SHORT NOTES

ON
CONTRACT
LAW- II
A study guide with provisions explained in the simplest language

Kubra Noor
PREFACE
While every effort has been made to avoid any mistake or omission, the
author does not owe any responsibility for any loss/damage to any
person on account of error or omission in this publication.
A sincere effort has been made to simplify the concepts and provisions
laid down in the Indian Contract Act, 1872 with reference to the book
written by Dr. R. K. Bangia and published by Allahabad Law Agency.
Suggestions from the readers will be welcome and any queries in regard
to the matter herein contained will be acknowledged. In regard to any
developments or changes in the law which needs to be
corrected/highlighted, a mail for the same can be sent forth on:
kubranoor99@gmail.com.

- Kubra Noor

INDEX

CHAPTER 1

Contracts of Indemnity and Guarantee.....................................................Pg. 3-10

CHAPTER 2

Bailment and
Pledge…………………………………………………..................................Pg. 11-19

CHAPTER 3

Agency…………………………………………………………………........Pg. 20- 24

CHAPTER 4

Nature and Definition………………………………………………………..Pg. 25-26

CHAPTER 5

Relations to Partners Inter Se…......................................................Pg.27-28

CHAPTER 6

Relations of Partners to Third Parties………………………………………..Pg.29-32

CHAPTER 7

Incoming and Outgoing

Partners………………………………………………………………………Pg.33-34

CHAPTER 8

Dissolution of a
Firm…………………………………………………………………………..Pg.35-36

CHAPTER 9
Registration of Firms………………………………………………………...Pg.37- 38

CHAPTER 10

Contract of Sale- Its Nature and Definition……………………………….....Pg.39-40

CHAPTER 11

Conditions and Warranties…………………………………………………...Pg.41-42

CHAPTER 12

Transfer of Property and Title……………………………………….……….Pg.43-44

CHAPTER 13

Performance of the Contract………………………….......................……….Pg.45-46

CHAPTER 14

Rights of Unpaid Seller against the Odd...................................................…...Pg.47-48

 CHAPTER -1
Contracts of Indemnity and Guarantee

 Section 124 defines Contact of Indemnity

 Contract of indemnity is different from contract of insurance.

 Indemnity means security to pay or compensation for loss. The person who promises to pay is
known as the indemnifier. The person in whose favor such a promise is made is known as
indemnified.

 Contract of indemnity covers any damage caused by the promisor or any other person. But not
for loss caused by non-human agencies. – Events /accidents.

 But this was amended by the Law Commission of India in its report to expand the definitions of
the contract of indemnity and include cases of loss caused by events by non-human agencies.

 Section 125- Rights of Indemnity holder/ Indemnified- as an Indemnity holder, I can sue the
promisor for not having my back when he made a promise to. I was extremely careful and took
the same procedure that I had informed the promisor, yet I ended up in a loss/ debt.

 Indemnified can sue the promisor and bring an action to recover damages and costs paid by the
indemnified. I ask the promisor to pay on my behalf if a loss arises, but when a loss does arise he
refuses to pay. Hence, I am compelled to pay damages and incur cost. Later I can file a suit to
recover from the promisor.

 A person has to suffer loss/damages for him to invoke the promisor to pay. Without even having
suffered losses he will not be entitled for any claim. A person must be demnified before he can
be indemnified. - Lahore & Nagpur H.C.

 An indemnity holder can compel the indemnifier to indemnify even before the indemnity-holder
has actually suffered the loss. - Bombay, Calcutta, Madras, Patna and Allahabad H.C.

 If indemnity holder’s liability had become absolute, then he was either entitled to get the
indemnifier to pay off the claim or to pay into Court sufficient money to repay off the claim.

 Section 126- Defines contract of Guarantee

 The person who gives the guarantee is called the surety; the person because of whose default
guarantee is given is the principal debtor. The person to whom the guarantee is given is called
 the creditor. Creditor is the person who lends money to the principal debtor on the guarantee
that the surety will repay if the principal debtor fails to.

 There are 3 parties in a contract of guarantee and thus leads to 3 different contracts.

 There is a possibility that a person may become surety without the knowledge and consent of
the principal debtor.

 Contract of guarantee- Surety undertakes to compensate only if the principal debtor fails to
discharge his obligation. A guarantee may either by oral or written.

 Section 127- Consideration is needed for a contract of Guarantee. It’s not necessary for a direct
consideration between the creditor and the surety. But any benefit to the principal debtor by
the creditor constitutes as sufficient consideration to the surety for giving the guarantee.

 Section 128- If suit is dismissed against the Principal Debtor, surety is no longer liable to
compensate on behalf of the principal debtor. Liability of the surety is coextensive with that of
the principal debtor, unless it is otherwise provided by the Contract.

 If a principal debtor’s liability is affected by illegality, so is also that of the surety. If the contract
is illegal in nature liability of principal held to be not enforceable along with that of surety’s.

 If principal debtor is minor, agreement made by him is void, hence even the surety cannot be
made liable

 Section 128- liability of the surety is coextensive with that of the principal debtor, unless it is
otherwise provided by the contract.

 If principal debtor makes a default, the creditor can sue either the principal debtor, or the
surety, or the both of them.

 The creditor can sue the surety even though he has not exhausted all remedies against the
principal debtor.

 Contract should not be construed as imposing any condition precedent upon the decree holder
to exhaust all remedies against the principal debtor before proceeding against the surety.

 It is open to the creditor to proceed for making recovery against the guarantors without first
proceeding against the principal borrower.

 When the creditor files a suit against both the principal debtor and the surety, f the suit
against the principal debtor is dismissed, that would not automatically discharge the surety
from liability and the suit can proceed against the surety.
  If surety in a contract specifically mentions that he will be liable only to a certain extent/limit or
amount which is comparatively lesser to the liability of the principal debtor, such contract is
valid.

 If the guarantors bind themselves to a certain limit, their liability cannot go beyond that.

 Sometimes there may be a condition in a contract of guarantee that there shall be a co-surety
also. Guarantee is not valid, till the other co-surety does not join. In such cases liability of surety
is only available if co-surety joins.

 Since the liability of the co-sureties is joint and several, a co-surety cannot insist that the
creditor should proceed either against the principal debtor or against any other surety before
proceeding against him.

 Section 142 & 143- Consent of the surety should not have been obtained by misrepresentation
or concealment, or else contract stands invalid.

 Keeping silent on material circumstances, which could affect the surety’s decision to stand as
surety or not, would render the guarantee void. If there are any changes to the contract or
activities that the surety is not made aware of, he is no more liable as contract stands void.

 In a contract of guarantee, the liability of the surety is only a secondary one. But whereas the
liability of an indemnifier in a contract of indemnity is a primary one.

 Liability of guarantor is coextensive with that of principal debtor.

 If a contract specifically says that they do not entertain collateral security or third party
guarantee. But still the borrower and surety execute the document. Since the surety voluntarily
agreed to repay, he would be held liable to repay the same jointly or severally with the
borrower.

 Contract of Indemnity-when there is no debt, but one party promises another to compensate if
such a situation arises in future. Also, when the promise is not dependent upon the default of
somebody else.

 Continuing Guarantee- A guarantee which extends to a series of transactions is called a

continuing guarantee.

A continuing guarantee cannot be mistaken as perpetual guarantee or perennial guarantee.

The surety has been empowered to revoke a continuing guarantee as to future transactions by giving
notice to the creditor.

Surety’s liabilities for transactions already made still exists, but not for future transactions.

Death of surety also puts an end to the continuing guarantee.

Discharge of Surety from his liability

Section 130- Discharge of Surety from his liability - Revocation by the surety

 Surety can revoke his continuing guarantee with regards to future transactions only. This can be
done by giving a notice to the creditor. His liability continues to exist for the transactions already
made before the revocation.

 Hence when a transaction is already made, surety cannot revoke it under any circumstance.

 When the surety has entered into a continuing guarantee agreement in terms that it is to
continue and remain in operation for all subsequent transactions, it would not be open to him
to revoke the guarantee.

Section 131- Discharge of Surety from his liability -by surety’s death

 Continuing contract comes to an end when the guarantor/ surety dies.

 Exception: if the continuing guarantee contract mentions specifically that on the death of the
surety, his property or his legal representatives will be responsible for such liability, is valid.

 In such a case, guarantee is not revoked even if the surety dies.

