Contracts- II

Contract of indemnity

Meaning of indemnity
Distinction between English and Indian law
Right of indemnity holder
Inabilities of indemnifier
Rights of indemnifier

Indemnity in English law means a promise to save a person harmless from the consequence of an act,
the promise may be expressed or implied in the circumstances of the case.
Contract of indemnity-(sec 124) A contract by one person to make good for any loss or damage to
another party while acting at his request or for his benefit. Eg- An contract of insurance.
Adamson v. Jarvis, (1827) cattle and auction
Ainstructed B to sell the cattle in an auction. After the sale of the cattle C claims the money of the
sale of the cattle saying that he was the owner. Then B askes A for the loss caused, but A said that he
wasnt in any indemnity contract
Tt
Indemnity holder
English law on Indemnity
A promise to save another harmless form loss caused as a result of a transaction entered into at the
instance of the promisor
Halsburys law of England:
Loss or damage = any loss even if not made from the direction of the party

Natural events or accidents

Wider that the Indian definition
All insurance contracts excepts that of life

The contract of indemnity can be expressed or implied

Secy. of state of India in council v. bank of India ltd; 1938, PC

o When A forged a government promissory note and went to the bank. And the bank
sent it to the state (government). Later B the real owner of the promissory note, Came
to the state asking for the money. The state sued the bank and referring to the
Adamson vs Jarvis the damages were paid to the state (government).
Rights of the indemnity holder
Sec: 125
The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover
from the promisor.
1- All the damages which he may be compelled to pay in any suit in respect of any matter to
which the promise to indemnify applies;

2- All costs which he may be compelled to pay in any such suit, if in bringing of defending it ,
he did not contravene the orders of the promisor, and acted as it would have been prudent for
him to act in the absence of any contract of indemnity, or if the promisor authorized him to
bring or defend the suit
3- An compromise
Provided he acted prudently and at the authority of the indemnifier
GajanMoreshwar vs Moreshwar madan 1942 BOM 302
A contracts B to build on a long lease land, B buys raw material from C and when C asks money
from B, B refuses to pay. So C takes it up with the A. A gives his land on mortgage to C. Refers
(sec 124 and 125)
Judicial precedent created: I
Even before the indemnity holder incurs damage, he can sue for enforcement for specific
performance provided he shows that an absolute liability has been incurred and it is covered by
the indemnity contract.
Charter reinsurance co td vs. Fagan, 1996, CA
The sum actually paid by the insurers in settlement of loss or liability
Interpretations:
Sum of money paid only when the company occur any loss and;
When the actual sum of money has been paid.
Liability of indemnifier

Previously it as you need to be damified before you can claim to be indemnified

Now, the principle followed is as per the previous case
It is an actionable claim
Notice to be given as soon as possible.

Osman Iamal and sons ltd vs Gopal Purushttam, 1929, Cal HC\
Rights of indemnifier

Contract of Guarantee
A guarantee is an undertaking to indemnify, if some other person doesnt fulfill his promise.
Sec 126:
Contract of guarantee:
A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third
person in case of his default.
Three parts of a contract of guarantee

Principle debtor: the person on whose default a guarantee.

Surety; who gives the guarantee
Creditor: who is promised to be paid to the surety on the default of the principle debtor.

Birkmyr vs Darnell, 91 ER 27
If two come to shop and one buys and the other to him credit, promises the seller, if he does not pay
you I will pay you.

Contract of guarantee

Let him have the goods, I will be your paymaster or I will see you paid.

Principle
debtor

Surety

creditor
Principle debtor: primary liability
Surety: secondary liability

Independent promise

Characteristics of guarantee contract

1. It can be expressed/ implied consensus ad idem (meeting of mind, or same kind of thinking)
a. S 126 says written /oral
b. English law only written and signed
2. There should be an principle debt existing.
3. There should three parties
H. Mohd khan vs AP bank, 1983, KA HC
Three essentials of contract of guarantee (these conditions were stated under case above)
1. Principle debtors
2. Creditors
3. Guarantee of default payment
A.K.M. Balakrishna v P.K. Chattu, 1939, Mad HC
A had some money which he wanted to invest. He had asked B to invest in bond and securities on
behalf of him. B hadnt invested therefore he had lend the money to C. and C had promised to pay
back to B with a promissory note whenever it was needed. Therefor B was acting as a surety for C to
A. but C had failed to pay. Therefore B was held liable and had to pay to A.
JaganathBaksh Singh v. Chandra Bhukhan Singh, 1937, Oudh
X had made a promise to Y. please lend rs.1200 to Z; there will be no trouble in the payment of your
money. Be assured, if there be any trouble, I hold myself responsible. This shows an contract of
guarantee.
Sawn v. bank of Scotland, 1836, HL

When overdrafts payments were not recognized by the court.

Misrepresentation and Concealment

Guarantee is a not any contract of uberrimae fides or good faith unlike insurance contracts.
Surety needs to be well acquainted with facts or situation which he is undertaking or the knowledge
is.
Shriniwas Shankar v. Raghukul Sahakari, 2010, BOM HC
A and B had come into a contract for transfer of property. C had acted as the surety for this particular
contract. A and B had suppressed that there was a litigation on the property hence the court held that
the surety was not liable because he wasn't told about the litigation.

Sec 142 and Sec 143

Sec 142: guarantee obtained by misrepresentation, invalid: any guarantee which has been obtained by
means of misrepresentation made by the creditor, or with his knowledge and assent, concerning a
material part of the transaction, is invalid.
Barclays Banks plc v. OBrien, 1994, CA
Matrimonial property was set as a guarantee. There is a contract between the wife and the creditor.
This guarantee was given by coercion and misrepresentation. This way the contract is invalid
Sec 143: guarantee obtained by concealment, invalid. Any guarantee which the creditor has obtained
by means of keeping silence as to material circumstances is invalid.
Concealment (Sec:143)

any guarantee which the creditor has obtained by means of keeping silence as to a material
circumstances, invalid

London general omnibus vs Holloway, 1912, KB

servants` fidelity- ds Guarantee

not disclosed the same to guarantee
servant again committed an offense
surety , not liable

Co-operative commission shop v. Udham Singh, 1944, Lah HC

Wythes vs Labouchere, 1859,
Lord Chelmsford observed:
Only in a guarantee of fidelity, the creditor has a duty to inform surety any matter which might have a
huge impact in the transaction.
Circumstances where creditor is required to make a disclosure are :

surety specifically asks questions

creditor is misleading the surety by volunteering only a part of truth
surety makes statements in presence of creditor which shows he had actually misunderstood
the PDs position
anything which might not expected naturally to take place between PD and Creditor

Consideration
Sec.127
Anything done, or any promise made, for the benefit of the principle debtor, may be a sufficient
consideration to the surety for giving the guarantee.

Consideration for surety can be form creditor or PD, only necessity is that it should be good.
It can be for past consideration provided there is an clear understanding of the same.
A guarantee for forbearance (abstain from doing a particular act) is also good consideration.
o Madanlalsobev. Rajasthan State industrial Development and investment corp.
LTD , 2006

Past consideration
M. Ghulam Husain Khan v. M. Faiyazali Khan. 1940 oudh HC

After the lease agreement, surety for payment of rents

Surety exists even for a past consideration
S. 127 the word done includes a past benefit

Ujjal transport agency v. Coal India LTD, 21011, JHA HC

Bank guarantee given to a person. He takes contracts of cutting trees through tender. When ajn e dty
the tender was not allowed.then the contract was invalid
Counter guarantee
Guarantee for guarantee. Starts the moment guarantee has fulfilled his promise.
Types of Guarantee

I.

where there is a promise performed on default

where there is a promise of absolute performance by the principle debtor

Conditional guarantee
Keeping a condition for the performance
1. A promise of some security
2. A promise of co- surety (more than one surety)
Guarantee for performance of promise independent performance unless specified in case of bank
exception: fraud
-

EnCashable upon the default-beneficiary (creditor) decides the breach

Cashable only upon proof of an actual breach

Performance Bond
Guarantee contract at the instance of seller u/ contract of sale that surety will pay on first instance
without any condition/ demand of proof
Mostly used in international traders, absolute performance.
Edward Owen Engg ltd v. Barclays Bank Intl Ltd, 1978, CA
An English company selling green houses had entered into a contract with the Libyan company. The
Libyan company used to pay the English company using a letter of credit. As time passed they started
using document of credit.The English hadnt accepted the document of credit.
Performance bond is like a promissory note which is payable on demand.

