INTRODUCTION TO PARTNERSHIP (Sec.

4)

Definition of "Partnership is the relation between persons• who have agreed to share the
'partnership' profits of a business carried on by all or any of them acting for all."
Definition of Persons who have entered into partnership with one another are collectively called
'firm' as 'firm'.
Definition of Persons who have entered into partnership with one another are individually called
'partner' as 'partners'.
Definition of The name under which the business of partnership is carried on is called as 'firm
'firm name' name'.
Applicability of  The provisions of the Contract Act, 1872 shall also apply to a partnership.
provisions  However, the provisions of the Contract Act, 1872 shall not apply to a
partnership if such provisions are inconsistent with the provisions of the
Partnership Act, 1932.

ESSENTIAL FEATURES OF A PARTNERSHIP (Sec.4)

Association of  There must be an association of two or more persons.
persons  The number of partners shall be as follows:
 (a) Minimum - 2
 (b) Maximum - 10 - in case of banking business.
 - 20 - in case of any other business.

Agreement  The must be an agreement between the partners.

 If the agreement between the partners is in writing, it is called as
partnership deed.
 The agreement must be lawful.

 Partnership does not result by-

(a) status (e.g., in case of a HUF)

(b) operation of law(e.g., inheritance of property by legal heirs jointly)
(c) joint acquisition of property.
Business There must be some business i.e., the agreement must be to carry on some business.
Sharing of  There must be sharing of profits, i.e., the agreement must be to share the
profits profits arising from such business.
 Every partner must have some share in the profits of the partnership firm.
 The partnership deed may provide that some particular partner shall not
share the losses. Thus, it is possible to have a 'partner in profits only'.





 There must be mutual agency between the partners, i.e., the business may
Mutual Agency be carried on by all the partners or alternatively any partner may carry on business
on behalf of all the other partners.
 Mutual agency means that every partner is an agent of the other
partners. In other words, the acts done by one partner will bind the other partners.

Fundamental  The partnership is determined from the real relation between the persons.
test of  Two or more persons are partners if the relation between them is that of
partnership agency (i.e., each of them has the authority to bind the others).

Sharing 
of The sharing of profit is not a conclusive test of partnership.
profits as a test
 Every person who receives a share of profits is not a partner.
of partnership  Where a person receives a share in profits of the firm, but is not a partner,
he possesses 'non-partnership interests'. Some examples of 'non-partnership
interests' are given below:

(a) Joint owners or co-owners receiving profits from joint property.

(b) Payment of a share of profits to money-lenders.
(c) Payment of a share of profits to an employee or manager.
(d) Payment of a share of profits to legal representative of deceased partner.
(e) Payment of a share of profits to the seller of goodwill.

CLASSIFICATION OF PARTNERS AND THEIR LIABILITY

Actual partner  A partner who attends to the affairs of the firm is called as an active person.
 He plays an active role in the conduct of business of the firm.
 An active partner is liable to all the third parties for acts of the firm.
 An active partner is required to give public notice of his retirement.

Dormant 
or A partner who does not attend to the affairs of the firm is called as a
sleeping partner sleeping partner or a dormant partner.
 He does not participate in the conduct of business of the firm.
 His identity is not disclosed to the outsiders and persons dealing with the
firm.
 He is also liable to all the third parties for acts of the firm.
 He is not required to give public notice of his retirement.

Nominal  A partner is called as a nominal partner if:

partner
(a) he does not attend to the affairs of the firm;
(b) he does not supply any capital to the firm; and
(c) he share profits or any other income from the firm.
 The purpose of admitting a partner as a nominal partner is to use the status
and credibility of such person for the purpose of promoting the business of
 the firm. Thus, a nominal partner lends his name to the firm.
 He has no real interest in the business of the firm.
 He is also liable to all the third parties for acts of the firm.
Partner in  A partner, who is entitled to share the profits but is not liable to share the
profits only losses, is called as a 'partner in profits only'.
 A third party is empowered to recover the whole of the amount due against
the firm even from a 'partner in profits only'.

Incoming  A person admitted as a partner in an existing firm is called as an incoming

partner partner.
 The firm constituted after his admission is called as the reconstituted firm.

Outgoing  When an existing partner retires from the firm, he is called as an outgoing
partner partner.
 The firm constituted after his retirement is called as the reconstituted firm.

Sub-partner  A 'sub-partner' is not a partner in the firm.

 When a partner agrees that some outsider shall be entitled to the whole or
some part of his share of profits and property, such outsider is called as a
sub-partner.
 He has no rights of a partner.
 He is not liable for the acts of the firm.
 He has no rights against the firm. His only right is to claim the share of
profits and property from the contracting partner only.

Minor partner  A minor cannot become a partner in a firm since he cannot enter into a
contract.
 However, a minor can be admitted to the benefits of a partnership.

KINDS OF PARTNERSHIP/FIRMS (Sec. 7 & 8)

Particular Partnership Where the agreement between the partners
partnership for a fixed provides that the partnership is formed for a certain fixed
(Sec. 8) period period of time, it is called as a partnership for a fixed
period.
 When such specified period is completed, the
partnership automatically comes to an end.
 However, if the partners continue to carry on the
business even after expiry of such period, the partnership
becomes partnership at will. In such a case, the rights
and liabilities of the partners remain the same as they were
before the expiry of the fixed period.
 Partnership Where the agreement between the partners
for a provides that the partnership is formed for a particular
particular venture or undertaking, it is called as a partnership for a
venture particular venture or undertaking.
 When such venture or undertaking is completed,
the partnership automatically comes to end.
 However, if the partners continue to carry on the
business even after completion of such venture or
undertaking, the partnership becomes partnership at
will. In such a case, the rights and liabilities of the
partners remain the same as they were before the
completion of such venture or undertaking.

Partnership  A partnership is said to be partnership at will if-

at will (a) it is not a partnership for a fixed period, i.e., a
(Sec. 7) partnership in which no provision is made
regarding duration/term of partnership; and
(b) it is not a partnership for a particular venture
or undertaking, i.e., a partnership which is not
made for a particular venture or undertaking.
 Since no time or event is specified as to when the
partnership shall come to an end, the partnership at
will is dissolved when any of the partners
gives notice of his intention to dissolve the firm to
all the other partners.
 A partnership at will may be dissolved by any time,
i.e., any partner can dissolve the firm by giving a
notice of dissolution to all the partners.

DUTIES OF PARTNERS TOWARDS ONE ANOTHER (Sec. 9, 10, 12 & 13)

1. Duty of good  This is the primary and most important duty of every partner.
faith  Every partner is duty bound to act in good faith.
 No partner should deceive any other partner.
 Every partner must act diligently and sincerely.
2. Duty to carry on  Every partner must conduct the business of the firm in such a manner
firms business which is most beneficial to the firm.
diligently  No partner should make any profit at the expense of the firm.
3. Duty to render  Every partner should keep proper accounts.
true accounts  He should explain all the accounts to the other partners.
4. Duty to give full  Every partner should give full information to the other partners regarding
information all material facts relating to the partnership affairs.
 He should not conceal information about the affairs and assets of the firm
form other partners.
5. Duty to Where a fraud is committed by a partner-
 indemnify for  The firm and the other partners shall be liable to the third parties;
loss caused by  The firm has the right to recover the loss from such partner.
fraud
6. Duty to attend  Every partner should diligently (i.e. cleanly, carefully) attend to the affairs
diligently of the business of the firm.
7. Duty to share  Every partner must share equally the losses suffered by the firm.
losses  However, this duty is subject to an agreement to the contrary
8. Duty to account  A partner should not make any personal profits.
for personal  If any partner makes any personal profits, then he is bound to pay the
profits same to the firm.
9. Duty to account  A partner should not carry on any business similar to, or in competition
for profits of a with, the business of the firm.
competing  If any partner carries on such a business and earns profits, he is bound to
business pay the same to the firm.
10. Duty to use  Every partner must use the partnership property exclusively for the
firm property business of the firm. [Only for business purpose]
exclusively for  If any partner makes personal profits by using the partnership properly,
firm then he must pay back the same to the firm/
11. Duty to act  Every partner should act within the scope of his actual or implied
within authority.
authority
12. Duty not to  A partner should not transfer his rights and interest in the firm to an
transfer his outsider so as to make him a partner in the firm.
rights and
interest

RIGHTS OF PARTNERS (Sec. 12, 13, 31 to 33, 36, 37 & 40)

1. Right to take  This right is available to all the partners.
part in business
2. Right to be  Every partner has the right to be consulted in all the matter affecting the
consulted business of the firm.
3. Right to have  Every partner has the right to
access to books (a) access to books and accounts of the firm;
(b) examine them;
(c) obtain a copy of such accounts
4. Right to share  Every partner has the right to share equally the profits earned by the firm.
profits  However, this right is subject to an agreement to the contrary.
5. Right to interest  The partners have no right to receive any interest on capital.
on capital and  A partner is entitled to receive interest on advance given to the firm at the
on advance rate of 6% per annum.
6. Right to  Every partner has the right to recover from the firm the expenses incurred
indemnity (a) in the ordinary course of business;
(Protection) (b) in an emergency.
7. Right to use the  Every partner has the right to use the partnership property.
partnership  The partnership property should be used exclusively for the purpose of
property the partnership business.
8. Right to be  A new partner cannot be admitted in the firm without
consulted the consent of all the partners.
9. Right to retire  A partner can retire from the firm -
from the firm (a) with the consent of all other partners; or
(b) in accordance with an express agreement by the partners; or
(c) by giving a written notice to retirement to all other
partners if the partnership is at will.
10. Right of (a) Right to carry a competing business after his retirement.
retiring partner (b) Right to share subsequent profits - if the share of retired
partners property is not paid by the firm.
11. Right to  A partner is not entitled to receive any remuneration.
remuneration  However, the partnership agreement may expressly provide for the
payment of remuneration to working partners.
 PARTNERSHIP PROPERTY (Sec. 14 & 15)
1. Property At the commencement of partnership, the partners may bring capital in the form
originally brought of some property for use in the business of the firm. Such property
in the firm becomes the property of the firm.
2. Property After the commencement of the partnership, any property which is acquired
acquired for purpose of business of the firm is partnership property.
afterwards
3. Property Any property which is acquired with the money belonging to the firm is a
acquired with partnership property.
firms money
4. Goodwill of The goodwill earned by a firm in the course of business is also partnership
firm property.

PARTNERS LIBILITY FOR THE ACTS OF A FIRM ( Sec. 25 )

Liability of a Every partner is liable - jointly with all the other partners; and
partner for acts of - severally for all acts of the firm done while he is a
the firm (Sec. 25) partner.
Essentials of Sec.  The liability of every partner is joint and several.
25  A partner is liable for an act only if it is an act of the firm.
 A partner is not liable for an act of a firm if such act was done when he was
not a partner of the firm.
Act of a firm ˜An act of a firm means any act or omission by - all the partners; or
Definition - by any partner
which gives rise to a right enforceable by or against the firm.
Acts of a Any act or omission is an act of a firm, if -
firm - Meaning  It gives a right to the firm or the other party; and
 It is done by
(a) all the partner; or
(b) any partner - if such act or omission falls within the express
authority of such partner; or
(c) any partner - if such act or omission falls with the
implied authority of such partner.

AUTHORITY OF A PARTNER (Sec. 18, 19 & 20)

Meaning of  The authority of a partner means the capacity (i.e., power) of a partner to
˜authority of bind the firm by his acts.
a partner  The authority of a partner may be expressed or implied.
˜Express
authority Meaning Authority given to a partner under an express agreement
between all the partners.
Legal effect The firm is bound by all the acts of a partner which fall within
the express authority of a partner.
Implied
authority Meaning  Authority which is not given under an express agreement
between the partners.
 Implied authority is deemed (i.e., presumed) to be conferred
on every partner of a firm.
Legal effect  The firm is bound by all the acts of a partner which fall
within the implied authority of such a partner.
 The firm will be liable only if the following conditions
are fulfilled:
(a) The act done by the partner relates to
the business carried on by the firm.
(b) The act of a partner must be of such a
nature which is common in the type of
business carried on by the firm, i.e., the partner
has done the act in the usual manner.
(c) The act must be done in the name of
the firm.
Effect of Every partner is- the principal (since he is bound by the acts of the firm); and
exercise of - an agent (since the firm and other partners are bound by his acts.
authority

SCOPE OF IMPLIED AUTHORITY (Sec. 19 & 20)

Acts within (a) To engage a lawyer and defend the action brought against the firm
the implied (b) To purchase goods of the kind which are used in the business of the firm
authority (c) To sell the goods of the firm
(d) To receive payment of the debts due to the firm and give receipts for the
same
(e) To settle accounts with the persons dealing with the firm
(f) To engage servants to perform the business of the firm.
In case of a trading firm, the following acts shall also fall within the implied
authority of a partner:
(a) To sell or pledge the partnership property
(b) To borrow money

PARTNERS AUTHORITY IN EMERGENCY (Sec. 21)

General rule An act falling outside the authority of a partner (implied as well as expressed) does
not ordinarily bind the firm.
Exception The firm shall be bound by an act falling outside the authority of a partner (implied
as well as expressed), if all the following conditions are satisfied:
(a) There was an emergency.
(b) The partner exceeded his authority so as to save the firm from loss.
(c) The partner had acted prudently, i.e., in such manner as he would have
acted in his own case.
LIABILITY OF A FIRM AND ITS PARTNERS TO A THIRD PARTY (Sec. 26 & 27)
Liability for The firm shall be liable for wrongful act of a partner only if the following conditions
wrongful acts are satisfied:
of a partner (a) A partner had committed a wrongful act.
(b) The wrongful act was committed by the partner-
- while acting in the ordinary course of business (i.e., within his implied
authority); or
- with the authority of all other partners (i.e., within his express
authority).
(c) The third party has incurred a loss due to such wrongful act.
Liability for The firm is liable to a third party in the following 2 cases:
misapplication (a) - Money or property is received by a partner from a third party
of money or - Then, such money/property is misapplied by such partner.
property (b) - Money or property is received by the firm from a third party
- Then, such money/property is misapplied by any partner.
Liability by If a person becomes a partner by holding out, he is liable as a partner on the principle
holding out of ˜partner by holding out.

