CONTRACT-II

IMPORTANT TOPIC WISE QUESTIONS

Indian Partnership Act;

1 how is it better than company.
8. when can a partner be expelled and what are its effects and rights of an expelled partner?

INDEMNITY

Introduction:
The word indemnity has been derived from the Latin term “indemnis” which means ‘unhurt or
free from loss’’. Where one party to the contract, referred to as the “indemnifier” or
“indemnifying party”, promises to protect another party referred to as “indemnity holder” or
“indemnified party” from not only loss, cost, expense and damaged but also from any legal
consequence. To protect the promise from unanticipated losses, parties enter into the contract
of Indemnity.
In the case of Mangladha Ram v. Ganda Mal, the vendor’s promise to the vendee to be liable,
if title to the land was distributed, was held to be one of indemnity.
Definitions:
As per the oxford dictionary “Security from damage, loss or penalty”.
As per section 124 of the Indian Contract Act, ‘‘an agreement by which one party promises to
save the other from the loss caused to him by the conduct of the promisor himself or by
someone else.’’
Insurance Indemnity:
All insurances except and personal accident insurance come in the scope of Indemnity.
Indemnity contracts and contracts of insurance are extremely similar. In an insurance contract,
the insurer pledges or promises to compensate for the losses suffered by the insured’s losses. In
return, he receives consideration in the form of a premium, it is an absolute promise to
indemnify the insured on failure of which a suit can be filed immediately. If he/she would be
entitled to call upon the indemnifier to save him from the responsibility by taking care of it. An
insurance policy that compensates a party for any accidental damages or losses up to a certain
limit is known as ‘Indemnity Insurance’.
Illustration
1. A promises to indemnify B if his car is damaged in an accident. B met with a minor accident in
which he did not suffer any injury, but his car was damaged completely. Here, A is obliged to
indemnify B for the damage.
--Difference b/w the contract of indemnity and contract of insurance
 * Contract of indemnity has a wider scope since all the contract of insurance are contracts of
indemnity except Life Insurance whereas Vice Versa is not there.
* In case of contract of insurance consists of the element of Uberrimae Fides (Utmost Good
Faith) whereas the same is missing in contract of Indemnity.
* In contract of insurance, a premium sum is to be paid whereas same is absent in the case of
contract of indemnity.
Essentials to a Contract of Indemnity:
For the purpose of a contract of indemnity, the following conditions must be satisfied:-
1. There must be two parties.
2. One of the parties must promise the other party to pay for the loss incurred.
3. The contract may be expressed or implied.
4. It must satisfy the essentials of a valid contract.
1. Parties to the contract of Indemnity-:
Essentially there must be two parties in a contract of indemnity, the indemnity holder, whose
losses are compensated and the indemnifier, who promises to compensate for a loss but does
not bear the loss.
2. Promise to pay losses-:
One party must present the offer to another and the other must accept it. After accepting the
offer on the same terms it becomes a promise, it is an important part of the contract of
indemnity that “the promise must be made by the promisor to pay for the losses of the
promise”.
3. Express or implied-:
It can be expressed or implied, in other words parties may directly impose their own conditions
in such a contract. Express are those which are made orally or in writing whereas implied
contracts are those that are made as a result of the conduct of the parties.
Rights of an Indemnity Holder:
Section 125 of the Indian Contract entitles the indemnity Holder who acts within his authority
with following rights:-
1. Rights to recover damages- the indemnity holder can recover all the damages from the
indemnifier which he is forced to pay in a suit proceeding. But only those damages will be
indemnified against which promise is made.
2. Right to recover costs- costs incurred due to an institution or defending of suit shall be
indemnified by the indemnifier. But the indemnified shall not act against the order of the
promisor.
3. Right to recover sums paid under compromise- amount paid in case of compromise of the suit
can also be recovered from the indemnifier without violating the orders of indemnifier.
4. In Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri it was observed, “section 124
and 125 of the act are not exhaustive of the law of indemnity and the courts here would apply
the same principles that the courts in England do..”
Contract of Guarantee:
 As the section 126 of the IAC provides:-
“A contract of guarantee is a contract to perform the promise, or discharge the liability, of a
third person in case of his default. The person who gives the guarantee is called the ‘surety’;
the person in respect of whose default the guarantee is given is called the ‘principal debtor’,
and the person whom guarantee is given is called the ‘creditor’. A guarantee may either or
oral or written.”
The contract of guarantee provides for the additional security to the creditor. A contract of
guarantee involves three parties; the creditor, the surety and the principal debtor.
Three contracts- (i) the principal debtor himself makes a promise in favour of the creditor to
perform the promise, (ii) the surety undertakes to be liable towards the creditor if principal
debtor makes a default, (iii) an implied promise by the principal debtor in favour of the surety
in case where surety has discharges the liability of default of the principal debtor, the principal
debtor shall indemnify the surety for the same.
Difference between Indemnity & Guarantee
Indemnity Guarantee
There are only two parties i.e. indemnity There are three parties i.e. creditor,
holder and indemnifier. principal debtor and surety.
There is only one contract between There are three sub-contracts in guarantee.
indemnity holder and indemnifier.
It is of simple nature as it has only one It is of a complex nature as it has more
contract. than one contract.
There is an only absolute liability in There are two types of liability i.e. primary
indemnity which rests with the and secondary which rests with the
indemnifier. principal debtor and surety respectively.
Once the indemnifier has paid the amount The surety can recover the amount from
he cannot recover the same. the principal debtor.

