Contract Act (Act IX of 1872): Full Text & PDF

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THE CONTRACT ACT, 1872

CONTENTS
PRELIMINARY
1. Short title

2. Interpretation clause
_______
CHAPTER I
OF THE COMMUNICATION, ACCEPTANCE AND REVOCATION OF
PROPOSALS
3. Communication, acceptance and revocation of proposals

4. Communication when complete

5. Revocation of proposals and acceptances

6. Revocation how made

7. Acceptance must be absolute

8. Acceptance by performing, conditions, or receiving consideration

9. Promises, express and implied
_______
CHAPTER II
OF CONTRACTS, VOIDABLE CONTRACTS AND VOID
AGREEMENTS
10. What agreements are contracts

11. Who are competent to contract

12. What is a sound mind for the purposes of contracting

13. “Consent” defined

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14. “Free consent” defined

15. “Coercion” defined

16. “Undue influence” defined

17. “Fraud” defined

18. “Misrepresentation” defined

19. Voidability of agreements without free consent

19A. Power to set aside contract induced by undue influence

20. Agreement void where both parties are under mistake as to matter of fact

21. Effect of mistakes as to law

22. Contract caused by mistake of one party as to matter of fact

23. What considerations and objects are lawful and what not
Void Agreements
24. Agreements void, if considerations and 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

26. Agreement in restraint of marriage void

27. Agreement in restraint of trade void
Saving of agreement not to carry on business of which good-will is sold

28. Agreements in restraint of legal proceedings void
Saving of contract to refer to arbitration dispute that may arise
Suits barred by such Contracts
Saving of contract to refer questions that have already arisen

29. Agreements void for uncertainty

30. Agreements by way of wager void
Exception in favour of certain prizes for horse-racing
Section 294A of the Pakistan Penal Code not affected

30A. Agreements collateral to wagering agreements void

30B. No suit for recovery of money, commission etc., in respect of void agreements

30C. Payment by guardian, executor etc., in respect of void agreements not to be allowed credit

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CHAPTER III
OF CONTINGENT CONTRACTS

31. “Contingent contract” defined

32. Enforcement of contracts contingent on an event happening

33. Enforcement of contracts contingent on an event not happening

34. When event on which contract is contingent to be deemed impossible, if it is the future
conduct of a living person

35. When contracts become void which are contingent on happening of specified event within
fixed time
When contracts may be enforced which are contingent on specified event not happening
within fixed time

36. Agreement contingent on impossible events void
_______
CHAPTER IV
OF THE PERFORMANCE OF CONTRACTS
Contracts which must be performed
37. Obligation of parties to contracts

38. Effect of refusal to accept offer of performance

39. Effect of refusal of party to perform promise wholly

By whom Contracts must be performed

40. Person by whom promise is to be performed

41. Effect of accepting performance from third person

42. Devolution of Joint liabilities

43. Any one of joint promisors may be compelled to perform
Each promisor may compel contribution
Sharing of loss by default in contribution

44. Effect of release of one joint promisor

45. Devolution of joint rights

Time and Place for Performance
46. Time for performance of promise where no application is to be made and no time is specified

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47. Time and place for performance of promise where time is specified and no application to be
made
48. Application for performance on certain day to be at proper time and place

49. Place for performance of promise where no application to be made and no place fixed for
performance

50. Performance in manner or at time prescribed or sanctioned by promisee
Performance of Reciprocal Promises
51. Promisor not bound to perform, unless reciprocal promisee ready and willing to perform

52. Order of performance of reciprocal promises

53. Liability of party preventing event on which the contract is to take effect

54. Effect of default as to that promise which should be first performed, in contract consisting of
reciprocal promises

55. Effect of failure to perform at fixed time, in contract in which time is essential
Effect of such failure when time is not essential
Effect of acceptance of performance at time other than that agreed upon

56. Agreement to do impossible act
Contract to do act afterwards becoming impossible or unlawful
Compensation for loss through non-performance of act known to be impossible or unlawful

57. Reciprocal promise to do things legal, and also other things illegal

58. Alternative promise, one branch being illegal
Appropriation of Payments
59. Application of payment, where debt to be discharged is indicated

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

61. Application of payment where neither party appropriates
Contracts which need not be performed
62. Effect of novation, rescission and alteration of contract

63. Promisee may dispense with or remit performance of promise

64. Consequences of rescission of voidable contract

65. Obligation of person who has received advantage under void agreement or contract that
becomes void
66. Mode of communicating or revoking rescission of voidable contract

67. Effect of neglect of promisee to afford promisor reasonable facilities for performance

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CHAPTER V
OF CERTAIN RELATIONS RESEMBLING
THOSE CREATED BY CONTRACT
68. Claim for necessaries supplied to person incapable of contracting, or on his account

69. Reimbursement of person paying money due by another in payment of which he is interested

70. Obligation of person enjoying benefit of non-gratuitous act

71. Responsibility of finder of goods

72. Liability of person to whom money is paid or thing delivered by mistake or under coercion
_______
CHAPTER VI
OF THE CONSEQUENCES OF BREACH OF CONTRACT

73. Compensation for loss or damage caused by breach of contract
Compensation for failure to discharge obligation resembling those created by contract

74. Compensation for breach of contract where penalty stipulated for

75. Party rightfully rescinding contract entitled to compensation
______
CHAPTER VII
SALE OF GOODS
76 to 123. [Repealed]
_______
CHAPTER VIII
OF INDEMNITY AND GUARANTEE

124. “Contract of indemnity” defined

125. Rights of indemnity-holder when sued

126. “Contract of guarantee”, “surety”, “principal debtor” and “creditor”

127. Consideration for guarantee

128. Surety’s liability

129. “Continuing guarantee”

130. Revocation of continuing guarantee

131. Revocation of continuing guarantee by surety’s death
132. Liability of two persons primarily liable, not affected by arrangement between them that on
shall be surety on other’s default

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133. Discharge of surety by variance in terms of contract

134. Discharge of surety by release or discharge of principal debtor

135. Discharge of surety when creditor compounds with, gives time to, or agrees not to sue,
principal debtor

136. Surety not discharged when agreement made with third person to give time to principal
debtor

137. Creditor’s forbearance to sue does not discharge surety

138. Release of one co-surety does not discharge others

139. Discharge of surety by creditor’s act or omission impairing surety’s eventual remedy

140. Rights of surety on payment or performance

141 Surety’s right to benefit of creditor’s securities

142. Guarantee obtained by misrepresentation invalid

143. Guarantee obtained by concealment invalid

144. Guarantee on contract that creditor shall not act on it until co-surety joins

145. Implied promise indemnify surety

146. Co-sureties liable to contribute equally

147. Liability of co-sureties bound in different sums
_______
CHAPTER IX
OF BAILMENT

148. “Bailment”, “bailor”, and “bailee” defined

149. Delivery to bailee how made

150. Bailor’s duty to disclose faults in goods bailed

151. Care to be taken by bailee

152. Bailee when not liable for loss, etc., of thing bailed

153. Termination of bailment by bailee’s act inconsistent with conditions

154. Liability of bailee making unauthorised use of goods bailed

155. Effect of mixture, with bailor’s consent, of his goods with bailee’s
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156. Effect of mixture, without bailor’s consent, when the goods can be separated

157. Effect of mixture, without bailor’s consent, when the goods can be separated

158. Repayment by bailor of necessary expenses

159. Restoration of goods lent gratuitously

160. Return of goods bailed on expiration of time or accomplishment of purpose

161. Bailee’s responsibility when goods are not duly returned

162. Termination of gratuitous bailment by death

163. Bailor entitled to increase or profit from goods bailed

164. Bailor’s responsibility to bailee

165. Bailment by several joint owners

166. Bailee not responsible on re-delivery to bailor without title

167. Right of third person claiming goods bailed

168. Right of finder of goods; may sue for specific reward offered

169. When finder of thing commonly on sale may sell it

170. Bailee’s particular lien

171. General lien of bankers, factors, wharfingers, attorneys and policy-brokers

Bailments of Pledges

172. “Pledge,” “pawnor”, and “pawnee” defined

173. Pawnee’s right of retainer

174. Pawnee not to retain for debt or promise other than that for which goods pledged
Presumption in case of subsequent advances

175. Pawnee’s right as to extraordinary expenses incurred

176. Pawnee’s right where pawnor makes default

177. Defaulting pawnor’s right to redeem

178. Pledge by mercantile agent

178A. Pledge by person in possession under voidable contract

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179. Pledge where pawnor has only a limited interest

Suits by Bailees or Bailors against Wrong-doers

180. Suit by bailor or bailee against wrong-doer

181. Apportionment of relief or compensation obtained by such suits
_______
CHAPTER X
AGENCY
Appointment and Authority of Agents

182. “Agent” and “principal” defined

183. Who may employ agent

184. Who may be an agent

185. Consideration not necessary

186. Agent’s authority may be expressed or implied

187. Definitions of express and implied authority

188. Extent of agent’s authority

189. Agent’s authority in an emergency
Sub-Agents
190. When agent cannot delegate

191. “Sub-agent” defined

192. Representation of principal by sub-agent properly appointed
Agent’s responsibility for sub-agent
Sub-agent’s responsibility

193. Agent’s responsibility for sub-agent appointed without authority

194. Relation between principal and person duly appointed by agent to act in business of agency

195. Agent’s duty in naming such person

Ratification
196. Right of person as to acts done for him without his authority
Effect of ratification

197. Ratification may be expressed or implied

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198. Knowledge requisite for valid ratification

199. Effect of ratifying unauthorized act forming part of a transaction

200. Ratification of unauthorized act cannot injure third person

Revocation of Authority

201. Termination of agency

202. Termination of agency where agent has an interest in subject-matter

203. When principal may revoke agent’s authority

204. Revocation where authority has been partly exercised

205. Compensation for revocation by principal or renunciation by agent

206. Notice of revocation or renunciation

207. Revocation and renunciation may be expressed or implied

208. When termination of agent’s authority takes effect as to agent, and as to third persons

209. Agent’s duty on termination of agency by principal’s death or insanity

210. Termination of sub-agent’s authority

Agent’s duty to Principal

211. Agent’s duty in conducting principal’s business

212. Skill and diligence required from agent

213. Agent’s accounts

214. Agent’s duty to communicate with principal

215. Right of principal when agent deals, on his own account, in business of agency without
principal’s consent

216. Principal’s right to benefit gained by agent dealing on his own account in business of agency

217. Agent’s right of retainer out of sums received on principal’s account

218. Agent’s duty to pay sums received for principal

219. When agent’s remuneration becomes due

220. Agent not entitled to remuneration for business misconducted

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221. Agent’s lien on principal’s property
Principal’s Duty to Agent
222. Agent to be indemnified against consequences of lawful acts

223. Agent to be indemnified against consequences of acts done in good faith

224. Non-liability of employer of agent to do a criminal act

225. Compensation to agent for injury caused by principal’s neglect
Effect of Agency on Contract with third persons
226. Enforcement and consequences of agent’s contracts

227. Principal how far bound, when agent exceeds authority

228. Principal not bound when excess of agent’s authority is not separable

229. Consequences of notice given to agent

230. Agent cannot personally enforce, nor be bound by, contracts on behalf of principal
Presumption of contract to contrary

231. Rights of parties to a contract made by agent not disclosed

232. Performance of contract with agent supposed to be principal

233. Right of person dealing with agent personally liable

234. Consequence of inducing agent or principal to act on belief that principal or agent will be
held exclusively liable

235. Liability of pretended agent

236. Person falsely contracting as agent not entitled to performance

237. Liability of principal inducing belief that agent’s unauthorized acts were authorized

238. Effect, on agreement, of misrepresentation or fraud by agent

CHAPTER XI
OF PARTNERSHIP
239 to 266. [Repealed]

SCHEDULE [Repealed]

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THE CONTRACT ACT, 1872
ACT NO. IX OF 1872

[25th April, 1872]

Preamble: WHEREAS it is expedient to define and amend certain parts of the law relating to
contracts; It is hereby enacted as follows:___

PRELIMINARY

1. Short title. This Act may be called the 1[*] Contract Act, 1872.

Extent and Commencement. It extends to 2[the whole of Pakistan]; and it shall come into
force on the first day of September, 1872.

Enactments repealed. 3[* * *] Nothing herein contained shall affect the provisions of any
Statute, Act or Regulation not hereby expressly repealed, nor any usage or custom of trade, nor any
incident of any contract, not inconsistent with the provisions of this Act.

2. Interpretation clause. In this Act the following words and expressions are used in the
following senses, unless a contrary intention appears from the context :____

(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 to such act or
abstinence, he is said to make a proposal:

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

(c) The person making the proposal is called the “promisor,” and the person
accepting the proposal is called the “promisee”:

(d) When, at the desire of the promisor, the promisee or any other person has done
or abstained from doing, or does or abstains from doing, or promises to do or
to abstain from doing, something, such act or abstinence or promise is called a
consideration for the promise:

(e) Every promise and every set of promises, forming the consideration for each
other, is an agreement:

(f) Promises which form the consideration or part of the consideration for each
other are called reciprocal promises:

1
Omitted by the Adaptation of Central Acts and Ordinances Order, 1949 (Order No. 4 of 1949), Art. 3 & Sch..
2
Subs. by the Central Laws (Statute Reform) Ordinance, 1960 (XXI of 1960), s. 3 and 2nd Sch. (with effect from the 14th October, 1955).
3
Rep. by the Repealing and Amending Act, 1914 (X of 1914), s. 3 and 2nd Sch.

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(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.
_______
CHAPTER I
OF THE COMMUNICATION, ACCEPTANCE AND REVOCATION OF PROPOSALS

3. Communication, acceptance and revocation of proposals. The communication of
proposals, the acceptance of proposals, and the revocation of proposals and acceptances, res-
pectively, are deemed to be made by any act or omission of the party proposing, accepting or
revoking by which he intends to communicate such proposal, acceptance or revocation, or which has
the effect of communicating it.

4. Communication when complete. The communication of a proposal is complete when it
comes to the knowledge of the person to whom it is made.

The communication of an acceptance is complete,___

has 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;

as against the acceptor, when it comes to 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.

Illustrations

(a) A proposes, by letter, to sell a house to B at a certain price.

The communication of the proposal is complete when B receives the letter.

(b) B accepts A’s proposal by a letter sent by post.

The communication of the acceptance is complete,__

as against A, when the letter is posted ;

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as against B, when the letter is received by A.

The revocation is complete as against A when the telegram is despatched. It is complete as
against B when B receives it.

B revokes his acceptance by telegram. B’s revocation is complete as against B when the
telegram is despatched, and as against A when it reaches him.

5. Revocation of proposals and acceptances. A proposal may be revoked at any time before
the communication of its acceptance is complete as against the proposer, but not afterwards.

An acceptance may be revoked at any time before the communication of the acceptance is
complete as against the acceptor, but not afterwards.

