4marks questions

Q1.Del-credere Agent:- A del credere is an agent who guarantees the

solvency of third parties with whom the agent contracts on behalf of the
principal. As a token for the guaranty given, the agent receives an additional
commission for sales. The promise of such an agent is almost universally held
not to be within the statute of frauds. Such an agent assumes the position of a
surety who is liable to his principal if the vendee make default. Such agents are
commonly referred to in English law. They are also known as del credere factor.

Q2.Unascertained goods:- unascertained goods is the goods that are not

specifically identified at the time a contract of sale is made. For example, in a
contract for the sale of 100 pieces of chairs, the seller has to deliver 100 pieces
of chairs that answer the contract description. If there is no specific description,
then the seller may deliver any kind of chairs. All the contracts for the sales of
unascertained goods are sales by description and specific goods, which the
buyer has not seen the goods through any catalogue and brochure. In the case of
Varley v Whipp, Varley agreed to sell to the Whipp a “second-hand self-binder
reaping machine", which quite new and used to cut only 50 or 60 acres. When
the machine was delivered, Whipp claimed that it did not correspond with the
statement. So, the court held that it was a sale of good by description and Whipp
have the right to claim. In another case of Nagurdas Purshotumdas & Co. v
Mitsui Bussan Kaisha Ltd, previously they had a sale of flour bearing a well-
known trademark. Later on, flour was ordered based on the description as “the
same as our previous contract", which identical in quality. However, it failed to
bear the same well-known trademark when it was delivered to the buyer.

Q3.Un paid seller:- A seller is a person who sells or agrees to sell goods and
deemed to be an unpaid seller within the meaning of this Act. i. When the whole
of the price has not been paid or tendered:
ii. When a bill of exchange or other negotiable instrument has been received as
conditional payment, and the condition on which it was received has not been
fulfilled by reason of dishonor of the instrument or otherwise. Sec.45.
So an unpaid seller means the person who has sold the goods for a price and the
payment of price has not been made to him or the instrument which was given
to him has been dishonored in its maturity. Such seller is known as an unpaid
seller.

Q4.Test of partnership:- The true test of a partnership is a way for us to

determine whether a group or association of persons is a partnership firm or not. It
also helps us recognize the partners of the firm and separate them from the third
parties. The idea behind such a true test is to examine the relevant facts and

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determine the real relations between parties and conclude about the presence of a
partnership. The three important aspects of a true test of a partnership, namely
agreement, profit sharing and mutual agency.

Q5.Stoppage in-Transits:- stoppage in transit

stopping goods in the course of their delivery at a distance. When the buyer of
goodsbecomes insolvent, an unpaid seller who has parted with the possession of
the goods has the right of stopping them intransit, that is to say, he may resume
possession of the goods as long as they are in the course of transit and may retai
nthem until payment or tender of the price. By stopping the goods in the course
of their transit, the seller puts the carrier underan obligation to redeliver the goo
ds to him and thereby re-
acquires the right of possession of the goods. The exercise of theright of stoppag
e in transit does not in itself terminate the contract of sale; it merely prevents the
buyer from obtainingpossession of the goods and puts the seller in a position in
which he can effectively exercise his statutory power of resale.Goods are deeme
d to be in the course of transit from the time when they are delivered to a carrier
or other bailee orcustodier for the purpose of transmission to the buyer until the
buyer or his agent in that behalf takes delivery of them fromthe carrier or other
bailee or custodier. If the goods are subject to rejection by the buyer and the carr
ier or other bailee orcustodier continues in possession of them, the transit is not
deemed to be at an end, even if the seller has refused to receivethem back.

Q6.Lien:- A lien is a legal claim or a right against property. The lien provides
security to somebody, who can take property or take other legal action to satisfy
debts and other obligations. Liens may be part of the public record, informing
potential creditors and others about existing debts.

Example: When you buy a home, you promise to repay your lender. But your
lender might want more than your signature. By filing documents with local
government offices, the lender becomes a lienholder (the person or organization
that files the lien) on your property. The debt is secured, and the lender has a
better chance of getting repaid.

How does a creditor benefit from placing a claim on something you own?

1. Liens may give creditors the right to take your property and sell it if you
don’t repay your debt.
2. As public records, liens tell other potential creditors that they won’t be
first in line when it comes time to get repaid. As a result, it will be
difficult or impossible to sell the property until the lien is cleared up. For
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 example, liens typically prevent you from selling (or refinancing) your
home or auto unless you pay off outstanding debts in the process .

Q7.Sleeping Partner:-
In a partnership, a partner who owns a share in the company's equity, but does
not take part in management. Apartner provides capital in order to fund the co
mpany's operations and is liable for loss up to the amount of aninvestment. A si
lent partner is also responsible for at least a portion of the company's tax
liability. Less commonly, asilent partner is called a sleeping partner.

Q8.Discharge of surety by Revocation:- Situations when liability of surety

comes to an end. Ordinarily a guarantee cannot be revoked if the liability has
already been accrued. But Section 130 provides for revocation of continuing
guarantee. For example, if A has stood surety for a Rs 5,00,000 home loan of B
from a bank, and the money has been disbursed, A cannot revoke the guarantee,
as the liability has accrued. Accordingly, where a guarantee is a continuing one
and extends to a series of transactions, the surety as to future transactions may
revoke it, by giving notice to the creditor. However, the surety shall remain
liable for the acts already acted upon, i.e., prior to the notice of revocation.

Q9.Indemnity holder:- A contract where one party promises to save the other
from any loss caused to him by the conduct of promissor himself or any other
person is called contract of indemnity, (Section 124) Indian Contract Act, 1872.
Indemnity contract includes two parties namely; Indemnifier and Indemnity
holder. The person who is promising to pay compensation is called Indemnifier
and the person who`s loss is compensated is called Indemnity holder.

Q10.Guarantee:- A Contract to perform the promise, or discharge the liability,

of a third person in case of his default is called Contract of Guarantee.

 The person who gives the guarantee is called the Surety

 The person on whose default the guarantee is given is called the Principal
Debtor
 The person to whom the guarantee is given is called the Creditor
A Guarantee which extends to a series of transactions is called a continuing
guarantee.