Contract of fidelity
-

Its a guarantee for good behavior

Fidelity contract requires more disclosures

If there is no disclosure as to the dishonesty of any servant, contract is invalid.

Surety Bonds to Court

Not exactly covered

Given by the judge debtor
Underlying principle is same (esp. sec 133/135 sec. relating discharge of surety)
When a debtor acts as a surety for himself. When a debtors says that if he isnt able to pay
some amount of money then they could reimburse it from his property.

Kurian v. Allepy CCMS Society, 1975, Ker HC

This is relating to sec 135
Limited guarantee
Where limited liability is undertaken, for a particular amount of money / period of time
Several and joint guarantee

When two or more person promising.

Can be joint / several or joint and several
They need to be sued together as liability is equal for all.

Bank Guarantee
-

Bank undertaking a guarantee for the performance of the contract

Promise to the beneficiary (creditor)
It is an independent promise from the primary contract of PD and creditor.
It is an exception only in the case of fraudulent

RD Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd, 1977,

Kerr J:
It is only in exceptional cases that the court will interfere with the machinery of irrevocable
obligations assumed by banks except in cases of fraud, they are free to litigate he same in their own
ways.
Two types of Bank Guarantee:
1. Financial guarantee
2. Performance guarantee
I.T.C. Limited v. the debt recovery appellate, 1997, SC

Continuing guarantee (Sec.129)

-

Extending to series of transaction

It is not exhausted within one transaction

It continues till the finality of the contract/ guarantee is revoked.

Its for series of transaction which can be for a limited period of time.
Only because the contract says its continuing, there is no contract of guarantee, intention of
parties is important.
Kay v. groves, 1829,
I hereby agree to be answerable to k for the amount of five sacks of flour to be delivered to T,
payable in one month.
LIABALIATIES OF SURETY (Sec. 128)
-

Co-extensive with the principal debtor. not a penny more, not a penny less- Jeffery archer.
The surety is not liable for more or for a little less
Unless agreed to contrary.

Maharaja of Benaras v. Hari Narain Singh, 1905, All HC

A guarantee was made only for the failure of the payment of rent. There was a failure of rent, the
landlord had asked for the rent and also the interest of the rent. According to sec 128, the surety is
liable for all the debts of the principle debtor, but since the surety was mentioned he was liable only
for the rent.
Punjab Liyod Ltd. v. India cements Ltd, 2005 Del
for and in relation to the goods

Always dependent on contract

Commencement upon default of PD unless agreed otherwise
Not required to approach the PD prior to surety unless contract says so.
Only after creditors performs

Condition precedent
Implied or explicit condition = Enforceability example (S.144)
National Provincial Bank of England v. Brackenbury, 1906

Guarantee to be joint with 3

One failed to sign
No provision dispense with it
Court held that D is not liable

James Graham and co (timber) Ltd vs Southgate sands, 1986

Guarantee for performance
Surety undertakes more liability , will not be discharge even if PD is discharged

Past transaction-unlessagreed, surety is always a favored debtors

Bank of Bihar Ltd v Damodar Prasad, 1969, SC
The defendant had owed money as a loan to the bank. The bank had gone to the defendant inorder to
get the loan back. Court was of the opinion:
the very objective of the guarantee is defeated if the creditor
UP state sugar Corps. V. sumaIntrl Ltd, AIR ,1997 SC1644
Any disute bet the PD and creditor; decleration that the PD co. is going into liquidation or sick
industry , not any excuse not enforcing the bank guarantee
Limits upon Liability
1. Keeping limit on liability surety to prove the same
2. Original contract terminated by the creditor accrued rights(vested rights that are on a
particular person but not a fundamental right, only relating to money matter)- creditor
expressed or terminated or accepting the repudiation by PD
3. Original contract is void /voidable- unless its proved to be indemnity, the liability is ancillary
Eg:- of the contract between a minor and a creditor.
4. Impossibility of Main object- only because the surety/ creditor cannot recover anything from
the PD, the contract of guarantee doesnt get discharged.
5. Novation discharged

Discharge of Surety
Guarantee imposes irrevocable liability, only if, consideration to the same be divisible, its possible
Consideration is divisible Payment of rent and contract of fidelity
Revocation (sec:130)
Continuing guarantee
Offord v Davis, 1862
In this case Davis and co is a debtor had to pay Mr.P some money. D the guarantee had come in to the
contract saying that if there is a discount done within 12 months he would be the guarantee. Later he
had revoked the contract.
Sec 131BY Death of Surety
A guarantee is revoked by death when it might have been revoked by the guarantor himself of any
moment during his life.
A surety will not be released in joint and several liabilities in continuing guarantee. Legal heirs- to
extend of their shares.
Sec 133: Discharge by Variance in terms
-

Any change in the contract between the principle debtor and creditor without the consent of
the surety. Boner vs McDonalds house of lords- illustration

Material variation
Alteration is not self-evident of being unsubstantial or it is only detrimental to the surety
Discharges the surety as well as his/her property
If seller gives more goods than required under the sale contract does it discharge the surety?
o The surety is liable only things that he / she assured for.
M.S. Anirudhan v. Thomcos Bank Ltd, 1963, SC
The surety stood for the principle debtor for a loan for Rs.25000 but later the bank had said that they
would give the Rs. 20000. The principle debtor agreed to this contract and did not inform the surety.
Sathish Chandra Jain v. National Small Scale Industries, 2003, SC

Guarantee for sons proprietary business debts

Business converted into a Pvt.Ltd.Co with consent of creditor alone
Henceforth, previous surety is discharged

Discharge by Release/ Discharge of P.D.

S.134:

Release of PD
Act/ Omission of creditor which release PD

Composition, extension of time and promise not to sue

Composition adding something, when the PD has something more added guarantee to the contract
the surety is discharge
Extension- when the time is being extended
Promise not to sue when the PD and the creditor came into a contract leading to not sue the creditor
Bharat Nidhi Ltd V. BhagwandasMehra, 1967, SC

Sec. 136 and Sec. 137

It Requires a positive agreement for same. Not any neglect or postponement of right.
Impairing the suretys remedies (sec. 139)
A surety has right of indemnity against the PD. If its impaired in anyway, his contract gets discharged.
State Bank of Saurashtra v. Chitranjan Rangnath Raja, SC, 1967
Bank issued loan for stock in goodown
It was guarantee
Goods were lost due it negligence of the bank officials
Union of india vs Narayana settai Jugadeswaranrao, 1981, APH

A is an railway transporter, sending goods to B. but A had realized that b doesnt have the railway
receipt so A had canceled the whole contract and made a new one with C with a railway receipt. Later
when A had realized that B had the railway receipt beforehand. B had filed a case against A to get all
the cash that he spent on the goods. Later A had filed a case against C but the court held that
Right of sureties
1. Right of principle debtor
a. Right of subrogation (s.140) putting yourself into someone elses shoes. When the
PD is done paying all the money to the creditor, the surety becomes the creditor for
the principle debtor. All the rights of the creditor would apply for the surety also. 3
people turning into 2 in a particular contract.
b. Right of Indemnity (s.145)- in a contract of indemnity while the surety pays for the
guarantee, the money would be given back by the principle debtor to the surety while
the contract is done. It is not for the sum of money that are paid wrongfully
2. Rights against creditor
a. Right to securities (sec. 141)-security: all the right a creditor has against the
property. Creditor had to protect it even if surety was not aware of any security
State of MP v kaluram ,1967, SC
In this case the principle debtor bought timber from the government, but in return the
principle debtor had to pay to in 4 installments. The PD had only paid one installment
and still timber from the good down of the government. The government had filed a
case on the surety saying that he had to pay for the timber taken. The surety said tha
he was not liable because it was the creditors fault of not taking care of the timber
and he didnt have any rights because he had taken the timer without the consent of
the creditor. And the court held the same.
Failure to preserve the security by creditor and enforce his right would discharge the
surety to the extent of loss
b. Right to share reduction
Insolvent when a surety guarantee for a payment of rupees 5000 from a debtor and
the debtor could only give a sum of Rs.2000 then the surety would pay him the rest of
the money that is Rs.3000. , ,
.

c. Right to set off

When the creditor has a surety and a security, when case if filed the surety can give
the security to the creditor, the creditor could sell it and give the extra money back. A
counter claim made by the surety to the creditor
3. Rights against co-surety (S.138)
4. Right of contribution (S.146 and 147)