Bailment and its essentials:

Definition of ‘bailment’ is derived from the French word ‘bailler’ which means ‘to give or to
deliver’. In common law it means any kind of handing over of certain property, particular
goods, for a certain period. Bailment is a technical term it involves change of possession with a
condition to redeliver the goods.
According to Sir William Jones “a delivery of goods on a condition, express or implied, that
they shall be restored by the bailee to the bailor or according to his directions, a soon as the
purpose for which they are bailed shall be answered.”
According to section 148 of ICA, “a bailment is the delivery of goods by one person to another
for some purpose, upon 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 “bailor” and the person whom they are delivered is called the
‘bailee’.
Essential requisites:
1. There must be a delivery of goods by the bailor
 Section 149 of the IAC provides, the delivery of possession may be of two types:
a. Actual Delivery- also known as physical delivery, where the delivery takes place when the
goods are physically handed over by the bailor to the bailee.
b. Constructive Delivery- when some action is taken to mean handing over the physical possession
of goods, though in fact no physical transfer of goods is made at that time. Example bill of
lading, delivery of railway tickets.
It was held in Reaves vs. Capper that a servant in the custody of certain goods due to the
nature of his job is not a bailee. Similarly, a servant holding his master’s umbrella is not a
bailee but a custodian.
2. Contract
Bailment is always created by an agreement between the bailor and the bailee. It can be either
express or implied. In bailment the delivery of goods is upon a contract and once the purpose is
done, such goods shall be returned to the bailor, this means there should be a contract between
the parties for transaction of delivery and subsequent return. If there is no possession of goods
obtained by someone other than contracting parties, there should be no bailment. Exception if
the goods is lost the finder of goods will be seen as the bailee even if there was no contract of
bailment.
3. Delivery of goods should be upon some purpose and returned of goods
In a contract of Bailment where the goods are delivered (in the sense of possession) from one
person to another shall be on some purpose.
4. Return of goods
After the completion of the purpose, the goods delivered to the bailor or dealt with as per his
instructions. If the person not bound to return the goods then there is no bailment. Moreover it
is necessary for the bailee to follow the instruction given by the bailor for the purpose of the
return of the good if any.

Duties of a Bailee:
1. Take proper reasonable care of goods bailed (section 151), bailee has duty to take reasonable
care of the goods bailed similar to a man of ordinary prudence although according to the
section 152, if even after his reasonable care the goods are damaged or destroyed, the bailee is
not liable for the loss of the bailed goods.
2. Not to make any unauthorized use of goods, if due to the fact that the bailee uses the goods
bailed in a manner inconsistent with the terms of the contract then he will be held liable.
(section 154).
3. According to section 155, if goods mixed with the consent of the bailor both will have a
proportionate interest in the mixture produce. As per section 156, if mixed with the consent of
the bailor, and if it cannot be mixed/divided, the bailor has to bear all the expenses for the
same. As per section 157, if mixed without the consent of the bailor, and if the mixture is
beyond separation the bailee is required to compensate the bailor for the loss of the goods.
4. Not to set up an adverse title on bailed goods.
5. Return the goods along with any increase or profit acquiring to the goods to the bailor.
6. After the time for which the goods bailed is expired, or the purpose has been fulfilled, the bailee
must return it to the bailor as per his direction.

Duties of a Bailor:
1. It is the duty of a bailor to disclose all flaws. If the bailor fails to disclose such flaws then he will
be responsible for the damage caused to bailed goods or loss suffered by the bailee. Example
Mr. X lends a horse, which he knows to be vicious, to Mr. Y, he does not disclose the fact that
the horse is vicious. The horse runs away. Mr. Y is thrown and injured. Here Mr. X is
responsible for Mr. Y for damage sustained.
2. Also, the bailor is under the duty to pay the extraordinary expenses acquired by the bailee for
such bailment (section 158).
3. It is the duty of the bailor to accept the goods after the purpose for which such bailed goods were
bailed accomplished. However if the bailor refuses to do the same, he will be entitled to pay the
bailee compensation for the necessary expenses of custody and care.
4. According to section 159, in case of gratuitous bailment, the bailor can terminate bailment at any
time even if the bailment was or a specific period, however the bailor is required to indemnify
the bailee if the losses incurred by him due to the premature termination.
5. Indemnify the baliee when he suffers loss due to the title of bailor to the goods being defective,
example A lends his car to B, as B has to go out of the town for a family gathering. B has
already paid an advance to the A of Rs.5000. however, after 4 days, the police seized the car
from B as it was stolen and belonged to C. B had to arrange a new car for the same purpose and
has to pay a higher rent. B can claim from the amount he has already paid as well as the higher
rent he had to pay for the new car.
Rights of Bailor:
1. If the bailee does anything which is inconsistence with the terms of the bailment then the bailor
can terminate the bailment (section 153).
2. Right to claim a proportionate share in mixed bailed goods (section 155).
3. Rights to claim the return of bailed goods (section 160,161).
4. Right to claim damages due to mixing up of bailed goods (section 156,157).
Rights of Bailee:
1. Delivery of goods to bailor without title, according to section 166, if the bailor has no title to
the goods bailed, the bailee can deliver them back to the bailor according to his directions, the
bailee will not be responsible for such delivery.
2. Can apply to a court to stop delivery, according to section 167, if there is a situation in which
a third person claims the goods bailed to the bailee, then the bailee can stop the delivery of
such goods to the bailor by applying to the court and decide the title of the goods.
3. Right against trespass, according to section 180, if the bailee is deprived of the use of the
goods bailed by any third party, the bailee has the right to bring an action against the party.
4. Bailee lien, when the bailee is not paid charges with respect to the goods bailed he has the right
to retain the goods. This right is referred to as ‘particular lien’.
Particular lien:
In the particular lien, a person exercises his right to possession of good(s) belonging to another
person until that person pays the charges due in respect to the good(s). A particular lien is only
available against the good(s) in respect to which the bailee has used his skills and labours,
provided that the consideration of the amount to be paid was done in advance (section 170).
The major constituents for the test to determine the right of ‘particular lien’ are-:
a. Services given by bailee.
b. Labour/skills involved.
c. Considerations.
Hatton v. Car Maintenance Company ltd., A delivers his car to the mechanic to repair it, which
is done accordingly. The mechanic is entitled to retain the car till he is paid for his labour and
skills.
General Lien:
It is the right of an individual to retain the goods or property of another until the liability due
on that person discharged accordingly. Unlike Particular lien, the goods or property retained
may or may not have any direct relation to the due liability (Section 171). In Kalloomal
Tapeshwari Prasad and Co. v. M/s R.C. & F. ltd., A placed an order of the goods, which were
meant to reach him through the sea route. The goods were unloaded from the ship and kept
under the custody of the port authority. The port authority could retain that good until Mr. A
pays all the dues to the port i.e. fee of unloading the goods, fee for the safe custody of goods,
etc. However, whatsoever be the reason, the port is not entitled to use or re-sell the goods to
recover the amount liability to balance the accounts.
General lien Particular lien
Section 171 of ICA, 1872. Section 170 of ICA, 1872.
It is the right to retain the goods belonging It is the right of a bailee to retain the goods
to another person to recover the due or property of the bailor until the payment
liability on him against the general balance of the dues is done by the bailor.
of the account.
Any goods or property belonging to the Only the goods or property against which
person against whom the liability is due, the skill and labour are used, could be
could be retained. retained by the bailee.
It is automatic in nature. It is not automatic in nature.
The person who has retained the goods or Normally in particular lien also, the bailee
property cannot use/sell it to recover the could not sell/use to recover the dues
liability amount, whatsoever be the however, he may be allowed to do so
situation. under special circumstances.
It is exercised by bankers, policy brokers, It is used by the bailee, pledgee, agent,
etc. finder of goods, partner, unpaid seller, etc.
Difference b/w General lien and particular lien:

PLEDGE

Introduction:
Section 172 of the ICA defines the “pledge”, “Pawnee”, “Pledgee”.
The term ‘pledge’ literally means “thing given over as security”, the goods pledged or pawned
serve as security for the payment of debt or performance of a promise. The person pledging the
goods is called the ‘pawnor’ and the person to whom goods are pledge is known as the
‘pawnee’ or ‘pledgee’. Possession of special property is given in subject of the security.’ In
case of Maharastra State Co-op. Bank Ltd. v. Assistant P.F. Commissioner, it was said by the
 three judge bench that – a pawn or a pledge is a bailment of personal property as a security for
some debt or engagement.
Essentials of Pledge:
1. Delivery of goods- as per section 148, as the pledge is a bailment, the delivery of goods is must.
There must be a delivery of goods i.e. transfer of possession from one person to another. The
delivery may, however be either actual or constructive.
2. Purpose of pledge is security for payment of debt, etc- in a transaction of pledge, the purpose
of the goods bailed is that the goods should serve as security for the payment of a debt, or
performance of a promise. The pawnee becomes secured as a creditor and he has prior claim
over the goods pledged than other creditors. In Bank of India v. Binod Steel ltd., it was been
held that when certain movable goods have been pledge by a company to a bank, they cannot
be attached and sold for the satisfaction of claims of other creditors of the company without
first satisfying the claim of the bank. Unlike a mortgage.
3. Movable property- pledge can be made of movable property only. The movable property
includes goods, valuables and documents. Money cannot be pledge. Immovable property also
cannot be a subject matter of pledge.
4. Ownership of goods- the pawnee does not acquired the right of ownership over the goods
pledged. The ownership in the goods remains with the pawnor.
5. Transfer of possession- transfer of possession is essential. Agreement to transfer possession of
goods when ready or in future does not create a pledge.
6. Other essentials-
a. There must be a contract between the pawner and pawnee.
b. The contract of pledge may be written or oral.
c. The delivery can be made either by actual delivery or constructive delivery.
Pawnor’s right to redeem (section 177):
The pawnors right to redeem the goods pledge i.e. take back the goods on agreed debt to be
paid or the performance of the promise in accordance with the agreement. He can exercise the
right to redeem before the pawnee has made an actual sale of the goods. Generally the pawnor
may redeem the goods on the payment of the debt or the performance of the promise, for which
the pledge is made at a stipulated time, but the act does not place any time limit for the
redemption. The pawnee cannot become the owner of the goods. The pawnee has the right to
retain the goods until his claim for money advanced. With the power to sell the goods pledged
the pawnee acquires a right, after notice, dispose of the goods pledged.
In case of Standard Chartered Bank v. Custodian¸ the apex court ruled that the accretions
(increase) to the goods pledge constitute part of the pledge transactions.
Accretions not to be delivered back separately but they are to be returned along with the main
property which has been pledged when the redemption takes place. Right to redemption of
goods thus also includes the right to any accretion to the goods pledged. Example if debtor
pledges some share of the company to the bank and during the period of pledge the company
issues bonus shares and right shares, the pawnor on redemption will be entitled to such bonus
and right shares also M.R. Dhawan v. Madan Mohan.
In case of the death of the pawnor the pledge made by him, can be redeemed by his legal heirs
on meeting the liabilities concerning the pledge. In State Bank of India v. Mangalabai G.
 Deshmukh, the Bombay high court held that the legal heirs of the deceased borrower were
entitled to redeem the ornaments pledge by the deceased on the payment of loan amount with
interest.
Pledge
A pledge is made for a specific purpose
i.e., as security for payment of a debt or
the performance of a promise.
In case of pledge the pawnee does not
have the right to use the goods.
In pledgee gets a special property in goods
and the general property remains in the
pawnor.
In case of pledgee, lien can be exercised
even for non-payment of interest.
In case of pledge, the pledgee can sell the
goods after the due notice to the pawnor.
In every pledge, the essentials of bailment
are present
In pledge the creditors, banks, pawn-
brokers, etc. can become the pawnee.
Bailment
Bailment is made for any purpose.
In case of bailment the bailee may use the
goods bailed as per the terms of the
contract.
In bailment the bailee obtains a right of the
goods bailed.
In case of bailment, the bailee can exercise
lien on the goods bailed only for the labour
and skill spent.
In bailment, the bailee has no right of sale.
In every bailment there may not be a
pledge.
In bailment jewellers, motor car
mechanics, tailors, T.V. mechanic, etc.
may become the bailees.