 A continuing guarantee may at any time be revoked by the surety, as to

future transactions, by notice to the creditor.
 Any variance, made without the surety's consent, in the terms of the contract
between the principal debtor and the creditor, discharges the surety as to
transactions subsequent to the variance.
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Q11.Bailment:- Bailment is different from a contract for sale of the property,
even where such contracts include seller-financing, or the making of payments
for the property. This is because the intent of a contract of sale is to transfer
ownership of the property to the buyer. In a bailment, ownership of the property
does not transfer, and transfer is never an intended consequence.
In order for a bailment to exist, the bailee must have both the intent to possess
the property, and actual possession the property. The bailor intends that the
property will be returned to him at the end of a specified period of time, or after
the purpose for which the property was given has been completed.
Q12.Pledge:- A pledge is a deposit of personal property as security for a
personal loan of money. If the loan is not repaid when due, the personal
property pledged is forfeited to the lender. The property is known as collateral.
A pledge occurs when someone gives property to a pawnbroker in exchange for
money.
As the pledge is for the benefit of both parties, the pledgee is bound to exercise
only ordinary care over the pledge. The pledgee has the right of selling the
pledge if the pledgor make default in payment at the stipulated time. In the case
of a wrongful sale by a pledgee, the pledgor cannot recover the value of the
pledge without a tender of the amount due.

Q13.Pawnor:- The bailment of goods as security for payment of a debt or performance

of a promise is called ‘pledge’. The bailor is in this case called the ‘pawnor’. The bailee is
called ‘pawnee’. —The bailment of goods as security for payment of a debt or
performance of a promise is called ‘pledge’. The bailor is in this case called the
‘pawnor’.
Q14.Agency :- When a person employs another person to do any act for himself
or to represent him in dealing with third persons, it is called a ‘Contract of
Agency’. The person who is so represented is called the‘principal’ and the
representative so employed is called the ‘agent (Sec. 182). The duty of the agent
is to enter into legal relations on behalf of the principal with third parties. But,
by doing so he himself does not become a party to the contract to the contract
not does he incur any liability under that contract. Principal shall be responsible
for all the acts of his agent provided they are not outside the scope of his
authority.

Q15.Caveat Emptor:- Caveat emptor is a Latin term that means "let the buyer
beware." Similar to the phrase "sold as is," this term means that the buyer
assumes the risk that a product may fail to meet expectations or have defects. In
other words, the principle of caveat emptor serves as a warning that buyers have
no recourse with the seller if the product does not meet their expectations.

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The term is actually part of a longer statement: Caveat emptor, quia ignorare
non debuit quod jus alienum emit ("Let a purchaser beware, for he ought not to
be ignorant of the nature of the property which he is buying from another
party.") The assumption is that buyers will inspect and otherwise ensure that
they are confident with the integrity of the product (or land, to which it often
refers) before completing a transaction. This does not, however, give sellers the
green light to actively engage in fraudulent transactions.

Q16.Authority:- authority refers to an agent with the jurisdiction to perform acts

which are reasonably necessary to accomplish the purpose of an organization.
Under contract law, implied authority figures have the ability to make a legally
binding contract on behalf of another person or company. Implied authority is
authority that is not express or written into a contract, but it is authority an agent is
assumed to have in order to transact the business for a principal. Implied authority is
incidental to express authority since not every single detail of an agent's authority
can be spelled out in the written contract. Implied authority applies to insurance
company agent that is given the authority to solicit applications for life insurance on
behalf of the insurer.

Q17.Warranties:- A warranty is a legally enforceable promise that certain facts

and representations about a product are true. Article 2 of the New Mexico UCC
controls express and implied warranties in the sale of goods. §§55-2-101 et seq.
In addition, the federal Magnuson-Moss Warranty Act sets minimum standards
for the contents of a written warranty for goods. 15 U.S.C. §2301 et seq. See
also FTC Interpretations of the Magnuson-Moss Warranty Act, 16 C.F.R. §700
(2004).
Q18.Auction sale:- An auction sale is a public sale. The goods are sold to all
members of the public at large who are assembled in one place for the auction.
Such interested buyers are the bidders. The price they are offering for the goods is
the bid. And the goods will be sold to the bidder with the highest bid.The person
carrying out the auction sale is the auctioneer. He is the agent of the seller. So all
the rules of the Law of Agency apply to him. But if an auctioneer wishes to sell
his own property as the principal he can do so. And he need not disclose this fact,
it is not a requirement under the law.

Q19.Hire-purchase:- Hire purchase is an arrangement for buying expensive

consumer goods on credit, where the buyer makes an initial down payment,
with the balance being paid in installments plus interest. It is similar to an
installment plan, except unlike installment plans, where the buyer gets the
ownership rights as soon as the contract is signed with the seller, the ownership
of the merchandise is not officially transferred to the buyer until all the
payments have been made.

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The main features of hire purchase finance are:
1. The hire purchaser becomes the owner of the asset after paying
the last installment.

2. Every installment is treated as hire charge for using the asset.

3. Hire purchaser can use the asset right after making the
agreement with the hire vendor.

4. The hire vendor has the right to repossess the asset in case of
difficulties in obtaining the payment of installment.

Q20.Minor-partnership:-
1. A person who is a minor according to the law to which he is subject may
not be a partner in a firm, but, with the consent of all the partners for the
time being, he may be admitted to the benefits of partnership.
2. Such minor has a right to such share of the property and of the profits of
the firm as may be agreed upon, and he may have access to and inspect
and of the accounts of the firm.
3. Such minor - s share is liable for the acts of the firm, but the minor is not
personally liable for any such act.
4. Such minor may not sue the partners for an account or payment of his
share of the property or profits of the firm
5. At any time within six months of his attaining majority, or of his
obtaining knowledge that he had been admitted to the benefits of
partnership, whichever date is later, such person may give public notice
that he has elected to become or that he has elected not to become a
partner in the firm, and such notice shall determine his position as regards
the firm, provided that, if he fails to give such notice, he shall become a
partner in the firm on the expiry of the said six months.
Q21.Partnership at will:- Partnership at will means a partnership in which the
partners have not agreed to remain partners until the expiration of a definite
term or the completion of a particular undertaking. In other words, it is a
partnership that can be dissolved by any partner at any time without any
liability.
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Q22.Agency by estoppel:- Legally binding agency relationship that may arise
where, in fact, no formal agency agreement is in effect. A principal may give an
appearance of agency relationship by, for example, furnishing his or her firm's
call cards or other stationery to the agent. In such cases, the existence of an
agency may be presumed, and the principal may be bound by the acts of the
agent performed on the principal's behalf. Also called presumption of agency.
See also partnership by estoppel.