S.146: Two or more surety owing to the same debt, would have to share their debt equally or
their portion of their money that they owe to the debt. The left of money would be taken by
the PD or another surety.
Chronology- sequence of payment or events
Unit II BAILMENT AND PLEDGE
Sec. 148:
A bailment is the delivery of goods by one person to another for some purpose, upon a contract that
shall when the purpose is accomplished, be returned or otherwise disposed of according to the
direction of the person delivering them.
A the people who are involved in the contract of bailment are bailor and bailee
Bailor the person delivering goods
Bailee the person to whom they are delivered to
kaliaperumal vs visalakshi
Duties of Bailee
1. Duty of reasonable care. Sec. 151 and Sec. 152
a. UOL vs. Amar Singh, 1960, SC : Negligence
b. Contradiction as to disclaimer- Bailee would be liable only to a little part of the
contract.
c. Rampal v. Gourishankar, 1952, Nag HC
a person had been liable to take care of jewellery, he had put in the first floor and
locked it and put the key in the same room. The jewellery was stolen and the court
held that the person was liable due to his negligence of keeping it in the first floor and
also the key in the same room, which would make it easy for a thief to steal. Hence
held liable.
d. UCO Bank v. Hemachandra, 1990, SC.
2. Duty not to make unauthorised use (Sec:154)
a. Alias vs E.M. Patil: A car was given to a garage for repair. But the Bailee had given
the to an unlicensed person, who and after met with an accident. The Bailee was held
liable.
3. Duty not to mix (Sec: 155-157)
a. Bailor consents

b. Accident, mistake the mixture could be separation or a division equal among each
other.
c.

inadvertence will full or intentional

4. Duty to return the good (Sec-160 &161)

(Sec161)- Shaw and co. V. Symmons and sons, 1917, KB
A had an book binding company and the defendant B had given A some book to bind. But
unfortunately there was an fire accident. Since the good were not delivered at the right time
the bailee is liable and had to pay compensation for the loss that he had costed.
5. Duty not to set up jus tertii (adverse title)
the story of angry birds- when the goods are claimed right on if it is not taken or used by
anyone.the bailee cannot take the decision say it's his own.
6. Duty to return any accretion (benefits and profits)(sec:163)
Along with the bailed goods if there is any interest or benefit. The bailee is bond to deliver the
goods back to the bailor along with the interest and benefit.
RIGHTS OF BAILEE
1. Right to expenses or remuneration S.158
2. Right to compensation s.164
Finder of goods when a person losses a good another person whose finds it is the finder of the
goods.(sec168-sec169)
The finder can ask for remuneration of money for keeping the goods safe.
S.168

Voluntary act- expenses realisable: right to lien

Reward:right to lien( right to posses the bailment goods even after the contract is over)

S.169

Goods of sale

Right to sell

Perishable / loss of greater part of value eg:-tomatoes it is peripheral and as day pass the value
for the tomatoes would decrease.

Lawful charges = 2/3rd of it's value

All the lawful expenses could be reimbursed.

Lien is not time bared.
Right to Lien (sec170&171)
It is an right to retain an particular good even after the contract of bailment is over.
1. Particular Lien sec170 (an special care should be taken)
Labour and skill

Purpose of bailment

Improvement the goods bailed

Goods over which one has applied labour and expenses

Lost: Once the possession is lost , but the right to recover the expenses of preservation
persists.
Example: a delivers an rough diamond to b, a jeweller, to be cut and polished, which is done
accordingly done. B is entitled to retain the stone until he is been paid for the services that he has
rendered.
E.C. Eduljee v. Caf John bros, 1943, Nag HC.
An refrigerator sold to one mr.p with some money on due. P took the delivery. Later the seller agreed
for repairing the some gratuitously.but was trying to impose right of lien over the same for the
pervious payment. Court held its not possible as possession is lost
Hutton v. Car Maintenance co, 1915,CH

An owner had give a motor car for maintenance or three year and also made a fixed annual
payment. Amount of maintenance became due. Claimed for lien over the same.
2. General Lien (sec:171) when the bailee can retain any kind of goods as an
security
Applicable in special 5 cases:

Bankers

Factors

Wharfingers

Attorney at HC

Policy brokers

Except these cases the other cases should expressed or implied and an customary action or a part of a
general trade.
Retain for labour employed/expenses only for a charge
Particular lien : retain property of another for a general balance of accounts
Bankers lien
The general lien of the bankers, as judicially recognised and default under s.171 attached to all the
goods and securities deposited with them as brokers by a customer or by a third person on a
customers account, provided there is no contract, expressed/implied

Only condition : the goods to be in lieu of bailment and not any deposited/otherwise

Also it should not be for safe custody or special purpose

Illustration: Mercantile bank of India ltd v. Rochaldas gidumal & co, 1926, Sind HC
FD made to bank- debtor creditor no lien
Factors lien

Factors: agents entrusted with the possession of goods for the purpose of sale

Right to lien: for remuneration, advanced, loss/liabilities eg in course of his capacity as factor

Possession:actual/ constructive

Not applicable for goods entrusted for special purpose

Wharfingers lien
Wharfinger: owner/ occupier of wharf, who, for hire, receives merchandise on his wharf either for the
purpose of forwarding or delivery to consigned on such wharf
General lie over the goods for his charges of usage of wharf
Attorneys at the high court

Attorney is entitled to general lien over the document/goods of the client unless the fee for
professional services or other costs paid.

Right extend to proceeds of an action funds deposited in court, paper entrusted, etc

Lien dissolves on the voluntary resignation/upon misconduct

R.D. Saxena v. Balram Prasad, 2000,SC

No lawyer has the right to lien over the original documents and original case files.

Policy brokers

An insurance agent employed to effect policy of marine insurance is called policy broker.

Lien: over any balance on any insurance account due to the person for whom he is acting

Other liens: agreement/customary

Right to sue sec. 180 & 181

It's a right for bailor and bailee

Only either of them claim under the same

It's used only if someone interfere with the possession rights

Owners right is not affected due to any temporary outstanding interest of the bailee

Rights of bailor
1. Right to take back the goods (sec.148 & 159)
2. Right to terminate the bailment ( sec.153)
3. Right to claim accretions (sec 163)
4. Right to claim damages for mixing up/proportionate shares (sec.155-157)
5. Right to sue (sec.180 & 181)
Termination of bailment
1. Termination by inconsistent acts (sec.153)
2. Termination by death (sec.162)
3. Termination by return of goods/finishing purpose of bailment (sec160)
4. Other reasons: destruction of subject matter

Pledge
(S.172)
Its a bailment of the goods in purpose of a security, for a payment and performance of a
promise then it is a pledge
Bailor = pawnor
Bailee = pawnee
Delivery of possession
Property- bundle of rights over a particular thing that you posses.
When you pledge something then you have some special property right over the particular
property.
Pledge: bailment so duty to take care exists
Goods same as bailment
Delivery of possession : necessary
Constructive of/actual
To check constructive possession: check upon who has dominance over the goods and
under whose authority it's done.
Morvi mercantile bank vs Union of India, 1965, SC
Railway receipts are a symbol of goods, so pledges bank has the right to recover the
full value of the goods that has been loss.
Pledge by hypothecation
Pawnor keeps the custody of goods/securities for some special purpose
No loss of the right pledge
Any fraud/conversation was made by the pawnor in such cases, the pledge/Pawnee
doesn't lose any right
Reference is give to the Pawnee rights

Hypothecation

Pledge

Goods as securities for debts without actual Pledge is bailment of goods as securities
transfer of property/possession to the creditor

where possession /actual property transfer to

Pawnee
No delivery

Delivery is necessary

Future repayments/goods bought in the future

Existing and specific goods

No duty to take care as such

Duty to take care

No special statues in ICA

Specifically dealt u/ICA

Blundell-Leigh vs Attenborough 1912 K.B

Mrs. B wanted to use her jewellery and get to know the value of the keeping it as a pledge. she
uses Mr. A to find the value. So Mr.a tells Mrs.b that he would find the right person telling us t
right amount for the jewels. And he would pledge the goods and get her the money.
Right of Pawnee
1. Right to retain-s.173 and s.174
Sec.174

Pledgees right ends upon proper tender of performance by the pledger

Since special property right is transferred, it is said that pledgees plea is preferred over other
creditor.