AGENCY

Meaning:
Agency is the relationship between the principal and agent. Agency means ‘an agent acts on
behalf of his principal and often uses his name and his acts in the capacity are attributable to
the principal’. In simple words, the concept of agency is based on the maxim ‘qui facit per
alium, facit per se’ (he who acts by another act by himself).
Agency has two aspects: (i) it creates an obligation between the employer and employee giving
rise to mutual right and liabilities between them; (ii) it leads to the creation of Privity of
contract between the employer and a third party.
Creation of agency:
1. Agency by express agreement:
According to section 186 the authority of an agent may be express or implied. Section 187,
states that an authority is said to be express when it is given by words, spoken or written. In
Pole v. Leask Lord Cranwoth, observed, no man can become the agent of another except by
the will of that other person.
Although a contract of agency may be oral or written yet in certain cases requires that it should
be in writing. Example Power of attorney, is the usual form of written contract of agency. It a
written instrument where one empowers another to represent him.
2. Agency by implied agreement:
 Section 187 states that an authority is said to be implied when it is to be inferred from the
circumstances.
Illustration
A owns a shop in Serampore, living himself in Calcutta, and visiting the shop occasionally.
The shop is managed by B and he is in the habit of ordering goods from C in the name of A for
the purpose of the shop, and of paying for them out of A’s funds with A’s knowledge. B has an
implied authority from A to order goods from C in the name of A for the purpose of the shop.
The conduct of an agent create an inference that an authority has been conferred upon an agent
even though no authority was ever given. It includes:-
a. Agency by estoppel- if someone gives such an impression to legally act on behalf of someone
else, in this context the agent is not truly authorised but the third party believes an agent to be
authorized. Example, A, who was B’s agent was terminated. No notice to this effect was given
by B. A subsequently purchased some goods in the name of B on credit from C. B is liable to
pay the price to C.
b. Agency by holding out- when the principal has given other person such impression or believe
that such acts are done with his authority then the principal is bound by the acts of the agent.
Example A allows his servant habitually to buy goods on credit from the local dealer and pays
for them. One day he terminated the services of his servant without any notice to the dealer.
The servant purchased goods worth Rs.200 on credit as usual after his termination. A is liable
for the purchase by his servant because he had held out his servant as his agent to purchase
goods on credit on prior occasions.
c. Agency of necessity ( Agency of Emergency )- in certain circumstances the law confers an
authority in one person to act as an agent for the another without requiring the consent of the
principal. When a duty is imposed upon a person to act in behalf of another apart from contract
and in circumstances of emergency in order to prevent irreparable injury.
3. Agency by ratification ( Ex-post facto agency )
Section 196 provides that, where acts are done by one person on behalf of another but without
his knowledge or authority, he may elect to ratify or to disown such acts. Acts performed by an
agent beyond the scope of his authority are not binding upon the principal, although the
principal may either adopt or reject the act of the agent. In case the principal adopts the act of
the agent done without his authority, he is said to have ratified that act. Example A buys five
bags of rice on behalf of B. B did not appoint A as his agent. B may upon hearing of the
transaction, accept or reject it. If B accepts it, the act is ratified and A becomes his agent with
retrospective effect.
4. Agency by operation of law
Sometimes an agency arises by operation of law. When a company is first formed, its
promoters are its agents by operation of law. Similarly, a partner is an agent of the firm for the
purpose of the business of the firm. The acts of a partner are binding on the firm. The agency is
implied by operation of law.
Sub-Agent
An agent may sometimes delegate the duty that has been delegated to him by the Principal to
somebody else. Ordinarily, an agent cannot delegate the duty he is supposed to perform himself
to another person (delegatus non potest delegare- discussed below), except in particular
circumstances where he must, out of necessity, do so. Section 191 of the Indian Contract Act,
1872 defines a sub-agent to be a person employed by and acting under the control of the original
agent in the business of the agency.
 Delegatus non potest delegare
An agent cannot in ordinary circumstances delegate the duty that was delegated to him. The
principle is based upon the idea that when a Principal appoints an agent, he does so by placing
his confidence and trust in the agent and might not have similar trust in the work of another
person. Exception to “delegatus non potest delegare”:
1. Where the principal has expressly permitted delegation of such power.
2. Where the principal has impliedly, by his conduct, allowed such delegation of authority,
3. Where by the ordinary custom of trade a subagent may be employed.
4. Where the very nature of agency makes it necessary to appoint a subagent.
5. Where unforeseen emergencies arise rendering appointment of the sub-agent necessary.
Termination of Agency:
Section 201 of the contract Act lays down the various modes in which the authority of the agent
may be terminated.
I. By act of Parties
The agency may come to an end either on account of the act of the principal or agent or both.
Thus it can be terminated by the parties in the following cases:
a)By agreement between the parties
The agency may be terminated by an agreement between the principal and agent. The parties to
an agreement may enter into a fresh agreement to either replace or terminate the previous
contract.
b)By revocation of agency by principal
According the section 203, the principal may revoke the authority given to his agent at any
time before the authority has been exercised so as to bind the principal. The principal may
revoke at any time by giving a prior notice to the agent.
c) By renunciation by agent
The agent is cannot be compelled to continue the agency as against his will. But where the
agency is for a fixed period, the agent should compensate the principal, if he renounces prior to
the period without sufficient cause. As per section 207, the renunciation can be express or
implied.
II. By operation of Law
In following cases the agency will be terminated on account of operation of law.
1. By completion of the agency business
When the agency is completed it comes to an end. Blackburn v. Scholes, it was observed that
when a broker was employed to sell goods, the broker become functus officio (functions has
been expired) on the completion of the sale he could not enter into any contract without fresh
instruction from his employer.
2. By expiry of time
An agent is appointed of a fixed period of time, the agency comes to an end after the expiry of
the time eve if the work is not completed. Lalljee v. Dadabhai, J. Mookerjee observed: where
an agent is appointed for a fixed term, the expiration of the term puts an end to the agency
whether the purpose of the agency is accomplished or not.
3. By the death or insanity of the principal or agent
Section 209 provides, where the agency is terminated by the principal dying or becoming of
unsound mind, the agent is bound to take all reasonable steps for the protection and
 preservation of the interest entrusted to him. Agency terminates as soon as the agent becomes
insane.
4. By insolvency or bankruptcy of the principal
It puts an end to the agency. The agent’s authority is not revoked by the insolvency or
bankruptcy of the principal until either the agent has notice of an available act of bankruptcy or
their receiving order is made.
5. By destruction of the subject-matter
Where the subject matter for which agency is created is destroyed, the agency comes to an end.
In French & Co. v. Leeston Shipping & Co., it was held that where the agency is creation for
the sale of horse and the horse died, the agency comes to an end.
6. By the happening of any event rendering the agency unlawful [By the principal becoming
alien enemy]
When the agent and principal are alien, the contract of agency stands valid as long as the two
countries are at peace, when the war broke out between the countries, the contract of agency is
terminated.
7. By dissolution of Company
Where a company is principal or agent, its dissolution would terminated the agency.
SALES OF GOODS ACT, 1930