Q23.Sub-Agent:- A person appointed by an agent to perform some duty, or the

whole of the business relating to his agency.Sub-agents may be considered in
two points of view. 1. With regard to their rights and duties or obligations,
towards their immediate employers. 2. As to their rights and obligations towards
their superior or real principals. A sub-agent is generally invested with the same
rights, and incurs the same liabilities in regard to his immediate employers, as if
he were the sole and real principal. To this general rule there are some
exceptions for example, where by the general usage of trade or the agreement of
the parties, sub-agents are ordinarily or necessarily employed, to accomplish the
ends of the agency, there, if the agency is avowed, and the credit is exclusively
given to the principal, the intermediate agent may be entirely exempted from all
liability to the sub-agent. The agent, however, will be liable to the sub-agent,
unless such exclusive credit has been given, although the real principal or
superior may also be liable. When the agent employs a sub-agent to do the
whole, or any part of the business of the agency, without the knowledge or
consent of his principal, either express or implied, the latter will only be entitled
to recover from his immediate employer, and his sole responsibility is also to
him. In this case the superior or real principal is not responsible to the sub-
agent, because there is no privity between them.

Q24.Firm:- A firm is a business organization, such as a corporation, limited

liability company or partnership, that sells goods or services to make a profit.
While most firms have just one location, a single firm can consist of one or
more establishments, as long as they fall under the same ownership and utilize
the same Employer Identification Number (EIN). The title "firm" is typically
associated with business organizations that practice law, but the term can be
used for a wide variety of business operation units, such as accounting. "Firm"
is often used interchangeably with "business" or "enterprise."

18 marks questions

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 Q1.Define the Contract of Indemnity. Distinguish between
contract of Indemnity & contract of guarantee. And explain the
rights of indemnity holder.

Introduction: - A Contract of indemnity is a direct engagement between two

parties whereby one promises to save another from harm. According to section
124 of the Indian Contract Act a contract of indemnity means,” a contract by
which one party promises to save the other from loss caused to him by the
conduct of the promisor himself or by the conduct of any other person.”
This gave a very broad scope to the meaning of indemnity and it
included promise of indemnity due to loss caused by any cause whatsoever.
Thus any type of insurance except life insurance was a contract of indemnity
however Section 124 of Indian Contract Act 1872 makes the life insurance was
a contract of indemnity. However the Contract Act -1872 makes the scope
narrower by defining the contract of indemnity.
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 other by the
conduct of the any other person is called a Contract of Indemnity.”
New India Assurance Company Ltd. Vs Kusumanchi Kameshwra Rao &
Others, 1997, A Contract of indemnity is a direct engagement between two
parties thereby one promises to save the other harm. It does not deal with those
classes of cases where the indemnity arises from loss caused by events or
accidents which do not or may not depend on the conduct of indemnifier or any
other person.
ESSENTIAL ELEMENTS:- The following are the essentials of the Contract
of Indemnity:-
1. There must be a loss.
2. The loss must be caused either by he promisor or by any other person.
3. Indemnifier is liable only for the loss.
Thus it is clear that this contract is contingent in nature and is enforceable only
when the loss occurs.
RIGHTS OF INDEMNITY HOLDER
The promisee in a contract of indemnity acting within the scope of his authority
is entitled to recover from the promisor so under Section 125 of the Act defines
the rights of an indemnity holder which are as under :-
1. Right of recovering Damages: - All the damages that he is compelled to pay in
a suit in respect of any mater to which the promise of indemnity applies.
2. Right of recovering Costs: - All the costs that he is compelled to pay in such
suit if in bringing o defending it he did not contravene the orders of the
promisor and has acted as it would have been prudent for him to act in the

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 absence of the contract of indemnity or if the promisor authorised him in
bringing or defending the suit.
3. Right of recovering sums :- All the sums which he may have paid under the
terms of a compromise in any such suite if the compromise was not contrary to
the orders of the promisor and was one which would have been prudent for the
promisee to make in the absence of the contract of indemnity.
In another case of Mohit Kumar saha v/s New India Assurance Co.-1997 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.
DIFFERENCE BETWEEN INDEMNITY & GUARANTEE
INDEMNITY GUARANTEE
1. In indemnity there are two, one who There are three parties, Principal
is indemnified and the other debtor, surety and the Creditor.
indemnifier.
2. It consists of only one contract There are three contracts between
under which indemnifier promises to surety, principal debtor and creditor.
pay in the event of certain loss.
3. The contract of indemnity is made The object of contract of guarantee is
to protect the promise against some the security of the creditor.
likely loss. In guarantee the liability of surety is
4. The liability of the indemnifier in a only a secondary, when principal
contract of indemnity is a primary one. debtor default.
CONCLUSTION:- It has been noted above that section 124 recognises only
such contract as contract of indemnity where there is a promise to save another
person from loss which be caused by the conduct of the promisor himself or by
conduct of any other person. It does not cover a promise to compensate for loss
not arising due to human agency. If under a contract of insurance an insurer
promises to pay compensation in the event of loss by fire. Such contracts are
valid contracts as being contingent contracts under sec.31.

Q2.Discuss the nature, rights and liabilities of a surety.

INTRODUCTION:- The surety who is entitled to be reimbursed by the

principal debtor for the amount paid by him on his behalf. The liability of the
surety is co-extensive with that of the principal debtor unless it is otherwise
provided by the contract under section 128.
NATURE OF SURETY:- Section 128 surety liability is co-extensive with that
of the principal debtor which means that on a default having been made by the
principal debtor the creditor can recover from surety the all what he could have
recovered from the principal debtor.

