Contract 2

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Q1. Define the Contract of Indemnity. Distinguish between contract of

Indemnity & contract of guarantee. And explain the rights of
indemnity holder.
Introduction: - A Contract of indemnity is a direct engagement between two
parties whereby one promises to save another from harm. According to section 124 of
the Indian Contract Act a contract of indemnity means,” a contract by which one party
promises to save the other from loss caused to him by the conduct of the promisor
himself or by the conduct of any other person.”
This gave a very broad scope to the meaning of indemnity and it included
promise of indemnity due to loss caused by any cause whatsoever. Thus any type of
insurance except life insurance was a contract of indemnity however Section 124 of
Indian Contract Act 1872 makes the life insurance was a contract of indemnity.
However the Contract Act -1872 makes the scope narrower by defining the contract of
indemnity.
DEFINITION: - As provisions made in section 124 of the Indian Contract Act-1872
says that, “whenever one party promises to save the other from loss caused to him by
the conduct of the promisor himself or by the conduct of other by the conduct of the
any other person is called a Contract of Indemnity.”
New India Assurance Company Ltd. Vs Kusumanchi Kameshwra Rao & Others,
1997, A Contract of indemnity is a direct engagement between two parties thereby one
promises to save the other harm. It does not deal with those classes of cases where the
indemnity arises from loss caused by events or accidents which do not or may not
depend on the conduct of indemnifier or any other person.
ESSENTIAL ELEMENTS:- The following are the essentials of the Contract of

Indemnity:-
1. There must be a loss.
2. The loss must be caused either by the promisor or by any other person.
3. Indemnifier is liable only for the loss.
Thus it is clear that this contract is contingent in nature and is enforceable only when
the loss occurs.
RIGHTS OF INDEMNITY HOLDER
The promisee in a contract of indemnity acting within the scope of his authority is
entitled to recover from the promisor so under Section 125 of the Act defines the
rights of an indemnity holder which are as under :-
1. Right of recovering Damages: - All the damages that he is compelled to pay in a suit
in respect of any mater to which the promise of indemnity applies.
2. Right of recovering Costs: - All the costs that he is compelled to pay in such suit if in
bringing o defending it he did not contravene the orders of the promisor and has acted
as it would have been prudent for him to act in the absence of the contract of
indemnity or if the promisor authorised him in bringing or defending the suit.
3. Right of recovering sums :- All the sums which he may have paid under the terms of
a compromise in any such suite if the compromise was not contrary to the orders of the
promisor and was one which would have been prudent for the promisee to make in the
absence of the contract of indemnity.
Kaku 11th Jan 2018 Contract-II Notes

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In another case of Mohit Kumar saha v/s New India Assurance Co.-1997 It was held
that the indemnifier must pay the full amount of the value of the vehicle lost to theft as
given by the Surveyor. Any settlement at the lesser value is arbitrary and unfair and
violates art.14 of the constitution.
DIFFERENCE BETWEEN INDEMNITY & GUARANTEE
INDEMNITY GUARANTEE
1. In indemnity there are two, one who There are three parties, Principal
is indemnified and the other debtor, surety and the Creditor.
indemnifier.
2. It consists of only one contract There are three contracts between
under which indemnifier promises to surety, principal debtor and creditor.
pay in the event of certain loss.
3. The contract of indemnity is made The object of contract of guarantee is
to protect the promise against some the security of the creditor.
likely loss.
4. The liability of the indemnifier in a In guarantee the liability of surety is
contract of indemnity is a primary one. only a secondary, when principal
debtor default.
CONCLUSTION:- It has been noted above that section 124 recognises only such
contract as contract of indemnity where there is a promise to save another person from
loss which be caused by the conduct of the promisor himself or by conduct of any
other person. It does not cover a promise to compensate for loss not arising due to
human agency. If under a contract of insurance an insurer promises to pay
compensation in the event of loss by fire. Such contracts are valid contracts as being
contingent contracts under sec.31.
Q2. Discuss the nature, rights and liabilities of a surety.

INTRODUCTION:- The surety who is entitled to be reimbursed by the principal
debtor for the amount paid by him on his behalf. The liability of the surety is co-
extensive with that of the principal debtor unless it is otherwise provided by the
contract under section 128.
NATURE OF SURETY:- Section 128 surety liability is co-extensive with that of the
principal debtor which means that on a default having been made by the principal
debtor the creditor can recover from surety the all what he could have recovered from
the principal debtor.
Example:- The principal debtor makes a default in the payment of a debt of
Rs.10,000.00, the Creditor may recover from the surety the sum of Rs.10000/- plus
interest becoming due thereon as well as the amount spent by him in recovering that
amount.
LIABILITY OF SURETY:- A bare perusal of section 128 of the Contract Act would
make it clear that the liability of a surety is co-extensive with that of he principal
debtor. The word co-extensive denotes that extent and can relate only to quantum of
the principal debt. Refer a case of Industrial Financial Corporation of India v/s
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Kannur Spinning & Weaving Mills Ltd, 2002: However the liability of the surety
does not cease merely because of discharge of the principal debtor from liability.
Bank of Bihar Ltd. v/s Damodar Prasad, 1969: The Supreme Court held that the
liability of the surety is immediate and cannot be defended until the creditor has
exhausted all his remedies against the principal debtor. Maharashtra Electricity
Board Bombay v/s Official Liquidator and Another, 1982: under a letter of
guarantee the bank undertook to pay any amount not exceeding Rs.50000/- to the
Electricity Board. It was held that the Bank is bound to pay the amount due under the
letter of guarantee given by it to the Board.
RIGHTS OF SURETY:-
The surety has certain rights against the principal debtor, the creditor and the co-
sureties. His right against each one of them are being discussed as under :-
1. Right of Subrogation: Under section 140 when a principal debtor makes a default in
the performance of his duty and on such default the surety makes the necessary
payment or makes performance of all what he is liable. Firstly the surety can claim
indemnity from the principal debtor secondly he is also entitled to the benefits of every
security which the creditor has against the principal debtor. Case of Mukesh Gupta
v/s Sicorn Ltd. Mumbai, 2004.
2. Right of Indemnity against the principal debtor: Similarly as above when a
principal debtor makes a default the surety has to make the payment to the creditor.
After making the payment he can recover the same from him under section 145 of the
act.
3. Right against Creditor to take back the securities deposited by the Principal
debtor:- After making the dues the surety has all the rights which are available to the
creditor against the principal debtor under section 141 of the act. He is entitled to the
benefit of every security which the creditor has against the principal debtor.
4. Surety has no right to goods in hypothecation:- In case there is hypothecation of the
goods the goods remain in the possession of the borrower the surety cannot invoke the
provision of section 141 in such case. Refer a case of Bank of India v/s Yogeshwar
Kant Wahhera, 1987.
CONCLUSION:- Keeping in view the above facts it is revealed that the surety’s
nature, liabilities and rights are of such types once he stands surety for any debt he will
remain bound till the amount is repaid by the principal debtor. Although the surety
has some rights such as right of subrogation, indemnity and to taking back the
securities but even though there are more complications in this regard. So one should
stand surety for a person who have some qualities of good pay master.

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Q3. The liability of the surety is co-extensive with that of Principal

debtor.
INTRODUCTION:
Surety’s Liability : The liability of the surety is co-extensive with that of the principal
debtor, unless it otherwise provided by the contract for example A guarantees to B for
the payment of a bill of exchange by C, the acceptor. The bill is dishonoured by C. A
is liable not only for the amount of the bill but also for any interest and charges which
may have become due on it.
DEFINITION OF CO-EXTENSIVE:
Section 128 of the Indian contract Act provides the following definition in respect of
the surety liability:-
“It says that the liability of the surety is co-extensive with that of the principal
debtor unless it otherwise provided by the Contract.”
A case of law in this regard is of Andhra Bank Soryapeet v/s Anantnath Goel-
1991: It was held by the court that where there were joint promisors and consideration
was paid by only one of them the other piomisors were equally liable to pay amount.
The liability of son was co-extensive with his father who was principal debtor in view
of section 127 and 128 of the Indian contract Act.
The list of some the leading cases in which the liability of the surety is co-
extensive are given below to strengthening the answer of the question:-
 Kellappan Nambiar v/s Kanhi Raman-1957: In this case that if the principal debtor
happens to be a minor and the agreement made by him is void, the surety too cannot
be made liable in respect of the same because the liability of the surety is co-extensive
with that of principal debtor. It has been held that the guarantee of the loan or an
overdraft to an infant is void because the loan to the infant itself is void.
 That in case of State Bank of India v/s V.N. Anantha Krishnam-2005: that in view
of the provision of section 128 of Act the Presiding officer was not correct in giving
directions to the Bank to proceed against the property because cash credit facility and
the liability of surety was co-extensive with that of principal debtor.
 In a case of Bank of Bihar Ltd. v/s Dr.Damodar Prasad -1969: The Supreme Court
held that the liability of the surety is immediate and cannot be defended until the
creditor has exhausted all his remedies against the principal debtor.
 A case of Industrial Financial Corporation of India v/s Kannur Spining &
Weaving Mills Ltd.-2002: It was held that the liability of surety does not cease
merely because of discharge of the principal debtor from liability.
 In a case of Harigobind Aggarwal v/s State Bank Of India-1956: It was held that
the principal debtor liability is reduced e.g. after the creditor has recovered a part of
the sum due from him out of his property the liability of the surety is also reduced
accordingly.
CONCLUSION: On deeply going into depth of provisions laid down in the Act it is
revealed that surety liability is co-extensive with that of principal debtor means that
his liability is exactly the same as that of the principal debtor. Suppose if the default
having made by the principal debtor the creditor can recover the same from the surety
all what he could have recovered from the principal debtor.