Section 133- Discharge of Surety from his liability -by variance in terms of contract

 If I keep a few conditions or terms before signing as a surety for my principal debtor. And later
on he makes a few changes to the contract by amending it with the creditor. Then I am no more
liable to compensate.

 This is because I was unaware of the terms added or reduced.

 But I will be liable till the contract remains unchanged.

 According to section 38 of the Indian Partnership Act- a continuing guarantee given to a

partnership firm, or to third party in respect of the transactions of a firm is revoked as to future
transactions from the date there is a change in the constitution of the firm.

 If there is a written contract of guarantee and there is no variance of the same in writing, the
validity of the contract is not affected.

 If I as a principal debtor make an alteration in the contract for the benefit of the surety, such an
alteration is unsubstantial and does not discharge the surety from his liability.

 When an alteration is to the benefit of the surety that won’t be considered as a material
alteration.

Section 134- Discharge of Surety from his liability -by release or discharge of principal debtor
  Principal debtor can release or discharge the surety by any contract between the creditor and
the principal debtor.

 When there are co-sureties, a release by the creditor of one of them does not discharge the
others.
 Even if one of the co-sureties is released by the creditor, he does not thereby become released
from his responsibility to contribute to the other sureties.

 Liability of principal debtors and guarantors is independent of each other, hence suit could be
enforced against guarantors even without initiating any proceedings against the principal
debtor.

Section 135- Discharge of Surety from his liability -when the creditor compounds with, gives time to, or
agrees not to sue, the principal debtor

According to this section, a contract between the creditor and the principal debtor discharges the surety
under the following circumstances-

 When creditor makes a compromise with the principal debtor(PD)

 When creditor gives time to PD

Even when there is an agreement by the creditor with the PD to take the payment in
installments instead of lump sum, amounts to as giving time to the PD. Which results in the
discharge of the surety.

Where a contract to give time to the PD is made by the creditor with a third person and not with
the PD, surety is not discharged. Even though the same is without the consent of the surety it
does not discharge him thereby.

 When creditor promises not to sue the PD.

Exception: if such a contract is made without the consent of the surety, surety is discharged. But if it is
made with his consent, he would not be discharged.

Section 137- creditors’ forbearance to sue does not discharge the surety.

 If I as a creditor specifically say that I am promising not to sue, then I am giving up my right to
sue which extinguishes thereupon.

 But even after having the legal right to sue the PD and surety for failure of repayment, I didn’t
exercise it. I can still enforce it in the future. Hence surety is still liable. This is because I did not
waive my right to sue but I haven’t used it yet.

 But the actions against the PD is time barred and the surety is not discharged even then.

Section 139- Discharge of Surety from his liability -by creditors act or omission impairing surety’s
eventual remedy
If the creditor himself does something stupid in relation to the contract which eventually leads to a loss,
surety is not liable.

 Suppose if I as a creditor have a responsibility to take monthly installments from my PD, but due
to my negligence and failure to ensure payment, PD became indebted to me.

 Since I failed to take necessary steps to recover the amount from the purchaser, the surety’s
remedy against the P.D had thereby been impaired, the surety was discharged from his liability.

 If principal debtor (P.D) is purposely defrauding the creditor, it is the responsibility of the
creditor to take action for the same, instead of suing the guarantor directly.

 Any inaction of the creditor of his responsibility to keep a check on the activities of the P.D will
discharge the surety from his liability.

 Example: a bank losses the security deposited with it by the principal debtor due to its
negligence, the surety would stand discharged in respect of the loan given by the bank on the
basis of security.

Section 141- Discharge of Surety from his liability -by loss of the security by the creditor

 When I as a surety clear all the debts for the P.D, then the creditor is liable to handle over the
securities to me, so I can claim for repayment from P.D.

 Surety is discharged if the P.D gets discharged due to the fault of the creditor himself. Even if the
P.D may be discharged, the surety is still liable.

 If there is an impossibility of performance on the part of P.D, still surety is liable to repay or
compensate the creditor.

 If the creditor loses or parts with such security voluntarily and consciously without the consent
of the surety, then surety is not liable to the extent of the value of the security gone.

 If the creditor lost the securities without any fault of his, surety is not discharged from his
liability.

 Even if surety is replaced by another party, but if it is without the approval of the creditor, the
surety is still not discharged.
Rights of Surety
1. Right of surety against the P.D (Principal Debtor)

 When surety steps into the shoes of the creditor after repaying P.D’s debt. He can
reclaim the same from P.D as his creditor now. This is known as the right of subrogation.

 Section 140- Rights of surety on payment or performance. P.D has to reimburse to the
surety on fulfillment of surety’s liability.

 Surety upon payment or performance of all that he is liable for, is invested with all rights
which the creditor had against the principal debtor.

 Since the P.D now owes debt to the surety, the surety can claim indemnity from the P.D
for all that he has rightfully paid under the guarantee.

 Section 145- implied promise to indemnify surety. In every contract of guarantee, there
is an implied promise by the P.D to indemnify the surety.

2. Right of surety against the Creditor

 A surety is entitled to the benefit of every security which the creditor has at the time of
suretyship is entered into.

 Even if surety has fully payed for the part of the money he was liable for, surety can’t ask the
creditor to part with that portion of securities. Until creditors claim has been fully satisfied even
by the P.D.- Bombay H.C

 If surety has fulfilled his part of the obligation, he can claim benefits of the securities in
proportion to that.- Madras H.C

 Bombay H.C’s opinion stands better.

3. Right of surety against Co-sureties

 Section 146- Co-sureties liable to contribute equally

 If a co-surety has paid more than his share of liability, he can claim his extra contribution
from the other co-sureties later on.

Bank Guarantee

 Section 147- co sureties who are bound in different sums are liable to pay equally as far
as their limits of their respective obligations permit.
 Co sureties owe in the respective manner; A-10Rs, B-20Rs, C-40Rs. If their P.D makes a
default of 30Rs in total then; A B and C will equally pay Rs.10 to meet the requirement
of 30Rs. None of the co-sureties would be made to pay more than the principal amount
that they initially agreed to.

 Co sureties owe in the respective manner; A-10Rs, B-20Rs, C-40Rs. If P.D makes a
default of Rs.40. then; A will pay 10Rs, B and C will pay 20Rs. each.

 If you notice the above examples, co-sureties will always be made to pay equally and
only to the extent of the amount they promised to pay.

 There is a possibility that one of the co-sureties may be released from the liability while
the other co-sureties may be liable.

 A bank guarantee and a contract of guarantee are two independent contracts between
the bank and the parties involved.

 The person in whose favor the guarantee is furnished by the bank cannot be prevented
by way of an injunction in enforcing the guarantee on the pretext that the condition for
enforcing the bank guarantee in terms of the agreement entered between the parties
has not been fulfilled.

 But a bank guarantee can be cancelled on the grounds of fraud or irretrievable harm or
injustice to one of the parties. Unless such circumstances arises, the bank cannot cancel
its bank guarantee as such a course is impermissible.

 If an agreement confers exclusive jurisdiction to a certain court then no other court can
have jurisdiction in that matter.

 If an agreement of bank guarantee requires fulfillment of certain conditions or

requirement necessary for the invocation of the bank guarantee, the guarantee can be
invoked if those conditions are fulfilled.
 CHAPTER – 2

BAILMENT AND PLEDGE

 In a contract of bailment, the person who delivers the good is called the bailor and the person to
whom the goods are delivered is called the bailee.

 Anyone who finds any good becomes a bailee and not the owner of the good.

 Section 148 of the Indian Contract Act defines bailment.

 Essentials of Bailment- 1) Delivery of goods for some purpose 2) Return of the goods after the
purpose has been accomplished.

 Delivery can be actual delivery or even constructive or symbolic delivery. Ex: by giving away my
garage keys to someone, I’m making a delivery.

 If a person assumes the custody of another person’s goods, even without formal agreement, it
would constitute as Bailment. If waiter takes my coat at the restaurant without me asking him
to, he still has possession of my goods as a bailee and needs to give it back.

 When a person keeps his goods in the premises of another person but himself continues to have
control over them, is not bailment. So, it’s like I’m basically using someone’s garage for
whatever purpose it might be, but he is not responsible for what I keep inside his garage.

 It is only considered as bailment if I completely de-attach myself from what I’m giving to the
bailee. If he and I both have access to the bailor’s goods then how was it possible for the Court
to strictly determine that it was just Bailee’s fault. Hence to prove this the complete possession
needs to be with the bailee so he can be solely accountable.