LIABILITY BY HOLDING OUT/PARTNER BY HOLDING OUT (Sec. 28)

Meaning of A person, not being a partner, shall be a ˜partner by estoppel or ˜partner by

˜partner by holding out in a firm if he-
holding out (a) represents himself (expressly or impliedly) to be a partner in a firm; or
(b) permits himself to be represented as a partner in a firm.
Conditions (a) He has made a representation to some other person. The representation
may be expressed or implied.
(b) The other person relied on such representation, i.e., he believed the
representation to be true.
(c) The other person acted on such representation and in consequence gave credit
to the firm.

LIABILITY BY HOLDING OUT/PARTNER BY HOLDING OUT (Sec. 28)

Meaning of A person, not being a partner, shall be a ˜partner by estoppel or ˜partner by

˜partner by holding out in a firm if he-
holding out (a) represents himself (expressly or impliedly) to be a partner in a firm; or
(b) permits himself to be represented as a partner in a firm.
Conditions (a) He has made a representation to some other person. The representation
may be expressed or implied.
(b) The other person relied on such representation, i.e., he believed the
 representation to be true.
(c) The other person acted on such representation and in consequence gave credit
to the firm.
Retired partner as  When a partner retires from the firm he must give a public notice of his
a ˜partner by retirement.
holding out  Otherwise, the retiring partner remains liable by holding out to those
customers of the firm who give credit to the firm without the knowledge of
his retirement.
Exceptions to the Sleeping A sleeping or dormant partner cannot be held liable as a
rule of ˜partner by partner ˜partner by holding out even if he does not give a public
holding out notice of his retirement.
Deceased Legal representatives of a deceased partner cannot be held
partner liable for any of the acts of the firm done after his death,
even if a public notice of his death is not given.
Insolvent The estate of the insolvent partner cannot be held liable for
partner any act of the firm done after his insolvency, even if a
public notice of his insolvency is not given.

POSITION OF A MINOR IN A FIRM (Sec. 30)

Not a partner  A minor cannot become a partner in a firm since he cannot enter into a
contract.
 There cannot be a partnership consisting of all minors.
 There cannot be a partnership consisting of all minors except one.
Minor admitted to  A minor can be admitted to the benefits of a partnership.
benefits of  He can be admitted to the benefits of partnership only with the consent of all
partnership the partners.
 A minor can be admitted only in an existing firm.
Position of a Rights of  Rights to access to the accounts of the firm.
minor until he minors  Right to inspect and have a copy of the accounts.
attains the age of  Right to receive his share of profits.
majority  Right to sue the partners if he is not paid his due share
of profits or his share of property in the firm.
Liabilities of  A minor is not liable as a partner for the acts of the
minor firm.
 His liability shall be limited to the profits and property
due to him from the firm.
Position where Minor has to  On attaining majority, a minor is given 6 months time
minor attains take decision to decide whether he will become a partner in the
majority within 6 firm or leave the firm.
months  If a minor decides that he shall not become a partner in
the firm, he is required to give a public notice of
such fact.
 If the minor fails to give public notice, he shall be
deemed to have become a partner on the expiry of 6
months.
Position where (a) He shall receive the same share of profits as he was
he becomes a entitled to receive during his minority.
partner (b) He shall be liable for all the acts of the firm.
(c) He shall have rights and liabilities of a full-fledged
partner.
Position where (a) Until public notice is given, his rights and liabilities
he does not shall remain same as were during his minority.
become a (b) His share shall not be liable for any acts of the firm
partner done after public notice was given.

RECONSTITUTION OF FIRMS (Sec. 32)

˜Reconstitution of When a change occurs in the constitution of a firm, it is called as reconstitution
a firm of the firm.
˜Reconstituted The firm which is constituted after the change in the constitution is called as
firm reconstituted firm.
Reasons for (a) Admission of a partner
reconstitution (b) Retirement of a partner
(c) Death of a partner
(d) Insolvency of a partner
(e) Change in profits sharing ratio amongst the partners.

ADMISSION AND RETIREMENT OF A PARTNER (Sec. 31 & 32)

Admission of a partner Retirement of a partner
Legal Requirements A new partner can be admitted- A partner can retire-
(a) with the consent of all the (a) with the consent of all the partners;
existing partners; or or
(b) in accordance with a (b) in accordance with a contract
contract already entered already entered into between all
into by all the partners. the partners; or
(c) by giving a notice in writing to all
other partners, if the partnership is
at will.
Liability after An incoming partner is liable3 A retiring partner is not liable for any
reconstitution for all the acts of the firm done act of the firm done after his
after his admission. retirement.
Liability before An incoming partner is not A retiring partner is liable for all acts of
reconstitution-General liable for any act of the firm the firm done before his retirement.
rule done before his admission.
 Liability before An incoming partner is liable A retiring partner is not liable for any
reconstitution-Exceptions for all the acts done before his of the acts done before his retirement
admission if- if-
(a) the incoming partner enters (a) the retiring partner enters into a
into a contract with the old contract with the old partners
partners that he shall be that he shall not be liable for any
liable for past debts of the debts contracted by firm before
firm; or his retirement; or
(b) the reconstituted firm (b) the reconstituted firm enters into a
enters into a contract with contract with a creditor to the
a creditor to the effect that effect that the old firm is
the old firm is discharged, discharged, and the reconstituted
& reconstituted firm is firm is taken as debtor.
taken as debtor.
Rights of a retiring partner
Right to carry on Available  The retiring partner has the right to start a competing
competing rights business anywhere.
business  He has the right to advertise his new business.
Statutory (a) He cannot use the firm name.
restrictions (b) He cannot represent himself to be a partner of the old
on retiring firm.
partner (c) He cannot solicit the customers of the old firm.
Additional The retiring partner shall not carry on any competing
restrictions business if the following conditions are satisfied:
on outgoing (a) He has entered into a contract with the existing
partner partners that he shall not carry on a similar or
competing business.
(b) The restraint shall operate within a specified time or
within specified local limits.
(c) The restraint must be reasonable having regard to the
circumstances of the case.
Right to share The retiring partner is entitled to receive-
subsequent profits (a) interest @ 6% per annum on the amount due to him; or
(b) such share of profits as are earned by the firm by use of money
belonging to him, whichever is higher.
INSOLVENCY AND DEATH OF A PARTNER (Sec. 34 & 35)
Insolvency of a partner Death of a partner
Dissolution of Where a partner is adjudged an Where a partner dies, following
partnership insolvent, following consequences shall consequences shall follow:
follow: (a) He ceases to be a partner.
(a) He ceases to be a partner. (b) The firm is dissolved. However,
(b) The firm is dissolved. However, the agreement between the partners
the agreement betwe3en the may provide otherwise.
partners may provide otherwise.
Dissolution of In the following cases, insolvency of a In the following cases, death of a partner
the firm partner shall result in dissolution of the shall result in dissolution of the firm,
firm, even if the agreement otherwise even if the agreement otherwise
provides: provides:
(a) Where all the partners become (a) Where all the partners die.
insolvent. (b) Where all the partners except one
(b) Where all the partners except one die.
become insolvent.
Consequences (a) No public notice is required to be (a) No public notice is required to be
given. given.
(b) The estate of the insolvent partner (b) The estate of the deceased
is not liable for the acts of the firm partner is not liable for the acts of
done after the order of insolvency. the fir4m done after his death.
(c) The firm is not liable for any act of (c) The firm is not liable for any act
the insolvent partner done after of the deceased partner done after
order of insolvency. his death.

EXPULSION OF A PARTNER (Sec. 33)

General rule A partner cannot be expelled from the firm.

Exception A partner may be expelled only if the following conditions are satisfied:
(a) The agreement between the partners contains a specific power which
allows expulsion of a partner.
(b) The power to expel is exercised in good faith.
(c) The power to expel is exercised by a majority of partners.

RIGHTS AND DUTIES OF PARTNERS AFTER (Sec. 17)

CHANGE IN CONSTITUTION OF FIRM
General rule The rights and duties of the partners remain the same as before, in the following
cases:
(a) Where a change occurs in the constitution of a firm (e.g., admission or
retirement of a partner).
(b) Where the firm was constituted for a particular venture or undertaking,
 but the firm continues to carry on business even after completion of such
venture or undertaking.
(c) Where the firm was constituted for a fixed period, but the firm
continues to carry on business even after expiry of such period.
Exception The agreement between the partners may provide otherwise.
 TRANSFER OF PARTNERS INTEREST (Sec. 29)
Mode of transfer  A partner may transfer his interest to any other person.
of interest  The transfer of interest may be made by way of charge, sale or otherwise.
Transferee-not  The person to whom the interest is transferred (i.e., the transferee) does not
partner become a partner in the firm.
 He does not get any of the following right:
(a) Right to interfere in the conduct of business of the firm.
(b) Right to inspect the books of account.
Rights of (a) During the continuation of firm, he has a right to receive the agreed
transferee share of profit of the contracting partner.
(b) On dissolution of the firm, he has a right to share the property of the
firm.
Ground for Where a partner transfers the whole of his interest, any other partner can apply to
dissolution the Court for dissolution of firm on this ground.

DISSOLUTION (Sec. 39)

Dissolution of Meaning Dissolution of firm means end of mutual relations between
firm all the partners.
Consequences  The partnership between all the partners comes to an end.
 The business of the firm comes to an end.
 The firm as a whole is closed down.
Dissolution 
of If a change takes place in the constitution of a firm, but the firm is not
partnership dissolved, it is called as dissolution of partnership.
 In other words, a change in mutual relations of the partners is called as
dissolution of partnership.
 The firm continues to carry on the business.

MODES OF DISSOLUTIN OF A FIRM (Sec. 40 to 44)

I.Dissolution without the intervention of the court

1. Dissolution A partnership (whether particular partnership or partnership at will) may be
by consent of dissolved with the consent of all the partners.
all the
partners
2. Compulsory Meaning of It means that the agreement between the partners cannot
dissolution compulsory provide otherwise (i.e., the agreement cannot provide that
dissolution the firm shall continue to exist in such cases).
Circumstances  If all the partners become insolvent.
when firm is  If all the partners except one become insolvent.
compulsorily  If the business of the firm becomes unlawful.
 dissolved
Dissolution on General rule In the following cases the firm is dissolved:
happening of (a) Where a partner becomes insolvent.
certain (b) Where a partner dies.
contingencies
(c) Where the partnership is formed for a fixed period, and
such period expires.
(d) Where the partnership is formed for a particular venture
or undertaking, and such venture or undertaking is
completed.
Exception The agreement between the partners may provide otherwise.
4. Dissolution by When can If the partnership is at will, it can be dissolved anytime by
notice notice be giving a notice of dissolution.
given
Conditions (a) The notice can be given only by a partner.
(b) The notice must be served to all other partners.
(c) The date of dissolution shall be-
 The date specified in the notice; or
 The date of notice, if no date is specified in the
notice.
5. Dissolution by  Any partner may apply to the Court for seeking an order of dissolution.
order of court  Such application may be made to the Court even if the firm was formed for a
fixed period or for a particular venture or undertaking.
 The agreement between the partners cannot take away this statutory right.
 The Court has the discretion whether or not to order the dissolution.

II.Dissolution by the order of the court

Ground Who Can File the Suit
1. A partner has become of unsound mind. Any other partner
2. A partner has become permanently incapable of performing his duties. Any other partner
3. A partner is guilty of conduct which is likely to affect prejudicially the Any other partner
carrying on of the business, regard being had to the nature of the
business.
4. A partner willfully or persistently commits breach of agreements. Any other partner
5. A partner has transferred whole of his interest in the firm to a third Any other partner
party.
6. The business of the firm cannot be carried on except at a loss. Any partner of the firm
7. Any other ground which renders it just and equitable that the firm Any partner of the firm
should be dissolved.
NEED FOR REGISTRATION OF A FIRM
Registration is  The registration of a firm is not compulsory.
optional  It is the option of a firm to get itself registered or not.
Disadvantage of  Registration of firm is advantageous to the firm since a registered firm
non-registration can maintain an action arising from a breach of contract in a Court of
law. .
 If a firm is not registered, it cannot maintain such an action, and so
non-registration results in various disabilities for the firm.
Effects of  Mere non-registration of a firm does not make the firm or the business of
non-registration the firm illegal.
 No penalty is imposed if a firm is not registered.
 All the transactions between the partners, and between the firm and a
third party remain valid
Application to  The firm is required to make an application to the Registrar of Firms.
whom  The applications can be made to Registrar of Firms of such area in which
any place of business of the firm is situated or proposed to be situated.
Time of making  No time limit has been prescribed for registration of a firm.
application  An existing firm may make an application for registration anytime, i.e.,
after registration.
 A proposed firm may obtain registration even before its formation.
Manner of  Mode - in writing
making  Form - prescribed form
application  Fees - prescribed fee
 Signed - by all the partners
 Enclosures - partnership deed
Contents of Particulars about (a) Name of the firm
application the firm (b) The principal place of business
(c) Other places where the firm carries on
business

Particulars about (a) Name of each partner

the partners (b) Permanent address of each partners
(c) Date of joining the firm.
Certificate of Conditions for The Registrar must be satisfied that all the
registration issue requirements as to registration and incidental thereto
have been duly complied with.
Procedure for The registrar shall-
registration (a) register the firm
(b) Enter the following particulars in the
Register of Firms.
 The name of the firm
 The names of all the partners of the
firm.
 (c) issue a certificate of registration
Effective date of Date when the Registrar enters the particulars in the
registration Register of Firms.
Change of Change in-  File with Registrar a new application form
particulars after  firm containing changed particulars.
registration of a name; or  The application shall comply with all the
firm  principal requirements which are required to be complied
place of with at the time of new registration of the firm.
business
Other changes A notice of change shall be sent to the registrar.