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Q4. What do you understand by contract of guarantee? How does it

differ from contract of Indemnity?
INTRODUCTION: -
The contract of guarantee may be an ordinary or some different type of guarantee
which is different from an ordinary guarantee. Guarantee may be either oral or written.
Basically it means that a contract to perform the promise or discharge the liability of
third person in case of his default and such type of contracts are formed mainly to
facilitate borrowing and lending money which based on the following facts :-
i) Surety is the person by the whom the guarantee is given.
ii) Principal debtor is the person from whom the assurance is given.
iii) Creditor is the person to whom the guarantee is given.
DEFINITION: - “A contract of guarantee is a contract to perform the promise or to

discharge the liabilities of a third person in case of his default. The person who gives
the guarantee is called surety, the person in respect of whose default the guarantee is
given is called Principal Debtor and the person to whom the guarantee is given is
called creditor. A guarantee may be either oral or written.”
ILLUSTRATION: - A promises to a shopkeeper C that A will pay for the items being
bought by B if B does not pay this is a contract of guarantee. In case if B fails to pay C
can sue A to recover the balance the same was held in the case of Birkmyr v/s
Darnell-1704, the court held that when two persons come to shop one person buys and
to give him credit the other person promises, “ if he does not pay, I will”, this type of
a collateral undertaking o be liable for the default of another is called a contract of
guarantee.
ESSENTIALS: - The following are the essential elements of Guarantee:-

1. Existence of Creditor, Surety, and Principal debtor: - The economic function of a
guarantee is to enable a credit-less person to get a loan or employment or something
else. Thus there must exist a principal debtor for a recoverable debt for which the
surety is liable in case of the default of the principal debtor. In the case of Swan v/s
Bank of Scotland -1836, It was held that a contract of guarantee is a triplicate
agreement between the creditor, the principal debtor and the surety.
2. Distinct Promise of Surety: - There must be distinct promise by the surety to be
answerable for the liability of the Principal debtor.
3. Liability must be legally enforceable: - Only if the liability of the principal debtor is
legally enforceable, the surety can be made liable. For example a surety cannot be
made liable for a debt barred by Statute of Limitation.
4. Consideration: - As with any valid contract the contract of guarantee also must have a
consideration. The consideration in such contract is nothing but anything done or the
promise to do something for the benefit of the principal debtor. The section 127 of the
Act clarify as under :-
“Anything done or any promise made for the benefit of principal debtor is
sufficient consideration to the surety for giving the guarantee.”
Illustrations: -

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1. A agrees to sell to B certain goods if C guarantees for payment of the price of the
goods. C promises to guarantee the payment in consideration of A’s promise to
deliver goods to B. This is sufficient consideration for C’s promise.
2. A sells and delivers goods to B. C afterwards requests A to forbear to sue B for an
year and promise if A does so he will guarantee the payment if B not pay. A forbears
to sue B for one year. This is sufficient consideration for C’s guarantee.
5. It should be without misrepresentation or concealment: - Section 142 of the Act
specifies that a guarantee obtained by misrepresenting facts that are material to the
agreement is invalid, and section 143 specifies that a guarantee obtained by concealing
a material fact is invalid as well.
Illustration :- 1. A appoints B for collecting bills to account for some of the bills. A
asks B to get a guarantor for further employment. C guarantees B’s conduct but C is
not made aware of B previous mis-accounting by A. B afterwards defaults. C cannot
be held liable.
Illustration: 2- A promise to sell Iron to B if C guarantees payment. C guarantees
payment however, C is not made aware of the fact that A and B had contracted that B
will pay Rs.5/- higher that the market price. B defaults. C cannot be held liable
A case of London General Omnibus V/s Holloway- 1912: A person was invited
guarantee an employee, who was previously dismissed for dishonesty by some
employer. This fact was not told to the surety. Later on the employee embezzled funds
but the surety was not held liable.
CONCLUSION:
It is noted from the above mentioned facts that the contract of guarantee is a triplicate
agreement between Creditor, Surety and the Principal debtor. A person who stands for
surety known as guarantor for a third person (principal debtor) who in case of his
default to fulfil his promise or to discharge the liabilities. The surety or guarantor has
to make a distinct promise for payment of the liabilities of the Principal debtor which
must be legally enforced.
Q5. What is continuing Guarantee? Under what circumstances it can

be revoked?
INTRODUCTION:
A guarantee which extends to a series of transactions is called continuing guarantee.
A guarantee may be an ordinary guarantee or a continuing guarantee is almost
different from an ordinary guarantee.
EXAMPLE:- A in consideration that B will employ C in collecting of Rent of B’s
Zamidari. B promises that he is responsible to the amount of Rs.5000/- for due
collection and payment by C of those rents. This is a continuing guarantee.
2. A guarantees payment to B, a tea-dealer, for any tea that C may buy from him from
time to time amount of Rs.100/-. Afterwards, B supplies C tea for the amount of
Rs.200/- and C fails to pay. A’s guarantee is a continuing guarantee and so A is liable
for Rs.100/-.
It is clearly noted from the above examples that continuing guarantee is given to
allow multiple transactions without having to create a new guarantee for each
transaction.
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DEFINITION:- Section 129 of the Contact Act, continuing guarantee means a

guarantee which extends to a series of transactions without creating a new guarantee
for another transaction is called continuing guarantee.
Illustration:- A guarantees payment to B for 5 sacks of rice to be delivered by B to C
over the period of one month. B delivers sacks to C and C pays for it. Later on B
delivers 4 more sacks but C fails to pay. A’s guarantee is not a continuing guarantee
and so he is not liable to pay for the 4 sacks.
REVOCATION OF CONTINUING GUARANTEE:

Section 130 of the Act a continuing guarantee can be revoked at any time by the
surety by a notice to the creditor. Once the guarantee is revoked the surety is not liable
for any future transaction however he is liable for all the transactions that happened
before the notice of revocation is given.
1. A promises to pay B for all groceries bought by C for a period of 12 months if he fails
to pay. In the next three months C buys 2000/- worth of groceries. After 3 months, A
revokes the guarantee by giving a notice to B. C further purchases 1000 Rs of
groceries. C fails to pay. A is not liable for 1000/- rupees of purchase that was made
after the notice but he is liable for 2000/- of purchase made before the notice
2. Lloyd’s v/s Harper-1880: It was held that employment of a servant is one
transaction. The guarantee for a servant is thus not a continuing guarantee and cannot
be revoked as long as the servant is the same employment. Wingfield v/s De St
Cron-1919: it was held that a person who guaranteed the rent payment for his servant
but revoked it after the servant left his employment was not liable for the rents after
revocation.
3. A guarantees to B to the amount of Rs.10,000/- that C shall pay for the bills that B
may draw upon him. B draws upon C and C accepts the bills. Now A revokes the
guarantee. C fails to pay the bill upon its maturity. A is liable for the amount upto Rs.
10,000.00.
4. As per provisions laid down in Section 131 of the Act that the death of the surety acts
as a revocation of continuing guarantee with regards to future transactions if there is
no contract to the contrary.
It is pertinent to mention here that there must not be any contract that
keeps the guarantee alive even after the death. In the case of Durga Priya v/s Durga
Pada -1928 : It was held by the court that in each case the contract of guarantee
between the parties must be looked into to determine whether the contract has been
revoked due to the death of the surety or not. It there is a provision that says that death
does not cause the revocation then the contract of guarantee must be held to continue
even after the death of the surety.
Conclusion:- A guarantee which extends to a series of transactions is called

continuing guarantee. A guarantee may be an ordinary guarantee or a continuing
guarantee is almost different from an ordinary guarantee. In Contract of guarantee
between the parties must be looked into to determine whether the contract has been
revoked due to the death of the surety or not. It there is a provision that says that death
does not cause the revocation then the contract of guarantee must be held to continue
even after the death of the surety.
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Q6: EXPLAIN THE STANDARD OF CARE REQUIRED OF A BAILEE IN

RESPECT OF GOODS BAILED TO HIM.
INTROUCTION:
The standard of care is required is that of a reasonable man. The amount of care to be
taken should be such as a man of ordinary prudence would under similar
circumstances take of his own goods of the same bulk quantity and value as the goods
bailed.
DEFINITION OF STANDARD OF CARE:

While going through the contents of the provisions laid down in Section 151 of the
Contract Act it is noticed that “in all cases of bailment the bailee is bound to take as
much as care of the goods bailed to him as a man of ordinary prudence would under
similar circumstances take of his own goods of the same bulk and quality and value
and value as the goods bailed.”
On perusal of the definition it is revealed uniform duty of maintaining the standard of
care in respect of the goods bailed to him. However the following steps may also be
taken to maintain the standard of care:-
1. The Bialee should act as a prudent man: When the goods are bailed to him then he
should take such standard way of care as a man of ordinary prudence would like to
take of his own goods. If the bailee has not acted like an ordinary prudent man he
cannot be excused. A case of Union Bank of India v/s Udho Ram & sons-1963: It
was held railway did not take proper care and failed to keep an eye on wagons which
resulted theft.
2. In Calcutta Credit Corportation Ltd. v/s Prince Peter of Greece-1964: A car was
received for repairs by a garage which was damaged by fire. The car was parked in a
garage which was a partitioned by wooden walls, it also stored the paint and thinners.
When the fire open the car where it was kept could not opened for fifteen minutes
when the fire was notice. It was held that the bailee had not taken a standard of care
and he is liable.
3. Barbant & Comp. v/s King, 1895: The House of Lords held that the only cases
where the bailee would be immune are laid down expressly in section 152 of the
contract act, If he has taken the amount of standard of care of it as described in section
151 of act that the degree of care needed must be maintained.
4. Laxmi Narayan v/s The Secretary for State for India:1923: that when a carrier of
goods transports jute in a boat which has leaks on its side and the goods get damaged
as a results of un attended and unsafe place and lack of standard of care.
CONCLUSION: The facts and factors mentioned above it is observed that the degree
of care needed varies with the kind of engagement and therefore when a person
undertakes such a job the law not only requires that he should possess the requisite
skill but also that he has the requisite plants and appliances and well acquitted about
maintaining the standard of care. and also that his premises are also reasonable
suitable for doing that job.