Illustrations

A proposes, by a letter sent by post, to sell his house to B.
B accepts the proposal by a letter sent by post.
A may revoke his proposal at any time before or at the moment when B posts his letter of
acceptance, but not afterwards.

B may revoke his acceptance at any time before or at the moment when the letter
communicating it reaches A, but not afterwards.

6. Revocation how made. A proposal is revoked—

(1) by the communication of notice of revocation by the proposer to the other party ;

(2) 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 ;

(3) by the failure of the acceptor to fulfill a condition precedent to acceptance; or

(4) by the death or insanity of the proposer, if the fact of his death or insanity comes to the
knowledge of the acceptor before acceptance.

7. Acceptance must be absolute. In order to convert a proposal into a promise, the
acceptance must__

(1) be absolute and unqualified ;

(2) be expressed in some usual and reasonable manner, unless the proposal prescribes the
manner in which it is to be accepted. If the proposal prescribes a manner in which it is to
be accepted, and the acceptance is not made in such manner, the proposer may, within a
reasonable time after the acceptance is communicated to him, insist that his proposal
shall be accepted in the prescribed manner, and not otherwise; but if he fails to do so, he
accepts the acceptance.

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8. Acceptance by performing, conditions, or receiving consideration. Performance of the
conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may
be offered with a proposal, is an acceptance of the proposal.

9. Promises, 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
OF CONTRACTS, VOIDABLE CONTRACTS AND VOID AGREEMENTS

10. What agreements are contracts. 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.

Nothing herein contained shall affect any law in force in 1[Pakistan], and not hereby
expressly repealed, by which any contract is required to be made in writing or in the presence of
witnesses, or any law relating to the registration of documents.

11. Who are competent to contract. Every person is competent to contract who is of the age
of majority according to the law to which he is subject, and who is of sound mind, and is not
disqualified from contracting by any law to which he is subject.

12. What is a sound mind for the purposes of contracting. 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 interests.

A person who is usually of unsound mind, but occasionally of sound mind, may make a
contract when he is of sound mind.

A person who is usually of sound mind, but occasionally of unsound mind, may not make a
contract when he is of unsound mind.
Illustrations

(a) A patient in a lunatic asylum, who is at intervals of sound mind, may contract
during those intervals.

(b) A sane man, who is delirious from fever or who is so drunk that he cannot
understand the terms of a contract or form a rational judgment as to its effect
on his interests, cannot contract whilst such delirium or drunkenness lasts.

1
Subs. by the Central Laws (Statute Reform) Ordinance, 1960 (XXI of 1960), s. 3 and 2nd Sch. (with effect from the 14th October, 1955).

Page 14 of 65
13. “Consent” defined. Two or more persons are said to consent when they agree upon the
same thing in the same sense.

14. “Free consent” defined. 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 sections 20, 21 and 22.

Consent is said to be so caused when it would not have been given but for the existence of
such coercion, undue influence, fraud, misrepresentation or mistake.

15. “Coercion” defined. “Coercion” is the committing, or threatening to commit, any act
forbidden by the Pakistan Penal Code (XLV of 1860) 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.

Explanation.—It is immaterial whether the Pakistan Penal Code (XLV of 1860) is or is not in
force in the place where the coercion is employed.

Illustration

A, on board an English ship on the high seas, causes B to enter into an agreement by an act
amounting to criminal intimidation under the Pakistan of Penal Code (XLV of 1860).

A afterwards sues B for breach of contract at 1[Karachi].

A has employed coercion, although his act is not an offence by the law of England, and
although section 506 of the Pakistan Penal Code was not in force at the time when or place where the
act was done.

[16. “Undue influence” defined.—(1) A contract is said to be induced by “undue in-
2

fluence” 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.

(2) In particular and without prejudice to the generality of the foregoing principle, a person is
deemed to be in a position to dominate the will of another___

(a) where he holds a real or apparent authority over the other or where he stands
in a fiduciary relation to the other: or
1
Subs. by the Federal Laws (Revision and Declaration) Ordinance, 1981 (XXVII of 1981), S. 3 and 2nd Sch.
2
Subs. by Act No. VI of 1899, s. 2.

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(b) where he makes a contract with a person whose mental capacity is temporarily
or permanently affected by reason of age, illness, or mental or bodily distress.

(3) Where a person who is in a position to dominate the will of another, enters into a contract
with him, and the transaction appears, on the face of it or on the evidence adduced, to be un-
conscionable, the burden of proving that such contract was not induced by undue influence shall lie
upon the person in a position to dominate the will of the other.

Nothing in this sub-section shall affect the provisions of section 111 of the Evidence Act,
1872. (I of 1872).]
Illustrations

(a) A having advanced money to his son, B, during his minority, upon B’s coming of age
obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in
respect of the advance. A employs undue influence.

(b) A, a man enfeebled by disease or age, is induced, by B’s influence over him as his medical
attendant, to agree to pay B an unreasonable sum for his professional services. B employs undue
influence.

(c) A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which
appear to be unconscionable. It lies on B to prove that the contract was not induced by undue
influence.

(d) A applies to a banker for a loan at a time when there is stringency in the money market. The
banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on
these terms. This is a transaction in the ordinary course of business, and the contract is not induced
by undue influence.

17. “Fraud” defined. “Fraud” means and includes any of the following acts committed by a
party to a contract, or with his connivance, or by his agent, with intent to deceive another party
thereto or his agent, or to induce him to enter into the contract :__

(1) the suggestion, as a fact, of that which is not true, by one who does not believe
it to be true ;

(2) the active concealment of a fact by one having knowledge or belief of the fact;

(3) a promise made without any intention of performing it ;
(4) any other act fitted to deceive ;
(5) any such act or omission as the law specially declares to be fraudulent.

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Explanation.—Mere silence as to facts likely to affect the willingness of a person to
enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had
to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself,
equivalent to speech.
Illustrations

(a) A sells, by auction, to B, a horse which A knows to be unsound. A says
nothing to B about the horse’s unsoundness. This is not fraud in A.

(b) B is A’s daughter and has just come of age. Here, the relation between the
parties would make it A’s duty to tell B if the horse is unsound.
(c) B says to A—"If you do not deny it, I shall assume that the horse is sound.” A
says nothing. Here A’s silence is equivalent to speech.
(d) A and B, being traders, enter upon a contract. A has private information of a
change in prices which would affect B’s willingness to proceed with the
contract. A is not bound to inform B.
18. “Misrepresentation” defined. “Misrepresentation” means and includes—
(1) 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 ;
(2) any breach of duty which, without an intent to deceive, gains an advantage to 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 ;
(3) causing, however innocently, a party to an agreement to make a mistake as to the
substance of the thing which is the subject of the agreement.
19. Voidability of agreements without free consent. When consent to an agreement is
caused by coercion, 1[* *] fraud or misrepresentation, the agreement is a contract voidable at the
option of the party whose consent was so caused.
A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he
thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which
he would have been if the representations made had been true.
Exception.—If such consent was caused by misrepresentation or by silence, fraudulent within
the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was
so caused had the means of discovering the truth with ordinary diligence.
Explanation.—A fraud or misrepresentation which did not cause the consent to a contract of
the party on whom such fraud was practised, or to whom such misrepresentation was made, does not
render a contract voidable.

Illustrations
(a) A, intending to deceive B, falsely represents that five hundred maunds of
indigo are made annually at A’s factory, and thereby induces B to buy the
factory. The contract is voidable at the option of B.
1
Rep. by Act No. VI of 1899, s. 3.

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(b) A, by a misrepresentation, leads B erroneously to believe that five hundred
maunds of indigo are made annually at A’s factory. B examines the accounts
of the factory, which show that only four hundred maunds of indigo have been
made. After this B buys the factory. The contract is not voidable on account of
A’s misrepresentation.

(c) A fraudulently informs B that A’s estate is free from incumbrance. B
thereupon buys the estate. The estate is subject to a mortgage. B may either
avoid the contract, or may insist on its being carried out and the mortgage-debt
redeemed.

(d) B, having discovered a vein of ore on the estate of A, adopts means to conceal,
and does conceal, the existence of the ore from A. Through A’s ignorance B is
enabled to buy the estate at an under-value. The contract is voidable at the
option of A.

(e) A is entitled to succeed to an estate at the death of B ; B dies : C, having
received intelligence of B’s death, prevents the intelligence reaching A, and
thus induces A to sell him his interest in the estate. The sale is voidable at the
option of A.
1
[19A. Power to set aside contract induced by undue influence. When consent to an
agreement is caused by undue influence, the agreement is a contract voidable at the option of the
party whose consent was so caused.

Any such contract may be set aside either absolutely or, if the party who was entitled to avoid
it has received any benefit thereunder, upon such terms and conditions as to the Court may seem just.

Illustrations

(a) A’s son has forged B’s name to a promissory note. B, under threat of
prosecuting A’s son, obtains a bond from A for the amount of the forged note.
If B sues on this bond, the Court may set the bond aside.

(b) A, a money-lender, advances Rs. 100 to B, an agriculturist, and, by undue
influence, induces B to execute a bond for Rs. 200 with interest at 6 per cent.
per month. The Court may set the bond aside, ordering B to repay the Rs. 100
with such interest as may seem just.]

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.

Explanation.—An erroneous opinion as to the value of the thing which forms the subject-
matter of the agreement is not to be deemed a mistake as to a matter of fact.

1
Ins. by Act No. VI of 1899, s. 3.

Page 18 of 65
Illustrations

(a) A agrees to sell to B a specific cargo of goods supposed to be on its way from
England to 1[Karachi]. It turns out that, before the day of the bargain, the ship
conveying the cargo had been cast away and the goods lost. Neither party was
aware of the facts. The agreement is void.

(b) A agrees to buy from B a certain horse. It turns out that the horse was dead at
the time of the bargain, though neither party was aware of the fact. The
agreement is void.

(c) A, being entitled to an estate for the life of B, agrees to sell it to C. B was dead
at the time of the agreement, but both parties were ignorant of the fact. The
agreement is void.

21. Effect of mistakes as to law. A contract is not voidable because it was caused by a
mistake as to any law in force in 1[Pakistan]; but a mistake as to a law not in force in 1[Pakistan] has
the same effect as a mistake of fact.
2
[* * * * * * *]

Illustration

A and B make a contract grounded on the erroneous belief that a particular debt is barred by
the 1[Pakistan] Law of Limitation: the contract is not voidable.
3
[* * * * * * *]

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.

23. What considerations and objects are lawful and what not. 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 ; or

is fraudulent ; or

involves or implies injury to the person or property of another; or the Court regards it as
immoral, or opposed to public policy.

1
Subs. by the Central Laws (Statute Reform) Ordinance, 1960 (XXI of 1960), s. 3 and 2nd Sch. (with effect from the 14th October, 1955).
2
Omitted by Federal Laws (Revision and Declaration) Ordinance, 1981 (XXVII of 1981), s. 3 and 2nd Sch.
3
Rep. by the Repealing and Amending Act, 1917 (XXIV of 1917), s. 3 and 2nd Sch.

Page 19 of 65
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.

Illustrations

(a) A agrees to sell his house to B for 10,000 rupees. Here B’s promise to pay the
sum of 10,000 rupees is the consideration for A’s promise to sell the house,
and A’s promise to sell the house is the consideration for B’s promise to pay
the 10,000 rupees. These are lawful considerations.

(b) A promises to pay B 1,000 rupees at the end of six months; if C, who owes
that sum to B, fails to pay it. B promises to grant time to C accordingly. Here
the promise of each party is the consideration for the promise of the other
party and they are lawful considerations.

(c) A promises, for a certain sum paid to him by B, to make good to B the value
of his ship if it is wrecked on a certain voyage. Here A’s promise is the
consideration for B’s payment and B’s payment is the consideration for A’s
promise and these are lawful considerations.

(d) A promises to maintain B’s child and B promises to pay A 1,000 rupees yearly
for the purpose. Here the promise of each party is the consideration for the
promise of the other party. They are lawful considerations.

(e) A, B and C enter into an agreement for the division among them of gains
acquired, or to be acquired, by them by fraud. The agreement is void as its
object is unlawful.

(f) A promises to obtain for B an employment in the public service, and B
promises to pay 1,000 rupees to A. The agreement is void, as the consideration
for it is unlawful.

(g) A, being agent for a landed proprietor, agrees for money, without the
knowledge of his principal, to obtain for B a lease of land belonging to his
principal. The agreement between A and B is void, as it implies a fraud by
concealment by A, on his principal.

(h) A promises B to drop a prosecution which he has instituted against B for
robbery, and B promises to restore the value of the things taken. The
agreement is void, as its object is unlawful.

(i) A’s estate is sold for arrears of revenue under the provisions of an Act of the
Legislature, by which the defaulter is prohibited from purchasing the estate. B,
upon an understanding with A, becomes the purchaser, and agrees to convey
the estate to A upon receiving from him the price which B has paid. The
agreement is void, as it renders the transaction, in effect, a purchase by the
defaulter, and would so defeat the object of the law.

Page 20 of 65
(j) A, who is B’s mukhtar, promises to exercise his influence, as such, with B in
favour of C, and C promises to pay 1,000 rupees to A. The agreement is void,
because it is immoral.

(k) A agrees to let her daughter to hire to B for concubinage. The agreement is
void, because it is immoral, though the letting may not be punishable under
the Pakistan Penal Code (XLV of 1860).

Viod Agreements

24. Agreements void, if considerations and objects unlawful in part. If any part of a single
consideration for one or more objects, or anyone or any part of anyone of several considerations for a
single object, is unlawful, the agreement is void.

Illustration

A promises to superintend, on behalf of B, a legal manufacture of indigo, and an illegal
traffic in other articles. B promises to pay to A a salary of 10,000 rupees a year. The agreement is
void, the object of A’s promise and the considerations B’s promise being in part unlawful.

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. An agreement made without consideration is void, unless—

(1) it is expressed in writing and registered under the law for the time being in force for the
registration of l[documents], and is made on account of natural love and affection between
parties standing in a near relation to each other ; or unless

(2) it is a promise to compensate, wholly or in part, a person who has already voluntarily
done something for the promisor, or something which the promisor was legally
compellable to do; or unless

(3) it is a promise, made in writing and signed by the person to be charged therewith, or by
his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the
creditor might have enforced payment but for the law for the limitation of suits.

In any of these cases, such an agreement is a contract.

Explanation 1.___Nothing in this section shall affect the validity, as between the donor and
donee, of any gift actually made.

Explanation 2.___An agreement to which the consent of the promisor is freely given is not
void merely because the consideration is inadequate; but the inadequacy of the consideration may be
taken into account by the Court in determining the question whether the consent of the promisor was
freely given.

