Contract Law II Kslu Notes Final

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Contract Law II KSLU Notes Final
Law (IFIM College)
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CONTRACT LAW-II
3 AND 5 YEARS LLB UNDER KARNATAKA STATE LAW
UNIVERSITY
MOST IMPORTANT PREVIOUS YEAR QUESTIONS

ALONG WITH ANSWERS
By
ANIL KUMAR K T
Mob: 9584416446

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Karnataka State law university 3 & 5 year LLB

ANIL KUMAR K T LLB COACH
Contract law -II
Most important questions (Pattern of 10 and 6 marks)
1. Define contract of indemnity? Explain the rights of indemnity holder?
2. Explain circumstances under which the surety is discharged?
3. What is bailment? Explain its important features with decided cases.
4. What is continuing guarantee? Explain the various modes of discharge of
surety from his liability.
5. Write a note on indemnity holder.
6. Write a note on rights of finder goods.
7. What is bailment? Discuss the rights and duties of bailor?
8. What is agent? Explain the duties of an agent towards principal.
9. Define contract of sale? Explain the distinction between the sale and
agreement to sell?
10.Define agent? Explain the different kinds of agent?
11.What are the advantages and disadvantages of registration of
partnership firm? Discuss.
12.Discuss unpaid sellers rights of lien. How it differ from the right to
stoppage in transit.
13.Write a note on sub agent and Good will
14.Write a note on Implied authority of a partner.
15.Explain the rights of surety?
16.Define contract of bailment? And what are the features of contract of
bailment.
17.Explain the rights and duties of pledge.
18.Explain the various modes of termination of contract of agency.
19.What do you mean by Ratification( Expost facto agent).
20.Types of partners.
21.Explain the procedure for registration of a partnership firm and what are
the consequences of non registration.
22.Explain the remedies available for breach of contract.
23.Define lien? Explain the different kinds of lien.

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24.Define agency? Explain various modes of creation of agency?

25.Who is an unpaid seller? What are his rights under sales of goods act.
26.Explain the position of minor partner in the partnership firm.
27.Define partnership? Discuss the essential elements of partnership.
28.Write a note on revocation of contract agency.
29.Write a note on hypothecation.
30.Write a note on conditions of warranties and rights of stoppage in
transit.
31.Define pledge? State the circumstances in which a non-owner can make
a valid pledge?
32.Explain the rights of finder goods and liability towards the true owner.
33.Discuss the rights and duties of pawner and pawnee.
34.Discuss the relationship of principal and third parties.
35.Explain admission and retirement of partners under partnership firms.
36.Distinguish between conditions and warrantees.
37.How partnership firms are retrenched? What are the consequences of
registration and non-registration of partnership firms.
38.Explain the rules relating to passing the property in goods from seller to
buyer.
39.What are the rights available to seller and buyer for breach of contract?
40. Explain the doctrine of “Caveat emptor” state the exceptions to this
rule.
41.What are the rights available to seller and buyer for breach of contract.
42.Who can a court order for dissolution of a firm.
43.Sharing a profit is only a prima facie evidence to show that there exist
partnership discuss.
44.Write a note on auction sale.
45.Write a note on co-surety.

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1.Define contract of indemnity? Explain the rights of indemnity holder?

Introduction:
A contract of indemnity basically involves one party promising the other party to
make good its losses. These losses may arise either due to the conduct of the
other party or that of somebody else.
To indemnify something basically means to make good a loss. In other words, it

means that one party will compensate the other in case it suffers some losses.
Definition:
A contract of indemnity is defined by Section 124 of the Indian Contract Act as

“a contract by which one party promises to rescue the other from loss caused
to him by the promisor’s behaviour, or by the action of any other person.” The
indemnifier is the person who provides the indemnity, while the indemnity-
holder or indemnified is the person who receives the indemnification.
For example, A promises to deliver certain goods to B for Rs. 2,000 every month.
C comes in and promises to indemnify B’s losses if A fails to so deliver the goods.
This is how B and C will enter into contractual obligations of indemnity.
A contract of insurance is very similar to indemnity contracts. Here, the insurer

promises to compensate the insured for his losses. In return, he
receives consideration in the form of premium. However, the Contract Act does
not strictly govern these kinds of transactions. This is because the Insurance Act
and other such laws contain specific provisions for insurance contracts.
As per the section 125 the rights of indemnity holder are
1. Damages. In a contract of indemnity the indemnity holder is entitled to

recover from the promise and indemnifier all damages for which he may be
compelled to pay in any suit as of any matter to which the promise the
indemnity applies while acting within the scope of his authority.
2. Costs. Any person with indemnity holder and indemnified or promise is
entitled to recover from promisor all costs which he may be compelled to pay
in any suit in bringing or defending it if he does not go against the order of the
promisor and if he has acted in absence of any contract as would have been
prudent for him to do.

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3. Sums. An indemnity holder is entitled to recover from indemnified all sums

which he has paid under the term of compromise of any suit and compromise
was not against the order of the promisor and the compromiser was not
against the order of the promisor and the compromise was such that it was to
be done (prudent) in absence of any contract of indemnity.
2.Explain circumstances under which the surety is discharged?

Introduction:
A contract of guarantee refers to a contract to perform the promise or discharge
the liability of a third person in case of any default by him. Surety is the person
giving the guarantee. The person for whom the guarantee is given is the Principle
Debtor. The person to whom the surety gives the guarantee is the Creditor. A
guarantee may be oral or in writing.
Discharge of Surety
A contract of guarantee shall also satisfy all the necessary conditions or elements
of a valid contract. As per section 127, anything is done or any promise made for
the benefit of the principal debtor provides sufficient consideration to the surety
for giving the guarantee to the creditor.
For example, Bharat asks Anil to sell goods to him on credit and deliver them.
Anil agrees to it on a condition that Charu will guarantee the payment of the
price of the goods. Charu guarantees the payment in consideration of Anil’s
promise to deliver the goods. This is sufficient consideration for Charu’s or
Surety’s promise.
Discharge of surety
The Indian Contract Act, 1872 provides for the discharge of the liability of surety,
in case of certain given circumstances. A surety is said to discharge from his
liability if his liability to perform the promise, in case of a default by the principal
debtor, comes to an end.
The situations under which a surety is discharged from his liability is listed as
follows:
• Discharge by Revocation

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1. Revocation of guarantee by giving notice (Section 130);

2. Revocation by death (Section 131).
• Discharge by the conduct of the parties
1. Variance in terms of the contract (Section 133);

2. Release or discharge of the principal debtor (Section 134);
3. Compounding by Creditor with the principal debtor (Section 135);
4. Creditors act/omission impairing surety’s eventual remedy (Section
139);
5. Loss of security (Section 141).
• Discharge by the invalidation of the contract
1. Guarantee obtained by misrepresentation (Section 142);

2. Guarantee obtained by concealment (Section 143);
3. Failure of a co-surety to join a surety (Section 144).
Revocation of surety by giving notice
Section 130 of the Indian Contract Act, 1872 states that a continuing guarantee,
i.e., a guarantee for a series of transactions can be revoked if a notice is served
to the creditor. However, revocation in case of a specific guarantee is not
possible if the contract entered into has been already acted upon.
Revocation by death
Section 131 of the Indian Contract Act, 1872 provides that in case of death of
the surety, the liability of the surety is discharged.
Discharge by variance in terms of the contract

Section 133 of the Indian Contract Act, 1872 provides for the discharge of the
liability of the surety, in case of material alteration or variance in the terms of
the contract.
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Release or discharge of the principal debtor
Section 134 of the Indian Contract Act provides for the discharge of the liability
of the surety, in case the principal debtor is released from his liability to repay
the amount.
• Existence of a contract or laws

In case, the liability of the principal debtor gets discharged, the surety who has
the secondary liability is also discharged from his liability.
However, a distinction must be made by the court in relation to the time when
the surety is discharged from his liability and when it is not. For instance, in the
case where the amount of the principal debtor gets reduced to the application
of the debt relief act, the surety will be liable only for the reduced amount.
However, in case the principal debtor is discharged from the liability in case of
insolvency, the surety is not discharged.
• Act or omission
The second case is where there is an act or omission on part of the creditor that
discharged the liability of the principal debtor. In this case, the surety will be
discharged. This can happen when the creditor fails to perform his part of the
promise which discharges the liability of the debtor.
Compounding by Creditor with Principal Debtor
According to Section 135 of the Indian Contract Act, 1872, a surety can be
discharged of his liability if there is any composition or a new agreement
between the creditor and the principal debtor. Through analysing Section 135
of the Indian Contract Act, it can be concluded that a surety can be discharged
from his liability in case of three prevailing circumstances. These are:
• Composition
Composition refers to variation in the original contract and adding something up
which was not present in the original contract. In case there is a composition in
the contract between the debtor and the creditor without surety’s consent, it
would discharge his liability.
• Promise to give time

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The surety is entitled to ask the principal debtor to pay off the debt when it is
the time for repayment. However, if there is a contract between the principal
debtor and the creditor whereby the creditor has agreed to give some more time
to pay off the debt without keeping the surety into consideration, the surety will
be discharged.
However, Section 136 of the Indian Contract Act, 1872 provides that, if the
creditor enters into an agreement to give time with a third party, it does not
discharge the surety from his liability.
• Promise not to sue

If there is an explicit contract which provides that the creditor will not sue in the
event of default, it would result in the discharge of liability of the surety.
However, mere forbearance to sue will not discharge the liability as provided
under Section 137.
If the surety has agreed to such conditions, he will not be discharged from the
contract as is evident from the phrase “unless the surety assents” in Section 135.
Discharge by invalidation
A surety can be discharged of his liability if the contract of guarantee is
invalidated. The Indian Contract Act provides for three circumstances under
which a contract of guarantee can become invalidated. These are elucidated as
follows:
• Guarantee by misrepresentation (Section 142)

Section 142 provides that if a contract of guarantee has been entered into owing
to the misrepresentation of a material fact which was known to the creditor, it
would invalidate the contract.
• Guarantee by concealment (Section 143)

According to Section 143, if a contract of guarantee is obtained due to
concealment of a material fact by a creditor, the contract would be invalid.
• Failure of a co-surety to join a surety (Section 144)

If the surety has put forth a condition that the creditor shall not act upon the
contract in the absence of another co-surety and this condition is not fulfilled, it
would lead to invalidation of contract.

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Conclusion
The Indian Contract Act, 1872 provides for the discharge of the liability of surety
in case of certain given circumstances with the objective of securing the
interests of the surety, who guarantees payment of the debt in case of a default.
The situation under which the surety can be discharged from his liability can be
categorised into three different heads i.e. by revocation, the conduct of the
parties and invalidation of the contract.
3.What is bailment? Explain its important features with decided cases.

Introduction:
A bailment is a delivery of goods one person to another for some purpose

upon a contract that they shall be returned or otherwise disposed of according
to the directions, of the person delivering. The person delivering the goods is
called the “Bailor”. The person to whom they are delivered is called “Bailee”.
Essentials or Features of Bailment:
Following are the important essential of bailment:
1. Contract: It is the basic essential for the bailment. For the delivery of
goods Contract between the two parties is necessary. A contract may be
oral or written, implied or expressed.
2. Moveable Property: It is the main feature of bailment that it is only for
the moveable property and not for the immovable property.
3. Delivery of Goods: It is also necessary that goods should be delivered by
one person to another.
4. Change of Possession: Bailment contract also brings’ change in the
possessions of the – goods. The only be without possession is not
sufficient for this contract.
5. Purpose of Bailment: The object of bailment may be for the safety of
goods or for hire or for the use.
6. Temporary Delivery: The delivery of the goods may not be for the
permanent purpose. It is essential that delivery must be made for the
temporary purpose.
7. Ownership: Right of ownership remains with bailor and it does not
change by the delivery of goods to other people.

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8. Change in Shape: If bailed goods shape changes in the meantime even

then it remains a contract of bailment.
9. Parties of the Contract: In the contract of bailment there are two
parties, the bailor and the bailee.
10.Returnable: It is a very important feature of the bailment. ‘The bailee
should return the goods to the bailor or disposed of according the
directions of the bailor.
Case Laws
Secy of state v. Sheo Singh Rai, a man, for the purpose of cancelling and
consolidating nine government promissory notes into a single note of Rs.
48000, went to a Treasury Officer. Later, the notes were misappropriated by a
servant at the treasury and the man filed a suit against the State to hold it
responsible as a bailee. He failed as there is no Bailment without delivery of
good and a promise to return the same and the government was not bound to
return the same notes or deal with them in accordance with the wishes of the
man.
4.What is continuing guarantee? Explain the various modes of discharge of

surety from his liability.
Introduction:
What is the continuing guarantee?