EFFECTS OF NON-REGISRTRATION OF A FIRM SEC 69

1. No suit by A partner of an unregistered firm cannot file a suit against
a partner
 the firm; or
 any other partner (whether past or present)

for the enforcement of any right arising under a contract; or

- conferred by the Act.
2. No right An unregistered firm cannot file a suit against
to sue third a third party for the enforcement of any right arising under a contract.
parties
3. No right If a suit is filed by a third party against an unregistered firm,
to claim a the unregistered firm or any of its partners cannot claim a set off.
set-off
4. No right (a) A partner of an unregistered firm cannot enforce against the
to enforce firm
other
proceedings or any other partner of the firm any other
right arising under a contract.
(b) An unregistered firm cannot enforce against a third party any other
right arising under a contract.

EXCEPTIONS TO CONSEQUENCES OF NON-REGISTRATION (Sec. 69)

1. Suit by a (a) A partner may file a suit in the Court for seeking dissolution of firm.
partner (b) A partner may file a suit seeking a direction that he shall be provided with
the accounts of the dissolved firm.
(c) A partner may file a suit seeking a direction that he shall be paid his due
share of property in the dissolved firm.
2. Non-contractual A firm can file a suit for enforcement of a right which arises otherwise than
rights under a contract.
3. Suit etc. of a If the amount due to an unregistered firm does not exceed Rs. 100, the
value up to Rs. 100 unregistered firm or any of its partners shall have the following rights:
(a) Right to file a suit for recovery of amount due
(b) Right to enforce set off.
4. Recovery in Where a partner of an unregistered firm is adjudicated an insolvent, the Court
case of insolvency (or the official assignee or the official receiver, as the case may be) shall have a
of a partner right to realize the property of the insolvent partner.
5. Rights of a third  The disabilities apply against an unregistered firm, and not in favour of the
party unregistered firm.
 Therefore, a third party is entitled to sue the firm, whether or not the firm
is registered.
6. No disability if The disabilities of an unregistered firm may be removed by getting the firm
firm is registered registered before filing the suit.
subsequently

INDIAN CONTRACT ACT

MEANING OF CERTAIN TERMS (Sec. 2)

Proposal / Offer When one person signifies to another
Sec 2(a) His willingness
To do or to abstain from doing anything,
With a view to obtaining the assent of that
 To such act; or
 Abstinence,
He is said to make a proposal (i.e., offer) (Legal obligation)
Promise 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
Agreement Sec 2(e) Every promise
&
Every set of promises, forming the consideration for each other,
Is an agreement
Contract Sec 2(h) An agreement enforceable by law is a contract.
Promisor & Promisee When a proposal is accepted
- The person making the proposal is called as ˜promisor; and
- The person accepting the proposal is called as ˜promisee.
Consideration When, at the desire of the promisor,
The promisee or any other person
Has - done/abstained from doing something; or
- does/abstains from doing something; or
- promises to do/abstain from doing something,
Such act/abstinence/promise is called a consideration for the promise.
Void agreement An agreement not enforceable by law is said to be void.
Voidable contact An agreement is a voidable contract if
 It is enforceable by law at the option of one or more of the parties thereto,
 It is not enforceable by law at the option of the other or others.
Void contract A contract
Which ceases to be enforceable by law
Becomes void when it ceases to be enforceable.

MEANING OF CONTRACT (Sec. 2 & 10)

Definition [Sec. 2 (h)]  An agreement enforceable by law is a contract.
Essentials of a  Following are the two basic elements of a contract.
contract (a) There must be an agreement
(b) The agreement must be enforceable by law.
 In other words, Contract = agreement + enforceability of agreement.
What agreements are  There must be an agreement between the parties
contracts  The parties must have an intention to create legal relations.
[Sec. 10]  The parties must freely consent to enter into the agreement.
 The parties must be competent to contract.
 There must be consideration.
 The consideration must be lawful.
 The object of the contract must be lawful.
 The agreement is not expressly declared to be void.
 The legal formalities for entering into such a contract are completed.
 It is possible to perform the agreement (Sec. 56)
 The terms of the agreement are certain or are capable of being made
certain (Sec. 29)

DISTINCTION BETWEEN AN AGREEMENT AND A CONTRACT

Basic of difference Agreement Contract
Meaning Agreement = offer + acceptance Contract = agreement + enforceability
Creation of legal An agreement does not create a legal A contract necessarily creates legal
obligation obligation unless it satisfies the obligations.
requirements of various provisions of
law.
One in other The term agreement is wider than Every contract is an agreement.
contract. An unenforceable agreement
is not a contract.
AGREEMENT TO DO IMPOSSIBLE ACT (Sec. 56)
Agreement to do an If - An agreement is made to do a particular act;
impossible act - At the time of making of agreement, it is certain that such an act is
impossible;
Then - The agreement is void.
Agreement to do an If - A contract is made to do a particular act;
act which - At the time of making of contract, such an act is not impossible;
subsequently - After the contract is made, such an act becomes impossible;
becomes impossible Then - The contract has become void.
Illustrative cases
Situation Result
A agrees with B to discover treasure by magic The agreement is void.-
A and B contract to marry each other. Before the The contract has become void.
time fixed for the marriage, A becomes mad.
A contract to marry B, being already married to C, The agreement is void. A must make
and being forbidden by the law to which he is compensation to B for the loss caused to her
subject to practice polygamy. by non-performance of his promise.
A contract to take in cargo for B at an American The contract has become void.
port. As Government afterwards declares war
against America.
A contract to act at a theatre for 6 months in a The contract to act on such occasions, on
consideration of a sum paid in advance by B. On which A is unable to act because he is ill,
several occasions A is too ill to act. becomes void.

AGREEMENT VOID FOR UNCERTAINTY - (Sec. 29)

An agreement is void, if the meaning of such agreement is
Not certain; or
Not capable of being made certain.
Illustrative cases

ILLUSTRATIVE CASES
Situation Result
A agrees to sell B ˜a hundred tons of oil The agreement is void for uncertainty since the
description of oil is not specified.
A agrees to sell B 100 tons of oil of a specified There is no uncertainty and therefore the agreement
description, known as an article of commerce. is not void.
Mr. A, who is a dealer in coconut oil only, The nature of As trade implies that intends to sell
agrees to sell to B 100 tons of oil 100 tons of coconut oil. So, there is no uncertainty.
A agrees to sell to B all the grain in his granary There is no uncertainty since it is possible to
at Laxmi Nagar. determine the quantity of grain lying at Bs granary
at Laxmi Nagar.
A agrees to sell to B 1000 Kgs. Of rice at a As the price is capable of being made certain, there
price to be fixed by C. is no uncertainty to make the agreement void.
A agrees to sell to B his white horse for Rs. 500 There is nothing to show which of the two prices
or Rs. 1000 was to be given. Therefore, the agreement is void.
CLASSIFICATION OF CONTRACTS (Sec. 2&9)
On the basis of Express contract A contract made by words spoken or written.
creation Implied contract A contract inferred by
- The conduct of a person; or
- The circumstances of the case.
On the basis of Executed contract A contract in which both the parties have fulfilled their
execution obligations under the contract.
Executory contract A contract in which both the parties have still to fulfill
their obligations.
Partly executed and A contract in which one of the parties has fulfilled his
partly executory obligation but the other party is yet to fulfill his
obligation.
On the basis of Valid contract An agreement which satisfies all the requirements
enforceability prescribed by law.
Void contract A contract
Which ceases to be enforceable by law
Becomes void when it ceases to be enforceable.
Void agreement An agreement not enforceable by law is said to be void.
Voidable contract An agreement is a voidable contract if
- It is enforceable by law at the option of one or more
of the parties thereto,
- It is not enforceable by law at the option of the other
or others.
Illegal agreement An agreement the object of which is unlawful.
Unenforceable A contract which fulfils all requirements of a contract
contract except some technical requirements. It becomes
enforceable when the defect is subsequently removed.

MEANING OF OFFER [Sec.2 (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
To such act; or
Abstinence,
He is said to make a proposal (i.e., offer).

HOW TO MAKE AN OFFER? / MODE OF MAKING OFFER (Sec. 9)

Express offer It means an offer made by words spoken or written.
Implied offer It means an offer inferred by
 The conduct of a person; or
 The circumstances of the case.
TO WHOM AN OFFER IS MADE?
Specific Offer It means an offer made to
(a) A particular person; or
(b) A particular group of persons.
General Offer  It means an offer which is made to the public in general.

LEGAL RULES AS TO VALID OFFER

Communication of Handerson v Stevenson
complete offer  X purchased a steamer ticket for traveling from Dablin to White Haven.
 On the back of the ticket, certain conditions were printed. One of the
conditions excluded the liability of the company for any loss, injury or
delay to the passengers or their luggage.
 X never looked at the back of the ticket and there was nothing to draw his
attention to the conditions printed on the back side.
 Xs luggage was lost due to the negligence of the servants of the shipping
company.
 Since the steamer company had not taken any steps to ensure that the
conditions printed on the back of the ticket were brought to the knowledge
of the passengers, such conditions do not form part of the contract.
 Therefore, X was entitled to recover the damages for loss of his luggage.
Parker v S.E. Rail Co.
 P deposited his bags in the cloakroom at a railway station.
 On the face of the receipt, the words ˜see back were printed. One of the
conditions printed on the back was œthe liability of the railway company
shall be limited to $ 10 for any package•.
 Ps bag was lost. He claimed the actual value of bag amounting to $ 24.
 It was held that the disclaimer clause was binding on P since the railway
company had taken all reasonable steps to ensure that the conditions
printed on the back were brought to the knowledge of P.
An offer must not An offer must not contain any term the non-compliance of which amounts to
thrust the burden of acceptance.
acceptance on the Felthouse v Bindley
transferee  A wrote to B œI will sell you my horse for Rs. 500. If I do not receive a
reply by Sunday next, I shall assume that you have accepted the offer.•
 B did not reply.
 It was held that an offer can not impose the burden on the offeree to
reply. Acceptance is valid only if it is communicated to the offeror.
 Since B had not communicated his acceptance to A, there was no
contract between A and B, and therefore A could not sue B.
Cross offers do not  Two offers which are similar in all respects made by two parties to each
conclude a contract other, in ignorance of each others offer are known as ˜cross offers. Cross
offers do not conclude a contract.
Counter offer A counter offer amounts to rejection of the original offer.
Offer must be  An invitation to offer does not imply a valid offer.
distinguished from
invitation to offer
Offer must be A declaration or a statement merely indicates that an offer will be made or
disting-uished from a invited in future.
declaration of intention.
An offer must be The terms of the offer must be
certain. (a) Definite;
(b) Unambiguous; and
(c) Certain.

LAPSE OF AN OFFER
Notice by offeror, i.e.,  Revocation of offer means withdrawal or cancellation of the offer.
Revocation  An offer can be revoked by the offeror anytime. However, revocation is
effective only if it is made before the offer is accepted.
Lapse of time An offer lapses if it is not accepted
 Within the time specified in the offer;
 Within reasonable time, if no time is specified in the offer.
Non-fulfillment of If an offer requires fulfillment of some condition before the offer can be
condition precedent. accepted, the offer shall lapse if such condition is not fulfilled.
Counter offer A counter offer results in rejection of the original offer.
Acceptance is not If the offeree accepts the offer in a manner which is different from the manner
made in prescribed specified by the offeror, the offeror may refuse to treat such acceptance as
mode valid, and consequently the offer shall lapse.
Death or insanity of An offer shall lapse in the following cases:
the offeror or offeree (a) Where the offeror dies or becomes insolvent and such fact comes to
the knowledge of the offeree before acceptance of the offer.
(b) Where the offeree dies or becomes insolvent before acceptance of the
offer.
Rejection by the An offer comes to an end if the offeree rejects the offer and communicates
offeree his refusal to the offeror.
Subsequent illegality If, after making of an offer, the subject matter of the offer is destroyed or the
etc. performance becomes impossible or unlawful, the offer shall lapse.