1
Subs. by the Amending Act, 1891 (XII of 1891) s. 2 and 2nd Sch.

Page 21 of 65
Illustrations

(a) A promises, for no consideration, to give to B Rs. 1,000. This is a void
agreement.

(b) A, for natural love and affection, promises to give his son, B, Rs. 1,000. A
puts his promise to B into writing and registers it. This is a contract.

(d) A supports B’s infant son. B promises to pay A’s expenses in so doing. This is
a contract.

(e) A owes B Rs. 1,000, but the debt is barred by the Limitation Act. A signs a
written promise to pay B Rs. 500 on account of the debt. This is a contract.

(f) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A’s consent to the
agreement was freely given. The agreement is a contract notwithstanding the
inadequacy of the consideration.

(g) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A denies that his consent
to the agreement was freely given.

The inadequacy of the consideration is a fact which the Court should take into account in
considering whether or not A’s consent was freely given.

26. Agreement in restraint of marriage void. Every agreement in restraint of the marriage
of any person, other than a minor, is void.

27. Agreement in restraint of trade void. Every agreement by which any one is restrained
from exercising a lawful profession, trade or business of any kind, is to that extent void.

Exception 1.___Saving of agreement not to carry on business of which good-will is sold.
one who sells the good-will of a business may agree with the buyer to refrain from carrying on a
similar business, within specified local limits, so long as the buyer, or any person deriving title to the
good-will from him, carries on a like business therein : Provided that such limits appear to the Court
reasonable, regard being had to the nature of the business.
1
[* * * * * *]
28. Agreements in restraint 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 that extent.
Exception 1.___Saving of contract to refer to arbitration dispute that may arise.__This
section shall not render illegal a contract by which two or more persons agree that any dispute which
may arise between them in respect of any subject or class of subjects shall be referred to arbitration,
and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so
referred.
1
Rep. by the Partnership Act, 1932 (IX of 1932), s. 73 and Sch. ll.

Page 22 of 65
Suits barred by such Contracts. 1When such a contract has been made, a suit may be brought
for its specific performance, and if a suit, other than for such specific performance, or for the
recovery of the amount so awarded, is brought by one party to such contract against any other such
party in respect of any subject which they have so agreed to refer, the existence of such contract shall
be bar to the suit.

Exception 2.___Saving of contract to refer questions that have already arisen.___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, or affect any provision of any law in
force for the time being as to references to arbitration.

29. Agreements void for uncertainty. Agreements, the meaning of which is not certain, or
capable of being made certain, are void.

Illustrations

(a) A agrees to sell to B “a hundred tons of oil”. There is nothing whatever to
show what kind of oil was intended. The agreement is void for uncertainty.

(b) A agrees to sell to B one hundred tons of oil of a specified description, known
as an article of commerce. There is no uncertainty here to make the agreement
void.

(c) A, who is a dealer in cocoanut-oil only, agrees to sell to B “one hundred tons
of oil”. The nature of A’s trade affords an indication of the meaning of the
words, and A has entered into a contract for the sale of one hundred tons of
Cocoanut-oil.
(d) A agrees to sell B “all the grain in my granary at 2[Rahimyarkhan]”. There is
no uncertainty here to make the agreement void.
(e) A agrees to sell to B “one thousand maunds of rice at a price to be fixed by
C”. As the price is capable of being made certain, there is no uncertainty here
to make the agreement void.
(f) A agrees to sell to B “my white horse for rupees five hundred or rupees one
thousand”. There is nothing to show which of the two prices was to be given.
The agreement is void.
30. Agreements by way of wager void. Agreements by way of wager are void ; and no suit
shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person
to abide the result of any game or other uncertain event on which any wager is made.
Exception in favour of certain prizes for horse-racing. This section shall not be deemed to
render unlawful a subscription, or contribution, or agreement to subscribe or contribute, made or
entered into for or toward any plate, prize or sum of money, of the value or amount of five hundred
rupees or upwards, to be awarded to the winner or winners of any horse race.

1
Repealed by the Specific Relief Act, 1877 (I of 1877).
2
Subs. by the Central Laws (Statute Reform) Ordinance, 1960 (XXI of 1960), s. 3 and 2nd Sch. (with effect from the 14th October, 1955).

Page 23 of 65
Section 294A of the Pakistan Penal Code not affected. Nothing in this section shall be
deemed to legalize any transaction connected with horse-racing, to which the provisions of section
294A of the Pakistan Penal Code (XLV of 1860) apply.
1
[30A. Agreements collateral to wagering agreements void. All agreements knowingly
made to further or assist the entering into, effecting or carrying out, or to secure or guarantee the
performance, of any agreement void under section 30, are void.

30B. No suit for recovery of money, commission etc., in respect of void agreements. No
suit or other proceeding shall lie for the recovery of—

(a) any sum of money paid or payable in respect of any agreement void under
section 30A, or

(b) any commission, brokerage, fee or reward in respect of knowingly effecting or
carrying out, or aiding in effecting or carrying out, of any such agreement or of
any sum of money otherwise claimed or claimable in respect thereof, or

(c) any sum of money knowingly paid or payable on account of any person by way
of commission, brokerage, fee, reward or other claim in respect of any such
agreement.

30C. Payment by guardian, executor etc., in respect of void agreements not to be
allowed credit. No guardian, executor, administrator, heir or personal representative of any minor or
deceased person, as the case, may, be shall be entitled to or allowed any credit in his account for or
in respect of any payment made by him on behalf of such minor or deceased person in respect of any
such agreement, or any such commission, brokerage, fee, reward or claim as is referred to in sections
30A and 30B.]
________
CHAPTER III
OF CONTINGENT CONTRACTS

31. “Contingent contract” defined. 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.

Illustration

A contracts to pay B Rs. 10,000 if B’s house is burnt. This is a contingent contract.

32. Enforcement of contracts contingent on an event happening. Contingent contracts to
do or not to do anything if 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.

Illustrations

(a) A makes a contract with B to buy B’s horse if A survives C. This contract
cannot be enforced by law unless and until C dies in A’s lifetime.
1
Ins. by the Ordinance No. XLVII 47 of 1960, s. 2.

Page 24 of 65
(b) A makes a contract with B to sell a horse to B at a specified price, if C, to
whom the horse has been offered, refuses to buy him. The contract cannot be
enforced by law unless and until C refuses to buy the horse.

33. Enforcement of contracts 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.

Illustration

A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The
contract can be enforced when the ship sinks.

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 he should so act within any definite
time, or otherwise than under further contingencies.

Illustration

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. Contingent contracts to do or not to do anything if a specified uncertain event
happens within a fixed time become void if, at the expiration of the time fixed, such event has not
happened, or if, before the time fixed, such event becomes impossible.

When contracts may be enforced which are contingent on specified event not happening
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 such
event will not happen.

Illustrations

(a) A promises to pay B a sum of money if a certain ship returns within a year.
The contract may be enforced if the ship returns within the year, and becomes
void if the ship is burnt within the year.

(b) A promises to pay B a sum of money if a certain ship does not return within a
year. The contract may be enforced if the ship does not return within the year,
or is burnt within the year.

Page 25 of 65
36. Agreement contingent on impossible events 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 the agreement at the time when it is made.

Illustrations

(a) A agrees to pay B 1,000 rupees if two straight lines should enclose a space.
The agreement is void.

(b) A agrees to pay B 1,000 rupees if B will marry A’s daughter C. C was dead at
the time of the agreement. The agreement is void.
_________
CHAPTER IV
OF THE PERFORMANCE OF CONTRACTS
Contracts which must be performed

37. Obligation of parties to contracts. The parties to a contract must either perform, or offer
to perform, their respective promises, unless such performance is dispensed with or excused under
the provisions of this Act, or of any other law.

Promises bind the representatives of the promisors in case of the death of such promisors
before performance, unless a contrary intention appears from the contract.

Illustrations

(a) 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.

(b) 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.

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.

Every such offer must fulfil the following conditions :___

(1) it must be unconditional :

(2) it must be made at a proper time and place, and under such circumstances that the person
to whom it is made may have a reasonable opportunity of ascertaining that the person by whom it is
made is able and willing there and then to do the whole of what he is bound by his promise to do :
(3) if the offer is an offer to deliver anything to the promisee, the promisee must have a
reasonable opportunity of seeing that the thing offered is the thing which the promisor is bound by
his promise to deliver.

Page 26 of 65
An offer to one of several joint promisees has the same legal consequences as an offer to all
of them.
Illustration

A contracts to deliver to B at his warehouse, on the 1st March, 1873, 100 bales of cotton of a
particular quality. In order to make an offer of a performance with the effect stated in this section, A
must bring the cotton to B’s warehouse, on the appointed day, under such circumstances that B may
have a reasonable opportunity of satisfying himself that the thing offered is cotton of the quality
contracted for, and that there are 100 bales.

39. Effect of refusal of party to perform promise wholly. When a party to a contract has
refused to perform, or disabled himself from performing, his promise in its entirety, the promisee
may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its
continuance.

Illustrations

(a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at
his theatre two nights in every week during the next two months, and B
engages to pay her 100 rupees for each night’s performance. On the sixth night
A wilfully absents herself from the theatre. B is at liberty to put an end to the
contract.

(b) A, a singer, enters into a contract with B, the manager of a theatre, to sing at
his theatre two nights in every week during the next two months, and B
engages to pay her at the rate of 100 rupees for each night. On the sixth night
A wilfully absents herself. With the assent of B, A sings on the seventh night.
B has signified his acquiescence in the continuance of the contract, and cannot
now put an end to it, but is entitled to compensation for the damage sustained
by him through A’s failure to sing on the sixth night.

By whom Contracts must be performed

40. Person by whom promise 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 contained in it should be
performed by the promisor himself, such promise must be performed by the promisor. In other case,
the promisor or his representatives may employ a competent person to perform it.

Illustrations

(a) A promises to pay B a sum of money. A may perform this promise, either by
personally paying the money to B or by causing it to be paid to B by another;
and, if A dies before the time appointed for payment, his representatives must
perform the promise, or employ some proper person to do so.

(b) A promises to paint a picture for B. A must perform this promise personally.

41. Effect of accepting performance from third person. When a promisee accepts
performance of the promise from a third person, he cannot afterwards enforce it against the promisor.

Page 27 of 65
42. Devolution of Joint liabilities. When two or more persons have make 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 fulfill the promise.

43. Any one of joint promisors may be compelled to perform. When two or more persons
make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel
any 1[one or more] of such joint promisors to perform the whole of the promise.

Each promisor may compel contribution. Each of two or more joint promisors may compel
every other joint promisor to contribute equally with himself to the performance of the promise,
unless a contrary intention appears from the contract.

Sharing of loss by default in contribution. If any one of two or more joint promisors makes
default in such contribution, the remaining joint promisors must bear the loss arising from such
default in equal shares.

Explanation.___Nothing in this section shall prevent a surety from recovering from his
principal, payments made by the surety on behalf of the principal, or entitle the principal to recover
anything from the surety on account of payments made by the principal.

Illustrations

(a) A, B and C jointly promise to pay D 3,000 rupees. D may compel either A or
B or C to pay him 3,000 rupees.

(b) A, B and C jointly promise to pay D the sum of 3,000 rupees. C is compelled
to pay the whole. A is insolvent, but his assets are sufficient to pay one-half of
his debts. C is entitled to receive 500 rupees from A’s estate, and 1,250 rupees
from B.

(c) A, B and C are under a joint promise to pay D 3,000 rupees. C is unable to pay
anything, and A is compelled to pay the whole. A is entitled to receive 1,500
rupees from B.

(d) A, B and C are under a joint promise to pay D 3,000 rupees, A and B being
only sureties for C. C fails to pay. A and B are compelled to pay the whole
sum. They are entitled to recover it from C.

44. Effect of release of one joint promisor. 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 or joint promisors; neither does it free the joint promisors so released from responsibility to
the other joint promisor or joint promisors.

1
Subs. by the Amending Act, 1891 (XII of 1891).

Page 28 of 65
45. Devolution of joint rights. When a person has made a promise to two or more persons
jointly, then, unless contrary intention appears from the contract, the right to claim performance
rests, as between him and them, with them during their joint lives, and, after the death of any of
them, with the representative of such deceased person jointly with the survivor or survivors, and,
after the death of the last survivor, with the representatives of all jointly.

Illustration

A, in consideration of 5,000 rupees lent to him by B and C, promises B and C jointly to repay
them that sum with interest on a day specified. B dies. The right to claim performance rests with B’s
representative jointly with C during C’s life, and after the death of C with the representatives of B
and C jointly.

Time and Place for Performance

46. Time for performance of promise where no application is to be made and no time is
specified. Where, by the contract, a promisor is to perform his promise without application by the
promisee, and no time for performance is specified, the engagement must be performed within a
reasonable time.

Explanation.—The question “what is a reasonable time” is, in each particular case, a question
of fact.

47. Time and place for performance of promise where time is specified and no
application to be made. When promise is to be performed on a certain day, and the promisor has
undertaken to perform it without application by the promisee, the promisor may perform it at any
time during the usual hours of business on such day and at the place at which the promise ought to be
performed.

Illustration

A promises to deliver goods at B’s warehouse on the first January. On that day A brings the
goods to B’s warehouse, but after the usual hour for closing it, and they are not received. A has not
performed his promise.

48. Application for performance on certain day to be at proper time and place. When a
promise is to be performed on a certain day, and the promisor has not undertaken to perform it
without application by the promisee, it is the duty of the promisee to apply for performance at a
proper place and within the usual hours of business.

Explanation.—The question “what is a proper time and place” is, in each particular case a
question of fact.

49. Place for performance of promise where no application to be made and no place
fixed for performance. When a promise is to be performed without application by the promisee, and
no place is fixed for the performance of it, it is the duty of the promisor to apply to the promisee to
appoint a reasonable place for the performance of the promise, and to perform it at such place.

Page 29 of 65
Illustration

A undertakes to deliver a thousand maunds of jute to B on a fixed day. A must apply to B to
appoint a reasonable place for the purpose of receiving it, and must deliver it to him at such place.

50. Performance in manner or at time prescribed or sanctioned by promisee. The
performance of any promise may be made in any manner, or at any time which the promisee
prescribes or sanctions.

Illustrations

(a) B owes A 2,000 rupees. A desires B to pay the amount to A’s account with C,
a banker. B, who also banks with C, orders the amount to be transferred from
his account to A’s credit, and this is done by C. Afterwards, and before A
knows of the transfer, C fails. There has been a good payment by B.

(b) A and B are mutually indebted. A and B settle an account by setting off one
item against another, and B pays A the balance found to be due from him upon
such settlement. This amounts to a payment by A and B, respectively, of the
sums which they owed to each other.

(c) A owes B 2,000 rupees. B accepts some of A’s goods in reduction of the debt.
The delivery of the goods operates as a part payment.

(d) A desires B, who owes him Rs. 100, to send him a note for Rs. 100 by post.
The debt is discharged as soon as B puts into the post a letter containing the
note duly addressed to A.