As per Section 129 of the Indian Contract Act, 1972, a Guarantee that extends
to a series and multitudes of transactions is known as a “Continuing
Guarantee” in a contract. These guarantees have a set time limit and time
frame or are for a fixed duration, maybe one month, one year, etc. Continuing
Guarantee does not come to an end after the discharge of a single promise or
repayment of single debt or transaction. It is in the hands of the Surety to
make sure that the liability regarding time or amount can be limited according
to his wishes and interest. Under Continuing Liability, the Surety is liable for
unpaid and left balance at the end of the guarantee.
Continuing Guarantee is of two types, (i) Prospective (ii) Retrospective. The

former one is given for future debt(s) and the latter one is given for existing
debt(s).

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Illustrations of continuing guarantee
1. T, in consideration that Y will employ G in collecting the rent of Y’s

zamindari, promises Y to be responsible, to the amount of Rs. 50000
for collection and payment by G of the rents and therefore, this is a
Continuing Guarantee Contract.
2. T guarantees payment to Y of the price of ten sacks of wheat, to be
delivered by Y to G and to be paid for the same in a month. Y delivers
ten sacks to G. G pays for them. Later, Y delivers eight sacks to G
which G did not pay for. The guarantee given by T was not a
continuing guarantee, and thus he is not liable for the price paid for
the eight sacks.
Discharge of surety
The Indian Contract Act, 1872 provides for the discharge of the liability of surety,
in case of certain given circumstances. A surety is said to discharge from his
liability if his liability to perform the promise, in case of a default by the principal
debtor, comes to an end.
The situations under which a surety is discharged from his liability is listed as
follows:
• Discharge by Revocation
1. Revocation of guarantee by giving notice (Section 130);

2. Revocation by death (Section 131).
• Discharge by the conduct of the parties
1. Variance in terms of the contract (Section 133);

2. Release or discharge of the principal debtor (Section 134);
3. Compounding by Creditor with the principal debtor (Section 135);
4. Creditors act/omission impairing surety’s eventual remedy (Section
139);
5. Loss of security (Section 141).
• Discharge by the invalidation of the contract

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1. Guarantee obtained by misrepresentation (Section 142);

2. Guarantee obtained by concealment (Section 143);
3. Failure of a co-surety to join a surety (Section 144).
5.Write a note on indemnity holder.

Introduction:
A contract of indemnity is one of the most important forms of commercial
contracts. Several industries, such as the insurance industry, rely on these
contracts. This is because of the nature of these contracts. They basically help
businesses in indemnifying their losses and, therefore, reduce their risks. This is
extremely important for small as well as large businesses.
A contract of indemnity basically involves one party promising the other party to
make good its losses. These losses may arise either due to the conduct of the
other party or that of somebody else.
To indemnify something basically means to make good a loss. In other words, it

means that one party will compensate the other in case it suffers some losses.
Rights of an Indemnity Holder

When parties expressly make a contract of indemnity, they can determine their
own terms and conditions. However, sometimes they may not do so. In such a
case, the indemnity holder can enforce the following rights against the
indemnifier:
1) The indemnifier will have to pay damages which the indemnity holder will
claim in a suit.
2) The indemnity holder can even compel the indemnifier to pay the costs he
incurs in litigating the suit.
3) If the parties agree to legally compromise the suit, the indemnifier has to pay
the compromise amount.
6.Write a note on rights of finder goods.

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RIGHTS OF FINDER OF GOODS
Section 168 and 169 confer certain rights on the finder of goods.
• SECTION 168 – MAY SUE FOR SPECIFIC REWARD OFFERED :
The finder of goods has no right to sue the owner for compensation for trouble
and expense voluntarily incurred by him to preserve the goods and to find out
the owner, but he may retain the goods against the owner until he receives such
compensation, and where the owner has offered a specific reward for the return
of goods lost, the finder may sue for such reward, and may retain the goods until
he receives it.
• RIGHT OF LIEN
According to section 168, a finder of goods has no right to sue the owner for
trouble and expenses voluntarily incurred by him to preserve the goods and to
find the owner. He has, however, the right of particular lien in respect of those
goods. He may retain the goods against the owner until he receives
compensation for trouble and expense voluntarily incurred by him to preserve
the goods and to find the owner
• RIGHT OF CLAIMING THE REWARD, IF ANNOUNCED BY THE OWNER
It has been noted above that the finder has the right to retain the goods until he
Is paid compensation for trouble and expense voluntarily incurred by him to
preserve the goods and find the owner. In addition to that, where the owner has
offered a specific reward for the return of goods lost the finder may sue for such
reward and also may retain the goods until he receives it.
If the goods have already been found voluntarily, and then the owner of the
goods promises to compensate the finder for his past voluntary services, the
contract is binding and the owner is bound to pay the promised amount.
SECTION 169 – WHEN FINDER OF THING COMMONLY ON SALE MAY SELL IT:
When a thing which is commonly the subject of sale is lost, if the owner cannot
with reasonable diligence be found, or if he refuses upon demand, to pay the
lawful charge of the finder, finder may sell it –

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1. When the thing is in danger of perishing or losing the greater part of its
value,
2. When the lawful charge of the finder, in respect of the thing found
amount to two-third of its value,
• RIGHT TO SELL THE GOODS FOUND (SEC.169)
The finder of the goods has also been given the right to sell the goods found by
him under certain circumstances mentioned in section 169. Such a right is
available to the finder of the lost goods when the following conditions are
satisfied:
1. If the owner of the goods cannot be found; or if he refuses to pay the

lawful charges of the finder, and
2. When the good is in danger of perishing its value; or when the lawful
charges of the founder in respect of the thing found amount to two-
third of its value.
7.What is bailment? Discuss the rights and duties of bailor?

Introduction:
Bailment means transferring the possession to another person to fulfill some
predetermined agreement that might require the bailee (person to whom
possession is given) to do something or vice versa in exchange for some
consideration that is not mandatorily required to exist. Generally, the bailor
(owner of the asset) does not enjoy the right to use such bailed assets while
they have bailee.
Features
• The first basic requirement is the agreement, which may be written or

verbal, and should be clear from any ambiguity.
• The possession of goods or assets must have been transferred from one
person to another, i.e., from bailor to bailee. It will need to be returned
to the bailor after the expiration of the bailment agreement.
• They should be for some predetermined purpose; for instance, we may
give our car to the service center to be serviced.

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• The existence of consideration depends upon its type, i.e., the monetary
presence of consideration is not mandatory.
What are the rights of the bailor?

Following are the rights of the bailor: –
1. Right to Claim Compensation Against the Unauthorized Use of
Goods: – If any of the third person, does some injury to the goods
bailed or deprive (stop) the bailee to use bailed goods, in such a case
bailor has right to file the suit against the wrong-doer and to get
compensation from him.
2. Right to Claim Compensation: – In the case of bailment, bailor has
the right to claim the compensation if any damage is done to the
goods bailed due the bailee’s negligence or misconduct.
3. Right to Demand the Return of the Goods: – The bailor has the right
to get his goods back in a safe and good condition after the expiry of
the bailment time period or the achievement of the purpose for
which the goods were bailed.
4. Right to Enforce Bailee’s Performance: – The bailor deliver his goods
to the bailee for some specific purpose and in the case of the non-
gratuitous bailment, the bailor has the right to achieve that purpose
or to get benefits through the same.
What are the duties of the bailor?
Following are the duties of the bailor: –
1. Duty to Disclose Faults: – In the case of a gratuitous bailment, the
bailor is expected to disclose all the defects to the bailee known by
him and that can arise while using the bailed goods. A non-gratuity
carries a major responsibility on the part of the bailor as in this case
bailor will also be liable even if he does not know about the defects.
2. Duty to Repay Bailee’s Expenses: – Bailor is bound to repay all the
expenses which were incurred by him for the work done on the goods
received in the bailment.
3. Duty to Indemnify the Bailee: – The bailor is obliged to make good for
the losses suffered by the bailee, or that because of the bailor, where
the goods were delivered without any reason or force the bailee to
return the goods before the expiry period of the bailment.
4. Duty to Claim Back the Goods: – In accordance with the terms of the
bailment, bailor is obliged to accept the goods returned by the bailee.
If bailor refuse to accept the returned goods without any reasonable
ground then in such a case, bailor will be responsible for all the
damage done to the goods and not the bailee.

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5. Duty of the Bailor to Compensate for the Breach of Warranty: – In

every contract of bailment warrants, bailor’s title should be defect
free. If bailee suffers any losses due the bailor’s defective title then in
such a case the bailor will be responsible for the damages done to the
bailee for breach of warranty.
7.What is agent? Explain the duties of an agent towards principal.

Introduction:
The agent’s role in the entire process is crucial and relevant in successfully
carrying out the business. Even though the agent represents his principal in the
business conduct, he plays an important role, as he is the one who has the
power to affect the legal relationship between the principal and the third
party.
Section 182 of the Indian Contract Act, 1872 opens by defining who an agent
and a principal are.
An agent is a person employed to do any act for another or represent another

person in dealings with a third person.
A principal is someone for whom an act is performed or is represented by

someone to perform the act.
These are the nine duties of an agent in a contract of agency:
1. Duty not to delegate his authority

2. Duty to protect and preserve the interest
3. Duty to execute the mandate
4. Duty to act with care and skill
5. Duty to render proper account
6. Duty to communicate with the principal

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7. Duty not to deal on his account

8. Duty not to make a secret profit
9. Duty to pay sums received
1. Duty Not to Delegate His Authority
An agent must not delegate his authority to a sub-agent. Section 190 of the
Indian Contract Act is based on the maxim, Delegatus non-protest delegare,
which means, a delegate cannot further delegate.
An agent appointed to work on a specific task cannot delegate that task to

another because the principal chooses as an agent a particular person. After
all, he responds to trust and confidence in such a person.
Imagine going to a good restaurant because you heard their food is great.
Now, you don’t want this good restaurant to bring food from another
restaurant and serve you. Right?
2. Duty to Protect and Preserve the Interest
Under section 209 of the Indian Contract Act, when the principal’s death or
unsoundness causes the termination of the agency, the agent must protect
and preserve the interests entrusted to him on behalf of the representative of
the deceased principal.
3. Duty to Execute the Mandate
Section 211 of the Indian Contract Act bounds an agent to conduct the
business of his principal according to the principal’s directions or in the
principal’s absence, according to the custom of trade.

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In Pannalal Jankidas vs Mohanlal (1950), the Supreme Court held the agent
liable to compensate the principal. Here, the principal told the agent to get the
goods insured. The agent charged the premium from the principal but never
got the insurance.
4. Duty to Act With Care and Skill
Section 212 of the Indian Contract Act covers another role of the agent. This
law requires an agent to conduct agency business with due care and caution.
In Jayabharathi Corporation vs PN Rajesekara Nadar (1991), the court said that

where the agent misinforms the principal, and the loss occurs because of his
misconduct, he is liable to the principal.
For example, X, an agent for the sale of goods, having authority to sell on
credit, sells on credit to Z without making the proper inquiries regarding the
solvency of Z. Z, is insolvent at the time of this sale. X must make
compensation to his principal regarding any loss sustained.
5. Duty to Render Proper Account
Section 213 of the Indian Contract Act defines the next role. On-demand, the
agent should show the relevant accounts to the principal. It also binds the
agent to keep the money and property of the principal separate from his own.
The agent is responsible for maintaining accurate records of the property he
receives as part of his duties and providing those records to the principal on
request.

