Law of contract - 2

Q1 . Contract indemnity , distinction between Contract of Guarantee and Indemnity

Section 124 of the Act defines a contract of indemnity as a contract wherein 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.

Distinction between contract of guarantee and indemnity is

Contract of guarantee and indemnity

Definition

• A "contract of guarantee" is a contract to perform the promise, discharge the liability,

of a third person in case of his default. A guarantee may be either oral or written.

• ‘Contract of indemnity’ 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 is called a contract.

Nature of Liability:

• Guarantee: In a guarantee, the surety's liability is secondary. It arises only when the
principal debtor defaults on their obligation. The surety is liable to the creditor only after the
principal debtor fails to fulfill their obligation.

• Indemnity: In an indemnity contract, the indemnifier's liability is primary. The indemnifier

promises to compensate the indemnity holder for any loss or damage suffered, regardless of
whether there has been a default by the indemnity holder.

Parties Involved:

• Guarantee: three parties involved is the person who gives the guarantee is called the
“surety” the person in respect whose default the guarantee is given is called the “principal
debtor ” and the person to whom the guarantee is given is called the “creditor”

• Indemnity : Involves two parties - the indemnifier (who promises to compensate for any
loss) and the indemnity holder (who receives the compensation).

Scope of obligation

• Guarantee: The scope of the guarantor's obligation is limited to the terms outlined in the
guarantee agreement, which may specify the extent and conditions of the guarantee.

• indemnity: The scope of the indemnifier's obligation is typically broader and may cover a
wide range of losses or damages specified in the indemnity agreement.
Q2 . What is Contract of Bailment

Section 148 defines A "bailment" is the delivery of goods by one person to another for
some purpose, upon a contract that they shall, when the purpose is accomplished, be
returned or otherwise disposed of according to the directions of the person delivering
them. The person delivering the goods is called the "bailor". The person to whom they
are delivered is called, the "bailee".

• Forms of bailment

1. Delivery of goods by one person to another to be held for the bailor's purpose.
2. Gratuitous bailment
3. Hiring of goods
4. Delivering goods to a creditor to serve as security for a loan.
5. Delivering goods for repair with or without remuneration.
6. Delivering goods for carriage.
7. Finder of Goods.

• There are different types of a contract of bailment include:

1. Gratuitous Bailment: In this type, Gratuitous Bailment there is a free of charge either for
the benefit of bailor or for the benefit of the bailee.
2. Non gratuitous Bailment : In this type of Non gratuitous Bailment both parties get some
benefits.
3. Bailment for Reward: Here, the bailee compensates the bailor for the use of the property.
For instance, when you pay for a storage unit to store your belongings.

The bailor expects the bailee to take reasonable care of the property while it's in their
possession. The bailee must use the property only for the agreed-upon purpose and return it
in the same condition (or better) as received, except for any wear and tear incurred through
proper use. If the bailee fails to fulfill their obligations, they may be liable for damages or loss.

Q3. What are rights and duties of Bailor

The rights and duties of the bailor are the

Duties of bailor

A ) Section 150 To disclose faults in the goods –

1. It is the duty of the bailor to disclose to the bailee faults in the goods bailed, of which the
bailor is aware.
 2. The bailor is bound to disclose to the bailee faults which materially interfere with the use
of them, or expose the bailee to extraordinary risk.

B) Section 158 To bear extra-ordinary expenses –

1 . It is the duty of the bailor to pay extra ordinary expenses to bailee if the bailment is non-
gratuitous.

2. It is the duty of the bailor to pay all the expenses to the bailee in case of gratuitous
bailment .

C) Duty to indemnify bailee for premature termination – Section 159

1 . The bailor should compensate the bailee for the loss or damage suffered by the bailee that
is in excess of the benefit received .

2.In case where bailor has lent the goods gratuitously and decides to terminate the bailment
before the expiry of period of bailment.

D) The bailor is responsible to the bailee for any loss which the bailee may sustain - Section
164

E) Duty to take the goods back

• It is the duty of the bailor to receive the goods back.If he does not receive the goods back,
bailor is liable to compensate bailee for all the necessary expenses incurred.