Acceptance
INTRODUCTION TO ACCEPTANCE (Sec. 2 (b))
Definition of When the person to whom the proposal is made
acceptance Signifies is assent
Thereto
The proposal is said to be accepted.
Promise In case of a specific offer In case of a general offer
 Only that particular person/group Any person if
of persons to whom the specific - He has the knowledge of the
offer has been made and none else. offer; and
- He fulfils the terms and conditions
of the offer.
Mode of acceptance (a) Express acceptance
(b) Implied acceptance
LEGL RULES FOR A VALID ACCEPTANCE (Sec. 7)
Absolute & unqualified  The offeree should assent to all the terms of the offer.
 There must be no variation/reservation, i.e., acceptance must be
unconditional.
Acceptance must be Acceptance cannot be made in ignorance of the offer.
communicated Mere mental acceptance is no acceptance.
Acceptance to whom?  The acceptance must be communicated to the offeror.
Felthouse v Bindley
 F made an offer to his nephew to buy the nephews horse for Rs. 500.
 The offer stated that if the nephew failed to reply to the offer of F
within 10 days, F shall consider that the horse had been sold to him.
 The nephew directed his manager not to sell that horse to anybody
since he wanted to sell that horse to F. But, the nephew did not send any
reply to F.
 By mistake, the manager sold that horse to some other person.
 It was held that nephew was not bound to send notice of refusal to F.
Therefore, failure to send the letter of refusal within 10 days did not
amount to acceptance.
 Also, nephews communication of decision to sell the horse of F did not
result in a valid acceptance since such decision was not communicated
to F, the offeror.
 Since there was no contract between F and the nephew, F had no right
against the nephew.
Acceptance by whom? Acceptance must be given by the person who has the authority to accept the
offer.
Manner of acceptance. Situation (A) : The offer does Situation (B): The offer prescribes the
not prescribe the manner of manner of acceptance.
acceptance
The offer must be accepted in  The offer must be accepted in the
some usual and reasonable prescribed manner.
manner.  If the offer is not accepted in the
prescribed manner, the offeror may
approve or reject such acceptance.
Time limit for Situation (A): The offer does Situation (B): The offer prescribes the
acceptance not prescribe the time limit time limit.
The offer must be accepted The offer must be accepted within the
within reasonable time. prescribed time limit.
Acceptance must be  Acceptance can be given only to an existing offer.
given before the offer  An offer open for a limited period can be accepted only before the
lapses or revoked expiry of such specified period.
 An offer can be revoked before acceptance.
Mode of acceptance Acceptance may be given by
 Performance of conditions, or
 Acceptance of consideration.

WHEN IS COMMUNICATION COMPLETE (Sec. 4)

Communication of Communication when complete?
Offer When the offer comes to the knowledge of the offers.
Acceptance Communication is complete When acceptance is put in a course of
against the offer transmission so as to be out of the power of
the offeree.
Communication is complete When acceptance to the knowledge of the
against the offeree offeror.
Revocation Communication is complete When revocation is put in a course of
against the person who transmission
makes it - So as to be out of the power of the person
who makes it.
Communication is complete When revocation comes to the knowledge of
against the person to whom it the person to whom it is made.
is made -

TIME LIMIT FOR REVOCATION (Sec. 5)

Revocation of ¦ Time limit for revocation
Offer Before communication of acceptance is complete against the offeror.
Acceptance Before communication of acceptance is complete against the offeree.

Consideration
MEANING OF CONSIDERATION (Sec. 2 (d))
When, at the desire of the promisor,
The promisee or any other person
Has done/abstained from doing, or does/abstains from doing, or promises to do/to
abstain from doing, something,
Such act/abstinence/promise is called a consideration for the promise.

ESSENTIALS OF A VALID CONSIDERATION

Consideration must An act or abstinence shall constitute a good consideration only if it is done at
move at the desire of the desire of the promisor.
the promisor.
Consideration may  So long as there is consideration for promise, it is immaterial as to who has
move from promisee furnished it.
or any other person.  If a party receives consideration, the contract is valid, even though the
person furnishing the consideration is not a party to the contract.
 Where a third party furnishes the consideration, it is valid consideration.
 As long as there is consideration in a contract, it is immaterial as to who
has given this consideration. This rule is generally stated as ˜Privity of
consideration is not required.
It must be different Consideration received by a party must be something more than the otherpartys
from promisors contractual and legal obligation.
existing obligation
Consideration must An agreement is void if the consideration furnished by any of the parties is
be lawful unlawful.
It must be real, and  Consideration received by a party must be of some value.
not illusory  Consideration must not be illusionary (i.e., existing in name)

EXCEPTIONS TO THE RULE: NO CONSIDERATION NO CONTRACT

Agreements made on  The agreement is made in writing.
account of natural  The agreement must be registered.
love and affection  The agreement must be made between the parties standing
Conditions in immediaterelation to each other.
 There must be natural love and affection between the parties. However,
mere nearness of relationship does not imply natural love and affection.
Compensation for  A party renders some services to the other party or performs the legal
past voluntary obligation of the other party.
services - conditions  The services are rendered without any desire of the other party, i.e., the
services are rendered voluntarily.
 The other party afterwards promises to compensate the former party for the
services rendered to him.
Promise to pay a Meaning of time A creditor can sue the debtor for recovery of his money
time-barred debt barred debt by going to the Court of law. However, if the creditor
fails to institute the suit within 3 years of debt
becoming due for payment, the debt is said to be time
barred debt, i.e., the creditor cannot institute the suit
after the expiry of said period of 3 years.
General rule The general rule is that an agreement to pay a time
barred debt is void.
Exception An agreement to pay a time barred debt is enforceable
if the following conditions are satisfied:
 The debt is a time barred debt.
 The debtor promises to pay the time barred debt.
 The promise is made in writing.
 The promise is signed by the debtor.
Completed gift  Agreement to make a gift is not enforceable.
 However, once a gift has actually been made, the donor cannot demand
it back on the ground that there was no consideration.
Agency No consideration is necessary to create an agency.
Remission No consideration is necessary for an agreement to receive less than what is due.
Guarantee In a contract of guarantee, consideration received by the principal debtor shall
be sufficient consideration for the surety.
PRIVITY OF CONTRACT (Sec. 25)
Privity of It is well established that privity of consideration is not required.
consideration Consideration may move from promisee or any other person.
So long as there is consideration for promise, it is immaterial who has
furnished it.
Privity of contract  The general rule is that only the parties to a contract can sue.
Meaning  In other words, if a person is not a party to the contract (i.e., a stranger to
contract), he cannot sue.
Privity of contract Dunlop Pneumatic Tyre Co. V Selfridge and Co.
Example  D entered into a contract of sale of certain tyres to P.
 The contract provided that P shall not sell the tyres below the list price.
Also, the contract provided that P shall, at time of resale, impose a
condition on the retailer that sale by retailer shall not be made below the list
price.
 P sold certain tyres to S.S. resold certain tyres below the list price.
 In a suit instituted by D against S, the Court held that such suit was not
maintainable since there was no privity of contract between S and D.
Privity of contract Creation of a trust. Beneficiary is not a party to the agreement creating a
Exceptions trust.
However, the beneficiary is allowed to sue the trustee
for enforcement of trustees duties.
Marriage / Family Where a marriage or family settlement is made, the
arrangements person who is a beneficiary under such settlement is
entitled to sue even though he may not be a party to sue
settlement.
Acknowledgement The person, who becomes an agent of a third party by
acknowledgement, can be sued by such third party.
Assignment of a An assignee is entitled to exercise all the rights which
contract. could have been exercised by the assignor previously,
even though the assignee was not a party to the contract
as originally made.

CAPACITY OF PARTIES
EFFECTS OF MINORS AGREEMENT
Agreement is void ab A minor is incompetent to enter into any contract. Therefore, any agreement
initio, i.e., without made by a minor is void ab initio, i.e., it is without any legal effect.
any legal effect. Mohori Bibi v Dharmodas Ghose (IMP.)
 A minor entered into an agreement for mortgage of his property.
 He was paid a certain amount for mortgaging the property.
 Afterwards, the mortgagee filed a suit against the minor for recovery of
money paid to the minor.
 It was held that the money was paid to the minor under a void agreement,
and therefore the mortgage was not valid.
An agreement for the  The principle laid down in Mohori Bibi v Dharamodas Ghose applies only
benefit of minor is if the agreement creates an obligation of a minor.
enforceable by minor  Where, an agreement is for the benefit of a minor, the agreement is not
void and therefore the minor can enforce such agreement.
 If the other party to the agreement fails to perform his part of obligation,
the minor can claim restitution.
Restitution Khan Gul v Lakha Singh
Following principles were laid down in the above case:
 The Court may grant relief to the other party if the other party had entered
into a contract with the minor on the basis of a misrepresentation made by
the minor.
 If the minor had received some consideration under the agreement, the
Court may grant restitution to the other party.
 However, the minor shall not be personally liable. In other words,
restitution shall be made only to such an extent as the estate of minor has
been benefited.
 The power of the Court to grant relief is discretionary in nature.
 The Court shall not grant relief if the other party had the knowledge of the
fact that it was entering into an agreement with a minor.
No estoppel against a  If the rule of estoppel is applied against a minor, it would amount to an
minor indirect way of enforcing a void agreement.
 Therefore, the rule of estoppel does not apply against a minor.
No specific  The other party cannot demand that minor should perform the obligation
performance which he had agreed to perform under the agreement.
No ratification by a  Ratification means acceptance of a transaction already done.
minor  An agreement entered into by a minor cannot be ratified by him after he
has attained majority.
 Where on attaining majority, a minor agrees to pay for the goods supplied by a
third party, such agreement is void for want of consideration.
No liability of guardian The guardian of a minor shall not be liable for acts of a minor.
Contracts by a The contract by a guardian on behalf of a minor shall be valid if
guardian Valid (a) The contract is for the benefit of minor; and
(b) The guardian has the authority to enter into such a contract.
Minors liability for Nature of As per Sec. 68, a minor is liable for necessities supplied to
necessities liability (a) him; or
(b) Any other person who is dependent on the minor.
 Conditions (a) The liability is only for ˜necessities of life. The term
˜necessity means necessities of life as per the social status
and conditions of life of the minor.
(b) The minor is not already in possession of such
necessities.
(c) The minor shall not be personally liable.
PERSONS OF UNSOUND MIND (Sec. 12)
Meaning of ˜sound A person is said to be of sound mind if he is able to -
mind  understand the contract; and
 Form a rational judgment.
Presumption The law presumes that every person is of sound mind.
Requirements of law At the time of entering into a contract, a person must be of sound mind. A
person can enter into a contract in accordance with the following principles:
Nature of person When can he enter into a contract?
A person of sound  He can enter into a contract at all the times.
mind  He cannot enter into a contract when he is of
unsound mind.
A person of unsound  He can enter into a contract only at such intervals
mind. of time, if any, when he is of sound mind.
Burden of proof Case Burden of proving otherwise
A person who is The burden of proving that he was of unsound mind
usually of sound mind at the time of entering into the contract lies on the
person who challenges the validity of the contract.
A person who is The burden of proving that he was of sound mind at
usually of unsound the time of entering into the contract lies on the
mind. person who affirms the contract.
22 PERSONS DISQUALIFIED UNDER LAW
Company  A company is a legal person and therefore it can enter into a contract in its
own name.
 However, a company is disqualified to enter into any contract which falls
outside the object clause of memorandum
Alien enemy Existing contract - is suspended until the war is over;
- is discharged, if such contract is against public
policy.
Fresh contract - cannot be entered into until the war is
over
Permission of CG - An existing contract can be enforced;
- A fresh contract can be entered into.
Foreign diplomats Right to sue others
Can be sued Available
- Only in the following cases:
- (a) Where he submits himself to the Court
- (b) Where approval of CG is obtained.
Convict Existing contract Is suspended until his conviction is completed.
Fresh contract Cannot be entered into
Permission of CG An existing contract can be enforced.
A fresh contract can be entered into.

Free Consent
COERCION - CONDITIONS (Sec. 15)
(a) Acts forbidden by  Actually committing an offence forbidden by IPC; or
IPC Unlawful  Threatening to commit an offence forbidden by IPC
detention of
 Actually detaining the property; or
property
 Threatening to detain the property

(b) Intention  Causing any person to enter into an agreement.

Other points :
Applicability It is irrelevant as to whether or not IPC is in force
of IPC is not relevant  At the time when coercion is employed; or
 At the place where coercion is employed.
How coercion may  Coercion may proceed from
proceed?  A party to the contract; or
 Stranger to contract.
Against whom Coercion may be directed against -
coercion may be  A party to the contract; or
directed?  Stranger to contract

UNDUE INFLUENCE - CONDITIONS (Sec. 16)

Relations between  One party is in a position to dominate the will of the other.
the parties
Use of the dominant  The dominant party uses his dominant position.
position
Dominant party  The dominant party obtains an unfair advantage by way of entering into a
obtains an unfair contact.
advantage
Undue influence was employed/not employed burden of proof.
Unconscionable  The burden of proof is on the dominant party.
transactions  The dominant party has to prove that undue influence was not employed.
Any other  The burden of proof is on the weaker party.
transaction  The weaker party has to prove that undue influence was employed.