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6. Duty to Communicate With the Principal
As per section 214 of the Indian Contract Act, in cases of difficulty, it is the
agent’s duty to use all reasonable diligence in communication with his principal
and seeking to get his instructions.
7. Duty Not to Deal on His Account
If the principal wishes to deal on his behalf in the agency’s business, the agent
must disclose all material circumstances that have come to his knowledge. He
must also get consent from the principal. Non-observance of this duty may
lead to:
• Under section 215 of the Contract Act, the principal may repudiate the
transaction and disclaim all losses.
• Under section 216 of the Contract Act, the principal may claim from the
agent any benefit which may have resulted in him from the
transaction.
For example, A employed B, a broker, to purchase a house for him. B sold his
house to A without disclosing that the house belonged to him. Here, A can end
the contract and reject the house.
8. Duty Not to Make a Secret Profit
The relationship between the agent and the principal is of mutual trust and
confidence. If an agent makes a secret profit from its agency, the principal can
demand all the profits from the agent. As per section 216 of the Indian
Contract Act, agents should not make any profit or acquire any benefit in the
course of their agency without their principals’ knowledge and consent. Such

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profit is called secret profit. It is the agent’s responsibility to account to the

principal for secret profits.
9. Duty to Pay Sums Received
As per section 218 of the Indian Contract Act, the agent must pay his principal
all sums received on his account after retaining all money due to him regarding
advances made or expenses properly incurred by him while conducting the
business.
In a case, the court said, if an agent is receiving money on behalf of his

principal under the void contract, he simply cannot use the illegality to
withhold the payment of his principal, which is illegal.
Conclusion
The business of everyday life can sometimes make it difficult to do everything

yourself, so it becomes necessary to hire people to accomplish our tasks. At
this juncture, the contract of agency plays its role. The contract of agency is a
contract of fiduciary relationship. It is a contract of trust and confidence
between the principal and his agent. The principal is all responsible for the acts
done by the agent during the agency’s contract.
9.Define contract of sale? Explain the distinction between the sale and
agreement to sell?
Contract of Sale
A contract of sale is an agreement between a seller and a buyer. The seller
agrees to deliver or sell something to a buyer for a set price that the buyer has

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agreed to pay. With these contracts, the transfer of ownership happens when
the buyer pays and the seller delivers.
This contract changes somewhat in situations where the seller cannot yet
deliver the item that is sold. It also changes when the buyer cannot yet pay the
full price. Both parties can still agree on transferring the ownership to the
person buying in these situations—as long as the seller is ready to deliver what
is being sold. The contract is then subject to resolutory condition, meaning if
the buyer fails to make the payment, the seller takes the item back.
Essentials Elements of a Contract of Sale

These six elements are essential for any contract of sale:
1. Two parties
2. Items to be sold
3. Price
4. The transfer of ownership
5. A contract of sale
6. An agreement to sell
BASIS FOR
SALE AGREEMENT TO SELL
COMPARISON
Meaning When in a contract of sale, When in a contract of sale the

the exchange of goods for parties to contract agree to
money consideration takes exchange the goods for a price
place immediately, it is at a future specified date is
known as Sale. known as an Agreement to
Sell.
Nature Absolute Conditional
Type of Contract Executed Contract Executory Contract
Transfer of risk Yes No

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BASIS FOR
SALE AGREEMENT TO SELL
COMPARISON
Title In sale, the title of goods In an agreement to sell, the

transfers to the buyer with title of goods remains with the
the transfer of goods. seller as there is no transfer of
goods.
Right to sell Buyer Seller
Consequences of Responsibility of buyer Responsibility of seller

subsequent loss or
damage to the
goods
Tax VAT is charged at the time No tax is levied.

of sale.
Suit for breach of The buyer can claim Here the buyer has the right to
contract by the damages from the seller claim damages only.
seller and proprietary remedy
from the party to whom
the goods are sold.
Right of unpaid Right to sue for the price. Right to sue for damages.
seller
10.Define agent? Explain the different kinds of agent?

Meaning and Definition of Agency
Agency is the Legal relationship between an Agent and Principal. In a contract

of Agency, a person appoints another person to act on his behalf with a third
party. The person who appoints another person is called 'Principal' and the
person, who is appointed is called 'Agent'

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For example, 'A' appoints 'B' to buy 50 bags of Wheat on his behalf, Here 'A' is
Principal and 'B' is Agent. The relation between 'A' and 'B' is called Agency.
Agent :
An “agent” is a person employed to do any act for another or to

represent another in dealing with third persons.
Principal :
The person for whom such act is done, or who is so represented, is called
the “principal”.
Kinds of Agents
On the point of view of the extent of their authority and the nature of the
work performed by them agents may be Classified under the following heads :
1)Universal Agent :
A Universal agent is one who is authorised to do all the acts which

the Principal can lawfully do and can delegate.
2) Special Agent:
A Special Agent is one who is employed to do some particular act or represent

his Principal in some particular transactions.
for example, An agent employed to sell a Bike. If the special agent does
anything outside his authority, the principal is not bound by it and third parties
are not entitled to assume that the agent has unlimited powers.
3) General Agent:
A General Agent is one was employed to do all acts connected with particular
business or employment.

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For example, A manager of a firm. He can bind the principal by doing anything
which Falls within the ordinary scope of that business. Whether he is actually
authorised for any particular act or not, is immaterial provided that third party
acts bona fide.
4) De Credere Agent:
He is one who in consideration of an extra commission guarantee his

Principal that the third person with whom he enters into contracts on behalf of
the principal shall perform their financial obligations that is, if the buyer does
not pay, he will pay. Thus he occupies the position of a surety it as well as an
Agent. He is not answerable to his principle for the failure of the third person
to perform the contract. A del credere agent constituted an exception to this
rule.
5) Pakka Adatia And Kaccha Adatia
Pakka Adatia is an agent of his constituent only up to a certain point only for
the purpose of ascertaining and giving a correct quotation of the price. But
thereafter when the transaction takes place, he cease to be an agent and
assumes towards his constituent the character of a Principal, and the
transaction must be regarded as a contract between Principal and Principal.
6) Broker :
He is one who is employed to make contracts for the purchase and

sale of goods. He is not entrusted with the possession of goods. He simply act
as a connecting link and bring it to parties together to bargain and if the
circumstances materialise he becomes entitled to his commission called
brokerage. He makes a contract in the name of his Principal. Thus, a broker is
an agent primarily employed to negotiable a contract between two parties
where he is a broker for sale he has no position of the goods to be sold.
7) Factor :
A factor is a mercantile agent to home goods are entrusted for sale. He

enjoys Wide discretionary powers in relation to the sale of goods. A Factor is
an agent who is entrusted with the possession and contract of the goods to be
said by him for his Principal.
He has possession of the goods, authority to sell them in his own name and a

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general discretion as to this sale. He may sale on the usual term of credit may
receive the price and give a good discharge to the buyer.
8) Commission Agent:
Commission Agent is a mercantile Agent who buys or sells goods for his
Principal on the best possible terms in his own name and who receives
Commission for his labours. He may have possession of course or not.
9) Auctioneers :
An auctioneer is an agent to sell property at a public auction. He is

primary an agent for the seller, but upon the property being knocked down he
becomes also the agent of the buyer. He is mercantile agent within the
meaning of Section 2(9) of the Sale of goods Act.
11.What are the advantages and disadvantages of registration of partnership

firm? Discuss.
Advantages and Disadvantages of a Partnership Firm
A partnership firm is one of the popular types of legal entity wherein two
persons join together to undertake a business for profit. In this article, we look
at the advantages and disadvantages of a partnership firm.
Advantages of Partnership Firm

The following are some of the major advantages of a partnership firm:
Easy to Start
Partnership firms are one of the easiest to start. The only requirement for
starting a partnership firm in most cases is a partnership deed. Hence, a
partnership can be started on the same day. On the other hand, an LLP
registration would take about 5 to 10 working days, as the digital signatures,
DIN, Name Approval and Incorporation must be obtained from the MCA.
Decision Making
Decision making is the crux of any organization. Decision making in a
partnership firm could be faster as there is no concept of the passing of

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resolutions. The partners in a partnership firm enjoy a wide range of powers

and in most cases can undertake any transaction on behalf of the partnership
firm without the consent of other partners.
Raising of Funds
When compared to a proprietorship firm, a partnership firm can easily raise
funds. Multiple partners make for more feasible contribution among the
partners. Moreover, banks also view a partnership more favourably while
sanctioning credit facilities instead of a proprietorship firm.
Sense of Ownership
Every partner owns and manages the activities of their firm. Their tasks might
be varied in nature but people in a partnership firm are united for a common
cause. Ownership creates a higher sense of accountability, which paves the
way for a diligent workforce.
Disadvantages of Partnership Firm

The disadvantages of a partnership firm are as follows:
Unlimited Liability
Every partner is liable personally for the losses of a partnership firm. The
liability created by a partner in the partnership firm will also make each of the
partner personally liable. To limit the liability of partners in a partnership firm,
the LLP structure was created by the Government.
Number of Members
The maximum number of members a partnership firm can have is restricted to
20. In case of an LLP, there is no restriction on the maximum number of
partners.
Lack of a Central Figure

Leadership can both uplift and derail a firm. Combined ownership takes away
the possibility of leadership and lack of leadership leads to directionless
operations. On the other hand, in a partnership firm, certain partners can be

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given the position of designated partner with more powers and

responsibilities.
Trust of the General Public

A partnership firm is easy to start and does require any registration. A
partnership firm can also operates without much of a structure or regulations.
Hence, it often leads to distrust amongst the general public.
Abrupt Dissolution
A partnership firm would be dissolved due to the death or insolvency of a
partner. Such an abrupt dissolution will hamper a business. On the other hand,
the death of a partner will not automatically dissolve an LLP. Hence, continuity
of business is maintained in a LLP.
12.Discuss unpaid sellers rights of lien. How it differ from the right to
stoppage in transit.
Rights of Lien
Seller’s Lien (Section 47)

According to subsection (1) of Section 47 of the Sale of Goods Act, 1930, an
unpaid seller, who is in possession of the goods can retain their possession until
payment. This is possible in the following cases:
1. He sells the goods without any stipulation for credit

2. The goods are sold on credit but the credit term has expired.
3. The buyer becomes insolvent.
Subsection (2) specifies that the unpaid seller can exercise his right of lien
notwithstanding that he is in possession of the goods acting as an agent or bailee
for the buyer.
Part-delivery (Section 48)

Further, Section 48 states that if an unpaid seller makes part-delivery of the
goods, then he may exercise his right of lien on the remainder. This is valid unless

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there is an agreement between the buyer and the seller for waiving the lien
under part-delivery.
Termination of Lien (Section 49)

According to subsection (1) of Section 49 of the Sale of Goods Act, 1930, an
unpaid seller loses his lien:
• If he delivers the goods to a carrier or other bailee for transmission to

the buyer without reserving the right of disposal of the goods.
• When the buyer or his agent obtain possession of the goods lawfully.
• By waiver.
Further, subsection (2) states that an unpaid seller, who has a lien, does not lose
his lien by reason only that he has obtained a decree for the price of the goods.
Right of Stoppage in Transit

This right is an extension to the right of lien. The right of stoppage in transit
means that an unpaid seller has the right to stop the goods while they are in
transit, regain possession, and retain them till he receives the full price.
If an unpaid seller has parted with the possession of the goods and the buyer
becomes insolvent, then the seller can ask the carrier to return the goods back.
This is subject to the provisions of the Act.
Duration of Transit (Section 51)

Goods are in the course of transit from the time the seller delivers them to a
carrier or a bailee for transmission to the buyer until the buyer or his agent takes
delivery of the said goods.
DISTINCTION BETWEEN RIGHT OF LIEN AND STOPPAGE IN TRANSIT

(1) The essence of lien is to retain possession while the essence of the stoppage
in transit is to regain possession.
(2) The right of lien is applicable to goods, which are in the possession of the
seller. The right of stoppage in transit is applicable to the goods, which are in
possession of the carrier.

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(3) The right of stoppage in transit is applicable to the insolvent buyer. But the
right of lien is applicable to all persons, solvent or insolvent.
(4) The right of stoppage in transit is applied to the buyer through the earner.
Therefore stoppage means the seller's right to 'regain' the goods. But he means
the right to 'retain' the goods. Of course both the rights are applicable to goods
only.
(5) When the right of lien ends the right to stop in transit begins.
13.Write a note on sub agent and Good will
SUB-AGENT
A person appointed by an agent to perform some duty, or the whole of the
business relating to his agency. Sub-agents may be considered in two points
of view.
1. With regard to their rights and duties or obligations, towards their

immediate employers.
2. As to their rights and obligations towards their superior or real
principals.
A sub-agent is generally invested with the same rights, and incurs the same
liabilities in regard to his immediate employers, as if he were the sole and real
principal. To this general rule there are some exceptions for example, where
by the general usage of trade or the agreement of the parties, sub-agents are
ordinarily or necessarily employed, to accomplish the ends of the agency,
there, if the agency is avowed, and the credit is exclusively given to the
principal, the intermediate agent may be entirely exempted from all liability to
the sub-agent.
What is Goodwill?
Goodwill is an intangible asset associated with the purchase of one company
by another. Specifically, goodwill is recorded in a situation in which the
purchase price is higher than the sum of the fair value of all visible solid assets
and intangible assets purchased in the acquisition and the liabilities assumed in
the process. The value of a company’s brand name, solid customer base, good
customer relations, good employee relations, and any patents or proprietary
technology represent some examples of goodwill.

