CONTRACT - II
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Particulars |
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UNIT - I |
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Commencement of the indemnifies liability contract of guarantee - Definition, Nature and scope |
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Rights of finder of goods as Bailee Liability towards true owner. |
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Rights of dispose off the goods |
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UNIT - II |
15 |
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Extent of agents authority |
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UNIT - III |
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Relation of partner to one another |
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UNIT - IV & V |
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40 |
Rights of unpaid seller against goods remedies for breach of contract |
UNIT-I
Contract of Indemnity
Contract of indemnity in general means recompense for any loss or damage. Sec. 124 of the contract Act defines "A contract, by which one party promises to save the other from loss caused to him by the conduct of the promiser himself or by the conduct of any other person, is called a contract of indemnity".
Ex: Contract to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of Rs. 500. This is a contract of indemnity.
The main object of an indemnity contract is to protect the promise against anticipated loss.
Meaning:
Indemnity:-
A promise to save a person harmless from the consequences of an act and guarantee against damage or loss.
Indemnifier:-
The person, who gives the indemnity, is called the indemnifier.
Holder: The person for whose protection the indemnity is given, is called the indemnity- holder.
Ex: A was an auctioneer, B handed-over the cattle and instructed him to sell them in auction. A did the same in good faith. In fact B was not the owner of the cattle. The owner of the cattle sued against B, and the, auctioneer and succeeded in getting damages. A sued against B for indemnity for the loss he had suffered.
OSMAN JAMAL AND SONS LTD V/S GOPAL PURUSHOTTAM:
In this case the plaintiff was acting as the commission agent of the defendant firm, on whose order the plaintiff placed an order for the supply of goods to suppliers. The supplier supplied the goods to the defendant who failed to take the delivery. The supplier sued the plaintiff for the damages for breach of contract. Meanwhile, the plaintiff company became insolvent, and a liquidator was appointed. The liquidator sued the defendant based upon the indemnity.
Ultimately court held that the defendant was liable, and the liquidator to keep the amount in trust for payment of the vendor in respect of whose supplies the company had incurred liability.
Rights of indemnifier:
1. A surety can also be adopted in case of an indemnifier. Because an indemnifier is analogues to that
of a surety.
2. The indemnifier cannot be made liable, if the promise suffers damages on account of circumstances
which do not come within the scope of the indemnity contract.
Liability of indemnifier:
1. He is liable to the indemnity-holder only after the actual loss occurs, and he must suffered actual loss.
2. He is liable to only in future loss or damage.
Rights of indemnity-holder:
1. All damages which he may be compelled to pay in any suit in respect of any matter to which the promise
to indemnity applies.
2. All costs which he may be compelled to pay in any suit if, in brining it, he did not contravene the orders of the promiser, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promiser authorized him to bring or defend the suit.
3. All sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promiser, and was one which it would have been prudent for the promise to make, in the absence of any contract of indemnity or, if the promise authorized him to compromise the suit.
Contract of guarantee
Sec. 126 of the Act defines the term contract of guarantee. A contract of guarantee is a contract to perform the promiser, discharge the liability of third a person in case of his default."
The guarantee may be either oral or written. The person who gives the guarantee is called the 'surety', the person in respect of whose default the guarantee is given is called the 'principal debtor' and the person to whom the guarantee is given is called the creditor.
Essentials of a contract of guarantee:
1. A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default.
2. Principal-debtor: the person in respect of whose default the guarantee is given is called the principal debtor. These can be no contract of guarantee unless and until there is a principal debt.
3. Where the surety guarantees some future debt or transaction, the consideration may be a promise on the part of the creditor to grant the credit.
Ex: A takes Rs. 50,000 on loan from B. C undertakes that he will pay the debt, if A fails to pay. Here B is the creditor, C is the surety.
Bank Guarantee:
The bank issuing or confirming a letter of credit or a bank guarantee is not concerned with the underlying contract between the buyer and seller. The bank guarantee constitutes an independent contract between the banker and the party in whose favour the bank guarantee is issued at the request of the contractor. It imposes an absolute obligation to pay.
A contract of bank guarantee has, to be worked out independently of the disputes arising out of the work agreement between the parties. In law relating to bank guarantees a party seeking injunction from enchasing of bank guarantees by the supplies has to show prime facie case of established fraud and an irretrievable a fraud and an irretrievable injury.
FENNER INDIA LTD V/S PUNJAB AND SINDH BANK:
In the above case the bank guarantee was in respect of making of advance of 50,000,00 to the seller but against this advance only a sum of Rs. 20,000,00 was advanced. When they sought to enforce the bank maximum amount stipulated was not advanced. The Supreme Court held that in view of the expression up to 50,000 amount is advanced and if it is not repaid, on committing branch there of, the appellant is entitled to avoid of and enforce the bank guarantee to the extent of amount advanced.
When can a contract of guarantee be revoked?
A contract of guarantee is based on the principal of good faith. It becomes invalid under the following circumstances.
1. Guarantee obtained by misrepresentation is invalid.
2. Guarantee obtained by concealment is invalid.
1. 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 part of the transaction is invalid.
Ex: A engages B as clerk to collect money for him. B fails to account for some of his receipts, and A in consequences calls upon him to furnish security for his duly accounting. A does not acquaint G with B's pervious conduct. B afterwards makes default. The guarantee is invalid.
1. A section 124 and 125 speaks about contract of indemnity.
Sections 126 to 147 of the contract Act speaks about contract of guarantee.
2. In a contract of indemnity, there are only two parties.
In a contract of guarantee, there are three parties.
3. A contract of indemnity is in the nature of an original and obligation.
A contract of guarantee, the obligation arises only the default of the principal debtor.
4. In an indemnity, there is only a risk of loss, which is sought to be indemnified.
In a guarantee, the debt is guaranteed as to payment.
5. The indemnifier does not undertake to be answerable for the debt of obligation of another.
The guarantor gives an undertaking to be answerable for the debtor or obligation of another.
6. The person giving indemnity has some interest in the transaction apart from the indemnity.
The guarantor is totally unconnected with the contract of guarantee, except through the medium of his guarantee.
7. Indemnifier's liability is primary.
But surety's liability is secondary.
8. The main object of contract of indemnity is it provides security.
But in case of contract of guarantee it provides only surety.
Sec.128 of the contract Act provides: 'The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract'.
Ex: A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is dishonored by C. A is liable, not only for the amount of the bill but also for any interest and changes which may have become due on it.
Where the original contract is void, is the surety liable? Yes.
Sec. 11 of the Indian Contract Act lays down that the parties to a contract should be competent, but the minors and persons of unsound mind, are not competent to contract.
KASHIBA V/S SRIPAT NARSHIV:
In this case kashiba was the plaintiff-creditor. Lakshmiammal was the principal debtor and minor. Sripat Narshiv, the father of lakshmiammal was the surety. Lakshmiammal took loan of Rs. 1,000. Sripat narshiv executed, "should she fails to pay. I will pay the above mentioned amount personally without pleading her excuse and take back this bond. It is not so paid, you should get it paid off from my come". Later, when the plaintiff sued for the recovery of debt. Spripat Narshav argued that the contract of guarantee was void, because of minority of Lakshmiammal. But the court held that the surety was liable to pay, irrespective of principal debtor.
Continuing guarantee
Sec. 129 defines the term continuing guarantee as "A guarantee which extends to a series of transactions is called a continuing guarantee."
Ex: A, in consideration that B will employ C in collecting the rents of B's Zamindari, promises B to be responsible, to the amount of Rs. 10,000, for the due collection and payment by C of those rents. This is a continuing guarantee.
Essential Ingredients of a continuing guarantee:
1. It extends to a series of transaction some of which are unknown and indefinite.
2. the effect of the word is to extend a guarantee beyond the sum advanced to sums subsequently advanced
so long as the guarantee is continued.
3. It fragmentary and divisible.
4. It is revocable.
Instances of continuing guarantee:
LAURI V/S SCHOLEFIEKLD
The surety executed 'In consideration of the union bank agreeing to advance and advancing to R and Co. any sums or sums of money they may require during the next 18 months not exceeding in whole 10,000. We guarantee the payment of any at the expiration of the said period of 18 months and undertake to pay the same in event of R and Co. making default it was a continuing guarantee.
Instances of not continuing guarantee
1. A guarantee, which relates to a single transaction is not a continuing guarantee.
2. A surety gives guarantee for a sum of Rs. 10,000 to be repaid to the creditor in is monthly installments.
It is not a continuing guarantee.
Revocation of continuing guarantee
A continuing guarantee may be revoked in the following circumstances:
1. Notice of surety to the creditor:
A continuing guarantee may at any time be revoked by the surety as to future transactions, by notice to the creditor.
2. By surety's death:
The death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions.
Following are the modes through which liabilities of a surety may be discharged.
1. By notice of revocation:
Sec.130 says that 'A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to creditor.
Ex: A, in consideration of B's discounting at A's request, bill of exchange for C, guarantee to B for 12 months, the payment of all such bills to the extent of 5,000 rupees. B discounting bills for C to extent of 2000 rupees. Afterwards, at the end of 3 months, A revokes the guarantee. This revocation discharges A from all liability to B for any subsequent discount. A is liable to B for the 2,000 rupees on default of C.
2. by death of surety:
Sec 131 provides that the death of the surety operates, in the absence of any contract to the contrary, as revocation of continuing guarantee, so far as regards future transactions
3. By variance in terms of contract:
Sec. 133 provides that any variance made without the surety's consent in the terms of the contracts between the principal debtor and creditor discharges the surety as to transactions subsequent to the variance.
Ex: A becomes surety for c for B's conduct as a manager in C's bank. Afterwards B and C contract without A's consent that B's salary shall be revised and he shall become liable for ¼ of the losses on overdrafts. B allows a customer to overdraw, and the variance made without A's consent, and is not liable to make good this loss.
Exceptions
1. Consent of surety to variance:
If the surety gives his consent to any subsequent variations made to the contract of guarantee, he shall not be discharged from his liability.
WARD V/S NATIONAL BANK OF NEW ZELALAND:
And
M.S ANIRUDHAN V/S THOMCO'S BANK
These cases are regarding the alteration in the surety bond in the custody of the principal debtor. The defendant stood guarantee for an overdraft by bank to the principal debtor for a sum of rupees.20,000. A bank guarantee form was given by the Bank and principal debtor wrote on it for a guarantee of rupees 25,000. The bank refused to accept the guarantee for a sum exceeding Rs. 20,000. There upon, the principal debtor made an alteration and reduced the amount to Rs. 20,000 and gave it to the bank which then accepted it,. The bank sued the surety as principal debtor, did not pay the amount. The surety contended that on the basis of alteration, he has been discharged from liability.
Finally the court held that he was not discharged from his liability, because the law now accepts any substantial alterations which are to the benefit of the surety do not discharge the surety from liability.
2. By release or discharge of principal debtor:
Sec. 134 provides that the surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by an act or omission of the creditor, the legal consequences of which is the discharge of the principal debtor.
Ex: A contract with B for a fixed price to build a house for B within a stipulated time, B supplying the necessary timber. C guarantees A's performance of the contract. B omits to supply the timber. C is discharged from his surety ship.
Essential ingredients of surety are discharged from the liability:
1. By any contract between the creditor and the principal debtor by which the principal debtor is released.
2. By any act or omission of the creditor, the legal consequences of which is the discharge of the principal
debtor.
1. Surety not discharged when agreement made with third person to give time to principal debtor:
A surety may also be discharged from his liability in the following ways,
1. If creditor and principal debtor contract for compensation
2. Creditor Promises to give time to the principal debtor.
3. Contract not give his assent to any of the above three modes, he is discharged from his liability.
Promise to extend time
Sec. 135 of the Act provides a contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract.
Promise not to sue
Sec. 137 of the Act provides mere forbearance on the part of the creditor to sue the principal debtor, or to enforce any other remedy against him does not, in the absence of any provision in the guarantee to the contrary, discharge the surety.
Ex: B owes to C a debt guaranteed by A. The debt becomes payable C does not sue b for a year after the debt has become payable. This does not discharge surety A within meaning of Sec. 137.
2. Discharge of surety by creditor's act or omission impairing surety's eventual remedy:
Sec. 139 of the Act provides that if the creditor does any act or omission which is inconsistent to any act which his duty requires him to do, and the eventual remedy of the surety himself against Principal debtor is thereby impaired, the surety is discharged.
Ex: A puts M as apprentice to B, and gives a guarantee to B for M's fidelity. B promises on his part that he will, at least once a month, see M make up the cash. B omits to see this done as promised, and M embezzles. A is not liable to B on his guarantee.
The contract Act provides the following rights of sureties,
1. Right of subrogation:
Sec 140 of the Act says that where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety upon payment or performance of all that he is liable for, is vested with all the rights which the creditor has against the principal debtor.
Where a surety pays the debt, pertaining to contract of guarantee to the creditor, the surety steps into the shoes of that creditor. This means the surety becomes creditor. He can exercise all rights that the creditor shall have against the debtor. This is the principle of subrogation.
2. Right to Indemnity:
Sec. 145 of the Act says that in every contract of guarantee there is an implied promise by the principal debtor to indemnity the surety; and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee, but no sums which he has paid wrongfully.
It is the duty on the part of the surety to settle the debt on the best terms he can. In doing so, if he suffers loss, damages, the principal debtor is bound to indemnity.
Ex: A guarantees to C, to the extent of 2,000 rupees, payments for rice to be supplied by C to B. C supplies to B rice to a less amount than 2,000 rupees, but obtains from A payment of the sum of 2,000 rupees in respect of the rice supplied. A cannot recover from B more than the price of the rice actually supplied.
Sec. 146 of the Act provides that where two or more persons are co-sureties for the same debt or duly, either jointly or severally and whether under the same or different contracts, and whether with or without the knowledge of each other, the co-sureties, in the absence of any contract to the contrary, are liable, as between themselves, to pay each as equal share of the whole debt or of that part of it which remains unpaid by the principal debtor.
Ex: A, B and C are sureties to D for the sum of 3,000 rupees lent to E. E makes default in payment. A, B and C are liable, as between themselves to pay 1,000 rupees each. Similarly, P, Q and R are the sureties to S for the sum of Rs. 6,000 lent to T. T makes default in payment. According to Sec. 146 P, Q and R liable to pay Rs. 2000 each.
