Contract 2
Contract 2
Contract 2
Yeshwanth Gowda
Unit-I
Contract of Indemnity- Nature and Scope of Indemnity- Rights of
Indemnity Holder- Commencement of the Indemnifier’s liability.
The term Indemnity means “Security against loss” that is the indemnifier
promises to compensate the other party that is the indemnified against the loss
suffered by the other.
Definition
As provisions made in section 124 of the Indian Contract Act 1872 says that,
whenever one party promises to save the other from loss caused to him by the
conduct of the promisor himself, or by the conduct of the any other person, is
called a Contract of Indemnity.
Example
A contract to indemnify B against the consequences of any proceedings which
C may take against B in respect of a certain sum of 200 rupees. This is a
contract of indemnity.
Adamson v. Jarvis.
The plaintiff, an auctioneer sold certain cattle on the instruction of the
defendant. It subsequently turned out that the livestock did not belong to the
defendant, but to another person, who made the auctioneer liable and the
auctioneer in his turn sued the defendant for indemnity for the loss he had
suffered by acting on the defendant’s directions.
The court held that, the plaintiff having acted on the request of the defendant
was entitled to assume that, if he did turn out to be wrongful, he would be
indemnified by the defendant.
Sheffield Corporation v. Barklay
A corporation, having registered to transfer a stock on the request of a banker,
was held entitle to recover indemnity from the banker when the transfers were
discovered to be forged.
Indemnifier: The person who promises to make good the loss is called the
Indemnifier.
Indemnity holder: The person whose loss is to be made good is called
Indemnity holder.
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Case Law
Mohit Kumar Saha v. New India Assurance Co.
It was held that the indemnifier must pay the full amount of the value of the
vehicle lost to theft as given by the surveyor. Any settlement at the lesser value
is arbitrary and unfair and violates Art.14 of the Constitution. All sums which
he may have paid under the terms of any compromise of any such suit.
Yeung v HSBC
It is important to note here that the right to indemnity cannot be claimed of
dishonesty, lack of good faith and contravention of the promisor’s request.
However, the right cannot be negatived in case of oversight.
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Rights of Indemnifier
Commencement Of Liability
When does the Indemnifier become liable to pay, or, when is the
indemnity-holder entitled to recover his indemnity?
The Indian Contract Act, 1872 is silent on the time of commencement of
liability of Indemnifier. On the basis of judicial pronouncement of courts, it can
be said that the liability of an indemnifier commences as soon as liability of the
indemnity holder absolute and certain. In other words, if the indemnity holder
has incurred an absolute liability even though he has himself paid nothing, he
is entitling to ask the indemnifier to indemnify him.
The original English rule was that indemnity was payable only after the
indemnity-holder had suffered actual loss by paying off the claim. The maxim
of law was: “you must be damnified before you can claim to be indemnified.”
But the law is different now.
Case Law
Gajanan Moreshwar Parlekar v. Moreshwar Madan Mantri, Chagla J
Explained the transformation of process. It is true that under English law no
action could be maintained until the actual loss had been incurred. It was
realized that indemnity might be worth very little indeed if the indemnified
could not enforce his indemnity till he had actually paid the loss. Therefore, the
court of equity held that if his liability had become absolute then he was
entitled either to get the indemnifier to pay off the claim or to pay into court
sufficient money which would constitute a fund for paying off the claim
whenever it was made.
Case Law
Richardson Re, Ex Parte The Governors of St. Thomas’s Hospital and Osman
Jamal & Sons ltd. V. Gopal Purushottam observed that “Indemnity is not
necessarily given by repayment after payment. Indemnity requires that the
party to be indemnified shall never be called upon to pay.
Example:
X promises to compensate Y for any loss that he may suffer by filing a
suit against Z.
The court orders Y to pay Z damages of Rupees 5000/. As the loss has
become certain, Y may claim the amount of loss from X and pass it on to
Z
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CONTRACT OF GUARANTEE
A “Contract of Guarantee” is a contract to perform the promise, or discharge
the liability, of a third person in case of his default.
Example
X and his friend Y enter a shop and X says to Z “Supply the goods required by
Y, and if he does not pay you, I will.” This is a contract of guarantee.
Parties to the contract of guarantee- Sec 126
Principal Debtor
The person in respect of whose default the guarantee is given is called the
'Principal debtor'.
Creditor
The person to whom the guarantee is given, is called the 'creditor'.
Surety
The person who gives the guarantee is called the 'Surety'.