Rights of bailor

A) Right to terminate bailment – Section 153

A contract of bailment is voidable at the option of the bailor, if the bailee does any act with
regard to the goods bailed, inconsistent with the conditions of the bailment.

B) Return of goods – Section 159

When the goods are bailed for consideration, the bailor has the right to demand their returns
as and when he wants even if he lent them for a specific period of time or purpose.

C) Right to sue bailee

The bailor has thee right to sue bailee for enforcing all the liabilities and duties of him and it
includes –

a) Right to claim compensation for loss caused to the goods because of negligence of bailee.

b) Right to claim damages for unauthorized use of goods.

c) Right to demand back the goods.

d) Right to any accretion to the goods bailed.

e) Right to claim compensation for unauthorised mixing of goods.

D) Right to file suit against wrong doer – Section 180 & 181

1.Suit by a bailor and bailee against wrong doers –Section 180

2.Apportionment of relief or compensation obtained by such suits – Section 181

Q4. Difference between a “Condition” and “Warranty”

In legal terms, "condition" and "warranty" are both types of terms used in contracts, including
sales contracts. The main difference between them lies in their significance regarding the
performance of the contract and the remedies available in case of breach:

Condition

• A condition is a fundamental term of the contract, the breach of which gives the innocent
party the right to terminate the contract and claim damages.

• If a condition is not fulfilled, the innocent party can treat the contract as discharged and is
no longer obligated to perform their part of the agreement.

• Conditions go to the root of the contract and are considered essential for its performance.

Warranty

•A warranty is a less significant term compared to a condition. It is a subsidiary or minor term

of the contract.

• Breach of warranty gives rise to a claim for damages, but it does not entitle the innocent
party to terminate the contract.

•The innocent party must continue to perform their obligations under the contract, but they
can claim compensation for any loss suffered due to the breach of warranty.

•Warranties are not fundamental to the contract's performance, and their breach does not
undermine the main purpose of the contract.

Q5 . Who is an Agent,Discuss Rights and Duties

Section 182 defines the an agent is a person employed to do any act for another or to
represent another in dealings with third person is called an agent .

• Rights of agents
A) Right of retain out of sums received on principal's account - Section 217:

The agent can retain, out of any sums received on account of the principal in the business of
the agency for the following payments:

 All moneys due to him in respect of advances made

 In respect of expenses properly incurred by him in conducting such business

B) Right to remuneration - Section 219

•An agent has a right to receive the agreed remuneration or in absence of agreement, a
reasonable remuneration for rendering the services to the principal that are not voluntary or
gratuitous.

•He becomes eligible to receive the remuneration as soon as he completes the work that he
undertook.

C) Agent not entitled to remuneration for business misconducted – Section 220

An agent who is guilty of misconduct in the business of the agency, is not entitled to any
remuneration in respect of that part of the business which he has misconducted.

• Duties of agent

A ) Duty of Loyalty : An agent owes a duty of loyalty to the principal, which includes acting in
the best interests of the principal, avoiding conflicts of interest, and refraining from self-
dealing.

B) Duty of Care : An agent must exercise reasonable care, skill, and diligence in carrying out
their duties. This includes taking necessary precautions to avoid causing harm or loss to the
principal.

C) Duty to Follow Instructions: An agent is obligated to follow the lawful instructions and
directives of the principal. They must act within the scope of their authority and not exceed
the powers granted to them by the principal.

Q6. Explain different kinds of Agents?

Agents can take various forms depending on their roles and responsibilities. Here are some
common types of agents:

1. General Agent: A general agent has broad authority to act on behalf of the principal in a
range of matters. They are typically appointed to handle ongoing or recurring tasks for
the principal, such as managing a business, handling financial matters, or representing
the principal in legal or contractual negotiations.
2. Special Agent: A special agent is appointed for a specific purpose or transaction. Their
authority is limited to the particular task or tasks outlined in their appointment. Once the
 specified task is completed or the transaction is finalised, the agency relationship
terminates.
3. Universal Agent: A universal agent has authority to act on behalf of the principal in all
matters, similar to a general agent. However, universal agency is relatively rare and is
usually found in situations where the principal grants extensive and unrestricted powers
to the agent, such as granting power of attorney.
4. Subagent: A subagent is appointed by an agent to assist in carrying out the agent's
duties. The subagent acts on behalf of the agent, who in turn acts on behalf of the
principal. The subagent's actions are generally considered to be binding on the principal,
as long as the agent had authority to appoint a subagent.
5. Co-Agent: In some cases, multiple agents may be appointed to represent the principal
jointly. Each co-agent shares responsibility for carrying out the agency duties and may be
authorized to act independently or require joint decision-making, depending on the
terms of the appointment.
6. Substitute agent : A substitute agent, also known as an alternate agent or successor
agent, is an agent who is appointed to act on behalf of the principal in the event that the
primary agent is unable or unwilling to fulfill their duties.