Where there are co-sureties a release by the creditor of one of them does not discharge the other; neither does it free the surety so released from his responsibility to the other sureties.
3. Surety's rights to benefit of creditor's securities:
A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of surety ship is entered into, whether the surety knows of the existence of such security or not; and if the creditor loses, or without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security.
Important points
The surety is entitled to the benefit of every security which the creditor has against the principal debtor.
1. Such security should have been in existence at the time of the contract of surety ship.
2. It matters not if the surety is aware of such security or not.
3. The surety is discharged to the extent of the value of the security when
A) The creditor loses such security.
B) The creditor parts with such security.
4. Right to share reduction:
The surety has a right to share reduction.
5. Right to set-off
If the creditor sues the surety, the surety may have the benefit of the set-off, if, any, which the principal debtor had against the creditor. He is entitled to use the defenses of the debtor against the creditor. Therefore, he can successfully plead a set-off between creditor and debtor.
6. Right to revoke
If the creditor obtains guarantee by means of misrepresentation or by concealment, such guarantee is invalid. The surety is entitled to revoke such guarantee.
UNIT - II
Sec. 148 of the contract Act says that a bailment is the delivering of goods by one person to another for some purpose upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.
Sec. 148 of the Act also says that the definition of Bailor and Bailee in as follows:
The person delivering the goods is called the bailor. The person to whom they are delivered is called Bailee.
Essential ingredients of the bailment
1. Delivery of goods by the bailor
Sec.18 of the Act says that the delivery of goods by one person to another for some purpose. The delivery to the bailee may be made by doing anything which has the effect of putting the goods in the possession of the intended bailee or of any person authorized to hold them on his behalf.
KALIAPERUMAL V/S VISALAKSHMI ACHI
In the above case a lady engaged a goldsmith for melting old jewelry to make some new ornaments. She delivered the old jewelry to the goldsmith but every evening after day's work was over, she used to take the half-made jewelleries from the goldsmith and after putting them into a box with a lock left it in the room of the goldsmith while retaining the key with a lock it in the room of the goldsmith while retuning the key with her. One morning she found the jewelleries had been stolen. She sued the goldsmith was not liable for the loss because each evening there was re-delivery of the jewellweies to the lady and consequently they were stolen. They are not in possession of the goldsmith. The Madras High Court held that delivery is an essential element of bailment and mere leaving the box in the room of goldsmith while she retained the key, did not constitute delivery within the meaning of Sec. 149 of the contract Act.
2. Delivery of possession upon a contract:
Sec. 148 says that the delivery of goods must be upon a contract. If the goodsa are delivered by one person to another person, without a contract is no bailment.
RAM GULAM V/S GOVT. OF U.P.
In this case some stolen ornaments belonging to the plaintiff were recovered by the police. But while the ornaments were in the custody of the police, they were again stolen and this time they could not be recovered. The plaintiff sued the government for the loss of ornaments. But his action was dismissed by the court on the ground that the possession of the goods was not under a contract. Since ornaments were not delivered under a contract, the government never occupied the position of a bailee.
Mode of delivery:
Sec. 149 of the contract Act explains delivery to bailee how made. It lays down that the delivery to the bailee may be made by doing anything which has the effect of putting the goods in the possession of the intended bailee or of any person authorized to hold them on his behalf.
1. Actual delivery:
Where the baiolr hands over the goods to the bailee physically it is called actual delivery.
2.Constructive delivery:
Constructive delivery is a delivery not actually made, but in the law regarded as, made. It means symbolic delivery.
Ex: The goods were under the custody of Railway Department. The Railway was pledged with the bank. The Supreme Court held that though the goods were in the actual possession of the Railway, the Bankers were the real bailees and pawnees, and the bank obtained possession of the goods was constructive delivery.
3. Bailee bound to return goods or to dispose of according to the direction of bailor:
After purpose is accomplished, the bailee is bound to return the goods or otherwise dispose them of according to the direction of the person delivered them. There is no bailment if the bailee is not bound to return the goods delivered to him.
Where there is a delivery of property on a contract for an equivalent in money or some other valuable commodity, and not for the return of the identical subject-matter in its original or an altered form, this is a transfer of property in value a sale and not a bailment.
4. Delivery should have a specific purpose
The main object of the bailment is temporary custody of the property in the bailee's hands. The bailor hands over his goods to the bailee3 for a specific purpose and intention.
Ex: 1. we give cloth to a tailor for stitching our dresses. Tailor is a bailee, and we are bailors. The purpose
is to stitch the dresses.
2. We give gold to goldsmith to get into ornaments. The purpose is to make the ornaments.
5. Delivery is for temporary
The goods handed over to a bailee are intended to keep them in his possession for a limited time and for a specific purpose. After the prescribed time, or after fulfilling the specific purpose, it is the duty of the bailee to return it. The delivery is only temporary.
Sec. 150 of the Act classifies bailors into two categories for the purpose of their duties.
1. A gratuitous bailor
A gratuitous bailor is one who lends his goods without consideration. Since he receives no consideration, his duty is much less than that of a bailor for reward.
2.Bailor for reward:
Sec. 150 of the Act says that if the bailed for hire the bailor is responsible for such damage, whether he was or was not aware of the existence of such faults in the goods bailed.
Main duties of bailor
1. Duty to disclose faults in goods bailed:
Sec. 150 of the Act provides that the bailor is bound to disclose to the bailee faults in the goods bailed of which the bailor is aware, and which materially interfere with the use of them, or expose the bailee to extraordinary risks; and if he does not make such disclosure, he is responsible for damage arising to bailee directly from such faults.
If the goods are bailed for hire, the bailor is responsible for such damage, whether he was or was not aware of the existence of such faults in the goods bailed.
Ex: A hires a carriage of B. The carriage is unsafe, though B is not aware of it, and A is injured. B is responsible to A for the injury.
Essential ingredients
1. When he does not disclose to the bailee faults in the goods bailed.
2. he is liable for damages to the bailee, to the extent such damage caused due to non-disclosure of
such fault.
3. Where goods are bailed for heir then the bailor is held liable for damages arising out of any fault.
1. Bailors responsibility to bailee:
Sec. 164 provides bailor's responsibility to bailee. The bailor is responsible to the bailee for any loss which the bailee may sustain by reason that the bailor was not entitled to make the bailment, or to receive back the goods or to give directions respecting them.
2. Duty to take back the goods:
The goods bailed are given temporary possession to the bailee for a specific purpose of for a specific purpose or for a specified time. After that it is the duty of the bailor to take back them. If by the fault of the bailee, the goods are not returned, delivered, or trndered at the proper time, he is responsible on the bailor for any loss, destruction or determination of the goods from that time.
3. Duty to pay necessary expenses
Sec. 158 says that the duty upon the bailor to pay necessary to the bailee. It provides that there, by the conditions of the bailment, the goods are to be kept or to be carried, or to have work done upon them by the bailee for the bailor, and the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses incurred by him for the prupose of the bailment.
Duties of bailee
1. Duty of reasonable care:
A bailee is required to take reasonable care of the goods bailed to him. For the purpose of the duties of bailee , in this connection divided them into two categories.
1. A bailee for reward
2. A bailee without reward
A bailee for reward is required to take greater care of goods bailed to him than a gratuitous bailee. He will be liable for the loss of goods bailed to him on account of his negligence.
Sec.151 of the Indian contract says that in all cases of bailment the bailee is bound to take as much care of goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as goods bailed.
He will not be responsible for the loss, destruction, or determination of the thing bailed. But if there is a special contract fixing the thing bailed then he may be held liable for the same.
RAMPAL V/S GOURISHANKER
In this case the defendant kept bailor's jewellery in a small iron box and locked it. And then kept it in a room of ground floor. The latch of the room can be removed very Easley. The jewellery was stolen. Bailor claimed the compensation. The bailee argued that he kept jewellery in lock and he was not liable.
Finally the court held that bailee was liable, and he should pay the damages to the bailor. It opined that when the latch of the room was so easily be removed, and the room was so accessible by any one, it was the duty of the bailee to take precautions and care. He failed in his duties.
A bailee could not be responsible in the following circumstances:
1. act of god
2. act or war
3. act of public enemies
4. arrest or restraint of the person or seizer of goods under legal process
5. orders issued by the competent authorities
6. act or omission or negligence of the bailor or his agent
7. Natural deterioration or wastage in bulk or weight due to inherent defect. Quality or vice of the goods.
8. Fire, explosion or any unforeseen risks etc.
2. Duty to return goods bailed:
Sec. 160 of the Act says that it is the duty of the bailee, to return, or deliver according to the bailor's directions the goods bailed without demand, as soon as the time for which they bailed has expired, or the purpose for which they were bailed has been accomplished.
UNION OF INDIA V/S AMAR SINGH
In this case the goods received by Indian Railways as forwarding Railway were lost, the government. Was held liable because the Railway failed to return the goods. Similarly where books were given for binding and were not returned within reasonable time and were lost due to fire, the bailee was held liable for loss, although he was not responsible for fire.
3. Liability of bailee making unauthorized use of goods bailed:
The bailee is clearly under a duty not to use the goods to the bailee for a specific purpose, and the bailee should fulfill that specific purpose, If he goes beyond that purpose, he will be liable.
Sec. 154 of the Act provides that if the bailee makes any use of the goods bailed which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any loss or damage arising to the goods from or during such sue of them.
Ex: A hires a horse in Bombay from B expressly to march to Delhi. A rides with due care, but marches to cuttak instead. The horse accidentally falls and is injured. A is liable to make compensation to B for the injury to the horse.
4. Duty not to mix his own goods with the goods of the bailor:
The bailor entrusts the goods to the bailee for a specific purpose under a contract of bailment. It is the primary duty of the bailee to safeguard them taking reasonable care.
Sec. 156 of the Act provides that effect of mixture, with bailor's consent, of his goods with bailor's:
If the bailee, without 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.
5. Duty of bailee to pay increases or profit to the bailor:
Sec. 163 of the Act says that in the absence of any contact to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any increase or profit which may have accrued from the goods bailed.
Ex: a leaves a cow in the custody of B to be taken care of. The cow has a calf. B is bound to deliver the calf as well as the cow to A.
The bailee has the following rights
1.Right to expenses or remuneration:
Sec.158 of the Act says that repayment by bailor, or necessary expenses:
Where, by the conditions of the bailment, the goods are to be kept or to be carried, or to have work done upon them by the bailee for the bailor and the bailee is to receive no remuneration, the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of the bailment.
2. Right to compensation
Sec. 164 of the Act says that the bailor is responsible to the bailee for any loss which the bailee may sustain by reason that the bailor was not entitle to make the bailment, or to receive bank the goods, or to give directions respecting them.
Right against 'JUS TERTII'
Sec. 166 says that bailee not responsible on re-delivery to bailor without title.
If the bailor has no title to the goods, and the bailee, in good faith, delivers them back to, or according to the directions of the bailor, the bailee is not responsible to the owner in respect of such deliver.
1. Right to sue:
Sec. 180 of the contract Act provides that if a third person wrongfully deprives the bailee of the use or possession of the goods bailed, or does them any injury, the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment had been made, and either the bailor or the bailee may bring suit against a third person for such deprivation or injury.
2. Right of lien:
Lien means if the bailee's charges are not paid he may retain the goods. The right to retain any property until the charges or amount due in respect of the property are paid, is called the right of lien.
Liens are of two kinds
1. General lien:
The right to hold the goods bailed as security for a general balance of account.
2. particular lien:
The right to retain only that particular property in respect of which the charge is due.
Ex: A gives cloth to B, a tailor to make into a coat. B promises A to deliver the cost as soon as it is finished and to give a three months credit for the price. B is not entitled to retain the coat until he is paid.
Rights of bailor
The bailor has the following rights:
1. Right to take back the goods bailed:
It is the rightr of the bailor to take back the goods bailed after the fulfillment of specific purpose of after completion of the time fixed or within a reasonable time.
2. Right to claim damages if bailee makes wrongful use:
Sec. 154 of the Act speaks about if the bailee makes any use of the goods bailed which is not according to the conditions of the bailment; he is liable to make compensation to the bailor for any loss or damage arising to the goods from or during such use of them.
Ex: A hires a horse in Calcutta from B expressly to march to Benaras. A rides with due care, but marches to Cuttak instead. The horse accidentally falls and is injured. A is liable to make compensation to B for the injury to the horse.
3. Right to claim, return of goods or their loss:
It is the duty of the baailee to return, or deliver according to the bailor's directions, the goods bailed, without demand, as soon as for which they were bailed, has expired, or the purpose for which they were bailed has been accomplished. And the bailor has the right to get the compensation from bailed form any loss, destruction or deterioration of the goods.
4. Right to claim damages due to mixing up of the goods:
Sec. 155 of the Act speaks about that the bailor has a right to have his goods separately goods, when his goods are mixed with the goods of the bailee, without bailor's consent .the bailee shall have to bear the expenses for separation of the goods.
5. Right to claim proportionate share in mixed goods:
If the bailor consents to mix his goods with the goods of the bailee, the bailor shall have an interest in proportion to his respective share in this mixture.
6. Right to sue wrong-doer:
Se. 180 of the Act provides that if a third person wrongfully deprives the bailee of the use or possession of the goods bailed, or does them any injury, the bailee is entitled to use such remedies as the owner might have used in the like case if no bailment had been made, and either the bailor or bailee may bring a suit against that third person for such deprivation or injury.
7. Right to receive increase or profit from goods bailed:
The bailor entitled to increase or profit from bailed. During the period of bailment, if any increase or profit is accrued on the goods bailed, it is the duty of the bailee to return such increase or profit along with the principal goods to the bailor.
Ex: A leaves a cow in the custody of B to be taken care of. The cow has a calf. B is bound to deliver the calf as well as the cow to A.
Finder of last goods
Sec. 168 and 169 of the Act says that a finder of goods has all the rights in them against the whole world except the true owner. A finder of goods is a bailee. He shall exercise the rights and duties of a bailee.
Rights of finder of last goods
1. He may sue for specific award offered by the owner of the goods.
2. He may retain the goods against the owner until he receives such compensation
Essential ingredients of the finder of lost goods:
1. A finder of goods cannot sue the owner for compensation for the trouble and expenses he voluntarily
incurred to preserve the goods and to find out the owner.
2. he can retain the goods till the owner pays him compensation.
3. If the owner had announce4d a reward for the finder, he can sue for the reward. Till payment of the
reward amount, he may retain the goods with himself.