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 Example:- The principal debtor makes a default in the payment of a debt of
Rs.10,000.00, the Creditor may recover from the surety the sum of Rs.10000/-
plus interest becoming due thereon as well as the amount spent by him in
recovering that amount.
LIABILITY OF SURETY:- A bare perusal of section 128 of the Contract Act
would make it clear that the liability of a surety is co-extensive with that of he
principal debtor. The word co-extensive denotes that extent and can relate only
to quantum of the principal debt. Refer a case of Industrial Financial
Corporation of India v/s Kannur Spinning & Weaving Mills Ltd,
2002: However the liability of the surety does not cease merely because of
discharge of the principal debtor from liability.
Bank of Bihar Ltd. v/s Damodar Prasad, 1969: The Supreme Court
held that the liability of the surety is immediate and cannot be defended until the
creditor has exhausted all his remedies against the principal
debtor.Maharashtra Electricity Board Bombay v/s Official Liquidator and
Another, 1982: under a letter of guarantee the bank undertook to pay any
amount not exceeding Rs.50000/- to the Electricity Board. It was held that the
Bank is bound to pay the amount due under the letter of guarantee given by it to
the Board.
RIGHTS OF SURETY:- The surety has certain rights against the principal
debtor, the creditor and the co-sureties. His right against each one of them are
being discussed as under :-
1. Right of Subrogation: Under section 140 when a principal debtor makes a
default in the performance of his duty and on such default the surety makes the
necessary payment or makes performance of all what he is liable. Firstly the
surety can claim indemnity from the principal debtor secondly he is also entitled
to the benefits of every security which the creditor has against the principal
debtor. Case of Mukesh Gupta v/s Sicorn Ltd. Mumbai, 2004.
2. Right of Indemnity against the principal debtor: Similarly as above when a
principal debtor makes a default the surety has to make the payment to the
creditor. After making the payment he can recover the same from him under
section 145 of the act.
3. Right against Creditor to take back the securities deposited by the
Principal debtor:- After making the dues the surety has all the rights which
are available to the creditor against the principal debtor under section 141 of the
act. He is entitled to the benefit of every security which the creditor has against
the principal debtor.
4. Surety has no right to goods in hypothecation:- In case there is hypothecation
of the goods the goods remain in the possession of the borrower the surety
cannot invoke the provision of section 141 in such case. Refer a case of Bank of
India v/s Yogeshwar Kant Wahhera, 1987.
CONCLUSION:- Keeping in view the above facts it is revealed that the
surety’s nature, liabilities and rights are of such types once he stands surety for

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 any debt he will remain bound till the amount is repaid by the principal debtor.
Although the surety has some rights such as right of subrogation, indemnity and
to taking back the securities but even though there are more complications in
this regard. So one should stand surety for a person who have some qualities of
good pay master.

Q3.The liability of the surety is co-extensive with that of Principal debtor.

INTRODUCTION:- Surety’s Liability : The liability of the surety is co-

extensive with that of the principal debtor, unless it otherwise provided by the
contract for example A guarantees to B for the payment of a bill of exchange by
C, the acceptor. The bill is dishonoured by C. A is liable not only for the
amount of the bill but also for any interest and charges which may have become
due on it.
DEFINITION OF CO-EXTENSIVE:- Section 128 of the Indian contract Act
provides the following definition in respect of the surety liability:-
“It says that the liability of the surety is co-extensive with that of the
principal debtor unless it otherwise provided by the Contract.”
A case of law in this regard is of Andhra Bank Soryapeet v/s Anantnath
Goel-1991: It was held by the court that where there were joint promisors and
consideration was paid by only one of them the other piomisors were equally
liable to pay amount. The liability of son was co-extensive with his father who
was principal debtor in view of section 127 and 128 of the Indian contract Act.
The gist of some the leading cases in which the liability of the surety is
co-extensive are given below to strengthening the answer of the question:-
 Kellappan Nambiar v/s Kanhi Raman-1957: In this case that if the principal
debtor happens to be a minor and the agreement made by him is void, the surety
too cannot be made liable in respect of the same because the liability of the
surety is co-extensive with that of principal debtor. It has been held that the
guarantee of the loan or an overdraft to an infant is void because the loan to the
infant itself is void.
 That in case of State Bank of India v/s V.N. Anantha Krishnam-2005: that
in view of the provision of section 128 of Act the Presiding officer was not
correct in giving directions to the Bank to proceed against the property because
cash credit facility and the liability of surety was co-extensive with that of
principal debtor.
 In a case of Bank of Bihar Ltd. v/s Dr.Damodar Prasad -1969: The Supreme
Court held that the liability of the surety is immediate and cannot be defended
until the creditor has exhausted all his remedies against the principal debtor.
 A case of Industrial Financial Corporation of India v/s Kannur Spining &
Weaving Mills Ltd.-2002: It was held that the liability of surety does not cease
merely because of discharge of the principal debtor from liability.

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 In a case of Harigobind Aggarwal v/s State Bank Of India-1956: 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.

CONCLUSION:- On deeply going into depth of provisions laid down in the

Act it is revealed that surety liability is co-extensive with that of principal
debtor means that his liability is exactly the same as that of the principal debtor.
Suppose if the default having made by the principal debtor the creditor can
recover the same from the surety all what he could have recovered from the
principal debtor.

Q4.What is bailment? Explain its essential ingredients of Bailment? What

are the duties & rights of Finder of the goods as a Bailee?

INTRODUCTION:-Means delivery of goods i.e. moveable property by one

person who is generally the owner thereof, to another person for some purpose.
The goods are to be returned to the owner after accomplished the purpose to
take further action as per directions of the owner of the goods.A.T.Trust Ltd.,
v/s Trippunhura Devaswomi-1954. In a contract of bailment the person who
delivers the goods called the “Bailor” and to whom the goods are delivered is
called as “Bailee”.
DEFINITION:- Section 148 of the Indian Contract Act, A bailment is the
delivery of goods by one person to another for upon a contract that they shall
when purpose is accomplished be returned or otherwise disposed of according
to the directions of the person delivering them. The person delivering the goods
is known as BAILOR and the person to whom goods are delivered is known as
the BAILEE.
ESSENTIAL INGREDIENTS OF BAILMENT:- The following are the
essentials of the bailment under the Contract Act:-
(a) DELEVERY OF GOODS FOR SOME PURPOSE:- Delivery means
transfer of the goods from the possession of one person to another person.
Delivery need not always be actual, sometimes it may be constructive or
symbolic as per instructions laid down in section 149 of the Act, and this
section recognises it other than actual delivery. However section 149 also
provides below in this regard:-
The delivery to the bailee may be made by doing anything which has the effect
of putting the goods in the possession of the intended bailee or any other person
authorized to hold them on his behalf.”

i) Jagdish chand Trikha v/s Punjab National Bank,

1998 : It was held by the court that the position of the bank was that of a Bailee
and it failed in its duty to take care of the goods and return them to the Bailor.