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Q7. What can be pledged and who can make a valid pledge?
Differentiate Pledge and Lien.
INTRODUCTION:
Section 172 says pledge is a bailment the delivery of the goods from the pawnor to
the pawnee which is essential. There must be delivery of the goods i.e. the transfer of
possession from one person to another. The delivery however, be either actual or
constructive. Mere agreement to transfer of possession in future is not enough to
constitute a Pledge.
Revenue Athority v/s Sunderasanam Pictures, 1968: It was held that an agreement
wherein the producer of a film agrees to deliver final prints of the film under
production when the same are ready to a financier distributor in return for the finance
provided by the latter is not pledge because there is no deliver of goods.
WHAT CAN BE PLEDGED:- Pledge is a kind of bailment where the goods are
delivered by one person to another as security for payment or performance of a
promise. If the goods are in the possession of a third person there is deemed to be no
delivery of the goods unless and until the third person acknowledges to the transferee
that he holds the goods. The following things can be pledged:-
i) Only the moveable goods can be pledged.
ii) The goods which are in possession of the True Owner should have a clear title and
valid documents.
WHO CAN MAKE A VALID PLEDGE:- Ordinarily he should be the owner of the
goods, or any person authorised by him in that behalf who can pledge the goods. If a
servant has the custody of the goods or a tenant gets the possession of a furnished
house, the servant cannot pledge the goods nor can a tenant pledge the furnishing
materials in his possession.
A person obtaining the goods fraudulently does not have any right to pledge
them as described in a case of Purshotam Das v/s Union of India-1967. In the
following exceptional cases a person who is neither the owner nor having any
authority from the owner for pledging the goods, but having possession with the
owner’s consent can make a pledge and confer rights on the pledgee. These are as
under:-
1. Pledge by Mercantile Agent: Section 178 of the Act a mercantile Agent having the
possession of the goods with the consent of the owner but having no authority to
pledge them can make a pledge provided the pledgee or pawnee is acting in good
faith. He must pledge the goods while acting in the ordinary course of his business
of a mercantile agent.
2. PLEDGE BY PERSON IN POSSESSION UNDER A VOIDABLE CONTRACT:
The Act recognises another exception to the rule that either the owner or his duly
authorised agent can pledge the goods. According to this a person who has obtained
the possession of the goods under a voidable contract.
Voidable contract is a valid contract until it has been rescinded and becomes
void after the same has been rescinded. If the pawnor has obtained the possession of
the goods under a voidable contract but the contract has not yet been rescinded, the
pledgee is capable of having a good title to such goods. Thus if a person has obtained
the possession of goods by fraud, misrepresentation, coercion or undue influence, he
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could make a valid pledge of the goods if the same is done before the contract has
been rescinded. A case of Phillips v/s Brooks Ltd., 1919: It was in this case that
pledge was valid.
3. Pledge by a person with a limited interest: - This Provision have been given in the
section 179 of the act that a person having limited interest in the goods may make a
valid pledge. For example : A pledges the goods to B for Rs.5000/- and B makes a
sub pledge of those goods for Rs.8000/- A gets a right to take back those goods only
by paying Rs.5000/-as held in case of Belgawn Poiner Urban Co-op Credit Bank
v/s Satyaparmoda-1962.
Difference between Pledge & Lien

Pledge Lien
Pledge is a kind of bailment and security. In right of lien it is not so as in

Pledge.
In a pledge pawne acquires a special interest Right to lien gives only a right to
in the property pledged. detain the subject matter of the lien
until payment. Lien is not
transferable to a third person.
Pledge is deliver of goods to the creditor as Lien is a right of a creditor to retain
security for the debt. the goods until his debt is paid or
satisfied
CONCLUSION:- In Pledge which a kind of bailment and also to be considered as

security for the debt of the creditor. It is also essential in the Pledge that there must be
delivery of the moveable goods from pawnor to pawnee and transfer of possession
from one fellow to another. A person who is having the possession of goods and
consent of the true owner and acting in good faith can make a valid pledge.

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Q8. What is bailment? Explain its essential ingredients of Bailment?

What are the duties & rights of Finder of the goods as a Bailee?
INTRODUCTION:
Means delivery of goods i.e. moveable property by one person who is generally the
owner thereof, to another person for some purpose. The goods are to be returned to the
owner after accomplished the purpose to take further action as per directions of the
owner of the goods. A.T.Trust Ltd., v/s Trippunhura Devaswomi-1954. In a
contract of bailment the person who delivers the goods called the “Bailor” and to
whom the goods are delivered is called as “Bailee”.
DEFINITION:
Section 148 of the Indian Contract Act, A bailment is the delivery of goods by one
person to another for upon a contract that they shall when purpose is accomplished be
returned or otherwise disposed of according to the directions of the person delivering
them. The person delivering the goods is known as BAILOR and the person to whom
goods are delivered is known as the BAILEE.
ESSENTIAL INGREDIENTS OF BAILMENT:-

The following are the essentials of the bailment under the Contract Act:-
(a) DELEVERY OF GOODS FOR SOME PURPOSE:- Delivery means transfer of
the goods from the possession of one person to another person. Delivery need not
always be actual, sometimes it may be constructive or symbolic as per instructions laid
down in section 149 of the Act, and this section recognises it other than actual
delivery. However section 149 also provides below in this regard:-
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 any other person
authorized to hold them on his behalf.”
i) Jagdish chand Trikha v/s Punjab National Bank, 1998 : It was held by the court
that the position of the bank was that of a Bailee and it failed in its duty to take care of
the goods and return them to the Bailor. The Bank was held liable to pay the cost of
Rs. 3,72,400/- along-with simple interest @12% from the date of institution of the
suit.
ii) Ultzen v/s Ni coles, 1894:- It was held that the defendant was the bailee of the coat
as his servant had assumed the possession of the same and he was therefore liable for
its loss which was occurred due to his negligence.
(b) IF THE OWNER MAINTAINS CONTROL OVER THE GOODS THERE

IS NO BAILMENT: When the person keeps his goods in the premises of others but
himself continues to have the control over them, this is not sufficient delivery for
being considered to be bailment. Kaliaporumal Pillai v/s Visalakshmi, 1938 : It was
held that there was no bailment as she had not handed over the possession of the
jewels to the goldsmith, and therefore the goldsmith could not be made liable for the
loss. Punjab National Bank v/s Sohan Lal, 1962, It was held that the locker could be
operated even without the key with the consumer. The consumer’s control over the
valuable things in the locker had gone and the same with the bank, therefore the bank

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was liable being bailee and thus Bank is liable for the loss of the belonging of the
consumer in the locker.
(c) THERE CAN BE BAILMENT WITHOUT CONTRACT:- In some cases there
can be a bailment when the person obtains the possession without a contract of the
bailment as it was done in the case of :Ram Gulam v/s Govt. Of Uttar Pradesh-
1950, The court expressed that the property of plaintiff was stolen and the same was
recovered by the Police, Police kept the same in the Malkhana. Property was again
stolen from the Maalkhana and could not be traced out. Here the point of bailment
raised since no contract of bailment was made for which conviction is announced but
the law itself recognises the finder of the goods as bailee under section 71 of contract
Act, hence it was held that bailment can be even there when there is no contract of
bailment. L.M. Co-operative Bank v/s Prabhudass HathiBhai-1966:- It was held
that the government stood in the position of a Bailee to take due care of the goods.
Govt., duty to prove that they had taken proper care as was possible for them and the
damage was due to reasons beyond their control.
RETURN OF GOODS AFTER THE PURPOSE IS ACHIEVED: OR

THEIR DISPOSAL ACCORDING TO THE BAILOR DIRECTIONS:- The
delivery of the goods in a bailment is only for some purpose i.e. for safe custody, for
carriage, for repair etc., when the purpose is accomplished the goods are to be returned
or otherwise disposed of according to the directions of the person delivering them.
According to Section 148, the goods shall be when purpose is achieved returned to the
bailor or disposed of as per his directions i.e. when the cloth is given for being stitched
in to suit or gold for being converted into ornaments or wheat for being converted into
flour there is a bailment in each case. When the money is deposited into a Bank, when
the agent receives some payment on behalf of Principal, he is not the bailee thereof
because he is only bound to pay an equivalent of it to the principal rather than the
same currency as done in the case of: - Secretary of State for India Council v/s Sheo
Singh-1880: Some notes were given to Treasury for being cancelled, there is no
bailment as the same notes are not to be returned. Constructive bailment does not
confer any right to a stranger. Bailment regarding hiring of a locker will not create
relationship of Land lord and the tannent, as the Bank can always open the locker with
a Master Key. The hirer of the locker is not in a position to open the locker without
the assistance of the Bank. The Hirer has to operate the locker only within the Bank’s
time but the bank has no such limitation
CONCLUSION:
Keeping in view the above stated facts and the gist of the decisions of the Courts it is
noticed that the goods are to be returned to their original owner after the purpose is
accomplished or they are to be disposed of as per the directions of the Bailor in same
condition as these were bailed.

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Q9. Define Pledge and distinguish between Pledge and Bailment.

INTRODUCTION:
Section 172 of the Act: Since pledge is a bailment the delivery of the goods from the
pawnor to the pawnee which is essential. There must be delivery of the goods i.e. the
transfer of possession from one person to another. The delivery however, be either
actual or constructive. Mere agreement to transfer of possession in future is not
enough to constitute a Pledge.
Revenue Athority v/s Sunderasanam Pictures-1968: It was held that an agreement
wherein the producer of a film agrees to deliver final prints of the film under
production when the same are ready to a financier distributor in return for the finance
provided by the latter is not pledge because there is no deliver of goods.
DEFINITION OF PLEDGE:- Section 172 of the Contract Act, “Pledge is the
bailment of goods as security for the payment of a debt or for the performance of a
promise.” The delivery may be actual or constructive. The possession in a pledge
must be judicial possession. Mere physical possession in not sufficient.
DEFINITION OF BAILMENT:- The delivery of the goods by the bailor to the
bailee is the essence of the bailment. Unless there is actual delivery there is no contract
of bailment.
Section 148 of the contract act defines bailment as under:- “ A bailment is a delivery
of goods by one person to another for some purpose upon a contract that they shall
when the purpose is accomplished be returned or otherwise disposed of according to
the directions of the person delivering them.”
DIFFERENCE BETWEEN PLEDGE & BAILMENT

PLEDGE BAILMENT
Pledge is a species of bailment. Bailment is a genus.
Pledge is bailment of goods as Bailment is a delivery of goods by one

security for the payment of debt or person to another for some purpose
for the performance of a promise. upon a contract.
Moveable property is subject-matter In the contract of bailment after the

of pledge under the contract Act. accomplishing of the purpose the goods
are to be returned or otherwise
disposed of according to the directions
of the Bailor.
CONCLUSION:
In Pledge which a kind of bailment and also to be considered as security for the debt
of the creditor. It is also essential in the Pledge that there must be delivery of the
moveable goods. Whereas in the contract of bailment there is a delivery of goods by
one person to another for some purpose and when the purpose is accomplished the
goods are to be returned or to disposed of as per the directions of the Bailor.