ESSSENTIAL FEATURES OF CONTRACT OF GUARANTEE
(i) The principal debtor need not be competent to contract. In case the
pay.
done, or any promise made, for the benefit of the principal debtor,
guarantee."
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Tripartite agreement
A contract of guarantee is a tripartite agreement between the principal debtor,
creditor and surety. There are three contracts as under:
(i) Contract between creditor and the principal debtor out of which the
(ii) Contract between surety and the principal debtor by which the
required to pay.
(iii) Contract between surety and the creditor by which the surety
fails to pay.
Principal Debt
Consideration
As per Section 127 of the Act, “Anything done, or any promise made, for the
benefit of the principal debtor, may be a sufficient consideration to the surety.
Illustrations
B requests A to sell and deliver to him goods on credit. A agrees to do so,
provided C will guarantee the payment of the price of the goods. C
promises to guarantee the payment in consideration of as promise to
deliver the goods. This is a sufficient consideration for C’s promise.
Example
When A requests B to lend `10,000 to C and guarantees that C will repay the
amount within the agreed time and that on C falling to do so, he will himself
pay to B, there is a contract of guarantee. Here, B is the creditor, C the
principal debtor and A the surety.
KINDS OF GUARANTEE
SPECIFIC GUAARANTEE
A guarantee which extends to a single debt or specific transaction is called a
specific guarantee. The liability of the surety comes to an end when the
guaranteed debt is duly discharged or the promise is duly performed.
Example:
X guarantees payment to Y of the price of the five bags of flour to be delivered
by Y to Z and to be paid for in a month. Y delivers five bags to Z; Z pays for
them. This is a contract of specific guarantee because X intended to guarantee
only for the payment of price of the first five bags of flour to be delivered at one
time.
CONTINUING GUARANTEE
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(iv) When the creditors enter into an arrangement with the principal
139]
Rights of a Surety
1. RIGHTS OF A SURETY
The surety has the right to claim set off or counterclaim, if any, which
the principal debtor had against the creditors in case the creditors
sue him for payment of liability of principal debtor.
3. RIGHTS AGAINST CO-SURETIES
CO-SURETIES
When the same debt or duty is guaranteed by two or more persons, such
persons are called as Co-Sureties.
a. Co-sureties liable to contribute equally (Section 146): Equality of
burden is the basis of Co-suretyship
Example:
Example:
because cash credit facility and the liability of surety was co-extensive
with that of principal debtor.
Industrial Financial Corporation of India v. Kannur Spinning &
Weaving Mills Ltd.
It was held that the liability of surety does not cease merely because of
discharge of the principal debtor from liability.
Hari Gobind Aggarwal v. State Bank of India
It was held that the principal debtor liability is reduced e.g., after the
creditor has recovered a part of the sum due from him out of his property
the liability of the surety is also reduced accordingly.
DISCHARGE OF SURETY
1. BY REVOCATION OF CONTRACT OF GUARANTEE
BY NOTICE [SECTION 130]
A specific guarantee may be revoked by a surety by notice to the
creditor if the liability of the surety has not yet accrued. A
continuing guarantee may at any time be revoked by the surety
as to future transactions by notice to the creditor.
BY THE DEATH OF SURETY [SECTION 131]
In the absence of any contract to the contrary, the death of a
surety operates as a revocation of a continuing guarantee as to
future transactions taking place after the death of surety.
However, the deceased surety's estate remains liable for the
past transactions which have already taken place before the
death of the surety but will not be liable for the transactions
taking place after the death of surety even if the creditor has no
notice of surety's death.
BY NOVATION [SECTION 62]
A contract of guarantee is said to be discharged by novation
when a fresh contract is entered into either between the same
parties or between other parties, the consideration being the
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The surety is discharged by any contract between the creditor and the
principal debtor, by which the principal debtor is released, or by any
act or omissions of the creditor, the legal consequence of which is the
discharge of the principal debtor.
5. BY INVALIDATION OF CONTRACT
UNIT-II
BAILMENT
A ‘bailment’ is the delivery of goods by one person to another for some purpose,
upon a contract that they shall, when the purpose is accomplished, be
returned or otherwise disposed of according to the directions of the person
delivering them. The person delivering the goods is called the "bailor". The
person to whom they are delivered is called the "bailee".
Example:
A man drops off his clothes for dry cleaning. He is the bailor and the purpose of
bailment is to have the particular set of clothes cleaned. The dry cleaner is the
bailee – he is the temporary custodian of the clothes and is responsible for
keeping them safe and to return them to the bailor once they have been
cleaned.