Meaning and essentials:

Sale of goods is one of specific form of contracts recognised and regulated by the law in India.
The law relating to such contract is contained in the sale of goods act, which was enacted in
1930, it is substantially based on the English sales of goods act 1893, in the industrialised and
commercial economy, sale of various products or goods take different forms and are also
processed in a wide manner. Even the word ‘goods’ needs a considerable understanding as the
word does not include any or every product which is actually sold in the economy.
Meaning of contract of sales of goods section 4(1) of the sales of goods act, 1930 the contract
of sale of goods is a contract where the seller transfer or agrees to transfer the property in
goods to the buyer for a price. There may be a contract of the sale, may be conditional or
absolute. Generally, when a seller handovers the goods, property or promise to do some to the
buyer for a price it is called a contract of sales of goods.
Essentials:-
1. Two parties- there must be two distinctive party i.e. seller and the buyer. Whereas the seller
advances the property in goods in exchange for the price advanced by the buyer. This implies
that a person cannot sell his own goods to himself. As per section 2(1) of the act, a buyer is a
person who buys or agrees to buy goods from the seller. Section 2(13) mentions a seller as
being a person who sells or agrees to sell goods, to the buyer.
2. Goods- a contract of sale must be for the sale of goods, where the property so transferred by the
seller to the buyer must be movable and only when the goods is transferred will the sale be
deemed complete. Good are defined in section 2(7) of the act, which includes movable
property apart from the actionable claims and money, as well as stocks, growing crops, grass
and anything which is required to be severed before it can be sold as movable property.
3. Price- it is the most important element of the contract of sale because if it were to be absent, the
whole contract would be out of the purview of ‘sale’. The contract is termed as one of sale due
 the existence of a consideration in the form of price. Price is usually fixed by the seller, it can
be paid in toto at once, or may be paid in instalments or a part of it may be promised to be paid
after a certain date or time.
4. Property- the transfer of property must take place between the parties, i.e. buyer and the seller
in order to execute a contract of sale. Property as per section 2(11) of the act would mean the
general property in the goods and not only some special property that may coexist.
5. Essentials of a valid contract- being specie of contract, sale must confirm to all other essential
of a valid contract thus,
a. The consent of the parties must be free.
b. The object of the contract must not be unlawful and so on.
c. The parties to the contract must be competent.
Types of Goods:
Existing Goods- Existing goods are goods that physically exist and belong to the seller at the time
of contract of sale. Existing can be further divided into two categories:
a. Specific Goods: These are goods that are specifically agreed upon between the seller and buyer at
the time of making the contract of the sale. For example, the seller may agree to sell the buyer a
specific item bearing a specific number. These are sometimes known as "ascertained goods."
b. Unascertained goods: These are goods that are agreed upon at the point of making the contract of
sale but are not specifically identified in the contract