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Q10. Explain the Rights and the Duties of BAILEE.

INTRODUCTION:
Bailee is one of the most important character of the Bailment Contract. Bailee is of
that to whom the goods are delivered by the Bailor with some directions and to
complete some certain purpose. Bailee receives only the moveable things and he has
to returned the goods which he receives after accomplishing the purpose or he has to
disposed of that things with the directions of the owner of that goods.
RIGHTS OF BAILEE:- Under the provisions of Indian Contract Act 1872, the
following are the rights to the bailee in Bailment contract:-
1. RIGHT TO RECOVER NECESSARY EXPENSES INCURRED ON
BAILMENT:- According to section 158 of the Act when a contract of bailment is
made some remuneration is to be paid to the bailee for the services he renders in
respect of them. So he has the right to recover the same. In case of gratuitous of
bailment the bailee has no right even not entitled to receive any remuneration for the
services he renders.
Section 158 says that, “Where by the conditions of the bailment the goods are to
be kept or to be carried or the work to be done upon them, the bailee for the bailor and
the bailee is to receive no remuneration the bailor shall pay the necessary expenses
incurred by the bailee for the purpose of bailment.”
Illustration: - A leaves his horse with the neighbour for safe custody for a week. B is
entitled to recover the expenses incurred by him in feeding the horse.
2. RIGHT TO RECOVER THE COMPENSATION:- According to section 164 of the
act, “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 in respect of them.”
From the definition it is noticed that when the Bailor sometime not entitled to
make the bailment or to receive back the goods which may results a loss to the bailee,
then the bailee is entitled to recover the loss from the Bailor.
3. RIGHT OF LIEN ON THE GOODS BAILED:- According to section 170-171 of
the Act the bailee can retain the lien on the goods of the Bailor and can refuse to
deliver them back to Bailor until his due remuneration for services he renders or any
amount due is paid by the Bailor.
4. Compensation for the loss caused by non-disclosure of faults in goods Bailed:-
The goods so bailed contain a fault which is known to the bailor but he does not
convey it to the bailee and as a result thereof bailee sustains some injury. The bailee
can ask for the compensation.
5. Loss caused by the defects of thing bailed:- When the things bailed for hire or on
rent the bailee can ask for compensations for the loss or injury caused by both latent or
patent defects of the thing bailed irrespective of awareness of bailor about those
defects as provided in sec.150 of the Act.
6. Right to sue: The bailee has the right to sue the wrong-doer who wrongfully deprives
the bailee of the use or possession of the goods bailed or does them any injury on the
basis of instructions in Sec.180 of the Act.

15
DUTIES OF THE BAILEE: A bailee has to observe the following duties:
1. Duty to take reasonable care of the goods bailed: under section 151-152 of the act
bailee is bound to take reasonable care of goods bailed to him as man of ordinary
prudent under similar circumstances as he is taking care of his own goods.
2. Duties not make unauthorised use of the goods bailed: Section 153-154 of the act
bailee is not authorised to make unauthorised use of the goods bailed to him.
3. Duty not to mix bailor’s goods with his own goods: Act says through its section155
and 157 that bailee may not mix the bailed goods with his own goods which will
create a problem at the time of return of the goods to bailor.
4. Duty to return the goods on fulfilment of the purpose: Section 159-161and 165-
167 provides that when the purpose is accomplished the bailee has to return the goods
to bailor or to disposed of as per his directions.
5. Duty to deliver to the bailor increase or profit on the goods bailed:- Under secion
163 of the Act it is the duty of the bailee to pay to bailor the profits earned through the
goods bailed or any increase thereby.
CONCLUSION:
If the bailee performed his duties with entire of his dedications, honesty and in good-
faith and also to enjoy his rights on the basis of the provisions laid down in the
Contact Act then there will be no creation of any problem and the agreement will also
be fulfilled.
Q11. Explain various ways in which an agency relationship is created.

Also describe about the different kinds of Agent?
INTRODUCTION:
An agent is a person employed to do any act for another or to represent another in
dealing with third parties. The person for whom such act is done or who is so
represented is called the principal. Where one person mere gives advice to another in
matter of business agency does not arise because of such advice only does not create
an Agency. Sayed Abdul Khader v/s Rami Reddy,1979.
The following are the various ways in which a relationship of agency is created:-
WHO MAY EMPLOY AGENT:- No person can employ an agent if he does not
possess capacity to contract. So a minor or person of unsound mind cannot become the
principal under section 183 of the Indian Contract Act.
WHO MAY BE AN AGENT:- According to section 184 of the Act any person can
be appointed as an agent but a person who is not of age of majority and of sound mind
cannot be made personally liable for the act done on behalf of the principal. Minor can
create contractual relation but a minor agent cannot be made personally liable to the
principal for the misconduct like an adult agent.
CONSIDERATION: No consideration is required for the creation of an Agency
under section 185 of the Act. A case of Digvijay Cement Co.Ltd. v/s State Trading
Corpn., 2006.
KINDS OF AGENT:- On the basis of provisions available in the Contract Act the
following are kinds of Agent in the business of Agency:-

16
1. Del-Credere Agent:- Such type of Agent who for extra remuneration undertakes the
liability of guarantee the due performance of the contract by the other party. He is also
responsible for the solvency and performance of their contracts by the other parties.
2. COMMISSION AGENT:- A commission agent is person who purchases and sells
goods in the market on behalf of his employer on the best possible terms and who gets
commission for his labor.
3. FACTOR:- He is such type of agent who is given the possession of the goods for the
purpose of selling them. He is entitled to sell the goods in his own name. A factor has
a right to retain the goods for a general balance of accounts.
4. BROKER:- He is also to be known in the name of Mercantile Agent employed for the
purpose of sale and sale of goods. The main duty of a broker is to establish privity
between two parties for a transaction and he gets commission for his labour. He is not
entrusted with the possession of the goods. He merely brings two parties together and
if the deal is materialized he becomes entitled to the commission.
5. CO-AGENT:- Where several persons are expressly authorized with no stipulation that
anyone or more of them shall be authorized to act in name of the whole body. They
have a joint authority and they are called co-Agents.
6. Sub-Agent:- The sub-agents are usually appointed by the original Agent in the
business of Agency. He works under the control of original Agent.
7. PACCA- AARTIA:- He is also known by this name only and he works in the open
market to sell the goods on commission basis. He only sells the goods.
CONCLUSION:- As regards to determine whether relationship is that of Agent and
Principal or that of Master and servant. Agent has to remain faithful to his principal
and has work in good faith in the business of Agency. There must be relation in
between principal and the agent. Merely giving advice to another person in the matter
of business does not arise any business of agency. The main object of the agency
business that the agent makes the principal answerable to third person.
Q12. What are the circumstances in which Agency is terminated?

INTRODUCTION:- Contract entered into through an Agent and obligations arising
from the acts done by an agent be enforced in the same manner and will have the same
legal consequences as if the contract has been entered into and the acts done the
principal in person as described in section 226 of the Act. Where a Agent does not
work in good faith and is not loyal to his principal and tries to commit fraud or
misrepresent in the business of Agency then principal is bound to take steps towards
termination of the agency.
The following may the reasons which can be responsible for the termination of the
Agency:-
1. By the principal revoking his authority: Under section 203 of Contract Act-1872
lays down that, the principal may save or otherwise revoke the authority given to his
agent at any time before the authority has been exercised so to bind the principal.
2. By the Agent renouncing the business of the Agency:- Section 206 of Indian
Contract Act, 1872 provides that, principal can revoke the agent’s authority so also the
agent can renounce the agency by giving a reasonable notice of renunciation otherwise
he will be liable to make the loss good for any damage. Sec. 207 further mentions that

17
like revocation the renunciation may also be express or implied in the conduct of
agent.
3. By the business of the agency being completed:- In term of contract where the
period of completion of the business is made the agency automatically stands
terminated.
4. By either the principal being adjudicated an insolvent: Section 201 of the Act
clearly indicates that, the agency which may be validy created stands revoked in the
event of different situations including the death or insanity of the principal or the agent
or by insolvency of the principal.
5. Principal should give reasonable notice of revocation:- Provisions says that a
reasonable notice of the revocation when he have the justification to revoke the
authority under sec.206.
6. By either the principal or Agent dying or becoming unsound mind: Section 201
also describes that, when principal dying or becoming of unsound mind agent is bound
o take on behalf of the representatives of his late principal all reasonable steps for the
protection of interests of agency.
7. By the happening of any event rendering the agency unlawful: - Whenever there is
declaration of war the principal and agent may become alien enemies also comes in
the way of termination of the agency.
8. If a limited period is given:- If the agency is for a fixed term, although with the
possibility of fresh appointment after the expiry of the term it automatically terminates
on expiry of the said term such agency cannot be said to be irrevocable as in the case
of P. sukhdev v/s Commissioner of Endowments-1997. Under sec.205.
9. MANNER AND CIRCUMSTANCES OF REVOCATION:- The principal may
have where the agent has himself an interest in the property which forms the subject
matter of the agency, revoke the authority given to his agent at any time before the
authority has been exercised so as to bind the principal under section 203 of the Act.
The Principal cannot revoke the authority given to his agent after the agent has partly
exercised his authority so far as regards such acts and obligations as arise from acts
already done in the Agency as laid down in the section 204 of the Act.
The reasonable notice of revocation is essential. Revocation may be express or implied
in the Contract of the business under section 206 of the act.
The revocation and renunciation may be expressed or may be implied in the conduct
of the principal or agent respectively under section 207 of the act.
ILLUSTRATION: - A empowers B to let A’s house. Subsequently A lets it himself.
This implied revocation of B’s authority.
CONCLUSION:
The effect of termination of Agency is on the maximum level to the Agent about his
earnings and also put the principal in financial losses. Agent must remain faithful in
the business of Agency. He should rendered the accounts, financial matters,
appointment of sub-agents and other activities relating to Agency to the notice of his
principal failing which it leads to termination of Agency.