MISREPRESENTATION
The term misrepresentation means a false representation of fact made
MEANING : innocently or non-disclosure of a material fact without any intention to
deceive the other party.
(1) Representation of Material fact
Essentials of (2) Representation is wrong but the person acting should believe it to be
Misrepresentation true.
(3) There should be no intention to deceive the party.
 Contract is voidable
 Consequences of
 Performance of contract
Misrepresentation
 Party cannot sue for damages

FRAUD :
Fraud means A false representation of a statement by a person who believes it
not to be true.
 An active concealment of fact inspite of having knowledge or belief of the fact.
Meaning  Promise made without any intention of performing it.
 Intention to deceive
 Any act or omission as specifically declared by law to be fraudulent.
 Mere silence does not amount to fraud.(Exceptions)
 Representation should be false
 Representation should relate to material fact, which exists or had existed in the
past.
Essentials of
 Representation should be made before conclusion of contract.
Fraud
 The intention must be to induce the other party to act upon it.
 The other party has relied, upon the representation, been induced to act upon it,
& have suffered loss.

By a party to the  It must be proved that fraud was committed by-
contract (a) A party to the contract; or
(b) Anyone with the connivance of a party to the contract.
CONSEQUENCES  Rescind the contract
OF FRAUD :  Performance of contract
 Sue for damages
 Mistake
Mistake of fact Mistake of law
Unilateral Bilateral Mistake of land Mistake of foreign
law
(a) Only 1 party to (a) Both parties are Mistake of Land Mistake of Foreign
the contract is at under Mistake (a) Law
mistake :- as to matter of Ignorantia juries (a) Treated as
 Subject matter fact essential to non excusal, i.e. Mistake of fact.
the agreement Ignorance of law
 Understanding (b) Agreement is
the terms & (b) There will be no of land is no void
condition of agreement as excuse.
agreement. there is no (b) Such mistake
consensus. shall not affect
the validity of the
contract.
(c) Contract is not
voidable.
(d) Contract is
voidable if there
was No free
consent.

Mistake
Mistake of fact Mistake of law
Law of land
Unilateral Bilateral Foreign law
Valid Void Valid Treated as mistake
(Exceptions of fact
apply)

UNLAWFUL OBJECT OR CONSIDERATION- (Sec. 23)

MEANING AND EFFECTS.
Circumstances in An agreement to do An agreement is unlawful if,
which object or something forbidden by It involves doing of an act which
consideration is law isforbidden by any law for the time being in
unlawful force.
 Defeating the provisions of An agreement is unlawful if,
any law It is of such a nature that if permitted
It would defeat the provisions of any law
Even though it is not directly prohibited by
any law.
Fraudulent An agreement is unlawful if
It is made to make a fraud on any person.
Involves injury to any An agreement is unlawful if
person or his property. It is made for the purpose of causing injuryto
- Any other person; or
- Property of another person.
Immoral or opposed to An agreement is unlawful
public policy If, the Court regards that object or
consideration of such agreement is
- immoral; or
- opposed to public policy
Legal effect Every agreement of which the object or consideration is unlawful is void.

WHEN IS OBJECT OR CONSIDERATION SAID TO BE AGAINST PUBLIC

POLICY
 Agreement for trading with enemy
 Agreement interfering with personal liberty.
 Agreement interference with parental duties
 Agreement interfering with marital duties..
 Agreement interfering with course of justice.
 Agreement for improper promotion of litigation.
 Agreement for stifling prosecution
 Maintenance agreement.
 Champerty agreement.
 Agreement to do an act against the duty of a person.
 Marriage brokerage agreement.
 Agreement not to bid.
 Agreement to create monopolies or to eliminate or reduce competition.
 Agreement for sale of public offices and titles.

MAINTENANCE AND CHAMPERTY AGREEMENT

(1) Maintenance  Refers to promotion of litigation in which a person has no interest
of his own. Where a person agrees to maintain a suit, in which he
has no interest, the proceeding is known as maintenance. It tends to
 encourage speculative litigation.
Ex.: X promises to pay Y Rs.25,000 for bringing a suit against Z,
Xs sole motive being to sue Z and annoy him.
Meaning of maintenance  A party agrees to provide assistance (Financial or otherwise) to
agreement another party to institute or defend a suit.
 The person providing such assistance has no interest in such suit.
 The party who receives such assistance agrees to pay something in
return to the person who provides such assistance.
Legal effect of  The maintenance agreement is valid, if it is bonafide and the
maintenance agreement payment the person providing such assistance is reasonable.

 Is an agreement whereby one party assists another in recovering

money or property and in turn shares in the proceeds of the action.
(2) Chamerty
Ex. : M agrees to pay D Rs.50,000 for suing J and in turn seeking
60% share in the proceeds received by D.
Meaning of Champerty  A party agrees to provide assistance (financial or otherwise) to
agreement another party to institute or defend a suit.
 The person providing such assistance has no interest in such suit.
 The party who receives such assistance agrees to share the
proceeds from the suit received by him in return to the person who
provides such assistance.
Legal effect of champerty  The Champerty agreement is valid, if it is bonafide and the share
agreement of proceeds paid to the person providing such assistance is
reasonable.

AGREEMENTS UNLAWFUL IN PART (Sec. 25)

An agreement containing Whether unlawful part can be separated from unlawful part-
legal and illegal parts.
 If ˜yes - Lawful part can be enforced; or

- Unlawful part cannot be enforced.

 If ˜no - The whole agreement is void.

A reciprocal agreement The reciprocal promise to do

containing legal and illegal
parts  Legal things can be enforced
 Illegal things - cannot be enforced.

An agreement containing The alternate promise to do

legal and illegal parts
 Legal things can be enforced
  Illegal things - cannot be enforced.

Void Agreements
AGREEMENTS IN RESTRAINT OF MARRIAGE (Sec. 26)
Every agreement in restraint of the marriage of any person is void.

AGREEMENTS IN RESTRAINT OF TRADE (Sec. 27)

Agreements in restraint of Every agreement by which
trade is void Anyone is restrained from exercising
A lawful profession, trade or business of any kind
Is void
To that extent.
Burden of proof  Party supporting the contract must show that the restraint is
reasonably necessary to protect his interests.
 Party challenging the contract must show that the restraint is
injurious to the public.
Exceptions to Sec. 27
Sale of goodwill (a) Such restriction must relate to a similar business.
(b) Such restriction must be within specified local limits.
(c) Such restriction must be for the time so long as the buyer or any
person deriving title to the goodwill from him, carries on a like
business in the specified local limits.
(d) Such specified local limits should be reasonable having regard to
the nature of the business.
Restriction on existing An agreement by a partner not to carry on any business other than that
partner of the firm is valid.
Restrictions on outgoing (a) An agreement may provide that an outgoing partner will not carry
partner on a similar business after dissolution of the firm.
(b) Such restriction must be within specified local limits or within a
specified period.
(c) The restriction should be reasonable having regard to the nature of
the business.
Restrictions on partners (a) An agreement may provide that some or all of the partners will not
upon or in anticipation of carry on a similar business.
the dissolution of the firm (b) Such restriction must be within specified local limits or within a
specified period.
(c) The restriction should be reasonable having regard to the nature of
the business.
Restriction in case of sale (a) At the time of sale of goodwill of the firm, a partner may agree that
of goodwill of a firm. he will not carry on a similar business.
(b) Such restriction must be within specified local limits or within a
specified period.
(c) The restriction should be reasonable having regard to the nature of
business.
AGREEMENTS IN RESTRAINT OF LEGAL PROCEEDINGS (Sec. 28)
Agreement restricting An agreement by which
enforcement of rights Any party is restricted absolutely
From enforcing his legal rights under any contract is void.
Agreements limiting An agreement which limits the time within which an action may be
period of limitation brought is void.
Exceptions (a) An agreement is not void merely because it provides that any
dispute arising between two or more persons shall be referred to
arbitration.
(b) An agreement is not void merely because it provides that any
dispute that has arisen between two or more persons shall be
referred to arbitration.

WAGERING AGREEMENTS (Sec. 30)

(A) An agreement between two persons under which money or moneys
worth is payable, by one person to another on the happening or
non-happening of a future uncertain event is called a wagering
Meaning agreement.
(B) A Wagering Agreement is a promise to give money or moneys
worth upon the determination or ascertainment of an uncertain
events.
(a) Uncertain Event
ESSENTIALS OF (b) Mutual chances of gain or loss
WAGERING (c) Neither party have control over event
AGREEMENTS (d) No other interest in the event
(e) Money or Moneys worth.
(1) Agreements are void
EFFECTS OF
(2) No Action
WAGERING
(3) No suit for Breach

WAGERING AGREEMENT
In Guj. & Maharashtra Other States in India
Wagering agreement have been declared Wagering agreements are not illegal.
Illegal & hence Void & Illegal. [Refer Sec. 30 They are void]
Collateral transaction also becomes Illegal. Collateral transactions are Valid.

By a party to the  It must be proved that fraud was committed by-

contract (a) A party to the contract; or
(b) Anyone with the connivance of a party to the contract.
 Contingent Contracts
INTRODUCTION TO CONTINGENT CONTRACTS (Sec. 31)
Meaning of A ˜contingent contract is a contract to do or not to do something,
contingent contract If some event, collateral to such contract, does or does not happen.
Essentials features of (a) It is a contract to do or not to do something.
a contingent contract (b) This contract is dependent on happening or non-happening of an
event.
(c) Such an event is a collateral event, i.e., it is collateral to the contract,
i.e., the event must not depend upon the mere will of a party.
(d) The event is uncertain.
Contract contingent When can it be enforced? When does it become void?
upon
Happening of an When such event has happened. When the happening of such event
event becomes impossible.
Non- happening of a When the happening of such event When such event has happened.
future event becomes impossible.
Happening of an When such event has happened within When the happening of such event
event within a the specified time. becomes impossible before the
specified time expiry of specified time.
When such event has not happened
within the specified time.
Non-happening of an When the happening of such event When such event has happened
event within a fixed becomes impossible before the expiry within the specified time.
time. of specified time.
When such event has not happened
within the specified time.
Future conduct of a When such person acts in the manner When such person does anything
living person. as desired in the contract. which makes the desired future
conduct of such person
(a) Impossible; or
(b) Dependent upon certain
contingency.
Impossible events Such an agreement cannot be enforced since it is void. Whether the
impossibility of the event was known to the parties or not is immaterial.
 Quasi Contracts
INTRODUCTION TO QUASI CONTRACTS
It means a contract which lacks one or more of the essentials of a
Meaning of a quasi contract
contract.
Basis of quasi contract Quasi contracts are declared by law as valid contracts on the basis of
principles of equity, i.e., no person shall be allowed to enrich himself at
the expense of another.
Legal effect of a quasi The legal obligations of parties remain same in case of a quasi contacts
contract. also, i.e., the parties will have same obligations and rights as if such
quasi contract fulfils all the essentials of a contact.
SUPPLY OF NECESSARIES TO PERSONS INCOMPETENT (Sec. 68)
TO CONTRACT
 A person who is incompetent to contact is made liable u/s. 68.
Who is made liable u/s. 68?
Conditions of Sec. 68 The liability of an incompetent person arises if necessities are supplied
to
 Such person (.e., incompetent person); or
 Any other person who is dependent on such incompetent person.
Liability of incompetent  The person who supplies necessities to the incompetent person is
person entitled to be reimbursed from the property of such incompetent
person.
 However, the incompetent person is not personally liable.
Meaning of necessities  ˜Necessities means necessaries suitable to the conditions in life of
the person to whom such necessities are supplied.
PAYMENT BY A PERSON WHO IS INTERESTED IN A (Sec. 69)
TRANSACTION
Conditions of Sec. 69  One person is legally bound to make a payment.
 Some other person makes such payment.
 The person making such payment is not legally bound to make such
payment.
 The person making such payment is interested in paying such
amount.
Legal effect of Sec. 69  If all the conditions of Sec. 69 are satisfied, the person who is
interested in paying such amount shall be entitled to recover the
payment made by him.
OBLIGATION OF PERSON ENJOYING BENEFIT OF (Sec. 70)
NON-GRATUITOUS ACT
Legal effect of Sec. 70  If the conditions of Sec. 70 are satisfied, there will be a quasi
contract between the parties.
 Consequently, the party who has done something or delivered a
 thing shall be entitled to recover its value from the person who
obtained the benefit of the same.
FINDER OF GOODS (Sec. 71)
A finder of goods has same rights and duties as that of a bailee.
MONEY PAID UNDER A MISTAKE OR COERCION (Sec. 72)
Conditions of Sec. 72  A person has -
o Paid money to another person; or
o Delivered something to another person.
 Such person must have acted-
o Under a mistake; or
o Under coercion
Legal effect of Sec. 72  If the above conditions are satisfied, there will be a quasi contract
between the parties.
 Consequently the party who has paid money or delivered a thing
shall be entitled to recover its value from the person who obtained
the benefit of the same.

Performance of a Contract
OBLIGATIONS OF PARTIES TO CONTRACTS ( Sec. 37 & 38)
Actual performance Promisor makes an offer of performance to the promisee.
The offer has been accepted by the promisee.
Offer to perform/ Tender / Promisor makes an offer of performance to the promisee.
Attempted performance The offer has not been accepted by the promisee.