Bailment can also be described as ‘the delivery of goods to another person for a
particular use’. Only ‘goods’ can be bailed and thus, only movable goods can be
the subject matter of bailment.
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It was held that mere hiring of a bank’s locker and storing things in it would
not constitute a bailment. But the position changes completely if the locker in
the safe deposit vault of the bank can be operated even without the key of the
customer.
Example:
If a person delivers his damaged car to a garage for repair under his insurance
policy, the insurance company becomes a bailee and the garage a sub bailee. If
the car is stolen from the garage or destroyed by fire in the garage, both – the
insurance company and the garage will be liable to the owner of the car, the
bailor.
The contract may be expressed or implied. This contract between the parties
for the delivery of goods. The goods shall be delivered for a special purpose
only. Goods-Bailment can be made of goods only. Bailment can only be done
for movable goods and not for immovable goods or money.
1. Actual delivery:
Transfer of physical possession of goods from one person to another.
Here, the bailor hands over the physical possession of the goods to the
bailee. Example:
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A’s watch is broken. When he leaves his watch at the showroom for
repair, he has given actual delivery of possession of goods to the
showroom.
2. Symbolic delivery
Physical possession of goods is not actually transferred. A person does
some act resulting in transfer of possession to any other person.
Examples:
Delivery of keys of a car to a friend, Delivery of a railway receipt.
3. Constructive delivery
If A person is already in possession of goods of owner. Such person
contracts to hold the goods as a bailee for a third person. Then such
person becomes the bailee, and the third person becomes the bailor.
Constructive delivery is an action that the law treats as the equivalent of
actual delivery. It can be difficult to deliver intangible.
Case Law
Bank of Chittor vs. Narsimbulu [AIR 1966 AP 163]
A person pledged cinema projector with the bank but the bank allowed
him to keep the projector so as to keep the cinema hall functional. It was
held that there was constructive delivery because action on part of the
bailor had changed the legal character of the possession of the projector.
Even though the actual and physical possession was with the person, the
legal possession was with the bank, the bailee.
Duties of Bailor
1) Duty to disclose defects: Section 150 of the Indian Contract Act, 1872
bound the bailor with certain duties to disclose the latent facts
specifically pertaining to defect in goods. Bailor’s duties of disclosure
are:
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Case Law
In Hyman v Nye & Sons
The plaintiff took a carriage on hire from the defendant but the
carriage was not fit for the journey and subsequently, the plaintiff
suffered injuries. The court held that even though the defendant was
aware of such defect or not he shall be liable.
Expenses of Bailment
Bailee’s Duties
It is the duty of the Bailee to take care of goods as his own goods. He
shall ensure all safety measures that are necessary to protect the goods.
The standard of care should be such as taken care by a prudent man.
2) Not to make any Unauthorized use of goods:
The bailee is under a duty to use the bailed goods in accordance with the
terms of bailment. If bailee does any act with regard to the goods bailed,
which is not in accordance with the terms of bailment, the contract is
voidable at the option of the bailor. Besides it, the bailee is liable to
compensate the bailor for any damage caused to the goods. By an
inconsistent use of the goods bailed. If he makes unauthorized use of
goods, bailee would not be saved from his liability even if he has taken
reasonable care of the ordinary prudent man.
3) Duty not to mix bailor's goods with his own goods:
Next duty of the bailee is to keep the goods of the bailor separate from
his own. Sections- 155 to 157 of the Act lays down this duty in the
following ways:
i) If the bailee, with the consent of the bailor, mixes the goods of the
bailor with his own goods, the bailor and the bailee shall have an
interest, in proportion to their respective shares, in the mixture
thus produced (Section 1-76].
ii) If the bailee, without the consent of the bailor, mixes the goods of
the bailor with his goods, and the goods can be a separated or
divided, the property in the goods remains in the parties
respectively; but the bailee is bound to bear the expense of
separation or division, and any damages arising from the mixture
(Section 156).
iii) If the bailee, without the consent of the bailor, mixes the goods of
the bailor with his goods, and the goods can be a separated or
divided, the property in the goods remains in the parties
respectively; but the bailee is bound to bear the expense of
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**********
Rights of Bailor
1) Enforcement of bailee's duties:
You have just now read the duties of the bailee. Duties of the bailee
are the rights of the bailor. Since Right of the bailor is same as the
right of the Bailee, therefore on the fulfilment of all duties of Bailee
the bailor’s right is accomplished.