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Q13. Discuss fully the extent of Principals liabilities to third parties for
the Act of the Agent.
INTRODUCTION:
Agent is a person employed to do any act for another or to represent another in
dealing with third persons. There one of the most essential characteristics of Agency is
that the agent makes the principal answerable to third persons. Principal is held bound
by the obligations incurred on his behalf by his agent. Section 226 to 228 of the Act
deals with the law regarding the obligations of principal for the contract of his Agent.
We will find from the following provisions and illustrations that how the
Principal’s liabilities and is bound answerable to the third parties for the acts done by
his agent:-
1. Principal’s obligation for acts of Agents:- Section 226 of the Indian Contract Act
provides that contract entered into through an Agent and obligations arising from acts
done by an Agent and will have the same legal consequences as if the contract has
been entered into and the acts done by the principal in person. This section is based on
the principle act as in Maxim which means that the act of an Agent is the act of the
principal.
ILLUSTRATION:- A being B’s Agent with the authority to receive money on his
behalf receives from C a sum of money due to B. C is discharged of his obligation to
pay the sum in question to B.
2. When an agent does more than he is authorized to do and when the part of what he
does, which is within his authority, can be separated from the part which is beyond his
authority the principal is liable only for so much part of what he does as is within
Agent’s authority as provided in Section 227 of the Act.
ILLUSTRATION:- A being the owner of a ship and cargo authorizes B to procure an
insurance for Rs.4000/- on the ship. B procures a policy for Rs.4000/- on the ship and
another for the like sum on the cargo. A is bound to pay the premium for the policy on
the ship but not the premium for the policy on the cargo.
3. An agent does more than he is authorized to do and what he does beyond the scope of
his authority is not separable from what is within it the principal is not liable for the
transaction as provided in the section 228 of the Act.
ILLUSTRATION:- Where A authorizes B to buy 5000 sheep for him and B buys
5000 sheep and 200 lambs for a sum rupees 6000/- . A may repudiate the whole
transaction.
4. OSTENSIBLE AUTHORITY:- Section 237 of the Contract Act embodies the
principle of ostensible authority. The section lays down When an agent has without
authority done acts or incurred obligations to third persons on behalf of his principal,
the principal is bound by such acts or obligations if 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.”
ILLUSTRATION:- A being B’s agent for the sale of goods induces C to buy them by
misrepresentation which he was not authorized by B to make. The contract is voidable
as between B and C, at the opinion of C. Under section 238 of the Act
misrepresentation or fraud committed by an Agent may be classified into two
categories:-
i)Under his actual or ostensible authority.

19
ii)Which is not covered within his authority, the principal is liable for the acts which fall
under actual or ostensible authority.
5. A leading case on this subject is of Lloyds v/s Grace Smith in which it was held that
a principal is liable for the fraud of his agent within the scope of his authority whether
the fraud is committed for the benefit of the Principal or for the benefit of Agent.
CONCLUSION:
On the perusal studies of the above provisions and the illustrations it is seen that the
liabilities of the Principal towards third persons are based on the acts done by his
agents. However in some cases it is also seen and Principal is not liable for any
wrongful act or omission of his Agent while acting without the principal authority
outside the ordinary course of employment or while not acting nor purporting to act on
his principal’s behalf.
Q14. Define the term Sub-Agent. How for is principal bound by the
acts of Sub-Agents. Distinguish between Sub-Agent and Substituted
Agent.
INTRODUCTION:
A rule which based on the principle that Agency is a contract based on trust and
mutual confidence between the parties. A principal may have the mutual confidence in
his Agent but not in the subsequent sub Agent appointed by the Agent. There is a
provision regarding ‘delegates non-protest delegare’ which means of this maximum is
that an agent to whom another has delegated his own authority cannot delegate that
authority to a third person.
PROVISIONS MADE IN THE ACT:- Under section 190 of the Contract Act which
deals with delegation of an authority by the Agent describes as under:-
“An agent cannot lawfully employ another to perform acts which he has expressly or
impliedly undertaken to perform personally unless by the ordinary custom or trade a
sub-agent may or from the nature of the agency a sub-agent must be employed.”
However the general principle is that the agent cannot delegate his authority to a third
person but there are two exceptions to this general rule.
These are:-
i)When the ordinary custom of trade permits employment of a sub-agent.
ii)When the nature of agency demands that employment of a su-agent is necessary by
the Agent.
Although there are two exceptional conditions no agent is authorized to delegate
his authority it the nature of his act is purely managerial and he is supposed to use his
personal skill in discharge of his duty or where he is personally required to perform his
duties.
SUB-AGENT:- Sub agent is a person employed by and acting under the control of the
original Agent in the business of Agency under section 191 of the Act.
LEGAL POSITION OF SUB-AGENT PROPERLY APPOINTED:- Sub Agent
may be either properly appointed or improperly appointed. If he is appointed by the
Agent with the authority of his principal he is called sub-agent properly appointed. If
he is appointed without the authority of principal he is improperly appointed.

20
When the sub-agent is appointed properly with the consent of the principal, the
principal is bound by his acts and is responsible for his action as if he was an agent
appointed by the principal.
The sub-agent is not responsible for his acts to principal. He is responsible only for
such acts to the original Agent.
But if the sub-agent is guilty of fraud or willful wrong against the principal he
becomes directly responsible to the principal under section 192 of the Act.
Difference between sub-Agent & substitute Agent

SUB-AGENT SUBSTITUTED AGENT
Sub Agent is a person employed by and Substituted agent can be nominated by
acting under the control of the original the original Agent to act for the
agent in the business of agency. principal for a certain part of the
business of agency.
A sub-agent is not generally responsible A substituted agent by his mere
to the principal but he is responsible to appointment becomes immediately
the agent. responsible to his principal.
There is no privity of contract between A privity of contract is created between
sub-agent and principal. the principal and the substituted Agent.
CONCLUSION:
There is lot of difference in between sub-agent and substituted agent one is appointed
by the original agent is immediate responsible to the original whereas the substituted
agent is directly responsible to the principal. He is appointed for some part of the
business of agency.
Q15. Sharing of Profits in business is not conclusive evidence of the

existence of partnership.
INTRODUCTION:
The object of every partnership must be to carry on a business for the sake of profits
and share the same. Therefore clubs, societies which do not aim at making profits are
not said to be a partnership. The definition of term ‘Profits’ in the Partnership Act is
that ‘net- gains’ i.e. he excess of the returns over outlay. At one time it was thought
that a person who shared the profits must incur the liability also as he was deemed to
be a Partner as it was held in a case of Grace v/s Smith, 1775. This principle was
again confirmed in a case of Waugh v/s Carver, 1793, it was held that the person
sharing the profits does not always incur the liability of partners unless the real
relation between them is that of partners.
ESSENTIALS:- Although sharing of profits is one of the essential elements of every
partnership but every person who shares the profits need not always be a partner.
Example No.1: - I may pay a share of profits to the manager of my business instead
paying him fixed salary so that he may takes more interest in the progress of the
business, such person sharing the profits is simply my servant or agent but not my
partner. Example No. 2:- A share of profits may be paid by a business man to a

21
money-lender by way of payment towards the return of his loan and interest thereon,
such a money-lender does not thereby become a partner.
a. The principle laid down in Cox v/s Hickman-1860: this principle forms the basis of
the provisions of section 6 of the Partnership Act which gives a caution that the
presence of only some of essentials of partnership does not necessarily result in
partnership. For determining the existence of partnership there must be had to the
real relation between the parties after taking all the relevant facts into consideration.
b. In determining whether a group of persons is or not a firm or whether a person is or is
not a partner in a firm. To answer this query an explanation is given below:
(i) 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 as
partners.
(ii) Receipt by a person of a share of the profits of a business or of a payment contingent
upon the earning of profits or varying with the profits earned by a business does not of
itself make him a partner with the persons carrying on the business and in particulars
the receipt of such a share by a servant or agent as remuneration a case of McLaren
v/s Verschoyle-190l, or by a widow or child of a deceased partner.
(iii) Mollow March & Co. v/s Courts of Wards-1872: In this case a Hindu Raja
advanced a large amount to a firm. Raja was given extensive powers of control over
the business and he was to get commission on profits until the repayment of loan with
12% interest. It was held by the Raja could not be made liable for the debts contracted
in the agreement was not to create Partnership but simply to provide security.
(iv) In a case of Walker v/s Hi4sch-1884: A person was working as clerk. The served a
notice by the defendants terminating his services. Clerk contented that he was a
partner and claimed dissolution of firm. I was held that though he shared the profits he
was having the capacity of a servant only. He was not a partner and could not see
dissolution of the firm.
CONCLUSION:
On nut-shell it could be concluded that just sharing the profits in the business is not
conclusive existence of the partnership till it create some relationship between the
persons who have entered into Partnership.
Q16. How the firm is registered? What is the effect of Registration &
Non-Registration of firms?
INTRODUCTION:
In the Contract Act it is not necessary that the firm should be registered at the time of
its formation. However a firm may be got registered at any-time after the creation of
Partnership. Act does not lay down any-time limit within which the firm should be
registered provided in section 63 of Partnership Act. The act does not impose any
penalties for non registration of firms.There are some disabilities are provided in
sec.69 of the Act for unregistered firms and their partners.
HOW THE FIRM IS REGISTERED:- The partnership agreement or any
transaction between the partners and third parties is void on the basis of non-
registration of partnership firm and the partners themselves. In addition to the above
no prudent partner or firm should hesitate to get his or its name registered at the

22
earliest possible opportunity. The procedure of registration is very simple as provided

in section 58 and 59 of the Act.
A registration of firm may be affected by submitting to the Registrar of Firms a
statement in the prescribed form and accompanied by the prescribed fee. The
application must bear the following information:-
The firm’s name. Place of business and the name of other places where the firm can
carry on business. Date of joining of each partner with their permanent addresses. The
duration of the firm.
When the Registrar is satisfied that the above mentioned requirements have been
complied with and then he shall record an entry of statement in the register. This
amounts to the registration of the firm.
Section 69 of the Act imposes certain claims in the Civil Courts. This section
provides pressure which is to be brought to bear on partners to have the firm and
themselves registered. The pressure consists in denying certain right of litigation to the
firm or partners not registered under this act. A cause of action arose when the firm
was unregistered but was registered at the time of filing the suit. It was held in the
case of State of U.P., v/s Hamid Khan & Bros. and othrs-1986: it was held that
section 69 to be inapplicable in this case.
EFFECTS OF NON-REGISTRATION& REGISTRATION
ON REGISTRATION OF FIRM ON NON-REGISTERED FIRM
Any partner, nominee and authorized No partner, nominee and agent can
agent can bring a suit to enforce a right bring a suit to enforce a right arising
arising from a contract against any past from a contract against any firm or any
or present partner and for the third past or present partner of the firm or
parties too. third parties.
Registered firm can claim of set-off or The disabilities as provided in sec.69 of
other proceedings to enforce a right the act i.e.to claim of set-off or other
arising from a contract u/s 69 of the Act. proceedings to enforce a right arising
from a contract.
Filing of the return every year is It is not required to file the return by the
necessary. un-registered firm.
Loonkaran v/s Ivan E. John, 1977, it was held that sec.69 is mandatory and
unregistered partnership firms cannot bring a suit to enforce a right arising out of a
contract falling within the ambit of sec.69 void.
In M/s Balaji Constructions co., Mumbai v/s Mrs. Lira Siraj Sheikh, 2006 It was
observed that the firm was not registered on the date of filing of suit and person suing
as partners were not shown in register of firm and suit by such firm hit by section
69(2) of Partnership Act and was liable to be dismissed.
CONCLUSION :
It is very well established that the partnership agreement or transaction between the
partners and third parties is void on the ground of Non-Registration of the firm as well
as of Partners. To enforce any right arising out of a contract the registration of both
firm and partners are necessary for the benefit of the both.

