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Contract Law-Special Contracts Important Questions
Contract Law-Special Contracts Important Questions
Similarly where the owner of a colliery (coal mine) appointed a sole selling agent
for his coals for seven years, it was held that the owner could sell the colliery
even before the expiry of this period and thus terminate the agency. He was not
bound to keep his colliery.
It is important that the doctrine of agency coupled with interest applies only, if
the authority was intended for the protection of an interest of the agent
existing at the time of the creation of the agency and it is not sufficient that it
does so incidentally. It, therefore, cannot apply where the interest arises after
the creation of the agency.
It must also be noted that an agency coupled with interest is not terminated
even by the death, insanity or insolvency of the principal.
Illustration (Appended To Sec. 202): A gives authority to B to sell A’s land and to
pay himself, out of the proceeds, the debts due to him from A. A cannot revoke this authority,
nor can it be terminated by his insanity or death.
2. When revocation would cause the agent personal loss:
Where the agent has, in pursuance of his authority, contracted a personal
liability, the agency becomes irrevocable and the principal cannot revoke the
authority unilaterally. This is so because the principal cannot be permitted to
defeat rights already established.
3. When the authority has been partly exercised by the agent (Sec. 204):
Where the agent has partly exercised his authority, it becomes irrevocable so
far as regards such acts and obligations as “arise from acts already done in
the agency.
4. Right of Equities
After paying the amount due to the creditor, the surety is entitled to all
equities of the creditor that he had against the debtor as well as any other
person with regard to the debt.
5. Right of Set-off
Sometimes, the principal debtor is entitled to certain counter claim or
deductions from the loan obtained from the creditor. In such cases, the surety
is entitled to the benefit of such counter claim or deductions, if the creditor
files a suit against the surety.
2. Right of Indemnity
In every contract of guarantee, there is an implied promise by the principal
debtor to indemnify the surety i.e., to compensate the surety. Therefore, upon
the payment of debt of the principal debtor, the surety becomes entitled to
recover from the principal debtor, all the amount including interest plus costs
rightly paid to the creditor under the guarantee. The reason is that the surety
is entitled to full indemnification.
Example: A, B and C are sureties for D, enter into three several bonds, each in
a different penalty, such as A in the penalty of Rs.5,000, B in that of
Rs.10,000, C in that of Rs.20,000, conditioned for D’s duly accounting to E. D
failed to the extent of Rs.15,000, A, B and C are each liable to pay Rs.5,000
each.
Ans: The contract of agency may be in writing under seal and it is then called
a power of attorney, or it may be simple writing, or it may be by an oral
agreement, or may be inferred from the conduct of the parties and the
circumstances of the case, as in case of master and servant, or husband and
wife, or partners inter se.
Any person who is competent to contract and who is of sound mind may
appoint an agent. The appointment may be expressed in writing or it may be
oral. But our definition of agency is wider than that of English Law. Our
definition does not limit the employment to one by the principal only…….. It
will include an employment by any authority authorized by law to make the
employment. Thus, where an agent was appointed under the provisions of
Bengal Tenancy Act, 1885 for the protection of the interests of quarrelling co-
owners and of third person, the Calcutta High Court held that the agent so
appointed would come within the definition, though he would not have the
same “ well-known and settled incidents”. Attached to him as arise in the case
of contractual agency, Similarly, loan incurred by an agent appointed under
the terms of a statute was held binding on the proprietors.
(ii) Ormrod Vs. Crasvil1e Motor Series Ltd. 1953. A permission granted to a
person to ferry a car from one place to another makes him an agent for the
limited, purpose so as to create. liability for consequences of negligent driving.
For Example -
(i) A horse was sent by train. On its arrival at the destination there was no one
to receive it. The railway company fed the horse. Held the railway company
was an agent by necessity of the owner and was entitled to recover the
amount spent in feeding the horse.