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The Bank was held liable to pay the cost of Rs. 3,72,400/- along-with simple
interest @12% from the date of institution of the suit.
ii) Ultzen v/s Ni coles, 1894:- It was held that the defendant was the bailee of
the coat as his servant had assumed the possession of the same and he was
therefore liable for its loss which was occurred due to his negligence.
(b) IF THE OWNER MAINTAINS CONTROL OVER THE GOODS
THERE IS NO BAILMENT: When the person keeps his goods in the
premises of others but himself continues to have the control over them, this is
not sufficient delivery for being considered to be bailment. Kaliaporumal
Pillai v/s Visalakshmi, 1938 : It was held that there was no bailment as she
had not handed over the possession of the jewels to the goldsmith, and therefore
the goldsmith could not be made liable for the loss. Punjab National Bank v/s
Sohan Lal, 1962, It was held that the locker could be operated even without the
key with the consumer. The consumer’s control over the valuable things in the
locker had gone and the same with the bank, therefore the bank was liable being
bailee and thus Bank is liable for the loss of the belonging of the consumer in
the locker.
(c) THERE CAN BE BAILMENT WITHOUT CONTRACT:- In some cases
there can be a bailment when the person obtains the possession without a
contract of the bailment as it was done in the case of :Ram Gulam v/s Govt. Of
Uttar Pradesh- 1950, The court expressed that the property of plaintiff was
stolen and the same was recovered by the Police, Police kept the same in the
Malkhana. Property was again stolen from the Maalkhana and could not be
traced out. Here the point of bailment raised since no contract of bailment was
made for which conviction is announced but the law itself recognises the finder
of the goods as bailee under section 71 of contract Act, hence it was held that
bailment can be even there when there is no contract of bailment. L.M. Co-
operative Bank v/s Prabhudass HathiBhai-1966:- It was held that the
government stood in the position of a Bailee to take due care of the goods.
Govt., duty to prove that they had taken proper care as was possible for them
and the damage was due to reasons beyond their control.
RETURN OF GOODS AFTER THE PURPOSE IS ACHIEVED: OR
THEIR DISPOSAL ACCORDING TO THE BAILOR DIRECTIONS:-
The delivery of the goods in a bailment is only for some purpose i.e. for safe
custody, for carriage, for repair etc., when the purpose is accomplished the
goods are to be returned or otherwise disposed of according to the directions of
the person delivering them. According to Section 148, the goods shall be when
purpose is achieved returned to the bailor or disposed of as per his directions i.e.
when the cloth is given for being stitched in to suit or gold for being converted
into ornaments or wheat for being converted into flour there is a bailment in
each case. When the money is deposited into a Bank, when the agent receives
some payment on behalf of Principal, he is not the bailee thereof because he is
only bound to pay an equivalent of it to the principal rather than the same

13
 currency as done in the case of: - Secretary of State for India Council v/s
Sheo Singh-1880: Some notes were given to Treasury for being cancelled,
there is no bailment as the same notes are not to be returned. Constructive
bailment does not confer any right to a stranger. Bailment regarding hiring of a
locker will not create relationship of Land lord and the tannent, as the Bank can
always open the locker with a Master Key. The hirer of the locker is not in a
position to open the locker without the assistance of the Bank. The Hirer has to
operate the locker only within the Bank’s time but the bank has no such
limitation
CONCLUSION:- Keeping in view the above stated facts and the gist of the
decisions of the Courts it is noticed that the goods are to be returned to their
original owner after the purpose is accomplished or they are to be disposed of as
per the directions of the Bailor in same condition as these were bailed.

POSITION OF FINDER OF GOODS

A person who finds goods belonging to another and takes them into his custody
is subject to the same responsibility as a bailee as provided in sec.71. Since the
position of the finder of goods is that of a bailee. He is supposed to take the
same amount of care with regard to the goods as is expected of a bailee
under section 151. He is also subject to all duties of a bailee including a duty to
return the goods after the true owner is found.
Section 168 and 169 confer certain rights on the finder of goods which are as
under:
1. May sue for specific reward offered: The finder of goods has no right to sue the
owner for compensation or trouble and expenses voluntarily incurred by him to
preserve the goods, but he may retain the goods until he receives such
compensation and a specific reward offered by the owner for return of the
goods. Refer sec. 168 of the Act.
2. If true owner is diligence not found or he refuses to pay the lawful charges of
the finder of the goods, the finder may sell it on the following conditions:-
i) When the thing is in danger of perishing or losing part of its value.
ii) When the lawful charges of the finder, in respect of the found goods amount to
two-third of its value.
iii) Right of Lien: He can retain the Lien on the found goods until his expenses on
find goods are paid.
iv) Right to sell the goods found:- Finder of the goods has the right to sell the
goods found by him under certain circumstances provided in section 169 of the
act with a reasonable notice mentioning the intention to sale the goods found.

Q5.Explain the difference between Sub-Agent and Substituted Agent?What are

the rights and duties of an agent?
Difference between sub-Agent & substitute Agent

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 SUB-AGENT
Sub Agent is a person employed by
and acting under the control of the
original agent in the business of
agency.
A sub-agent is not generally
responsible to the principal but he is
responsible to the agent.
There is no privity of contract between between the principal and the
sub-agent and principal.
SUBSTITUTED AGENT
Substituted agent can be nominated by
the original Agent to act for the
principal for a certain part of the
business of agency.
A substituted agent by his mere
appointment becomes immediately
responsible to his principal.
A privity of contract is created
substituted Agent.