2) Right to claim damages:
It is an inherent right of the bailor to claim damages for any loss that
might have been caused to the goods bailed, due to the bailee's
negligence (Section 151). If the Bailee fails to take care of the goods,
the bailor has the right to claim damages for such loss.
3) Right to avoid the contract:
If the bailee does any act, in respect of the goods bailed, which is
inconsistent with the terms of bailment, the bailor has a right to avoid
the contract.
4) Right to claim compensation:
If any damage is caused to the goods bailed because of the
unauthorized use of the goods. The bailor has a right to claim
compensation from the bailee.
5) Right to claim compensation:
If any damage is caused to the goods bailed because of the
unauthorized use of the goods. The bailor has a right to claim
compensation from the bailee.
RIGHTS OF BAILEE
It is a right of bailee to recover from the bailor, all losses suffered by him
by reason of the fact that the bailor was not entitled to make the
bailment of the goods or to receive back the goods, or to give directions
regarding them (Section 164). In the contract of Bailment, the Bailee
incurs expenses to ensure the safety of goods. The Bailee has the right to
recover such expenses from the bailor. (Section 158)
4) Right to deliver goods to any one of the joint bailors:
If the goods are owned and bailed by more than one person, the bailee
has a right, in the absence of a contrary contract, to deliver back the
goods to any one of the joint owners, or may deliver the goods back
according to the directions of one of the joint owners, without the
consent of all. (Section 165).
5) Right to deliver the goods to bailor even if his title is defective:
If the title of bailor is defective and the bailee, in good faith returns the
goods to the bailor or according to the directions of bailor, the bailee is
not liable to the true owner in respect of such delivery (Section 166).
6) Right to remuneration:
When the goods are bailed to the Bailee, he is entitled to receive certain
remuneration for services that he has rendered. But in case of gratuitous
bailment, the Bailee is not awarded any remuneration.
7) Right to recover compensation:
At times a situation arises wherein bailor did not have the capacity to
contract for bailment. Such a contract causing loss to the Bailee;
therefore, the Bailee has the right to recover such compensation from the
bailor. (Section 168)
8) Right to lien:
When the bailee, in accordance with the purpose of agreement has
rendered any service involving the exercise of labor or skill, to the goods
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bailed, and his lawful payments are not made by the bailor, the bailee
has a right to retain unless there is a contract to the contrary, the goods
bailed, until he received his remuneration for the services rendered by
him.
Particular Lien: A lien which can be exercised only on goods in respect
of which some payment is due is called particular lien. Where the bailee
has, in accordance with the purpose of the bailment, rendered any
service involving the exercises of labour or skill in respect of the goods
bailed, he has, in the absence of a contract to the contrary, a right to
retain such goods until he received due remuneration for the services, he
has rendered in respect of them (Section 170).
General Lien: The right of general lien, as provided for in Section 171,
means the right to hold the goods bailed as security for a general balance
of account. Whereas right of particular lien entitles a bailee to detain
only that particular property in respect of which charges are due. Right
of general lien entitles the bailee to detain any, goods bailed to him for
any amount due to him whether in respect of these goods or any other
goods. The right of general lien is privilege and is specially conferred by
Section 171 on certain kinds of bailees only. They are bankers, factors,
wharfingers, attorneys of a high court, and policy brokers.
9) Right to suit against a wrongdoer:
After the goods have been bailed and any third party deprives the Bailee
of use of such goods, then the Bailee or bailor can bring an action
against the third party. (Section 180).
PLEDGE
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The person who pledges the goods as security is known as Pledger or Pawnor
The person in whose favour the goods are pledged is known as Pledgee or
Pawnee.
A borrowed Rs.100 from B and gave his cycle as a security for the repayment of
the amount, in the condition that if A pays back to B, he will get his cycle back.
it is called the contract of Pledge.
Case Law
Examples:
1. Mr. A gives his watch for repair to Mr. B., In this case, Mr. A is bailor,
Mr. B is Bailee and the goods bailed is watch.
2. Harry bailed his bike to David for riding for himself to go to college. David
used it for racing purpose. Now David will be liable for unauthorized use
of the bike bailed.
3. Z pledged his goods with A. But now Z refuses to make the payment of
the same. A now can either sell his goods or can initiate a suit
proceeding against Z.
Rights of Pawnor
As per Section 177 of the Indian Contract Act, 1872 the Pawnor has the Right
to Redeem. By this, we mean that on the repayment of the debt or the
performance of the promise, the Pawnor can redeem the goods or property
pledged from the Pawnee before the Pawnee makes the actual sale. The right of
redemption is extinguished once the actual sale is done by the Pawnee as per
his right under section 176 of the Indian Contract Act, 1872.
