 Selling of goods: If pawnor commits default to pay back debt or in performance of
promise, Pawnee can sue or sell the goods to recover debt. If the amount received form
sale proceeding is less than the debt, rest amount can be claimed either by demand or sue.
Reasonable notice must be served to the pawnor before sale proceedings.
PAWNOR’S RIGHTS:
 Release of goods: Pawnee is bound by law to release the goods of pawnor whenever debt
is retired or promise is performed. Pawnee cannot retain the goods of pawnor for the
purpose other than debt for which goods were bailed.
 Surplus of sale proceedings: If Pawnee sells goods and amount recovered is surplus of
actual debt, the rest amount is right of the pawnor.
 Redemption of goods: Pawnor at any time can pay back debt after the date of payment is
expired, before proceedings of sale. If the goods are not sold and are in the hands of
Pawnee, Pawnee cannot say that time has been expired, and now goods must be sold. Law
gives right to pawnor for the redemption of goods. But pawnor is obliged to pay the
interest accumulated and necessary expenses incurred on the goods bailed.
 Pledge for the benefit of pawnor: A mercantile agent may pledge goods of his principal
for the benefit of his business with the knowledge of principal.
 Possession under void-able contract: Pawnee can obtain pledge under void-able contract
from pawnor in the absence of knowledge of void-able contract.

WHO MAY EMPLOY AN AGENT:

Following are the pre-qualifications of the principal for the creation of an agency:
 An agent should attain age of majority before appointment.
 Person of sound mind may be an agent.
Consideration for the creation of an agency is immaterial.
Principal may delegate authority to his agent expressively or implied. Authority is express,
when it is given by words or written while it is implied, when it is left to be inferred from
circumstances of the case or the course of dealings between the parties. If an agent performs
an act, which is in the knowledge of his principal, is an implied authority.

EXTENT OF AGENT’S AUTHORITY:

An agent can take every lawful measure to carry on business of his principal for
which he is so authorized. For example, A constitutes B as an agent to build a house. B can
purchase building material and employs workforce, for the purpose of carrying on the
business.
In case of emergency an agent is allowed to do every lawful and possible act to protect the
interest of his principal in a way as his own interest. It should be done reasonably.
A gives a parcel to B to sent it to Karachi within twelve hours. B can sent it by speedy courier
service, despite ordinary mail, even on higher rates.
Sub agency can be created if principal allows expressively or implied or nature of business or
customs of trade permits.
A sub agent is a person employed by the agent on the behalf of principal. A principal is
responsible for the acts of sub agent where sub agency is created properly and where sub
agent represents his principal.
Sub agent is answerable to agent and agent is an answerable to principal. Principal and agent
are liable for the commission of fraud of the sub agent. A sub agent appointed by an agent
without authority is not liability of principal and agent is sole responsible for his acts.
If principal names a person to employ by agent is not sub agent, but the agent of principal.
Agency can be created with or without consents of the principal. If principal authorizes agent
to employ sub agent then principal is responsible vicariously for the acts of sub agent being an
agent. If principal names the sub agent then agent is not responsible for the acts of sub agent.
If principal does not name the sub agent but specifies some qualifications or conditions and an
agent employ the sub agent of specific skills in good faith, likely his own interest, the agent is
not responsible for the act of sub agent because he has taken due care for the appointment of
sub agent as per principal’s order. For example, an agent employs a sub agent of good repute
to construct a house and house gets fall down after construction. Agent is not liable but sub
agent is responsible. If the sub agent employed by an agent is incompetent then an agent is
liable for his wrong acts.
If an agent or sub agent performs their duties with lawful authority, express or implied,
principal is liable for the consequences, and in contrast principal is free from burden and
concerned individual is responsible. Principal is not responsible for unauthorized acts but he
can ratify such acts and then principal will be responsible as that acts were authorized.

ESSENTIALS OF RATIFICATION:
There are some prerequisites of the act of ratification as follows:
 Act must have been done for and in the name of principal.
 The principal should know facts and figures and his knowledge must not be defective. If
there is concealment of facts, ratification would become void.
 Since the effects of ratification take place in back dates, so ratifier is supposed major at
the date of ratification. A principal ratifies certain acts of an agent or sub agent from back
date
 says January 01, 1980, it should be assured that principal was then competent to authorize
the acts ratified.
 Ratifier should live at the time of ratification. Written statement of dead person is invalid.
 Only lawful act can be ratified thus forged signatures are not ratified.
 Whole and not partly transactions must be ratified.
 An act of ratification must be completed within reasonable time. Reasonable time is a
question of fact.
 Ratification may be expressed or implied.
 If the right of interest or benefit was terminated in back date then it cannot be granted.
 Transaction void ab initio cannot be ratified.
 Act, which injures third person’s interest, cannot be ratified.

REVOCATION OF AUTHORITY: Following are the ways to terminate or revoke the

authority given by principal to his an agent:
 After accomplishment of task or business matter or object, authority is automatically
terminated. An agency will stand terminate if it was created for the accomplishment for
specific purpose and purpose has been achieved.
 If the agency is created for specific time period and that time has expired, it will stand
terminate.
 If the agent is so lazy, incompetent, duty does not comply with duty etc. an agency will be
terminated.
 By either party agency can be terminated by giving notice to one another. If breach of
contract is committed then defaulter must pay compensation to other party.
 Where principal does not pay compensation to his agent, then an agent may terminate an
agency.
 Before start up of subject matter, an agency can be terminated.
 Part of authority exercised cannot be revoked but rest of the authority can be revoked.
 Where the interest of an agent is involved, an agency can be terminated with the consents
of an agent otherwise death or insanity does not provide ground to revoke the authority.
 Death or insanity terminates the principal’s authority. But an agent is bound to carry on
business or protect interest of his late principal until the business is succeeded.
 An agent can resign.
 An operation of law terminates the agency.
DUTY OF AN AGENT TO HIS PRINCIPAL:
 An agent is bound to conduct the business of his principal according to the directions
given to him by principal or in such absence, according to prevailed customs of the
business at that place.
 He is duty bound to receive instructions from his principal, if and when required.
 Skill and diligence, which is essential requirement of the business, must be performed.
 Consequences of neglect must be borne by an agent.
 An agent is bound to render proper accounts to his principal on demand.
 In case of difficulty, an agent is bound to obtain instructions from his principal.
 An agent cannot use his own name in the business of his principal if so benefit derived
will be given to his principal.
 An agent is bound to pay all sums received on his account after making necessary legal
deductions.

DUTY OF PRINCIPAL TOWARDS HIS AGENT:

 Principal is obliged to pay to his agent, remuneration and all legal expenses incurred to
carry on business.
 Payment of commission, disbursements, and services to agent is duty of principal.
 All lawful acts of an agent must be indemnified.
 Agent to be indemnified against consequences of acts done in good faith.
 Principal is not bound to indemnify an agent of his criminal act even committed on
express or implied consents.
 Principal is obliged to make compensation to his agent in respect of injury caused to such
agent by the neglect of principal or want of skill.