 Bailment can arise without a contract, the law recognizes the finder of any goods as bailee. So
even if the bailee might not be aware of the bailor or have any kind of contract to return any of
his lost goods, if it comes in the possession of the bailee, he needs to respectively give it back to
the bailor.

 Ex: the owner of the goods drew Hundi on the consignee and the goods were to be delivered to
him only after he accepted the Hundi. It was held that since the Hundi had yet to be accepted,
the ownership of the goods did not pass to the consignee, and therefore, he had no right to
recover damages for the loss of the goods in transit. However, the consignor of the goods could
claim compensation for the loss of the goods during transit from the Insurance Company.
  Goods must be returned after the purpose of it has been accomplished, or in any form as the
bailor specifically has asked for.

 Mere hiring of locker of bank would not constitute bailment.

 Section 150- it is the duty of the bailor to disclose to the bailee faults in the goods bailed, if he
does not make such disclosure even after being aware, then he is solely responsible for the
damage or faults arising out of it.

 Bailor in such instances also becomes liable for the damage/ hurt caused to the bailee due to
defects in the goods bailed and even when bailors fails to mention such existing defects to the
bailee.

 When the bailor is unaware of the defects, he is still responsible for the damage caused to the
bailee due to any defective goods given by bailor.

 Even if I lend something for the sake of money or just free of charge, I will still be held
accountable as a bailor for any damage to the bailee from my defective goods.

Duties of Bailor-
1) Duty of reasonable care-

 Section 151: The amount of care to be taken should be such as a man of ordinary prudence
would. This section lays down a uniform duty of care for every kind of bailment. I should care for
the goods as though they were mine.

 Exception: A bailee can make a contract that exempts him from the liability arising under Section
151.

 Section 152- Bailee is not liable if he takes due care and has not been negligent.

 Amount of care to be taken depends upon circumstances of the case. It won’t be considered as
negligent under exceptional circumstances. Ex: extreme riots which led to the death of a mass
population during which all goods of bailor were destroyed, bailee was not liable. (Who can be
held responsible for monetary damages during riots?)

 If the bailee has taken due care and the damage to the goods is because of the circumstances
beyond his control, he will not be liable for the loss.

 If bailor requests the bailee to keep the goods with him on the bailors request for an extended
time, because he was currently unavailable to accept it back. Any damage or loss caused to it
after being cautious is not the liability of the bailee, but the bailor alone.
2) Duty not to make unauthorized use of the goods bailed

 Goods must be used only for the purpose that they were bailed by the bailor.

 Section 153- bailor can terminate the bailment if he finds the bailee using the goods which are
inconsistent to the conditions of bailment. The option of termination is available to the bailor.

 Section 154- if bailee uses the goods contrary to the conditions of bailment, he is liable to make
compensation for any damage to the goods due to unauthorized use.

 Any kind of deviation from the terms of the bailment leads which results in a minor damage
also, makes bailee responsible.

3) Duty not to mix bailor’s goods with his own goods.

 Section 155- if bailee with the consent of the bailor, mixes the goods of the bailor with his own
goods, the bailor and the bailee shall have an interest in proportion to their respective shares in
the mixture thus produced.

 Section 156- if bailee mixes his goods and bailor’s goods without the bailor’s permission, and if
the goods mixed can be separated they come under the ambit of section 156. But the bailee
shall pay for the expense of separation or division or if there was any damage arising out of this
mixture of goods.

 Section 157- effect of mixture without the bailor’s consent when the goods cannot be
separated. If these goods cannot be separated, then bailee must compensate the bailor for the
loss of the goods due to this mixture.

4) Duty to return the Goods on the fulfilment of the purpose

 Section 160- if the time has expired or the purpose of bailment has been accomplished, it is the
duty of the bailee to return the goods.

 Section 161- if by default of the bailee, the goods are not returned/ delivered at the time bailor
had granted. Bailee is responsible for loss, destruction or deterioration of the goods from that
time.

 A bailee is only excused from his liability from returning the goods to the bailor if the goods
were taken from him by the authority of law exercised through regular and valid proceedings.

 Ex: if I sent drugs to the bailee to be given to F, the bailee while sending these drugs gets caught
and these drugs get confiscated. Bailee not liable. Bailee is also not liable for any interference of
the law that in its rightful authority destroys/ damages bailor’s goods.
 Section 159- If I have gratuitously lent goods to a bailee, I can ask for its return at any given
time, even if it is before the time I had promised to give the bailee for.

 If bailee returns the goods before the time period for which it was promised, but he ends up
more in loss than any kind of benefit due to the demand made by the bailor, then bailor
becomes liable for the amount which exceeds the benefit so derived.

 A gratuitous bailment is terminated by the death of either the bailee or the bailor. Their
representatives shall return the goods on their behalf.

 If several joint owners of goods bail them, then bailee may deliver it back to one joint owner
without the consent of all, if there is an absence of any agreement. But if there is a specific
agreement making the bailee liable to all the joint owners, then he is liable. If no such
agreement, he can give it back to any one of them.

 Section 164- fake bailors lack of title to the goods may cause some loss to the bailee, like court
cases etc., fake bailor is responsible for any loss to the bailee, if fake bailor gives away goods
which were not his to give, or when fake bailor was not entitled to make the bailment.

 Section 166- if someone claims to be the bailor of the certain goods, bailee in good faith can
return it to the fake bailor itself, bailee is not responsible to give it to the original bailor.

 This means that even if the fake bailor has no title to the goods and the original bailor claims it,
the bailee’s duty is to return to the fake bailor itself. Bailee can’t refuse to return on the claim
that fake bailor does not own them.

 Section 167- if a person other than the fake bailor, claims to goods bailed, he may apply to the
Court to stop the delivery of the goods.

5) Duty to deliver to the bailor increase or profit on the goods bailed.

 Section 163- bailee is bound to deliver to the bailor, any kind of profits or increase which may
have accrued from the goods bailed. Ex: if a cow was bailed, the cow has a calf in the custody of
the bailee, bailee must return the cow and the calf to the bailor. But a clause can be added in
the terms of bailment if bailee wants to part with the profits or anything contrary to above.

 Accretions in respect of the goods bailed are part of the bailed goods and hence such accretions
do not belong to the bailee, and therefore, they have to be handed over to the bailor when the
goods bailed are returned.

 If shares and debentures are pledged, bonus shares, dividend and interest in respect of them
are to be regarded as accretions and they become a part of the pledged securities. Hence, bank
 has lien to the accretions also. But such accretions should be returned at the time of redemption
of property. This is the ruling for Pledged Stock

 If the Pawnee bank has paid for the right shares, they belong to the bank and not the Pawnor.
The bank is entitled to retain them irrespective of the question whether they formed part of the
pledge or not.

Rights of Bailee
 Section 158- right to recover necessary expenses incurred on bailment.

 Right of lien on the goods bailed- Types of lien- 1) general 2) Particular

 Section 170- Particular lien - entitles bailee to retain the same goods for which he provided his
services. I provide services to someone on his demand, if he fails to pay for my services, I can
keep the goods that he had sent.

 If bailee has waived his right of lien, he cannot exercise the same.

 When the bailee loses his possession of the goods, his right of lien is lost thereby.

 Section 171- General lien of Bankers, Factors, Wharfingers, Attorneys and Policy Brokers.

Bankers
 General lien- entitles bailee to retain the goods of bailor for ‘general’ balance of account. And
this is available only to the category mentioned above. ^

 Bank cannot exercise lien over money under Section 171- lien by Bank is only confined on
papers, securities and other goods deposited with the Bank.

 If bank however knows that the securities belong to a third person and not its customer, he
cannot exercise the right of lien on them.

 If customer has different accounts with a bank, the bank has a right to combine the two
accounts for the purpose of genera lien.

 If there is an express contract between the parties contrary to the statutory right of general lien,
the right is thereby excluded.

 How to differentiate the act of a parties as a special purpose thereby to exclude their right of
lien? So basically bank does not have right over ‘renewed securities’ because of the contract
being of special purpose. Normally bank would have a right on the securities deposited but in
this instance it has right to the extent of interest on the securities.
Factors
 A factor is an agent entrusted with the possession of goods of his principal for selling them. He
has a right of general lien over the goods belong to his principal, which are in his possession, for
the general balance of account.