NICHIOSONV/S CHAMPMAN
In this case a quality of timber was stocked at a bank of river. It was carried away by the flood water to a long distance. The defendant found the timber, and took pains in getting them to a safe place. He asked the plaintiff for compensation for the services rendered. The owner of the goods refused to pay.
Finally the court held that finder of the timber was not entitled to any compensation for the services compensation by him voluntary, and if he refused to deliver unless paid the compensation, he would be guilty of trover.
Sec. 172 of the contract Act defines the term Pledge, pawner and pawnee. According to this Sec the bailment of goods as security for payment of a debt or performance of a promise is called pledge. The bailor in this case is called the pawner. The bailee is called the pawnee.
Essential ingredients of pledge:
1. Delivery of possession:
It is the first essential elements of pledge are the delivery of the possession of the pledged property. The delivery of possession may either be actual or constructive.
Actual delivery:
It means physical delivery of the goods. It can also be termed as manual delivery or physical delivery or real delivery.
Constructive deliver:
It means a delivery not actually made, but in the law regarded as made. It is a symbolic delivery.
BLUNDELL LEIGH V/S ALLEBOROUGH
In this case, the plaintiff gave her jewellery to a persons M or its valuation also to ascertain how much advance he could give for the same. It was agreed that the said person could keep the jewelery with him as security if he made the advance. The said person in his turn pledged the jewellery with the defendant on 10,000. He then advanced 5,000 to the plaintiff. When these facts came to the knowledge of the plaintiff, she sued the defendant for return of her jewellery. The court held that there was no valid pledge between plaintiff and M.
2. The delivery for securing a debt:
The delivery of possession should be to securer debt or for performance of a promise.
1. Special interest of the pawnee:
The pawnee gets only a special interest in the property pledged. The property pledged remains the property of the pawner subject, of course, to the pledge, and reverts to him after the discharge of the debt.
2. Pledgee to retain pledged property until debt fully discharged:
The pledgee may retain the pledged property until his debt is fully discharged. The pawnee can sue on the debt retaining the pledge goods as collateral security. If the debt is paid he has to return the goods with or without the assistance of the court and appropriate the sale proceeds towards the debt.
1. The law of bailment is explained in Secs. 148 to 171.
But the law of pledge is explained in secs. 172 to 181.
2. There must be delivery of goods upon a contract that they shall, when the purpose is accomplished, be
returned.
But in case of pledge the goods are delivered to pawnee as security for payment of a debt or
performance of a promise.
4. There are several purposes utilized in bailment.
But in pledge there is only one purpose that is to get a loan by pledging the goods.
5. The bailee has no right to sell the goods bailed:
But in case of pledge the pawnee has right to sell the pledged goods if the pledger could not redeem
within the thing.
6. In bailment if a thing is bailed for use of the bailee, the bailee can use that thing for that purpose.
In case of pledge the pawnee has not use the goods at all.
7. The bailee shall have to take reasonable care.
But in case of pledge the pawnee shall not use the goods at all.
8. In case of bailment, the thing is bailed either the use of the bailee for doing something or performing
some act done by the bailee over the thing bailed through his skill or labour.
But in case of pledge, the thing is delivered for being a security for the repayment of the debt.
9. In every bailment, there may not be a pledge
But in case of pledge, the essentials of bailment are present.
1. Pawnee's right of retainer:
Sec. 173 of the Act says that the pawnee may retain the goods pledged, not only for the payment of the debt or the performance of the promise, but for the interest of the debt and all necessary expense incurred by him in respect of the possession or for the preservation of goods pledged.
STATE BANK OF HYDERABAD V/S SUSHEELA AND OTHERS
In this case, a company pledged its property to the state bank of Hyderabad, branch. The actual possession was left with the company, enabling it to do its business. Susheela and others had advanced some amount to the company, and to realize their debt, they sued against the company, and got attachment. Finally the court held that the property in attachment was sold and deposited the court and bank was entitled to satisfaction of its debt and so far as the other creditors were concerned they were entitled to the surplus money only after the satisfaction of the bank dues.
1. Pawnee's right to receive extraodinary expenses incurred:
Sec. 175 of the Act says that the pawnee is entitled to receive from the pawner extraordinary expenses incurred by him for the preservation of the goods pledged.
2. Pawnee's right to sue the pawner to retain the goods pledged or to sell the thing pledged:
Sec. 176 of the contract Act says that the pawnee the following rights.
1. Right to sue
2. right to retain the pawn as a collateral security
3. Right to sell after giving reasonable notice of the sale.
1. Right to sue:
If the pawner makes default in payment of the debt or performance of the promise, in respect of which the goods were pledged, the pawnee ,may being a suit against the pawner upon the debt.
Once the pawnee by virtue of his right under the Act sells the goods the right of the pawner to redeem them is of course extinguished. But the pawnee is bound to apply the proceeds towards satisfaction of the debt and pay the surplus, if any, to the pawnee. In case where the pawnee has failed the suit against the pawnee for realization of the debt, it is to be presumed that he has not sold the pledged articles and is in a position to return the same to the pawnee on the suit claim being satisfied.
2. Right to sell:
Sec 176 of the Act provides that if the pledger makes default in payment of the stipulated time, the pledge may sell the pledger, even though there is no express agreement to that effect or he may sue the pledger for his debt, retaining the pledge as a security.Pawner makes default in payment of the debt or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee, may sell the things pledged on giving the pawner reasonable notice of the sale.
Important points:
1. Right to sue
2. right to retain the goods pledged as a collateral security
3. right to sell the thing pledged.
Rights of pawner
Sec. 177 of the Act gives two rights to the pawner. Those are:
1. Right to redeem:
It means if a time is stipulated for the payment of the debt, or performance of the promise, for which the pledge is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them; but he must, in that case, pay, in addition, any expenses which have arisen from his default.
Essentials of the pawnor's right of redeem:
1. if a time stipulated for the payment of the debt or performance of the promise, the pawner may, redeem his goods pledged within that time by paying his debt or performing the promise made.
2. If the time stipulated for the payment of debt, and the pawnee puts it for sale after giving a reasonable notice to the pawner, the pawner can redeem his goods before the actual date of sale.
UNIT- III
Sec. 182 of the contract Act defines the words Agent and Principal as provided the following: "An agent is a person employed to do any for another or to represent another in dealings with third person: the person for whom such act is done, or who is so represented, is called principal."
Essentials of contract of Agent:
1. Who is employed by another
2. to do any act for another
3. to represent another in dealings with third persons.
And also other important essentials are there, those are:
1. Principal must be competent to contract:
Sec. 183 of the Act provides that any person who is of the age of majority according to the law to which he is subject, and who is of unsound mind, may employ an agent.
2. Any person may become an agent:
Sec. 184 of the contract Act says that as between the principal and third persons any person may become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained.
3. No consideration is necessary to create an agency:
Sec. 185 provides no consideration is necessary to create an agency. It is exception to the general rule enshrined in Sec. 25 that an agreement without consideration is void.
Fiduciary position of agent:
The possession of the agent is the possession of the principal and in vies of that fiduciary relationship agent cannot be permitted to claim his own possession.
Agency may be created in any of the following ways:
1. Actual authority:
Sec. 187 of the Act provides that an authority is said to be express when it is given by words, spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstance of the case.
Ex: A owns a shop in Seampore, living himself in Calcutta, and visiting the shop occasionally. The shop is managed by b and he is in the habit of ordering goods from C in the name of A for knowledge. B has an implied authority from A to order goods from C in the name of A for the purpose of the shop.
2. By rectification:
An act which the principal confirms unauthorized acts of the agent. Even if the agent enters a contract without the authority, consent or knowledge of the principal may, if he likes, rectify it and thereby accepts the benefits and obligations arising out of such a contract.
Sec. 197 of the Act provides rectification may be express or implied in the conduct of the person on whose behalf the acts are done.
Essential conditions for a valid rectification:
1. the agent must have acted on behalf of the principal:
The agent must either professed to act as the agent on behalf of the principal or the principal must be in competition when the agent performs the act.
2. the principal must be in existence and must be competent to contract:
The principal must be in existence and must be competent to contract. The rectification relates back to the time when that contract was originally made by the agent on behalf of the principal.
3. only lawful acts and acts not injuring third parties can be ratified:
Sec. 200 provides that an act done by one person on behalf of another, without such other person's authority, which if done with authority, would have the effect of the subjecting a third person to damages, or of termination of any right or interest of a third person, cannot, by ratification, be made to have such effect.
Ex: A, not being authorized thereto by B, demands, on behalf of B, the delivery of a chattel, the property of B, from C, who is in possession of it. The demand cannot be ratified by B, so as to make C liable for damages for his refusal to deliver.
4. Ratification of unauthorized act performing part of a transaction will imply the ratification of the whole of the transaction:
Sec. 199 of the Act provides that a person ratifying an unauthorized act done on his behalf ratifies the whole of the transaction of which of the transaction:
5. Ratification must be made on full knowledge of the fact:
Sec. 198 provides no valid ratification can be made by a person whose knowledge of the facts is materially defective. Ratification must be founded on a full knowledge of the facts.
Conditions
1. The acts must have been done for and in the name of the supposed principal
2. There must be full knowledge of what those acts were, on such an unqualified adoption that the inference may properly be drawn that the principal intended to take himself the responsibility for such acts, whatever they were.
6. Ratification must be within a reasonable time:
A ratification to be valid must be made within a reasonable time.Ratificatioin must occur within a reasonable time and before the time fixed for the commencement of performance of the contract and where the validity of an act depends on its being done within a limited time, the act cannot be ratified after that time to the prejudice of a third party, for to allow this would be to divest an interest already vested.
7. Manner of ratification:
The principal who accepts the contract made on his behalf by one whom he thereby undertakes to regard as his agent, may signify his acceptance by words or conduct.
3. Ostensible authority:
The principal may, by words or conduct, create an interfere that an authority has been conferred upon an agent even thought no authority were given in fact. In such a case, if the agent contracts within the limits of his apparent authority, although without actual authority the principal will be bound to third parties by his agent's act.
Sec. 237 of the Act provides that when an gent has authority, done acts or incurred obligations fi he has by the words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent's authority.0
Ex: A consigns goods to B for sale and gives him instruction not to sell under a fixed price. C, being ignorant of B's instructions, enters into a contract with B to buy the goods at a price lower than the reserved price. A is bound by the contract.
4. Husband and wife:
In case of a husband and wife living together, a legal presumption arises that wife has the authority of an agency for all domestic matters ordinarily entrusted toa wife, as the reasonable supply of goods and service for the use of the husband, his wife, children and the household, such goods and service being suitable in kind and sufficient in quantity and necessary in fact according to the condition in which they live.
Conditions
1. The husband and wife must be co-habiting together.
2. The husband and wife must be living together in their own domestic establishment.
3. The wife has the authority to pledge her husband's credit only for necessaries.
4. The legal presumption of agency in favour of wife or her authority to pledge his credit cannot be
invoked where the husband gives a reasonable allowance to his wife and also duly pays it.
5. Agents of necessity or by implication of law in cases of necessity:
Agency of necessity arises whenever a duty is imposed upon a person to act on behalf of another apart from contract, and in circumstances of emergency, in order to prevent irreparable injury.
The doctrine of agency has a limited application and, apart from cases where a person carries out the legal or moral duty of another, is probably confined to circumstances in which there is a contractual relationship of some kind, express or implied, in existence already.
SACHS V/S MIKLOS
In the above case the plaintiff stored his furniture in a room of the defendant free of charge. Therefore, he ceased to visit the defendant and when subsequently he changed his address, he did not inform the defendant. Later on, after laps of about three years the defendant wanted to use the said room because his premises had been damaged by bombing. He made efforts to communicate with the plaintiff for this purpose, but could not find his whereabouts. Consequently, he sold the said furniture in an auction.
The court refused to regard him an agent of necessity and held him liable for conversion.
Following are the rights of an agent:
1. Right to receive remuneration:
An agent to receive from his principal the remuneration which was agreed. If remuneration was not agreed, he will be entitled to receive reasonable remuneration, regard being had to the nature of the work performed by him. He will be entitled to receive his remuneration only after he has carried out his duties or fulfilled the conditions provided for in the agreement of agency. But if in violation of an express or implied term of a contract, the principal prevents the agent from earning his lawful commission, the principal will be liable to pay damages to the agent for such breach.
TURNER V/S GOLDSMITH
In this case, the plaintiff was employed by the defendant, a manufacturer of shirts, for a period of five years as his agent and canvasser. It was his duty to obtain orders for and sell the goods either manufactured or sold by the defendant. Before the laps of the period of five year's the factory was burnt by fire and he did not, restart his business. Consequently, the agency of the plaintiff was terminated. He sued the defendant for breach of the contract of his employment as an agent.
Finally the court held that there was an implied term in the contract to allow to plaintiff to earn commission for a period of five years and hence they decided in his favour.
Agent not entitled to remuneration for business misconduct:
Sec. 220 of the act provides that an agent who is guilty of misconduct in the business of agency is not entitled to any remuneration in respect of that part of the business which he has misconduct.
Ex: A employs B to cover 1,000 rupees from C. Through B's misconduct the money is not recovered. B is entitled to no remuneration for his services, and must make good the loss.
There is an implied contract of indemnity between principal and agent and that the principal shall indemnity his agent for all losses and expenses lawfully incurred by him in carrying out the work of agency.
But there is no implied promise to indemnity an agent for the losses ensuing from his own wrong or negligence.
2. Right to indemnity:
Sec. 222 provides that the employer of an agent is bound to indemnity him against the consequences of lawful acts done by such agent in exercise of authority conferred upon him.
Ex: B, broker at Calcutta, by the orders of A a merchant there, contracts with C for the purchase of 10 casks of oil for A. Afterwards A refuses to receive the oil, and C sues informs A, who repudiates the contract although. B defends, but unsuccessfully, and has to pay damages, and costs and incurs expenses. A is liable to B for such damages, costs and expenses.
Sec. 223 says that where an agent is employed to do an act and he performs that act in good faith, the agent will be entitled to be indemnified by the principal against the consequences of that even though they cause an injury to third persons.
Non liability of employer of agent to do a criminal act:
Where one person employs another to do an act which is criminal, the employer is not liable to the agent, either upon an express or an implied promise, to indemnity against the consequences of that act.