Bank of Bihar v. State of Bihar, 1972, SC

Right to Extraordinary expenses expenses S.175
The pledgee can never retain the goods and ask the pledger to pay.
Right to sell s.176
Lallan Prasad v. Rahmat Ali, 1967, SC
Money - 20000 on PN
Security pledge =Aeroscraps worth 35000
Sued for claiming it back
Unable to produce the security as it was already sold
Court held:pledgee cannot recover back the money
Rationale: the special property right which transfers entitles the pawnor to take back the
foods upon payment , which it lost if sold w/o seeking for non- repayment.
Concurrent rights
S.176

Right to sue and retain

Right to sell

Pawnor cannot insist to sell the property and realise the amounts. It's choice of Pawnee

Right of pledger in this regard are :

If sale is done, it needs to be honestly performed

If no sale right used, then redeem the goods

Sale is improper, get damages

Ramasamy Chetty v. Palaniappa Chettiar. 1930 MAD HC

Notice:

Notice mandate

Clear, specific in language, indicate the intention of parties

No implied notice

Sale is intended sale, so no requirement of the date place or time nor money

Rationale: reasonable time for the pawnor to redeem the property

If given the notice, there is no necessary to sell it in reasonable period , it's pawnees
discretion

Sale proceeds

Sales without notice.- invalid

Unto theorised sale : right to redemption/ suit for conversion and damages

Pawnors right to redemption

Section 177 until,the time of the sale the pawnor can redeem the thing are there for the sale
Who can pledge
1. By a mercantile agent
2. Possession of goods/document to title
3. Possession with consent
4. Ordinary course of business
5. Pawnee good faith
6. Pawnee no notice of non authority
Mercantile agent s.178

S.2(9) of SOG- authorized to sell/ consign/buy /raise money on security of goods

Before amendment to s.178, any person in possession pledge repealed

Goods to be entrusted as a MA and not any other special purpose

Consent: consent of owner to agent even if obtained by any other manner- implied.

Sec.2(4) document to title

Includes bill of landing, dock warrant, warehouses keepers certificate, etc document used
to prove the possession/ control of goods / authorising the same by delivery/endorsement or
delivery the possessed of the document to transfer/ receive goods

Good faith

General

clauses Act, 1897- s.3(20) says good faith means a thing is to be deemed done in good faith
where it is in fact done honestly, irrespective of weather it is done negligently.

BOP: who dispute the pledge

Two things to be proved by Pawnee:

1. Possession by MA is with consent
2. Pledge was innocent

Voidable contract s.178A

Important requirement: pawnor: the title holder

Method of rescinding: notice/ any other method of the party is unable tone contacted

Unit III

Agency
S.182

An agent- a person employed to do any act for another/ to represent another dealing
with third person

The person for whom such act us done, or who is so represented is called principal

The relationship between the principal and the agent is called agency

Formalities required under law

Not necessarily in writing/ implied

Statutory requirement

Merely calling each other principal and agent does not create agency
relationship.

Real nature of relationship is to be determined.

How to determined agency

P. Krishna Bhatta v. Mundila Ganapathi Bhatta, 1955, Mad HC

Whether the person is purporting to enter into transaction on behalf of the principal i.e., to
create, modify or terminate the contractual obligation between the principal.

To make p sue/ liable to 3rd person

Non transfer/ assignable

Kuchwar lime and stone co v. Dehra Rohtas railways co. Ltd 1969, SC
The lime and stone company had asked the coal commissioner for coal. The coal
commissioner had issued an notice to the colliery to delivery the coal. But the railway
company had delivered a lower quality of coal hence the company had rejected the coal
therefore the railway had sold the coal in it to be delivered.The demurrage cost( a step taken
to save the goods from damage).the colliery is as the agent of the defendant because the
defendant company asked for the amount, quality and the way that they want The railway had
asked the defendants company for the loss that the railway had incurred. The court held that
since they were acting as the agent of the decedent company they will have the right to get
the cost they had incurred.
Shree Didvijay Cement co ltd v. State trading corporation of India ltd. 2006, Del HC
Agent and Bailee

Agent and servant relationship

Lakshminarayan ram Gopal v. Government of Hyderabad, 1955, SC
AGENT

SERVANT

P has right to direct the work

M has right to direct work as well as how to

do it

Power to act on his/her own

No power on his own

CIT v. Manmohan Das, 1966, SC

Treasurer eomployed by the bank for its offices and anywhere else has the power to control
the staff and also responsible for their acts, liable for the money etc,
Kinds of agents
1. Special
2. Mercantile
a. Factors
b. Brokers
i. Other s
c. Commission agents

i. Estate agents
d. Del cerdere agent
3. General

Consideration ( s.185)
No consideration is required
Mere fact of employment as an agent and its credit
Giving your powers to an gent in itself is a consideration
Creation of agency
1. Expressed (oral or written)- power of attorney
2. Implied- Harshad shah v LIC, 1997, SC
3. Ratification signing an agreement
4. Estoppel / hounding out
a. An agent to perform certain tasks
b. But exceeds the authority
c. The 3rd part believes in such an authority
d. Principal is estopped from denying any authority
5. Necessity
a. Out of emergency situation
b. Condition for such agency
i. Inability to communicate with the principal
ii. Reasonably necessary- all material circumstances
iii. Bonafide interest
Husband and Wife
W implied agents of h for household necessity
H no agent unless provided by w thr expressed/implied /necessities
Condition to bind for credit purchases:
1. Live together

2. Domestic establishment Debenham v. Mellon, 1880- the wife lhad

bought a coat for the husband, and told the shopkeeper that her husband
would pay. Later the court held that since that they are not living together
hence the wife is liable.
3. Necessaries
4. No reasonable allowances
Authority of agent
S.186,187,188
Extent of the authority s.188
o Nature of business/act for which he is a pointed
o Things incidental to the business or usually done in the carrying on
the business
o Usual custom or usage of the trade
Authority to do an act
Lawful and necessary
Authority to do a business
Lawful and necessary
Usually done in business
Apparent / ostensible authority- s.237
Ostensible authority = no authority at all, it's the clothed authority
Watteau v. Fe wick, 1893, QB: AA=RA
It's based on NJ
A mere representation of A is not sufficient, even p should have induced
the authority of A
Proviso: no actual / constructive notice was given
It cannot be restricted using any private covenant between P and A
Harshad shah vs, LIC, 1994 , SC

Ratification: sec 196 200

S.196: Effects of doing any act without ones authorityo Ratify it
o Disown it
Essentials:
o Act should be done on behalf of a person who is going to ratify it
o Keighley maxseted and co v. Durant 1901, AC
o Ratifying person: existing and capable to enter into such contract
o Motive of agent- irrelevant
Effects of ratification
It's equivalent to previous authority
It's puts parties as though they have been contracting when the act was
done
Principal is obliged for all contractual as well as tortious acts (vicarious
liability)
It cannot be recalled/ revoked
Sec197: ratification can be done by implied or expressed
S.198: knowledge of facts is materially defective- no valid ratification.
o Means all the material facts/ circumstances
o Enough to prove that principal had mean to know such material facts/
circumstances even though he chose to acquiesce by conduct
o Not necessary that he should know the legal consequences.
Sec.200
Acts which can be ratified.
Only acts which can be legal or not causing any damages to 3 rd party
canbe ratified.

 EX: Landlord tenant: A gives notice to quit before time, Landlord to

ratify it only within the period of giving notice
Watson v. Davis, 1930, Ch
Duties of agent to principal
1. Duties to follow instruction s.211
a) Conduct a business as to the direction of the principal
b) If no direction, customs that prevailing in business that follows
c) If acts otherwise, loss sustained , damages
d) If any profits, must account.
No need to follow invalid/ illegal instruction
If not able to perform need to inform the same to the principal
Lilley v. Doubleday, 1881, QB
The principal asked the agent to store goods in place A but the agent placed in
place B but unfortunately due to act of good the warehouse B got on fire. Hence
the principal had filed a case, the held the agent liable because every agent is
supposed to follow the instructions of the principal.
Pannalal janakidas v. Mohanlal, 1950
The prinicpal had instructed the agent to insure the goods but the agent didn't
insure the goods, later when the goods are lost the agent is liable to principal
J. Evans and sons(Portsmouth) LTD v. Anderia MeradioLtd, 1976
English importer in Italy- forwarding agent in Italy

When there is comparison to chose an custom or an instruction, most of

the time instruction wins

If no direction/ custom- use any reasonable course of action.