 A factor can retain the principal’s goods with him until the general balance of account due to
him has been paid. This lien, however can be exercised by him only in respect of such goods
which came to him in his capacity as a factor.

Wharfingers
 Wharfingers means a person who owns, or has to take care of a wharf. Wharf means a loading
stage alongside a sea or a river for loading and unloading vessels.

 A wharfinger has a lien over the goods of his customer, until the charges for the use of the wharf
are paid to him.

Attorneys
 An advocate has no lien over files and papers and documents entrusted by his client in
connection with the litigation.

 Section 171 only permits general lien to an advocate in respect of the goods bailed, but not the
files and documents he has been entrusted with. (Ex: I as a client haven’t paid fees to my lawyer,
but I leave in his possession my legal documents and car as a security for payments. He needs to
return the documents but can keep the car in the form of lien.)

Policy brokers
 A policy broker is a person who acts as an insurance agent to effect marine insurance.

 Section 180- Right of suit against wrong-doer- if a third person wrongfully deprives the
bailee of their use or possession, or cause an injury to the goods, the bailee or bailor can sue
such third person.

 If a person fraudulently or forcibly takes away the goods from the bailee, the bailee has a right
to recover the same.

 A obtained delivery of certain goods from the railway on a forged railway receipt. A pledged the
goods to B. It was held that the railway authorities had a right to recover those goods from B.
  A pledge is a bailment that conveys possessory title to property owned by a debtor to a creditor
to secure repayment for some debt or obligation and to the mutual benefit of both parties. The
term is also used to denote the property which constitutes the security.

 A person who finds goods belonging to another and takes them into his custody, is subject to
the same responsibility as a bailee.

 The finder of the goods has no right to sue the owner for any expenses incurred while looking
after the goods. But he can retain the goods till compensation is paid.

 But if the owner can’t be found, or even refuses to pay, the finder may sell it if the good is
starting to perish or losing its greater value. He can also sell it if he has incurred lawful charges
of 2/3rd of the value of the good.

 Section 168- If owner says there will be a reward for anyone who finds his goods. Finder is
entitled to receive the reward and the expenses incurred on maintaining the lost goods. Finder
can only sue for failure of payment of reward, and not for expenses incurred

Pledge
Bailment is a wider term. Pledge is a kind of bailment, where the goods are delivered by one person to
another as security for payment of a debt. If I give a watch for repair, it is bailment.

Essentials of Pledge-
1) There should be bailment of goods
2) The purpose of bailing goods is for security for payment of a debt or performance of a promise.

 Mere agreement to transfer possession in future is not enough to constitute a Pledge.

 Fascinating part of a pledge, goods can pledged still be in the possession with the bailor. But he
is now holding these pledged goods on behalf of the bailee and not as his own goods. This will
constitute as constructive notice.

 Hypothecation, possession of the movable property is retained by the owner and certain rights
in that property are transferred to the person in whose favor the property is hypothecated.
Hypothecatee has the right to take possession or sell the hypothecated goods through the
Court, or give notice to the Hypothecator to enforce the security. Court intervention is a must,
unless the contract says contrary.

 A person who is neither the owner, nor having the authority from the owner for pledging the
goods, but having possession with the owner’s consent can make a pledge and confer rights on
the pledgee.
The following people fall under these exceptional circumstances-

1. Mercantile agent
2. Pledge by person in possession under voidable contract
3. Pledge by a person with a limited interest
4. Pledge by seller in possession after sale
5. Pledge by buyer in possession after sale

 Section 178- Pledge by Mercantile agent- Mercantile agent means an agent having in the
customary course of business as such agent authority either to sell goods, or to consign goods
for the purpose of sale, or to buy goods, or to raise money on the security of goods.

 So basically, if I borrow my brother’s car with his consent, if I was a mercantile agent I could
pledge the same car without having authority to do so from my brother.

 Section 178-A: Either owner or his duly authorized agent can pledge the goods.

 If whatever goods were obtained by Pawnor under section 19 or 19-A of CA and the same
contract has not been rescinded, then Pawnee acquires a good title of the goods, irrespective of
the fact of pawnor’s defective title.

 Section 179- if I pledged my goods to someone for money, he can pledge those same goods to
someone else for money too.

Rights of Pledgee/ Pawnee

 Section 173- Pawnee’s right of retainer.

 Section 174- Pawnee’s not to retain for debt or promise other than that for which goods are
pledged.

 Section 175- Pawnee is entitled to receive from the Pawnor extra-ordinary expenses incurred by
him for the preservation of the goods pledged.

 Section 176- Pawnee’s right to sell pledged goods, if Pawnor makes default in payment. If the
proceeds of such sale is still less of what Pawnor owes the Pawnee, Pawnor is still liable to pay
the balance. If proceeds are higher than the due amount, Pawnee shall pay over the surplus to
the Pawnor.

 Pawnee gets preference before any other creditor. If Pawnee’s claim was yet to be satisfied, no
other creditor could claim before him.
 Pawnee can sell pledged goods if Pawnor fails to pay. But, only after giving a reasonable notice.
Sale without notice is bad in Law and not binding on the Pawnor. It’s not just a mere notice, but
a reasonable one, so as to give the Pawnor an opportunity to pay back before he proceeds with
the sale.

 Section 177- The Pawnor has right to redeem the goods he pledged.

 So long as the Pawnee has not sold the pledged goods, Pawnor can redeem the goods by paying
his debt.

 The Pawnee himself cannot become the owner of the goods merely because the Pawnor has not
got them redeemed within the specific time. But he can give a notice to the Pawnor that he was
selling the pledged goods. After such notice has been given out, he can sell it to himself, but it
automatically does not make the Pawnee the owner of the pledged goods.

 Pawnee can keep any accretions (additions) from the pledged goods as security and they need
not be disposed separately to the Pawnor but as a whole.

 If Pawnor dies after making pledge, his heirs can redeem by meeting the liabilities on the pledge.
 Chapter 3
Agency

Section 182 defines the term Agent’ and Principal’.

Kinds of Agents-
 Auctioneers- A mercantile agent whose business is to sell goods or other property by auction.
Sale is invalid if he sells anything below or above the fixed price set by the owner.

 Factors- A mercantile agent has possession of the goods of the owner for sale. Fascinating
enough, he can sell the goods w/o the owner’s permission.

 Brokers- he has no possession of the goods, but only negotiates the sale and gets a commission
when the sale is complete.

 Del Credere Agents- A mercantile agent who guarantees the performance by the third party. He
is paid an extra commission called the Del credere commission. If third party fails to perform,
then owner can hold Del credere liable.

 My power of attorney is worthless if I am feeble, old, weak and unable to comprehend due to
lack of mental capacity.

 There is no need for any kind of consideration to be established to create an agency.

How can agency be created? When does an agent come into existence?
 When principal gives implied and express authority. Express is by words or writing. An authority
is said to be implied when it is to be inferred from the circumstances of the case from the
ordinary course of dealing.

 An agent can in the case of an emergency act for the purpose of protecting his principal from
loss.

 Principal is bound by estoppel. If principal acts in such a way that makes a person look like his
agent to the rest of the world he becomes liable for the acts of his agent. Agent may not
appointed by principal expressly or impliedly, but principal is still liable. (How does this make
sense in the legal world? How can principal claim that he had not given any kind of such
authority to the agent?)

 Ostensible authority- where the principal by words or conduct has represented that the agent
has the requisite actual authority, and the party dealing with the agent has entered into a
contract with him in reliance of that representation.
  An agency also comes into existence in rare cases where, when agent has no authority to do
such act does it on behalf of the principal, the principal accepts his act. Once his act is
acknowledged by the principal, his position is that of an agent.

 Husband becomes liable to pay if wife uses goods or services for the use of the family. Wife who
is acting as an agent, husband as the principal. Even though the principal had not given authority
to the wife to pledge goods on behalf of his name, husband liable to repay the third person.

Ratification- accepting the act of an agent who was not authorized to do such act.
 The act of the agent should be for the principal. In some cases, even if principal ratifies the act,
he cannot he held liable if the agent’s act does not relate to the principal.

 An act can only be ratified if the Principal gets well-versed of the fact and knowledge of the act
of the agent.

 An act shouldn’t cause injury to a third person. A principal cannot ratify such acts of the agent.

 Ratification must be done within reasonable time to avoid loss to the third person.