Ex: A employs B to beat C and agree to indemnity him against all consequences of the act. B thereupon breast C, and has to pay damages to C for so doing. A is not liable to indemnity B for those damages
3. Right to compensation for injury caused by principal's neglect:-
Sec. 225 lays down that the principal must make compensation to his agent respect of injury caused to such agent by the principal's neglect or want of skill.
Ex: A employs B as a bricklayer in building a house and puts up the scaffolding himself. The scaffolding is unskillfully put, and B is in consequence hurt. A must make compensation to B.
4. Right to retain amount of sums received or principal's account:
An agent is entitled to retain, out of any sums received on account of the principal in the business of agency, all moneys due to himself, in respect of advances made or expenses properly incurred by him in conducting the business of agency. He may also retain price that in the absence of any contract to the contrary, an agent is entitled to retain goods, papers and other property, whether movable or immovable of the principal of the principal received by him, until the amount due to himself for commission, disbursement and services in respect of the same has been paid or accounted for to him.
5. Right of lien on principal's property:
Sec. 221 of the Act entitles the agent to have lien on principal's property.
In the absence of any contract to the contrary, an agent is entitled to retain goods, papers and other property, whether movable or immovable of the principal received by him, until the amount due to himself for commission, disbursement and services in respect of the same has been paid or accounted for to him.
Essential conditions for lien:
1. The agent must be in lawful possession of the goods.
2. There must be any right inconsistent with the lien.
3. The property should belong to the principal.
4. The property should have been received by him in his capacity as an agent.
5. The right of lien is subject to the rights of third parties and equities against the principal.
Loss of lien:
Lien is of the following cases:
1. loss of possession
2. waiver of right of lien by agent
3. Agreement entered into by agent inconsistent with his right of lien.
1. duty to conduct business according to the direction of the principal:
It is the duty of agent to conduct the business of his principal according to the directions given by the principal. If there are no such directions, he is bound to conduct the business according to the custom which prevails in doing business of the same kind and place where the agent conducts such directions of the principal or in its absence according to the prevalent custom, he will be liable for any loss sustained and will also be bound to account for any profit accruing in the business.
Ex: B, a broker in whose business it is not the custom to sell on credit, sells goods of A on credit to C, whose credit at the time was very high. C before payment becomes insolvent B must make good the loss to A.
2. Skill and diligence:
Sec. 212 of the contract Act says that an agent is bound to conduct the business I of the agency with as much skill as is generally possessed by persons engaged in similar business unless the principal has notice of his want of skill. The agent is always bound to act with reasonable diligence, and to use such skill as he possess; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill or misconduct but not in respect of loss or damage which are directly or remotely caused by such neglect, want of skill or misconduct.
Ex: A an agent for the sale of goods, having authority to sell on credit, sell to Bon credit without making the proper and usual enquires as to the solvency of B. B, at the time of such sale, is insolvent. A must make compensation to his principal in respect of any loss thereby sustained.
3. Duty of agent not to allow his personal interest and his duty to conflict with each other:
It is the duty of an agent to ensure that his personal interest does not come in conflict with his agent. Where an agent is employed to sell some goods he cannot himself purchase the same. If he does so he will be liable to account to his principal all the profits he has thus made.
Sec. 215 of the Act provides that id an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction. If the case shows either that any material fact has been dishonestly concealed from him by the agent, or that the dealing of the agent have been disadvantageous to him.
Ex: a directs B to sell A's estate for himself in the name of C. A, on discovering that b has bought the estate for himself, may repudiate the sale, if he can show that B has dishonestly concealed any material fact, or that the sale has been disadvantageous to him.
4. Duty not to make secret gains:
Sec. 261 provides that if an agent, without the knowledge of his principal, deals in the business of the agency on his own account instead of an account of his principal, the principal is entitled to claim from the agent which may have resulted to him from the transaction.
Ex: A, directs B, his agent, to buy a certain horse for him B tells A it cannot be brought, and buys the horse for himself. A may, on discovering that b has brought the horse, compel him to sell it to A at the price he gave for it.
5. Duty to render accounts:
An agent is bound to render proper accounts to his principal on demand. Sec. 213 of the Act provides that if an agent is bound to render proper account to his principal on demand. An agent who enters into any transaction on behalf of his principal will be bound to render proper accounts to the principal. A principal will, therefore, be entitled to enforce his right demand accounts by a suit.
6. Duty to communicate with the principal:
It is the duty of an agent in cases of difficulty, to use all reasonable diligence in communicating with his principal and in seeking to obtain instruction.
7. Duty not to delegate:
Last but nit the least it is the duty of an agent not to delegate his functions to a sub-unless by the ordinarily custom of trade a sub-agent may, or from the nature of the agency, a sub-agent must be employed.
It is abased on Delegatus non potest delegare. It means an agent cannot, except with the express or implied assent of the principal, delegate his authority, and the principal will not be bound by the act or conduct of a sub-agent whose appointment is not thus sanctioned. This maxim especially applies where the personal skill of the agent is entitled, or where there is a trust confidence of discretionary power reposed in the agent.
Sec. 190 of the Act incorporates that it is the ordinary custom of trade to employ a sub-agent, or where the nature of agency requires the employment of a sub-agent in emergency for in emergency an agent has authority to do all such acts for the purpose of protecting his principal from loss as would be done by a person ordinary prudence in his own case under similar circumstances. Once a sub-agent is properly appointed, the principal becomes bound by and responsible for his acts towards third person in the same way as if he were an agent originally appointed by the agent. The sub-agent, is not responsible to the principal for his act except of course in case of fraud or willful wrong. He is responsible to the agent for his act. But the agent is responsible to the principal for the acts of sub-agent.
Ex: A directs B, his solicitor, to sell his estate by auction, and to employ an auctioneer for the purpose. B names C, an auctioneer, to conduct the sale. C is not a sub-agent, but is A's agent for the conduct of the sale.
Five different kinds of agents are there. Those are:
1. Del credere Agent:
He is a mercantile agent who for extra commission takes the responsibility that person with whom he contracts on behalf of the principal will perform their contract.
An agent for the sale of goods sometimes acts under a del credere commissions; that is, for a higher reward than is usually given, he becomes responsible to his principal for the solvency of the buyer.
2. Pakka Adatia:
He is an agent to whom goods are handed over by the principal and then the actual sale of goods becomes the agent's own affairs such an agent is particularly in vague in Bombay markets.
A pakka Adatia is one who undertakes the business of his principal but the transaction or one who undertakes the business of his principal but the transaction or contracts he enters into are his own affairs. the rights and obligations of an agent, vis-à-vis the principal would continue to apply to him with full force.
3. Broker:
A broker is a mercantile agent who is employed by the principal to enter into contracts for sale or purchase on behalf of his principal. He is not given the possession of the property.
A broker can neither enter into contract in his own name or can he receive payment. He cannot also cancel a contract which he has entered into on behalf of his principal.
4. Factor:
A factor is the agent who is entrusted with the possession and control of the goods to be sold by him for his principal.
Factor has possession of the goods, authority to sell them in his own name, and a general discretion as to their sale. He may sell on the usual terms of credit, may receive the price and give a good discharge to the buyer.
5. Auctioneer:
An auctioneer is an agent to sell property at a public auction. He is primarily an agent for the seller, but upon the property being knocked down he becomes also the agent of the buyer.
The seller will be bound if the auctioneer acts within his ostensible authority, even though he disobeys instructions partly given. But where there is a sale by auctioneer cannot reasonably be supposed to have authority to accept a bid at less than the reserve fixed, and cannot bind the seller by doing so.
1. An agent may work for several principles at the same time.
But servant usually serves only one master.
2. A principal has the right to direct what the agent has to do.
But a master has not only that right, but also the right to say how it is to be done.
3. In case of agent, he receives commission on the basis of work done.
But a servant is paid by way of salary or wages.
4. In a contract of agency, there are three parties, there fore the principal, the agent and the third party.
In a contract of employment, there are only two parties there fore the principal and the servant.
5. A principal is liable for his agent's wrong done within the scope of authority.
But in case of employment a master is liable for a wrongful act of his servant if it is committed in
the course of the servant's employment.
6. A principal has the right to direct what the agent has to do.
But a master has not only that right, but also the right to say how it is to be done.
UNIT - IV
PARTNERSHIP ACT 1932
Section 4 of the Indian Partnership Act, 1932, defines partnership in the following words:-
"Partnership' is the relation between persons who have agreed to share profits of a business carried on by all or any one of them acting for all."
Person who have entered into partnership with one another are called individually 'partners' and collectively 'a firm' and the name under, which their business is carried on is called the 'firm name'.
a) A and B buy 100 bales of cotton, which they agree to sell for their joint account A and B are partners
in respect of such cotton.
b) A and B buy 100 bales of cotton, agreeing to share in between them. A and B are not partners.
1) Agreement
2) Business
3) Sharing of Profits
4) Mutual Agency
1. Agreement:
According to Section 4, the first essential element of partnership is agreement. Sec.4 makes is clear that partnership is a relation between persons who have 'agreed' to share profits. There can be no partnership without an agreement.
A partnership agreement is the source of partnership; it also gives expression to other ingredients defining the partnership, specifying the business agreed to be carried on, the persons who will actually carry on the business, the shares in which the profits will be divided and several other considerations which constitute such an organic relationship.
2. Business:
The second essential element of partnership is 'business' because without business there can be no partnership. According to Sec. 2(B), 'Business' includes every trade, occupation and profession. According to Lindley, if the persons are not already partners, share profits and losses of a particular transaction, they may be partners for the said particular transaction.
For example, if two advocates or solicitors, who are not partners, are appointed jointly to plead a case and they agree to divide the profits, they become partners in respect of this particular case.
In Ram Priya Saran V/s. Ghanshyam Das AIR 1981 All. 184,
The plaintiff and the defendant agreed that after the acceptance of their tender, they shall construct the dam in partnership. In order to deposit earnest money the plaintiff gave Rs. 2000 to the defendant. The tender was not accepted. The question for consideration before the court was whether the partnership had come into existence. The Allahabad High Court held that this was a partnership agreement but its terms indicated that the partnership was to start after the acceptance of the tender and work would start in its pursuance. Since tender was not accepted, work did not commence and the partnership did not come into existence between the parties. Hence the plaintiff is entitled to receive the earnest money from the defendant.
3. Sharing of Profits: -
Another essential element of partnership is sharing of profits of a business. If two or more persons agree to carry on a business but their objective or motive is not to share profits, it shall not constitute a partnership.
4. Mutual Agency: -
If two are more persons agree to carry on a business to share profits, it is still possible that the partnership may not come into existence.
The case of Cox V/s Hickman deserves a special mention in this connection. The facts of this case are as follows: -
Two persons carried on business in partnership. Due to financial crisis they obtained loans. Having not been able to repay the debts, they executed a trust deed in favour of creditors. Some of the creditors were made trustees of the business. These included Cox and Wheatcroft. Under the deed the property was assigned to the trustees and they were empowered to enter into contracts and execute instruments to carry on business and to divide the profits among the creditors. This deed was executed for the realization of the debts given by creditors. After the recovery of the debts, the property was to be restored to the above-mentioned two partners.
a) A carries on in his name the business of loading and unloading wagons of a limited company. A appoints B to manage the business. It is agreed between them that B shall get 75 paise share out of the net profits as remuneration and that A shall get a 25 paise but shall not be liable for loss. Are A and B partners. In this illustration, there is agreement between A and B; the agreement is to carry on business and the objective or motive of the agreement to divide profits but the fourth element, i.e., mutual agency is absent. Therefore, A and B are not partners. The fact that A is not liable for losses shows that there is no mutual agency. Since B cannot bind A his acts, there is no partnership between A and B. The relation is sibyl that of principal and agent.
b) Similarly, an author of the book receiving a royalty from publisher is not a partner because there is no mutual agency between them.
Section 6, of the Indian Partnership Act provides:
"In determining where a group of persons is or is not a firm or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties as shown by all relevant facts taken together".
In Khan V/s. Miah, certain persons obtained loan from Bank in joint names to purchase premises for restaurant. They also entered into contract for purchase of equipment and laundry for the restaurant. But their relationship terminated before the opening of the restaurant. The trial Judge held that a business existed between and that there was a partnership. The court of appeal reversed this decision by a majority holding that they had not become partners in a restaurant business by the date when the relationship was terminated.
1. Sharing of Profits or of Gross Returns arising from property by persons holding a joint or common interest; the sharing of profits or of gross returns arising from property by persons holding a joint or common interest in that property does not of itself make such persons partners.
2.Person receiving share of profits out of business; the receipt by a person of a share of the profits of a business or of a payment contingent upon the earnings of profits or varying with the profits earned in business, does not itself make him a partner with the persons carrying on the business.
3. Sharing of profits by a lender of money; the receipt of such share or payment does not of itself make the receiver a partner, with the person carrying on the business.
4. Sharing of profits or receipt thereof by a servant or agent as remuneration; the receipt of share or payment by a servant or agent as remuneration does not of itself make the receiver a partner, with the persons carrying on the business. Sometimes it may not be easy to distinguish between partnership and share of profits received as remuneration.
5.The receipt of share or payment by a widow or child of deceased partner as annuity; the receipt of share or payment by a widow or child of deceased partner as annuity does not of itself make the receiver a partner, with the persons carrying on the business.
6.The receipt of share or payment by sale of goodwill; the receipt of share or payment does not of itself make him a partner with the persons carrying on the business; does not of itself make the receiver a partner, with the persons carrying on the business.
Duties of partners
1) General Duties of Partners;
According to Sec. 9 of the Partnership Act, 1932, Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner or his legal representatives. "Subject to contract between the partners -
(a) If a partner derives any profit for him from any transaction of the firm, or from the use of the property or business connection of the firm name, he shall account for that profit and pay it to the firm;
(b) If a partner carries on any business of the same nature as and competing with that of the firm he shall account for and pay to the firm all profits made by him in that business".
2) Duty to indemnify for loss caused by fraud:
According to Sec.10 of this Act, every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm.
3) Duty relating to the Conduct of business;
According to Sec. 12 (b), "subject to contract between the partners, every partner is bound to attend diligently to his duties in the conduct of the business". According to Sec. 12(c), subject to contract between the partners, any difference arising as to ordinary business may be decided by a majority of the partners and every partner shall have the right to express his opinion before the matter is decided, but no change may be may be made in the nature of the business without the consent of all partners.