1) It is the duty of Pawnor to comply with the terms of pledge and repay the
debt on the stipulated date or to perform the promise at the stipulated time.
Pay the debt: The Pawnor is liable to pay the debt or perform his
promise as the case may be.
Pay extra-ordinary expenses: The Pawnor is liable to pay to the Pawnee
any extraordinary expenses incurred by the Pawnee for preservation of
goods.
Disclose faults in goods: The Pawnor is liable to disclose all the faults
which (a) Are material for use of the goods; or (b) May put the Pawnee to
extraordinary risks. Indemnify the Pawnee: If loss is caused to the
Pawnee due to defect in Pawnor’ s title to the goods, the Pawnor must
indemnify the Pawnee.
Duties of a Pawnee
Not to use the goods: The Pawnee has no right to use the goods
However, he may use the goods, if he has been so authorized by the
Pawnor. Duty not to make unauthorized use of goods pledged.
Return the goods: The Pawnee must return the goods if the Pawnor
pays the debt or performs his promise. Duty to return the goods when
the debt has been repaid or the promise has been performed.
Take reasonable care: The Pawnee must take such care of goods
pledged as a man of ordinary prudence would take care of his own goods.
Duty to take reasonable care of the pledged goods.
Not to mix goods: The Pawnee must not mix his own goods with the
goods pledged. Duty not to mix his own goods with the goods pledged.
Return increase in goods: The Pawnee must return to the Pawnor any
accretion to the goods pledged with him. Duty to deliver increase to the
goods pledged.
UNIT-III
K. Yeshwanth Gowda
AGENCY
When one party delegates some authority to another party whereby the latter
performs his actions in a more or less independent fashion, on behalf of the
first party, the relationship between them is called an agency. Agency can be
express or implied.
PARTIES:
1. The principal
2. The Agent
3. Third Party.
An agent does not act on his own behalf but acts on behalf of his principal. He
either represents his principal in transactions with third parties or performs an
act for the principal. The question as to whether a particular person is an agent
can be verified by finding out if his acts bind the principal or not.
Illustrations:
1. Joe appoints Mary to deal with his bank transactions. In this case, Joe is
the Principal, Mary is the Agent and the Bank is the Third Party.
2. A, a businessman, delegates B to buy some goods on his behalf. Here, A
is the principal and B is the agent, and the person from whom the goods
are bought is the ‘Third Person’.
According to Section 183, any person who has attained the age of majority and
has a sound mind can appoint an agent. In other words, any person capable of
contracting can legally appoint an agent. Minors and persons of unsound mind
cannot appoint an agent.
In the same fashion, according to Section 184, the person who has attained the
age of majority and has a sound mind can become an agent. A sound mind and
a mature age is a necessity because an agent has to be answerable to the
Principal.
Principal is liable for the acts of agent The principal is liable for all the acts of
an agent which are lawful and within the scope of agent’s authority.
Any person may become an agent. Even a minor or a person of unsound mind can
become an agent.
Liability of agent
Essentials of Agency
Case Law
Mahendra Pratap Singh v Padam Kumar Devi, AIR 1993, ALL 143
When a client gives a power of attorney to his counsel, while he is in good state
of health and mental understanding, but subsequently the client becomes old,
feeble, weak, unable to comprehend under a mental incapacity, the power of
attorney becomes worthless after the change in the state of health and metal
infirmity of the client.
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The agent may not be competent to contract-Between the principal and the
third persons, any person may become an agent. But no person who is a minor
and of unsound mind can become an agent, so as to be responsible to his
principal. (Section- 184).
out the work of the principal, the agent can take any legal action. That is, the
agent can do any lawful thing necessary to carry out the work of the principal.
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Types of Agents
Agents are classified in various ways according to the point of view adopted.
From the viewpoint of the authority they have, they can be classified as special
agents, general agents and universal agents.
Example:
Example:
An agent employed to sell a Bike. If the special agent does anything outside his
authority, the principal is not bound by it and third parties are not entitled to
assume that the agent has unlimited powers.
General agents: Agent appointed to do all acts relating to a specific job. This
type of agents has a general authority to do everything in the course of his
agency and he has to perform all the acts in the interest of his principal.
unlimited and who any act on behalf of his principal can do provide such act is
legal and is agreeable to the law of land.
Example:
When a person leaves his country for a long time, he may appoint his son, wife
or friend as his universal agent to act on his behalf in his absence.