Q7. What is contract of sale and Agreement to sell

Section 4(1) defines a contract of sale of goods is a contract whereby the seller transfer or
agrees to transfer the property in goods to the buyer for a price . There may be a contract of
sale between one part owner and another.

Here are some overview

1. Transfer of Ownership: The ownership of the goods or property is immediately

transferred from the seller to the buyer at the time the contract is made, or at a later
specified time.
2. Rights and Obligations: Once the contract is formed, both the seller and the buyer have
certain rights and obligations. The seller has the obligation to deliver the goods or
property to the buyer, while the buyer has the obligation to pay the agreed-upon price.
3. Risk of Loss: In a contract of sale, the risk of loss or damage to the goods generally passes
to the buyer upon delivery, unless otherwise specified in the contract or by law.

Section 4(4) defines agreement to sell becomes a sale when the time elapse or the conditions
are fulfilled subject to which the property in the goods is to be transferred.

Here is an overview

1. Future Transfer of Ownership: Unlike a contract of sale, where ownership is immediately

transferred, in an agreement to sell, ownership of the goods or property remains with the
seller until the specified conditions are met.
2. Creation of Right to Obtain Ownership: Although ownership is not transferred
immediately, the agreement creates a right in favor of the buyer to obtain ownership of
the goods or property upon fulfilling the agreed-upon conditions, such as making
payment.
 3. Risk of Loss: Generally, the risk of loss or damage to the goods remains with the seller
until ownership is transferred to the buyer, unless otherwise agreed upon.

In summary, while both contracts involve the transfer of goods or property, a contract of sale
immediately transfers ownership to the buyer, while an agreement to sell creates a right in
favour of the buyer to obtain ownership at a future date or upon fulfillment of certain
conditions.

Q8 . Discuss various essentials of a contract of Sale of Goods?

Here are the essential elements of a contract of sale of goods:

1. Offer and Acceptance: Like any contract, a contract of sale begins with an offer by the
seller to sell specific goods at a certain price and terms. The buyer then accepts the offer,
either explicitly or implicitly, forming a mutual agreement.
2. Agreement on Essential Terms: The parties must agree on essential terms such as the
identity of the parties (seller and buyer), description of the goods (quantity, quality,
price), and any specific terms or conditions of the sale (delivery terms, payment terms,
etc.).
3. Capacity to Contract: Both the seller and the buyer must have the legal capacity to enter
into the contract. This means they must be of legal age, of sound mind, and not under
duress or undue influence.
4. Intention to Create Legal Relations: There must be an intention by both parties to create
a legally binding relationship. This is presumed in commercial transactions, but in some
cases, parties may expressly state their intention or include a formal contract.
5. Transfer of Ownership: The contract must contemplate the transfer of ownership of the
goods from the seller to the buyer. This transfer may occur immediately upon formation
of the contract (in a contract of sale) or at a future date or upon the occurrence of
certain conditions (in an agreement to sell).
6. Consideration: Consideration refers to the price paid by the buyer in exchange for the
goods. It must be something of value, typically money, although it could also include
goods, services, or promises to perform certain acts.
7. Legal Formalities: Depending on the jurisdiction and the nature of the goods being sold,
certain legal formalities may be required, such as written documentation, signatures, or
adherence to specific statutory requirements.
8. Compliance with Applicable Laws: The contract must comply with any relevant laws and
regulations governing the sale of goods, including consumer protection laws, sales tax
regulations, and any industry-specific regulations.
9. Delivery of Goods: The contract should specify the terms of delivery, including when and
where the goods will be delivered, who is responsible for transportation and shipping
costs, and any conditions for acceptance of the goods.