4) Duty to indemnify the firm for any loss caused to it by his willful neglect:
According to Sec. 13 (f), subject to a contract between partners, a partner shall indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm.
5) Duty in respect of personal profits earned by partners:
According to Sec. 16 (a) of the Partnership Act, if a partner derives any profit for him from any transaction of the firm, or from the use of the property or business connection of the firm or the firm name, he shall account for that profit and pay it to the firm. But this is subject to contract between the partners.
6) Duty not to compete with the business of the firm:
Sec. 16(b) of the Partnership Act provides, subject to contract between the partners, if a partner carries on any business of the same nature as and competing with that of the firm he shall account for and pay to the firm all profits made by him in that business.
7) Duty in respect of Application of the property of the Firm:
According to Sec. 15, subject to contract between partners, the property of the firm shall be held and used by the partners exclusively for the purposes of the business.
Ex.: X and Y are partners in a trading firm; X borrows Rs. 9,000 from P and executes a pronote in the name of the firm. X spends the money in purchasing a plot of land in his own name for his personal purpose. P can hold Y liable and realize the said money because a partner is an agent of all other partners and can bind them by his acts. But X will have to account for and pay Rs. 9,000 to the firm because according to Sec. 15, the property of the firm shall be held and used by the partners exclusively for the purposes of the business. Besides this, under Sec.16 (a), if a partner derives any profit for him from any transaction of the firm, or from the use of the property or business or business connection of the firm or the firm name, he shall account for that profit and pay it to the firm.
8) Duty to contribute equally to the losses:
Sec. 13(b) provides that the partners shall contribute equally to the losses sustained by the firm.
Rights of partners
1. Right to take part in the conduct of the business:
Every partner has right to take part in the conduct of the business. But this right is subject to contract between the partners. Unless there is a contract to the contrary between the partners the court cannot, through an injunction, prevent or restrain a partner from taking part in the conduct of business.
2. Right to have access to and to inspect and copy books of the firm:
Subject to contract between the partners, every partner has a right to have access to and to inspect and copy; any of the books of the firm. The partners are entitled to share equally in the profits earned. This is subject to contract between the partners.
3. Right to receive interest on the capital subscribed:
Subject to contract between the partners, where a partner is entitled to interest on the capital subscribed by him, such interest shall be payable only out of profits. Further, a partner making for the purpose of the business, any payment or advance beyond the amount of capital he has agreed to subscribe, is entitled to interest thereon at the rate of six per cent per annum. This again is subject to contract between the partners.
4. Right to indemnity in respect of payments made and liabilities incurred:
According to Sec. 13(e), subject to contract between the partners the firm shall indemnify a partner in respect of payments made and liabilities incurred by him:
(a) In the ordinary and proper conduct of the business,
(b) In doing such act, in an emergency, for the purposes of protecting the firm from loss as would be done
by a person of ordinary prudence, in his own case under similar circumstance.
1. Right to receive remuneration:
The general rule is that a partner is not entitled to receive remuneration for taking part in the conduct of the business. But this rule is subject to contract between the partners.
2. Majority Rights:
According to Sec. 12(c), subject to contract between the partners- any difference arising as to ordinary matters connected with the business may be decided by a majority of the partners and every partner shall have the right to express his opinion before the matter is decided, but no change may be made in the nature of the business without the consent of all partners.
Partnership Property:
According to Sec. 14, Partnership property may be of following three types -
1. Property originally brought into the stock of the firm;
The property originally brought into the stock of the firm undoubtedly constitutes partnership property. But this is subject to contract between the partners. Thus property originally brought into the stock of the firm at the commencement of the business is partnership property.
In his judgment Pathak, J. referred to an earlier decided case, namely, Addanki Narayanappa V/s, Bhakara Krishtappa. In this case the Supreme Court had observed that the property brought in by the partners irrespective of its nature or property earned during the course of business becomes the property of the firm and every partner is entitled to receive his share of property and on dissolution he gets his share in the property. But during the existence of the partnership, no partner can use the firm's property as his own property nor can he sell any specific goods in lieu of his interest in the property. His right is only to receive his share in the profits and on dissolution after the fulfillment of obligations as provided in Sec. 48(a) and sub-sections (i) (ii) and (iii) of Sec. 48 (b), to receive his share in the remaining assets of property.
2. Property Acquired by Purchase or otherwise by or for the Firm;
Partnership property also includes the property acquired by purchase or otherwise, by or for the firm, or for the purpose and the course of the business of the firm and includes also the goodwill of the business. Sec. 14 makes it clear the subject to contract between the partners, all property and its rights earned by the use of firm money are deemed to be earned for the benefit of the firm. Where a partner purchases a property without taking the consent of other partners which is required under the deed of partnership, out of the amount withdrawn from account of the firm and the partner in question books after the business and also supervises in filing of Income Tax returns and maintenance of account-books and does not include the property in question in assessment register of firm, it cannot per se be inferred that the property was not purchased for interest and benefit of firm to but it was purchased for benefit of the partners in question.
3. Partner's Property in use of firm by or for the firm;
Under certain circumstances a partner's property which is being used by the firm or for the firm, becomes the property of the firm. It may be noted here that in this connection everything depends on the intention of the parties.
In Mills V/s, Clarke, a person, who carried on the business of photography and the premises of business was on lease, included another person as a partner in his business. The agreement expressly provided that the profits would be divided equally. The court held that lease furniture, goods of the studio, etc., did not become partnership property.
Section 18 of the Indian Partnership Act, 1932, its provides that "subject to the provisions of this Act, a partner is the agent of the firm for the purposes of the firm".
Sec. 25 which provides the following; "Every partner is liable jointly with all other partners and also severally, for all acts of the firm done while he is a partner".
Every partner is the agent of the firm and other partners for the purposes of business of partnership and the acts of every partner bind the firm and other partners.
Implied Authority of Partner As Agent of the Firms:
The authority of the partner to bind the firm is called "implied authority".
The principle of implied authority has been incorporated in Sec. 19 (1) of the Indian Partnership Act, 1932, which provides as follows:
"Subject to the provisions of Sec. 22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. The authority of the partner to bind the firm conferred by this section is called his "implied authority"
Essential conditions for the exercise of Implied Authority to bind the firm:
A partner can bind the firm by the exercise of his implied authority only when following conditions are fulfilled;
1. In the usual way the business of the kind carried on by the firm:
An act done by a partner under his implied authority can bind the firm only when it is in the usual way the business of the kind carried on by the firm. The same principle will apply where a partner showing to act on behalf of the firm draws a cheque in his own name and then endorses it to a third party to pay his separate debt. In such a situation if the third party knew the fact that the partner drew or endorsed the negotiable instrument in his own name and then endorsed it to third party then the third party should inquire further into the matter.
2. Mode of boning act to bind firm:
Sec. 22 of the Partnership Act provides:
"In order to bind a firm, an act or instrument done or executed by a partner or other person on behalf of the firm shall be done or executed in the firm name; or in any other manner expressing or implying an intention to bind the firm".
Restrictions on the Implied Authority of Partners:
The restrictions on the implied authority of partners are of two types -
(1) Statutory Restrictions
(2) Restrictions imposed by partnership deed and those imposed by agreement between partners.
Statutory Restrictions:
Sec. 19 (2) of the Partnership Act, 1932, provides the following:-
In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to -
a) submit a dispute relating to the business of the firm to arbitration,
b) open a banking account on behalf of the firm in his own name,
c) compromise or relinquish any claim or portion of a claim by the firm,
d) withdraw a suit or proceeding filed on behalf of the firm,
e) admit any liability in a suit or proceeding against the firm,
f) acquire immovable property on behalf of the firm,
g) transfer immovable property belonging to the firm,
h) enter into partnership on behalf of the firm,
As pointed out above statutory restriction apply to all irrespective of whether they know them or not. As compared to these restrictions contained in the partnership deed or agreement between parties apply only to those who have knowledge of these restrictions.
According to Sec. 20:
"The partners in a firm may, by contract between the partners extend or restrict the implied authority of any partner. Notwithstanding any such restrictions, any act done by a partner on behalf of the firm which falls within his implied authority finds the firm, unless the person with whom he is dealing knows of the restriction or does not know or believe that partner to be a partner".
Partner's Authority in Emergency: -
During emergency the authority of the partner to bind the firm increases but for this it is necessary to comply with the conditions mentioned in Sec. 21.
Section 21 provides the following:
"A partner has authority in an emergency to do all such acts for the purpose of protecting the firm from loss as would be done by a person of ordinary prudence in his own case, acting under similar circumstances, and such acts bind the firm".
Thus an act has done by a partner during emergency binds the firm when following conditions are satisfied:
a) There must be an emergency.
b) The act must be done for the purpose of protecting the firm from loss.
c) The act must be such as a person of ordinary prudence, would have done in his own case acting
under similar circumstances.
Since partner is an agent of the firm and can bind the firm by his acts, an admission or representation by him concerning the affairs of the firm is evidence against the firm.
According to Sec. 23:
"An admission or representation made by a partner concerning the affairs of the firm is evidence against the firm, if it is made in the ordinary course of business".
Effect of Notice to Acting Partner:
Sec. 24 provides:
"Notice to a partner who habitually acts in the business of the firm of any matter relating to the affairs of the firm operates as notice to the firm, except in the case of a fraud on the firm committed by or with the consent of that partner".
According to Sec.24, notice to a partner can have the effect of notice to the firm, if following conditions are satisfied:-
a) Notice must be given to a partner who habitually acts in the business of the firm.
b) The notice must be actual and not constructive.
c) Fraud must not have been committed by the partner or with his consent.
Liability of the Firm for Wrongful Acts of a Partner: -
Sec. 26 of the Indian Partnership Act 1932, provides that, "Where, by the wrongful act or omission of a partner acting in the ordinary course of the businesses of a firm, or with the authority of his partners, loss or injury is caused to any third party or any penalty is incurred, the firm is liable therefore to the same extent as the partner".
The firm can be held liable for the wrongful acts of a partner to the third party, when the following conditions mentioned in Sec. 26 as noted above are fulfilled:
1) The first essential condition for the liability of the firm is that the partner has acted either in the
ordinary course of the business of the firm, or with the authority of other partners.
2) The partner must be guilty of a wrongful act or omission.
3) Loss or injury is caused to any third party, or any penalty is incurred.
4) The firm will be liable therefore to the same extent as the partner.
Liability of firm for misapplication by partners:
Sec. 27 which deals with the liability of firm for misapplication by partners provides the following:
"Where ---
a) a ) partner acting within his apparent authority receives money or property from a third party and misapplies it,
b) a firm in the course of its business receives money or property from a third party, and the property, is manipulated by any of the partners while it is in the custody of the firm, the firm is liable to make good the loss"
Exceptions to the principle of holding out:
The principle of holding out does not apply or public notice is not required to be given in following cases -
(1) Deceased Partner:
Since death in itself is public notice, after the death of a partner, the principle of holding out does not apply in respect of the property or share of the deceased partner.
(2) Insolvent Partner:
According to Sec. 45(1) provides that the estate of a partner who dies, or who is adjudicated an insolvent, or of a partner who, not having been known to the person dealing with the firm to be a partner retires from the firm, is not liable under this section for acts done after the date on which he ceased to be a partner.
(3) Dormant Partner:
By dormant or sleeping partner we mean a partner who being a partner is not known to the person dealing with the firm.
Minors Admitted to the Benefits of Partnership:
The first question that arises regarding minors is whether a minor can be a partner?
The clear answer of this question is that a minor cannot be a partner.
Section 30(1) of the Partnership Act provides:
"A person who is a minor according to the law to which he is subject may not be a partner in a firm, but with the consent of all the partners for the time being, he may be admitted to the benefits of partnership".
In Venkatrama Iyer V/s Balayya, the Madras High Court held that where members of a family carry on the business and some of the members are minors, there must be some positive act on the part of the regular members so that the Court may infer that the minors have been admitted to the benefits of partnership. The mere fact that on account of an error of law all had accepted that all the children of the family whether minor or adult shall have equal interest in the business, is not sufficient.
Rights and Liabilities of a Minor Admitted to the Benefits of Partnership:
The rights and liabilities of a minor admitted to the benefits of partnership are following:-
a) A minor admitted to the benefits of partnership has a right to such share of the property and of the
profits of the firm as may be agreed upon.
b) Such a minor may have access to, and inspect and copy, any of the accounts of the firm.
c) Such minor's share is liable for the acts of the firm but the minor is not personally liable for any such act
d) Such minor may not sue the partners for an account or payment of his share of the property or profits of the firm save when severing his connection with the firm, and in such case the amount of his share shall be determined by a valuation made, as far as possible, in accordance with the rules contained in Section. 48.
There are two types of partners:
a) Incoming Partner,
b) Outgoing Partners,
1. Incoming Partner:
The mutual relations of partners are based on the principle that they have to be just and faithful to each other and are bound to carry on the business of the firm to the greatest common advantage. Therefore, a new partner can be included in a firm only when the existing partners have faith and trust in him. Section 31 (1) lays down a general principle that no person shall be introduced as a partner into a firm without the consent of all the existing partners.
Liability of Incoming Partner:
As regards incoming partner, Section 31 (2) lays down a general principle in the following words:
"A person who is introduced as a partner a firm does not thereby become liable for any act of the firm before he became a partner".
a) the new firm has taken the liability to pay the existing debts,
b) the creditors have exempted the debts of the old firm and have agreed or given their consent that they will realize their debts from the new firm;
An incoming partner can be held liable in respect of pre-existing debts if he has assumed liability and the creditor have accepted him as debtor. Where the documents on record show that the new partner had acknowledged pre-existing liability and was also trying to clear the dues, the act of the Bank in not withdrawing facilities, in view of these facts circumstances, the new partner would be liable to pay debts and the fact that new partnership deed did not provide for assumption of such liability would be immaterial.
II. Outgoing Partners:
By outgoing partner we mean a partner who retires or otherwise leaves the firm and the remaining partners continue the business of the firm. When a partner retires he ceases to be a member of the firm but the remaining partners continue their contract's with the third parties.
A partner may leave the firm in any one of the following ways -
1. With the consent of all other partners:
According to Sec. 32 (1) (a), a partner may retire with the consent of all the other partners.
2. With an Express Agreement by partners:
Since partnership is created by contract a partner may retire by mutual agreement of the partners. Sec.32 (1) (b), a partner may retire in accordance with an express agreement by partners.
3. By giving notice to all other Partners in case of Partnership at will:
According to Sec. 32 (1) (c), a partner may retire where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.