Performance of Reciprocal Promises

51. Promisor not bound to perform unless reciprocal promisee ready and willing to
perform. When a contract consists of reciprocal promises to be simultaneously performed, no
promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal
promise.

Illustrations

(a) A and B contract that A shall deliver goods to B to be paid for by B on
delivery.

A need not deliver the goods, unless B is ready and willing to pay for
the goods on delivery.

B need not pay for the goods, unless A is ready and willing to deliver
them on payment.

(b) A and B contract that A shall deliver goods to B at a price to be paid
by instalments, the first instalment to be paid on delivery.

Page 30 of 65
A need not deliver, unless B is ready and willing to pay the first
instalment on delivery.
B need not pay the first instalment, unless A is ready and willing to
deliver the goods on payment of the first instalment.
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 order is not expressly fixed by the contract, they shall be performed in that order
which the nature of the transaction requires.
Illustrations
(a) A and B contract that A shall build a house for B at a fixed price. A’s promise
to build the house must be performed before B’s promise to pay for it.
(b) A and B contract that A shall make over his stock-in-trade to B at a fixed
price, and B promises to give security for the payment of the money, A’s
promise need not be performed until the security is given, for the nature of the
transaction requires that A should have security before he delivers up his
stock.
53. Liability of party preventing event on which the 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.
Illustration
A and B contract that B shall execute certain work for A for a thousand rupees. B is ready
and willing to execute the work accordingly, but A prevents him from doing so. The contract is
voidable at the option of B ; and, if he elects to rescind it, he is entitled to recover from A
compensation for any loss which he has incurred by its non-performance.
54. Effect of default as to that promise which should be first performed, in contract
consisting of reciprocal promises. When a contract consists of reciprocal promises, such that one of
them cannot be performed, or that its performance cannot be claimed till the other has been
performed, and the promisor of the promise last mentioned fails to perform it, such promisor cannot
claim the performance of the reciprocal promise, and must make compensation to the other party to
the contract for any loss which such other party may sustain by the non-performance of the contract.
Illustrations
(a) A hires B’s ship to take in and convey, from 1[Karachi] to the Mauritius, a
cargo to be provided by A, B receiving a certain freight for its conveyance. A
does not provide any cargo for the ship. A cannot claim the performance of
B’s promise, and must make compensation to B for the loss which B sustains
by the non-performance of the contract.
(b) 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 he work cannot be executed. A need
1
Subs. by the Federal Laws (Revision and Declaration) Ordinance, 1981 (XXVII of 1981), s. 3 and 2nd Sch.

Page 31 of 65
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.

(c) A contracts with B to deliver to him, at a specified price, certain merchandise
on board a ship which cannot arrive for a month, and B engages to pay for the
merchandise within a week from the date of the contract. B does not pay
within the week. A’s promise to deliver need not be performed, and B must
make compensation.

(d) A promises B to sell him one hundred bales of merchandise, to be delivered
next day, and B promises A to pay for them within a month. A does not
deliver according to his promise. B’s promise to pay need not be performed,
and A must make compensation.

55. Effect of failure to perform at 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 specified times, and fails to do any such thing at or before the specified time, the contract, or
so much of it as has not been performed, becomes voidable at the option of the promisee, if the inten-
tion of the parties was that time should be of the essence of the contract.

Effect of such failure when time is not essential. If it was not the intention of the parties
that time should be of the essence of the contract, 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.

Effect of acceptance of performance at time other than that agreed upon. If, in case of a
contract voidable on account of the promisor’s failure to perform his promise at the time agreed, the
promisee accepts performance of such promise at any time other than that agreed, the promisee
cannot claim compensation for any loss occasioned by the non-performance of the promise at the
time agreed, unless, at the time of such acceptance he gives notice to the promisor of his intention to
do so.

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 do 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 promisee for any loss which such promisee sustains
through the non-performance of the promise.

Illustrations
(a) A agrees with B to discover treasure by magic. The agreement is void.
(b) A and B contract to marry each other. Before the time fixed for the marriage,
A goes mad. The contract becomes void.

Page 32 of 65
(c) A contracts to marry B, being already married to C, and being forbidden by
the law to which he is subject to practise polygamy. A must make com-
pensation to B for the loss caused to her by the non-performance of his
promise.

(d) A contracts to take in cargo for B at a foreign port. A’s Government
afterwards declares war against the country in which the port is situated. The
contract becomes void when war is declared.

(e) A contracts to act at a theatre for six months in consideration of a sum, paid in
advance by B. On several occasions A is too ill to act. The contract to act on
those occasions becomes void.

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 promises is a contract, but
the second is a void agreement.

Illustration

A and B agree that A shall sell B a house for 10,000 rupees, but that, if B uses it as a
gambling house, he shall pay A 50,000 rupees for it.

The first set of reciprocal promises, namely, to sell the house and to pay 10,000 rupees for it,
is a contract.

The second set is for an unlawful object, namely, that B may use the house as a gambling
house, and is a void agreement.

58. Alternative promise, one branch being illegal. In the case of an alternative promise,
one branch of which is legal and the other illegal, the legal branch alone can be enforced.

Illustration

A and B agree that A shall pay B 1,000 rupees for which B shall afterwards deliver to A
either rice or smuggled opium.

This is a valid contract to deliver rice, and a void agreement as to the opium.

Appropriation of Payments

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.

Illustrations

(a) A owes B, among other debts, 1,000 rupees upon a promissory note which
falls due on the first June. He owes B no other debt of that amount. On the

Page 33 of 65
first June A pays to B 1,000 rupees. The payment is to be applied to the
discharge of the promissory note.

(b) A owes to B, among other debts the sum of 567 rupees. B writes to A and
demands payment of this sum. A sends to B 567 rupees. This payment is to be
applied to the discharge of the debt of which B had demanded payment.

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 limitation 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 proportionably.

Contracts which need not be performed

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.
Illustrations
(a) 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.

(b) A owes B 10,000 rupees. A enters into an arrangement with B, and gives B a
mortgage of his (A’s) estate for 5,000 rupees in place of the debt of 10,000
rupees. This is a new contract and extinguishes the old.

(c) A owes B 1,000 rupees under a contract. B owes C 1,000 rupees. B orders A
to credit C with 1,000 rupees in his books, but C does not assent to the
arrangement. B still owes C 1,000 rupees, and no new contract has been
entered into.

63. Promisee may dispense with or remit performance of promise. Every promisee 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.

Illustrations

(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.

Page 34 of 65
(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.

(d) A owes B, under a contract, a sum of money, the amount of which has not
been ascertained. A, without ascertaining the amount, gives to B, and B, in
satisfaction thereof, accepts, the sum of 2,000 rupees. This is a discharge of
the whole debt, whatever may be its amount.

(e) A owes B 2,000 rupees, and is also indebted to other creditors. A makes an
arrangement with his creditors, including B, to pay them a 1[composition] of
eight annas in the rupee upon their respective demands. Payment to be of
1,000 rupees is a discharge of B’s demand.

64. Consequences of rescission of voidable contract. When a person at whose option a
contract is voidable rescinds it, the other party thereto need not perform any promise therein
contained in which he is promisor. The party rescinding a voidable contract shall, if he have received
any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to
the person from whom it was received.

65. Obligation of person who has received advantage under void agreement or contract
that becomes void. When an agreement is discovered to be void, or when a contract becomes void,
any person who has received any advantage under such agreement or contract is bound to restore it,
or to make compensation for it to the person from whom he received it.

Illustrations
(a) A pays B 1,000 rupees in consideration of B’s promising to marry C, A’s
daughter. C is dead at the time of the promise. The agreement is void, but B
must repay A the 1,000 rupees.
(b) A contracts with B to deliver to him 250 maunds of rice before the first of
May. A delivers 130 maunds only before that day, and none after. B retains
the 130 maunds after the first of May. He is bound to pay A for them.
(c) A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for
two nights in every week during the next two months, and B engages to pay
her a hundred rupees for each night’s performance. On the sixth night, A
wilfully absents herself from the theatre, and B, in consequence, rescinds the
contract. B must pay A for the five nights on which she had sung.
(d) A contracts to sing for B at a concert for 1,000 rupees, which are paid in
advance. A is too ill to sing. A is not bound to make compensation to B for the
loss of the profits which B would have made if A had been able to sing, but
must refund to B the 1,000 rupees paid in advance.
1
Subs. by the Amending Act 1891 (XII of 1891), s. 2 and 2nd Sch.

Page 35 of 65
66. Mode of communicating or revoking rescission of voidable contract. The rescission of
a voidable contract may be communicated or revoked in the same manner, and subject to the same
rules, as apply to the communication or revocation of a proposal.

67. Effect of neglect of promisee to afford promisor reasonable facilities for
performance. If any promisee neglects or refuses to afford the promisor reasonable facilities for the
performance of his promise, the promisor is excused by such neglect or refusal as to any non-
performance caused thereby.
Illustration

A contracts with B to repair B’s house.

B neglects or refuses to point out to A the places in which his house requires repair.

A is excused for the non-performance of the contract if it is caused by such neglect or refusal.
_______
CHAPTER V
OF CERTAIN RELATIONS RESEMBLING THOSE CREATED BY CONTRACT

68. Claim for necessaries supplied to person incapable of contracting, or on his account.
If a person, incapable of entering into a contract, or any one whom he is legally bound to support, is
supplied by another person with necessaries suited to his condition in life, the person who has
furnished such supplies is entitled to be reimbursed from the property of such incapable person.

Illustrations

(a) A supplies B, a lunatic, with necessaries suitable to his condition in life. A is
entitled to be reimbursed from B’s property.

(b) A supplies the wife and children of B, a lunatic, with necessaries suitable to
their condition in life. A is entitled to be reimbursed from B’s property.
69. Reimbursement of person paying money due by another in payment of which he is
interested. A person who is interested is the payment of money which another is bound by law to
pay, and who therefore pays it, is entitled to be reimbursed by the other.
Illustration
B holds land in 1[Sind], on a lease granted by A, the zamindar. The revenue payable by A to
the Government being in arrear, his land is advertised for sale by the Government. Under the revenue
law, the consequence of such sale will be the annulment of B’s lease. B, to prevent the sale and the
consequent annulment of his own lease, pays to the Government the sum due from A. A is bound to
make good to B the amount so paid.
70. Obligation of person enjoying benefit of non-gratuitous act. Where a person lawfully
does anything for another person, or delivers anything to him, not intending to do so gratuitously,
and such other person enjoys the benefit thereof, the latter is bound to make compensation to the
former in respect of, or to restore, the thing so done or delivered.

1
Subs. by the Federal Laws (Revision and Declaration) Ordinance, 1981 (XXVII of 1981), s. 3 and 2nd Sch.

Page 36 of 65
Illustrations
(a) A, a tradesman, leaves goods at B’s house by mistake. B treats the goods as
his own. He is bound to pay A for them.

(b) A saves B’s property from fire. A is not entitled to compensation from B, if
the circumstances show that he intended to act gratuitously.

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.

Illustrations

(a) A and B jointly owe 100 rupees to C. A alone pays the amount to C and B, not
knowing this fact, pays 100 rupees over again to C. C is bound to repay the
amount to B.

(b) A railway company refuses to deliver up certain goods to the consignee,
except upon the payment of an illegal charge for carriage. The consignee pays
the sum charged in order to obtain the goods. He is entitled to recover so much
of the charge as was illegally excessive.
_______
CHAPTER VI
OF THE CONSEQUENCES OF BREACH OF CONTRACT

73. Compensation for 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 bro-
ken 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 in direct loss or damage sustained
by reason of the breach.

Compensation for failure to discharge obligation resembling those created by contract.
When an obligation resembling those created by contract has been incurred and has not been
discharged, any person injured by the failure to discharge it is entitled to receive the same compensa-
tion from the party in default, as if such person had contracted to discharge it and had broken his
contract.

Explanation.—In estimating the loss or damage arising from a breach of contract, the means
which existed of remedying the inconvenience caused by the non-performance of the contract must
be taken into account.

Page 37 of 65
Illustrations

(a) A contracts to sell and deliver 50 maunds of saltpetre to B, at a certain price to
be paid on delivery. A breaks his promise. B is entitled to receive from A, by
way of compensation, the sum, if any, by which the contract price falls short
of the price for which B might have obtained 50 maunds of saltpetre of like
quality at the time when the saltpetre ought to have been delivered.

(b) A hires B’s ship to go to l[Karachi], and there take on board, on the first of
January, a cargo which A is to provide and to bring it to 1[Chittagong], the freight
to be paid when earned. B’s ship does not go to l[Karachi], but A has
opportunities of procuring suitable conveyance or the cargo upon terms as
advantageous as those on which he had chartered the ship. A avails himself of
those opportunities, but is put to trouble and expense in doing so. A is entitled to
receive compensation from B in respect of such trouble and expense.

(c) A contracts to buy of B, at a stated price, 50 maunds of rice, no time being fixed
for delivery. A afterwards informs B that he will not accept the rice if tendered to
him. B is entitled to receive from A, by way of compensation, the amount, if any,
by which the contract price exceeds that which B can obtain for the rice at the
time when A informs B that he will not accept it.
(d) 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.
(e) A, the owner of a boat, contracts with B to take a cargo of jute to 1[Mymensingh],
for sale at that place, starting on a specified day. The boat owing to some
avoidable cause, does not start at the time appointed, whereby the arrival of the
cargo at 1[Mymensingh] is delayed beyond the time when it would have arrived if
the boat had sailed according to the contract. After that date, and before the arrival
of the cargo, the price of jute falls. The measure of the compensation payable to B
by A is the difference between the price which B could have obtained for the
cargo at 1[Mymensingh] at the time when it would have arrived if forwarded in
due course, and its market price at the time when it actually arrived.
(f) 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.
(g) A contracts to let his ship to B for a year, from the first of January, for a certain
price. Freights rise, and, on the first of January, the hire obtainable for the ship is
higher than the contract price. A breaks his promise. He must pay to B, by way of
compensation, a sum equal to the difference between the contract price and the
price for which B could hire a similar ship for a year on and from the first of
January.
(h) A contracts to supply B with a certain quantity of iron at a fixed price, being a
higher price than that for which A could procure and deliver the iron. B
wrongfully refuses to receive the iron. B must pay to A, by way of compensation,
the difference between the contract price of the iron and the sum for which A
could have obtained and delivered it.
1
Subs. by the Central Laws (Statute Reform) Ordinance, 1960 (XXI of 1960), s.3 and 2nd Sch. (with effect from the 14th October 1955).

Page 38 of 65
(i) A delivers to B, a common carrier, a machine, to be conveyed, without delay, to
A’s mill informing B that his mill is stopped for want of the machine. B
unreasonably delays the delivery of the machine, and A, in consequence, loses a
profitable contract with the Government. A is entitled to receive from B, by way
of compensation, the average amount of profit which would have been made by
the working of the mill during the time that delivery of it was delayed, but not the
loss sustained through the loss of the Government contract.