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Goodwill Meaning
Goodwill arises when a company acquires another entire business. The amount
of goodwill is the cost to purchase the business minus the fair market value of
the tangible assets, the intangible assets that can be identified, and the
liabilities obtained in the purchase.
Types of Goodwill
There are two distinct types:
• Purchased: Purchased goodwill is the difference between the value paid

for an enterprise as a going concern and the sum of its assets less the
sum of its liabilities, each item of which has been separately identified
and valued.
• Inherent: It is the value of the business in excess of the fair value of its
separable net assets. It is referred to as internally generated goodwill,
and it arises over a period of time due to the good reputation of a
business. It can also be called as self generated or non-purchased
goodwill.
For example, suppose you are selling an outstanding product or providing
excellent service consistently. In that case, there is a high chance of an increase
in goodwill.
14.Write a note on Implied authority of a partner.
Implied authority of a partner: Every partner has the implied authority to bind
the firm and other partners by his acts done in the name of the firm, in the
ordinary course of the firm’s business and with the intention to bind the firm.
However, a partner has no implied authority, unless otherwise expressed in

the partnership deed, in the following matters:
(a) To submit a dispute relating to the firm to arbitration;
(b) To compromise or relinquish any claim or a portion of claim made by the

firm;
(c) To withdraw a suit or proceedings filed on behalf of the firm; (id) to admit
any liability in a suit or proceeding against the firm;

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(e) To open a bank account on behalf of the firm in his own name;
(f) To acquire or purchase immovable property for and on behalf of the firm;
15.Explain the rights of surety?
Rights of a surety
Rights against the creditor
i) Right to securities with the creditor
Section 141 of the Indian Contract Act,1872 has mentioned the right of surety
to get a share in the security which has been kept while entering into the
contract of guarantee. The place of surety is the same as the place of the
creditor in terms of security. It is a compulsion on a creditor to share the
security with the surety; it is irrelevant whether the surety was aware of the
security or not. If the principal debtor defaults in the payment and the surety
has cleared the dues, it makes the surety entitled for a share.
ii) Loss of securities without creditor’s negligence
Under this circumstance the creditor takes the security of the principal debtor
in case of default of payment. The surety has the right to set-off the claim in
respect to the value of security from the debt of the principal debtor.
Illustration– A being the creditor gave a loan to B of Rs 2,00,000 on the surety

of C. While B has kept his house on security in respect to the loan borrowed
from A. B was in default to pay the loan of A. If A files a case against C for the
repayment of the due amount, then C can claim discharge of the amount from
the security which was recovered.
Rights against the principal debtor

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i) Rights of subrogation
Section 140 of the Indian Contract Act, 1872 has stated the right of
subrogation. The right of subrogation means forming a new contract to recover
the debt from the parties. As the surety has paid the amount due in respect to
default made by the principal debtor. Now the surety takes the place of the
creditor and the principal debtor is entitled to pay the repaid loan amount
which was paid on behalf of him to the creditor in the original contract of
guarantee.
ii) Rights of indemnity against the principal debtor
Under Section 145 of the Indian Contract Act, 1872 it is mentioned to

indemnify the surety. ‘To indemnify’ means that a party will pay the damages
which are caused to the party in respect of fulfilment of the act of the
promisor. Under the Contract of Guarantee the principal debtor is obliged to
indemnify the surety in respect to the default of payment at the time of
discharging the loan amount. It is not compulsory that the indemnity clauses
should be mentioned in the contract; it is an implied duty of the principal
debtor in respect to default of payment.
iii) Securities received by the creditor after the contract of guarantee
Section 141 of the Indian Contract Act, 1872 has mentioned the right of surety
in the security which is mentioned in the contract of guarantee. If the principal
debtor makes a default in payment of the loan amount and the payment is
made by surety then in this case the surety can avail the benefit of security. If
the amount is being deducted from security then in this case the surety can be
discharged.
Surety’s rights against the co-sureties
i) Co-sureties right to get release from the contract
Section 138 of the Indian Contract Act, 1872 has stated that if one surety is
discharged from his liability it will not mean that all the sureties are also
discharged from his obligation. Co-sureties here means that when more than
one surety gives the guarantee or takes the obligation to pay the debt of the
principal debtor. As per Section 138 when the principal debtor fails to pay the

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debt and if the creditor asks only one surety to fulfil his duty. In this case that
surety can ask the other co-sureties to fulfil their responsibility.
2.Co-sureties are entitled to contribute equally
Section 146 of the Indian Contract Act, 1872 has mentioned that the liabilities
of co-securities are joint. If the contract does not mention the liability of co-
securities as joint, it must be implied that all the co-securities will share equally
the debt not paid by the principal debtor.
3.Co-sureties entitled to pay the amount as promised
As per Section 147 if the co-securities have promised a particular amount to

pay in the sum of debt then they are obligated to pay that sum if the principal
debtor causes default in payment of the loan.
16.Define contract of bailment? And what are the features of contract of

bailment.
Definition: In basic terms, bailment implies the “change in possession” or “to
hand over”. As per Contract Act, bailment can be understood as the
transaction wherein delivery of any item by an individual (bailor) to another
individual (bailee) takes place with a specific objective, under a contract.
The contract states that the item has to be returned by the bailee to the bailor
or disposed of in the manner specified by the bailor when the objective is
attained.
Features of Bailment

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The essential characteristics of bailment are given as under:
1. Contract: There must be a contract between the party who delivers the
goods i.e. bailor and the party which receives the goods, i.e. bailee, no
matter if it is express or implied.
2. Delivery of Goods: Goods must be delivered by one party to another.
3. Change in possession: Only the possession and custody of good changes,
and not the ownership. Meaning that the bailor remains the owner of
the delivered item. Further, the change in possession takes place either
by actual delivery or by any act, which results in the change in
possession of the goods, from bailor to bailee.
4. Movable items: Bailment applies to movable items only, and not to
immovable items or money.
5. Return: The bailee must return the item to the bailor. The bailee cannot
deliver any other item to the bailor in place of the actual item, even if
the other item is of high value.
17.Explain the rights and duties of pledge.
Rights of Pledger
1. Right to recover damages

Pledger can claim for the damages that arise due to pledgee’s negligence. He
can also claim damages arising due to unauthorized use of goods.

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2. Right to demand return of goods

The Pledger has right to get back the goods Pledged after as soon as the
payment of debt is made. If Pledgee fails to return, the Pledger can claim for
the compensation
3. Right to claim increase

The Pledger can claim any increase or profit, which may accrued from the
Pledged goods.
4. Right to terminate Pledge

The Pledger has a right to terminate the Pledge if Pledgee does any act which is
against the terms and conditions of Pledge.
5. Right to sue
Pledger can sue Pledgee if he fails to return goods or breaches contract.
6. Compensation
If the Pledgee without the permission of Pledger mixes the goods of Pledger
with his own goods in such a way that it becomes impossible to separate them,
the Pledger has a right to claim for the compensation for the loss of goods.
Duties of Pledger Following are the duties of Pledger

1. Duty to disclose faults
It is the duty of Pledger to disclose all the faults in Pledged goods which are
known to him. If he does not disclose them he will be liable for the damages
arising due to such faults.
2. Duty to repay expense When the goods are to be kept or carried by the
Pledgee. It is the duty of Pledger to bear all the expense incurred on the
Pledged goods.
3. Duty to repay extra ordinary expenses If the extra ordinary expenses are
incurred by the Pledgee on the Pledged goods then it is the duty of Pledger to
repay those expenses.
4.Duty to indemnify for the defective title Where the title of goods to Pledger
is defective and Pledgee suffers loss due to such title, it is the duty of Pledger
to indemnify the Pledgee for such loss.
5.Duty to receive back goods It is the duty of Pledger to receive back goods
when the Pledgee returns them after the accomplishment of purpose

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18.Explain the various modes of termination of contract of agency.

Introduction:
An agency arrangement is a form of general contract. As such, except where
the agency is irrevocable, an agency can terminate in the same way as a
contract is discharged. Only the act or consent of the parties to the agency or
the enforcement of the law may terminate the relationship between the
principal and the agent. “In the absence of anything to prove its termination,
an agency, when proven to have existed, will be presumed to have continued,
unless such a length of time has elapsed as destroys the presumption.” When
an entity is dissolved, the obligation of the agent to work on behalf of the
principal comes to an end. A government law or instrument may stipulate the
timeline for the termination of an entity.
Modes of termination of agency

According to Section 201 of the Indian Contract Act, 1872, Termination of
agency takes place in the following circumstances:
1. By revocation of authority by the principal.

2. By renunciation of his authority by the agent.
3. On the performance of the contract of the agency.
4. On the death of either principal or agent.
5. By insanity of either principal or agent.
6. With the expiration of the time period fixed for the contract of the
agency.
7. By an agreement made between the principal and his agent.
8. With the insolvency of principal or agent (in few cases).
9. When the principal and his agent is an incorporated company, by
its dissolution
10.With the destruction of the subject matter. (section 56)
R. Sayani v. Bright Bros (P) Ltd, AIR 1980 Mad 162

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Where an organisation has been formed for a defined amount of time, liability
for its premature termination will have to be compensated if the termination
did not have appropriate justification. There was no fair warning given for the
premature decision of the department. The agent received Rs. 4000 a month.
The court was of the opinion that there should have been at least three
months’ warning. Correspondingly, a reward of Rs. 12,000 was allowed.
Carter v. White, (1883) 2 Ch D 666: (1881-85) All ER Rep 921
A principal owed his agent a sum of money and gave him an agreed exchange
bill with the authority to fill in the name of the drawer. Before the agent could
finish the bill, the principal died. His power to fill in the name of the drawer
was not considered to be terminated.
19.What do you mean by Ratification( Expost facto agent).

Introduction:
An agency by ratification (or ex post facto agency) is a type of agency that is
created when a person, the principal, approves or accepts unauthorized
actions or conduct of another person, the agent, that has already taken place.
In other words, an agent acts on behalf of the principal without having an

express authority to do so and eventually the principal “ratifies” or accepts the
consequences of the acts or conduct of the agent.
What is the actual legal meaning of “agency by ratification”?
A ratification agency is when a person (the principal) approves the actions and
conduct of another (the agent) generating legal obligations or having a
consequence on a third party who reasonably believed it was transacting with
the principal.
In summary, for the agent’s actions to be ratified
• The principal must have free choice to ratify or disclaim the agent’s
actions
• The agent must have acted on behalf of the principal

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• The principal must have the legal capacity to contract or assume legal
responsibility
• Ratification can be done expressly or implied based on the principal’s
conduct
• The principal must have had the ability to transact at the moment the
agent acted and at the moment of the ratification
• The principal must have full knowledge of the facts when ratifying the
act
• The principal must ratify the entire actions of the agent
• The ratification must be done in a timely fashion
• The ratification cannot affect third party rights
• The ratification takes effect as of the moment the agent acted
20. Write a note on Types of partners.
Types of Partners
1] Active Partner/Managing Partner

An active partner is also known as Ostensible Partner. As the name suggests he
takes active participation in the firm and the running of the business. He carries
on the daily business on behalf of all the partners. This means he acts as
an agent of all the other partners on a day to day basis and with regards to all
ordinary business of the firm.
Hence when an active partner wishes to retire from the firm he must give a
public notice about the same. This will absolve him of the acts done by other
partners after his retirement. Unless he gives a public notice he will be liable for
all acts even after his retirement.
2] Dormant/Sleeping Partner
This is a partner that does not participate in the daily functioning of
the partnership firm, i.e. he does not take an active part in the daily activities of
the firm. He is however bound by the action of all the other partners.

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He will continue to share the profits and losses of the firm and even bring in his
share of capital like any other partner. If such a dormant partner retires he need
not give a public notice of the same.
3] Nominal Partner
This is a partner that does not have any real or significant interest in the
partnership. So, in essence, he is only lending his name to the partnership. He
will not make any capital contributions to the firm, and so he will not have a
share in the profits either. But the nominal partner will be liable to outsiders and
third parties for acts done by any other partners.
4] Partner by Estoppel
If a person holds out to another that he is a partner of the firm, either by his
words, actions or conduct then such a partner cannot deny that he is not a
partner. This basically means that even though such a person is not a partner he
has represented himself as such, and so he becomes partner by estoppel or
partner by holding out.
5] Partner in Profits Only

This partner will only share the profits of the firm, he will not be liable for any
liabilities. Even when dealing with third parties he will be liable for all acts of
profit only, he will share none of the liabilities.
6] Minor Partner
A minor cannot be a partner of a firm according to the Contract Act. However, a
partner can be admitted to the benefits of a partnership if all partner gives their
consent for the same. He will share profits of the firm but his liability for the
losses will be limited to his share in the firm.
Such a minor partner on attaining majority (becoming 18 years of age) has six
months to decide if he wishes to become a partner of the firm. He must then
declare his decision via a public notice. So whether he continues as a partner or
decides to retire, in both cases he will have to issue a public notice.
21.Explain the procedure for registration of a partnership firm and what are
the consequences of non registration.

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Procedure of Registration
According to the India Partnership Act 1932, there is no time limit as such for the
registration of a firm. The firm can be registered on the date when it is
incorporated or any such date after so. The requisite fees and fines must be paid.
The procedure for such a registration is as follows,
1] Application to the Registrar of Firms in the prescribed form (Form A).

Nowadays this facility is even available online. Such an application must contain
certain basic details about the firm such as,
• Name of the Partnership Firm

• Name and address of all partners
• Place of business (address of main and branch offices)
• Duration of the partnership
• Date of joining of partners
• Date of commencement of business
2] The duly signed copy of the Partnership Deed (which contains all the terms
and conditions) must be filled with the registrar
3] Deposit/pay the necessary fees and stamp duties
4] Once the registrar approves the application, the firm will be entered into the
records. And the registrar will also issue a certificate of incorporation.
And this is how the process of registration will be completed and the firm will
attain legal recognition.
What are the Consequences of Non-Registration of a Partnership Firm?