One of the ways to dissociate the partner is by his expulsion. According to Sec. 33(1), a partner may not be expelled from a firm by any majority of the partners, save in the exercise of good faith of powers conferred by contract between the partners.
5. On Insolvency of a Partner:
Where a partner in a firm is adjudicated an insolvent he ceased to be a partner on the date on which the order of adjudication is made, where or not firm is thereby dissolved.
6. By Death:
According to Sec. 42 (c), subject to contract between the partners a firm is dissolved by the death of a partner. Thus partners may by contract provide that on the death of a partner the firm will not be dissolved.
The liability of a retired partner may be of two types -
a) Liability for acts is done before his retirement.
b) Liability for the acts done after his retirement.
a. Liability for acts is done before his retirement:
So long a person remains a partner in a firm; he remains bound by the acts of the firm. According to Sec. 25, every partner, jointly with all other partners and also severally, for all acts of the firm done while he is a partner.
b. Liability for the acts of the firm done after his retirement:
As regards the liability for the acts of the acts of the firm done after his retirement, the general principle is that he is not liable for acts of the firm. The main reason for this is that since partnership between the retiring partner and the remaining partner ends, the principle of mutual agency ceases to apply. It may, however, be noted here that in order to escape liabilities and debts of the firm after his retirement, he must give a public notice of his retirement.
According to Sec. 32 (3) which provides that "Notwithstanding the retirement of partner from a firm, he and the partners continue to be liable as partners to their parties for any act done by any of them which would have been an act of the firm if done before the retirement, until public notice is given of the retirement.
Meaning of Dissolution of Firm:
The dissolution of partnership between all the partners of a firm is called the "dissolution of the firm". The firm is dissolved when all the partners stop carrying on the partnership business. If some partners dissociate from the firm and remaining partners continue the business of the firm, the firm is not dissolved. The dissolution of a firm is distinct from the retirement of a partner because in latter situation others or remaining partners continue the business of the firm and the firm is not dissolved.
The dissolution of partnership brings about a change in the relation between partners but partnership between then does not completely end.
According to Sec. 46, "on the dissolution of a firm every partner or his representative is entitled, as against all the other partners or their representatives, to have the property of the firm applied in payment of debts and liabilities of the firm and to have the surplus distributed among the partners or their representatives according to their rights".
Modes of Dissolution:
Indian Partnership Act provides for the following modes of dissolution: -
a) Dissolution by Agreement, Sec. 40.
b) Compulsory dissolution, Sec. 41.
c) Dissolution on the happening of certain contingencies, Sec.42.
d) Dissolution by notice of Partnership at will, Sec. 43.
e) Dissolution by court, Sec. 44.
a) Dissolution by Agreement:
According to Sec. 40, a firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.
Sec. 40 includes two modes of dissolution. First, a firm may be dissolved with the consent of all the partners. Secondly, a firm may be dissolved in accordance with a contract between the partners.
b) Compulsory Dissolution:
According to Sec. 41, compulsory dissolution of a firm may take place on the following two grounds -
a) All the partners or all the but one becoming insolvent:
A firm is dissolved by the adjudication of all the partners or of all the partners but one as insolvent. Thus a partner is adjudicated an insolvent; he ceased to be a partner. One of the main reasons, inter alia, for this is that when he adjudicated an insolvent he becomes incompetent to contract,
b) Happening of any event making the business of the firm unlawful:
A firm is dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry on in partnership. According to this principle, where there are several parts of the contract and one of the parts becomes illegal, then if the illegal part can be separated from the legal part, only the part which has become illegal shall be void and the legal part shall remain valid.
c. Dissolution on the happening of certain contingencies:
According to Sec. 42, subject to contract between partners, a firm is dissolved on the happening of following contingencies -
a) By the expiry of fixed term:
A firm is dissolved, if constituted for a fixed term, by the expiry of that term. The term of the partnership being fixed is clearly not a contrary provision under Sec. 42. it may also be noted here that even after the expiry of a fixed term, by mutual consent partners may continue the partnership,
b) On completion of Adventures or Undertakings:
Subject to contract between the partners a firm is dissolved if constituted to carry out one or more adventures or undertakings, by the completion thereof,
c) By the death of partner:
Subject to contract between the partners a firm is dissolved by the death of a partner. The main reason for this rule is that in law firm is not a person, it is only a group of person and the name of the firm is only the collective name of the person who constituted the firm,
c) By the adjudication of a partner as an insolvent:
Subject to contract between the partners a firm is dissolved by the adjudication of a partner as an insolvent.
e) Dissolution by notice of Partnership at will:
According to Sec. 43 of the Indian Partnership Act, 1932: "Where the partnership is at will the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. The firm is dissolved as from the date mentioned in the notice as the date of dissolution, if no date is so mentioned, as from the date of communication of the notice".
f) Dissolution by court:
According to Sec. 44, the court may dissolve a firm on any of the following grounds, namely:
a) A partner becoming of unsound mind:
At the suit of a partner, the court may dissolve a firm on the ground that a partner has become of unsound mind, in which case the suit may well be brought as well by the next friend of the partner who has become of unsound mind as by any other partner,
b) A partner becoming permanently incapable:
At the suit of a partner, the court may dissolve a firm on the ground that a partner other than the partner suing, has become in any way permanently incapable of performing his duties as partner,
c) Partner guilty of conduct likely to affect prejudicially the carrying on of the business:
At the suit of a partner, the court may dissolve a firm on the ground that a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the carrying on of the business regard being had to the nature of the business,
d) Willful or persistent breach of agreements relating to the business or management of the affairs of the firm:
At the suit of a partner, the court may dissolve a firm on the ground that a partner, other than the partner suing, willfully or persistently commits breach of agreements relating to the management of the affairs of the firm or the conduct of its business,
e) Transfer of the whole interest in the firm by a partner to a third party:
At the suit of a partner the court may dissolve a firm on the ground that a partner other than the partner suing has in any way transferred the whole of his interest in the firm to a third party,
f) Perpetual Loss:
At the suit of a partner, the court may dissolve a firm on the ground that the business of the firm cannot be carried on save at a loss,
g) Just and Equitable:
At the suit of partner, the court may dissolve a firm on the ground that it is just and equitable that the firm should be dissolved. The court has to use its discretion on the basis of the facts and circumstances of the case. There was no co-operation and mutual faith between the partners. There were many and long-persisting disputes amongst them. The court held that under these circumstances it would be just and equitable to dissolve the firm.
Introductory:
The State Government may appoint Registrars of firms for the purposes of the Partnership Act, and may define the areas within which they shall exercise their powers and perform their duties. Every Registrar shall be deemed to be a public servant within the meaning of Sec. 21 of the Indian Penal Code.
Sections 58 and 59 contain the provisions relating to registration of firm. It may be noted here that under Indian Partnership Act, 1932 registration of firms is not compulsory. But the effects of non-registration of firms are so fatal that ordinarily firms are registered.
Application for Registration:
The registration of a firm may be effected at any time by sending by post or delivering to the Registrar of the area in which any place of business of the firm is situated , a statement in the prescribed form and accompanied by the prescribed fee stating: -
a. the firm name,
b..The place or principal place of the business of the firm,
c. the names of any places where the firm carries on business,
d. the date when each partner joined the firm,
e. the names in full and permanent addresses of the partners,
f. the duration of the firm;
The statement shall be signed by all the partners or by their agents specially authorized in this behalf. Each person signing the statement shall also verify it in the manner prescribed.
Registration:
When the Registrar is satisfied that the provisions of Sec. 58 have been duly complied with, he shall record an entry of the statement in a register called the Register of firms, and shall file the statement.
Noting of closing and opening of Branches:
When a registered firm discontinues business at any place or begins to carry on business, at any place, such place not being its place of business, any partner of the firm may send information thereof to the Registrar, who shall make a note of such intimation in the entry relating to the Register of firms, and shall file the intimation along with the statement relating to the firm filed under Sec. 59.
Noting of changes in names and addresses of Partners:
When any partner in a registered firm alters his name or permanent address, an intimation of the alteration may be sent by any partner or agent of the firm to the Registrar, who shall deal with it in the manner provided in Sec. 61.
Recording of withdrawal of a minor:
When a minor who has been admitted to the benefits of partnership in a firm attains majority and elects to become or not to become a partner, and the firm is then a registered firm, he may give notice to the Registrar.
Inspection of Register and filed Documents:
The Register of firms shall be open to inspection by any person on payment of such fee as may be prescribed. All statements, notices and intimation filed under this chapter shall be open to inspection, subject to such condition and on payment of such fee as may be prescribed.
Grant of Copies:
The Registrar shall on application furnish to any person on payment of such fee as may be prescribed, a copy, certified under his hand, of any entry in the Register of firms.
Penalty for furnishing false particulars:
According to Sec. 70, any person who signs any statement, notice or intimation under this chapter containing any particulars which he knows to be false or does not believe to be true, shall be punishable with imprisonment which may extend to three months, or fine, or with both.
Effect of Non-Registration of Firms:
As indicated earlier, registration of firm is not compulsory under Indian Partnership Act, 1932. There is no penalty prescribed if the firm is not registered. It depends upon the discretion or sweet will of partners, either to get or not to get their firm registered.
The disabilities or difficulties on account of which it becomes necessary to register the firm are following: -
(1) Suits Between Partners and Firm:
Sec. 69(1) provides, no suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any court by or on behalf of any person suing as partner in a firm against the firm or any person alleged to be or have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm.
(2) Suits between the Firm and Third Parties:
According to Sec. 69(2), no suit to enforce a right arising from a contract shall be instituted in any court by or behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of firms as partner in the firms.
(3) Bar to claim of set-off and other proceedings:
According to Sec. 69(3), shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract. The term other proceedings, is very wide. But there has been some controversy whether it includes arbitration.
Penalty for furnishing false particulars:
Sec. 70 provides that any person who signs any statement, amending statement, notice or intimation, containing any particular which he knows to be false or does not believe to be true, shall be punishable with imprisonment which may extend to three months, or with fine, or with both.
Power to make rules:
According to Sec. 71:
(1) The State Government may make rules prescribing the fees which shall accompany documents sent to the Registrar of Firms or which shall be payable for the inspection of documents in the custody of the Registrar of Firms;
(2) The State Government may also make rules:
(a) prescribing the form of statement submitted under Sec. 58 and of the verification thereof;
(b) requiring statements, intimations and notice under Sec. 60, 61, 62 and 63 to be in prescribed form and
prescribing the form thereof;
(c) prescribing the form of Register of Firms, and the mode in which entries relating to firms are to be
made therein;
(d) regulating the procedure of the Registrar when disputes arise;
(e) prescribing, conditions for the inspection of original documents;
(f) regulating the grant of copies;
(g) regulating the elimination of registered and documents;
UNIT - V
Definition of sale:
A contract of sale is provides under sec. 4{1} of the Sale of Goods Act, 1930. A contract of sale of goods is a contract where by the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part owner and another.
Essential elements of a valid sale:
1. Two parties:
Two parties' means Seller and Buyer, for constituting a sale there must be at least two parties, and they must be different persons for a person cannot buy his own goods.
Exceptions:
a) Auction Sale:
In sale by auction law permits the seller to reserve a right of making a bid, in such a situation a seller may purchase his own goods.
b) Execution of decree:
Where goods of a person are being sold in execution of a decree against him, he may come forward and purchase his own goods.
a) Between part own
There may be a contract of sale between one partner and another or between a partner and partnership firm.
2. Subject matter of the contract:
Goods are a subject matter of the contract. Goods means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass and thing attached to or forming part of the land which are agreed to be served before sale.
3. Agreement:
It is also another essential element for valid sale, to constitute a sale there should be an agreement express or implied, relating to goods to be completed by passing of title in those goods.
4. Transfer of property:
Another most essential element of sale is the transfer of the property in goods to the buyer.
5. Price or money:
Another essential element is a contract of sale is price, consideration in terms of money. An agreement without consideration is void. A contract of sale also will not be complete without consideration. In case of a contract of sale, the consideration must be some price, there fore consideration.
6. Parties must be competent to contract
7. There must be mutual between the parties.
Meaning of condition:
A condition in a contract for the sale of goods is a vital stipulation, the breach of which may give rise to a right to treat the contract as repudiated.
Meaning of warranty:
It is a form of guarantee that the item in question is of the standard required. An assurance that a thing is as represented or described.
Stipulation as to time
Sec, 11 of the sale of goods Act provides that the stipulation of time.
Effect of failure to perform at fixed time, in contract in which time is essential:
When a party to a contract promises to do a certain thing at or before a specified time, or certain thing at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes was that time should be of the essence of the contract.
Other stipulation as to time:
Whether any other stipulation as to time is of the essence of the contract or not depends on the terms of the contract. The person behind this rule is that "Merchants are not in the habit of placing their contract stipulations to which they do not attach some value and importance.
In following cases time will bee of the essence of the contract:
1. Where the parties have expressly agreed to consider time is the essence of the contract.
2. Where delay operates as an injury
3. Where the nature and necessity of the contract requires it to be so construed.
When condition to be treated as warranty
Sec. 13 of the sale of goods Act says that when condition to be treated warranty:
1. By waiver:
Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated.
2. by acceptancec:
Where a contract of sale is not severable and the buyer has accepted the goods are part thereof, the breach of any condition too be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect.
Only the legal remedies for a breach of condition are limited to the remedies which are available for a breach of a warranty.
Hardly and co. v/s hillerns and flower
In this case, in a CIF contract for sale of wheat, the ship reached on 20th March and on the same day the buyer received the documents. The next day unloading of the goods started. On the same day, there fore on 21st march he discovered that the wheat was not according to the contract. Consequently he sought to reject the goods and gave a notice to the seller to the same effect. In this case, though the notice of rejection had been given within a reasonable time, the court of appeal had held that the buyer had accepted the goods and therefore the notice of rejection was of no effect.
Implied condition
Sec. 14 to 17 of the Sale of goods Act explains about implied condition. They are,
1. Implied condition as to title :
Sec. 14 of the Act says that in a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is an implied condition on the part of the seller that, in case of a sale, he has a right to sell the goods, and that in the case of an agreement to sell; he will have to sell the goods at the time when the property is to pass.