By ensuring that these essential elements are present and properly addressed in the
contract, the parties can establish a clear and enforceable agreement for the sale of goods.

Q9 . What is partnership its essentials and discuss the rights and duties of
partnership?
Section 4 of partnership act defines partnership is a relation between persons who have
agreed to share the profits of a business carried on by all or any of them acting for all . Here
are the essentials of partnership are .

1. Agreement: The partnership must be formed by an agreement between the partners. This
agreement can be written or oral, although a written partnership agreement is highly
recommended to clarify the rights, duties, and responsibilities of each partner.
2. Two or More Persons: A partnership requires at least two individuals to form the business
entity. There is no maximum limit on the number of partners, although some jurisdictions
may impose restrictions.
3. Business Purpose: The partnership must be formed for the purpose of carrying on a
lawful business or trade. The business activities must be legal and must not violate any
laws or regulations.
4. Sharing of Profits and Losses: The partners agree to share the profits and losses of the
business according to the terms of the partnership agreement. Typically, the sharing ratio
is determined based on the contributions, efforts, and capital invested by each partner.

the rights and duties of partners within a partnership:

Rights of Partners:

1. Right to Participate: Each partner has the right to participate in the management and
decision-making of the partnership's business activities, unless otherwise specified in the
partnership agreement.
2. Right to Share Profits: Partners have the right to share in the profits of the partnership
according to the agreed-upon sharing ratio.
3. Right to Information: Partners have the right to access information about the
partnership's finances, operations, and other relevant matters.
4. Right to Act as Agent: Each partner has the authority to act as an agent of the
partnership and bind the partnership to contracts and obligations within the scope of the
partnership's business activities.

Duties of Partners:

1. Duty of Loyalty: Partners owe a duty of loyalty to the partnership and to each other. This
duty requires partners to act in the best interests of the partnership and refrain from
engaging in self-dealing or conflicts of interest.
2. Duty of Care: Partners must exercise reasonable care, skill, and diligence in carrying out
their duties and responsibilities within the partnership.
3. Duty of Good Faith: Partners must act in good faith and deal fairly with each other in all
partnership matters.
4. Duty to Account: Partners must keep accurate records of the partnership's finances and
transactions and provide an account of their actions upon request by the other partners.

By adhering to these rights and duties, partners can effectively manage their partnership and
work together to achieve their business objectives.
Q10 . Explain various types of partners ,How the firm is dissolved

Partnerships can have various types of partners, each with different roles, rights, and
responsibilities. Here are some common types of partners:

1. General Partner:
A general partner is actively involved in the day-to-day management and operation of the
partnership's business.
They have unlimited personal liability for the debts and obligations of the partnership.
General partners typically share in the profits and losses of the partnership and have
voting rights in partnership decisions.
2. Limited Partner:
A limited partner is a passive investor who contributes capital to the partnership but
does not participate in the management of the business.
Their liability is limited to the amount of their investment in the partnership.
Limited partners receive a share of the profits and losses of the partnership but do not
have voting rights in partnership decisions.
3. Nominal Partner:
A nominal partner is one whose name is included in the partnership agreement for legal
or regulatory purposes, but who does not contribute capital or participate in the
management of the partnership.
They may be liable for partnership debts if held out as a partner to third parties.
4. Active Partner:
An active partner is actively involved in the day-to-day management and operation of the
partnership's business.
They share in the profits and losses of the partnership and have voting rights in
partnership decisions.

As for dissolution of the partnership, it can occur in several ways:

1. Mutual Agreement: The partners may mutually agree to dissolve the partnership. This
typically requires a formal agreement outlining the terms of dissolution and the
distribution of assets and liabilities.
2. Expiration of Term: If the partnership was formed for a specific term or purpose,
dissolution may occur automatically upon the expiration of that term or the achievement
of that purpose.
3. Court Order: In some cases, a court may order the dissolution of the partnership due to
misconduct, fraud, or other legal reasons.
4. Bankruptcy: If the partnership becomes insolvent or bankrupt, it may be dissolved as
part of the bankruptcy proceedings.

Once the partnership is dissolved, the partners must wind up the affairs of the business,
including settling debts and obligations, distributing assets, and filing necessary paperwork
with relevant authorities.