Factor- An agent who is remunerated by a commission (one who looks like the
apparent owner of the things concerned). A factor is a mercantile agent to
home goods is entrusted for sale.
Commission Agent- An appointed to buy and sell goods (make the best
purchase) for his principal.
Del Credere- An agent who acts as a salesperson, broker and guarantor for the
principal. He guarantees the credit extended to the buyer.
There exists no agency between a husband and wife, except in cases where it
has expressly or impliedly been sanctioned that either of them would do certain
acts or transactions as the agent of the other. A relationship of agency can
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Wife as Agent
Where a husband and wife are living together, we presume that the wife
has her husband’s authority to pledge his credit for the purchase of
necessaries of life suitable to their standard of living. But the husband
will not be liable if he shows that:
(i) he had expressly warned the tradesman not to supply goods on
credit to his wife; or
(ii) he had expressly forbidden the wife to use his credit
(iii) he already sufficiently supplies his wife with the articles in
question
(iv) he supplies his wife with a sufficient allowance.
Illustration
TERMINATION OF AGENCY
3. Revocation possible before the authority has been exercised (sec. 203)
4. Revocation when authority has been partly exercised (sec. 204)
5. Principal to compensate, if there is premature revocation without
justification (sec. 205)
6. Principal should give reasonable notice of revocation (sec. 206)
7. When the agent renounces the business of the agency
8. When the business of the agency is completed (Mutual Agreement). By
performance- If agency is made for certain purpose on the completion of
achievements of purpose the agency is terminated
9. When either of the parties dies or becomes mentally disabled. The death
of the principal or agent terminates the contract of agency. (sec. 209)
10. When the Principal is adjudicated an insolvent.
Rights of Agent
Right to get indemnity- (sec – 222- 224) If principal removes the agent
without concrete reason agent has right to claim compensation from his
principal.
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Right of retainer– (sec – 217 &218) An agent has the right to retain any
remuneration or expenses incurred by him while conducting the Principal’s
business.
Right to Compensation– (sec 225) The Agent has the right to be compensated
for any injury or loss suffered by him due to the lack of skill and competency of
the principal.
CONCLUSION
person delegates his authority to another person, that is, appoints them to do
both the parties. There are various examples of such a relationship: Insurance
agency, advertising agency, travel agency, factors, brokers, del credere agents,
etc.
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UNIT-IV
PARTNERSHIP
Partnership is the relation between persons who have agreed to share the
profits of a business carried on by all or any one of them acting for all (Section
4). It, therefore, follows that a partnership consists of three essential elements:
(iii) The business must be carried on by all or any of them acting for all.
All these essentials must co-exist before a partnership can come into
existence Example: A manager, as a part of his remuneration, may be
given a share in profits of the business.
Persons who have entered into partnership with one another are called
individually ‘partners’ and collectively ‘a firm’, and the name under which their
business is carried on is called the 'firm name'.
A partnership firm is not a person in the eyes of law [except under Section
2(31) of the Income Tax Act, 1961]. It has no separate legal entity apart from
the partners constituting it [Malabar Fisheries Co. v. CIT]. Thus, firm
themselves cannot enter into a contract for partnership though their partners
can.
DURATION OF PARTNERSHIP
1) Partnership at will
2) Particular Partnership.
TYPES OF PARTNERS
• NOMINAL PARTNER- He lends his name to the firm without having any
real interest in the firm. He neither contrib.
(b) The other person acting on the faith of such representation must have
given credit to the firm. It is immaterial whether the person so representing
to be a partner, is aware or not that the representation has reached the
other person.
Rights of Partners
(a) Right to take part in the conduct of the business [Section 12 (a)]:
Every partner has a right to take part in the conduct of the business.
(b) Right to express opinion [Section 12(c)]:
Every partner has the right to express his opinion before the matter is
decided. All matters except the change in the nature of the business,
may he have decided by a majority of the partners.
Example:
stands dissolved, but the firm continues its business with the remaining
partners le and Z.
Meaning of Dissolution of Firm
According to Section 39 Dissolution of a firm means the dissolution of
partnership between all the partners of a firm. In such a situation, the
business of the firm is discontinued, its assets are realized, the liabilities
are paid off and the surplus (if any) is distributed among the partners
according to their rights.
Example:
Firm consisting of A, B and C all of them cease to be partners with one
another, it amounts to dissolution of the firm.