23
Q.17 Distinguish between partnership business and Joint Hindu family

business.
INTRODUCTION:
According to Partnership Act persons who have entered into partnership are
individually called partners and coactively a firm and the name under which their
business is carried on Is called firm name. In the eyes of law a firm is merely a
collective name of individuals who have entered into a partnership.
Whereas in Joint Hindu family business it is based on status of persons by virtue of
his being born in the particular family. The distinctions between these two can be
made on the basis of following facts:-
DIFFERENCE
ORDINARY PARTERNSHIP JOINT HINDU FAMILY BUSINESS
An agreement between the parties to join No such agreement is required. A joint
the partnership is necessary. family business is created by operation of
law.
The members of ordinary partnership The members of the joint family have
have no interest in the partnership by their interest & become shareholders and
birth. entitled to profits in the business by birth.
The partnership in ordinary partnership is On the death of one or more members the
automatically dissolved in case of death joint family business does not dissolve.
of any partner.
In case of ordinary partnership each In case of joint family business there is
partner has to render accounts to his co- no accounting between the member and
partners. neither any of them can ask for the
account regarding profits and losses of
the business.
In ordinary partnership each partner is the In joint family business the manager or
agent of the firm for the purpose of managers has as implied authority to
business of the firm. contract, debts and pledge the property
and credit of the family for the ordinary
purposes of family business.
In case of ordinary partnership the In joint family business the coparceners
relationship between partners arises out are the joint owners of the family
of a contract. property and their mutual rights are the
result of a status and not a contract.
CONCLUSION:
After going through the facts mentioned above it are clear that there are lot and lot of
difference in between an ordinary Partnership and Joint Hindu family business.
Ordinary partnership is a result of agreement between the parties to join partnership to
share the profits earned by the business being carried out from partnership whereas in
joint family business there is no need of an agreement it is created by operation of law.
In ordinary partnership each of the partners has to render the account and to work as
an agent. In joint business there is no need to render account of profit and loss.

24
Q18. Discuss the essentials of Partnership Firm.

INTRODUCTION:
Indian partnership Act was enacted in 1932 and it came into force on Ist day of
October, 1932. A partnership arises from a contract and therefore such a contract is
governed not only by the provisions of the Partnership Act but also by general law of
contract.
DEFINITION OF PARTNERSHIP:- Kent’s view “Partnership as a contract of two
or more competent persons to place their money, efforts, labour and skill or some of
them in lawful commerce or business and to share the profit and bear the loss in
certain proportions. “Dixon defines partnership as, “Group of Persons”. According of
Pollock, “Partnership is a relation which subsists between persons who have agreed to
share the profits of a business carried on by all or any of them on behalf of all of
them.”
Definition:- Section 4 of the Indian Partnership Act defines the ‘Partnership’ as
under:-Partnership is the relation between persons who have agreed to share the profits
of a business carried on by all or any of them acting for all.”
NATURE OF PARTNERSHIP:- Partnership is a form of business organization,
where two or more persons join together for jointly carrying on some business. It is an
improvement over the ‘Sole-trade’ business, where one single individual with his own
resources, skill and effort carries on his own business. Any two or more persons can
join together for creating Partnership.
In certain respects a partnership is a more suitable form of business organization than
a Company. For the creation of partnership just an agreement between various persons
is required. Whereas in the case of company there are a lot of procedural formalities
which have to be gone through to create a Company. In the case of company the
control over regarding distribution of profits, holding of meetings, maintaining of
accounts runs through a statutory control. Whereas in partnership firm the partners are
the master of their affairs.
ESSENTIALS OF PARTNERSHIP: THE FOLLOWING ARE THE
ESSENTIALS OF THE PARTNERSHIP:-
1. PERSONS WHO HAVE AGREED:- A question is arises at the preliminary stage is
that, “ who are the persons and who can agree for partnership:
(i) MINORS: - A minor is incompetent to contract case of Mohori Bibi v/s
Damodardass Ghosh-1903: Minor may not become partner but he can be admitted to
benefit of partnership and can share the profits. He cannot be liable for the losses.
(ii) CORPORATION: - A corporation is a legal person therefore corporation may enter
into a partnership with the condition only if the constitution of the corporation must
empowers it to form a partnership and not otherwise.
(iii) FIRM: - Firm is also recognized as a legal person in India and it cannot enter into a
partnership. A firm which is proprietorship firm or a company registered under the
Company’s Act can very well enter into a partnership but here is mentioned that
partnership firm is not a legal person therefore it is not competent to enter into a
partnership. Duli chand v/s CIT, 1956.
(iv) ALIEN: - A national of other country may be a friendly alien or an enemy alien. A
friendly Alien can enter into Partnership but latter Cannot except when he is under the
protection of that country.
25
2. TO SHARE THE PROFITS OF A BUSINESS:- This line consists the two parts: 1.
To share the profit and 2. Of a business. However the explanation of these two terms
are as under :-
(i) Business:-This definition is not exhaustive. The existence of business is essential
unless there is no intention to carry on business and to share the profits, there can be
no partnership. Therefore the objects of the partnership and business must be lawful.
Case of R.R.Sharma v/s Ruben, 1946.
(ii) Sharing of Profits:- A case of Cox v/s Hickman, 1860: though sharing of the profits
of business is essential. The definition leave it opens as to how and when these profits
are to be shared. In order to continue the partnership the actual existence of a business
carried on by partners with an agreement to share profits of such business is essential.
(iii) Sharing of losses Grace V/s Smith-1775, Mutual Agency and Acting for all and to
carry on the business are the essential terms of the partnership.
CONCLUSION:
In order to constitute partnership there must not only be sharing of profits but there
must be also the relationship and the principle of agency. Section 4 of the act that there
must be actual existence of a business carried on by the partners with an agreement to
share the profits of such business is essential.
Q. Principle/Doctrine of Holding Out.

INTRODUCTION:
Every partner is liable for all acts of the firm done while he is a partner. Therefore
generally a person who is not a partner in the firm cannot be made liable for an act of
the firm. In certain cases however a person who is not a partner in the firm may be
deemed to be a partner or held out to be a partner for the purpose of his liability
towards a third party.
The basis of liability of such a person is not that he was himself a partner or was
sharing the profits o4 was taking part in the management of the business but the basis
is the application of the law of estoppels because of which he is held out to be a
partner or deemed to be a partner by “holding out”
DEFINITION OF HOLDING OUT Section 28 of the Partnership Act makes the
following provision under this doctrine:-
(1)Anyone who by words spoken or written or by conduct represents himself or
knowingly permits himself to be represented to be a partner in a firm is liable as a
partner in that firm to anyone who has on the faith of any such representation given
credit to the firm, whether the person representing himself or represented to be a
partner does or does not know that the representation has reached the person so giving
credit.
(2) Where after a death of the partner the business is continued in the old firm name
the continued use of that name or of the deceased partner’s as a part thereof shall not
itself make his legal representative or his estate liable for any act of the firm done after
his death.
ESSENTIAL INGREDIENTS: 1. Representation: - The representation may be
in any of the three ways:-

26
i) By words written or spoken: - In case of Bevanv/s The National Bank Ltd., a

person permitted his name to be used in the title of the firm. Therefore he was held
liable under this principle.
ii) By conduct:- In the case of Parter v/s Lincell: a person by his conduct
represented as a partner and was held liable. Martyn v/s Gray-1863: It was held that
by knowingly permitting himself or suffering himself to be represented as a partner.
iii) Alleged Representation relied:- In the case of Munton v/s Rutherford: it was
held that Mrs.Ruherford was not liable as a partner by estoppels or holding out.
iv)Credit to Firm on Representation:- In the case of Oriental bank of Commerce
v/s S.R.Kishore & Co.-1992: It was held he was liable for the acts of the firm on the
basis of the principle of “holding out”. Section 28 of the Act is based upon the
principle of estoppels by conduct. Where a man holds himself out as a partner or
allows others to do it, he is then properly stopped from denying the character he has
assumed, and upon the faith of which creditors may be presumed to have acted. A man
doing so may be rightly held liable as a partner by estoppels as held in a case of
Mollwo March & Co. v/s Court of Wards-1872.
The representation on which a case of “Holding Out” is sought to be established may
be express or implied it may consist of verbal or written statements or even may be by
conduct. Form of representation is not material in such case.
EXCEPTIONS TO THE DOCRINE OF HOLDING OUT:-
1. Tort: The principle of holding a person liable for act of a firm on the ground of
holding out cannot be extended to include liability arising out of tort.
2. Liability of Retired Partner: - The rule of holding-out provided in this section is
also applicable to the retired partner who retires from the firm without giving proper
public notice of his retirement. In such case person who even subsequent to the
retirement give credit to the firm on the belief that he was a partner will be entitled to
hold him liable as held in a case of Scrarf v/s Jardine-1882.
3. Insolvency of Partner: - Insolvency of the partner extinguished as the liability of a
partner and he cannot be held liable even upon this doctrine.
4. Dormant Partner: His retirement does not require a public notice for bringing end
to his liability. According to proviso to section 45(1) of the partnership Act a dormant
partner is not liable for the acts done after the date on which he ceases to be a partner.
CONCLUSION:
Anyone who by words spoken or written or by conduct represents himself or
knowingly permits himself to be represented to be a partner in firm is liable as a
partner in that firm to anyone who has on the faith of any such representation given
credit to the firm, he must bear the consequences u/s28.