(ii) The master of a ship in case of necessity can pledge the ship as security
for the cost of repairs necessary to enable her to continue the voyage. The
master will be considered as' agent of the owner by necessity.
(iii) A master of a ship finds that the cargo is, perishing rapidly. He puts into
the nearest port and sells the goods for the best price obtainable. He Win be
considered as agent of the owner by necessity.
(i) Summers Vs. Solomon (1857) 26 L. Q. B: 301':"'A had for some years
managed a shop belonging to B and ordered goods in B's name from C, and
B had duly paid for them. A absconded, called on C and bought goods in B's
name and took them away. Held B was liable for the price of the goods.
Express contract of the agent: The agent must expressly state at the
time he was entering into the contract that he was acting on behalf of
his principal who will subsequently ratify the contract. The agent must
not act for himself; otherwise, the principal cannot ratify the contract.
Validity of the contract: The contract must not be void ab initioat the
time the contract was entered into by the agent. Thus, for a principal to
validly ratify the act of the agent, the contract entered into by the agent
must be valid from inception. If the contract is an illegal contract, it will
be null and void and incapable of ratification.
Full knowledge of the act: The principal must at the time of the
ratification have a full knowledge of all the material facts of the
contract. Put differently, the agent is expected to disclose all the facts
of the contract to the principal before the principal can ratify the acts of
the agent in relation to the contract.
Q. Define Sale. What are the elements of sale? Distinguish between sale
and hire purchase agreement?
Ans: A ‘Contract of Sale‘ is a type of contract whereby one party (seller) either
transfers the ownership of goods or agrees to transfer it for money to the
other party (buyer). A contract of sale can be a sale or an agreement to sell.
In a contract of sale, when there is an actual sale of goods, it is known
as Sale whereas if there is an intention to sell the goods at a certain time in
future or some conditions are satisfied, it is called an Agreement to sell.
1. Essential Elements of a Valid Contract
2. Two Parties
In a contract of sale, the ownership of goods has to pass from one person to
another. Hence the seller and the buyer must be different persons because
one person cannot be both the buyer and the seller.
But there are certain exceptions to this – where a person’s goods are sold
under an execution of decree he may purchase his own goods.
For e.g., A and B were partners. After some years, the firm was dissolved. On
the dissolution, some goods were divided among all the partners. Such a
distribution of goods among the partners was not a sale.
3. Goods
4. Transfer of Ownership
The property in the goods means “all ownership rights” of the goods. In a
contract of sale, all the ownership rights of the goods must be transferred by
the seller to the buyer. However, the physical delivery of the goods is not
required.
For e.g., A agreed to buy a new two wheeler from B an agent for
Rs.25,000. Apaid the price and got the two wheeler registered in his name
and the registration book was delivered by B to A. This is a valid contract of
sale because the ownership of the two wheeler has been transferred to A.
5. Price
Thus the price is the consideration for contract of sale which should be in
terms of money. If the ownership of the goods is transferred for any
consideration other than the money, that will not be a sale but an exchange.
However, consideration can be paid partly in money and partly in goods.
In hire purchase agreement the goods are delivered to the hire purchaser for
his use at the time of the agreement but the owner of the goods agrees to
transfer the property in the goods to the hire purchaser only when the hirer
pays a certain fixed number of installments of price.
In Sale -->The buyer cannot terminate the contract and as such is bound to
pay the price of the goods.
In Sale -->If the buyer makes the payment in instalments, the amount payable
by the buyer to the seller is reduced, for the payment made by the buyer is
towards the price of the goods.
The points presented below explain the difference between the dissolution of
partnership and dissolution of the firm, on various grounds:
The court may order for the dissolution of the firm on the following grounds:-
(i) Insanity of Partner-On the application of any of the partner, court may
order for the dissolution of the firm if a partner has become of an unsound
mind. Lunacy of a partner does not itself dissolve the partnership but it will be
a ground for dissolution at the instance of other partners. It is not necessary
that the lunacy should be permanent. In the case of a dormant partner the
court may not order dissolution even on the ground of permanent insanity,
except in special circumstances.