ROLAND V/S DIVIAL
In this case, the defendants sold a car through they had no title to the car. After using the car for some time the plaintiff had to give the car to the real owner. The plaintiff sued the defendant to recover the price of the car. The court held that the plaintiff was entitled to recover the price of the car even though he had used the car for some time.
The buyer has not received any part of that which he has contracted to receive, namely, the property and right to possession and, that being so, there has been a total failure of consideration.
2. Implied condition of sale by description:
It applies to where the buyer has seen the goods yet he relies on description of the goods given by the seller.
Ex: A buyer buys two pictures of a renowned artist, he will be entitled to reject the two pictures if it is subsequently discovered that they are not genuine pictures of the said renowned artist. In view of the false description about the goods, the goods actually delivered would be subsequently different from the goods described, it would therefore constitute a failure of the consideration.
3. Implied condition as to sale by sample:
In case of a contract of sale by sample there is an implied condition:
1. That the bulk shall correspond with the sample in quality.
2. That the buyer shall have a reasonable opportunity of comparing the bulk with the sample.
3. That the goods shall be free from any defect, rendering them unmerchantable, which would not be apparent on reasonable examination.
AZEMAR V/S CASELLA
In this case, the buyer purchased cotton guaranteed by a sample. There was a clause in the contract of sale that the seller would give certain amount towards allowance in case of different in quality. On inspection, the buyer found that the bulk of cotton was not in equivalent quality with that of the sample, and he cancelled the contract. The seller contended that the buyer has no right to cancel the contract, as there was a provision to compensate the inferior quality in the contract itself. The provision in the contract was an implied warranty, but was not an implied condition.
Important points regarding to condition as to sale by sample:
1. Where the goods are delivered to the buyer which he has not previously examined, hew is not deemed to have accepted them unless and until he has a reasonable opportunity of examining them for the contract.
2. Unless and until agreed, when the seller tenders delivery of goods to the buyer, he is bound,, on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaini9ng whether they are in conformity with the contract.
3. Implied condition as to sale by sample as well as description:
Sec. 15 of the Act provides that if there is a sale by sample as well as by description it is not sufficient that the bulk of goods correspond with the sample if the goods do not also correspond with the description.
GARDINER V/S GRAY
In the above case, there was a contract for sale of 12 bales of goods described as 'waste silk' imported from the continent. The buyer had been shown the sample but the goods supplied were not such as could be resold as 'waste silk'. Even though sample had shown, the goods did not correspondent to their description. It was held that there was a breach of implied condition.
4. Implied condition as to equality of fitness or exception to the principal of caveat emptor:
Caveat emptor means buyer beware. Before buying the goods, it is the duty of buyer to ensure that the goods are of the quality which he wants. Once the foods were brought, the buyer could not claim that the goods were unsuitable for his purpose. He could not hold the seller responsible for any defect in the goods.
Sec. 16 of the Sale of goods Act says following words,
Subject to the provisions of this Act and on any other law for the time being in force, there is no implied warranty or condition as to the quality r fitness for any particular purpose of goods supplied under a contract sale.
Exceptions to the rule of caveat emptor
1. Implied condition as to the fitness for buyer's purpose:
Sec. 16{1} of the Act says where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description which it is in the course of the seller's business to supply, there is an implied condition that the goods shall be reasonably fit for that purpose.
Conditions:
1. The buyer makes known to the seller the particular purpose for which the goods are required.
2. He relies on the seller's skill or judgment.
3. The goods are of a description which it is in the course of the seller's business to supply.
2. Implied condition of merchantable quality:
Sec. 16{2} of the Act explained where goods are bought by description from a seller who deals in goods of that description there is an implied condition that the goods shall be of merchantable quality.
Merchantable quality means: 1. where the goods are bought for sale use they must be reasonably fit for the purpose for which the goods of that kind are commonly bought and used.
3. Where the goods are bought for release, they must be reasonable:
Ex: In the above case, a hot -water bottle purchased by the plaintiff from the seller, a chemist when used next to the skin, it burst and injured plaintiff's wife. In an action an implied condition to merchantable quality one the defendant was liable to pay compensation because hot-water bottle is generally used for heat for human body and the article sold by the defendant to the plaintiff was fit for that purpose.
4. Implied condition annexed by the usage of trade:
Sec. 16{3} of the Act provides that, an implied warranty or condition as to quality of fitness for a particular purpose may be annexed by the usage of trade. Where an implied condition as to quality of fitness for a particular purpose is annexed by the usage of trade, it is not necessary for the seller to make it known expressly to the buyer the particular purpose for which the goods is required.
Express condition
Sec. 16 {4} of the Act provides that an express warranty or condition does not negative a warranty or condition. A mere intention of an express ambition does not negate a condition. An implied condition can be negated by an express condition only when it is inconsistent with the implied condition.
Implied warranties
1. Implied warranty of quiet possession:
Sec. 14{b} of the Sale of goods Act says that, in a contract of sale, unless the circumstances of the contract are such as to show a different intention there is an implied warranty that the buyer shall have and enjoy quiet possession of the goods.
NIBLETT V/S CONFECTIONERS MATERIAL CO.
In this case, the defendant sold a second-hand typewriter to the plaintiff for rupees 2,000. The plaintiff had to spend a further sum of 11,000 Rs in getting it overhauled. But latter on it was found to be stolen and the plaintiff had give it to the true owner. In an action brought up by the plaintiff against the defendant it was held that there was a breach of implied warranty of quiet possession and the seller was held liable to pay 2,000 as being the price as well as Rs. 11,000 being the money he spent to get it overhauled.
2. Implied warranty against charges or encumbrances:
Sec. 14{c} of the Sale of Goods Act says that unless the circumstances of the contract6 are such as to show a different intention, there is an implied warranty that the goods shall be tree from any charge or encumbrance in favour of third party not declared or known to the buyer before or at the time when the contract is made.
If there is a charge or encumbrance on the goods, it is the duty of the seller to make it known or declare to the buyer before or at the time of the contract.
3. Implied warranty annexure by the usage of trade:
Sec. 16{3}, an implied warranty as to quality or fitness for a particular purpose any be annexed by the usage to trade.
According to Sec. 19 says that
1. Where there is a contract for the sale of specific or ascertained good the property the property in them
is transferred to the buyer at such time as the parties to the contract intended to be transferred.
2. For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the
contract, the conduct of the parties and the circumstances of the case.
3. Unless a different intention appears, the intention of the parties as to the time which the property in
goods is to pass to the buyer.
Sec. 18 of the Sale of Goods Act provides that where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained.
Ex: where the contract is for of tress, property in tress, property in tress cannot pass unless and until the tress are felled and ascertained. Thus where the contract provided that the appellant would be entitled to cut teak tress of more than 12 inches from earth, it was held that it would be necessary to ascertain which tress fell within the said description and until that was done, the trees could not be said be ascertained and until that was done the property could not pass.
The intention of parties to the contract is generally gathered from the terms of the contract, the conduct of the parties and the circumstances of the case. Sec. 20 to 24 deals with intention of the parties.
1. Sale of specific goods in a delivered state:
Sec. 20 of the Act provides that where there is an unconditional contract for the sale of specific goods in a delivered state, the property in the goods passes to the buyer when contract is made and it is immaterial the time of payment of the price or the time of delivery of the goods, or both, is postponed.
Essential conditions
1. The contract must be unconditional.
2. The contract must be for the sale of specific goods
3. The goods must be in a deliverable state.
DWARAKD DAS V/S RAM RATAN
In this case, in a contract for the sale of specific goods in a deliverable state, the buyer requested the seller to postpone the delivery of goods for some time. It was held that the property passed at the time of making of contract and the postponement of the time of deliver of goods was immaterial.
Specific goods to put into a deliverable state
Sec, 21 of the Sale of Goods Act says that where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has the notice thereof.
LACHMI NIWAS RICE MILLS V/S FIRM RAM DAS RAMNIVAS
In the above, there was an agreement to sell rice by the appellants to the respondents. Under the agreement the appellants were required to put the rice in bags, book it on the Railway, dispatch it when wagons become available and finally deliver the Railway receipt to the respondents. The appellants put the rice in bags, got it weighed and stocked in go down but could not dispatch it as wagons were not available for a reasonable time. It was held that since the property in rice did not pass to the respondents, the appellants could not sue because the appellants failed to get the wagons for dispatching the bags of rice which was necessary to put the goods in a deliverable state.
Specific goods in a deliverable state, when the seller has to do anything thereof in order to ascertain price:
Sec. 22 of the Act provides where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof.
2. Sale of unascertained goods and appropriation:
Sec. 18 of the Act provides where there is a contract for the sale of unascertained goods; no property in the goods is transferred to the buyer unless the goods are ascertained.
LAURI AND MOREWOOD V/S JOHN DUBIN AND SONS
In this case, the contract was for the sale of 200 quarters out of 681 quarter of maize which was lying in the warehouse. The buyers obtained from the seller a delivery order for 200 quarters. But since the buyer had not paid whether by giving the delivery order the property in goods passed to the buyer. It was held by the court of appeal that since the portion to the buyer had not been separated from 681 quarter lying in the warehouse, the property in the goods did not pass to the buyer.
Delivery to carrier:
Sec. 23{2} of the Act says that where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailable for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have appropriated the goods to the contract.
3. Sale of goods on approval or on sale or return
Sec. 24 of the Act provides that when goods are delivered to the buyer on approval or on sale or return or other similar terms, the property wherein passes to the buyer-
1. When he signifies his approval or acceptance to the seller or does any other act, adopting the
transaction.
2. If he does not signifies his approval or acceptance to the seller but retains the goods without giving
notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such
time, and ,, if no time has been fixed, on the fixation of a reasonable time.
Property in goods passes in any of following ways:
1. Approval or acceptance by buyer:
Sec.24{a} says that when goods are delivered to the buyer on approval or on sale or return or other similar terms, the property in goods passes to buyer when he signifies his approval or acceptance to the seller.
2. when buyer does any other act adopting the transaction:
When the goods are delivered to the buyer on approval or on sale or return, it is not necessary in every case for passing of property that the buyer must approve or accept. The property may also pass to the buyer when he dose any other act adopting the transaction.
3. When buyer retains the goods without giving notice of rejection:
Sec. 24{b} says that when goods are delivered to the buyer on approval or on sale or return or other similar terms the property therein passes to the buyer if he does not signify his approval or acceptance to the seller; but retains the goods without giving notice of rejection then, if a time has been fixed for the return of the goods, on the expiration such time, and, if no time has been fixed, on the expiration of a reasonable time.
Reservation of the right of disposal
Sec. 23{2} of the Act provides that where, in pursuance of the contract, the seller delivers the goods to the buyer as to a carrier or other bailee for the purpose of transmission to the buyer, he is deemed to have unconditionally appropriate the goods to the contract provided that the seller does not reserve the right of disposal.
According to Sec. 25 of the Act says that:
1. Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract of appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled.
2. Where the goods shipped or delivered to railway administration carriage by railway and by bill of lading or railway receipt, as the case may be, the goods are deliverable to the order of the seller of his agent.
3. Where the seller of goods draws on the buyer for the price and transmits to the buyer the bill of exchange together with the bill of lading, or, as the case may be, the railway receipt, to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading or the railway receipt if he does not honor the bill of exchange, and if he wrongfully retains the bill of lading or the railway receipt, the property in the goods does not pass to him.
Passing of risk
Sec. 26 of the Sale of Goods Act says that the goods remain at the seller's risk until the property therein is transferred to the buyer, but, when the property therein is transferred to the buyer, the goods are at the buyer's risk whether delivery has been made or not.
Where delivery has been delayed through the fault of either buyer or seller, the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such risk.
PIGANTATO V/S GILORY AND SONS
In this case, the plaintiff bought 140 bags of rice from the defendants on 12th February, 1918. Under the contract the defendant was required to give the delivery of rice within the next fortnight. The price was sent through cheque by the plaintiff on 22nd February, 1918. The very next day, the defendant sent to the plaintiff a delivery order for 125 bags of rice lying at chamber's wharf. For remaining 15 bags he sent a letter to collect the same from defendant's place of business within two weeks. The plaintiff collected 125 bags but did not collect 15 bags lying at defendant's place of business for three weeks. Thereafter when he went to collect the said bags he found that they had been stolen without any negligence on the part of the defendant.
Finally the court held that since the property in rice had already passed to the buyer, the defendant was not liable for the loss.
Exception to the passing of risk
1. Sec. 26 commences with the words unless otherwise agreed, that is to say, the parties may by their agreement may separate the risk from the ownership of the property. They may provide in their agreement that the property shall be at the risk of the buyer even though the property in goods may not have passed to him.
2. In case of contract of supply of goods at a distant place, the seller may not take the responsibility of risk of goods during the transit the contract may therefore provide that even though the property in goods may not have passed to the buyer, goods shall be at the risk of the buyer during the transit.
3. Which where delivery has been delayed through the fault of either buyer or seller, the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault.
4. Nothing in Sce. 26 shall affect the duties and liabilities of either seller or buyer as a bailee of the goods of the other party.
Transfer of title
NEMO DAT QUOD NON HABET:
The law relating to transfer of title is based on famous ancient maxim, " nemo dat quod non habet" which means that a person cannot confer a better title that he has. Where a buyer purchases a ring from, a finder if the ring who despite reasonable effort failed to discover the real owner of the ring.
MOHAMBARAM V/S RAM NARAYAN
In this case, the owner of a bus employed a driver to ply his bus. He gave a letter to the driver to deliver to the Magistrate for obtaining the permit for plying the bus on hire. The driver fraudulently altered the said letter into one addressed to district Superintendent of police for transferring the registration of bus in the name of the driver. After fraudulently getting registration of bus transferred in his name, the driver sold the bus to a stranger.
Finally in this case court held that the true owner can recover the bus from such buyer or stranger.
Exceptions to the principle of nemo dat quat non habit
1. Estoppels:
Sec. 27 of the Act provides that the general principle will not apply where the seller is not the owner of the goods but, the owner of the goods is by his conduct precluded from denying the seller's authority to se
Where one by his words or conduct willfully causes another to believe in the existence of a certain state of thing and induces him to act on this belief, so as to alter his previous position, the former is precluded from averring against the latter a different state of things at the same time.
FILLER V/S GIYN MILLS CURY AND CO.
In this case, the plaintiff gave some share certain certificates to the stock brokers and allowed them to keep the certificates for sale. The certificates were in the name of the seller who sold them to plaintiff and also contained an endorsement of transfer executed by the seller. The stock broker abused their position and took an advance by pledging the said certificates. The plaintiff sued the pledge but his action was dismissed on the grounds that he was estopped from setting up his title against them.