27
Q. REGISTRATION OF PARTNERSHIP FIRM

In the Act of Partnership there are provisions of registration of the partnership
firm but there is no where mention about the penalties for non-registration of firm. It
is therefore quite optional for a firm to get itself registered or not. It is also obvious
that registration of the partnership firm will not less than a boon when there arisen of
the legal consequences at the later stage.
Section 69 of the Partnership Act imposes certain claims in the Civil Courts,
this section also provides the pressure which is to be brought to bear on the partners to
have the firm and themselves registered. The pressure consists denying of certain
rights of litigation to the firm or partners not registered under this Act. A case of State
of U.P v/s Hamid Khan & Bros and others-1986.
In a case of Vatyapuri v/s M. Sundaresan-2002: It was held by the Court that
the suit is not maintainable as one of two remaining partners of an un-registered firm
retired resulting in dissolution of the firm and surviving sole partner filed suit for
recovery of dues to dissolved partnership.
In another case of CIT v/s Jayalakshmi Rice and Oil Mills-1971: It was held by the
Court that the unregistered firm can bring a suit after getting the firm registered.
It was held by the Court that in the case where the suit is brought by the un-registered
firm subsequent registration of firm while suit is pending would cure this defect in the
case of M/s Samy Uktha Cotton Trading Co. v/s B.V.Suhhaiah-2005.
CONCLUSION:
Registration of the firm as well as of the partners is quite essential part of the business
of partnership. It also held the firm and the partners to avoid un-necessary hurdles for
smooth running of the business. The registration of the firm as well as of the partners
is optional in the Partnership Act.
Q. CONTINUING GUARANTEE:
A guarantee may be an ordinary guarantee or a continuing guarantee. A continuing
guarantee is different from an ordinary guarantee, as described in a case of Syndicate
Bank v/s Channaveerappa Beari-2006: in this case in ordinary guarantee the surety is
liable only in respect of a single transaction whereas in case of continuing guarantee
the liability of the surety extends to any successive transactions which come within its
scope.
DEFININATION:- Section 129 of the Contract Act which provides that, “A
guarantee which extends to a series of transactions is called a “continuing guarantee.”
 Such guarantee may be in respect of a series transactions during a fixed period e.g. for
one year. It has been done in the case of Eastern Bank Ltd., v/s Parts Services of
India Limited-1986:
 A in consideration that B will employ C in collecting the rent of B’s zamidari
promises B to be responsible, to the amount of Rs.5000/- for due collection and
payment by C of those rents. This is a continuing guarantee.
 A guarantees payment to B, a tea-dealer, to the amount of 100 pounds for any tea he
may from time to time supply to C. B supplies C with tea to the above value of l00
pounds and C pays B for it. Afterwards B supplies C with a tea to the value of 200

28
pounds. C fails to pay. The guarantee given by A was a continuing guarantee and he
accordingly liable to pay extent of l00 pounds.
 A guarantees payment to B of the price of five sacks of flour to be delivered by B to C
and to be paid for in a month. B delivers five sack to C. C pays for them. Afterwards
B delivers four sacks to C which C did not pay for it. The guarantee given by A was
not a continuing guarantee, and accordingly he is not liable for the price of the four
sacks.
CONCLUSION :
No doubts the continuing guarantee is a different from the from an ordinary guarantee.
In continuing guarantee the liability of surety extends to a series of transactions. In
continuing guarantee the surety has been empowered to revoke a continuing guarantee
for future transactions by giving a notice to the creditor as it has been provided in
section 130 of the Act. However his liability in respect of the transactions which have
already been made continues to exists. Whereas his liabilities for the future
transactions comes to an end.
Q. CO-SURITIES
Sometimes there may be conditions in a contract of guarantee that there shall be a co-
surety also. Where a person gives a guarantee upon a contract that the creditor shall
not act upon it until another person has joined in it as co-surety, the guarantee is not
valid if the other person does not join. (It has also been provided in section 144 of the
act.) It means that in such a contract liability of the surety is dependent on the
condition precedent that a co-surety will join. The surety can be made liable under
such a contract only if the co-surety joins, otherwise not. On the basis of provision
under section 128.
LIABILITY OF CO-SURETY
From the above statement it has been noticed that the liability of sureties is co-
extensive with that of the principal debtor. It implies that the creditor can proceed
against the principal debtor or the surety at his discretion unless it is otherwise
provided in the contract.
The same principle is applicable with regard to the rights and liabilities of the co-
sureties. Since the liability of the co-surety is joint and several a co-surety cannot
insist that the creditor should proceed either against the principal debtor or against any
other surety before proceeding against him.
A case in this regard is of State Bank of India v/s G.J.Herman-1998: It was held that
neither the court nor a co-surety can insist that the creditor should first proceed
against another surety before proceeding against him. Such direction would go against
the co-extensiveness.
In the case of Bank of Bihar Ltd. v/s Dr. Damodar Prasad-1969: It was held that
the liability of the surety is immediate and cannot be defended until the creditor has
exhausted all his remedies against the principal debtor.
CONCLUSION:
It has already been noted that section 128 declares that the liability of the surety is co-
extensive with that of principal debtor. The word co-extensive denotes that extent and
can relate only to the quantum of the principal debt. However the liability of the
surety does not cease merely because of discharge principal debtor from liability.

29
Refer a case of Industrial Financial Corp. of India v/s Kannur Spinning &
Weaving Mills Ltd.-2002.
Q. FEATURE OF BAIMENT:-
Bailment consists in delivery of goods i.e. movable property by one person who is
generally the owner thereof to another person for some purpose. The goods are to be
returned to their owner after the purpose is accomplished or they are to dispose of
according to the directions of person delivering the goods.
For example :- When you take a fan on hire or give your suit for dry cleaning or you
give your wrist watch for repairs or give a parcel to a carrier for being transported to
some place there is bailment in each of above cases.
DEFINITION:Section 148 of the Indian Contract Act defines the bailment as under:-
The bailment is a delivery of goods by one person to another for some purpose upon a
contract that they shall return the goods bailed to him when the purpose of contract is
accomplished or to disposed of the goods as per the directions of the bailor.
FEATURE OF BAILMENT:-The following are the feature of the bailment:-

1. Delivery of the goods 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 authorised to hold them on his behalf. Refer a case of
Jagdish Chandra Trikha v/s Punjab National Bank:1998: the plaintiff deposited
the jewellery worth Rs 3,72,000/- the bank as a bailee failed to take due care of the
goods hence bank was held liable to pay a sum of Rs.3,72,000.00 plus interest @ 12%
p.a.
2. There can be bailment without a contract:- In a case of Ram gulam v/s Govt. Of
UP-1950: The property of the plaintiff was stolen and recovered by the bank and kept
in Maalkhana. It was again stolen and could not be traced out. The court in point of
decision in the case that bailment contract cannot arise without a contract. The law
itself recognises the finder of goods as bailee in some subsequent cases so it was held
that the bailment can be there even without a contract.
3. Return of goods after the work is achieved: Section 148 says that the bailee has to
return the goods as and when the purpose is accomplished or to disposed of them as
per the directions of the bailor. Case of Secy. Of State for India in Council v/s Sheo
Singh-1880.
It is very easy to make sure that in the bailment of contract there is a delivery of
the goods by one person to another for some purpose. When the work or the purpose is
accomplished it is the duty of the Bailee to return back the goods so bailed to the
Bailor.
Q. KINDS OF AGENT:-
‘Agent’ is a person employed to do any act for another or to represent another in
dealing with third person. The person for whom such act is done or who is so
represented is called the ‘Principal’. The agent acts on behalf of the principal
depending upon on the authority he has been given. The agent is of following kinds:-

30
1. Auctioneers: - Auctioneer is an agent whose business is to sell goods or other

property by auction i.e. by open sale. The authority vested in him is to sell the goods
only and not to give warranties on behalf of the seller.
2. Del credere Agent: - Such type of agent who works for extra remuneration. He takes
the liability to guarantee the due performance of the contract. He is responsible for the
solvency and performance of their contracts by the other parties and thus indemnifies
employer against loss.
3. Commission Agent: Such type of agent who purchases and sells goods in the market
on behalf of his employer on the best possible terms and who paid commission for the
labour of this agent.
4. Factor :- A Factor is an agent who is given the possession of goods for the purpose of
selling them. He entitled to sell the goods in his own name. He has the right to retain
the goods for a general balance of accouts.
5. Broker :- Broker is a mercantile agent employed for the purpose of sale and sale of
goods. The main duty of a broker is to establish privity between two parties for a
transaction and he gets commission for his labour.
6. Co-Agent: Where several persons are expressly authorised with no stipulation that
anyone or more of them shall be authorised to act in the name of whole body. They
have a joint authority and they are called co-agents.
7. Sub-Agent: such type of a person who employed and acting under the control of
original agent in the business of agency.
8. Pacca Artia: He also works on commission basis. He gets the goods from his
principal and sells them in the market.
Keeping in view the above facts we can conclude that an agent is a person
employed to do any act for another or represent another in dealing with third persons.
Where one person mere gives an advice to another in matter of business of agency
does not arise because of such advice agency does not create.
Q. NATURE OF PARTNERSHIP:
Section 4 of Indian Partnership Act 1932, That partnership is the relations which subsist
between persons who have agreed to combine their property, labour and skill in some
business and to share the profits thereof between them. The Present definition is wider
than one contained in the Partnership Act.
DEFINITION:
According to Partnership Act 1932 the definition of the Partnership is as under:
“Partnership is the relation between persons who have agreed to share the profits of
business carried on by all or any of them acting for all.”
NATURE OF PARTNERSHIP
On the basis of provisions laid down in the act of partnership the nature of the partnership is
of the following aspects :-
i) There should be an agreement between the persons who wants to be partners.
ii) The purpose of creating partnership should be carrying on of business.
iii) The motive of creating of partnership should be earning and sharing of the profits.
iv) The business of the firm should be carried on by all of them or any of them acting for all.
The partnership Act is very much clear about it concept and it gives the directions
regarding creation of a partnership by having an agreement for sharing of their property,
labour and skill in some business which aimed to share the earning and profits.