2. Duty of skill and diligence s.212
a) In conduct of business
b) Use the skill generally possessed by person in such business
c) A is bound for such acts unless for want of skill

d) Compensation for direct consequence of his own neglect/ want of

skill/ misconduct.
e) Not in direct /remote consequences
Bank of Bihar led v. Tata Scob Dealers, 1960 Cal HC

Bank to collect money for customer

Remit it to the customer
Money of 34000 was sent in DD in ordinary post
Post was lost
Bank held negligent as it failed to use proper skill or reasonable care
3. Duty to maintain accounts s.213
Keep accurate accounts
Render them when sought for
If he is instructed to keep a/c separate otherwise can mix with
his own money and then he will be a debtor
Give all the document apps relating to the work
P van appoint anyone to look up the records
Narandas morardas gajiwala v. SPAM papa meal,1967,SC
BB Alu co v. Sundar Lal Taneja and sons, del HC, 1981
D supply potatoes to army
Entrusted it to p who receives the price as well as commission of 2%
D received the whole of accounts
P was entitled to maintain the suit for account.
4. Agents duty to communicate s214
a. In case of difficulty
b. Use reasonable diligence of comm
5. Duty to avoid conflict s. 215

a. If A obtain any authorization from P

i. Without any prior consent
ii. Later acquaints the p with material facts
b. P may repudiate the transaction
c. If material circumstances
d. Dishonestly concealed or disadvantageous to p.
No conflict of interest b/t agents of or his own.

6.

Duty not to make secret profit. S.216

a.

If A w/o knowledge of P

b.

In business of agency

c.

On his account instead of ps

d.

P can claim benefits resulted out of such a transaction.

A and P= fiduciary relation- so no secrets.

Reading v. Attorney general, 1951, CA
Bentley v. Craven, 1853 an principal wants to buy shares and appointed an agent hence the
agent sold his own shares and got profit from both the principal and the share that were sold.

Any other benefits/ interest out of the bribe or secret commission- to be returned

No commission amount given

Termination of agent itself: bribe

7. Duty to remit sums- sec 218
a. After all deductions- pay full amount to p
b. It applies even to illegal/ void contracts
c. Illegality/ void- no justification to withhold payment
d. It doesn't apply: if agency itself is void/ illegal.

Right of an Agent
1. Right to remuneration-sec 219
a. Only upon completion of the work
b. No special contracts
c. Retain the money for partial sale of goods
Continental and eastern agencies v. Coal India Ltd,2003, delHC

Contract- as commission on installation of machinery

Purchaser failed to keep the cite ready

Held: he is entitled to commission he has done his task

Transaction in agency must be direct result of the service of A

Green v. Bartlett, 1863

Luxor ltd v. Cooper, 1941, CA

C is the agent of L remuneration only on sale

B purchaser to buy L cinema subject to contract

L(principal) refused

Held: C is not entitled to remuneration on the ground that in the absence of express terms A
takes the risk of P not willing to conclude a bargain with his nominee

Agent is not entitled to remuneration for business misconduct s.220

Two effect of this section:
1. Forfeits right to receive commission
2. Ps right to recover appropriate compensation
P is entitled to a honest A and honest one only get commission
Andrews v. Ramsay and co,1903, KB
A is allowed to take dou ,e commissions if the customs allow .
Right of retainer s.217

Retain the ps money

Till remuneration/ out of pocket money is remuburesed fully

Business means the same businesswom so no retainer right if A retains for a previous
business

Right to lien s.221

As lien- goods paper and other moveable and immovable property
Commission , disbursement or any service
Excised only possession was acquired in normal business and not for special purpose.
Ram prasad v. State of MP, 1971, SC
Pestonji Bhivaji v. Ravji Javerchand 1933, Sind, HC
Condition for lien u/s.221
1. A must have the lawful possession of goods
2. No inconsistency in right to lien as to retention of such property
3. Property belongs to P
4. Received by A while exercising his ordinary duties as A
5. A holding property for p
Re Bombay saw mills Ltd, 1889

Secretaries and treasure of a Ltd. Co. Lien over the goods, paper and other property
moveable and immovable of the co

For the loan made behalf of co

Held: loans here upon these properties are not specifically made upon them , so lien over the
same

Implies only in particular lien is intended in this sec.

Lien right is lost1. Loss of possession of property

Ex: goods lost in transit, on special purpose
No loss: goods were lost due to fraud on agent / insolvency of P, etc
Right to indemnity s.222 to 223
An acts as representatives, so to be reimbursed for all the activities done for him
With the scope of authorities/ ratified act
Hitchens Harrison, wools tan
S. 223- a to be indemnified against the consequence of acts done in good faith

Indemnification if he was unlawful activities in good faith

No indemnification possible for unlawful activities known to the A like importing

adulterated mustard oil, etc

S. 224- non liability for agents criminal activitie

Right to compensation

Effect of Agency on 3rd parties (S. 226)

Any authorised work of A is bingeing upon the P as if has himself entered into the obligation
if the p is known

P can also sue or make the 3rd party liable

Authority means the sum total of the acts that the Principle and agent have agreed

S.227- A exceeds authority- separable- bound

S. 228 a exceeds authority non separable not bound

Notice/ information on to given to A = notice to p in the business agency

S.229- information = material

Rajabhadur v. Tricumdas Mills coLtd,1911

S.238- misrepresentation and fraud
Misrepresentation/ fraud by A = By P himself

 Proviso should be not affect the authority

Means: with his knowledge or allows such statements to be made by the A and never corrects
P gives compensation even if he was party/ not.
Kumar mandavkar v. Maharashtra state board of higher secondary education, 1988,BOM
The principal had asked the clerk to register the money but he as absconded with it. The court held
that the school is liable because the clerk is the agent of the school.

P is liable for tort of A done in pursuance of Agency

Lloyd v. Grace smith and co, 1912 , AC

Types of principal:
Unnamed agency- matter of agency is revealed but the principal is not revealed
Undisclosed- no one know is the agency and the agent.
Disclosed- knowing the principal.
Undisclosed Principal and liabilities: s.231

If 3rd party doesn't know/ no reason to believe about agency

o

P can require the performance of contract

3rd party has all rights against the A to the principal

If before completion- P is revealed

o

3rd party can refuse the contract

Shown that if the P, he would not contract

If its A of P, he will not contract

S.232

If P is undisclosed

P can seek performance

Subject to right of 3rd party from the contract of A and 3rd party

S.232 is supplementary to S.231

Montagu v. Forwood, 1893, QB

Agents personal liability s.230

Absence of any contract to contrary

A cannot enforce any contract entered into him for P/ personally bound

Personal Liability is only in some cases likeo

Foreign P

Undisclosed P

P cannot be sued

s.233- Election right of 3rd party

Under the law the agent can sue either the principal or the agent or even both.
S.234 (limitation)
If the 3rd parties has mention which party he would sue, then he can sue only that party and not the
other party
S.235
Pretended agents-if you pretend, you pay
S.236
Parented agents can't be claimed for performance.
Termination of agency : S.201 to 210
1. P revokes authority
2. A denounces agency
3. Completion of business agency
4. Death of P/A
5. Unsoundness of P/A
6. P becomes insolvent
7. By mutual consent
8. Completion by expiry Of time agreed
9. Destruction of subject matter
10. Agency becomes illegal/ unlawful
11. Dissolution of partnership firm
Revocation of agency s.203-207

S.203: subject to s.202, agency can be revoked anytime

Turner v. Goldsmith, 1891
An agent was appointed for canvassing shirts for five years. The agent revoked it in the
second years. The a

S.204 : revocation is prospective only

S.205 : compensation for all the acts done/ to be done- agency was a period

S.206 : reasonable notification necessary for revocation/ renunciation

S.207: it can. Be implied/explicit

S.202- Irrevocable agency

S.208
Effect of termination
1.

A/P knowledge

2.

3rd party knowledge

s.209

Agency terminated

Due to insanity/ death of P

Agent takes up full responsibility

Protection of interest

S.210: if agency is terminated- termination of sub agent

Indian partnership Act, 1932
Definitions: ( Act of a firm) 2(a)
any act/ omission by all the partners, or by any partner or agent of the firm which gives rise to a right
enforceable by/against the firm
Business s.2(b)
Business includes every trade, occupation and profession
S.4- partnership
Relationship between persons who have agreed to share profit of a business carried on by all, or by any of them
acting for all
Essential of a partnership

2.