(iv) Constant breach of agreement by partner-The court may order for the
dissolution of the firm if the partner other than the suing partner is found guilty
for constant breach of agreement regarding the conduct of business or the
management of the affairs of the firm and it becomes impossible to continue
the business with such partner.
(v) Transfer of Interest-When any of the partner other than the suing partner
transfers whole of its share to the third party for permanently.
(vi) Continuous Losses-The court may order for dissolution if the firm is
continuously suffering losses and there is no more capital available for the
future growth of the firm.
(vii) Just and Equitable-The court may order for dissolution on any other
ground which court think is just, fair and equitable. e.g. loss of total confidence
between the partners was held in case of Havidatt singh v. Mukhe Singh
Under the principle of caveat emptor, the buyer could not recover
damages from the seller for defects on the property that rendered the
property unfit for ordinary purposes. The only exception was if the
seller actively concealed latent defects or otherwise made material
misrepresentations amounting to fraud.
“Caveat emptor does not mean in law that the buyer must “take a
chance,” it means he must “take care.” It applies to the purchase of
specific things, e.g. a horse, or a picture, upon which the buyer can,
and usually does, exercise his own judgment; it applies also
whenever the buyer voluntarily chooses what he buys; it applies also
whereby usage or otherwise it is a term of the contract, that the buyer
shall not rely on the skill or judgment of the seller.”
The buyer should make the seller aware of the particular purpose for
which he is making purchase;
“Where the goods are bought by description from a seller who deals
in goods of that description (whether he is the manufacturer or
producer or not), there is an implied condition that the goods shall
be of the merchantable quality.”
The proviso to section 16(2) declares that “if the buyer has examined
the goods, there shall be no implied condition as regards defects
which such examination ought to have revealed. The requirement of
the proviso is satisfied when the seller gives the buyer full
opportunity to examine the goods and whether the buyer made any
use of the opportunity or not should make no difference.
Ans: General Provision : ‘No body can transfer a title better than he
himself has’
The general rule is that only the owner of goods can sell the goods.
Conversely, the sale of an article by a person who is not or who has
not the authority of the owner, gives no title to the buyer. The rule is
expressed by the maxim; "Nemo dot quod non habet" . No one can
pass a better title than what he himself has. As applied to the sale of
goods, the rule means that a seller of goods cannot give a better title
to the buyer than he himself possess. Thus, even bona fide buyer
who buys stolen goods from a thief or from a transfree from such a
thief can get no valid title to them, since the thief has no title, nor
could he give one to any transferee.
Example:
7. The third party must acquire the goods in good faith and without
knowing that the mercantile agent lacked the authority to sell
them. The burden of proof in this regard rests with the third
party. The test of good faith is subjective and is satisfied when it
is done honestly, irrespectively as to whether it is done
negligently.
When the conditions contained in the proviso are satisfied the seller
can confer a good title on the buyer.
Section 148 to Section 171 lays down the definitions, nature of the
contract of bailment as well as the rights, duties and liabilities of both
the bailor and the bailee. Bailment, as per the Indian Contract Act,
puts certain legal obligations on bailee at the time of redelivery or
disposing of goods as directed by the bailor.
Duties of Bailee
The following are some of the duties of Bailee.
1. To Take Reasonable Care of the Goods Bailed
It is the duty of the bailee to take reasonable care of the goods bailed to him.
He must take as much care as an ordinary sensible man would take, under
the similar circumstances, in respect of his own goods of the same type. If he
has taken the required degree of care, then he is not liable for any loss or
destruction of the goods bailed. However, if the bailee is negligent in taking
care of the goods bailed, then he is liable to pay damages for loss or
destruction of the goods.
Example: A leaves a cow in the custody of B to be taken care of. The cow has
a calf. B is bound to deliver the calf as well as the cow to A.