 Badri Prasad v State of M.P- Pg. 120 Para.3- why should he pay when the goods were
destroyed in the fire? Shouldn’t he get a repayment of his 1 st installment as well due to lack of
care on the part of the auctioneer? Also, what exactly is the contention made here?

 If agent has personally undertaken to perform certain duties, then only he should do it, he can’t
delegate it to anyone else to do his work.

 If the act does not require a special skill, or if the principal permits and the trade requires, a sub-
agent may be validly appointed by the agent.

Section 191- A sub-agent is defined.

 If sub-agent is properly appointed with knowledge, principal becomes bound by his actions.

 If sub-agent is not properly appointed, then agent becomes responsible to the 3 rd person and
also the principal.

 Substituted agent- they act on behalf of the agents and are directly responsible to the principal
unlike the sub-agents.

 The agents have a duty to show proper skill and care.

  Agent must also render proper accounts and communicate with the principal when the need
arises and obtain his instructions.

 Agent cannot make his own decisions, if he does so, principal can repudiate it; or claim from the
agent any benefit which was resulted from the transaction.

 Agent can retain goods for the service he provided and wasn’t paid remuneration. He need not
complete the entire task assigned to him to claim his remuneration.

 If the agent’s efforts are not the effective cause of the materialization of the transaction, he will
not be entitled to commission.

 No remuneration for the business misconducted.

 As an agent, I need to complete only the task given to me, if somehow that is delayed because
of the other party, then it does not affect the agent, agent still liable for remuneration for this
services which were not delayed or were ready.

 In the absence of a contract, Agent has right of lien over principal property if he has not been
made. He can also retain those goods for which he paid until the principal pays for the expenses
he incurred personally. Such right is however lost, when the agent parts with those goods.

Principal’s Liability
 Principal’s liability is based on the rule “Qui Facit per alium facit per se”- this means that the act
of the agent is the act of the principal.

 So basically principal needs to be held liable for even employing his agent. He can’t be like I
didn’t ask the agent to commit such an act, so it’s not my fault. But if we see, the only reason
the 3rd person was contracting with the agent was because of the principal; and the fact that the
principal has an upper hand on the agent. Thus, in such circumstances, principal is liable.

 But earlier a contrary statement was made that principal shall not be liable for acts it did not
have knowledge about or has not authorized it.

 So if agent acts personally and out of the scope of his professional authority to the 3 rd person,
principal not liable.

 Option to sue either the Foreign Principal or Indian agent, not both.
Agents Personal Liability
 An agent is just given a task to complete, he is not ‘personally’ bound by a contract between the
parties.

 But in some cases he will be presumed to have made this contract personally under his name,
where-

 A) The contract made by agent is for sale or purchase of goods for merchants resided abroad.

 B) When the agent does not disclose the name of the Principal.

 C) When even if Principal is known, Principal can’t be sued. (Minor, etc.)

 D) When the contract specifically mentions that agent will take up personal liability.

 E) When agent makes a breach of some legal obligation.

 F) When he acts like he was given the authority to act by Principal.

Fascinating facts-
I can either sue the Principal or the Agent but not both

 If agent has some benefits that arise only on the happening of the contract, he can sue
personally for non-fulfillment of act. BUT in some cases it can be recovered by both,

 Even if agent discloses that there is a Principal, but he does not mention his name or details/
principal not liable.

 But if 3rd person neither knows nor does he suspect he is an agent, principal, may be bound to
perform the contract.

 Section 231- Above statement stands contrary to the entire chapter itself.


 Section 232- if 3rd person comes to the knowledge of who the actual principal is before the
contract is completed. The option is at his hand, whether to reject it or accept it.

 Sometimes principal cannot be sued under various extinguishing circumstances, like the
Principal might be a minor, or Principal’s company belonged to a Foreign Government. And since
Govt.’s can’t be sued there was no liability. When 3 rd person finds out that about the Principal,
he can sue the principal or the agent for the performance, or both.
Estoppel against 3rd Person
So we’ve read how 3rd person can either sue principal or agent or even both. But, a 3 rd person is stopped
from suing both under an exception.

Exception: when 3rd person agrees that he will only make one of them liable. He is estopped from suing
both of them.

Termination of Agency
Section 201- Various modes of terminating Agency. These are mentioned below-

A) By revoking agents authority- express/ implied.

B) When agent leaves the business of being an agent
C) Once agent completes the task, it binds Principal.
D) Death/sanity of principal or agent.
E) If principal becomes insolvent.

 Exception: when agent has an interest or is to be paid for his expenses and services on the
happening of the act/event, it cannot be terminated even on the death or insanity of Principal.

 Section 204- when the authority has been partly exercised by the agent, no revocation of agency
is possible.

 Section 206- principal must give reasonable notice of revocation to the agent. Or else he will
have to compensate for any loss suffered by agent.

 Sometimes a principal may be dying or becoming of unsound mind, in such situations, agent on
behalf of his late principal can take reasonable steps for protection and preservation. (Doesn’t
this section jeopardize the heirs of the principal, as the agent can exploit under this Section?)

 The termination of agency does not become effective immediately. It ends only when

a) For the agent it ends, only when the agent knows of this termination.
b) For a 3rd person, agency is terminated for them only when they have this knowledge.

 But the principal cannot go around telling the whole world or all the 3 rd parties involved about
removing the agent. So what is the status here? Or what is the solution when she a situation
arises?

CHAPTER 4
 Nature and Definition- Partnership

 Section 4 of the Indian Partnership Act defines Partnership as, 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.

 Banking business- maximum 10 partners; any other business- 20 partners.

 Relation of partnership arises from contract and not from status. Such partnership contracts can
be express or implied.

 Fun fact: even if the Partnership Deed says that after the death of the person, his heirs shall be
entitled as partners, it would not be applicable.

 Although minor can’t contract and be a partner, but he can enjoy any benefits of partnership.
He has rights to the shares of profit.

 So H.U.F can’t enter into a contract of Partnership, this is because partnership enters only with
individuals and not an association of individuals.

 Even if partnership allows two ‘companies’ to partner up (because companies are a legal entity),
it is not technically possible. This is due to many restrictive provisions in the Companies Act.

 If partner becomes insolvent, he ceases to be a partner.

 If mere agreement is made to buy something for their own use, it’s not a partnership.

 Partners enjoy the profits made from their business. And hence they are liable even for loss or
any liability. Does this mean that anyone who enjoys the profits made by the firm are
considered partners? No, some are simply paid out of the profits w/o being partners. Such
people are mentioned below.

1) Money Lenders- I might have to sometimes pay the money lender or make him part of the
profits earned. It won’t make him a partner.
2) Servant
3) Widow or children of deceased
4) Seller of goodwill- I might sell my goodwill/reputation. And in case I want profits in future as
well for the goodwill sold, I can be entitled to the profits without being made a partner.

 According to Section 8 – particular Partnership’ can take place between partners whereby they
engage in particular adventures or undertaking.
 There needs to be mutual agency- business must be carried on by all or any one of them acting
for all. The act done by one partner binds all the other partners of the firm.

 Both must be partners if they even want to act as agent and principal also.

 If among the agent and the principal, one of them is not a partner, then it is not considered as a
partnership and neither are any of its transactions considered under the partnership.

 Partners and their firms are the same. They are not considered as separate entities under the
Partnership Act. BUT, suddenly they will now be considered as single entities, so the Govt. can
enjoy taxing the firm separately under the Income Tax Act.

 So basically everyone decides when the partnership shall end or its duration. When the duration
or its end has not been decided, such partnership is known as partnership at will. If it makes a
provision for any one- duration/end it is no longer a partnership at will.

 If the partnership is at will, it can be dissolved at any point by any partner by giving a notice. If is
not a partnership at will, it can’t be dissolved just like that.

CHAPTER 5
 Relations of Partner Inter Se

 Partners are at the liberty to make a contract that a partner shall not carry on any other
business as a partner while he is a partner at that firm. Such agreements restraining partners are
not void.

 Section 9 and section 10- provisions on certain duties of the partners, which have to be strictly
adhered to.

 Section 12 to Section 17- contains other rights and duties which are ‘subject to contract
between the parties’. If parties have no such contract with any different agreements, then the
above sections will apply.

 Right of the parties depends on how they want it to be, if it has not been specified by the firm,
sections 12-17 will apply-

Rights of partners-

1) Right to take part in the conduct of the business.