1.

Agreement

2.

Business

3.

Share profit

4.

Mutual agency
a.

Creates and defines the firm and relation between the partner

b.

Person needs to enter into agreement

c.

Neither HUF/ Firm can join in the agreement

Business
a.

Partnership exist only in business alone

Minck v. Roshan Lal Shorey, 1931, Lah HC

Two ppl joining together to produce a movie are called partners
Keith spicer Ltd v. Mansell, 1970, CA( business needs to be in existence)
3.

4.

Sharing of profits
a.

Sharing of loss and profit

b.

Primary evidence that a partnership exists

c.

Ex: writer and royalty out of profits: no

Mutual agency
a.

S.4- by all or any of them acting for all

b.

Partners have implied authority of binding the decision of each other by usual course of
business

Cox v. Hickman, 1860

No there is no partnership because

o

There is profit sharing

Even so, there is no agreement to act as agents for each other.

Ipso facto by it self

Hindu undivided family and partnership S.5 relation of partnership arises from contract and not status, member of HUF Burmese Buddhist Hand W
carrying on business are not partner
CIT v. Nandlal Gandalal, 1960, Agarwal and co v. CIT, 1970, SC HUF is neither any partnership nor can
they join any partnership.
Partnership

HUI

Interest is acquired by contract

Interest is acquired by family business status

Mutual agent

Co-parcener are not agent

Personal as well as joint

Kartha has sole authority

Death dissolves

Only joint liability

Can ask for profit and accounts as a matter of

Death- does not dissolve

right

Cannot ask for profits and accounts as a matter

of right

Partnership

Registered companies

Collection of partner-no separate existence

Legal person with separate existence

Partner =co-owner

Shareholder are not co-owner

Partner unlimited liability

Shareholder have limited liability on share

No right to transfer share w/o consent of other

/guarantee

Share holder can transfer without consent

S.6- Mode of determining existence of partnership

Badeley v. Consolidated bank,1888- followed the cox v. Hickman, 1860

Check the real relation of parties

No partnership:
1.

Joint owner of property sharing gross profits/ return Jan

Govind Nair v. Manga 1948

2.

Lender of Money receiving profits

3.

Servant/agent receiving profits

4.

Widow/ child of deceased partner

5.

Seller of goodwill

S.7 partnership at will

No duration is fixed/ time for termination fixed

done in sweet will of the partners) Will of the partner

There should not be any expenses/ implied clause to indicate the opposite

Deoki Prasad v. Anar dai poddar, 1999,Pat HC

Clause in agreement not it determine even the death/retirement of parties and mutual consent necessary for
dissolution
Sec-8 Particular partnership
-

When a partnership is done for a particular adventure( business)

Karmali Abdualla v. Vora karimji, 1915 ( Bombay and Hong Kong)

2 Indian and a Hong Kong had come into a partnership for trading brown sugar, it was distributed in
the Bombay port but once it had failed and there was huge loss, Indian said that we need to split the
loss because. We're in a partnership but the Hong Kong is denied. The court held that it was a same
adventure hence both has to split the loss.

Types of partners
1.

Active partner

2.

Dormant/ sleeping

3.

Nominal

4.

Minor

5.

Holding out / estoppel

6.

Salaried Partner

Righst and duties RING PAD

Partnership property s.14

Whatever property is bought for the working of the firm, hence it is the property of the firms

Miles v. Clarke, 1953, WLR , a professional photographer who leased a studio and equipment were the
the property of the leaser . Goods were bought in for the betterment of the studio, a question arises
whose property was these goods. the court held that these goods were the firms property not the
partners

Philip things exp,1849- goods were bought using the firms money form his own use, the court he,d
that it's the firms property

Shashiv vs Ashwin sc,2002

Relation of partners to 3rd party

N.A. If any statutory provision to contrary exist

Partners if dead, no liability unless by holding out

Partnership debt applies

Impiled authority s.18&s.19

Sec19. usual course of business
Implied authority

Trading business- buying and selling of goods

o

Borrow money

Make/ endorsement

Non- trading profession like lawyers

Higgins vs beauchamp
B and m are two partner who has a business of cinematographic theatre professional. B is the sleeping
partner and m was managing or active partner, m had borrowed money from Higgins. The court held
that a the act one partner wouldn't make the whole firm liable. According to sec 19 a non trading
business as individual partner can't ask money only a firm can.

Tomlimson vs broadsmith
A trading business partner had bought goods on credit, but fails to pay and the creditor had filed a suit
against the partner, the partner fails the suit and asked to pay for the damages. The partner asks money
from the firm the firm says that weren't liable, but the court held that since it is a trading business the
firm is liable.
S19(2)-Provison doesn't apply to entertainment tax matter
Sec26
Wrongful act

Usual course of business s

Impliend authority

the partner is liable so is the firm

Hamlyn vs Houston
Two firms a and b and they were raivals one partner partner from firm a bribed a clerk from firm b for
clients and purchase price. using this information firm a got firm a got a profit court held that according to
s.26 that wrongful act is done on an usual course of the business hence firm a is liable to firm b
Sec.27

Apparent / ostensible authority

Firm misapplies

Firm liable to 3rd party

Sec27(2)

Firm receives m/p partnership misapplies firm liable to 3rd

s.28- holding out (concept of estoppel)

- allowing his name
- knowing acts partner
- normal partner (3rd ) faithfully belivied
- any person representing in anyway as partner will be liable to 3rd party believed it and gave credit
Eg: giving name in name of firm, title or signboard firm
Colonel AR porter v.W Incell, 1905
A went to B to start a cattle farm. B said he would give credit to a to run the cattle farm, b was interested in
transaction and therefore helped A a lot, later when there was a liability, there is a question on who has to pay,
the court held that since during the transaction the creditor was believed to be as a partner. Hence he is a partner
of holiding out. Therefore he is liable

He should be knowing allowing his name to be used in the firm so as to hold him as partner by
holding out.

Tower cabinetco. Ingram , 1949, Kb

Notice of retirement

Retired partner need to give public notice otherwise they are bound by holding out

3rd party has right to elect and sue either old/new

II) death is itself a notice, hence no need to give notice for the same and hence legal rep are not held liable

Notice requirement NA: insolvent and sleeping partners

S.29 transferee of partners interest

Two rights are given

o

Right to share the profits of the partners as the firm gives him no right to seek accounts

On dissolution transferring partner ceasing to be member he can seek for the assets of that
partner

S.30
Share profit and firms property
No personal liability only joint liability on property/ profits
Right to access, inspect and copy A/c
6 months after attaining majority/ knowledge of partnership, whichever later, public notice as to his
willingness/ not. If agreed for same liabilities wil
He can seek for a/c or profits only when he wants to break the partnership, his/ her profits calculates as
per s.48
CIT v. Dwarkadas khetan and co, 1961, SC
Within 6 months of option, if any suit is instituted, minor will not be personally liable
If the minor accepts to be partner, then his liability retrospectively from date of his admission to
benefit of firm
English position: opposite
Goode v. Harrison, 1821
S.31- Incoming partner

Retrospective- only if agreed and btw partners alone and not the creditors unless he opts for the new
firm

2 condition:
o

New partnership assumes liability

Creditor informed of new firm

Dissolution by notice- s.43

In case of partnership @will no duration, dissolved at any time giving notice in writing.
Writing and signed by the partner giving it
Communicated to all the other
Dissolution by court- s. 44

1.

Insanity

2.

Permanent physical/ mental illness leading to incapacity to perform

3.

Misconduct of any partner apart from the one suing- it includes those act eve not related to the business

4.

Persistent breach of agreements

5.

Transfer of his interest in the firm

6.

Perpetual losses

7.

Just and equitable

Consequence of dissolution s.45

After dissolution, for the debts
Liabilities continue to 3rd party
Unless a public notice is given any partner/ firm
Exception: death, insolvency, sleeping partner
s.46

Realisation of the assets and pay off creditors, surplus amount to be shared equally.

Partners lien : right to seek for realisation on surplus of assets and not on any particular item of
partnership.