The following are the points in Section 69 of the Partnership Act that pertain to
the effect of a Non Registration of a Partnership Firm:
• Partners Cannot Sue Another Partner
In an unregistered partnership firm, a partner cannot sue a co-partner. In the
case of unregistered partnership firms, any breach of contract or conflicts of

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interest cannot be resolved by the law. The partners in an unregistered

Partnership Firm are unable to assert their rights.
• Cannot Make a Set-Off Claim Against Third Parties
Section 69(3) of the Partnership Act of 1932 explains the principle of set-off
claims. In a set-off claim, the debtor makes adjustments and can assert
reciprocal rights against the creditor in mutual debts. This approach, however,
cannot be applied when a Partnership Firm is not registered.
• Conversion To Another Entity Becomes Impossible
A registered Partnership Firm can choose to be converted to another corporate
entity, such as an LLP (Limited Liability Partnership). Unregistered partnership
firms are not eligible for this benefit.
• Third Parties are not barred from bringing a lawsuit against an
unregistered partnership firm
The Act does not restrict an unregistered partnership business from suing a third
party, but it does not prevent the opposite. As a result, a third party may still
initiate a lawsuit against the unregistered partnership firm. The fact that the firm
lacks the legal power to sue does not make it immune to legal action brought by
other parties.
• Cannot File a Lawsuit Against a Co-Partner or a Third Party
Every firm will experience difficulties at some point. There could be arguments
or conflicts between the partners, or there could be concerns such as a contract
breach brought on by other parties. Unfortunately, a Partnership Firm that has
failed to register will be unable to obtain legal assistance in this situation. In such
cases, the firm’s power to sue a third party or a co-partner is forfeited. In such a
case, neither the partners nor anyone else can act on behalf of the firm.
Conclusion
Although an unregistered Partnership Firm is indeed lawful in the eyes of the
law and can continue doing business as usual, the disadvantages it brings with it
are far greater. A business cannot operate in an ideal environment for long, and
conflicts will arise, forcing the firm and its partners to respond with legal
proceedings that would be unavailable without the firm’s registration. As a
result, the partners must make an informed decision and register their
Partnership Firm ahead of time.
22.Explain the remedies available for breach of contract.
Remedies for Breach of Contract
When a promise or agreement is broken by any of the parties we call it a breach

of contract. So when either of the parties does not keep their end of the

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agreement or does not fulfil their obligation as per the terms of the contract, it is
a breach of contract. There are a few remedies for breach of contract available to
the wronged party. Let us take a look.
1] Recession of Contract
When one of the parties to a contract does not fulfil his obligations, then the
other party can rescind the contract and refuse the performance of his
obligations.
As per section 65 of the Indian Contract Act, the party that rescinds the contract
must restore any benefits he got under the said agreement. And section 75
states that the party that rescinds the contract is entitled to receive damages
and/or compensation for such a recession.
2] Sue for Damages

Section 73 clearly states that the party who has suffered, since the other party
has broken promises, can claim compensation for loss or damages caused to
them in the normal course of business.
Such damages will not be payable if the loss is abnormal in nature, i.e. not in the
ordinary course of business. There are two types of damages according to the
Act,
• Liquidated Damages: Sometimes the parties to a contract will agree

to the amount payable in case of a breach. This is known as
liquidated damages.
• Unliquidated Damages: Here the amount payable due to the breach
of contract is assessed by the courts or any appropriate authorities.
3] Sue for Specific Performance
This means the party in breach will actually have to carry out his duties according
to the contract. In certain cases, the courts may insist that the party carry out the
agreement.
So if any of the parties fails to perform the contract, the court may order them to
do so. This is a decree of specific performance and is granted instead of damages.

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For example, A decided to buy a parcel of land from B. B then refuses to sell. The
courts can order B to perform his duties under the contract and sell the land to A.
4] Injunction
An injunction is basically like a decree for specific performance but for a negative
contract. An injunction is a court order restraining a person from doing a
particular act.
So a court may grant an injunction to stop a party of a contract from doing

something he promised not to do. In a prohibitory injunction, the court stops
the commission of an act and in a mandatory injunction, it will stop the
continuance of an act that is unlawful.
5] Quantum Meruit
Quantum meruit literally translates to “as much is earned”. At times when one
party of the contract is prevented from finishing his performance of the contract
by the other party, he can claim quantum meruit.
So he must be paid a reasonable remuneration for the part of the contract he has
already performed. This could be the remuneration of the services he has
provided or the value of the work he has already done.
23.Define lien? Explain the different kinds of lien.

Meaning and definition of Lien
• Lien is the right of one person to retain possession of goods owned

by another until the possessor's claims against the owner have been
satisfied. In the Contract of Bailment Bailee has a right to exercise the
lien over the goods bailed to him.
• According to Halsbury's law of England, "Lien is in its primary sense

of right in one man to retain that which it in his possession belonging to
another until certain demands of the person in possession are satisfied.
Types of Lien

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The pre-requisite that is required for a possessory lien is that the possession
has to be continuous, rightful and not for any special purpose. Further, this can
be divided into
1. Particular Lien
2. General Lien
Particular Lien
Particular Lien is that which confers the right to retain a specific commodity for
which the particular debt arose. Such debts usually arise from services that are
provided or labourer or money that is spent on the goods on which the right it
is to be exercised.
The ingredients of a Particular Lien are
• A right to retention of goods till debt due is paid off.

• It does not need any specific agreement.
• Arises in the ordinary course of business.
The essentials of a Possession Lien are
• A possession that is acquired in the ordinary course of business.

• The owner has a lawful debt of an obligation that has to be discharged.
General Lien
A general lien refers to the right to retain goods and securities of a particular
debt but in respect of the general balance that is due by the owner of the
goods and securities, to the individual who is in possession of the goods. This
may be conferred by an agreement to that effect or by custom and usage or by
the provisions of any statue. The right of general lien is particularly given by
law to bankers, solicitors, brokers, wharfingers and warehouse-keepers. A
banker comprises cash, cheque, bill of exchange and securities that are
deposited or any money that is due to him as a banker.
The ingredients of a general lien are given below.
• It extends to a general balance of accounts.

• It is a right of defence, not a right of action.

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• It also extends to prior transactions.

• It extends to properties/ securities which a banker has come in
possession of in the ordinary course of business such as cheques that are
deposited for collection.
• Securities/ goods that are held for a special purpose are not subjects of
General Lien.
Banker’s Lien
Banker’s Lien is an implied pledged and the banker has the right to sell the
property after reasonable notice where the property comes into the hands in
the ordinary course of business. Section of the contract act lays down that a
banker’s lien can be applied if
• The property is in the control of the banker.

• The instruments of the money or goods of the banker are not for a
particular purpose inconsistent with the lien.
• The possession of the instruments is obtained lawfully as a banker.
• There is no implied or expressed agreement contrary to the lien.
Negative Lien
When an advance is made, the banker sometimes asks a borrower to execute a
letter declaring that the assets are free from all charges or encumbrance. The
borrower also undertakes the assets that are stated in the declaration will not
be encumbered or disposed of without a bank’s written permit. This
undertaking is called Negative Lien. The arrangement is normally drafted in the
form of an agreement. The banker cannot directly realize hid debts from such
assets. However, the interests of the banker are protected to a certain extent.
Equitable Lien
An equitable lien is an equitable right that is conferred by law to a charge on
the immovable or movable property of another until the satisfaction of certain
specific claims. An equitable lien is created by the operation of law. The
instances of the equitable lien are given below.
• Where the banker releases the pledged goods to the borrower using a
trust receipt, the sale proceeds of these goods will be deposited in the
loan account.

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• An unpaid vendor of the immovable property has an equitable lien on

the property for the whole or part of the purchase money until the
actual payment.
• A partner who remits partnership debts on dissolution has an equitable
lien on the property of the partnership.
Maritime Lien
A maritime lien is a right for binding a ship, furniture, machinery, cargo and
freight for the payment of the claim which is based on the maritime law.
24.Define agency? Explain various modes of creation of agency?

Section 182 in The Indian Contract Act, 1872
Agent’ and ‘principal’ defined.—An ‘agent’ is a person employed to do any act
for another, or to represent another in dealings with third person. The person
for whom such act is done, or who is so represented, is called the ‘principal’. —
An ‘agent’ is a person employed to do any act for another, or to represent
another in dealings with third person. The person for whom such act is done,
or who is so represented, is called the ‘principal’."
Creation of Agency The following are different modes of creation of agency.
1. Agency by Express agreement.

2. Agency by Operation of law.
3. Agency by Ratification.
4. Agency by Implied authority.
1. Agency by Express agreement: Number of agency contract come into force

under this method. It may be Oral or documentary or through power of
attorney.
2. Agency by operation of law: At times contract of agency comes into
operation by virtue of law.
For example: According to partnership act, every partner is agent of the firm as
well as other parties. It is implied agency. On account of such implied agency
only a partner can bind over firm as well as other partners, to his activities. In
the same way according to companies act promoters are regarded as agents to
the company

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3. Agency by Ratification: Ratification means subsequent adoption of an

activity. Soon after ratification principal – agent relations will come into
operation. The person who has done the activity will become agent and the
person who has given ratification will become principal.
• Ratification can be express or implied. In case where adoption of activity

is made by means of expression, it is called express ratification. For
example: Without A`s direction, B has purchased goods for the sake of A.
There after A has given his support (adoption) to B`s activity, it is called
Ratification. Now A is Principal and B is agent.
• The ratification where there is no expression is called implied
ratification. For example: Mr. Q has P`s money with him. Without P`s
direction Q has lent that money to R. There after R has paid interest
directly to P. Without any debate P has taken that amount from R. It
implies that P has given his support to Q`s activity. It is implied
ratification.
4. Agency by implied authority:This type of agency comes into force by

virtue of relationship between parties or by conduct of parties.
For example: A and B are brothers, A has got settled in foreign country without
any request from A, B has handed over A`s agricultural land on these basis to a
farmer and B is collecting and remitting the amount of rent to A. Here
automatically A becomes principal and B becomes his agent. Agency by implied
authority is of three types as shown below;
• Agency by Necessity
• Agency by Estoppel
• Agency by Holding out.
(i)By Necessity: At times it may become necessary to a person to act as agent

to the other in emergency situation where the property or interest of another
is in danger . the conditions which enables a person to act as an agent of
another in necessity are as follows:
1. There should be a real necessity for acting on behalf of the principal.

2. It should be impossible to communicate with the principle within the
time available.
3. The alleged agent should act bonafide in the interest of the principal.
For example: A has handed over 100 bags of butter for transportation, to a
road transport company. Actually it is bailment contract assume that in the

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transit all vehicles has got stopped where it takes one week for further
movement. So the transport company authorities have sold away the butter in
those nearby villages. Here agency by necessity can be seen.
(ii)By Estoppel: Where a person, by his conduct or words spoken or written,

willfully leads another to believe that a certain person is acting as his agenct,
he is estopped later on from denying the truth of the fact that such a person is
dealing as his agent.
Example: In presence of A , B says to C that he (B) is A`s agent though it is not

so actually. A has not restricted B from making such statement. It is agency by
estoppel.
(iii)By Holding out: the principal is bound by the act of agent if on an earlier
occasion he has made others believe that other person doing some act on his
behalf is doing with his authority.
25.Who is an unpaid seller? What are his rights under sales of goods act.
Meaning of Unpaid Seller
According to section 45(1) of the Sale of Goods Act, 1930, a seller of goods is
called an “unpaid seller”, when:
1. The price has not been paid or tendered, or

2. A bill of exchange or other negotiable instruments (like a cheque) that
was received as conditional payment has been dishonoured.
Section 45(2) expands the definition of a seller to include anyone in a position

of a seller (for example, the agent of the seller to whom the bill of lading is
endorsed, or a consignor or agent who has paid or is directly responsible for
the price).
We can broadly classify the rights of an unpaid seller under the following two
categories:

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I. Rights against goods.

II. Rights against the buyer personally.
I. Rights Against Goods
Section 46 of the Sale of Goods Act addresses the rights of an unpaid seller
whose property in the goods has not yet been transferred to the buyer. The
unpaid seller has the following 3 + 1 = 4 rights:
1. Right of lien
2. Right of stoppage of goods in transit
3. Right to resale the goods
4. Withholding delivery
1. Right of Lien
The right of lien means the right to keep possession of the goods until the
seller receives the due price.
Section 47 of the Sale of Goods Act provides that an unpaid seller (as agent or
bailee of the buyer) in possession of the goods has the right to keep possession
of the goods until payment or tender of the price in the following cases:
• Where the goods have been sold with no stipulation to credit, or

• Where the goods have been sold on credit, but the term of credit has
expired, or
• Where the buyer becomes insolvent.