Future Goods- Future goods are goods that are not yet in existence or that do not yet belong to the
seller when the contract of sale is made. This could be goods that are yet to be manufactured or
that the seller has not yet acquired. For example, a farmer may agree to sell a buyer all of the milk
produced by his/her cows in the coming year. This is called an "agreement to sell." Because the
milk does not yet exist at the point of making the contract, it is an example of future goods.
CAVEAT EMPTOR (LET THE BUYER BEWARE)

Introduction:
The maxim ‘cavet emptor’ means ‘let the buyer beware’. In other words means that the buyer
must take care of his own interest while purchasing the goods. According to the doctrine, the
buyer must take care of his own interest while purchasing the goods. He must examine the
goods thoroughly and must see the goods he buys, in other words it is the buyer’s duty to select
goods which suits his requirements. If the goods turns out defective or does not suit his
requirement, the seller cannot hold liable for the same. Thus, while making such purchase the
buyer depends on his own skills and if makes a bad choice, he must curse himself, his own
folly, in absence of any fraud or guarantee by the seller.
In Wards v. Hobbs, certain pigs were sold by auction “with all faults’’. The pigs were suffering
from ‘typhoid’ fever and all of them but one died. They also infected a few of the buyer’s own
pigs were unhealthy. Caveat emptor, being this rule, the buyer cannot claim damages from the
seller.
In Burney v. Bollett, A purchased a dead pig for his domestic consumption from a butcher. He
hanged it before his house, B, a farmer in his neighbourhood saw the dead pig and asked A to
sell it to him. A agreed and sold it to B. The family of B consumed the pork and become ill, as
 the dead pig’s meat was spoilt. The court held that A was not liable under principle of caveat
emptor as no warranty of soundness could be implied by law between A and B.
The rule of caveat emptor has been adopted in the sale of goods act, 1930. Section 16 of the act
lays down that. However the advocates of consumer protection movement criticised the
principal and the result is the enactment of the Consumer Protect Act, 1986.
Exceptions:
Section 16 sub-sections (1), (2), (3) & (4). Section 16-:
(1) Fitness for the buyer’s purpose [implied condition as to quality or fitness]
It lays down that where the buyer has no skill or judgement and depends upon seller’s
skill or judgement, it is the duty of the seller to supply the goods actually the buyer
needed, and not his choice of profit. If the goods supplied are unfit for the specific
purpose, the principle of caveat emptor does not protect the seller. He is liable in
damages. In Baldry v. Marshall, the buyer told the seller that he wanted a comfortable
car suitable for touring purposes. The dealer suggested to buy ‘bugatti car’. The buyer
brought the car but found it unsuitable for touring purpose. It was held, the buyer was
entitled to reject the car as he relied on the skill and judgement of the dealer.
(2) Merchantable quality [goods purchased by description]
Section 16(2) provides that seller who sells the goods has a duty to deliver the goods of
merchantable quality. Merchantable quality means that if the goods are purchased for
resale they must be capable of passing in the market under the name or description by
which they are sold.
(3) Express Terms (Section 16(4))
There is an implied condition or warranty about the quality or the fitness of
goods/products. But if a seller deviated from this then the rules of caveat emptor cease to
apply. For example, A bought goods from B in an auction of the contents of a ship. But B
did not inform A the contents were sea damaged, and so the rules of the doctrine will not
apply here.
(4) Goods purchased by sample and description
Where the bulk of the goods does not correspond with the sample and with description. If
the rest of the goods do not resemble the sample, the buyer cannot be held responsible. In
this case, the seller will be the one responsible.
(5) Misrepresentation by seller
If the seller makes a misrepresentation and the buyer relies on it, the doctrine won’t
apply.
(6) Fraud by seller
If the seller makes a false representation amounting to fraud and the buyer relies on it,
the doctrine of caveat emptor does not apply.
Risk follows ownership [“Risk Prima Facie passes with ownership]:
Property means ‘the right of ownership’. A contract of sales involves transfer of property from
the seller to the buyer. Transfer of property is, therefore is main objective of the contract of sale.
Unless otherwise agreed, the risk follows ownership whether delivery has been made or not and
whether price has been paid or not. Thus the risk of loss lies with the owner. Risk means the
liability to bear the loss, destruction that may be caused to the goods. Section 26 of the Act states
that risk prima facie passes with ownership. Risk and property go together. Following are the
elements of the same:-
i. Risk in the goods remains with the seller until property therein is transferred to the
buyer;