44 TYPES OF TENDERS AND THEIR EFFECTS

Tender of goods and Goods or services need not be offered again if
services The promisor is
(a) Discharged;
(b) Not required to offer again;
(c) Not responsible for non-performance;
(d) Is entitled to sue the other party;
Tender of money The debtor remains liable to pay the debt.
The debtor is discharged from liability for payment of interest from the
date of tender.
CONDITIONS OR ESSENTIALS FOR A VALID TENDER (Sec. 38)
(a) The tender must be unconditional
(b) The tender must be for the whole obligation.
(c) The tender must be given at a proper time.
(d) The tender must be given at a proper place.
(e) The tender must give a reasonable opportunity of inspection.
(f) The party giving the tender must be wiling to perform his obligation.
(g) The tender must be made to the proper person.
(h) The tender must be made for the exact amount of money.

PERSONS LIABLE FOR, & ENTITLED TO, (Sec. 40 & 42)

PERFORMANCE
Persons liable for performance Persons entitled to performance
(a) Promisor (a) Promisee
(b) Agent of promisor (b) Agent of promise
(c) An of the several joint promisors (c) Joint promises
(d) Legal representative of a promisor (d) Legal representative of a promisee.

PERFORMANCE OF JOINT PROMISE (Sec. 42)

(a) All the joint promisors are jointly and severally liable. However, the
contract between the joint promisors may provide otherwise.
(b) A joint promisor may claim contribution from other joint promisors, if he is
compelled to perform the whole promise.
(c) A joint promisor may claim contribution from other joint promisors, if any
other joint promisor makes a default in performance of his promise.
(d) Where one of the joint promisors is released, other joint promisors shall
continue to be liable.

APPROPRIATION OF PAYMENTS (Sec. 59 to 61)

Application of  A debtor owes several distinct debts to the creditor.
payment where debt  The debtor makes a payment to the creditor.
to be discharged is
 The debtor intimates the creditor that the payment made is to be applied
indicated
to the discharge of some particular debt.
 The creditor has no option but to apply such payment for the discharge of
such particular debt.
Application of  A debtor owes several distinct debts to the creditor.
payment where debt  The debtor makes a payment to the creditor.
to be discharged is  The debtor does not indicate the debt for which the payment is to be
not indicated. applied.
 The creditor has the discretion to apply such payment for any lawful debt
which is due to him from the debtor.
Application of  A debtor owes several distinct debts to the creditor.
payment where none  The debtor makes a payment to the creditor.
of the parties makes
 The debtor does not indicate the debt for which the payment is to be
the appropriation
applied.
 The creditor accepts such payment but does not apply such payment for
any lawful debt which is due to him from the debtor.
 The payment shall be applied in discharge of the debts in order of time.

Discharge of a contract
MEANING OF DISCHARGE OF A CONTRACT
Discharge of contract means termination of contractual relations between the
parties to a contract.
MODES OF DISCHARGE OF A CONTRACT
1. Discharge by performance
2. Discharge by impossibility of performance.
3. Discharge by mutual agreement.
4. Discharge by lapse of time.
5. Discharge by operation of law
6. Discharge by breach of contract.

DISCHARGE BY PERFORMANCE (Sec. 37 to 38)

Actual performance  When both the parties perform their respective obligations in
accordance with the terms of the contract, the contract is discharge.
Attempted performance  Where a valid tender is not accepted by the other party, the promisor
or tender is discharged.
DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE (Sec. 56)
Effects of supervening  The contact becomes void. All the parties are discharged from their
impossibility respective obligations.
 Restitution is allowed.
DISCHARGE BY MUTUAL AGREEMENT (Sec. 62 to 63)
Novation  Novation means substitution of a new contract in place of the original
contract.
 The new contract may be-
o Between the same parties; or
o Between different parties.
 A new contract is entered into in consideration of discharge of the old
contract. In other words, the consideration for the new contract is the
discharge of the original contract.
Alteration  Alteration means a change in one or more of the terms of a contract
with mutual consent of parties.
 An alteration discharges the original contract and creates a new
contract between the parties.
 However, the parties to the new contract remain the same.
Remission  Remission means acceptance of a lesser consideration than agreed to
in the contact.
 A promise may
o Dispense with (wholly or in part) the performance of a promise
made to him; or
o Extend the time for performance due by the promisor; or
o Accept a lesser sum instead of the sum due under the contract; or
o Accept any other consideration than agreed to in the contract.
 No consideration is necessary for remission.
Rescission  It means cancellation of a contract by one or all the parties to the
contract.
(a) A party whose consent was not free may avoid the contract.
(b) A party to the contract may rescind a contract if breach of
contract is made by the other party to the contract.
(c) All the parties may mutually agree to bring the contract to an
end.
Waiver  Waiver means intentional relinquishment of a right under a contract.
Merger  Conversion of an inferior right into a superior right is called as
merger.
 The effect of conversion is that the contract under which inferior right
is created is discharged.

DISCHARGE BY LAPSE OF TIME

Where the time of performance by a party is due but the party fails to perform
within the time specified, the contract is discharged by non-performance.

DISCHARGE BY OPERATION OF LAW

Death  Contracts involving personal skill, knowledge or ability of the
deceased party are discharged automatically.
Waiver  Waiver means intentional relinquishment of a right under a contract.
Merger  Conversion of an inferior right into a superior right is called as
merger.
 The effect of conversion is that the contract under which inferior right
is created is discharged.
DISCHARGE BY LAPSE OF TIME
Where the time of performance by a party is due but the party fails to perform
within the time specified, the contract is discharged by non-performance.
DISCHARGE BY OPERATION OF LAW
Death  Contracts involving personal skill, knowledge or ability of the
deceased party are discharged automatically.
Insolvency  The insolvent is discharged from liability on all contracts entered into
upto the date of insolvency.
Unauthorized material  An alteration which changes the substance (i.e., legal effect or basic
alteration character) of a contract is called as material alteration.
Merger of rights.  If the rights and liabilities arising under a contract vest in the same
person, the contract is discharged.
DISCHARGE BY BREACH OF CONTRACT
Meaning of breach  Failure of a party to perform his part of contract is called as breach.
Consequences of breach  The other party is relieved from performing its part of obligation.
 It gets a right to proceed against the party at fault.

KINDS OF BREACH (Sec. 39)

Actual breach Time when breach  On the due date of performance
takes place  During performance.
Manner in which  Where a party fails to perform.
actual breach may  Where a party refuses to perform.
take place  Where a party acts in such a manner that it
becomes impossible for him to perform.
Anticipatory breach Meaning of Where a party declares his intention of not
anticipatory breach performing the contact before the performance of
contract is due.
Modes of (a) Express Repudiation. Where a party refuses
anticipatory breach to perform his obligation before the
performance has become due.
(b) Party disables himself. Where a party acts in
such a manner that it is impossible for him to
perform, i.e., the party has disabled himself
from performance that he had promised.

Remedies for Breach of a Contract

REMEDIES FOR BREACH OF A CONTRACT.
Following remedies are available in case of breach of a contract:
1. Rescission
2. Suit for damages
 3. Suit for specific performance
4. Suit for injunction.
5. Suit for quantum meriut

RESCISSION (Sec. 39)

Meaning of rescission  Rescission means a right available to an aggrieved party to terminate a
contract.
Effects of rescission  The aggrieved party is not required to perform his part of obligation.
 The aggrieved party can claim compensation for any loss caused to
him.
SUIT FOR DAMAGES (Sec. 73)
Meaning  Monetary compensation allowed for loss suffered by the aggrieved
party due to breach of a contract.
Object of awarding  Not to punish the party at fault.
damages  To make good the financial loss suffered by the aggrieved party due to
breach of contract.
Kinds of damages
Ordinary damages These damages are awarded for such loss suffered by a party which is a
proximate consequence of breach.
 Damages are not awarded if they have resulted because of an indirect
consequence.
Special damages  Special damages are awarded to cover such loss which through does
not arise naturally, but was in the contemplation of both the parties at
the time when the contract was made.
 These damages can be recovered only if the special circumstances
which would result in a special loss in case of breach of a contract are
communicated to the other party.
Exemplary or punitive These damages are awarded only in the following 2 cases:
or vindictive damages Breach of a contract The damages shall be calculated on the basis of
to marry mental injury sustained by the aggrieved party.
Unjustified dishonor The damages shall be calculated on the basis ˜lower
of a cheque the amount of cheque, greater will be the damages.
Nominal damages  Where no loss is suffered by the aggrieved party, the Court generally
awards nominal damages.
Damages for  Where a party has suffered physical inconvenience, discomfort or mental
inconvenience etc. agony as result of breach, the Court may award damages for the same.
Liquidated damages  Where the parties to a contract specify a certain sum in the contract
and penalty which will become payable as a result of breach, such specified sum is
called as ˜liquidated damages or ˜penalty
 If the specified sum represents a fair and genuine pre-estimate of the
damages likely to result due to breach, such specified sum is called as
˜liquidated damages.
  If the specified sum is disproportionate to the damages which are likely
to result as a result of breach, such specified sum is called as ˜penalty.
 In India, damages shall be restricted to a reasonable compensation not
exceeding the specified sum.
Forfeiture of security  If any loss is suffered by a party as a result of breach, the damages
deposit awarded to him shall be limited to the loss suffered by him.
 Any clause in the contract entitling the aggrieved party to forfeit the
security deposit is not valid.

Payment of interest  Payment of interest is permissible.

 If no rate of interest is mentioned in the contract, the party shall be
liable to ay interest
(a) As per any law for the time being in force;
(b) As per the custom or usage of trade.
 However, if the interest is in the nature of penalty, the Court may grant
relief.

SUIT FOR SPECIFIC PERFORMANCE

Meaning  Specific performance means demanding an order from the Court that
the promise specified in the contract shall be carried out.
When is specific  Actual damages arising from breach are not measurable.
performance allowed?  Monetary compensation is not an adequate remedy.
When is specific  Where damages are an adequate remedy.
performance not  Where the performance of contract involves numerous or minute
allowed? details, and therefore it is not possible for the Court to supervise the
performance of the contract.
 Where personal quality of a person is the subject matter of contract.
 Where the contract is dependent upon personal volition of the parties.
 Where the contract is inequitable to any of the parties.
 Where the contract is made by a company beyond its powers as laid
down in the object clause of memorandum of association.
 Specific performance cannot be enforced against a minor.
SUIT FOR INJUNCTION
Meaning  Injunction means an order of the court restraining the other party from
carrying out a particular act.
When is this remedy  The Court has the discretion whether or not to grant injunction.
available?  Where a party to the contract promises to do an act but refuses to
perform such act resulting in breach of contract, the aggrieved party
may claim an injunction order from the Court restraining the defaulting
party from performing such act in future.
SUIT FOR QUANTUM MERIUT (as much as he has earn)
One party preventing  If a party prevents the other party from completing his obligation
the other from under the contract, the aggrieved party may claim payment on
comp-letion of quantum meriut for the part of contact already performed by him.
contract
Divisible contract  A party at fault may sue on quantum meriut if
partly performed (a) The contract is divisible;
(b) The contract is partly performed; and
(c) The party not at fault has enjoyed the benefits of the part
performance.
Indivisible contract  A party at fault may sue on quantum meriut if
performed (a) The contract is indivisible;
completely but badly. (b) The contract is for a lump sum consideration;
(c) The contract is completely performed;
(d) The contract is performed badly.

SALE OF GOODS ACT

INTRODUCTION TO CONTRACT OF SALE
Definition A contract, where by-
of ˜Contract of The seller - (a) transfers; or
sale - (b) agrees to transfer the property in the goods to the buyer
for a price.
Definition of ˜sale A contract of sale, whereby-the property in goods is transferred from seller to
buyer.
Definition of A contract of sale, whereby-
˜Agreement to sell The property in goods shall be transferred-
(a) at a future time; or
(b) subject to some condition thereafter to be fulfilled.
˜Agreement to sell An agreement to sell becomes a sale when
becoming ˜sale (a) the time elapses; or
(b) the conditions are fulfilled subject to which the property in goods is
to be transferred.
Applicability of  The provisions of the Contract Act, 1872 shall also apply to contracts for
provisions sale of goods.
 However, the provisions of the Contract Act, 1872 shall not apply to
a contract of sale of goods if such provisions are inconsistent with
the provisions of the Sale of Goods Act, 1930.
Scope of the Act  The Act applies only to a contract of sale of goods.
 ˜Contract of sale is a wide term which includes
(a) sale; and
(b) Agreement to sell.
 The sale of Goods Act shall apply to a contract only if the ownership of
goods is transferred from one person to another
(a) immediately at the time of formation of contract; or
 (b) Subsequent to formation of contract.
 The sale of Goods Act shall not apply to
(a) bailment of goods;
(b) pledge of goods;
(c) any contract relating to immovable property;
(d) Contract of work and skill.
ESSENTIAL ELEMENTS OF CONTRACT OF SALE
Contract  All the requirements of a valid contract must be fulfilled.
 A contract of sale is made by an offer to buy or sell the goods for a price
and the acceptance of such offer.
 A contract of sale may be
(a) expressed (in writing or by word of mouth); or
(b) implied (by circumstances of the case or conduct of the parties).
 A contract of sale may be
(a) absolute; or
(b) conditional.
Parties to the There must be two parties, i.e., the seller and the buyer.
contract  Seller - A person who sells or agrees to sell the goods.
 Buyer - A person who buys or agrees to buy the goods.
˜Goods Means - every kind of movables property
Excludes - (a) actionable claims (i.e., a right or claim which can
be enforced In a Court of law )
(b) money (i.e., currency in circulation)
Includes - (a) stock and shares
(b) growing crops, grass
(c) things attached to or forming part of the land which are
agreed to be severed before sale or under the contract of sale.
Transfer of  ˜Property in goods means the general property in goods and not merely a
˜property in goods ˜special property in goods.
 ˜Property in goods means the ˜ownership of goods.
˜Price  Price means the money consideration for sale of goods.
 The consideration payable by the buyer must be ˜money.
 The consideration need not be money only, i.e., ˜price may be paid party in
Money and partly in some other form.
 Gift of goods, and exchange of goods (i.e., barter) does not result in a
contract of sale.