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2. Right to Stoppage of Goods in Transit
The unpaid seller delivered the goods to the carrier for transmission to the
buyer, and in the meantime, the buyer becomes insolvent, then the seller has
the right to stop and retain the goods in transit. Thus, the unpaid seller
resumes possession of the goods as long as it is in transit.
The unpaid seller can exercise the right of stoppage in transit only if he fulfils
the following conditions:
• The seller must have parted with the possession of goods, i.e., the goods
must not be in the seller’s possession.
• The goods must be in transit.
• The buyer must have become insolvent.
3.Right to Resale the Goods
As per section 46(1) of the Sale of Goods Act, under the following
circumstances, the unpaid seller may resell the goods, if the goods are:
• Of a perishable nature, or
• When the unpaid seller exercised his right to lien or stoppage in transit
and gave notice to the buyer of his intention to resale.
We must note here that in such cases, on reselling the goods, it also
entitles the seller to:
• Recover the difference between the contract price and the resale price
from the original buyer as damage.
• Keep the profit if the resale price is higher than the contract price. But if
the unpaid seller does not give any notice, that shall not entitle such

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unpaid seller to recover such damages, and the buyer can claim the
profit on the resale.
Withholding Delivery
As per section 46(2) of the Sale of Goods Act, where the property in goods has
not passed to the buyer, the unpaid seller has, besides other remedies, a right
to withhold the delivery.
II. Rights Against the Buyer Personally
It is also known as the seller’s remedy for the breach of a contract of sale.
These rights are as follows:
1. Suit for price

2. Suit for damages for non-acceptance
3. Suit for damages for repudiation of the contract
4. Suit for interest
1. Suit for Price
As per section 55 of the Sale of Goods Act, if the property in the goods has
passed to the buyer and he neglects or refuses to pay for it according to the
contract, the seller may sue him for the price of the goods.
2. Suit for Damages for Non-acceptance
As per section 56 of the Sale of Goods Act, where the buyer wrongfully
neglects or refuses to accept the goods and pay for the goods, the seller may
sue him for damages for non-acceptance of the goods. For the measure of
damages, section 73 of the Indian Contract Act, 1872 applies.

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3. Suit for Damages for Repudiation of the Contract
As per section 60 of the Sale of Goods Act, if the buyer repudiates the contract
before the due date for delivery, the seller may treat the contract as
subsisting (maintain, survive, keep active) and wait until the due date of
delivery or treat the contract as rescinded (revoke, cancel) and seek damages
for the breach.
4. Suit for Interest
As per section 61(2) of the Sale of Goods Act, a seller may sue the buyer for
interest or special damages in the event of a breach of contract while suing for
an amount owed to him.
26.Explain the position of minor partner in the partnership firm.
Introduction
According to Section 3 of the Indian Majority Act, a person who has not attained
the age of majority i.e. 18 years, is known as minor.
Section 4 of the Indian Partnership Act, 1932, defines partnership and partner
as follows:
‘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. Persons who
have entered into a partnership with one another are called individually
“partners” and collectively a “firm”, and the name under which their business is
carried on is called the “firm name”.
Minor admitted to benefits of partnership

A partnership firm cannot be formed with a minor as the only other member.
The relation of partnership arises from a contract. In Shriram sardarmal didwani
v. Gourishankar, it was held that a minor is incompetent to contract and,
therefore, a contract of partnership cannot be entered into with a minor.

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Rights of Minor
• A minor admitted to the benefits of a partnership has all the rights of a

full partner.
• Such minor is entitled to his agreed shares of the property and of the
profits of the firm.
• Such minor has the right to access and taking copies of the book of
accounts of the firm. It follows that he has no right of access to those
other books of the firm which do not contain matters of
account.[Section 30(2)]
• Such minor is not entitled to take part in the conducting of the business
as he has no representative capacity to bind the firm.
• Where the minor becomes a partner by his own choice or by failure to
give within the specified time i.e. six months after attaining the age of
majority, he becomes personally liable to the third parties for all the
debts of the firm retrospectively from the date of his admission to the
benefits of partnership.
Liabilities of minor
Liability during minority [Section 30(3)]
Sub-section 3 of section 30 says that “such minor’s share is liable for the acts of
the firm, but the minor is not personally liable for any such act.”
In Addepally Nageswara Rao and Bros v. CIT, the Andhra Pradesh High Court
held that:
“In case he contributes capital or is entitled to get benefit in the profits of the
firm, it is to that extent that the liability can be fastened on the minor. But in no
case, the person of the minor or his other property which he has not brought
into the assets of the partnership can be held liable. That is the purport and
scope of Section 30(3) of the Indian Partnership Act.”
Liability after attaining the age of majority

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Sub-section (5) to (9) of section 30 of the Indian Partnership Act deal with
consequences of a minor partner attaining majority as follows
• He is given six month’s time to decide whether he should leave the firm
or continue in it by becoming a full-fledged partner. This is called the
minor’s choice, namely the right to opt out of the firm or stay in
it. [Section 30(5)]
• Where the minor claims that he had no knowledge of his admission
and, therefore, he should be allowed six months from the date of
knowledge, the burden of proof lies on minor that he had no
knowledge.[Section 30(6)]
• When minor becomes a partner
1. He will be treated as a normal partner, but he also becomes

personally liable for all the acts of the firm done since he was first
admitted to the benefits of partnership.[Section 30(7)(a)]
2. His share in the property and profits of the firm shall remain the same
as it was during his minority.[Section 30(7)(b)]
27.Define partnership? Discuss the essential elements of partnership.

Definition of Partnership
Partnership Firms in India are governed by the Indian Partnership Act, 1932.
As per Section 4 of the Indian Partnership Act:-
“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”
Thus as per the above definition, there are 5 elements which constitute of a
partnership namely: (1) There must be a contract; (2) between two or more
persons; (3) who agree to carry on a business; (4) with the object of sharing
profits and (5) the business must be carried on by all or any of them acting
for all.

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A Partnership Firm's 5 Essential Elements
All the five essential elements of the partnership must be present to form a
partnership. There can't be a partnership if any of these are missing. Listed
below are the 5 elements:
1. Partnership Agreement: A contract results in a partnership. Social
standing, the rule of law, or inheritance has nothing to do with the
partnership agreement.
2. A Partnership can have a Maximum of 20 Partners: Because a
partnership is the product of a contract, at least two people are required
to form one.
3. Operation of Business in a Partnership: The parties must have agreed to
carry on a business as the third necessary ingredient of a partnership.
"Business" is the term that is used broadly to refer to any trade,
occupation, or profession. As a result, if the goal is to do some charity
work, it isn't a partnership.
4. Profits Sharing in Partners: one of the main elements of partnership is to
show that the agreement to do business must have as its goal the
distribution of profits among all partners. Therefore, if a business is
carried for the sake of charity and no profit sharing is there between
partners then there will be no partnership.
5. Mutual Agency between Partners: Another important aspect of the
definition of a partnership is that the business must be carried on by all
the partners or by any (one or more) acting on their behalf of them, i.e.
joint agency.
28.Write a note on revocation of contract agency.
Termination of Agency
When the relationship between principle and agent comes to an end, it’s known
as termination of agency. Section: 201 – 210 deals with termination of agency.
Modes of termination: The provisions relating to the mode of agency are defined
under Section 201 of the Indian Contract Act – 1872. Section- 201 which provides
termination of agency is not comprehensive. We can divide termination of
agency into two parts:

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1. By the act of parties.
2. By the operation of law.
By the act of parties:

There are following manner in which by the act of parties the agency can be
terminated:
Revocation by mutual agreement: The agency of contract can be terminated at

any time by mutual agreement between the principal and the agent.
Revocation by the principal: Agency can be terminated by the principal by

revoking the agent’s authority. The principle can revoke his agent’s authority
when it has not been exercised by the agent reasonable, notice must be given
for such revocation.
For Example- A empowers B to let A’s house. Afterwards A lets it himself. This is
an implied revocation of B’s authority.
Revocation by the Agent: The Agent also can revoke the agency by serving
notice to the principle. As per section 206 of the Indian Contract Act 1872, the
agent must give proper notice of renunciation / revocation of his principal.
Otherwise, he shall be liable to make good for the loss to the principal for such
notice.
By operation of law:
The following points are included in this:
By the completion of agency – After completion of agency work, an agency can

be terminated for which agency is created.
Example: Mahesh employed Sachin as his agent to sell his house in China when
the house was sold by Sachin, it automatically terminates the contract of agency
between Mahesh and Sachin.
By the end of time- The agency can also be terminated by the end of time. If the
agency is created for a specific period of time, then it expires after the time
period is over.
Example: Anandam employs to anjana as a secretary for the period of 3 years at

the end of the 3 years. The contract of agency will come to an end after the
specified period.

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Death or insanity of principle or agent: Section 209 of the Indian Contract Act
deals with it. If there is a death of the principle or agent, the business or agency
of the firm may be terminated in this situation.
Insolvency of principle: To create an agency it is necessary to be competent but,

if the principal becomes insolvent or bankrupt, the agency may be terminated.
Destruction of subject matter – If this subject of agency is destroyed then the

agency is closed.
For example – any agency is made for sale of airplanes, if the airplane catches
fire before the sale then, this agency can be terminated because airplane are
the subject of this contract.
Principal becomes a foreign enemy – If the principal becomes a foreign enemy,

the contract of agency terminates.
Example: Mr. T is employed in America and Mr Sachin who works as an agent

for Mr. T in China for business, due to war climate between the countries of
principal and agent, the contract of agency gets terminate.
Winding up of company or firm – A firm or company can be considered as a

chief in an agency contract. If the company or firm is dissolved, then the agency
is terminated.
29.Write a note on hypothecation.

Introduction:
Hypothecation or hypothecation of assets is generally said to have taken place
when an asset is provided as collateral security to secure a loan in advance.
This means that a borrower against the security offered as collateral is granted
a loan/credit by the lender. In the case of hypothecation, the borrower or
owner of the asset retains the title as well as ownership of the asset while the
lender enjoys the possession. In the event of default, the lender is entitled to
exercise his ownership rights and seize the asset to recover the defaulted
amount of the loan or when the terms of the agreement are not adhered to by
the borrower.
Hypothecation provides security to the lender against the loan advanced, due
to security as collateral pledged by the borrower. Hypothecation usually arises
in the case of movable property, for instance, hypothecation of any

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automobile, stocks, inventories, and bills receivable as collateral against loan

advances. The rate of interest charged by the lender under hypothecation is
lower due to the creation of security for the loan.
Benefits of hypothecation
Hypothecation is beneficial to the borrower in three ways:
1. The first and most important advantage available to the borrower is

that he can retain the title and ownership of the property as well as at
the same time he can raise funds from the bank. This is helpful to a
great extent to those individuals or companies who have just started
out and are new in the business.
2. Second important advantage that lies with the borrower is that the
loan amount is charged with a lower interest rate. Reasons for this
being, the lender has the right to take possession of the property in
the event when the loan amount is not repaid on time or defaulted.
This right of possession provides a sense of security to the lender that
the amount shall be repaid as the loan is secured against security as
well as there shall be a signed hypothecation deed between the
parties.
3. Third, the loan amount granted under hypothecation is usually small
amounts. Businesses, as well as individuals, can take the benefit of
this opportunity to raise funds and pay off easily.
30.Write a note on conditions of warranties and rights of stoppage in transit.
Warranty And Conditions
In a contract of sale, parties may make certain statements about the stipulation or
the course of trade. These stipulations in the contract of sale are made with
reference to the subject matter of the sale. These stipulations may either be a
condition or in the form of a warranty.
The provisions of the conditions and warranty are provided in the sections 11 to
17 of the Act. The stipulations are the essence of the contract of sale and a breach
of these stipulations provides a remedy to the grieved party.

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Stipulations As To Time – Sec 11

To understand the concept of warranty and conditions, we need to learn about
the stipulation as to time. The stipulation as to time may be with regards to the
delivery of goods or it may be with regards to the payment of the price.
However, it may be noted that stipulations as to the time of delivery of the goods
are usually the essence of the contract. In Section 11 of the Act, the topic of the
stipulation as to time has been discussed. The Sec 11 states the follows:
Stipulations as to time: Unless a different intention can be ascertained from

the contract, stipulations as to the time of payment are not considered to be of
the essence of a contract of sale. Whether any other stipulation as to time is of the
essence of the contract or not will ultimately depend on the terms of the contract.
This means that whether the stipulations as to the time of payment of the price is
of the essence of the contract or not depends on the terms of the contract. Unless
the terms of the contract specify something different than this.
Conditions
A condition is a stipulation essential to the main purpose of the contract, the
breach of which gives the right to repudiate the contract and to claim damages.
(Sec 12 (2)). We can understand this with the help of the following example:
because the seller made the stipulation which forms the essence of the contract.
In this case, the mileage was a stipulation that was essential to the main purpose
of the contract and hence its breach is a breach of condition.
Warranty.
A warranty is a stipulation collateral to the main purpose of the said contract. The
breach of warranty gives rise to a claim for damages. However, it does give a right
to reject the goods or treat the contract as repudiated. (Sec 12(3)). Let us
understand this with the help of an example below.
A man buys a particular car, which is warranted to be quite to drive and very
comfortable. It turns out that after some days the car starts to make a very
unpleasant noise every time it is operated. Also sitting inside it is also not very
comfortable.