ii. If the property in goods is transferred to the buyer the goods are at the risk of the
buyer;
iii. It is immaterial whether delivery of the goods has been made or not.
Section 26 does not say that the risk can pass only when property has passed to the buyer.
There is nothing in this section which prevents the parties from agreeing, Section 40 provides
that where the seller of goods agrees to deliver them at his own risk at a place other than that
where they are when sold, the buyer shall, unless otherwise agreed, take any risk of
deterioration in the goods necessarily incident to the course of transit.
In Demby Hamilton & Co. ltd. v. Barden (Endeavour Wines) ltd. A agrees to supply 30
tons of apple juice by sample to B. A crushed 30 tons of apples at once, B took some truck
loads thereafter stopped for his convenience. B did not lift the remaining and meanwhile the
apple juice was deteriorated. It was held that the risk would fall on the buyer.
Exceptions to the rule:
Section 26 mentions the exception to the rule:-
1. Delivery delayed- if the delivery has been delayed on account of fault of either of the
buyer or seller than the goods are at the risk of the party at party in default.
2. Bailee of goods- the seller or buyer may not be the owner of the goods, but if it is in their
possession, he may be responsible in his own capacity as the bailee of the goods.
3. Agreement- if there is an agreement where it has been agreed that the risk will not
transfer with the passing of the property.
4. Trade custom- risk may be separated by a trade custom.
Unpaid seller:
The seller and the buyer is under an obligation to deliver and to pay the requisite amount
respectively. In certain cases however, buyer refuses or fails to pay the amount, the seller
becomes an unpaid seller and can exercise certain rights against the buyer. This can be grant
against the Buyer and Goods.
According to Section 45(1) the seller is considered as an unpaid seller when:
a- When the whole price has not been paid.
b- When the negotiable instrument has been received as conditional payment and the
condition hasn’t been fulfilled by reason of dishonour.
Rights against buyer
1. Suit for price- when the buyer refuses or neglects to pay as per the terms, the seller may
sue him as per section 55(1) because once the property has been passed the buyer is
bound to pay the price. In case the goods had been delivered and the due date of payment
has been passed the seller can sue the buyer for the wrongful neglect under clause (2) of
55.
 2. Suit for damages- in case there is a refusal for acceptance of goods and payment, the
seller can sue him for damages as per section 56. For calculating the quantum of damages
under section 73 and 74 applies.
3. Suit for interest- as stated under section 62 where there is a specific agreement between
buyer and seller with regards to interest on the price of goods from the date on which
payment becomes due, the seller may recover interest from a buyer. But if there were no
such agreement the seller may charge interest from the day he notifies the buyer.
4. Repudiation of the contract before the due date- according to section 60, the rule of
anticipatory breach applies, wherein, the buyer repudiates the contract before the date of
delivery the seller can consider the contract as rescinded and can sue for damages of the
breach.
Rights against goods
1. Lien- it is a right which seller can retain the possession of goods as an agent or bailee for
the buyer. The seller can retain this possession as per section 47 under the following
circumstances:-
a. In case the buyer is insolvent.
b. When the term of goods sold on credit is expired.
c. Goods sold without any stipulation as to credit.
As per section 48 if the seller has delivered a part of unpaid goods he can exercise his
right of lien on the rest. In Grice v. Richardson, the seller had delivered a part of the
three parcels of tea comprised in the sales, and they had not been paid for the part which
remained with them. They were allowed to keep it till the payment of the price.
2. Stoppage- when the goods have been transferred to carrier or bailee for the purpose of
transmission to the buyer, who has become insolvent, the seller has the right to stop the
goods in transit. As per section 50, there are four essential requirement for stopping the
goods in transit: unpaid seller, buyer insolvent, property should have passed to the buyer,
property should be in course of transit.
3. Resale- the unpaid seller can exercise the right under following conditions and
circumstances-:
a. Seller before reselling the goods needs to send a notice to the buyer except in the case
of perishable goods, giving him last chance to pay.
b. If there is any loss in the resale of goods he can claim the loss form the from the
buyer, on the contrary, if there is profit buyer cannot claim it.
c. Seller gives rightful ownership to buyer after the resale it does not matter notice of
resale is given or not.
d. Sometimes the seller reserves exclusive right to resale the goods if the buyer makes a
default in payment, in such cases the buyer cannot ask for profit on resale.
Indian partnership Act, 1932.