2) Right to express opinion-

There will be an ordinary matter and fundamental matter in the firm which needs opinion.
Ordinary matters does not require all the partners vote, but when it concerns important
matters, majority cannot suppress minority partners.

3) Right to have access to the books of the firm

4) Right to share profits- it will be divided equally among partners of the firm, or they could
themselves specify in what proportion they want.

5) Right to interest on capital and advances-

No interest is paid for the capital a partner gives to the firm. But if firm agrees such interest will
be paid out of the profits made. If partner ever is made to pay beyond the capital he agreed to
subscribe- he will get 6% p.a interest.

6) Right to indemnity
If partner incurs any expenses or liabilities personally, he is entitled to claim indemnity for the
same from the firm.

Duties of Partners
1) Duty to carry on business for common advantage

2) Duty to be just and faithful to each other

3) Duty to render true accounts

4) Duty to not conceal any information

5) Duty to indemnify for fraud- every partner shall indemnify the firm for any loss caused to the
firm by his fraud.

6) Duty to be diligent- if firm suffers loss due to the willful neglect of a partner, he shall indemnify
the firm for the same.

7) Duty to properly use the firm’s property.

 Property of the firm- if any property is used for running the business, it does not automatically
become the property of the firm. It would become property of the partnership only if there is an
agreement, express or implied for the same.

 Partner should not carry on a business which is of competing nature to the firm.

 Section 17 incorporates provisions of the positions of rights and duties of partners when there is
a change.

CHAPTER 6
 Relations of Partners to Third Parties

 Every partner is jointly and severally liable for acts of the firm done while he is a partner.

 When a partner has implied authority to do something, the firm will be bound by such an act
even though the partner may be acting in fraud of his co-partners.

 So basically since he has power conferred onto him, any act will hold other partners liable as
well, even if they didn’t have knowledge of it.

 Even if the paper has the firm’s name, unless the person signing it does not acknowledge in
what capacity he is signing in; whether as a partner or on behalf of the firm, it will constitute as
his personal liability.

 Partner cannot make these decisions unless he has been given the special power to do so-

a) Submit a dispute for arbitration

b) Open bank account under own name on behalf of bank
c) Compromise or relinquish any claim of the firm
d) Withdraw a suit for the firm
e) Admit liability for firm
f) Acquire immovable property on behalf of the firm
g) Transfer immovable property belonging to firm
h) Enter into partnership on behalf of the firm

 There is a diff between statutory restrictions which have been imposed by Sec. 19 (2) on the
implied authority of a partner and the restrictions under Sec. 20 by a contract between the
partners.

 These statutory restrictions under Sec. 19 (2) will be effective because even the third parties
were aware of such clauses, but under Sec. 20 how can they have knowledge of the contract
between the partners, hence sometimes such restrictions is not binding on the 3r parties under
Sec.20.

 Sometimes partners don’t have the right to make a few decisions, but they can during an
emergency, and the firm shall indemnify them.
  If I correct my partner’s act which was beyond his scope, I am ratifying his act, and will be liable
too. But if I don’t but the other partners agree and forgive his mistake (ratify), they shall be
bound by it.

 If a notice is given to an active partner who habitually takes part in the firm, it shall constitute as
a notice to the firm itself, but if you give it to a dormant partner, it shall not.

 For a tort committed by one partner, the other partner can also be held liable.

 If money or property is misapplied by any partner, the others shall be liable for the act.

 To make the firm liable, such partner while receiving money from 3 rd person acted within his
apparent authority.

The Doctrine of Holding out

 The doctrine of holding out is a branch of the law of estoppel.

 So, basically as per this doctrine, in some cases a person who is not a partner may be deemed
as a partner for the purpose of his liability to the third person.

 He is held to be a partner by ‘holding out’.

 So in short this means, I faked to be a partner to X, now X has to hold me responsible for his loss
right? So he can do this only if I was a partner, which I am not because I faked it. Hence, to
remedy this situation, I will be a ‘holding out’ partner.

 This doctrine does not apply to torts committed.

Death of a partner
 On death of a partner automatic dissolution of firm, unless their contract provided otherwise.
Remaining partners continue the business.

 Now understand the diff b/w being dead and retiring.

 Representatives of a dead person, will not be liable for acts of the firm, even if no one is aware
that this partner is dead.

 But, a retiring partner, who is alive, will be liable for all the acts until public notice of retirement
is made.
Transfer of Partners Interest
 So basically, I can’t transfer my partnership’ position to anyone, but I can transfer its interest;
which is the profits.

 The reason for not being allowed to interfere pin the conduct of the business is that partnership
is based on mutual confidence and trust between partners.

 This way, if his interest also includes a share in the property of the firm, he cannot have this
interest until firm is dissolved. He cannot initiate the dissolution of the firm because he is an
outsider.

 He has no right to interfere in the management of the business, needs to sit patiently and wait.
There is a diff between the person who is allotted certain interest and a person who is a sub-
partner.

 A sub-partner acquires a special interest in the main partnership, unlike the one to whom
interest in transferred.

 ‘no partner can assign his share in a way which may substitute an outsider in his place’

Minors as Partners
 If minor is made a partner, it would be invalid and it cannot be enforced even vis-à-vis other
partners.

 A minor can get benefits though, but only if it is approved by all the other partners.

 It is also sometimes possible that the major members decide to constitute partnership and
admit the minor to the benefits of partnership.

 Fun fact: A and B were partners, B died, now A continued the firm, then X who is B’s minor son
now wants to join for benefits. Court held: your father died, it’s no more a partnership.

 Guardian is capable of accepting benefits on behalf of minor.

 Minor can have access only to the accounts of the firm, unlike other partner who have rights
over any of the books of the firm.
Logic
 I attain majority, within 6 months I can either choose to become a partner or not by giving a
public notice.

 If I have finally been approved by the partners to be entitled to the benefits of the firm, I need
to confirm my decision by making a public notice.

 If I am silent or forget to give such notice, I will automatically be presumed that I am dying to be
a partner. After 6 months, I will become the partner.
 CHAPTER 7
Incoming and Outgoing Partners

 A new partner can be introduced to the firm only after the approval of all the other partners.

 Exception: but if there is a contract among the partners giving them the right to admit a new
partner, then approval from all the others is not required.

 Partner who newly joins will not liable for past transactions, but if the contract clauses state that
‘all partners shall be liable’ then in such rare circumstances new partners are liable although
they were not present when the deal was made.

 A partner ceases to be partner- By retirement, by expulsion, by insolvency and by death.

 The procedure to discharge a retiring partner from liability is by way of novation. Novation
means substitution, with the creditors consent, of a new debtor for an old one.

 Partner leaving the firm must get consent from creditor and other partners to be discharged
from his liability.

 Expulsion of partner can be done in exceptional cases if their contract allows.

 Such power must be exercised only in good faith and for the purpose of the business. Random
throwing out of partners with majority is void.

 If public notice of his expulsion is made, he is then no more liable towards third parties or else
he is.

 An insolvent partner is one who does not have money or is just broke. If partner turns insolvent,
he ceases to be partner when an order of adjudication is made for the same.

 Partners after leaving the firm can start their own competing firm. But they should not do it
under the same name.

 Sometimes they are restricted from carrying on the same business for a specified period or
within those limits. Restrictions imposed should be reasonable. And this concept is an exception
to Sec. 27.

 If outgoing partners or their representatives are not paid out their shares from the property,
then they can claim profits made by the firm from their property after they’ve left.

 Or, claim an interest at the rate of 6% P.a on the amount of his share.
 Retired partner or any outgoing partners share shall be valued as on the date of his retirement.
Once the firm is reconstituted.
 CHAPTER 8
Dissolution of Firm

 A firm can be dissolved at the option of all partners or by the rights their contract gives them to.

 Compulsory dissolution- if all partners are termed insolvent, the firm is compulsorily dissolved.

 If business of the firm carries any unlawful business, it would be dissolved that instant.

 Dissolution of firm is optional on such circumstances-

1) Expiration of the term

2) Completion of adventure
3) Death of a partner
4) Insolvency of one partner.

 When partners continue the business after the expiry of the fixed term, the partnership is now
deemed to be partnership at will. This partnership at will can be dissolved by a notice

 A notice for dissolution once given cannot be withdrawn unless the other partners agree to the
same.

 Partnership at will can also be dissolved by mutual consent, insolvency or death and not just
necessarily a partner giving a notice.