RIGHTS AND DUTIES OF AGENT

Rights of an Agent

1. Right to retain money received on principal’s account.

2. Right to receive remuneration.
3. Right of lien on principal’s property.
4. Right to be indemnified.
5. Right to compensation for injury caused by principal’s neglet.
Duties of an Agent

1. To follow the direction of the principal.

2. To conduct the business of agency with reasonable skill and diligence.
3. To render accounts on demand
4. To communicate with the principal.
5. Not to deal on his own account
6. To pay the amounts received for the principal
7. Not to delegate his authority
8. Not to act in excess of authority
9. Duty on termination of agency by principal’s death or insanity.

Q6.Explain the distinction between conditions and warranty?When condition is

to the treated as warranty?

In a contract of sale, the subject matter is ‘goods’. There are millions of sale
transactions which occur in the normal course, all around the world. There are
certain provisions which need to be fulfilled because it is demanded by the
contract. These prerequisites can either be a condition and warranty.
The condition is the fundamental stipulation of the contract of sale
whereas Warranty is an additional stipulation. In other words, condition is the

15
 arrangement, which should be present at the time of happening of another event.
Warranty is a written guarantee, issued to the buyer by the manufacturer or
seller, committing to repair or replace the product, if required, within specified
time. Check out this article, in which we have presented the difference between
condition and warranty in sale of goods act.
BASIS FOR
CONDITION WARRANTY
COMPARISON

Meaning A requirement or event A warranty is an assurance

that should be performed given by the seller to the
before the completion of buyer about the state of the
another action, is known product, that the prescribed
as Condition. facts are genuine.

Defined in Section 12 (2) of Indian Section 12 (3) of Indian Sale

Sale of Goods Act, 1930. of Goods Act, 1930.

What is it? It is directly associated It is a subsidiary provision

with the objective of the related to the object of the
contract. contract.

Result of breach Termination of contract. Claim damages for the

breach.

Violation Violation of condition can Violation of warranty does

be regarded as a violation not affect the condition.
of the warranty.

Remedy available to Repudiate the contract as Claim damages only.

the aggrieved party well as claim damages.
on breach

When condition to be treated as warranty.

1.Where a contract of sale is subject to any condition to be fulfilled by

the seller, the buyer may waive the condition or may elect to treat the breach of
such condition as a breach of warranty and not as a ground for treating the
contract as repudiated.

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2.Whether a stipulation in a contract of sale is a condition the breach of which
may give rise to a right to treat the contract as repudiated, or a warranty the
breach of which may give rise to a claim for damages but not to a right to reject
the goods and treat the contract as repudiated, depends in each case on the
construction of the contract. A stipulation may be a condition though called
a warranty in the contract.
3.Where a contract of sale is not severable and the buyer has accepted
the goods or part thereof, the breach of any condition to be fulfilled by
the seller can only be treated as a breach of warrantyand not as a ground for
rejecting the goods and treating the contract as repudiated, unless there be a
term of the contract express or implied to that effect.
4.Nothing in this section shall affect the case of any condition or warranty,
fulfilment of which is excused by law by reason of impossibility or otherwise.

Q7. What is pledge and bring out the rights and duties of pawnor and
pawnee.

A pledge is a deposit of personal property as security for a personal loan of

money. If the loan is not repaid when due, the personal property pledged is
forfeited to the lender. The property is known as collateral. A pledge occurs
when someone gives property to a pawnbroker in exchange for money.As the
pledge is for the benefit of both parties, the pledgee is bound to exercise only
ordinary care over the pledge. The pledgee has the right of selling the pledge if
the pledgor make default in payment at the stipulated time. In the case of a
wrongful sale by a pledgee, the pledgor cannot recover the value of the pledge
without a tender of the amount due.

Rights and duties of the pawner and pawnee

Rights and duties of the pawner
Right to receive goods till sole (Sec. 177). If a time is tipulated for the
payment of the debt or performance of the promise, for which the pledge
is made, and the pawnor makes default in the payment of the debt or the
performance of the promise at the stipulated time he may redeem the
goods pledged at any subsequent time, before their actual sale of them,
but he must in that case pay, in addition, any expenses which might have
arisen from his default.
Rights and duties of the pawnee
1. Right to receive payment of the debt or to obtain the performance of
promise with interest and expense(Sec. 173). Pawnee has a right to retain
possession on the goods pledged till he obtains payment of his debt interest on

17
that debt and all other necessary expenses which he might have incurred for the
preservation of the goods pledged or in respect, of his possession.
2. Right of Particular lien (Sec. 174). Pawnee has no right to retain his
possession over the goods pledged for any debt or promise other than the debt
or promise for which they were pledged unless otherwise provided for, by a
contract.
3. Right to receive extraordinary expenses (Sec. 175). Pawnee is also entitled
to receive from the pawnor any extraordinary expenses which he might have
incurred for the preservation of the goods pledged.
4. Pawnee’s right in case of default of the pawnor (Sec. 176). In the case of
default by the pawnor in the payment of debt or the performance of promise at
the stipulated time or on demand or within reasonable time, the pawnee can
exercise the following two rights:
(a) He has a right to bring a suit on the debt or promise and can retain the goods
pledged as a collateral security.
(b) He has also a right to sell the goods pledged after giving reasonable notice
of sale to the pawnor.
He has a right to claim any deficit arising from the sale of the goods pledged
from the pawnor. He will have to return to the pawnor any excess obtained by
the sale of goods pledged beyond the amount necessary to pay the debt and
other expenses due.
5. Pawnee must not use the goods pledged. He must not use goods pledge
unless they are such as will not deteriorate by wear.
Besides the above rights and duties, all other rights and duties of the bailor and
bailee apply equally to pawnor and the pawnee.

Q8.Define contract of agency and conditions coherein the agency can be

terminated.
CONTRACT OF AGENCY
Meaning
When a person employs another person to do any act for himself or to represent
him in dealing with third persons, it is called a ‘Contract of Agency’. The person
who is so represented is called the ‘principal’ and the representative so
employed is called the ‘agent (Sec. 182). The duty of the agent is to enter into
legal relations on behalf of the principal with third parties. But, by doing so he
himself does not become a party to the contract to the contract not does he incur

18
any liability under that contract. Principal shall be responsible for all the acts of
his agent provided they are not outside the scope of his authority.
Conditions coherein termination of agency
By agreement
(a)On the basis that an agency relationship is created by agreement between the
principal and the agent, such a relationship can also be brought to an end by
mutual agreement between the parties, either in writing or orally.
(b) Termination by agreement may also occur if the agency relationship is
1.
terminated pursuant to the provisions of the agency agreement itself. The
following situations may arise in this context:
i)If the agreement provides for the appointment of the agent for a specified
period of time, the agency will come to an end automatically when that period
of time expires.
ii) If the agreement provides for the agency to terminate upon the
occurrence of a specified event, the agency will come to an end upon
the happening of the specified event.
2. By act of the parties
An agency may be terminated by the acts of either the principal or the
agent, as illustrated below:

(a)Performance by the agent:- If an agent is appointed to accomplish a

particular task or for a specific purpose, when the task is accomplished
by the agent or the specific purpose is attained, the agency will
terminate.