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Thus the buyer’s only remedy is to claim damages. This is not a breach of the
condition but rather a breach of warranty, because the stipulation made by the
seller was only a collateral one.
Identification of a Stipulation as a Condition or Warranty

Whether a stipulation is a condition or a warranty is a very important aspect to
have the knowledge about. A stipulation in a contract of sale is either a condition
or is a warranty depending in either case on the construction of the contract. A
stipulation may be a condition, though called a warranty in the contract.
Right of Stoppage in Transit

This right is an extension to the right of lien. The right of stoppage in transit
means that an unpaid seller has the right to stop the goods while they are in
transit, regain possession, and retain them till he receives the full price.
If an unpaid seller has parted with the possession of the goods and the buyer
becomes insolvent, then the seller can ask the carrier to return the goods back.
This is subject to the provisions of the Act.
Rights of Re- sale (Section 54)

A vendor who has not been paid has the right to resell the items. The general
criteria for the resale of goods by an unpaid seller are defined in Section 54. The
following are the main guidelines:
1. The unpaid seller may re -sell the goods if the goods are perishable .
2. When the unpaid seller has acquired the possession of goods by virtue of
lien or stoppage in transit and has given notice to the buyer of his
intention to re-sell.
31.Define pledge? State the circumstances in which a non-owner can make a

valid pledge?
Introduction:
The bailment of goods as security for payment of a debt or performance of a
promise is called 'pledge'. The bailor is in this case called the 'pawnor'. The
bailee is called 'pawnee'. —The bailment of goods as security for payment of a
debt or performance of a promise is called 'pledge'.

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There are certain circumstances in which non-owners can make a valid pledge.
these are –
1.Mercantile agent (sec 178) – A mercantile agent is an agent having the right
to buy/sell goods on behalf of his Principal and can consign goods for the
purpose of sale or raise money on the security of goods. Such agent with the
consent of principle can make a valid pledge.
2.A person in possession under voidable contract (Sec 178 A) – Person having
possession under voidable contract can make a valid contract of pledge of
goods, provided that the contract has not been cancelled at the time of pledge
and the pledge has acted in good faith and without knowledge of pledger’s
defective title.
3. Pledger having Limited interest (sec. 179) – where a person pledges goods
in which he has limited interest, the pledge is valid to the extent of his interest.
thus, a person having a lien over goods can pledge it upto the extent of his
interest.
4.Seller in possession of goods after sale ( sec 30(1) of sale of goods act)– A
seller, left in possession of goods sold, is no more owner of the goods, but a
pledge created by him is valid, provided the Pawnee has acted in good faith
and has no knowledge of sale of goods to the real owner. in this case, the
original buyer can obtain damages from the seller but cannot recover the
goods from pledgee.
4. Co-owner in possession – where there are two or more than two co-
owners in possession of goods anyone of them can make a valid pledge
after taking consent of co-owners.
32.Explain the rights of finder goods and liability towards the true owner.
Section 168 and 169 confer certain rights on the finder of goods.
• SECTION 168 – MAY SUE FOR SPECIFIC REWARD OFFERED :
The finder of goods has no right to sue the owner for compensation for trouble
and expense voluntarily incurred by him to preserve the goods and to find out
the owner, but he may retain the goods against the owner until he receives such
compensation, and where the owner has offered a specific reward for the return
of goods lost, the finder may sue for such reward, and may retain the goods until
he receives it.

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• RIGHT OF LIEN
According to section 168, a finder of goods has no right to sue the owner for
trouble and expenses voluntarily incurred by him to preserve the goods and to
find the owner. He has, however, the right of particular lien in respect of those
goods. He may retain the goods against the owner until he receives
compensation for trouble and expense voluntarily incurred by him to preserve
the goods and to find the owner
• RIGHT OF CLAIMING THE REWARD, IF ANNOUNCED BY THE OWNER
It has been noted above that the finder has the right to retain the goods until he
Is paid compensation for trouble and expense voluntarily incurred by him to
preserve the goods and find the owner. In addition to that, where the owner has
offered a specific reward for the return of goods lost the finder may sue for such
reward and also may retain the goods until he receives it.
If the goods have already been found voluntarily, and then the owner of the
goods promises to compensate the finder for his past voluntary services, the
contract is binding and the owner is bound to pay the promised amount.
• SECTION 169 – WHEN FINDER OF THING COMMONLY ON SALE MAY

SELL IT:
When a thing which is commonly the subject of sale is lost, if the owner cannot
with reasonable diligence be found, or if he refuses upon demand, to pay the
lawful charge of the finder, finder may sell it –
1. When the thing is in danger of perishing or losing the greater part of its
value,
2. When the lawful charge of the finder, in respect of the thing found
amount to two-third of its value,
• RIGHT TO SELL THE GOODS FOUND (SEC.169)
The finder of the goods has also been given the right to sell the goods found by
him under certain circumstances mentioned in section 169. Such a right is

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available to the finder of the lost goods when the following conditions are
satisfied:
1. If the owner of the goods cannot be found; or if he refuses to pay the

lawful charges of the finder, and
2. When the good is in danger of perishing its value; or when the lawful
charges of the founder in respect of the thing found amount to two-
third of its value.
33.Discuss the rights and duties of pawner and pawnee.

Who is a Pawnor?
In the case of a pledge, the bailor is known as the pawnor or pledger. The
pawnor is the person who gives the goods as security for the payment of a
debt or the fulfilment of a promise.
Who is a Pawnee?
In the case of a pledge, the bailee is known as the pawnee or pledgee. The
pawnee is the individual to whom the goods are handed as security for the
payment of a debt or the fulfilment of a promise.
Rights of Pawnee and Pawnor

The Pawnee will get the property that was pledged. The delivery must be in
accordance with the contract. This delivery will be for security purposes only.
Furthermore, delivery of goods will be subject to a return condition.
• Rights of Pawnee
1. Right to retain the pledged goods [Section 173]:
The pawnee is entitled to keep the goods pledged not only for the payment of
the debt or the fulfilment of the promise but also for the interest on the debt
and other required expenditures paid by him in connection with the possession
or maintenance of the pledged goods.
Example: Where ‘M’ pledges stock of goods for a certain loan from a bank, the
bank has a right to retain the stock not only for adjustment of the loan but also
for payment of interest.
2. Right to the retention of subsequent debts [Section 174]:

In the absence of a contract to the contrary, the Pawnee shall not keep the
goods pledged for any obligation or promise other than the debt or promise

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for which they are pledged; nevertheless, such contract shall be inferred in
relation to subsequent advances made by the Pawnee.
3. Pawnee’s right to extraordinary expenses Incurred [Section 175]:
The pawnee is entitled to a repayment from the pawnor for extraordinary
costs paid in the maintenance of the pledged property. He does not, however,
have the right to keep the items for such costs.
4. Pawnee’s right where pawnor makes default [Section 176]:

If the pawnor fails to pay the debt or execute the promise at the specified
time, the pawnee may sue the pawnor for the debt and keep the items
pledged as collateral security; or he may sell the goods pledged after providing
the pawnor sufficient notice of the sale.
The pawnor is still obliged to pay the balance if the profits of the sale are less
than the amount due on the obligation or promise. If the profits of the sale
exceed the amount owed, the pawnee must return the excess to the pawnor.
• Duties of Pawnee
1.To take reasonable care of the goods pledged: The act states that pawnee
must have to take reasonable care of the goods pledged.
2. Not to make unauthorized use of goods pledged: The act states that the
goods must be used for the purpose mentioned in the contract of Pledge and
not otherwise.
3. To return the goods: The act States that, the pawnee has a duty to return
the goods pledged after the purpose is accomplished.
4. To return any accretion that increases to the goods: The pawnee is bound to
return the added accrued value from the goods pledged.
5. Duty not to mix the goods: Pawnee has a duty not to mix the goods pledged
Illustration
If A bails 100lt of petrol to B against the loan of Rs.13000. It is the duty of the B
to not mix the goods of A with his goods.
Rights of a pawnor
As the bailor of goods pawnor has all the rights of the bailor. Along with that
he also has the right of redemption to the pledged goods which is enumerated
under Section 177 of the Act.

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1. Right to redeem [Section 177]

If a deadline is set for the payment of the debt or performance of the promise
for which the pledge is made, and the pawnor fails to pay the debt or perform
the promise by the deadline, he may redeem the goods pledged at any time
before they are actually sold; however, he must pay any additional expenses
incurred as a result of his default.
Duties of Pawnor:
1.Duty to reimburse ordinary and extraordinary expenses.
Illustration
If A bails his cow to B for Rs.8000. B paid all the expenses like food for cow,
shelter etc. Here A has a duty to pay the expenses back to B.
2. Duty to repay the debt plus any interest due on debt.

Illustration
If A bails his gold chain as security to B for a loan of Rs.3000 Here, A has a duty
to pay back the amount of loan to B.
3. Duty to pay claims and damages or compensation to Pawnee

The pawnor has a duty to pay the compensation or damages to the Pawnee if
the Pawnee suffered any type of legal damages due to the pawnor’s goods.
Conclusion
The pawnor transfers/bailed his assets to the Pawnee as security for the sum
he gets from the Pawnee in the pledge. The pawnor is responsible for paying
the sum back to the Pawnee, and the Pawnee is responsible for returning the
goods once the pawnor has paid the amount. If the Pawnee makes illegal use
of the items bailed to him, he will be responsible for compensating the
pawnor.
34.Discuss the relationship of principal and third parties.

In a contract of agency, an agent deals with the third parties on behalf of his
principal. He enters into contracts with the third parties and is responsible for his
acts to the principal. However, there are also some Responsibilities of Principal to
Third-parties for the acts of the agent.

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Responsibilities of Principal to Third-parties
The effect of a contract that an agent makes differs according to the situations
under which the agent contracts. The agent may contract under the following
three situations:
1. Disclosed Principal
Where the name of the principal is disclosed and an agent enters into a contract
on his behalf, he usually incurs no rights and liabilities under such contract. He
drops out of the contract as soon as it is made.
Thus, the contract is between the principal and the third party and also the rights
and obligations arise between them only. The legal effect of such a contract is
the same as if the principal himself directly contracts with the third party.
The legal effect implies that all the acts of the agent within the actual or
ostensible authority bind the principal. It is noteworthy here that the acts though
out of the scope of the actual authority of a general agent but within his
apparent authority are binding on the principal. Thus, any secret restrictions on
the powers of the agent do not bind the third party.
2. Undisclosed Principal
In this case, where the agent discloses that he is only an agent but hides
the identity of his principal, he is not liable personally. Thus, the principal when
discovered is liable for the contract made by his agent and is also responsible for
the acts of the agent.
3. Concealed Principal
Where an agent seems to be contracting in his own capacity without disclosing
that he is an agent or the name of his principal, he becomes personally liable. In
this case, the third party may sue the agent or the principal on discovering him or
both.
However, if the third party sues the principal and not the agent, then he shall
allow the principal the benefit of all payment that he made to the agent. He is
also eligible to obtain the benefit of anything that he pays to the agent under
the contract.