(j) A, having contracted with B to supply B with 1,000 tons of iron at 100 rupees a
ton, to be delivered at a stated time, contracts with C for the purchase of 1,000
tons of iron at 80 rupees a ton, 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 consequence, rescinds the contract. C must
pay to A 20,000 rupees, being the profit which A would have made by the
performance of his contract with B.

(k) A contracts with B to make and deliver to B, by a fixed day, for a specified price,
a certain piece of machinery. A does not deliver the piece of machinery at the
time specified, and, in consequence of this, B is obliged to procure another at a
higher price than that which he was to have paid to A, and is prevented from
performing a contract which B had made with a third person at the time of his
contract with A (but which had not been then communicated to A), and is
compelled to make compensation for breach of that contract. A must pay to B by
way of compensation, the difference between the contract price of the piece of
machinery and the sum paid by B for another, but not the sum paid by B to the
third person by way of compensation.

(l) 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 con-
tracted 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, if falls down and has to be
rebuilt by B, who, in consequence, loses the rent which he was to have
received from C, and is obliged to make compensation to C for the breach of
his contract. A must make compensation to B for the cost of rebuilding the
house, for the rent lost, and for the compensation made to C.

(m) A sells certain merchandise to B, warranting it to be of a particular quality,
and B, in reliance upon this warranty, sells it to C with a similar warranty. The
goods prove to be not according to the warranty, and B becomes liable to pay
C a sum of money by way of compensation. B is entitled to be reimbursed this
sum by A.

(n) A contracts to pay a sum of money to B on a day specified. A does not pay the
money on that day; B, in consequence of not receiving the money on that day,
is unable to pay his debts, and is totally ruined. A is not liable to make good to
B anything except the principal sum he contracted to pay, together with
interest up to the day of payment.

(o) A contracts to deliver 50 maunds of saltpeter to B on the first of January, at a
certain price. B afterwards, before the first of January, contracts to sell the

Page 39 of 65
saltpeter to C at a price higher than the market price of the first of January. A
breaks his promise. In estimating the compensation payable by A to B, the
market price of the first of January, and not the profit which would have arisen
to B from the sale to C, is to be taken into account.

(p) A contracts to sell and deliver 500 bales of cotton to B on a fixed day, A
knows nothing of B’s mode of conducting his business. A breaks his promise,
and B, having no cotton, is obliged to close his mill. A is not responsible to B
for the loss caused to B by the closing of the mill.

(q) A contacts to sell and deliver to B, on the first of January, certain cloth, which
B intends to manufacture into caps of a particular kind, for which there is no
demand, except at that season. The cloth is not delivered till after the
appointed time, and too late to be used that year in making caps. B is entitled
to receive from A, by way of compensation, the difference between the
contract price of the cloth and its market price at the time of delivery, but not
the profits which he expected to obtain by making caps, nor the expenses
which he has been put to in making preparation for the manufacture.
(r) A, a ship-owner, contracts with B to convey him from l[Karachi] to Sydney in
A’s ship, sailing on the first of January, and B pays to A, by way of deposit,
one-half of his passage-money. The ship does not sail on the first of January,
and B, after being, in consequence, detained in l[Karachi] for some time, and
thereby put to some expense, proceeds to Sydney in another vessel, and, in
consequence, arriving too late in Sydney, loses a sum of money. A is liable to
repay to B his deposit, with interest, and the expense to which he is put by his
detention in 1[Karachi] and the excess, if any, of the passage-money paid for
the second ship over that agreed upon for the first, but not the sum of money
which B lost by, arrivaing in Sydney too late.
74. Compensation for breach of contract where penalty stipulated for. 2[When a contract
has been broken, if a sum is named in the contract as the amount to 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 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.
Explanation.—A stipulation for increased interest from the date of default may be a
stipulation by way of penalty.]
Exception.—When any person enters into any bail-bond, recognizance or other instrument of the
same nature, or, under the provisions of any law, or under the orders of the 3[Federal Government] or
of any 4[Provincial Government], gives any bond for the performance of any public duty or act in
which the public are interested, he shall be liable, upon breach of the condition of any such
instrument, to pay the whole sum mentioned therein.

1
Subs. by the the Federal Laws (Revision and Declaration) Ordinance, 1981 (XXVII of 1981), s. 3 and 2nd Sch.
2
Subs. by Act No. VI of 1899, s. 4.
3
Subs. by the Federal Adaptation of Laws Order, 1975(P. O. No. 4 of 1975), Art.2 and Table.
4
Subs. by A. O., 1937.

Page 40 of 65
Explanation.—A person who enters into a contract with Government does not necessarily
thereby undertake any public duty, or promise to do an act in which the public are interested.

Illustrations

(a) A contracts with B to pay B Rs. 1,000, if he fails to pay B Rs. 500 on a given
day. A fails to pay B Rs. 500 on that day. B is entitled to recover from A such
compensation, not exceeding Rs. 1, 000, as the Court considers reasonable.

(b) A contracts with B that, if A practises as a surgeon within 1[Peshawar], he will
pay B Rs. 5,000. A practises as a surgeon in 1[Peshawar]. B is entitled to such
compensation, not exceeding Rs. 5,000 as the Court considers reasonable.

(c) A gives a recognizance binding him in a penalty of Rs. 500 to appear in Court
on a certain day. He forfeits his recognizance. He is liable to pay the whole
penalty.
2
[(d) A gives B a bond for the repayment 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. This is a
stipulation by way of penalty, and B is only entitled to recover from A such
compensation as the Court considers reasonable.

(e) A, who owes money to B, a money-lender, undertakes to repay him by
delivering to him 10 maunds of grain on a certain date, and stipulates that, in
the event of his not delivering the stipulated amount by the stipulated date, he
shall be liable to deliver 20 maunds. This is a stipulation by way of penalty,
and B is only entitled to reasonable compensation in case of breach.
(f) A undertake to repay B a loan of Rs. 1,000 by five equal monthly installments
with a stipulation that, in default of payment of any installment, the whole
shall become due. This stipulation is not by way of penalty, and the contract
may be enforced according to its terms.
(g) A borrows Rs. 100 from B and gives him a bond for Rs. 200 payable by five
yearly instalments of Rs. 40, with a stipulation that, in default of payment of
any instalment, the whole shall become due. This a stipulation by way of
penalty.]
75. Party rightfully rescinding contract entitled to compensation. A person who rightly
rescinds a contract is entitled to compensation for any damage which he has sustained through the
non-fulfilment of the contract.
Illustration
A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in
every week during the next two months, and B engages to pay her 100 rupees for each night’s
performance. On the sixth night, A willfully absents herself from the theatre, and B, in consequence,
rescinds the contract. B is entitled to claim compensation for the damage which he has sustained
through the non-fulfilment of the contract.

1
Subs. by the Federal Laws (Revision and Declaration) Ordinance, 1981 (XXVII of 1981), s. 3 and 2nd Sch.
2
Ins. by Act No. VI of 1899, s. 4.

Page 41 of 65
CHAPTER VII
1
[* * * * * * *]
___________

CHAPTER VIII
OF INDEMNITY AND GUARANTEE

124. “Contract of indemnity” defined. A contract by which one party promises to save the
other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other
person, is called a “contract of indemnity”.

Illustration

A contracts to indemnify B against the consequences of any proceedings which C may take
against B in respect of a certain sum of 200 rupees. This is a contract of indemnity.

125. Rights of indemnity-holder when sued. The promisee in a contract of indemnity,
acting within the scope of his authority, is entitled to recover from the promisor___

(1) all damages which he may be compelled to pay in any suit in respect of any matter to
which the promise to indemnify applies;

(2) 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;

(3) 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.

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. Consideration for guarantee. 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.

Illustrations

(a) B requests A to sell and deliver to him goods on credit. A agrees to do so,
provided C will guarantee the payment of the price of the goods. C promises
to guarantee the payment in consideration of A’s promise to deliver the goods.
This is a sufficient consideration for C’s promise.
(b) A sells and delivers goods to B. C afterwards requests A to forbear to sue B
1
Rep. by the Sale of Goods Act, 1930 (III of 1930), s. 65.

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for the debt for a year, and promises that if he does so, C will pay for them in default
of payment by B. A agrees to forbear as requested. This is a sufficient
consideration for C’s promise.

(c) A sells and delivers goods to B. C afterwards, without consideration, agrees to
pay for them in default of B. The agreement is void.

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.

Illustration

A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is
dishonoured by C. A is liable not only for the amount of the bill but also for any interest and charges
which may have become due on it.

129. “Continuing guarantee”. A guarantee which extends to a series of transactions is
called a “continuing guarantee”.

Illustrations

(a) A, in consideration that B will employ C in collecting the rent of B’s
zamindari, promises B to be responsible, to the amount of 5,000 rupees, for
the due collection and payment by C of those rents. This is a continuing
guarantee.

(b) A guarantees payment to B, a tea-dealer, to the amount of £ 100, for any tea he
may from time to time supply to C. B supplies C with tea to above the value of
£ 100, and C pays B for it. Afterwards B supplies C with tea to the value of £
200. C fails to pay. The guarantee given by A was a continuing guarantee, and
he is accordingly liable to B to the extent of £100.

(c) A guarantees payment to B of the price of five sacks of flour to be delivered
by B to C and to be paid for in a month. B delivers five sacks to C. C pays for
them. Afterwards B delivers four sacks to C, which C does not pay for. The
guarantee given by A was not a continuing guarantee, and accordingly he is
not liable for the price of the four sacks.

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.

Illustrations.

(a) A, in consideration of B’s discounting, at A’s request, bills of exchange for C,
guarantees to B, for twelve months, the due payment of all such bills to the
extent of 5,000 rupees. B discounts bills for C to the extent of 2,000 rupees.
Afterwards, at the end of three months, A revokes the guarantee. This re-
vocation discharges A from all liability to B for any subsequent discount. But
A is liable to B for the 2,000 rupees, on default of C.

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(b) A guarantees to B, to the extent of 10,000 rupees, that C shall pay all the bills
that B shall draw upon him. B draws upon C. C accepts the bill. A gives notice
of revocation. C dishonours the bill at maturity. A is liable upon his guarantee.

131. Revocation of continuing guarantee by surety’s death. The death of the surety
operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so
far as regards future transactions.

132. Liability of two persons primarily liable, not affected by arrangement between
them that one shall be surety on other’s default. Where two persons contract with a third person to
undertake a certain liability, and also contract with each other that one of them shall be liable only on
the default of the other, the third person not being a party to such contract, the liability of each of
such two persons to the third person under the first contract is not affected by the existence of the
second contract, although such third person may have been aware of its existence.

Illustration

A and B make a joint and several promissory note to C. A makes it, in fact, as surety for B,
and C knows this at the time when the note is made. The fact that A, to the knowledge of C, made
the note as surety for B, is no answer to a suit by C against A upon the note.

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 l[debtor] and the creditor,
discharges the surety as to transactions subsequent to the variance.

Illustrations

(a) A becomes surety to C for B’s conduct as a manager in C’s bank. Afterwards,
B and C contract, without A’s consent, that B’s salary shall be raised, and that
he shall become liable for one-fourth of the losses on overdrafts. B allows a
customer to overdraw, and the bank loses a sum of money. A is discharged
from his suretyship by the variance made without his consent, and is not liable
to make good this loss.

(b) A guarantees C against the misconduct of B in an office to which B is
appointed by C, and of which the duties are defined by an Act of the
Legislature. By a subsequent Act, the nature of the office is materially altered.
Afterwards, B misconducts himself. A is discharged by the change from future
liability under his guarantee, though the misconduct of B is in respect of a
duty not affected by the later Act.
(c) C agrees to appoint B as his clerk to sell goods at a yearly salary, upon A’s
becoming surety to C for B’s duly accounting for moneys received by him as
such clerk. Afterwards, without A’s knowledge or consent, C and B agree that
B should be paid by a commission on the goods sold by him and not by a fixed
salary. A is not liable for subsequent misconduct of B.
(d) A gives to C a continuing guarantee to the extent of 3,000 rupees for any oil
supplied by C to B on credit. Afterwards B becomes embarrassed, and,
without the knowledge of A, B and C contract that C shall continue to supply
1
Ins. by the Repealing and Amending Act, 1917 (XXIV of 1917), s. 2 and Sch., I.

Page 44 of 65
B with oil for ready money, and that the payments shall be applied to the then
existing debts between B and C. A is not liable on his guarantee for any goods
supplied after this new arrangement.

(e) C contracts to lend B 5,000 rupees on the 1st March. A guarantees repayment.
C pays the 5,000 rupees to B on the 1st January. A is discharged from his
liability, as the contract has been varied in as much as C might sue B for the
money before the 1st of March.

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.

Illustrations

(a) A gives a guarantee to C for goods to be supplied by C to B. C supplies goods
to B, and afterwards B becomes embarrassed and contracts with his creditors
(including C) to assign to them his property in consideration of their releasing
him from their demands. Here B is released from his debt by the contract with
C, and A is discharged from his suretyship.

(b) A contracts with B to grow a crop of indigo on A’s land and to deliver it to B
at a fixed rate, and C guarantees A’s performance of this contract. B diverts a
stream of water which is necessary for irrigation of A’s land and thereby
prevents him from raising the indigo. C is no longer liable on his guarantee.

(c) A contracts with B for a fixed price to build a house for B within a stipulated
time, B supplying the necessary timber. C guarantees A’s performance of the
contract. B omits to supply the timber. C is discharged from his suretyship.

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 makes a composition with, or promises to give time to, or not to sue, the principal debtor
discharges the surety, unless the surety assents to such contract.

136. Surety not discharged when agreement made with third person to give time to
principal debtor. Where a contract to give time to the principal debtor is made by the creditor with a
third person, and not with the principal debtor, the surety is not discharged.

Illustration

C, the holder of an overdue bill of exchange drawn by A as surety for B, and accepted by B,
contracts with M to give time to B. A is not discharged.

137. Creditor’s forbearance to sue does not discharge surety. Mere forbearance on the
part of the creditor to sue the principal debtor or to enforce any other remedy against him does not, in
the absence of any provision in the guarantee to the contrary, discharge the surety.

Page 45 of 65
Illustration
B owes to C a debt guaranteed by A. The debt becomes payable. C does not sue B for a year
after the debt has become payable. A is not discharged from his suretyship.

138. Release of one co-surety does not discharge others. Where there are co-sureties, a
release by the creditor of one of them does not discharge the others; neither does it free the surety so
released from his responsibility to the other sureties.

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 rights 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.

Illustrations

(a) B contracts to build a ship for C for a given sum, to be paid by installments as
the work reaches certain stages. A becomes surety to C for B’s due
performance of the contract. C, without the knowledge of A, prepays to B the
last two instalments. A is discharged by this prepayment.