Meaning of partnership:
According to section 4 of the act, 1932, partnership is the relation between persons who have
agreed to share the profits of a business carried on by or any one of them acting for all.
Essentials:
 1. Number of members: Any two or more persons may form a partnership. There is no
limit imposed on the minimum and the maximum number of partners under the
Partnership Act, 1932. According to Companies act 2013, the maximum number of 100
must not exceed in case of partnership and minimum is 2 partners.
2. Agreement: the partnership is an agreement in which two or more person has decided to
carry out business and share the profit and losses equally. To create a legal relationship it
is necessary to form a partnership agreement.
3. Business (section 12): the partnership must be created for the purpose of carrying the
business which is legal in nature. Co-ownership of property does not amount to the
partnership. As per the definition given in section 2(b), a business includes any trade,
occupation or profession.
4. Mutual agency (section 13): each partner is entitle to carry out business. The mutual
agency exists between the partners. Each partner is a principal as well as an agent for the
other partners, he is bound by the acts of other partners as well as can bind others by his
own act.
5. Sharing of profit: the agreement is to share profit and losses among the partners. The
sharing of profit and losses can be according to the ratio of the capital contributed or
equally.
6. Liability of partnership: all the partners are jointly liable for paying the debts of the
firm. The liability is unlimited which means that the partner’s private assets can be
disposed of for the purpose of paying the debts of the firm.
Is registration of firm compulsory in India?
Under Partnership act, the registration of partnership firm of its partner is not compulsory. It
means that the firm may be established without getting it registered. It may carry on its business
also without getting it registered. It may carry on its business also without its registration with
the registrar of firms. There is no illegality if no firm carries on its business without registration.
Section 58(1) of the act provides that a firm may get itself registered at any time during the
continuance of the partnership by making an application to the registrar of frim the area in which
any place of business of the firm is situated or proposed to be situated.
A firm need not to get registered before its establishment or immediately after its establishment.
In section 58(1), the word used is ‘may’ which indicate that it is not compulsory to register, but
is optional, however, section 69, of the act lists out the effects of non-registration, and the
partners are put to a great loss. To avoid the problem it is most essential to get a firm registered.
Problems faced by not registering a Firm:
The following can be understood as the disadvantages faced by a partner if he/she does not
register the firm under Indian Partnership Act, 1932;
1. A partner is not entitled to file a suit in any court of law against the other partners or the
firm for the execution of any right emerging from any undertaking.
2. A right evolving from an undertaking cannot be implemented in any court of law.
3. The firm or any its associates cannot assert a set off or any other actions in a
disagreement with a third party.
Relations of partners to third-parties:
Section 18 to 22 of the act talks about the relation of partners third parties;
Section 18 prescribes that the partners are an agent of the firm for the purpose of conducting the
affairs of the business. The partners act as the principal and agent as well. When he performs the
act in his own interest he is the principal and when he does in the interest of another partner then
he is an agent. He is not an agent for the dealings or the transactions between the partners
themselves.
Section 19 prescribes, when a partner takes some action or makes a decision in accordance with
the usual course of business, he binds the firm. This authority is better known as an implied
authority in partnership.
Section 20 provides that a partner in a business undertaking can make a contract to extend or
dissolve the implied authority of any partner.
Section 21 states that in case of any emergency, every partner has the authority of taking
necessary actions to prevent the firm form bearing losses.
Section 22 specifies that if any act is done by any partner then it must be done in the name of the
firm or in such manner which binds the firm.
Section 25 liability of a partner for the acts of the firm- every partner is liable, jointly with all the
other partners and also severally, for all acts of the firm done while he is a partner.
In case of Hamlyn v. John Houston & Co., one of the partners committed a tort of including
breach of a contract by bribing the clerk of a rival business man in order to know the secrets of
rival business man. The other partner was not aware of this tort, it was held that, it was within
the authority of a partner to lawfully do what had been done unlawfully. Therefore, the other
partner was also held liable for the tort.
In case of Punjab United Bank Ltd. v. Muhammad Hussain., one of the partners of a firm
signed a promissory note describing himself as ‘proprietor, Punjab Alliance Auction Rooms,
Lahore’, without indicating that it was a partnership firm and he was acting on its behalf. It was
held that the other partners of the firm cannot be made liable on this note.
The process of registration of a firm:
The primary initiative regarding the process of registration is to forward an application filling
Form No. 1. As per the provision of section 58 it should include following details:
1. The name of the firm.
2. Nature of business of firm.
3. The full names and permanent resident address of the partners.
4. The timespan of the firm.
5. Date of joining of partners.
6. The principal place of conduct of business.
7. The names of any other places where the firm carried its functional obligations.
This undertaking is needed to be signed by all the associate partners, or by their respective
agents principally given authority in their behalf. The Section 58(1)(1A) provides that the
application can be sent to the registrar either through post or in person within 1 year of the
commencement of business with the prescribed fees.
Partnership Deed:
A partnership deed is the heart and soul of the partnership firm, it mentions all the details of the
firm such as profit sharing ratios of partners, the rules and regulations, the code of conduct, the
objective, etc. it is not required to be written necessarily, it can be oral or written, however, it is
better to write down the partnership deed.
When is partnership registered:
As provided under Section 59, a partnership is said to be registered when a registrar is well
pleased with the application filed according to Section 58 and an entry of state in the register
known as register of firms is recorded. According to Rule 9 of the Act the registration certificate
signed by Registrar shall be provided as a document proof.
Alterations of Particulars:
Whenever an amendment or changes is made in any of the particulars then it should be conveyed
to the Registrar of firms and a satisfactory alteration is rendered in the register. The change to be
render should be sent in a stipulated form with a fees. Following are the amendments or
alterations are to be sent to the Registrar:-
1. Alteration in the name.
2. Alteration in the principle place of business.
3. Whenever the constitution of the firm is altered i.e. when an old partner retires and a new
partner may be added.
4. Any alteration in the name of a partner or his address.
5. When a minor partner becomes major and he is left to the discretion whether to elect to
become or not to become a partner.
6. When the firm is subjected to dissolution.
Dissolution of a Partnership:
There is a difference between the dissolution of a partnership and the dissolution of partnership
firm. Dissolution of the partnership means the end of the partnership business and dissolution of
the partnership firm means the end of the partnership business along with the firm. There can be
different reasons for the dissolution of partnership, the partnership may be dissolved due to the
following reasons:
1. Due to the death of the partner
2. Due to the admission of a new partner.
3. Due to the retirement of a partner.
4. Due to the bankruptcy of a partner.
5. Due to the expiry of the partnership period, if the partnership is for a particular period.
Modes of dissolution:
There are some modes by which a partnership can be dissolved and those are:
1. By an act of partners: when a partner agrees to dissolve a partnership at a particular time.
Partners can come into an agreement regarding a particular time period maybe five years.
In which partners can end the agreement at the end of the five years. Sometimes they can
dissolve it in the middle of time under specific conditions.
 2. By operation of law: a partnership is the consequence of an agreement which is governed
by law. Therefore if any activity is performed so it will be dissolved.
3. By the court’s decree: a partnership can be dissolved by the court and the court will only
allow under these conditions: a) if the partner is incapable to work; b) if the partner is
mentally unstable; c) if the partner misbehaves which create a bad impact on the
partnership; d) if there is a breach of the agreement by a partner.
4. Statement of dissolution: dissolution ca be done by filing the statement to the state’s
secretary. The form must contain the information regarding the partnership firm and
reason for dissolution.
Section 45 of the Act deals with the liability for the acts of partners done after dissolution.
Liabilities are:
1. Partners continues to be liable to the third party until public notice of the dissolution is
given.
2. After the dissolution of partnership, the partner is liable to pay his debts and to wind up
all the affairs.
3. After dissolution partners are liable to share profits which they have decided in
agreement or accordingly.