2. Sale by a mercantile agent:
Where a mercantile agent is, with the consent of the owner in possession of the goods or of a document of title to the goods, any sale made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorized by the owner of the goods to make the same.
Sec. 27 says the following conditions:
1. The sale was made by a mercantile agent.
2. The mercantile agent must be possession of the goods or of a document of title to the goods.
3. The mercantile agent must in possession of the goods with the consent of the owner.
4. The mercantile agent must be acting in the ordinary course of business.
5. The buyer who purchases goods from the mercantile agent must do so in good faith and must not
have, notice at the time of the contract that the seller had no authority to sell.
3. Sale by one of joint owners:
Sec. 28 of the Sale of Goods Act says that if one of several joint owners of goods has the sole possession of them by permission of the co-owners, the property in goods is transferred to any person who buys them of such joint owners in good faith and has not at the time of the contract of sale notice that the seller has no authority to sell.
4. Sale by a person in possession under a violable contract:
Sec. 29 of the Act says that when the seller of goods has obtained possession thereof under a contract violable under Sec. 19 of the Indian Contract act, but the contract has not been rescinded at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith and without notice of sellers defect of title.
5. Sale by seller in possession after sale:
Sec. 30 of the Act provides that where a person, having sold goods, continue or is in possession of the goods or of the documents of title to the goods or of the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if person making the delivery or transfer were expressly authorized by the owner of the goods to make the same.
6. Sale by buyer in possession after sale:
Sec. 30{2} of the Act says that where a person, having brought or agreed to buy goods, obtains, with the consent of the seller, possession of the goods or document of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods shall have effect as if such lien or right did not exist.
7. Resale of goods buy an unpaid seller after exercise of the right of lien or stoppage in transit:
Sec. 54{3} of the Sale of Goods Act provides that where an unpaid seller who has exercised his rights of lien or stoppage in transit re-sells the goods, the buyer acquires a good title thereto as against the original buyer, notwithstanding that no notice of the re-sale has been given to the original buyer.
8. Sale by finder of goods:
Sec. 169 of the Act provides that when a thing which is commonly the subject of sale is lost, if the owner cannot with reasonable diligence be found or, if he refuses, upon demand, to pay the lawful charges of the finder. The finder may sell it:
1. When the thing is in danger of perishing or of losing the greater part of its value.
2. Thirds when the lawful charges of the finder, in respect of the thing found, amount to two of its value.
9. Sale by a pawnee in case where pawner makes default in payment:
Sec. 176 of the Act says that if the pawner make default in payment of the debt, or performance, at the stipulated time or the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawner upon the debt or promise, and retain the goods pledged as a collateral security.
Delivery
Sec. 33 of the Sale of Goods Act says that delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in possession of the buyer or of any person authorized to hold them on his behalf.
Delivery may be of three kinds, those are:
1. Actual Delivery:
When the actual or physical delivery of goods is made by the seller to the buyer, the delivery is said to be actual.
2. Symbolic Delivery:
When the goods are put in the possession of the buyer or his authorized agent without making any change in their actual possession, the delivery is said to be symbolic.
3. Constructive Delivery:
When without any change in the physical or actual custody of the goods, there takes place a change in the legal character of the goods, the delivery is said to be constructive.
Effect of part delivery:
Sec. 34 of the Act provides a delivery of part of goods, in progress of the delivery of whole, has the same effect, for the purpose of passing of property in such goods, as delivery of the whole but a delivery of part of the goods, with an intention of serving it from the whole does not operate as a delivery of the reminder.
Rules as to delivery:
1. Place of delivery:
Sec. 36{1} of the Act explain whether if is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties.
2. Time for delivery:
Sec. 36{2} of the says that where under the contract of sale, the seller is bound tyo send books to the delivery, but no time for sending them is fixed, the seller is bound to send them within a reasonable time.
3. Delivery of goods in possession of third persons:
Sec. 36{3} of the Act provides that where the goods at the time of sale are in possession of a third person, there is no delivery by the seller to buyer unless and until such third person acknowledges to the buyer that he holds the goods on his behalf.
4. Reasonable hour of delivery:
Demand or tender of delivery may be treated as ineffective unless made at a reasonable hour. What is a reasonable hour is a question of fact.
5. Express of and incidental to putting the goods in a deliverable state:
Unless otherwise agreed, the express of and incidental to putting the goods into a deliverable state shall be born by the seller.
Delivery of wrong quantity
1. Sharf Delivery:
Sec. 37 of the Act deals with every contract for certain quantity of goods is prima facie an entire contract for that quantity and so delivery for anything falling short of specified quantity will not constitute sufficient delivery.
Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them, but if the buyer accepts the goods so delivered he shall pay for them at the contract rate.
A deficiency or excess in quantity which is microscopic and which is not capable of influencing the mind of the buyer will not entitle him to reject the goods, for " de minimis non cureat lex". Sec. 37 of the Act says that rejection of goods when the seller delivers to the buyer a quantity of goods less than what contracted.
2. Delivery in excess of contract quantity:
Sec. 37{2} of the Sale of Goods Act provides that where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole.
3. Delivery of mixed goods:
Sec. 37{3} of the Act says that where the seller delivers the goods he contracted to sell mixed with goods of a different description not included in the contract the buyer may accept the goods which are in accordance with the contract and reject the rest, or he may reject the whole.
Duty of seller when goods are sent by a route involving sea transit:
Sec. 39{3} of the Act provides where goods are sent by the seller to the buyer by a route involving sea transit, in circumstances in which it is usual to insure, the seller shall give such notice to the buyer as may enable him to insure them, during their transit, and if the seller fails so to do, the goods shall be deemed to be at his risk during such sea transit.
Buyer's right of examination of the goods:
Sec, 41 of the Act says that
1. Where the goods are delivered to the buyer which he has not previously examined, he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract.
2. Unless otherwise agreed, when the seller tender delivery of goods to the buyer, he is bound, on request, to afford the buyer a reasonable opportunity of ascertaining whether they are in conformity with the contract.
Liability of buyer for neglecting or refusing delivery of goods:
Sec. 44 of the Act says that when the seller is ready and willing to deliver the goods and requests the buyer to take delivery, and the buyer does not within a reasonable time after such request take delivery of goods, he is liable to the seller for any loss occasioned by his neglect or refusal to take delivery, and also for a reasonable charge for the care and custody of the goods.
Sec. 45(1) of the Act defines the rights of unpaid seller. Unpaid seller means:
1. When the whole of the price has not been paid or tendered.
2. When a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received, has not been fulfilled by reason of the dishonor of the instrument.
Sec. 46 of the Act says the rights of unpaid seller. Following rights are enjoyed by the unpaid seller, those are:
1. Unpaid seller's lien:
The unpaid seller of goods who is in possession to them is entitled to retain possession of them until payment or tender of the price in the following cases, namely:
a) Where the goods have been sold without any stipulation as to credit:
Where there is a sale of goods, and nothing is specified as to delivery or payment, although everything may have been done so as to divest the property out of the vendor, and to be thrown upon the vendee all risk attendant upon the goods, still there results to the vendor our of the original contract a right to retain the goods until the payment of the price.
b) Where the goods have been sold on credit, but the term of the credit has expired:
During the term of the credit, the right of lien cannot be exercised. The right of lien can be exercised only after the term of credit has expired.
c) Where the buyer becomes insolvent:
A person is said to be insolvent who has ceased to pay his debt in the ordinary course of business or contract pay his debts as they become due, whether he has committed an act of insolvency or not.
An unpaid seller's lien may terminate in any of the following ways:
1. By delivery of the goods to a carrier or other bailee:
The unpaid seller of goods loses his lien when he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods.
2. On buyer or his agent obtaining possession:
The unpaid seller of goods loses his lien theron when the buyer or his agent lawfully obtains possession of the goods.
3. By waiver of lien:
The unpaid seller of goods also loses his lien therein by waiver thereof. The waiver may be express or implied. A seller is deemed to waive his right of lien where he wrongfully reuses to deliver the goods, or deals with the goods in a manner inconsistent with the mere right to have possession of goods, or claims to keep them on the basis of some other ground than his right of lien.
2. Right of stoppage in transit:
Sec. 46(1) (b), of the Act provides that the property in goods may have passed to the buyer; in case of insolvency of the buyer the seller has a right of stopping the goods in transit after he has parted with the possession of them. the right of stopping the goods in transit can be exercised only when the buyer has become insolvent.
Duration of transit:
The movement that the goods are delivered by the vendor to the carrier to be carried to the purchaser the transits begins. When the goods have arrived at the destination and have been delivered to the purchaser or his agent, or when the carrier holds them as warehouseman for the purchaser and no longer as carrier only, the transits are at an end.
End of Transit:
The transit is deemed to come to an end in the following ways:
1. When buyer obtains delivery before goods reach their destination:
The transit comes to an end if the buyer or his agent in that behalf obtains delivery of the goods before their arrival at the appointed destination.
2. By carrier or other bailee acknowledging to the buyer that holds goods on his behalf:
If after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that the holds the goods and continues in possession of themes bailee for the buyer or his agent, the transit is at an end and it is immaterial that a further destination of the goods may have been indicated by the buyer.
3. Delivery by a ship chartered by the buyer:
When goods are delivered to a shop chartered by the buyer, it is a question depending on the circumstances of the particular case, whether they are in the possession of the master as a carrier or agent of the buyer.
4. Where carrier or other bailee wrongfully refuses to deliver the goods to the buyer:
The transit comes to an end where the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent.
Cases in which transit does not come to an end:
1. Rejection by the buyer:
In case where the goods are rejected by the buyer and the goods remain in possession of them, the transit is not deemed to be at an end, even if the seller has refused to receive them back.
2. part delivery:
Where the part delivery of the goods has been made to the buyer or his agent in that behalf, the remainder of the goods may be stopped in transit, unless such part delivery has been given in such circumstances as to show an agreement to give up possession of the whole of the goods.
3. Right of resale:
Sec. 46(1) (c) of the Act says that the property in goods may have passed to the buyer, the unpaid seller of goods as such, has by implication of law.
The right of resale may be available in the following cases:
1. Where the goods are of a perishable nature.
2. Where the unpaid seller who has exercised his right of lien or stoppage in transit gives notice to the
buyer of his intention to resell, the unpaid seller may, if the buyer does not within a reasonable time
pay or tender the price, resell the goods within a reasonable time.
3. Where the seller expressly reserves a right of resell in case the buyer should make a default, and on
the buyer making default, resells the goods, the original contract of the sale is thereby rescinded, but
without prejudice to any claim which the seller may have for damages.
4. Right to withholding delivery of goods:
The unpaid seller has also a right of upholding delivery similar to and co-extensive with his right of lien and stoppage where the property has passed to the buyer.
Suit for breach of contract
Suit for breach of contract is divided into two, those are:
1. Suit by seller against the buyer:
a) Suit for price:
The property in goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods. The seller can sue for price only after the property in goods has passed to the buyer.
COLLY V/S OVERSEAS EXPORTERS
In this case, there was a contract of sale of some unascertained leather goods to the buyer. Though the seller sent the goods to Liverpool yet they could not be put on board as the buyer did not name a definite ship. In an action brought up by the seller for price against the buyer it was held that the seller was not entitled to price because the property in goods had not passed to the buyer. In the absence of an agreement relating to the payment of price on a certain day, irrespective of the delivery, the seller is not entitled to sue the buyer for price but can bring an action for damages.
The price is payable on a certain day irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price the seller may sue for the price although the property in the goods has not passed and the goods have not been appropriated to the contract.
b) Damages for non-acceptance
Sec. 56 of the Sale of Goods Act says that where the buyer wrongfully neglects or refuses to accept and pay for goods, the seller may sue him for damages for non-acceptance.
When a contract has broken, the party who suffers by breach is entitled to receive, from the party who has broken the contract compensation for any loss or damage caused to him.
TOTAL LIBAN S. A. V/S VITOL ENERGY S. A.
In this case, the seller sold cargo of gasoline to the buyer who in his turn sold it to another person, therefore ultimate buyer. The ultimate buyer rejected goods and claimed compensation from immediate buyer.
But court finally held that there is no rule of law which requires that the immediate buyer must first discharge his liability to ultimate buyer before claiming compensation from the seller for breach of contract.
2. Suits by the buyer against the seller:
a) Damages for non-performance:
Sec. 57 of the Act says that where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery.
Where the seller is guilty of the breach of contract to deliver any goods in the contract for sale of future goods, the following remedies may be available to the buyer:
1. The buyer may sue for damages for non-delivery of goods.
2. In case the price has been paid by the buyer, he may recover it in a suit for money had and received for a consideration which has totally failed.
b) Remedy for breach of warranty:
Sec. 59 of the Act provides that the remedy for breach of warranty provides the following:
1. Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by the reason only of such breach of warranty entitled to reject the goods.
2. A buyer has set up a breach of warranty in diminution or extinction of the price does not prevent him from suing for the same breach of warranty if he has suffered further damage.
c) Specific performance:
Sec. 58 of the Act says that in any suit for the breach of contract to deliver specific or ascertained goods, the court may decide on the application of the plaintiff, by its decree direct that the contract shall be performed specifically without giving the defendant the option of retaining the goods on payment of damages.
The remedy of specific performance may, not be available in case of a contract to supply coal of a specific quantity because the coal may be available elsewhere. Where in a contract of sale of movable property, breach of contract is alleged and in a suit for mandatory injunction, exparte temporary injunction etc.
Remedies available both to seller and buyer
1. Suit for repudiation of contract before date or anticipatory breach:
Where once of the parties repudiates the contracts before the time of performance under the contract, the other party becomes entitled to sue for damages for the breach before the date of performance of the contract was due.
Where either party to a contract of sale, repudiates the contract before the date of delivery the other party may either treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach.
2. Interest by way of damages and specific damages:
Sec. 61 of the Act provides the following:
1. The right of the seller or buyer to recover interest or special damages in any case where by law interest or special damages may be recoverable.
2. the court may award interest at such rate as it thinks fit on the amount of the price;
a) To the seller in a suit by him for the amount of the price from the date of the tender of the goods or from the date on which the price was payable.
b) To the buyer in a suit by him for the refund of the price in case of a breach of the contract on the part of the seller from the date on which the payment was made.
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