Shreedhar kamerkar v. Yeshawant kamerkar, 2009, SC

The liabilities of the partners continue even after dissolution for unfinished business unless any
one declared insolvent and not represented as partner even after the fact of insolvency(s.47)

Bourne v. Bourne, 1906

Two partner, one of them dies. As per law the firm stands dissolved. Before the death of the partner he took a
loan keep ing the partnership deed as the security. The court held that dissolution is not over yet hence the firm
is liable to the loan

S. 48: mode of settlement of accounts- if no contract:

o

Loss will be paid- a) shares of profit b)capital invested c) individually, if necessary

Assets of ten firm, a) joint debts of 3rd party b) advances apart from capital c)each
partners entitlement d) any residue, divided as share of profits

Registration and effects

S. 58- registration can be effected at any time by sending posts/ delivery to the registration of area where a
business happens
Form and fees with details like
a)

Firms names

b) Principal place of business and other places

c)

Date of each partner joining

d) Name and full permanent address of partners

e)

Duration of firm

f)

Signed and verification by all partner

S. 59
If registration is satisfied, recorded the entry of some
JC Gupta v. Wazir Chand Vir bhan, 1967, Pub HC in
4 partner trade name Chawla cloth house
4+3 partner
S.69 - non registration of firm
No suit can be filed by a partner for enforcing a right in the deed against the firm and other partner
No firm can be filed a suit aga its then 3rd party for enforcing right in the deed
1 and 2 applicable even to set off claim/ other proceeding from contracts
Not applicable to the dissolution/ accounts/ realise the property
Not applicable to official receivers/ assigner in insolvency acts 1909 and 1920
Not applicable to firm not governed in this act
Set off claims < 100 under previous insolvency acts of 1909- and 1920
Ananda Rao vs raja Rao , 1976, AP HC
One of many partner had passed away. The son of the partner wanted to continue in the firm. The change in the
cosntitution of the firm was not informed to the registrar of partner.the partner transferred the interest of the des
eased partner to a 3rd party. Express provision in the agreement that any partner transferring his interest must be
transferred within the partner son filed a wit. The court did not entertain the suit because the firm didn't register
the firms with the ROP

Firm Ashok traders vs Gurumukdas and other 2004

If deed had arbitration clause, would it be recognised? Court held that any proceedings under arbitration and
conciliation Act, 1996 sec.9 is not a suit , so much as clause can be recognised
Ahamad Khan v. Turup Muhammed 1953, mys hc
Partner bought a taxi by pooling the resources. After 1 years business not profitable, so taxi was sold. After
selling one party did it give the scale proceeds to the other. So the aggrieved party filed a suit under partnership
Act, 1932.
So court held even though the firm is not registered, it is dissolved on scale of taxi so he can claim his property.
Partner+body corporate =L.L.P
Concept of both partnership and corporate company

Separate legal entity

Mutual rights and duties are governed by the LLP deed

Liability: Firm- extend of assets, partners: agreed limit, misconduct: no other partner liable, defraud
creditor: unlimited liabilities of the firm.

Mini.2 1 to be Indian resident( a person residing in Indian for more that 182 days) , mini.2 designed
partner similar to the directors

Prepare accounts- audit and submit it to ROP

Inspector to be appointed to inspect the affairs to LLP by CG

Firms, private co. Unlisted co. Can covert into LLP

Arrangement/ compromise

Winding up- voluntary/ by tribunal

N.A. PA, 1932, but CA, 1956

LLP Act, 2008

Definitions
S.2(1)(n) limited liability partnership means a partnership formed and registered under this act
S.2(1)(o) limited liability partnership agreement means any written agreement between the partners of the
limited liability partnership or between the limited liability partnerships
Business includes every trade, profession service and occupation.
Designated partner means any partner designated as such pursuant to s.7
Entity means any body corporate and includes, for the purpose of a firm set-up under the IPA, 1932. Foreign
limited to

LLP

Separate body corporate

Firm

No separate existence

Registration and compulsory

No perpetual secession

No minor partner only benefits

Minimum 2 necessary and no designated partners

DP are liable for statutory returns

No personal liability unless for wrongful

LLP

Company

Registration is in the name LLP

Registration is in the name ltd co

LLP agreement incorporated

AOA

Designated partner looks after the statutory complained.

And personally liable
LLP agreement salary
Partners are agents

S.5 partner

Any individuals/ body corporate

Not of unsound mind

Not an discharged insolvent

Adjudication of insolvency not yet

s.7 designated partners (D.P)

Act as D.P/ 2 nominees of body corporate

1 should be IR

They have been designated with the identification number

They are responsible for statutory compliance and personally liable for non compliance

S.10- punishment for not appointing D.P- 10- 25 lakh

s.11 incorporating document

With details like

o

Name of LLP

Business

Address of place of business

Name and address of partners, etc

Statement of incorporation + fees in prcribed form to the registered office in state

If ROP is satisfied then certificate issued within 14 days.

Effect of registration s. 14
1.

Sued and can sue

2.

Acquiring owing, disposing off, developing properties

3.

Common seal

4.

All activities as a lawful entity would carry on

s.23 LLP agreement decided right and duties

S. 24 cession of partner

As per the LLP agreement

Notice of 30 days in writing to partners

NA: death, insolvency, unsoundness

Cessation does not discharge the liabilities unless agreed otherwise

Such person eligible to receive their capital contribution and share of profit after the settlement of
losses

s.26 partner in LLP agent of LLP only not each other

Firm liable for acts of partner within authority only (s. 27)

Wrongful activities/ omission-personal liability but not for other partner

Also partner not personally liable for acts of firm

s. 30 unlimited liability

Incase of fraud of firm/ defrauding of creditor LLP has unlimited liabilities

If partner also does, LLP has same

Liability unless proves its without the knowledge of LLP

S.31 waiver of penalty for whistle blowing by any partner for convincing the LLP u/ the Act
S.32&33. Right to contribute in LLP which is accounted

Maintain accounts books, audit and file statement to ROP s.34

ROP has power to Obtain information form any DP/ other partner failure: fine of rs. 10000-25000 s.
38

Right to share profit and losses transferable no dissolution-also such transferee are not partners ( s.42)

Investigation ss. 43-50, 53&54

Central government appoints 1 or more investigators

Tribunal orders

Court order

Direct application by 1/5th members

Direct at

Location has LLP itself

On CG opinion the business

An inspector can keep the books and papers only for 30 days

He has power to siege the properties and book on belief of destruction of any evidence not for 6
months continuously

Compromise/ arrangements- if 3/4th in value of creditor/ partner agree (s.60)

Dissolution (s.63)

Voluntarily / by tribunal

It decides

Within 6 months member are <2

Unable to pay debts

Acted against national interest and intercity

S.3(34) movable property GCA, 187

S. 3(26) GCA, 1897- immovable property shall include land, benefits arise out of land, and things attched
to the earth, or permanently fastened to anything attached to earth.

Associated power co. v. Ram Ratan, 1970, cal HC

Marshall v. Green

Human organs and blood

Animals

Broadband

Gas, water and electricity

Actionable claim
S.3 TPA, 1882
It means chose in action/ thing in action
No enjoyment but right to recover through suit/ actions like debts not secured, beneficial interest.
Lottery

H Anraj v. Government of TN, 1986

Lottery has the right to participate, right to claim money if you win- it is actionable claim.

Sunrise Associates v. NCT DELHI 2006 , SC

Money shares and debentures

RD Goyal v. Reliance Industries, 2003, SC

Deliverable state
Goods are said to be in deliverable state when they are such the buyer would under the contract be bound to
take delivery of them
S.2(10)- price money consideration for a sale of goods
S.2(11)- property
Means general property in the goods and merely special property
Contract of sale and agreement to sell s.4
Transfers/ agrees to transfer property in the goods

If u/cos property is transferred-it's sale

If transfer is at future time/ subject to condition its agreement to sell

RC Jal v. UOI, 1972, SC

The court said These are the Following are the elements of sale:
1.

Agreement to sell

2.

Passing of title

3.

Delivery of goods

4.

Payment of price and costs and transportation

Features:
1.

2.

An agreement
a.

Two parties necessary to consent to sell and buy

b.

Consent obtained u/ any statute or decree- not sale

Money consideration
a.

If no price but something else - it's barter/ exchange

b.