4) By Notice
5) By the court
UNIT-V
Sale of Goods Act
CONTRACT OF SALE OF GOODS
when under a contract of sale, the property in the goods is transferred from the
seller to the buyer, the contract is called a ‘sale’, but where the transfer of the
property in the goods is to take place at a future time or subject to some
conditions thereafter to be fulfilled, the contract is called an ‘agreement to sell’
[Sec. 4(3)]. An agreement to sell becomes a sale when time elapses or the
conditions, subject to which the property in the goods is to be transferred, are
fulfilled [Sec. 4(4)].
Definition of Sale:
Section 4 of the Sales of Goods Act, 1930 defines a sale of goods as a “contract
of sale whereby the seller transfers or agrees to transfer the property in goods
to the buyer for price”. The term ‘contract of sale’ includes both a sale and an
agreement to sell.
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Essential features
1) Two parties (It is a contract between 2 parties, one known as the seller and
the other the buyer)
The transfer of title in any goods, e.g., a car depends on fulfilment of the
provisions of the sale of goods act, rather than the provisions of the Motor
vehicles Act, 1939.
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Where in a contract for the sale of specific goods, only part of the
goods is destroyed or damaged, the effect of perishing will depend
upon whether the contract is entire or divisible.
Illustration:
C agreed to sell to H 200 tons of potatoes to be grown on C’s land. C
sowed sufficient land to grow the required quantity of potatoes, but
without any fault on his part, a disease attacked the crop and he could
deliver only about ten tons. The contract was held to have become void.
Existing goods: At the time of sales if the goods are physically in existence and
are in possession of the seller the goods are called ‘Existing Goods’.
Contingent Goods: Though a type of future goods, these are the goods the
acquisition of which by the seller depends upon a contingency, which may or
may not happen.
Delivery
The delivery of goods signifies the voluntary transfer of possession from one
person to another. The objective or the end result of any such process which
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results in the goods coming into the possession of the buyer is a delivery
process. The delivery could occur even when the goods are transferred to a
person other than the buyer but who is authorized to hold the goods on behalf
of the buyer.
Forms of Delivery:
Actual Delivery: If the goods are physically given into the possession of
the buyer, the delivery is an actual delivery.
Constructive delivery: The transfer of goods can be done even when the
transfer is affected without a change in the possession or custody of the
goods. For example, a case of the delivery by attornment or
acknowledgment will be a constructive delivery. If you pick up a parcel
on behalf of your friend and agree to hold on to it for him, it is a
constructive delivery.
Symbolic delivery: This kind of delivery involves the delivery of a thing
in token of a transfer of some other thing. For example, the key of the go
downs with the goods in it, when handed over to the buyer will constitute
a symbolic delivery.
According to Section 2 (2) of the Sale of Goods Act, 1930, delivery means
voluntary transfer of possession of goods from one person to another.
Hence, if a person takes possession of goods by unfair means, then there is
no delivery of goods. Having understood delivery, let’s look at the law on
sales
A contract of sale is a generic term and includes both an actual sale and an
agreement to sell. Section 4 provides that if the property in goods is
transferred from the seller to the buyer under a contract, the contract is
called a sale. Where the transfer of the property in the goods will take place
at a future time or is subject to some condition which has to be fulfilled, the
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A contract of sale of goods is one in which some goods are sold or are to be
sold for a price. It requires the delivery of goods. But there are transactions
where there is a contract of exercise of skill and labour, and the delivery of
goods is subsidiary. These are the contracts for work or labour or the
contracts for service. It is the intention of the parties that creates the
difference – whether only delivery of goods is intended or exercise of skill
and labour with regard to the goods has to be delivered.
Conditions
Kinds of conditions:
*******
Warranty
Kinds of Warranty
Expressed Warranty The warranties which are generally agreed by both the
parties and are inserted in the contract, it is said to be expressed
warranties.
Subject to the contract, the following are the implied warranties in the
contract of sale:
Transfer of Title
The general rule relating to the transfer of title on sale is that “the seller cannot
transfer to the buyer of goods a better title than he himself has.” If the title of
the seller is defective, the buyer’s title will also be subject to the same defect.
This rule is expressed by the maxim “nemo dat quod non habet”, which means
that no one can give what he has not got, i.e., a seller cannot convey a better
title than that of his own.
E.g., a person finds goods lying on the road and sells them, or a thief sells the
goods after he has stolen them, or a person purchases the goods on credit or
hire-purchase basis and disposes them off, or a person continuing in
possession of the goods which he has already sold resells the goods.
Exceptions:
Sale under the implied authority of the owner, or transfer of title by estoppel
(S. 27) 2.