(b) C lends money to B on the security of a joint and several promissory note
made in C’s favour by B, and by A as surety for B, together with a bill of sale
of B’s furniture, which gives power to C to sell the furniture, and apply the
proceeds in discharge of the note. Subsequently, C sells the furniture, but,
owing to his misconduct and wilful negligence, only a small price is realized.
A is discharged from liability on the note.

(c) A puts M as apprentice to B, and gives a guarantee to B for M’s fidelity. B
promises on his part that he will, at least once a month, see M make up the
cash. B omits to see this done as promised, and M embezzles. A is not liable to
B on his guarantee.

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
suretyship is 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 surety, parts with such security, the surety is
discharged to the extent of the value of the security.
Illustrations
(a) C advances to B, his tenant, 2,000 rupees on the guarantee of A. C has also, a
further security for the 2,000 rupees by a mortgage of B’s furniture. C cancels
the mortgage. B becomes insolvent, and C sues A on his guarantee. A is
discharged from liability to the amount of the value of the furniture.

Page 46 of 65
(b) C, a creditor, whose advance to B is secured by a decree, receives also a
guarantee for that advance from A. C afterwards takes B’s goods in execution
under the decree, and then, without the knowledge of A, withdraws the execu-
tion. A is discharged.

(c) A, as surety for B, makes a bond jointly with B to C, to secure a loan from C
to B. Afterwards, C obtains from B a further security for the same debt.
Subsequently, C gives up the further security. A is not discharged.

142. Guarantee obtained by misrepresentation invalid. Any guarantee which has been
obtained by means of misrepresentation made by the creditor, or with his knowledge and assent,
concerning a material part of the transaction, is invalid.

143. Guarantee obtained by concealment invalid. Any guarantee which the creditor has
obtained by means of keeping silence as to material circumstances is invalid.

Illustrations

(a) A engages B as clerk to collect money for him. B fails to account for some of
his receipts, and A in consequence calls upon him to furnish security for his
duly accounting. C gives his guarantee for B’s duly accounting. A does not
acquaint C with B’s previous conduct. B afterwards makes default. The
guarantee is invalid.

(b) A guarantees to C payment for iron to be supplied by him to B to the amount
of 2,000 tons. B and C have privately agreed that B should pay five rupees per
ton beyond the market price, such excess to be applied in liquidation of an old
debt. This agreement is concealed from A. A is not liable as a surety.

144. Guarantee on contract that creditor shall not act on it until co-surety joins. Where a
person gives a guarantee upon a contract that the creditor shall not act upon it until another person
has joined in it as co-surety, the guarantee is not valid if that other person does not join.

145. Implied promise to indemnify surety. 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.

Illustrations

(a) B is indebted to C, and A is surety for the debt. C demands payment from A,
and on his refusal sues him for the amount. A defends the suit, having
reasonable grounds for doing so, but is compelled to pay the amount of the
debt with costs. He can recover from B the amount paid by him for costs, as
well as the principal debt.

(b) C lends B a sum of money, and A, at the request of B, accepts a bill of
exchange drawn by B upon A to secure the amount. C, the holder of the bill,
demands payment of it from A, and, on A’s refusal to pay, sues him upon the
bill. A, not having reasonable grounds for so doing, defends the suit, and has

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to pay the amount of the bill and costs. He can recover from B the amount of
the bill, but not the sum paid for costs, as there was no real ground for
defending the action.

(c) A guarantees to C, to the extent of 2,000 rupees, payment for rice to be
supplied by C to B. C supplies to B rice to a less amount than 2,000 rupees,
but obtains from A payment of the sum of 2,000 rupees in respect of the rice
supplied. A cannot recover from B more than the price of the rice actually
supplied.

146. Co-sureties liable to contribute equally. Where two or more persons are co-sureties
for the same debt or duty, either jointly or severally, and whether under the same or different
contracts, and whether with or without the knowledge of each other, the co-sureties, in the absence of
any contract to the contrary, are liable, as between themselves, to pay each an equal share of the
whole debt, or of that part of it which remains unpaid by the principal debtor.

Illustrations

(a) A, B and C are sureties to D for the sum of 3,000 rupees lent to E. E makes
default in payment. A, B and C are liable, as between themselves, to pay 1,000
rupees each.

(b) A, B and C are sureties to D for the sum of 1,000 rupees lent to E, and there is
a contract between A, B and C that A is to be responsible to the extent of one-
quarter, B to the extent of one-quarter and C to the extent of one-half. E makes
default in payment. As between the sureties, A is liable to pay 250 rupees, B
250 rupees, and C 500 rupees.

147. Liability of co-sureties bound in different sums. Co-sureties who are bound in
different sums are liable to pay equally as far as the limits of their respective obligations permit.

Illustrations

(a) A, B and C, as sureties for D, enter into three several bonds, each in a different
penalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees,
C in that of 40,000 rupees, conditioned for D’s duly accounting to E. D makes
default to the extent of 30,000 rupees. A,B and C are each liable to pay 10,000
rupees.

(b) A, B and C, as sureties for D, enter into three several bonds, each in a different
penalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees,
C in that of 40,000 rupees, conditioned for D’s duly accounting to E. D makes
default to the extent of 40,000 rupees. A is liable to pay 10,000 rupees, and B
and C 15,000 rupees each.

(c) A, B and C, as sureties for D, enter into three several bonds, each in a different
penalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees,
C in that of 40,000 rupees, conditioned for D’s duly accounting
to E. D makes default to the extent of 70,000 rupees. A, B and C have to pay
each the full penalty of his bond.

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CHAPTER IX
OF BAILMENT

148. “Bailment”, “bailor”, and “bailee” defined. 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”.

Explanation.—If a person already in possession of the goods of another contracts to hold
them as a bailee, he thereby becomes the bailee, and the owner becomes the bailor, of such goods al-
though they may not have been delivered by way of bailment.

149. Delivery to bailee how made. The delivery to the bailee may be made by doing any-
thing which has the effect of putting the goods in the possession of the intended bailee or of any
person authorized to hold them on his behalf.

150. Bailor’s duty to disclose faults in goods bailed. The bailor is bound to disclose to the
bailee faults in the goods bailed, of which the bailor is aware, and which materially interfere with the
use of them, or expose the bailee to extraordinary risks; and if he does not make such disclosure, he
is responsible for damage arising to the bailee directly from such faults.

If the goods are bailed for hire, the bailor is responsible for such damage, whether he was or
was not aware of the existence of such faults in the goods bailed.

Illustrations

(a) A lends a horse, which he knows to be vicious, to B. He does not disclose the
fact that the horse is vicious. The horse runs away. B is thrown and injured. A
is responsible to B for damage sustained.

(b) A hires a carriage of B. The carriage is unsafe, though B is not aware of it, and
A is injured. B is responsible to A for the injury.

151. Care to be taken by bailee. In all cases of bailment the bailee is bound to take as much
care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances,
take of his own goods of the same bulk, quality and value as the goods bailed.

152. Bailee when not liable for loss, etc., of thing bailed. 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.
153. Termination of bailment by bailee’s act inconsistent with conditions. A contract of
bailment is avoidable at the option of the bailor, if the bailee does any act with regard to the goods
bailed, inconsistent with the conditions of the bailment.

Illustration
A lets to B, for hire, a horse for his own riding. B drives the horse in his carriage. This is, at the
option of A, a termination of the bailment.

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154. Liability of bailee making unauthorized use of goods bailed. If the bailee makes any
use of the goods bailed, which is not according to the conditions of the bailment, he is liable to make
compensation to the bailor for any damage arising to the goods from or during such use of them.

Illustrations

(a) A lends a horse to B for his own riding only. B allows C, a member of his
family, to ride the horse. C rides with care, but the horse accidentally falls and
is injured. B is liable to make compensation to A for the injury done to the
horse.

(b) A hires a horse in 1[Karachi] from B expressly to march to 1[Hyderabad]. A
rides with due care, but marches to 1[Khairpur] instead. The horse accidentally
falls and is injured. A is liable to make compensation to B for the injury to the
horse.

155. Effect of mixture, with bailor’s consent, of his goods with bailee’s. If the bailee, with
the consent of the bailor, mixes the goods of the bailor with his own goods, the bailor and the bailee
shall have an interest, in proportion to their respective shares, in the mixture thus produced.

156. Effect of mixture, without bailor’s consent, when the goods can be separated. If the
bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, and the
goods can be separated or divided, the property in the goods remains in the parties respectively; but the
bailee is bound to bear the expense of separation or division, and any damage arising from the mixture.

Illustration

A bails 100 bales of cotton marked with a particular mark to B, without A’s consent mixes the
100 bales with other bales of his own, bearing a different mark. A is entitled to have his 100 bales
returned, and B is bound to bear all the expense incurred in the separation of the bailes, and any other
incidental damage.

157. Effect of mixture, without bailor’s consent, when the goods cannot be separated. If
the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, in such
a manner that it is impossible to separate the goods bailed from the other goods and deliver them back,
the bailor is entitled to be compensated by the bailee for the loss of the goods.

Illustration

A bails a barrel of Cape flour worth Rs. 45 to B. B, without A’s consent mixes the flour with
country flour of his own, worth only Rs. 25 a barrel. B must compensate A for the loss of his flour.

158. Repayment by bailor of necessary expenses. Where, by the conditions of the bailment,
the goods are to be kept or to be carried, or to have work done upon them by the bailee for the bailor,
and the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses
incurred by him for the purpose of the bailment.

1
Subs. by the Central Laws (Statute Reform) Ordinance, 1960 (XXI of 1960), s.3 and 2nd Sch., (with effect from the 14th October, 1955).

Page 50 of 65
159. Restoration of goods lent gratuitously. The lender of a thing for use may at any time
require its return, if the loan was gratuitous, even though he lent it for a specified time or purpose. But,
if, on the faith of such loan made for a specified time or purpose, the borrower has acted in such a
manner that the return of the thing lent before the time agreed upon would cause him loss exceeding
the benefit actually derived by him from the loan, the lender must, if he compels the return, indemnify
the borrower for the amount in which the loss so occasioned exceeds the benefit so derived.

160. Return of goods bailed on expiration of time or accomplishment of purpose. It is the
duty of the bailee to return, or deliver according to the bailor’s directions, the goods bailed, without
demand, as soon as the time for which they were bailed has expired, or the purpose for which they
were bailed has been accomplished.

161. Bailee’s responsibility when goods are not duly returned. If, by the default of the
bailee, the goods are not returned, delivered or tendered at the proper time, he is responsible to the
bailor for any loss, destruction or deterioration of the goods from that time.

162. Termination of gratuitous bailment by death. A gratuitous bailment is terminated by
the death either of the bailor or of the bailee.

163. Bailor entitled to increase or profit from goods bailed. In the absence of any contract
to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any
increase or profit which may have accrued from the goods bailed.

Illustration

A leaves a cow in the custody of B to be taken care of. The cow has a calf B is bound to
deliver the calf as well as the cow to A.

164. Bailor’s responsibility to bailee. The bailor is responsible to the bailee for any loss
which the bailee may sustain by reason that the bailor was not entitled to make the bailment, or to
receive back the goods or to give directions, respecting them.

165. Bailment by several joint owners. If several joint owners of goods bail them, the bailee
may deliver them back to, or according to the directions of, one joint owner without the consent of
all, in the absence of any agreement to the contrary.

166. Bailee not responsible on re-delivery to bailor without title. If the bailor has no title
to the goods, and the bailee, in good faith, delivers them back to, or according to the directions of,
the bailor, the bailee is not responsible to the owner in respect of such delivery.

167. Right of third person claiming goods bailed. If a person, other than the bailor, claims
goods bailed, he may apply to the Court to stop the delivery of the goods to the bailor, and to decide
the title to the goods.

168. Right of finder of goods; may sue for specific reward offered. The finder of goods
has no right to sue the owner for compensation for trouble and expense voluntarily incurred by him
to preserve the goods and to find out the owner; but he may retain the goods against the owner until
he receives such compensation; and, where the owner has offered a specific reward for the return of
goods lost, the finder may sue for such reward, and may retain the goods until he receives it.

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169. When finder of thing commonly on sale may sell it. When a thing which is commonly
the subject of sale is lost, if the owner cannot with reasonable diligence be found, or if he refuses,
upon demand, to pay the lawful charges of the finder, the finder may sell it—

(1) when the thing is in danger of perishing or of losing the greater part of its value, or,

(2) when the lawful charges of the finder, in respect of the thing found, amount to two-
thirds of its value.

170. Bailee’s particular lien. Where the bailee has, in accordance with the purpose of the
bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he
has, in the absence of a contract to the contrary, a right to retain such goods until he receives due
remuneration for the services he has rendered in respect of them.

Illustrations

(a) A delivers a rough diamond to B, a jeweller, to be cut and polished, which is accordingly
done. B is entitled to retain the stone till he is paid for the services he has rendered.

(b) A gives cloth to B, a tailor, to make into a coat. B promises A to deliver the coat as soon as it
is finished, and to give a three months’ credit for the price. B is not entitled to retain the coat until he is
paid.

171. General lien of bankers, factors, wharfingers, attorneys and policy brokers. Bankers,
factors, wharfingers, attorneys of a High Court and policy-brokers may, in the absence of a contract to the
contrary, retain, as a security for a general balance of account, any goods bailed to them; but no other
persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an
express contract to that effect.

Bailments of Pledges

172. “Pledge,” “pawnor”, and “pawnee” defined. The bailment of goods as security for
payment of a debt or performance of a promise is called “pledge”. The bailor is in this case called the
“pawnor”. The bailee is called the “pawnee”.

173. Pawnee’s right of retainer. The pawnee may retain the goods pledged, not only for
payment of the debt or the performance of the promise, but for the interest of the debt, and all necessary
expenses incurred by him in respect of the possession or for the preservation of the goods pledged.

174. Pawnee not to retain for debt or promise other than that for which goods pledged.
Presumption incase of subsequent advances. The pawnee shall not, in the absence of a contract to that
effect retain the goods pledged for any debt or promise other than the debt or promise for which they are
pledged; but such contract, in the absence of anything to the contrary, shall be presumed in regard to
subsequent advances made by the pawnee.

175. Pawnee’s right as to extraordinary expenses incurred. The pawnee is entitled to receive
from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged.

176. Pawnee’s right where pawnor makes default. If the pawnor makes default in payment of
the debt, or performance, at the stipulated time of the promise, in respect of which the goods were

Page 52 of 65
pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods
pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice
of the sale.

If the proceeds of such sale are less than the amount due in respect of the debt or promise, the
pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so
due, the pawnee shall pay over the surplus to the pawnor.