(b) Revocation by principal:-

i)The authority of an agent may be revoked at any time by the

principal. However, unilateral revocation otherwise than in accordance
with the provisions of the agency agreement may render the principal
liable to the agent for breach of the agency agreement.

ii)Any word or conduct of the principal inconsistent with the continued

exercise of authority by the agent may operate as revocation of the
agency.

iii)Revocation of the agent's power by the principal may not

automatically discharge the principal from liability to a third party who
is entitled to rely on the apparent authority of the agent on grounds of
representation by the principal or previous course of dealing with the
agent before notice of revocation is given to the third party.

19
iiii)Therefore, notice of revocation of an agent's power should be given
to the third party as soon as possible.

(c) Renunciation by agent:-

i)An agent is entitled to renounce his power by refusing to act or by notifying
the principal that he will not act for the principal.
ii) Unilateral termination of the agency by the agent before he has fulfilled his
obligations to the principal under the agency agreement will render the agent
liable to the principal for breach of the agency agreement, such as payment of
damages for loss suffered by the principal.
(d) By notice
i. If the agency agreement provides that the agency may be terminated upon either
party serving on the other written notice of a specified duration, for example, three
months' written notice, either party may terminate the agency agreement by serving
the required notice on the other party.
ii.However, if the agency agreement does not contain any termination provision, the
general rule is that reasonable notice has to be given to the other party to terminate
the agency.
3. By operation of law
An agency may terminate by operation of law upon the occurrence of the
following events:
a. Where the party concerned is an individual:

i. death;
ii. insanity; or
iii. bankruptcy.
b. Where the party concerned is a limited company:
i. winding-up; or
ii. receivership.
c. Frustration of the contract of agency

Q9.Discuss the contract of sale of goods and subject matter of contract of

sale.
Contract of sale of goods is a contract, whereby, the seller transfers or agrees to
transfer the property in goods to the buyer for a price. There can be a contract of
sale between one part-owner and another.

20
In other words, under a contract of sale, a seller (or vendor) in the capacity of
the owner, or part-owner of the goods, transfers or agrees to transfer the
ownership in goods to the buyer (or purchaser) for an agreed upon value in
money (or money equivalent), called the price, paid or the promise to pay same.

A contract of sale may be absolute or conditional depending upon the desire of

contracting parties.

Essentials elements of a Contract of Sale

The following six features are essential elements of any contract of sale of
goods.

 Goods
 Price
 Two parties
 Transfer of ownership
 All Essentials of a Valid Contract of Sale
 Includes both a ‘sale‘ and ‘an agreement to sell‘
1. Two Parties: A contract of sale of goods is bilateral in nature wherein
property in the goods has to pass from one party to another. One cannot buy
one’s own goods.
For example, A is the owner of a grocery shop. If he supplies the goods (from
the stock meant for sale) to his family, it does not amount to a sale and there is
no contract of sale. This is so because the seller and buyer must be two different
parties, as one person cannot be both a seller as well as a buyer. However, there
shall be a contract of sale between part owners.

Suppose A and B jointly own a television set, A may transfer his ownership in
the television set to B, thereby making B the sole owner of the goods. In the
same way, a partner may buy goods from the firm in which he is a partner, and
vice-versa.

However, there is an exception against the general rule that no person can buy
his own goods. Where a pawnee sells the goods pledged with him/her on non-
payment of his/her money, the pawnor may buy them in execution of a decree.

2. Goods: The subject matter of a contract of sale must be goods. Every kind of
movable property except actionable claims and money is regarded as ‘goods’.
Contracts relating to services are not considered as contract of sale. Immovable
property is governed by a separate statute, ‘Transfer of Property Act’.
3. Transfer of ownership: Transfer of property in goods is also integral to a
contract of sale. The term ‘property in goods’ means the ownership of the
goods. In every contract of sale, there should be an agreement between the
21
buyer and the seller for transfer of ownership. Here property means the general
property in goods, and not merely a special property.
Thus, it is the general property, which is transferred under a contract of sale as
distinguished from special property, which is transferred in case of pledge of
goods, i.e., possession of goods is transferred to the pledgee or pawnee while
the ownership rights remain with the pledger. Thus, in a contract of sale there
must be an absolute transfer of the ownership. It must be noted that the physical
delivery of goods is not essential for transferring the ownership.

4. Price: The buyer must pay some price for goods. The term ‘price’ is ‘the
money consideration for a sale of goods’. Accordingly, consideration in a
contract of sale has necessarily to be in money. Where goods are offered as
consideration for goods, it will not amount to sale, but it will be called barter or
exchange, which was prevalent in ancient times.
Similarly, if a person offers the goods to somebody else without consideration,
it amounts to a gift or charity and not sale. In explicit terms, goods must be sold
for a definite amount of money, called the price. However, the consideration
can be partly in money and partly in valued up goods. Furthermore, payment is
not necessary at the time of making the contract of sale.

5. All essentials of a Valid contract: A contract of sale is a special type of

contract, therefore, to be valid, it must have all the essential elements of a valid
contract, viz., free consent, consideration, competency of contracting parties,
lawful object, legal formalities to be completed, etc. A contract of sale will be
invalid if important elements are missing. For instance, if A agreed to sell his
car to B because B forced him to do so by means of undue influence, this
contract of sale is not valid since there is no free consent on the part of the
transferor.
6. Includes both a ‘Sale’ and ‘An Agreement to Sell’: The ‘contract of sale’
is a generic term and includes both sale and an agreement to sell. The sale is an
executed or absolute contract whereas ‘an agreement to sell’ is an executory
contract and implies a conditional sale.
A contract of sale can be made merely by an offer, to buy or sell goods for a
price, followed by acceptance of such an offer. Interestingly, neither the
payment of price nor the delivery of goods is essential at the time of making the
contract of sale unless otherwise agreed.