DISTINCTION BETWEEN SALE AND AGREEMENT TO SELL

BASIS SALE AGREEMENT TO SELL
Time of The transfer of ownership passes from The transfer of ownership passes from seller
transfer of Seller to buyer immediately. to buyer subsequent to the formation of
ownership agreement to sell.
Risk of loss The goods are at the risk of The goods are at the risk of the seller until
of goods the buyeras Soon as sale takes place. the agreement to sell becomes a sale.
Remedies In case of breach by buyer, the seller In case of breach by buyer, the seller cannot
for breach has the legal right to sue the buyer for Sue the buyer for recovery of price of goods.
by seller Recovery of price of goods.
 His right is limited to claim damages.
Right of In case of sale, the seller has no legal In case of agreement to sell, the seller can
resale Right to resell the goods. Resell the goods to any other person.
Insolvency If the buyer becomes insolvent, the If the buyer becomes insolvent, the official
of buyer Official assignee/official receiver shall Assignee/official receiver shall have no right
Have a right over the goods. Over the goods.
Insolvency If the seller becomes insolvent, the If the seller becomes insolvent, the official
of seller Official assignee/official receiver shall Assignee/official receiver shall have a right
Have no right over the goods. Over the goods.
Nature of In case of ˜sale, the buyer gets the In case of ˜agreement to sell, the buyer gets
rights rights Against the whole world, i.e., The rights only against the seller, i.e., jus in
jus in rem. personal.

CONTRACT FOR WORK AND SKILL

Meaning of A contract is a contract for work and skill if the following 2 conditions are
˜contract for work satisfied:
and skill  The substance of the contract (i.e., the main purpose of the contract) is to
exercise work and skill, and not to transfer goods. It is immaterial that
the party exercises work and skill upon the goods lying in his own
stock since supply of own goods is only incidental and ancillary (i.e.,
subsidiary) to the exercise of work and skill; the main purpose being to
exercise work and labour.
 The goods have no material significance in the minds of the parties to
contract.
Whether a  Whether a contract is a contract of sale or a contract of work and skill is a
contract is a mixed question of fact and law.
contract of sale or  The intention of the parties is the main criterion to determine whether a
a contract for contract is a contract of sale or a contract of work and skill.
work and skill?  If the dominant motive behind a contract is to render services and exercise
work and skill, it is a contract of work and skill, even though the
person exercising such work and skill supplies the goods from his own
stock.
 If the dominant motive behind a contract is to transfer the goods, it is a
contract of sale, even though while transferring such goods, some work
and skill is also exercised on the goods.

MODES AND FORM OF CONTRACT OF SALE (Sec. 5)

DELIVERY OF GOODS PAYMENT OF PRICE
Immediate Immediate
At a future date At a future date
By installments By installments
MODES OF FIXATION OF PRICE (Sec. 9)
Contract The price may be specified in the contract of sale.
Usage of trade If the parties regularly trade with each other, the price may be fixed as per
the usage of trade, i.e., on the basis of past transactions.
Third party  The contract of sale may provide that the price shall be fixed by a third
party named in the contract of sale.
 In such a case, the price shall be such as is fixed by the third party.
 If the third party fails to fix the price, contract of sale shall become void.
Reasonable price If the price cannot be fixed by any of the aforesaid criteria, the buyer shall
be liable to pay a reasonable price to the seller.

DESTRUCTION OF GOODS (Sec. 7 & 8)

Basis Sec. 7 Sec. 8
Nature of There must be a contract of sale, i.e., Sec. 8 applies only if the contract of
Contract of sale (a) sale; or sale is an agreement to sell.
(b) agreement to sell.
Time of Destruction of goods takes place Destruction of goods takes place
Destruction of Before formation of contract of sale. after Agreement to sell but before
Goods completion Of sale, i.e., before
agreement to sell Becomes a sale.
Nature of goods Sec.7 applies only if the goods are Sec. 8 applies only if the goods are
Specific goods Specific goods
Conditions Sec. 7 applies only if the destruction Sec. 8 applies only if the destruction
of goods takes place without any of goods takes place without any
knowledge of the seller. fault of the seller.

KINDS OF GOODS (Sec. 2)

Existing goods  The goods that exist at the time of formation of contract of sale are
called as existing goods.
 The seller is either the owner of such goods or has the possession of
such goods.
 Existing goods may further be classified as follows:
Specific goods Goods that are-
 Identified; and
 Agreed to by the parties
At the time of contract of sale.
Unascertained  Goods which are not specifically identified at the
goods time of contract of sale.
 At the time of contract, such goods are described
by description or sample only.
Ascertained Goods that are identified and agreed to by the parties
goods by the parties after formation of contract of sale.
Future goods Goods that are not in existence at the time of formation of contract of sale.
Contingent goods Such category of future goods, the acquisition of which is subject to some
condition, i.e., upon uncertain events which may or may not happen.

CONDITIONS AND WARRANTIES (Sec. 12)

BASIS CONDITION WARRANTY
Definition A stipulation Essential to the main A stipulation
purpose of the contract, Collateral to the main purpose of the
The breach of which Gives rise to a right Contract,
to treat the contract As repudiated. The breach of which-
(a) does not entitle the buyer to treat the
contract as repudiated;
(b) gives rise to a claim for damages.
Significance  It is a representation that forms the  Such representation does not form the
basis of the contract. basis of the contract.
 If such a representation is discoveredto  Even if such a representation is
be false, the buyer shall have aright discovered to be false, the buyer
to avoid the contract and receive back shall have no right to avoid the
the price paid by him. contract.
Treatment A breach of condition may be treated as a A breach of warranty cannot be treated as
breach of warranty. a breach of condition.
Types It may be expressed (i.e., mutually agreed It may be expressed (i.e., mutually agreed
to by the parties) or implied (i.e., to by the parties) or implied (i.e.,
presumed by law to be present in every presumed by law to be present in every
contract of sale). contract of sale).

IMPLIED CONDITIONS (Sec. 14, 15, 16 & 17)

Condition as Meaning The Law presumes that the seller has a valid title to the
to title goods, i.e., he has the right to sell the goods.
 ˜Right to sell means the right to pass the ownership of goods
in the same form as is expressed in the contract of sale.

Example At the time of sale of certain goods, S represented to B that such

goods are of ˜Nissly brand was an infringement of ˜Nestle brand, and
therefore B was legally bound to remove the labels of ˜Nissly brand
pasted on goods bought by him from S. It was held to be a breach of
condition as to title, even though S was competent enough to pass the
ownership of goods to B.
Condition as Meaning It means that description of goods given by the seller to the buyer
to description must be found present in the goods actually delivered to the buyer.
Applicability The condition as to description shall apply only if-
(a) the seller gives a description of goods proposed to be
sold to the buyer;
(b) the seller agrees to supply the goods to the buyer that will
 correspond to the description given by him; and
(c) the buyer buys the goods relying on the description given to
him.
Condition as Meaning It means that goods supplied by the seller must be same as the
to sample sample shown by him.
Applicability The condition as to sample shall apply only if-
(a) the seller shows a sample of goods proposed to
be sold to the buyer;
(b) the seller agrees to supply the goods to the buyer
that will correspond to the sample; and
(c) the buyer buys the goods relying on the sample
shown to him.
Requirements (a) That the goods supplied by the seller shall
correspond with the sample shown by the seller.
(b) That the seller shall give reasonable opportunity to
the buyer for inspection of goods.
(c) That the goods shall be free from any latent defect, i.e.,
the defect which is not apparent.
Condition as to It means that goods supplied by the seller must correspond to the description as
Sample as well as well as sample.
description
Condition as to General rule  A buyer must ensure himself that the goods purchased by
Fitness for buyers him-
Purpose (a) are free from any defects;
(b) are of the right quality (i.e., quality desired by him); and
(b) shall be fit for the purpose for which he intends to
buy the goods.
 If, after buying the goods the buyer realizes that goods bought
by him do not serve the intended purpose, the seller cannot
be held liable for it.
Exception There is a condition as to quality of goods or that the goods
shall be fit for the purpose of the buyer, if all the following
requirements are fulfilled:
(a) The buyer tells the seller the purpose for which
he requires the goods.
(b) The seller exercises his judgment and suggests
some goods which will suit the buyers purpose.
(c) The buyer relies on the judgment of the seller.
(d) The seller trades or does business in the kind of
goods which are subject matter of contract of sale. It
is immaterial that the seller is the manufacturer of
such goods or not.
Condition as Applicability This condition shall apply only if the following 2 requirements
tomerchantability are satisfied:
(a) The seller sells the goods by description.
(b) The seller trades or does business in the kind of
goods which are subject matter of contract sale. It
is immaterial that the seller is the manufacturer of
such goods or not.
Meaning It means that the goods must serve the purpose which is
expected of them as per the name given to them.
Requirements The conditions as to merchantability requires that-
(a) if the goods are purchased for the purpose of
using such goods, such goods can be used for such
purpose.
(b) if the goods are purchased for the purpose of
resale, such goods can be resold under the same name.
Non- The condition as to merchantability is not applicable if the
Applicability buyer buys the goods after inspecting such goods.
Condition as to Applicability This condition applies only in case of such goods as are meant
Wholesomeness for human consumption, i.e., foodstuffs.
Meaning It means that the goods sold by the seller must be fit for human
consumption, if these goods are meant for human consumption.
Condition If there is a custom or usage imposing any condition in a contract of sale, the seller
implied by must fulfill the requirements of such a custom or usage of trade.
customs

IMPLIED WARRANTIES (Sec. 14 & 16)

Warranty as to It means that the buyer shall have quiet possession of the goods, i.e., he shall
quiet possession have a right to enjoy the goods the way he likes
Warranty as to  It means that the goods shall be free from any encumbrance (i.e., charge).
Free from  However, if the fact that the goods have been encumbered was known to the
Encumbrance buyer, the buyer cannot claim breach of warranty.
Warranty If there is a custom or usage imposing any warranty in a contract of sale, the
implied by seller must fulfill the requirements of such a warranty.
customs
CHANGE OF A CONDITION INTO A WARRANTY (Sec. 13)
Voluntary A condition shall not give a right to the buyer to rescind the contract of sale in
the following cases:
(a) Where the buyer waives the breach of a condition.
(b) Where the buyer decides to treat a breach of condition as a breach
of warranty.
Compulsory The non-fulfillment of a condition shall not give any right to the buyer to rescind
circumstances the contract, if the following conditions are satisfied:
 The contract of sale is not divisible.
 The buyer accepts all the goods or a part of goods even though breach of a
condition is known to him.
 The buyer cannot reject the goods on the ground that certain condition is not
fulfilled.
 The buyers remedy is limited to recovery of damages from the seller.

DOCTRINE OF CAVEAT EMPTOR

Meaning  This doctrine states that a buyer must ensure himself that the goods
purchased by him-
(a) are free from any defects;
(b) are of the right quality (i.e., quality desired by him); and
(b) shall be fit for the purpose for which he intends to buy the goods.
 In short, the doctrine lays down the rule ˜Let the buyer beware, i.e., the
buyer should be careful and cautious while purchasing the goods, and
if afterwards the goods turn out to be defective or unusable, he himself
is to be blamed for the same, and the seller cannot be held liable for it.
 The seller is not duty bound to disclose any defect in his goods.
Exceptions The doctrine of caveat emptor shall not apply if there is a breach of implied
condition-
(a) as to description
(b) as to sample
(c) as to description as well as sample
(d) as to merchantability.
(e) as to quality or fitness for buyers purpose.
(f) as to wholesomeness.
(g) imposed by a custom or usage of trade.
TRANSFER OF OWNERSHIP (Sec. 18 to 24 )

Sale of specific Immediate transfer The ownership shall be transferred from the seller to
goods of ownership buyer immediately at the time of formation of contract
of sale, if the following conditions are satisfied :
 The contract is for sale of specific goods.
 The specific goods are in a deliverable state.
 The goods are not required to be weighed or
Measured for the purpose of determination of
price
 The contract of sale is unconditional, i.e., the
contract does to provide any other time for
transfer of ownership.
Transfer of The ownership of goods is transferred after formation
Sale of ownership of the contract of sale in the following 2 cases :
unascertained subsequently (a) The ownership shall be transferred when the
Goods goods are put in a deliverable state, if the
following conditions are satisfied :
 The contract is for sale of specific goods.
 At the time of formation of contract of sale, the
specific goods are not in a deliverable state.
 The goods are put in a deliverable state by the
seller
 The fact that the goods have been put in a
deliverable State, has come to the
knowledge of the buyer.
(b) The ownership shall be transferred when the
goods are weighed or measured, if the following
conditions are satisfied:
 The contract is for sale of specific goods.
 At the time of formation of contract of sale,
the price of specific goods are required to
be weighed or measured in order to
determine the price.
 Afterwards, the goods are weighted or
measured so as to determine the price.
 The fact that the goods have been weighed or
measured has come to the knowledge of the
buyer.
 The ownership shall be transferred when both the following conditions are
satisfied:
(a) The goods haven been identified (i.e., set apart).
The goods have been appropriated to the contract (i.e., the act of
identification of goods by the seller has come to the knowledge of the buyer).