Alridge v. Johnson, 1857, QB

A person wanted to buy 52 bullocks at 6 pounds each in exchange of 100 quarters of barley
of 2 pounds each. And the rest paid in money. Hence the court held that since there some
exchange of money and goods.
Instalment supply ltd. Vs sto ahamadebad and ors,1974 SC
Contract of sale

Agreement to sell

Actual sale of agreement too sell

Agreeing to sell

Transfer of property is essential- jus in rem

Transfer of property at a future date/ on

Property of buyer even remedy against any

3rd party being actual owner

Failure- sue for price

Any loss/ destruction buyer

condition only- jus in personam

Still property of seller disposes off as he

likes

Failure sue for damages only

Any loss/ destruction kk

Contract of sale

Sale of goods

Contract of work

Involving of labour and skill

Does the article have an identifiable existence

Lee vs Griffins ,1861
An old lady ordered for 2 artificial set of teeth from the dentist. Later passed away before the delivery . The
question asked whether it was the sale or service at the end of the transaction. Since it is an good the court said
it was a contract of sale.
The judgement was been overruled Robinson v graves, 1935, KB
TEST identifiable existences .a contract to paint an portrait. Before the contract was completed the buyer
repudiated the contract. The court held that, since it job was to paint it is a contract of work and the end result
is an good
State of AP v Kone elevator, 2005,sc
No definite rule- Intention of the party
In case of contract of sale transfer of property transfer of ownership

In case of contract of work skill and labour

Finished good / acceded / incidental to work.
Bail hire sale
Formalities of contract of sale
S.5 contract of sale : how made
O and a to sell or buy goods, delivery immediate, simultaneous, by instalments / future ; payment
immediate, simultaneous, by instalments / future
Earnest money- advanced payment/ money
S.6 subject matter of contract
Case-1
A agrees to sell hemp to B to be delivered on arrival per fanny and almira, if it has goods in it. Ship arrives,
but no goods where there on board. Is the seller liable? The seller is not liable because he had contracted only if
there were goods on board
Case-2
A agrees to sell 50 cases of tallow to be delivered on safe arrival of the ship elgin ship arrives safely, but no
goods on board. Is the seller liable ?
S.7 goods Pershing before making of a contract
Applicable for contract of sale of specific good, at the time of making , without the knowledge of seller ,
perished/become so damaged, no Longer existing as the contract describes void
Borrow lane and Ballard ltd v. Phillips Phillips and co led, 1929

Sale for 700 bags of Chinese groundnuts

Unknown to seller 109bags stolen

591 bags were delivered

Buyer refused seller sued for price

Held: thesale was for specific number of goods, if the contract is not there, the contract can be
repudiated

ASFAR and co v. Blundell , 1896 , CA

Cargo of dates sold

Contaminated with sewage water through can be used for making spirits

Held: contract. Void as goods are no longer of the same description

S.8 goods perishing after the agreement to sell but before the sale

Agreement to sell specified goods

W/Ofault of the buyers or seller

Goods are damaged or no longer. The same to the description

Before risk is passed to buyer

The contract can be avoided

Howell v. Coupland 1876. QB

S.9 price
S.11 stipulation as to time

Stipulated as to time of payment

Not essenence of COS

Unless intended oppsote it depends on term of contract

In ordinary COS, time is prima facie essence w.r.t delivery rules for assuring punctual transaction

This right is lost by waiving or accuiecsces

Charles Rickards ltd. V. Oppenheim,, 1950,KB

Time as essences to obtained from:

Language

Nature of goods sold

Conduct of parties

Surrounding circumstances at the time of making the contract

Condition and warranties- S.12

Expressed condition
o

Expressed

Breach; repudiated and sue for damages

Express warranties
o

Expressed one- auxiliary promises

Breach : no repudiated, only damages

Implied conditions/ warranties: those implied by law into the contract

To determine the same intention of parties

For condition a such that if not fulfilled the contract can be repudiated / me collateral contract

s.13 condition into warranty

Waiver by buyer

Elect to treat a breach of condition as warranty

Contract is not severable and were goods were accepted in parts

Excused by law for impossibility of performance or otherwise

Acceptance s.42
Nagardas v. Velmahomed, 1930, BOM HC
Konda rice case
Goods it answering the description
1.

Remedy one :

a.

Reject the goods

b. Refund price
c.
2.

Sue for non delivery and seek the damage

Remedy two:
a.

Waive the condition

b. Accept the goods

c.

Sue for breach of warranty

Condition is converted into warranty only for remedy

Wallis, sons and wells v. Pratt and Haymes, 1911,HL (sanfoin seed case )
A buyer wanted common English sanfoin but got giant sanfoin seeds, therefore there was a breach of condition.
The seller said sellers give no warranty express or implied as to growth, description or any other matter.
Implied condition as to title s-.14
Lawful right to sell

Rowland v. Divall, 1923, KB

Stole an car and sold the car to another person, the original, owner came and took the back the car
stating that it was his, the court held that it was a breach of condition and had received damages for
warranty

Niblett ltd v. Confectioners material co Ltd ,1921,KB

A trade mark infringement, the court asked the firm to take off the brand name and less it in a lesser
price. There was an violation

Implied condition as to description s.15

Sanfoin case
Implied condition as to quality / fitness
Subject to provision of this Act/ any other law
No implied condition/ warranty as to fitness/ quality
Particular purpose of goods supplied u/COS
Principal of caveat venditor - seller beware
Goddard v Hobbes , 1878,HL auction for selling of pigs, later found that the pigs have some diseases.
Because these diseased pigs all the other pigs were also effected. The seller sue the auctioneer. The
court held that the auctioneer didn't mention that they were selling high quality pigs and hence seller is
supposed to beware
1.s.16(1)
1. Buyer made know to seller the particular purpose priest v. Last,19033,KB lady asked for an hot water bag,
the seller gave an hot water that burst. The lady got burnt because of it and sued the seller.
2. Buyer relied upon the sellers skill/ judgement- grant v. Australian knitting mills, 1936,CA
3. Goods must of the description which is in the course of the sellers business to supply
Proviso- s.16(1)

Bankes LJ:
did the buyer specify the trade name is such a way as to indicate that he is satisfied right/ wrong, that it will
answer his purpose, and that he is not relying in the skill or judgement of seller, however great the skill or
judgement may be?
Baldry v. Marshall, 1925, KB
Bugatti cars
Implied condition as to merchantability- s.16(2)
1.

Sale by description

2.

By the seller / manufacturer himself

3.

Merchantability quality

4.

Exception : buyer examined and no defect were revealed

Undefined term

Suitable for one/ more purpose for which they might be bought without abatement of price though not
usable for all the purpose for which it is bought

It needs to be marketable at full value

Manilla hemp case ( Jones v. Just, 1868)

Manila hemp were sold in Singapore by the time reached Singapore, got damaged. Sold at a lesser price, seller
sued was sued for the loss

Reasonable fitness for ordinary purpose for which goods are intended, designed and sold

Frost v. Aylasbary dairy and co. 1905 , KB milk contaminated by typhoid virus.

Morelli v. Fitch and gibbons, 1928, KB- stones original ginger wine. While a person was taking due
care- taking

Implied condition as to trade usage s.16(3)

Annexation of trade / custom usage for conditions as to fitness/. Quality

No reasonable custom

Peter Darlington partner Ltd. V. Gesho co, ltd 1964 -

For selling Carnary seeds with impurities - buyers gets rebate in prince and not reject the goods custom of
trade

S.16(4)- express condition/ warranties can override/ super add to implied condition unless not
reasonable.

Sale by sample- s.17

Bulk shall correspondents to be he sample

Buyer given reasonable opportunity to inspect

Good free from defect rendering them unmerchantable which is not apparent on reasonable
examination

E and S Rubn v. Faire bros and co led, 1949, KB

Godley v. Perry,1960

Implied warranties
1.

Quite possession- s.14(b)

Mason v. Burningham, 1949, KB-women bought a type writer, spent money to repair the type writer, later the
real owner came back and stated it was his type writer. Hence there was an hinderence in the title of the type
writer.
2.

Free from encumberence s.14(c)- charge , security

3.

Exclusion of implied terms s. 62, buyer and seeker can get into a contract on what warranty should
and shouldn't be there.

Crowther v. Shannon motor co, 1975, CA

Car- second hand condition exists only for reasonable period and not subsequent period
Transfer of property
It is important to know when exactly property passes because:
a) Risk follows ownership
3 stages of performance of contract of sale
1.

Transfer of property in goods

2.

Transfer of possession of goods ie delivery

3.

Passing of risk

Passjng of property/ transfer of property

S.18 unascertain goods ascertained

If goods needs to be measured, weighed or severed, then it doesn't pass unless the same is done

Badri prasad v. State of MP , 1971 , sc

Cut teak trees of more that 12 inches gr
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