 The need for dissolution by the Court arises when all the partners do not want the dissolution.

 Court can intervene in such circumstances:

1) Unsoundness of mind of one partner

2) Conduct is injurious to the business
3) Permanent incapacity to perform duties
4) Persistent breach of partnership agreement
5) Transfer of the whole of partner’s interest
6) When the business is carried at only a loss
7) When dissolution is just and equitable.

 If one of more partners becomes insolvent, they are not liable to contribute to for the share of
the insolvent partners.
 When settling, if partners have agreed for equal profits and losses, then this shall be applicable.
For ex: if A invests Rs.50 and B invests only Rs.20. total capital= Rs.70. If firm gains only Rs.50
back as either surplus or returns on investment, then it is less compared to the initial capital.

 Hence, during the period of such loss on capital, each partner shall contribute Rs.10 each to
make it Rs.70. Return = Rs.50 (50+20) = 70.

 The separate property of any partner shall be applied first in the payment of his separate debt,
and the surplus if any, may be utilized in the payments of the debts of the firm.

 When a person enters as partner to an already established business, he pays a form of

consideration known as premium to secure right of a partner.

 He is entitled to such premium if partnership ends right after he has paid the money.

 But if a dissolution of a firm is by an agreement and there are no clauses for return of premium,
then nothing will be returned.
 CHAPTER 9
Registration of Firms

 Section 58 and 59 deal with the procedure for the registration of the firm

 Unregistered firm suffer from disabilities mentioned in Section 69

 Unregistered partners of a registered firm suffer the disabilities under Section 69 (1) and (2).

 But the disadvantage is only against the unregistered firm or partners and not against the 3 rd
parties. They can file a suit irrespective of the firm being registered or not.

 Every time some changes take place, you don’t also have to make fresh registration but the
same must be informed to the Registrar. Failure will attract penalty under Section 69-A of the
Act.

 If either an unregistered firm or an unregistered partner files a suit, it is not maintainable.

 Unregistered firm or unregistered partner cannot file against 3 rd parties.

 If the name of one of the partners had not been shown in the register of firms, the suit filed by
the partnership firm will fail.

 But if the suit is filed not because of failure of contract but because of a tort, then it is
maintainable.

 Although non-registered firms cannot file a suit under Section 69 for their rights in a contract
that arise, but they can make use of Section 138 of the Negotiable Instruments Act in such
instances.

 If the right is not based on contract but arises from a statutory provision, unregistered firms are
not barred from filing suit.

 But if a recovery of debt is due and payable to an unregistered dissolved firm, such suit can be
allowed even if the firm is unregistered.

 In 69(3) - if you and the other party both owe each other something. If this 3 rd party files a suit, it
is entitled to its share but you won’t be entitled to file a suit because you weren’t registered. So
 basically he gets his money back but you won’t just because you were unregistered. This is just
another disability for being unregistered. You can’t play set-off (tit-for-tat)

 If my enemy is not registered, I need to take that plea that the suit is not maintainable due to
non-registration, this plea cannot be allowed at a later stage.

 If Section 69 is absolute in its terms and is not confined only to enforcement of a right
generating from a contract by proceedings in a Court then it will become a jurisdictional issue
for an arbitrator to decide.

 Just because you’re an unregistered firm doesn’t mean you can’t resort to Arbitration. You can
always use arbitration as a means to resort your issues. Such arbitration must be included in
your contract clauses

 In short: So basically a suit is filed when you want the party to do something or you want to stop
them from doing something. Being registered helps you make them do what they promised. But
you can be registered or unregistered to stop them from doing something, if it is somehow
affecting your rights.

 S.69 (1) - stops you as partner or firm from suing, S.69 (2) - stops you from being getting any
claims, S.69 (3) - contains exceptions for the above^ and also certain restrictions as well. (but
exceptions are- by being able to sue or claim if firm is being dissolved)

 Idea: If someone is not paying you because you are unregistered, then just dissolve your firm,
this way your suit will be maintainable. Or you can always sue in your individual capacity.

 An application is different from a suit. Application is just a piece of paper. You can’t file an
application and convert it into a suit later on because that’s the only remedy left for you.

 As we already know S.69 (3) provides exceptions. S. 69 (3) (a) - unregistered firm can sue when
firm is being dissolved. S. 69 (3) (b) – unregistered firm or insolvent partner can file suit against
the unregistered firm.
 CHAPTER 10
Contract of Sale- its Nature and Definition

 This is the Sale of Goods Act, 1930.

 It is a contract between two parties, the buyer and the seller. And the subject matter of the sale
is ‘goods’. When this sale occurs with a consideration in return, it becomes a contract of sale.

 Normally a seller is just selling his goods to the buyer, but this Act permits a seller of goods to
reserve a right of himself making a bid at the auction and purchasing his own goods.

 If there is a compulsory sale of goods because of a statute, then it will be considered as a sale
only, and sales tax will be imposed.

 Stocks and shares are also goods.

 Even electricity is considered as ‘goods’ because it can be transmitted, transferred, delivered

and stored like other goods. Hence considered movable property.

 Although lottery tickets are not actionable because of its lottery nature, but the person issuing
these lottery tickets will be considered as goods and will be taxed as well.

 Actionable claims and money are not goods and their transfer is not governed by the provisions
of the Sale of Goods act.

 Even if I produce a film, it will be taxed under sale.

 FD receipts are also considered as goods’ as they can be used to pledge.

 Contract for sale of existing and future goods in valid. If sugar is being sold to me immediately or
is existing during the contract, it is existing goods, if its need to be produced in the future, it is
known as future goods.

 Even under existing goods I need to specific what goods I’m looking for, it will be known as
specific goods or else will come under the ambit of unspecified goods. Ex: I want sugar, but
white sugar and not brown sugar.

 If goods are perished before the sale then the contract it is void.

 Contract of sale is different from hire-purchase agreement.

  A hirer in a hire purchase agreement is not the buyer, who buys or agrees to buy. He is a person
who has merely an option to buy.

 Contract of sale is also different from contract for work. How to determine if the contract is one
for sale or work can be understood by comparing and analyzing if the benefit from the contract
stands heavier on the sale or on service. Depending on this it will be decided.

 In sale consideration must be paid in price, if goods are exchange then it becomes a contract of
barter or exchange.

 If in between this exchange process there is the presence of cash/price, it can be considered as
sale.

Auction Sale

 By way of an auction bidders bid on the item on sale. Highest bidder gets into the contract of
sale.

 One of the parties to an auction said that they will pay 1% more than the highest bid of the
moment, making them the highest bidder eventually. Court held this condition clause mala fide,
bad and illegal.

 If an auction sale requires payment of purchase money on the auction date, failure to pay the
same by the auction purchaser would automatically result in cancellation of the auction sale.

 If people start bidding at a very low price, seller has the option to not accept such a sale.

 If the seller tries to plant fake buyers to increase the price of his goods, the sale is voidable at
the option of the buyer.

 Knock out agreement- buyers agree not to compete with one another to prevent the prices of
the goods from being knocked down.
 Chapter 11
Conditions and Warranties

 In a contract there may be various terms or stipulations. Such stipulations may either be
conditions or warranties.

 If it is what makes the contract happen, then it is a condition and the main purpose of the
contract.

 If it is collateral to the main purpose of the contract it is a warranty.

 To determine under which category the stipulation comes under depends upon the construction
of the contract.

 When there is a breach of condition by the seller, the buyer may treat the contract as
repudiated, or waive the condition or treat the breach of condition as a breach of warranty.

 Even though the buyer has no right of repudiating the contract but his only remedy is a claim of
damages by treating the breach of condition as a breach of warranty.

 I want to buy a fridge, the fridge becomes a condition for my seller. That’s what he needs to
provide me, but if he gives me a broken one, I can claim breach of warranty. But if he sells me an
oven instead of a fridge, there is a breach of a condition itself.

 The goods being sold should correspond to its exact description or else buyer is at the liberty to
completely reject the sale.

Rule of caveat emptor

 It means ‘buyer beware’.

 It means that it is the duty of the buyer to enquire and ensure that the product he is a buying is
for the purpose he wishes it for. Although seller might have mentioned important details, the
buyer needs to take this risk if the description fits his condition.

 But I the buyer specifically mentions to the seller the purpose and description of the product,
seller is entirely liable, when the goods sold do not match the expectations or requirements of
the seller, he is at the liberty to reject the sale.