Sale of goods on The ownership shall pass to the buyer as follows:

approval Acceptance of  When the buyer intimates to the seller that he has
Goods accepted the goods, the ownership shall pass to the Buyer.
The ownership shall be transferred even though the time
Specified in the contract for return of goods, if any,
has Not expired.
Adoption of When the buyer does anything inconsistent with the
transaction ownership of seller in relation to such goods, the buyer shall
be deemed to have accepted to have accepted the goods.
Failure to return The ownership shall pass to the buyer, if the buyer fails to
the goods return the goods to the seller
 Within specified time - if certain time
has been Fixed for return of goods.
Within a reasonable time - if no time has
 been fixed For return of goods.

PASSING OF RISK (Sec. 26)

General rule  Risk passes with ownership.
In other words, in case of loss of goods, the party who is the owner of
such Goods at the time of loss shall bear the loss of goods.
Exceptions Express The parties may expressly provide that
agreement  The goods shall be at the risk of the seller,
between the even though the ownership of goods has been
parties passed to the buyer; or
The goods shall be at the risk of the buyer,
even though The ownership of goods has not
been passed to the Buyer.
Goods are at the Where the buyer wrongfully refuses to accept the delivery of
risk of defaulting goods, the buyer shall be responsible for any loss of such
party goods, even though the ownership of goods has not been
passed to the buyer.
Risk imposed on If there is a custom or usage imposing risk on any party to
a party by a the contract, such party shall be liable for any loss of goods,
custom even though such a party is not the owner of goods.
PERFORMANCE OF CONTRACT OF SALE (Sec. 32 to 38)
Delivery and price
Are concurrent General rule Delivery of goods and payment of price are concurrent
conditions conditions. In other words, the delivery of goods shall be
accompanied by payment of price.
Exception The parties to the contract may provide otherwise.
Prescribed mode  The act has not prescribed any mode of delivery.
of delivery The delivery should be made in such a manner which has the effect of
putting The goods in the possession of the buyer.
Buyers duty General rule It is the buyers duty to demand the delivery of goods.
Exception The parties to the contract may provide otherwise.

Delivery to carrier General rule The delivery of goods to the carrier amounts to delivery to
the buyer.
Exception Delivery of goods to the carrier does not amount to delivery
to buyer if right of disposal of goods is reserved by the
seller.
Place of delivery (a) Delivery must be made at the place specified in the contract.
(b) If the contract does not specify the place of delivery, then
 In case of sale - goods shall be delivered where the goods are Present
at the time of sale
 In case of agreement to sell - goods shall be delivered where
Goods are present at the time of
Agreement to sell.
Time of delivery (a) Delivery must be made at such time as is specified in the contract.
(b) If the contract does not specify the time of delivery, then delivery must be
made at a reasonable time.
Expenses of General rule (a) Seller shall bear the expenses of putting the
delivery goods in Deliverable condition.
(b) Buyer shall bear the expenses for receipt of goods.
Exception The parties to the contract may provide otherwise.
Part delivery Part delivery is not a valid delivery.
Delivery of wrong (a) Short quantity is delivered - Buyer may accept the short delivery
quantity - Buyer may reject the whole goods.
(b) Excess quantity is delivered - Buyer may accept the contracted quantity
- Buyer may accept the whole quantity
- Buyer may reject the whole goods.

UNPAID SELLER (Sec. 5)

If payment is made The seller is an unpaid seller if
by a negotiable  the price is paid by way of a negotiable instrument; but
instrument  the negotiable instrument is dishonoured.
If payment is not If the price has fallen due, but is not paid in full by the buyer, the seller is an
made by a negotiable unpaid seller.
instrument

RIGHT OF AN UNPAID SELLER AGAINST THE GOODS (Sec. 46 to 54)

WHERE THE OWNERSHIP HAS BEEN TRANSFERRED

Right of lien Condition for exercising lien:

(a) The unpaid seller must be in actual possession of the goods sold.
(b) The buyer has not paid the price of the goods.
Termination of lien or loss of lien:
By delivery of Lien is lost if
goods to carrier - the goods are delivered to some person
- for the purpose of transmission to buyer
- without reserving the right of disposal of goods.
By delivery of Lien is lost if the seller delivers the goods to the buyer.
goods to buyer
By waiver Lien is lost if the seller agrees to waive his right of lien.
By payment of If the buyer pays the price of the goods the seller ceases to
price be an unpaid seller. Therefore, his right of lien is lost.
Right of stoppage Meaning of Transit means transportation of goods from seller to
of goods in transit ˜transit buyer.
Meaning of The period starting with delivery of goods to the carrier
˜goods in transit and ending with the delivery of goods by the carrier to the
buyer.
Meaning of - Stopping of goods by the seller
˜stoppage in - While the goods are in the course of transit.
transit
Conditions for (a) the buyer has not paid the price of the goods
˜stoppage in (b) The goods are in the course of transit
transit (c) The buyer has become insolvent.
Right of resale Condition  The seller has exercised right of lien or stoppage in
transit.
 The buyer fails to pay the price within a reasonable
time.
 The seller has given a notice to the buyer of his
intention to resell the goods (however, notice by
seller is not required if the goods are perishable).
Consequence  The seller shall have a right to recover any loss
incurred on such resale, (i.e., where the price
received on resale of goods is less than the price
payable by the buyer).
 The buyer shall have no right over the surplus, if any,
arising on such resale

RIGHT OF LIEN & RIGHT OF STOPPAGE OF GOODS IN TRANSIT A COMPARISON

Basis Right of lien Right of stoppage of goods in
transit
Meaning Lien means a right of a person to It means a right to regain the
retain the possession of goods possession of goods belonging to
belonging to some other person. some other persons.
When can the The right can be exercised, at anytime, This right can be exercised by an
right be exercised? by an unpaid seller, i.e., whether or unpaid seller only if the buyer has
not the buyer has become insolvent. become insolvent.
Conditions for  The possession of the goods lies  The seller delivers the goods to a
exercising the with the seller carrier for delivery of such goods
right  The seller is an unpaid seller to the buyer.
 The buyer has become insolvent.
 The seller is an unpaid seller.
Period during Lien can be exercised until the goods This right can be exercised
which the right are delivered to the buyer.  Starting such time when the goods
may be exercised are delivered to the carrier (i.e.,
when the right of lien ends); and
  Ending with such time when the
goods are delivered by the carrier
to the buyer.
When is the right  If the possession of goods is This right is lost if the goods reach the
lost? transferred to the buyer. destination and the carrier delivers the
 If the seller delivers the goods to a goods to the buyer.
carrier without reserving his right
of disposal of goods.

RIGHT OF AN UNPAID SELLER AGAINST THE GOODS (Sec. 46)

WHERE THE OWNERSHIP HAS NOT BEEN TRANSFERRED

Right to
withhold Condition (a) The seller is an unpaid seller.
delivery of
(b) The ownership of goods has not been passed to the
goods
buyer.
Consequences (a) The seller can lawfully refuse to deliver the goods to the
buyer until he is paid the price.
(b) The buyer cannot hold the seller liable for non-
Delivery of goods.

UNPAID SELLERS REMEDIES AGAINST THE BUYER (Sec. 55, 56, 60 & 61)
Suit for price An unpaid seller has the right to sue the buyer for recovery of price where price
has become payable, but is not fully paid.
Suit for interest A seller has the right to sue the buyer for recovery of interest only if he has the
right to sue the buyer for recovery of price.
Suit for damages An unpaid seller has the right to sue the buyer for recovery of damages if-
for (a) the seller is ready and willing to deliver the goods to the buyer as per the
non-acceptance terms of the contract; but
of goods (b) the buyer wrongfully neglects or refuses to accept the goods.
Suit for damages If before the due date of payment of price has arrived, the buyer declares his
for repudiation intention of non-payment of price to the seller, the seller may exercise any of the
of contract following 2 options:
before the due (a) The seller may decide to wait until the due date of payment of price
date of delivery has arrived. If on the due date the buyer does not pay the price, it
of goods would amount to a breach of Contract, for which the seller shall have a
right to sue the buyer.
(b) The seller may immediately sue the buyer for damages without
waiting for due date for payment of price to arrive.
 BUYERS REMEDIES AGAINST THE SELLER (Sec. 57 to 61)

Suit for damages The buyer has the right to sue the seller for recovery of damages resulting from
for non-delivery non-delivery of goods if the following conditions are satisfied:
of goods (a) The seller is bound to deliver the goods to the buyer as per the terms of
the contract.
(b) The seller wrongfully neglects or refuses to deliver the goods.
(c) The buyer is ready and willing to take the delivery of goods.
Suit for damages If before the due date of delivery of goods has arrived, the seller declares his
for repudiation intention of non-delivery of goods to the buyer, the buyer may exercise any of
of the contract the following 2 options:
before the due (a) The buyer may decide to wait until the due date of delivery of goods
date of delivery has arrived. If on the due date the seller does not deliver the goods, it
would amount to a breach of contract, for which the buyer shall have a
right to sue the seller.
(b) The buyer may immediately sue the seller for damages without waiting
for due date for delivery of goods to arrive.
Suit for specific In case of wrongful neglect or refusal to deliver the goods by the seller, the
performance of buyer may sue the seller for specific performance, i.e., the buyer may seek a
contract Court order directing the seller to deliver the goods as agreed to in the contract
of sale.
Suit for breach A breach of warranty gives a right to the buyer to claim damages from the seller.
of warranty
Suit for interest In case of wrongful neglect or refusal by the seller to deliver the goods, the
buyer has the right to repudiate the contract of sale. When the contract of sale
is repudiated, the buyer shall be entitled to refund of price, if he has already paid
the price. Also, the buyer may sue the seller for recovery of interest.

TRANSFER OF TITLE BY NON-OWNERS (Sec. 27, 28, 30 & 54)

1. General rule- ˜No one can transfer a better title than he himself has.
2. Exceptions:
Title by Where a person makes a representation (whether expressed or implied) to
estoppels another person that certain state of things exist, he can be estopped from
denying the validity of such representation if some person has, believing such
representation to be true, acted on the faith of such representation.
Sale by a A sale by mercantile agent shall pass a valid title to the buyer even though such
mercantile agent sale is not made as per the directions of the seller, if the following conditions are
satisfied:
(a) The sale is made by a mercantile agent in the capacity of mercantile
agent.
(b) The goods came into the possession of the mercantile agent with the
consent of the seller.
(c) The sale is made by the mercantile agent acting in the ordinary course
of business.
(d) The buyer buys the goods in good faith.
Sale by a joint A sale by one of the joint owners shall pass a valid title to the buyer even though
owner such sale is not made with the consent of other joint owners, if the following
conditions are satisfied:
(a) The goods are in the sole possession of one joint owner.
(b) The goods came into the possession of the joint owner with the
consent of other joint owner.
(c) The buyer buys the goods in good faith, i.e., the buyer has no
knowledge of the fact that the goods are owned jointly.
Sale by a person A re-sale of goods by a buyer shall pass a valid title to the new buyer, if the
in possession following conditions are satisfied:
under a (a) A person buys the goods under an avoidable contract.
avoidable (b) Such buyer resells the goods to a new buyer.
contract (c) At the time of resale, the avoidable contract (under which the buyer
had acquired the goods) has not been rescinded by the original seller.
(d) The new buyer buys the goods in good faith, i.e., the new buyer has
no knowledge of the fact that the goods were acquired by the buyer
under a voidable contract.
Sale by a seller A seller, who has the possession of the goods already sold by him, may resell
in possession of such goods to a new buyer, and the new buyer shall have a valid title to such
goods after their goods, if the following conditions are satisfied:
sale (a) The ownership of goods has been passed to the buyer.
(b) The seller continues to be in the possession of goods, even after their
sale.
(c) The seller resells the goods to a new buyer.
(d) The new buyer buys the goods in good faith, i.e., the new buyer had
no knowledge of the fact that the goods being sold by the seller have
already been sold to some other buyer.
Sale by a finder Sale by a finder of goods shall pass a valid title to the buyer if the conditions
of goods specified u/s 169 of the Contract Act, 1872 are fulfilled.
Sale by a Sale by a Pawnee shall pass a valid title to the buyer if the conditions specified
Pawnee u/s 176 of the Contract Act, 1872 are fulfilled.

AUCTION SALE (Sec. 64)

Completion of  Bids are made by the intending buyers.
auction sale  The highest bid constitutes an offer to buy.
 The acceptance of a bid by the seller results in a contract.

Retraction of bid Before completion of auction sale, the bidder has the right to retract his bid.
Sellers right to Nature of  Right to bid in the auction himself.
bid rights  Right to appoint a person to bid on his behalf.
Conditions  The seller has expressly reserved his right to bid in the
 notice of auction sale.
 The seller can appoint only one bidder to bid on his
behalf.
Fraudulent sale Meaning Bidding is done by the seller or any other person on
behalf of the seller. While such bidding, the conditions
to be followed by seller are contravened
Consequences The sale is avoidable at the option of the buyer.
Auction sale  The seller has a right to make the sale subject to a reserve price.
with ˜reserve  The auctioneer is not bound to accept the highest bid if it is below the
price or ˜upset reserve price.
price