177. Defaulting pawnors’ right to redeem. If a time is stipulated for the payment of the
debt, or performance of the promise, for which the pledge is made, and the pawnor makes default in
payment of the debt or performance of the promise at the stipulated time, he may redeem the goods
pledged at any subsequent time before the actual sale of them; but he must, in that case, pay, in
addition, any expenses which have arisen from his default.
1
[178. Pledge by mercantile agent. Where a mercantile agent is, with the consent of the
owner, in possession of goods or the documents of title to goods, any pledge made by him, when
acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were
expressly authorized by the owner of the goods to make the same; provided that the pawnee acts in
good faith and has not at the time of the pledge notice that the pawnor has not authority to pledge.

Explanation.—In this section, the expressions ‘mercantile agent’ and ‘documents of title’
shall have the meanings assigned to them in the Sale of Goods Act, 1930 (III of 1930).

178A. Pledge by person in possession under voidable contract. When the pawnor has
obtained possession of the goods pledged by him under a contract voidable under section 19 or
section 19A, but the contract has not been rescinded at the time of the pledge, the pawnee acquires a
good title to the goods, provided he acts in good faith and without notice of the pawnor’s defect of
title.]

179. Pledge where pawnor has only a limited interest. Where a person pledges goods in
which he has only a limited interest, the pledge is valid to the extent of that interest.

Suits by Bailees or Bailors against Wrong-doers

180. Suit by bailor or bailee against wrongdoer. If a third person wrongfully deprives the
bailee of the use or possession of the goods bailed, or does them any injury, the bailee is entitled to
use such remedies as the owner might have used in the like case if no bailment had been made; and
either the bailor or the bailee may bring a suit against a third person for such deprivation or injury.

181. Apportionment of relief or compensation obtained by such suits. Whatever is
obtained by way of relief or compensation in any such suit shall, as between the bailor and the bailee,
be dealt with according to their respective interests.

1
Subs. by Act No. IV of 1930, s. 2.

Page 53 of 65
CHAPTER X
AGENCY
Appointment and Authority of Agents

182. “Agent” and “principal” defined. An “agent” is a person employed to do any act for
another or to represent another in dealings with third persons. The person for whom such act is done,
or who is so represented, is called the “principal”.

183. Who may employ 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.

184. Who may be an agent. As between the principal and third persons any person may
become an agent, but no person who is not of the age of majority and of sound mind can become an
agent, so as to be responsible to his principal according to the provisions in that behalf herein
contained.

185. Consideration not necessary. No consideration is necessary to create an agency.

186. Agent’s authority may be expressed or implied. The authority of an agent may be
expressed or implied.

187. Definitions of express and implied authority. An authority is said to be express when
it is given by words spoken or written. An authority is said to be implied when it is to be inferred
from the circumstances of the case; and things spoken or written, or the ordinary course of dealing,
may be accounted circumstances of the case.
Illustration
A owns a shop in 1[Quetta], living himself in 1[Karachi], and visiting the shop occasionally.
The shop is managed by B, and he is in the habit of ordering goods from C in the name of A for the
purposes of the shop, and of paying for them out of A’s funds with A’s knowledge. B has an implied
authority from A to order goods from C in the name of A for the purposes of the shop.

188. Extent of agent’s authority. An agent having an authority to do an act has authority to
do every lawful thing which is necessary in order to do such act.
An agent having an authority to carry on a business has authority to do every lawful thing
necessary for the purpose, or usually done in the course of conducting such business.

Illustrations
(a) A is employed by B, residing in London, to recover at 2[Karachi] a debt due to
B. A may adopt any legal process necessary for the purpose of recovering the
debt, and may give a valid discharge for the same.
(b) A constitutes B his agent to carry on his business of a ship-builder. B may
purchase timber and other materials, and hire workmen, for the purposes of
carrying on the business.

1
Subs. by the Federal Laws (Revision and Declaration) Ordinance, 1981 (XXVII of 1981), s. 3 and 2nd Sch.
2
Subs. by the Central Laws (Statute Reform) Ordinance, 1960, s. 3 and 2nd Sch. (with effect from the 14th October, 1955).

Page 54 of 65
189. Agent’s authority in an emergency. An agent has authority, in an emergency, to do all
such acts for the purpose of protecting his principal from loss as would be done by a person of
ordinary prudence, in his own case, under similar circumstances.

Illustrations

(a) An agent for sale may have goods repaired if it be necessary.

(b) A consigns provisions to B at 1[Lahore], with directions to send them
immediately to C at 1[Rawalpindi], B may sell the provisions at l[Lahore], if
they will not bear the journey to 1[Rawalpindi] without spoiling.

Sub-Agents

190. When agent cannot delegate. An agent cannot lawfully employ another to perform acts
which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom
of trade a sub-agent may, or, from the nature of the agency, a sub-agent must, be employed.

191. “Sub-agent” defined. A “sub-agent” is a person employed by, and acting under the
control of, the original agent in the business of the agency.

192. Representation of principal by sub-agent properly appointed. Where a sub-agent is
properly appointed, the principal is, so far as regards third persons, represented by the sub-agent, and
is bound by and responsible for his acts, as if he were an agent originally appointed by the principal.

Agent’s responsibility for sub-agent. The agent is responsible to the principal for the acts of
the sub-agent.

Sub-agent’s responsibility. The sub-agent is responsible for his acts to the agent, but not to
the principal, except in case of fraud or wilful wrong.

193. Agent’s responsibility for sub-agent appointed without authority. Where an agent,
without having authority to do so, has appointed a person to act as a sub-agent, the agent stands
towards such person in the relation of a principal to an agent, and is responsible for his acts both to
the principal and to third persons; the principal is not represented by or responsible for the acts of the
person so employed, nor is that person responsible to the principal.

194. Relation between principal and person duly appointed by agent to act in business
of agency. Where an agent, holding an express or implied authority to name another person to act for
the principal in the business of the agency, has named another person accordingly, such person is not
a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to
him.
Illustrations
(a) A directs B, his solicitor, to sell his estate by auction, and to employ an
auctioneer for the purpose. B names C, an auctioneer, to conduct the sale. C is
not a sub-agent, but is A’s agent for the conduct of the sale.
1
Subs. by the Federal Laws (Revision and Declaration) Ordinance, 1981 (XXVII of 1981), s. 3 and 2nd Sch.

Page 55 of 65
(b) A authorises B, a merchant in l[Chittagong], to recover the moneys due to A
from C & Co. B instructs D, a solicitor, to take legal proceedings against C &
Co. for the recovery of the money. D is not a sub-agent, but is solicitor for A.

195. Agent’s duty in naming such person. In selecting such agent for his principal, an agent
is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in
his own case; and, if he does this, he is not responsible to the principal for the acts or negligence of
the agent so selected.

Illustrations

(a) A instructs B, a merchant, to buy a ship for him. B employs a ship surveyor of
good reputation to choose a ship for A. The surveyor makes the choice
negligently and the ship turns out to be unseaworthy and is lost. B is not, but
the surveyor is, responsible to A.

(b) A consigns goods to B, a merchant, for sale. B in due course, employs an
auctioneer in good credit to sell the goods of A, and allows the auctioneer to
receive the proceeds of the sale. The auctioneer afterwards becomes insolvent
without having accounted for the proceeds. B is not responsible to A for the
proceeds.
Ratification

196. Right of person as to acts done for him without his authority. Effect of ratification.
Where acts are done by one person on behalf of another, but without his knowledge or authority, he
may elect to ratify or to disown such acts. If he ratify them, the same effects will follow as if they
had been performed by his authority.

197. Ratification may be expressed or implied. Ratification may be expressed or may be
implied in the conduct of the person on whose behalf the acts are done.

Illustrations
(a) A, without authority, buys goods for B. Afterwards B sells them to C on his
own account; B’s conduct implies a ratification of the purchase made for him
by A.
(b) A, without B’s authority lends B’s money to C. Afterwards B accepts interest
on the money from C. B’s conduct implies a ratification of the loan.
198. Knowledge requisite for valid ratification. No valid ratification can be made by a
person whose knowledge of the facts of the case is materially defective.
199. Effect of ratifying unauthorized act forming part of a transaction. A person
ratifying any unauthorised act done on his behalf ratifies the whole of the transaction of which such
act fromed a part.
200. Ratification of unauthorized act cannot injure third person. An act done by one
person on behalf of another, without such other person’s authority, which, if done with authority,

1
Subs. by the Central Laws (Statute Reform ) Ordinance, 1960, (XXI of 1960), s.3 and 2nd Sch., (w.e.f. 14-10-1955).

Page 56 of 65
would have the effect of subjecting a third person to damages, or of terminating any right or interest
of a third person, cannot, by ratification, be made to have such effect.

Illustrations

(a) A, not being authorized thereto by B, demands, on behalf of B, the delivery of
a chattel, the property of B, from C, who is in possession of it. This demand
cannot be ratified by B, so as to make C liable for damages for his refusal to
deliver.
(b) A holds a lease from B, terminable on three months’ notice. C, an
unauthorized person, gives notice of termination to A. The notice cannot be
ratified by B, so as to be binding on A.

Revocation of Authority

201. Termination of agency. An agency is terminated by the principal revoking his
authority; or by the agent renouncing the business of the agency; or by the business of the agency
being completed ; or by either the principal or agent dying or becoming of unsound mind; or by the
principal being adjudicated an insolvent under the provisions of any Act for the time being in force
for the relief of insolvent debtors.

202. Termination of agency where agent has an interest in subject matter. Where the
agent has himself an interest in the property which forms the subject-matter of the agency, the
agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.

Illustrations

(a) A gives authority to B to sell A’s land, and to pay himself, out of the proceeds,
the debts due to him from A. A cannot revoke this authority, nor can it be
terminated by his insanity or death.

(b) A consigns 1,000 bales of cotton to B, who has made advances to him on such
cotton, and desires B to sell the cotton, and to repay himself, out of the price,
the amount of his own advances. A cannot revoke this authority, nor is it
terminated by his insanity or death.

203. When principal may revoke agent’s authority. The principal may, save as is
otherwise provided by the last preceding section, revoke the authority given to his agent at any time
before the authority has been exercised so as to bind the principal.

204. Revocation where authority has been partly exercised. The principal cannot revoke
the authority given to his agent after the authority has been partly exercised so far as regards such
acts and obligations as arise from acts already done in the agency.

Illustrations

(a) A authorizes B to buy 1,000 bales of cotton on account of A, and to pay for it
out of A’s money remaining in B’s hands. B buys 1,000 bales of cotton in his
own name, so as to make himself personally liable for the price. A cannot
revoke B’s authority so far as regards payment for the cotton.

Page 57 of 65
(b) A authorizes B to buy 1,000 bales of cotton on account of A, and to pay for it
out of A’s moneys remaining in B’s hands. B buys 1,000 bales of cotton in
A’s name and so as not to render himself personally liable for the price. A can
revoke B’s authority to pay for the cotton.

205. Compensation for revocation by principal or renunciation by agent. Where there is
an express or implied contract that the agency should be continued for any period of time, the
principal must make compensation to the agent, or the agent to the principal, as the case may be, for
any previous revocation or renunciation of the agency without sufficient cause.

206. Notice of revocation or renunciation. Reasonable notice must be given of such
revocation or renunciation; otherwise the damage thereby resulting to the principal or the agent, as
the case may be, must be made good to the one by the other.

207. Revocation and renunciation may be expressed or implied. Revocation and
renunciation may be expressed or may be implied in the conduct of the principal or agent respec-
tively.
Illustration
A empowers B to let A’s house. Afterwards A lets it himself. This is an implied revocation of
B’s authority.
208. When termination of agent’s authority takes effect as to agent, and as to third
persons. The termination of the authority of an agent does not, so far as regards the agent, take effect
before it becomes known to him, or, so far as regards third persons, before it becomes known to
them.
Illustrations

(a) A directs B to sell goods for him, and agrees to give B five per cent.
commission on the price fetched by the goods. A afterwards, by letter, revokes
B’s authority. B, after the letter is sent, but before he receives it, sells the
goods for 100 rupees. The sale is binding on A, and B is entitled to five rupees
as his commission.
(b) A, at 1[Quetta], by letter, directs B to sell for him some cotton lying in a
warehouse in 2[Karachi], and afterwards, by letter, revokes his authority to
sell, and directs B to send the cotton to 1[Quetta]. B, after receiving the second
letter, enters into a contract with C, who knows of the first letter, but not of the
second, for the sale to him of the cotton. C pays B the money, with which B
absconds. C’s payment is good as against A.
(c) A directs B, his agent, to pay certain money to C. A dies, and D takes out
probate to his will. B, after A’s death, but before hearing of it, pays the money
to C. The payment is good as against D, the executor.
209. Agent’s duty on termination of agency by principal’s death or insanity. When an
agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to
take, on behalf of the representatives of his late principal, all reasonable steps for the protection and
preservation of the interests entrusted to him.
1
Subs. by the Federal Laws (Revision and Declaration) Ordinance, 1981 (XXVII of 1981), s.3 and 2nd Sch.
2
Subs. by the Central Laws (Statute Reform) Ordinance, 1960, s. 3 and 2nd Sch. (w. e. f. the 14th October, 1955).

Page 58 of 65
210. Termination of sub-agent’s authority. The termination of the authority of an agent
causes the termination (subject to the rules herein contained regarding the termination of an agent’s
authority) of the authority of all sub agents appointed by him.

Agent’s Duty to Principal

211. Agent’s duty in conducting principal’s business. An agent is bound to conduct the
business of his principal according to the directions given by the principal, or, in the absence of any
such directions, according to the custom which prevails in doing business of the same kind at the
place where the agent conducts such business. When the agent acts otherwise, if any loss be
sustained, he must make it good to his principal, and, if any profit accrues, he must account for it.

Illustrations

(a) A, an agent engaged in carrying on for B a business, in which it is the custom
to invest from time to time, at interest, the moneys which may be in hand,
omits to make such investment. A must make good to B the interest usually
obtained by such investments.

(b) B, a broker, in whose business it is not the custom to sell on credit, sells goods
of A on credit to C, whose credit at the time was very high. C, before payment,
becomes insolvent. B must make good the loss to A.

212. Skill and diligence required from agent. An agent is bound to conduct the business of
the agency with as much skill as is generally possessed by persons engaged in similar business,
unless the principal has notice of his want of skill. The agent is always bound to act with reasonable
diligence, and to use such skill as he possesses; and to make compensation to his principal in respect
of the direct consequences of his own neglect, want of skill or misconduct, but not in respect of loss
or damage which are indirectly or remotely caused by such neglect, want of skill or misconduct.

Illustrations

(a) A, a merchant in 1[Islamabad], has an agent, B, in London to whom a sum of
money is paid on A’s account, with orders to remit. B retains the money for a
considerable time. A, in and consequence of not receiving the money,
becomes insolvent. B is liable for the money and interest from the day on
which it ought to have been paid, according to the usual rate, and for any
further direct loss―as e.g., by variation of rate of exchange―but not further.