Sale by the seller in possession of goods, the property in which has passed to
the buyer (S. 30(1))
Sale by the buyer in possession of the goods before the property in them has
passed to him (S. 30(2)) Re-sale of the goods by an unpaid seller after he has
exercised the right of lien or stoppage in transit (S. 54(3))
Sale by a Pawnee when the pawner makes a default in payment (S. 176,
Indian Contract Act.
Who is a seller?
The definition of the seller is given in Section 2(13) of the Sale of Goods Act,
1930. The seller can be defined as a person who agrees to sell goods.
• He can reserve the rights of the goods until and unless payment of goods is
done.
• He can assume that the buyer has accepted the goods or not.
• He will only deliver the goods when the buyer would apply for the delivery.
• He can make the goods delivered in instalments when so agreed by the buyer.
• He can have the possession of the goods until the buyer hasn’t paid for the
goods.
• He can stop the delivery of goods and resume possession of the goods unless
and until the payment is done for the goods.
• He can sue the buyer if the buyer fails to make the payment on a certain day,
in terms of the contract.
Duties of seller
• He should give a proper title to the goods which he has to pass to the buyer.
• He should ensure that the goods supplied should be agreed to the implied
condition and warranties.
• He should keep the goods in a deliverable state and deliver the goods when
the buyer asks for it.
• He should deliver the goods within a specific time fixed in the contract.
• He should bear all the expenses for which the good should be delivered. Who
is a seller? The definition of the seller is given in Section 2(13) of the Sale of
Goods Act, 1930. The seller can be defined as a person who agrees to sell
goods.
• He should deliver the goods as said by the buyer in the contract in an agreed
quantity.
• He should make arrangements for the goods while they are in the custody of
the carrier.
Who is a buyer?
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The definition of the buyer is given in Section 2(1) of the Sale of Goods Act,
1930. The buyer can be defined as a person who buys goods from the seller.
• He can reject the goods if the quality and quantity are not as specified in the
contract.
• To deny the contract when goods are delivered in instalments without any
agreement to the effects.
• The seller should inform him when the goods are to be sent by sea route, so
that the buyer may arrange for their insurance.
• He can examine the goods for checking whether they are in the agreement
with the contract.
• If he has already paid, he can sue the seller for recovery of the price if the
seller fails to deliver the goods.
• He can also sue the seller for damages or the seller’s wrongful neglect or the
seller refuses to deliver the goods to the buyer.
• He can sue the seller for damages for breach of a warranty or for breach of a
condition.
• He can sue the seller for the damages of breach of contract. Who is a buyer?
The definition of the buyer is given in Section 2(1) of the Sale of Goods Act,
1930. The buyer can be defined as a person who buys goods from the seller.
• He should accept the delivery of goods when the seller is prepared to make
the delivery as per the contract.
• To have possession on it he should pay the price for the goods as per the
contract.
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• He should accept delivery of the goods in instalments and pay for it according
to the contract.
• He should bear the risk of failure of delivery of goods if the delivery point is a
distant place.
• He should pay the price on the transfer of possession of the goods as given in
the term of the contract.
As defined by Section 45 of Sale of Goods Act, 1930, A person has sold some
goods and has not got the whole price and if the transaction is done through
negotiable instruments like cheque, bill of exchange and a promissory note,
then the person can be said as an unpaid seller.
When the whole of the price has not been paid or tendered.
• Right to a lien which means the seller has the right on the possession over
the goods.
• Right to stoppage in transit which means the seller can call up the carrier
transporter and tell not to deliver the goods.
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• Right to resale means the seller can again sell the goods as he has the
possession of the goods. And the rights like the right to lien, the right to
stoppage in transit and the right to resale are also applicable for the agreement
which is made for sale.
• The seller has the right to sue the buyer for the price if the seller has already
sold the goods and the buyer hasn’t paid the sum.
• The seller has the right to sue for the damages, for e.g. if the seller has sent
the carrier for the delivery and the buyer isn’t available to receive the delivery
and the goods returned back by the carrier to the seller then he can sue the
buyer for damages like the packing of goods, transportation charges and so
many.
• If the buyer hasn’t paid the price of the goods to the seller after the delivery
within a stipulated time period as given in the contract, then the seller can sue
for the interest on the buyer.
Section 48 states that if an unpaid seller makes part-delivery of the goods, then
he may exercise his right of lien on the remainder. This is valid unless there is
an agreement between the buyer and the seller for waiving the lien under part-
delivery.