Subject to the provisions of the law for time being in force, a contract of sale
may be made either orally or in writing, or partly orally and partly in writing, or
may even be implied from the conduct of the parties.

Subject matter of Contract of Sale

22
The subject matter of contract of sale is essentially the goods. Section 2 (7) s
ays that
“goods”. means every kind ofmovable property other than money or actionab
le claims, it
includes stock and shares, growing crops, and thingsattached to the earth whi
ch are to be
removed because of the contract of sate. According to this definition moneya
nd actionable
claims are not goods and cannot be bought and sold. Money here means legal
tender money.
It does notinclude old coins which are sold like goods, e.g., silver rupee coins i
n our country.An actionable claim means a debt ora claim for money which a
person may have against another and which he can recover by suit.
Goods may be classified into three types :
(1) Existing goods (2) Future Goods, and (3) Contingent Goods.
(1) Existing Goods are goods which are already in existence and which are p
hysically
present in someperson’s possession and ownership. Existing goods may be eith
er (i) Specific and Ascertained or (ii) Genericand Unascertained.
(i) Specific goods are those goods which are identified and agreed upon at the
time of
the contract ofsale; i.e., a particular painting by a painter, a horse pointed out a
nd recognised
as separate from otherhorses in a stable. The term Ascertained goods is used
in the same sense as Specific Goods.

(ii) Generic or Unascertained Goods are those goods which are not specifically i
dentified but are indicatedby description. If A agrees to supply one bag of whe
at from his godown to
B, it is a contract relating tounascertained goods because it is not known whic
h bag will be
delivered. As soon as a particular bag isseparated from the lot and making or
identified for delivery it becomes specific goods.
(2) Future Goods are goods which the seller does not own or possess at the ti
me of the
contract, butwhich he will manufacture or produce or acquire after the making o
f the contract.
For example, A agree to sellto B all the oranges which will be produced in his
garden next year. This is an agreement for the sale offuture goods.
(3) Contingent goods are those goods which the seller will acquire on the hap
pening of
a contingency. Anagreement to sell contingent goods can also be made. For e

23
xample, A’s
father has a rare copy of bookwhich is out of print. A hopes to get it on his fa
ther’s death.
A agrees to sell it to B for Rs.10,000 evenbefore his father’s death. This is an
agreement for the sale of contingent goods.
Q10.Partnership arises from contract and not from status.Discuss.
Section 5 states that partnership is not created by status. It makes it clear that
relation of partnership can arise out of a contract only.

There must be a minimum two or more people in a partnership. There is no

upper limit on the number of members in a partnership under the Act.
However, Section 11 of the Companies Act, 1956 provides that number of
partners cannot exceed 10 persons in case of banking business and 20 in others.
If the number of members exceeds the limit, the partnership becomes an illegal
association. It gets dissolved if the number goes below one. Thus, it follows that
if there is a partnership to carry on an illegal business or if the number of
partners exceeds the maximum given, then it is an illegal partnership.

The Indian Partnership Act, 1932 gives two specific types of partnerships on the
basis of duration:

1) Partnership at will

2) Particular Partnership

1) Partnership at will: Section 7 says “where no provision is made by contract

between the partners for the duration of their partnership or for the
determination of their partnership, the partnership is Partnership at Will”.

The survival of such partnership depends on the willingness of the partners. It

can be dissolved at any time by any of the partners by giving a notice to the
other partners. The partnership at will dissolves from the date of notice of
termination. If a partnership constituted for a particular time period is still
carried on after the expiry of the time, it will be presumed that the limitation is
no longer applicable.

For example, if two people decide to sell coconut water at two ends on a
particular street without having any contract or without specifying when will the
partnership come to an end, it is a partnership at will. It will exist only as long
as both the parties want the partnership to last.

24
But if the partnership deed provides of termination only by mutual agreement, a
mere notice to the other partners will not dissolve the partnership firm. Also, a
partnership at will dissolves immediately upon the death or insanity of a partner.

2) Particular Partnership: Section 8 states that “a person may become a partner

with another person in particular adventures or undertakings.” Such a
partnership ends on the completion of the task. A partner cannot retire from
such a partnership – half way through the project for which partnership was
entered into – without the other partners.

When two people enter into a partnership for a particular construction project,
this is particular partnership. A person can still carry on his usual business or
work while he in a particular partnership; he is not required to give up his other
professional pursuits. For example, partnership between two advocates or
doctors for a particular case does not take away their freedom to attend to their
other cases. Two auditors engaged in a particular audit might be regarded as
partners in that audit.

It does not matter whether the business is of temporary or permanent nature. A

single venture can amount to carrying on of business. In the case of K Jaggaiah
vs. Kokumanu [AIR 1984 AP 149], three people got together and managed a
contract for road maintenance. It was a partnership for building roads. The
activity of the partnership arose from a single contract but was spread over a
particular period and various aspects. The employment of workers, supervision,
getting sanctions and approvals was just a part ‘carrying on of business’
under Section 4.

English Law: There is a concept of a limited partnership. In the case of Miles

vs. Clarke [1953 1 AER 779], a photographer cum photo studio owner entered
into an agreement with a freelance photographer. The agreement was that the
freelance photographer would go to marriages and other functions and get the
prints from the particular photo studio. The profits earned were shared equally.
After a few years, a dispute arose whereby the freelance photographer claimed a
partnership with the photo studio and thus, entitlement to the property. It was
held to a particular partnership and not a partnership with the photo studio.
Thus, the freelance photographer was not entitled to a share in the photo studio.

Section 17 of the act contemplates situations where the partnership has to be

continued despite no provisions for it. The Section says that subject to the
contract to the contrary:

25
1. i) The rights and duties of partners after a change in the firm will remain the
same as before.
2. ii) The mutual rights and duties of the partners will the same after the expiry
of the term of the firm as far as they are consistent with a partnership at will.

iii) The rights and duties of partners are the same as in the original undertakings
if the partnership has taken up additional undertakings.

26