(b) A, an agent for the sale of goods, having authority to sell on credit, sells to B
on credit, without making the proper and usual enquiries as to the solvency of
B. B, at the time of such sale, is insolvent. A must make compensation to his
principal in respect of any loss thereby sustained.

(c) A, an insurance-broker employed by B to effect an insurance on a ship, omits
to see that the usual clauses are inserted in the policy. The ship is afterwards
lost. In consequence of the omission of the clauses nothing can be recovered
from the underwriters. A is bound to make good the loss to B.
1
Subs. by the Federal Laws (Revision and Declaration) Ordinance, 1981 (XXVII of 1981), s. 3 and 2nd Sch.

Page 59 of 65
(d) A, a merchant in England, directs B, his agent at 1[Karachi], who accepts the
agency, to send him 100 bales of cotton by a certain ship. B, having it in his
power to send the cotton, omits to do so. The ship arrives safely in England.
Soon after her arrival the price of cotton rises. B is bound to make good to A
the profit which he might have made by the 100 bales of cotton at the time the
ship arrived, but not any profit he might have made by the subsequent rise.

213. Agent’s accounts. An agent is bound to render proper accounts to his principal on
demand.

214. Agent’s duty to communicate with principal. It is the duty of an agent, in cases of
difficulty, to use all reasonable diligence in communicating with his principal, and in seeking to
obtain his instructions.

215. Right of principal when agent deals, on his own account, in business of agency
without principal’s consent. If an agent deals on his own account in the business of the agency,
without first obtaining the consent of his principal and acquainting him with all material
circumstances which have come to his own knowledge on the subject, the principal may repudiate
the transaction, if the case shows either that any material fact has been dishonestly concealed from
him by the agent, or that the dealings of the agent have been disadvantageous to him.

Illustrations

(a) A directs B to sell A’s estate. B buys the estate for himself in the name of C.
A, on discovering that B has bought the estate for himself, may repudiate the
sale, if he can show that B has dishonestly concealed any material fact, or that
the sale has been disadvantageous to him.
(b) A directs B to sell A’s estate. B, on looking over the estate before selling it,
finds a mine on the estate which is unknown to A. B informs A that he wishes
to buy the estate for himself, but conceals the discovery of the mine. A allows
B to buy in ignorance of the existence of the mine. A, on discovering that B
knew of the mine at the time he bought the estate, may either repudiate or
adopt the sale at his option.
216. Principal’s right to benefit gained by agent dealing on his own account in business
of agency. If an agent, without the knowledge of his principal, deals in the business of the agency on
his own account instead of on account of his principal, the principal is entitled to claim from the
agent any benefit which may have resulted to him from the transaction.

Illustration
A directs B, his agent, to buy a certain house for him. B tells A it cannot be bought, and buys
the house for himself. A may, on discovering that B has bought the house, compel him to sell it to A
at the price he gave for it.

1
Subs. by the Central Laws (Statute Reform) Ordinance, 1960 (XXI of 1960), s. 3 and 2nd Sch. (w.e.f. 14-10-1955).

Page 60 of 65
217. Agent’s right of retainer out of sums received on principal’s account. An agent may
retain, out of any sums received on account of the principal in the business of the agency, all moneys
due to himself in respect of advances made or expenses properly incurred by him in conducting such
business, and also such remuneration as may be payable to him for acting as agent.

218. Agent’s duty to pay sums received for principal. Subject to such deductions, the agent
is bound to pay to his principal all sums received on his account.

219. When agent’s remuneration becomes due. In the absence of any special contract,
payment for the performance of any act is not due to the agent until the completion of such act; but
an agent may detain moneys received by him on account of goods sold, although the whole of the
goods consigned to him for sale may not have been sold, or although the sale may not be actually
complete.

220. Agent not entitled to remuneration for business misconducted. An agent who is
guilty of misconduct in the business of the agency is not entitled to any remuneration in respect of
that part of the business which he has misconducted.

Illustrations

(a) A employs B to recover 1,00,000 rupees from C, and to lay it out on good
security. B recovers the 1,00,000 rupees and lays out 90,000 rupees on good
security, but lays out to 10,000 rupees on security which he ought to have
known to be bad, whereby A loses 2,000 rupees. B is entitled to remuneration
for recovering the 1,00,000 rupees and for investing the 90,000 rupees. He is
not entitled to any remuneration for investing the 10,000 rupees, and he must
make good the 2,000 rupees to B.

(b) A employs B to recover 1,000 rupees from C. Through B’s misconduct the
money is not recovered. B is entitled to no remuneration for his services, and
must make good the loss.

221. Agent’s lien on principal’s property. In the absence of any contract to the contrary, an
agent is entitled to retain goods, papers and other property, whether moveable or immoveable, of the
principal received by him, until the amount due to himself for commission, disbursements and
services in respect of the same has been paid or accounted for to him.
Principal’s Duty to Agent
222. Agent to be indemnified against consequences of lawful acts. The employer of an
agent is bound to indemnify him against the consequences of all lawful acts done by such agent in
exercise of the authority conferred upon him.
Illustrations
(a) B, at Singapur, under instructions from A of 1[Chittagong] contracts with C to
deliver certain goods to him. A does not send the goods to B, and C sues B for
breach of contract. B informs A of the suit, and A authorizes him to defend the
suit. B defends the suit, and is compelled to pay damages and costs, and incurs
expenses. A is liable to B for such damages, costs and expenses.
1
Subs. by the Central Laws (Statute Reform) Ordinance, 1960 (XXI of 1960), s. 3 and 2nd Sch. (w. e. f. the 14th October 1955).

Page 61 of 65
(b) B, a broker at l[Chittagong], by the orders of A, a merchant there contracts
with C for the purchase of 10 casks of oil for A. Afterwards A refuses to
receive the oil, and C sues B. B informs A, who repudiates the contract
altogether. B defends, but unsuccessfully, and has to pay damages and costs
and incurs expenses. A is liable to B for such damages, costs and expenses.

223. Agent to be indemnified against consequences of acts done in good faith. Where one
person employs another to do an act, and the agent does the act in good faith, the employer is liable
to indemnify the agent against the consequences of that act, though it cause an injury to the rights of
third persons.

Illustrations

(a) A, a decree-holder and entitled to execution of B’s goods, requires the officer
of the Court to seize certain goods, representing them to be the goods of B.
The officer seizes the goods, and is sued by C, the true owner of the goods. A
is liable to indemnify the officer for the sum which he is compelled to pay to
C, in consequence of obeying A’s directions.

(b) B, at the request of A, sells goods in the possession of A, but which A had no
right to dispose of. B does not know this, and hands over the proceeds of the
sale to A. Afterwards C, the true owner of the goods, sues B and recovers the
value of the goods and costs. A is liable to indemnify B for what he has been
compelled to pay to C and for B’s own expenses.

224. Non-liability of employer of agent to do a criminal act. Where one person employs
another to do an act which is criminal, the employer is not liable to the agent, either upon an express
or an implied promise, to indemnify him against the consequences of that Act.

Illustrations

(a) A employs B to beat C, and agrees to indemnify him against all consequences
of the act. B thereupon beats C, and has to pay damages to C for so doing. A is
not liable to indemnify B for those damages.

(b) B, the proprietor of a newspaper, publishes, at A’s request, a libel upon C in
the paper, and A agrees to indemnify B against the consequences of the
publication, and all costs and damages of any action in respect thereof. B is
sued by C and has to pay damages, and also incurs expenses. A is not liable to
B upon the indemnity.

225. Compensation to agent for injury caused by principal’s neglect. The principal must
make compensation to his agent in respect of injury caused to such agent by the principal’s neglect
or want of skill.
Illustration
A employs B as a bricklayer in building a house, and puts up the scaffolding himself. The
scaffolding is unskillfully put up, and B is in consequence hurt. A must make compensation to B.
1
Subs. by the Central Laws (Statue Reform) Ordinance, 1960 (XXI of 1960), s. 3 and 2nd Sch. (w. e. f. the 14th October 1955).

Page 62 of 65
Effect of agency on contract with third persons

226. Enforcement and consequences of agent’s contracts. Contracts entered into through
an agent, and obligations arising from acts done by an agent, may be enforced in the same manner,
and will have the same legal consequences, as if the contracts had been entered into and the acts
done by the principal in person.

Illustrations

(a) A buys goods from B, knowing that he is an agent for their sale, but not
knowing who is the principal. B’s principal is the person entitled to claim from
A the price of the goods, and A cannot, in a suit by the principal, set off
against that claim a debt due to himself from B.

(b) A, being B’s agent with authority to receive money on his behalf, receives
from C a sum of money due to B. C is discharged of his obligation to pay the
sum in question to B.

227. Principal how far bound, when agent exceeds authority. When an agent does more
than he is authorized to do, and when the part of what he does, which is within his authority, can be
separated from the part which is beyond his authority, so much only of what he does as is within his
authority is binding as between him and his principal.

Illustration

A, being owner of a ship and cargo, authorizes B to procure an insurance for 4,000 rupees on
the ship. B procures a policy for 4,000 rupees on the ship, and another for the like sum on the cargo.
A is bound to pay the premium for the policy on the ship, but not the premium for the policy on the
cargo.

228. Principal not bound when excess of agent’s authority is not separable. Where an
agent does more than he is authorized to do, and what he does beyond the scope of his authority
cannot be separated from what is within it, the principal is not bound to recognize the transaction.

Illustration

A authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 Iambs for one
sum of 6,000 rupees. A may repudiate the whole transaction.

229. Consequences of notice given to agent. Any notice given to or information obtained by
the agent, provided it be given or obtained in the course of the business transacted by him for the
principal, shall, as between the principal and third parties, have the same legal consequences as if it
had been given to or obtained by the principal.

Illustrations.

(a) A is employed by B to buy from C certain goods, of which C is the apparent
owner, and buys them accordingly. In the course of the treaty for the sale, A
learns that the goods really belonged to D, but B is ignorant of that fact, B is

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not entitled to set off a debt owing to him from C against the price of the
goods.
(b) A is employed by B to buy from C goods of which C is the apparent owner. A
was, before he was so employed, a servant of C, and then learnt that the goods
really belonged to D, but B is ignorant of that fact. In spite of the knowledge
of his agent, B may set off against the price of the goods a debt owing to him
from C.
230. Agent cannot personally enforce, nor be bound by, contracts on behalf of principal.
In the absence of any contract to that effect, an agent cannot personally enforce contracts entered into
by him on behalf of his principal, nor is he personally bound by them.
Presumption of contract to contrary. Such a contract shall be presumed to exist in the
following cases :___
(1) where the contract is made by an agent for the sale or purchase of goods for a merchant
resident abroad:
(2) where the agent does not disclose the name of his principal :

(3) where the principal, though disclosed, cannot be sued.

231. Rights of parties to a contract made by agent not disclosed. If an agent makes a
contract with a person who neither knows, nor has reason to suspect, that he is an agent, his principal
may require the performance of the contract; but the other contracting party has, as against the
principal, the same rights as he would have had as against the agent if the agent had been principal.

If the principal discloses himself before the contract is completed, the other contracting party
may refuse to fulfill the contract, if he can show that, if he had known who was the principal in the
contract, or if he had known that the agent was not a principal, he would not have entered into the
contract.
232. Performance of contract with agent supposed to be principal. Where one man makes
a contract with another, neither knowing nor having reasonable ground to suspect that the other is an
agent, the principal, if he requires the performance of the contract, can only obtain such performance
subject to the rights and obligations subsisting between the agent and the other party to the contract.
Illustration
A, who owes 500 rupees to B, sells 1,000 rupees, worth of rice to B. A is acting as agent for
C in the transaction, but B has no knowledge nor reasonable ground of suspicion that such is the
case. C cannot compel B to take the rice without allowing him to set off A’s debt.
233. Right of person dealing with agent personally liable. In cases where the agent is
personally liable, a person dealing with him may hold either him or his principal, or both of them,
liable.
Illustration
A enters into a contract with B to sell him 100 bales of cotton, and afterwards discovers that
B was acting as agent for C. A may sue either B or C, or both, for the price of the cotton.
234. Consequence of inducing agent or principal to act on belief that principal or agent
will be held exclusively liable. When a person who has made a contract with an agent induces the
agent to act upon the belief that the principal only will be held liable, or induces the principal to act

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upon the belief that the agent only will beheld liable, he cannot afterwards hold liable the agent or
principal respectively.

235. Liability of pretended agent. A person untruly representing himself to be the autho-
rized agent of another, and thereby inducing a third person to deal with him as such agent, is liable, if
his alleged employer does not ratify his acts, to make compensation to the other in respect of any loss
or damage which he has incurred by so dealing.

236. Person falsely contracting as agent not entitled to performance. A person with
whom a contract has been entered into in the character of agent is not entitled to require the
performance of it if he was in reality acting, not as agent, but on his own account.

237. Liability of principal inducing belief that agent’s unauthorized acts were
authorized. When an agent has, without authority, done acts or incurred obligations to third persons
on behalf of his principal, the principal is bound by such acts or obligations if he has by his words or
conduct induced such third persons to believe that such acts and obligations were within the scope of
the agent’s authority.
Illustrations
(a) A consigns goods to B for sale, and gives him instructions not to sell under a
fixed price. C, being ignorant of B’s instructions, enters into a contract with B
to buy the goods at a price lower than the reserved price. A is bound by the
contract.
(b) A entrusts B with negotiable instruments endorsed in blank. B sells them to C
in violation of private orders from A. The sale is good.
238. Effect, on agreement, of misrepresentation or fraud by agent. Misrepresentations
made, or frauds committed, by agents acting in the course of their business for their principals, have
the same effect on agreements made by such agents as if such misrepresentations or frauds had been
made or committed by the principals; but misrepresentations made, or frauds committed, by agents,
in matters which do not fall within their authority, do not affect their principals.
Illustrations
(a) A, being B’s agent for the sale of goods, induces C to buy them by a
misrepresentation, which he was not authorized by B to make. The contract is
voidable, as between B and C, at the option of C.
(b) A, the captain of B’s ship, signs bills of lading without having received on
board the goods mentioned therein. The bills of lading are void as between B
and the pretended consignor.
________________

CHAPTER XI
1
[* * * * * * *]

SCHEDULE
2
[* * * * * * *]
Date: 12-02-2025
6528929
1
Rep. by the Partnership Act, 1932 (IX of 1932), s. 73 and 2nd Sch.
2
Rep. by the Repealing and Amending Act, 1914 (X of 1914), s. 3 and 2nd Sch.

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Source: Pakistan Code, Ministry of Law and Justice (pakistancode.gov.pk). Text on this page is reproduced verbatim from the official PDF and is provided for reference only. For the authoritative version, always consult the source document or a current reported edition.

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