31
Q. TERMINATION OF AGENCY
INTRODUCTION:
The agency which may be validly created stands terminated in the event of different
situations as the principal revoked his authority, or by the agent renunciation of
business of the agency or the death or unsound mind any of the i.e. principal or of the
agent. Even when the principal being adjudicated in insolvent.
DEFINATION OF TERMINATION OF AGENCY

On the basis of provisions laid down in the Act under section 20, “That the agency is
terminated by the principal revoking his authority or by the Agent renouncing the
business of the agency being completed or either the principal or agent dying or
becoming of unsound mind or by the principal being adjudicated an insolvent under
the provisions of any act for the time being in force in the relief of insolvent debtors.”
DIFFERENT MODES OF TERMINATION OF AGENCY
The following are the modes under which an Agency can be terminated:-
1. By Revocation of Agent’s Authority:- The revocation of agent’s authority can be made
by the principal subject to the condition:-
i) Revocation may be express or implied as provided in section 207 of the Act.
2. By the Principal revoking his authority: Provisions have been made in the section
203 of the Act that Principal may revoke his authority given to his agent.
3. By the Agent renouncing the business of the Agency:- Under section 207 of the Act,
It is mentioned that theAgent should give a reasonable notice to his Principal,
otherwise Agent can be made liable to make good any damage caused to Principal.
4. By the completion of Business of Agency:- When the agency is created for the fixed
time by an express or implied contract and after expiry of the term it automatically
terminates on the expiry of the said term u/s 205 of Act.
5. By either death or Unsound mind of Principal or of Agent:- Section 201 of the Act
laid down that the agency is stands terminated on the death of the Principal or of the
Agent.
6. By the Principal being adjudicated an Insolvent:- Section 201 also says that the
agency can be terminated if principal being adjudicated as an insolvent.
In addition to above as provided in section 210 that all the sub-agencies shall
remain terminated on the termination of original agency.
CONCLUSION:
Agency can be terminated on the above mentioned reasons.

32
Q. What are the provisions regarding dissolution of partnership firm?

INTRODUCTION:
Dissolution of partnership means coming to an end of the relation known as
Partnership between various partners. It may also can be defined as the breaking up or
extinction of the relationship which subsisted between all the partners of the firm as
held in a case of Santdas v/s sheodyal-1971:
Here we are to note the significance of words in definition is, “between all partners
“means every one of the members of the firm cease to carry on business of
partnership. Thus where one or more members ceased to be partners in such firm
while others remain the firm is not said to be dissolved.
DEFINITION: - The term dissolution of the Partnership firm has been defined in
Section 39 of the Partnership Act which lies as, “the dissolution of partnership
between all the partners of a firm is called the, ‘dissolution of the firm’.”
MODES OF DISSOLUTION:
The dissolution of a firm:
Dissolution: = I. without the interference of Court.
II. With the orders of the Court.
1. Without the interference of the Court: - there are four modes of dissolution of
firm:-
a.By Agreement under section 40 of the Act.
b. Compulsory dissolution u/s-41.
c. on the happening of certain contingencies u/s 42.
d. by Notice u/s 44 of Act.
1. Dissolution by Agreement: - As partners can create partnership by making a

contract as between them, they are also similarly free to end this relationship and
thereby dissolve the firm by their mutual consent.
Sometimes there may have been a contract between the partners indicating as to when
and how a firm may be dissolved, such firm can be dissolved in accordance to such
contract. A firm may be dissolved with the consent of all the partners or in accordance
with a contract between the partners as provided in section 40 of the Act. A case in
this regard is of, EFD.Mehta v/s MFD Mehta-1971.
2.Compulsory dissolution:- Under Section 41 of the Act, if by the happening of any
event which makes it unlawful for the business of the firm or for the partners to carry
it on in partnership.
(a)If by the adjudication of all the partners or of all the partners but one as insolvent
declared by the court.
3.On he happening of certain contingencies:- On the grounds of the gist of contract
made between the partners of a firm may dissolved :- i) If the partnership firm
constituted for a fixed term. By the expiry of the term firm can be dissolved. Ii) By the
death of a partner may results dissolution unless rest of partners agrees to contrary.
iii) It firm is constituted to carry out one or more adventures or undertaking by the
completion thereof. On completion of the same firm may be dissolved.

33
4.Dissolution by Notice of Partnership:- If the partnership is azt will the firm may be
dissolved by any partner giving notice in writing to all the other partners of his
intention dissolve the firm as provided in section 44 of this act, with the following
conditions:-
a). The notice for dissolution of partnership must contain the clear intention of
dissolving the firm which must be a final one. The date on which firm is dissolved
must be indicated in the notice.
A case of Mir Abdul Khaliq v/s Addul Gaffar Serifff-1985.
b). Notice must be given in writing.
c). Written notice must be given to all other partners of the firm.
5. Dissolution By Court:- A firm may be dissolved at the suit of a partner on any of
grounds which provided in Section 44 of Act:-
i. That the partner has become of an unsound mind.
ii. That the partner has become in any way permanent incapable of performing his
duties as a partner but in the case of Whitewell v/s Arthur- 1885: it was held partial
incapacity cannot be a ground for dissolution of partnership firm.
iii. That a partner is guilty of such misconduct as would prejudicially affect the
business of the firm, a case of Harrison v/s Tenent-1856.
iv. That the business cannot be carried on except at loss.
Q. POSITION OF FINDER OF GOODS:
A person who finds goods belonging to another and takes them into his custody is
subject to the same responsibility as a bailee as provided in sec.71. Since the position
of the finder of goods is that of a bailee. He is supposed to take the same amount of
care with regard to the goods as is expected of a bailee under section 151. He is also
subject to all duties of a bailee including a duty to return the goods after the true owner
is found.
Section 168 and 169 confer certain rights on the finder of goods which are as under:
1. May sue for specific reward offered: The finder of goods has no right to sue the owner
for compensation or trouble and expenses voluntarily incurred by him to preserve the
goods, but he may retain the goods until he receives such compensation and a specific
reward offered by the owner for return of the goods. Refer sec. 168 of the Act.
2. If true owner is diligence not found or he refuses to pay the lawful charges of the
finder of the goods, the finder may sell it on the following conditions:-
i) When the thing is in danger of perishing or losing part of its value.
ii) When the lawful charges of the finder, in respect of the found goods amount to two-
third of its value.
iii) Right of Lien: He can retain the Lien on the found goods until his expenses on find
goods are paid.
iv) Right to sell the goods found:- Finder of the goods has the right to sell the goods
found by him under certain circumstances provided in section 169 of the act with a
reasonable notice mentioning the intention to sale the goods found.

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1

Q1. Define the Contract of Indemnity. Distinguish between contract of

ESSENTIAL ELEMENTS:- The following are the essentials of the Contract of

Kaku 11th Jan 2018 Contract-II Notes

Q2. Discuss the nature, rights and liabilities of a surety.

Kaku 11th Jan 2018 Contract-II Notes

Q3. The liability of the surety is co-extensive with that of Principal

Kaku 11th Jan 2018 Contract-II Notes

Q4. What do you understand by contract of guarantee? How does it

DEFINITION: - “A contract of guarantee is a contract to perform the promise or to

ESSENTIALS: - The following are the essential elements of Guarantee:-

Kaku 11th Jan 2018 Contract-II Notes

Q5. What is continuing Guarantee? Under what circumstances it can

DEFINITION:- Section 129 of the Contact Act, continuing guarantee means a

REVOCATION OF CONTINUING GUARANTEE:

Conclusion:- A guarantee which extends to a series of transactions is called

Q6: EXPLAIN THE STANDARD OF CARE REQUIRED OF A BAILEE IN

DEFINITION OF STANDARD OF CARE:

Kaku 11th Jan 2018 Contract-II Notes

Difference between Pledge & Lien

Pledge is a kind of bailment and security. In right of lien it is not so as in

CONCLUSION:- In Pledge which a kind of bailment and also to be considered as

Kaku 11th Jan 2018 Contract-II Notes

Q8. What is bailment? Explain its essential ingredients of Bailment?

ESSENTIAL INGREDIENTS OF BAILMENT:-

(b) IF THE OWNER MAINTAINS CONTROL OVER THE GOODS THERE

Kaku 11th Jan 2018 Contract-II Notes

RETURN OF GOODS AFTER THE PURPOSE IS ACHIEVED: OR

Kaku 11th Jan 2018 Contract-II Notes

Q9. Define Pledge and distinguish between Pledge and Bailment.

DIFFERENCE BETWEEN PLEDGE & BAILMENT

Pledge is bailment of goods as Bailment is a delivery of goods by one

Moveable property is subject-matter In the contract of bailment after the

Kaku 11th Jan 2018 Contract-II Notes

Q10. Explain the Rights and the Duties of BAILEE.

Kaku 11th Jan 2018 Contract-II Notes

DUTIES OF THE BAILEE: A bailee has to observe the following duties:

Q11. Explain various ways in which an agency relationship is created.

Kaku 11th Jan 2018 Contract-II Notes

Q12. What are the circumstances in which Agency is terminated?

Kaku 11th Jan 2018 Contract-II Notes

Kaku 11th Jan 2018 Contract-II Notes

Kaku 11th Jan 2018 Contract-II Notes

Kaku 11th Jan 2018 Contract-II Notes

Difference between sub-Agent & substitute Agent

Q15. Sharing of Profits in business is not conclusive evidence of the

Kaku 11th Jan 2018 Contract-II Notes

Kaku 11th Jan 2018 Contract-II Notes

earliest possible opportunity. The procedure of registration is very simple as provided

Kaku 11th Jan 2018 Contract-II Notes

Q.17 Distinguish between partnership business and Joint Hindu family

Kaku 11th Jan 2018 Contract-II Notes

Q18. Discuss the essentials of Partnership Firm.

Q. Principle/Doctrine of Holding Out.

Kaku 11th Jan 2018 Contract-II Notes

i) By words written or spoken: - In case of Bevanv/s The National Bank Ltd., a

Kaku 11th Jan 2018 Contract-II Notes

Q. REGISTRATION OF PARTNERSHIP FIRM

Kaku 11th Jan 2018 Contract-II Notes