 The purpose must be known to the seller either impliedly or expressly.

 The implied condition of fitness is applicable not only to the goods which are sold, it is also
applicable to the goods which are supplied under a contract of sale.

 For ex of the above statement made, seller is selling me coke glass bottle, I am buying the
coke/drink and not the glass bottle, but if the bottle was already broken or fragile causing the
drink to spill out, then seller becomes liable.

 Goods sold by the seller must be of merchantable quality. But this is nowhere defined in the act
as what will constitute as merchantable’

 If I am buying something because of its brand value from the seller, then seller can sell me the
good but it has to be merchantable as well. He can’t just sell me anything under his brand name.
There must be no defect if not perfection.

 Even if just a few items of sale are defective in nature, the whole consignment can be rejected.

 Defects in a sale are of two kinds- patent and latent.

 Patent defects are those which can found on examination by a person of ordinary prudence with
due care. Whereas latent is a hidden defect which the buyer could not have foreseen.

 When defects are patent, buyer cannot claim relief or compensation.

 If the latent defects cause any consequences thereof, then seller is liable to even compensate
for the natural consequences of the defective goods.

 But if I so wish I can put in an exemption clause stating that seller is not responsible for warranty
or condition of goods. But these exemption clauses must be strictly interpreted and not confuse
the buyer.

 Even if seller has made it expressly clear that they are not giving any guarantee but they cannot
skip the good condition of the goods sold.
 Chapter 12
Transfer of property and Title

 If after the contract the goods are destroyed or damaged, the party who is the owner of the
goods at the time will have to bear loss.

 If the property in the goods has already passed, the buyer will have to bear the loss but if the
seller still continues to be the owner, the loss will have to be borne by him.

 When the goods are given on approval and neither the approval has been accorded by the buyer
nor the stipulated period has expired, the seller still continues to be owner and also liable for
any loss or damage which might occur to those goods.

 In one case, the buyer took a horse on trial for 8 days. The horse died within this time without
the fault of the buyer. It was held that the property in the horse had not yet passed to the
buyer, and therefore, the seller could not recover the price from him.

 The property in unascertained goods cannot pass until the goods are ascertained.

 Appropriation of the goods to the contract means doing of any act by the parties which indicates
that certain goods are to be assigned to a particular contract.

 [In one such case, the consignor –seller had taken out an insurance policy on the transformer,
the insurance company brought an action against the Railway for damage to the transformer, in
this regard, and it was held that when the transformer was originally given to the railway, the
property in the same had passed to the consignee- buyer. The consignor was no more the owner
of the transformer and for the damage to the same, neither the consignor nor the insurance
company as the assignee as the seller could bring an action for damage to the transformer.]

 Unless the assent of the other party has been obtained, the appropriation is incomplete and
since the property is not deemed to have passed until such an assent has been obtained, the
party making the appropriation may change it by using those goods for some other contract and
appropriating some other goods to his contract.

 The assent to the appropriation may be expressed or implied, and may be given either before or
after the appropriation has been made.

 Goods are at the risk of the person in whom the property in the goods vests.
 Nemo dat quod non habet- nobody can give what he himself has not got.

 Where the goods are sold by a person who is not the owner thereof and who does not sell them
under the authority or with the consent of the owner, the buyer acquires no better title to the
goods than the seller had.

 I gave someone a bill of exchange to pay me for goods sold, he uses this bill to sell those goods
to another. It was held that since I had myself given the bill with consent, he could transfer it
with good title, and I trying to stop him was defeated.

 A person takes the goods on hire-purchase cannot be considered to be a person who has agreed
to buy the goods and therefore a sale of goods by him does not convey a good title to the buyer.
 Chapter 13
Performance of the contract

 There must either be actual delivery or constructive delivery or even symbolic delivery (like
giving a key to my house, goods remain wherever they are but just in someone else’s possession
now).

 In constructive delivery there is neither an actual delivery nor a symbolic delivery of

representing those goods but there is only doing of something which the parties treat as the
delivery of goods.

 If third person holds the goods, for whosoever he holds the goods, they are still borne with the
liability.

 When a contract consists of reciprocal promises to be simultaneously performed, no promisor

need perform his promise unless the promise is ready and willing to perform his reciprocal
promise.

 Unless there is an express contract to the contrary the rule is that seller is not bound to deliver
the goods unless the buyer applies for delivery.

 If I buy full goods but I take only half of them, the liability of the risk of the goods lies with the
seller, but if I have weighed it or acted it any such manner acknowledging the entire lot but only
taking a small quantity, then it shall be my liability.

 I as buyer can reject the goods if it does not match the description of quality or quantity as was
promised.

 The buyer’s right of rejection is subject to the rule of de minimis non curat lex. – The law does
not take trivial deviation into account.

 In case the supply of certain specified goods is the essence of the contract, then any short
supply is the breach for condition, for which the buyer may reject the goods.

 Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by
instalments.

 We have to look to the terms of the contract and the circumstances of the case before deciding
whether it amounts to the breach of the whole of the contract or breach of a part only.
 Two factors have to be kept in mind, firstly, the quantitative proportion which the breach bears
is if it’s to the whole of the contract or a breach of a part only and secondly, the degree of
probability of the repetition of the breach.

 In other words, if the failure of the performance of a part of the contract goes to the root of the
contract, it may be considered to be a breach of the whole contract. But if it doesn’t affect the
entire contract, the breach should be taken in part.

 If seller is authorized by the buyer himself to ship the goods without being insured, or to send
them by Rail at buyer’s risk, the seller would not be liable for any loss or damage to the goods in
such a case.

 Where the seller undertakes to deliver the goods at his own risk at a place other than where
they are at the time of the contract, unless otherwise agreed, he shall not be liable for the loss
to the goods which is necessarily incident to the course of transit.

 Unless otherwise agreed, the seller has a duty to afford an opportunity to the buyer to examine
the goods to ascertain that they are in conformity with the contract.

 If buyer took the delivery without previously examining the goods, he has a right to examine
them after having taken such delivery and to reject them if he finds that they are not in
conformity with the contract.

 When the buyer accepts the goods, his rights to reject them is lost and his only remedy is to
claim damages.

 The mere fact that the buyer has taken the delivery of the goods does not amount to
acceptance of goods. There should be a form of acceptance from buyer.

 Long gap after which goods are ostensibly rejected on premise that they were defective is held
clear fatal in the contract of statutory law.
 Chapter 14
Rights of Unpaid Seller against the Goods

 In case the buyer does not accept to pay for the goods, the unpaid seller, apart from having right
to avoid the contract or sue the buyer, can exercise the following rights-
 Lien
 Stoppage in Transit
 Re-sale

 The position of the seller’s agent may sometimes be the same as that of the seller for the
purpose of the exercise of rights conferred.

 Even though originally the seller had agreed to sell them on credit but now since the price has
become payable because of the expiry of the period of credit, the seller can refuse to part with
the goods until he is paid for them.

 Even though the seller had sold the goods on credit and the period of credit has not yet expired
but buyer became insolvent, the seller’s right of lien is exercised.

 Lien is a right which can be exercised in respect of all those goods which are with the seller. If
the buyer has made part payment of the price, he cannot insist that proportionate amount of
goods should be delivered to him.

 Once buyer gets the possession of goods, it cannot be revived by the seller even if he gets the
possession of the same goods. Once given is given.

 If the seller has delivered a part of the goods, he can exercise his right of lien over the remainder
unless the part delivery was made under such circumstances as to show that he had waived the
right of lien.

 If an essential part of the machinery has been delivered by the seller to the buyer, the seller
cannot exercise his right of lien over the remaining parts.

 If the buyer wants to take the delivery when it ought to have been made to him but the carrier
wrongfully refuses to deliver the same, the transit is at an end.

 If the goods are rejected by the buyer and the carrier or other bailee continues in possession of
them, the transit is not deemed to be at an end. The position would be the same even if the
seller has refused to receive them back.
 ^when he expressly refuses to take their delivery, they should be deemed to be still in transit.

 If the buyer disposes of the goods for which he has not paid yet, the seller may exercise his right
of lien or stoppage in transit, as the case may be, and the person to whom the goods were
disposed of by the buyer will not have any right in respect of those goods.

 The unpaid seller can re-sale the item, and if he suffers any loss for any less payment, can claim
the same within a reasonable time from the buyer. But the buyer shall not entitled to any profit
which may occur on re-sale.