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In a case where the principal discloses himself before the completion of the
contract, the third party may refuse to fulfil the contract if he shows that:
1. If he knew the principal he would have not entered into the contract.
2. If he knew that the agent is not the principal he would have not
entered into the contract.
Principal Liable for Agent’s Misconduct
When an agent commits a wrong or tort or fraud while acting within his actual or
ostensible authority, the principal is liable for his acts.
An agent is also personally liable in this case and can be sued also. Even if the
agent commits such fraud for his benefit and against the interests of the
principal, it renders the principal liable.
35.Explain admission and retirement of partners under partnership firms
Admission of Partner
As subject to section 30 of The Indian Partnership Act, 1932, no one can be
introduced as a partner of the respective partnership firm until and unless
agreed by the other existing partners. The partnership firm’s cardinal principle
is the existence of a mutual agency among all its partners. However, the
person being introduced as a partner of an existing partnership firm will not be
liable for any acts of the respective firm that have been done before their
admission.
Rights and Liability of a Newly Admitted Partner

The rights and liabilities of a new partner get approved from the date when
they are admitted as a partner in the respective partnership firm. If the new
partner agrees to be liable for all the obligations incurred by the respective
partnership firm before the date of admission, then and only they will be liable
for the same. When a new partner is admitted to a partnership firm, he

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automatically gets the right to share the respective firm’s assets, liabilities, and
profit.
During the entire admission procedure, the new partnership firm (including the
new partner) must agree to carry forward all the debits and credits of the old
partnership firm. And hence, all the creditors of the old partnership firm may
discharge all the old partners and accept the new partners as their debtors.
However, it should be noted that to operate all these transactions, the
creditor’s consent is extremely important.
Retirement of Partners
According to Section 32(1) of the Indian Partnership Act, 1932, a partner of an
existing partnership firm can successfully retire only with the consent of all the
other partners of the respective partnership firm. The retiring partner needs to
have an expressed agreement concerning all the firm’s other partners. In case
of a partnership at will, the retiring partner must provide a written legal notice
to all the other firm partners stating his intention to retire from the
partnership firm.
Once the partner is retired from the partnership firm, they are not liable to any
third party dealing with the firm. Such an agreement is implied once the
partnership firm is reconstituted. However, the retiring partner will be liable
for all his past acts before the retirement until they give the public notice. As
mentioned in section 32 (2) of this act, the public notice can be given by the
retiring partner or any other partner.
Rights and Liability of the Retiring Partners

As mentioned above, until and unless the retiring partner provides the public
notice, they continue to be liable for all the acts done by the respective

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partnership firm even after the retirement. The liability continues until the
public notice of their retirement is given. A retired partner is not liable to any
third parties dealing with the partnership firm without knowing that they were
a partner.
Such a kind of agreement between the partners may be implied by a course of
dealings between the reconstituted firm and the third party. In the partnership
at will, if the retiring partner does not provide a written notice intending his
retirement, he will continue to be liable for all the acts of the respective
partnership firm.
36.Distinguish between conditions and warrantees.

Introduction:
The condition is the fundamental stipulation of the contract of sale
whereas Warranty is an additional stipulation. World.
BASIS FOR
CONDITION WARRANTY
COMPARISON
Meaning A requirement or event A warranty is an assurance

that should be performed given by the seller to the
before the completion of buyer about the state of the
another action, is known as product, that the prescribed
Condition. facts are genuine.
Defined in Section 12 (2) of Indian Sale Section 12 (3) of Indian Sale

of Goods Act, 1930. of Goods Act, 1930.
What is it? It is directly associated with It is a subsidiary provision

the objective of the related to the object of the
contract. contract.
Result of breach Termination of contract. Claim damages for the

breach.

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BASIS FOR
CONDITION WARRANTY
COMPARISON
Violation Violation of condition can Violation of warranty does

be regarded as a violation not affect the condition.
of the warranty.
Remedy available Repudiate the contract as Claim damages only.

to the aggrieved well as claim damages.
party on breach
Conclusion
At the time of agreeing to the contract of sale, both the buyer and seller puts
some stipulations regarding payment, delivery, quality, quantity, etc. These
stipulations can be either condition or warranty, which depends on the nature
of the contract. Every contract of sale has some implied conditions and
warranties.
37.How partnership firms are retrenched? What are the consequences of

registration and non-registration of partnership firms.
Partnerships are a popular type of business structure, mainly because
partnerships are one of the easiest and least expensive businesses to form.
They are also one of the easiest to terminate. A partnership is an
unincorporated, for-profit business established and run by two or more
individuals. The individuals are known as 'partners' and serve as co-owners of
the business.
here are many ways dissolution can occur. For instance:
• A partner resigns from the partnership

• A partner withdraws from the partnership
• A partner retires
• A partner dies
• A partner drives out, or expels, another partner
• The partnership business declares bankruptcy
• The partners have an agreement to dissolve
• The partnership business is illegal

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What are the consequences of registration and non-registration of

partnership firms.
Earlier Answer.
38.Explain the rules relating to passing the property in goods from seller to
buyer.
Introduction:
A sale of goods or property implies a transfer or passing of ownership to the
buyer. The passing of property is an important aspect to help determine
the liabilities and rights of both the buyer and the seller. Once a property is
passed to the buyer, then the risk in the goods sold is that of the buyer and not
the seller. This is true even if the goods are in the possession of the seller. Let us
learn more about the passing of property in the Sale of Goods Act.
Passing of Property
There are four primary rules that govern the passing of property:
• Specific or Ascertained Goods

• Passing of Unascertained Goods
• Goods sent on approval or “on sale or return”
• Transfer of property in case of reservation of the right to disposal
Passing of Ascertained Goods
Section 19
This is the first rule of the passing of property. It deals with the passing
of specified goods and states that –Specific or ascertained goods pass when
intended to pass. Section 19 of The Sale of Goods Act, 1930, has three sub-
sections as follows:
• Sub-section (1): Imagine a contract for the sale of specific or

ascertained goods with a clear mention of the time when the parties
to the contract intend to transfer the property. In such cases, the
property is transferred at the time mentioned in the contract.

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• Sub-section (2): To understand the intention of the parties, the terms

of the contract, the conduct of the parties, and the circumstances of
the case are considered.
• Sub-section (3): Sections 20 to 24 of The Sale of Goods Act, 1930,
contain rules to ascertain the intention of the parties. This intention
is about the time at which the property in the goods will pass to the
buyer. Let’s look at these sections
Section 20
Section 20 relates to Specific goods in a deliverable state. It states that if the
contract is unconditional for the sale of specific goods in a deliverable state, then
the property in the goods passes to the buyer the moment the contract is made.
This rule holds true even if the time of payment of price or delivery of the goods
or both is postponed.
Section 21
Specific goods to be put into a deliverable state (Section 21) – Imagine a contract
for the sale of goods where the seller has to do something before the goods are
ready for delivery. In such cases, the passing of property happens only after the
seller does the things and informs the buyer.
Example: Peter buys a laptop from an electronics store and asks for a home
delivery. The shopkeeper agrees to it. However, the laptop does not have a
Windows operating system installed. The shopkeeper promises to install it and
call Peter before making the delivery. In this case, the property transfers to Peter
only after the shopkeeper has installed the OS making the laptop ready for
delivery.
Section 22
Specific goods are in a deliverable state but the seller has to do something to
ascertain the price – Imagine a contract of sale of goods which are in a
deliverable state but the seller has to do something like weight, measure, test, or
perform any other act on the goods to ascertain the price. In such cases, the
property does not pass until the seller does the act and informs the seller.

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Passing of Unascertained Goods

If there is a contract for the sale of unascertained goods, then the passing of the
property of the goods to the buyer cannot happen unless the goods are
ascertained. This is specified under Section 18 of The Sale of Goods Act, 1930.
Section 23
Further Section 23 lists two important rules for the passing of property of
unascertained goods:
• Sale of unascertained goods by description: Imagine a contract for

the sale of unascertained or future goods by description. If any goods
of that description are appropriated to the contract either by the
buyer or the seller with the consent of the other party, then the
property of the goods passes to the buyer. The consent can be
express or implied and given before or after the appropriation is
made.
• Delivery to the carrier: If the seller delivers the goods to the buyer or
a carrier or a bailee (whether named by the buyer or not) for the
purpose of transmission to the buyer, but does not reserve the right
of disposal, then he is deemed to have unconditionally appropriated
the goods to the contract.
39.What are the rights available to seller and buyer for breach of contract?
Buyer's Remedies Against Seller For Breach of Contract
A buyer also has certain remedies against the seller who commits a breach.
These are:
1. Suit for Damages for Non-Delivery- When the seller wrongfully neglects or
refuses to deliver the goods to the buyer, the buyer may sue the seller for
damages for non-delivery. This is in addition to the buyer's right to recover the
price, if already paid, in case of non-delivery.
2. Suit for price- Where the buyer has paid the price and the goods are not
delivered to him, he can recover the amount paid.

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3. Suit for specific performance- When the goods are specific or ascertained, a
buyer may sue the seller for specific performance of the contract and compel
him to deliver the same goods. The court orders for specific performance only
when the goods are specific or ascertained and an order for damages would
not be an adequate remedy. Specific performance is generally allowed where
the goods are of special significance or value e.g. a rare paining, a unique piece
of jewellery , etc.
4. Suit for Breach of Warranty- Where there is a breach of warranty by the

seller, or where the buyer elects or is compelled to treat the breach of
condition as breach of warranty, the buyer cannot reject the goods. The buyer
may, (a) set up the breach of warranty in extinction or diminution of the price
payable by him, or (b) sue the seller for damages for breach of warranty.
5. Suit for Damages for Repudiation of contract before Due date-Where the
seller repudiates the contract before the date of delivery, the buyer may adopt
any of the following two courses of action --
1. He may treat the contract as rescinded and sue the seller for damages.
This is also known as 'damages for anticipatory breach'. The damages
will be assessed according to the prices prevailing on the date of breach.
2. He may treat the contract as subsisting and wait till the date of delivery.
The contract remains open at the risk and for the benefit of both the
parties. If the seller subsequently chooses to perform there shall be no
damages otherwise he shall be liable to damages assessed according to
the prices on the day stipulated for delivery.
6. Suit for interest- The buyer may recover such interest or special damages, as
may be recoverable bylaw. He may also recover the money paid where the
consideration for the payment of it has failed.
In the absence of a contract to the contrary, the court may award interest, to
the buyer, in a suit by him for the refund of the price in a case of a breach on
the part of the seller, at such rate as it thinks fit on the amount of the price
from the date on which the payment was made.
40.Explain the doctrine of “Caveat emptor” state the exceptions to this rule.
Caveat Emptor” is a Latin phrase that translates to “let the buyer beware”. What
exactly does this mean? Does the seller have no responsibilities? The answers lie
in the Doctrine of Caveat Emptor.

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The doctrine of Caveat Emptor is an integral part of the Sale of Goods Act. It
translates to “let the buyer beware”. This means it lays the responsibility of their
choice on the buyer themselves.
It is specifically defined in Section 16 of the act “there is no

implied warranty or condition as to the quality or the fitness for any particular
purpose of goods supplied under such a contract of sale“
A seller makes his goods available in the open market. The buyer previews all his
options and then accordingly makes his choice. Now let’s assume that the
product turns out to be defective or of inferior quality.
This doctrine says that the seller will not be responsible for this. The buyer
himself is responsible for the choice he made.
So the doctrine attempts to make the buyer more conscious of his choices. It is
the duty of the buyer to check the quality and the usefulness of the product he
is purchasing. If the product turns out to be defective or does not live up to its
potential the seller will not be responsible for this.
Exceptions to the Doctrine of Caveat Emptor

The doctrine of caveat emptor has certain specific exceptions.
1] Fitness of Product for the Buyer’s Purpose

When the buyer informs the seller of his purpose of buying the goods, it is
implied that he is relying on the seller’s judgment. It is the duty of the seller then
to ensure the goods match their desired usage.
2] Goods Purchased under Brand Name

When the buyer buys a product under a trade name or a branded product the
seller cannot be held responsible for the usefulness or quality of the product. So
there is no implied condition that the goods will be fit for the purpose the buyer
intended.

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3] Goods sold by Description

When the buyer buys the goods based only on the description there will be an
exception. If the goods do not match the description then in such a case the
seller will be responsible for the goods.
4] Goods of Merchantable Quality

Section 16 (2) deals with the exception of merchantable quality. The sections
state that the seller who is selling goods by description has a duty of providing
goods of merchantable quality, i.e. capable of passing the market standards.
So if the goods are not of marketable quality then the buyer will not be the one
who is responsible. It will be the seller’s responsibility. However if the buyer has
had a reasonable chance to examine the product, then this exception will not
apply.
5] Sale by Sample
If the buyer buys his goods after examining a sample then the rule of Doctrine of
Caveat Emptor will not apply. If the rest of the goods do not resemble the
sample, the buyer cannot be held responsible. In this case, the seller will be the
one responsible.
For example, A places an order for 50 toy cars with B. He checks one sample
where the car is red. The rest of the cars turn out orange. Here the doctrine will
not apply and B will be responsible.
6] Sale by Description and Sample

If the sale is done via a sample as well as a description of the product, the buyer
will not be responsible if the goods do not resemble the sample and/or the
description. Then the responsibility will fall squarely on the seller.
7] Usage of Trade
There is an implied condition or warranty about the quality or the fitness of
goods/products. But if a seller deviated from this then the rules of caveat emptor
cease to apply. For example, A bought goods from B in an auction of the contents
of a ship. But B did not inform A the contents were sea damaged, and so the
rules of the doctrine will not apply here.

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8] Fraud or Misrepresentation by the Seller

This is another important exception. If the seller obtains the consent of the
buyer by fraud then caveat emptor will not apply. Also if the seller conceals any
material defects of the goods which are later discovered on closer examination
then again the buyer will not be responsible. In both cases, the seller will be the
guilty party.
41.What are the rights available to seller and buyer for breach of contract.
Please refer Earlier Answer
42.Whe can a court order for dissolution of a firm.
According to section 44 of the Indian Partnership Act, a partner can approach the
court asking for the dissolution of the firm. As per the discretion of the court, it
may order a dissolution under certain circumstances.
1] Partner of Unsound Mind
The insanity (temporary or permanent) does not automatically dissolve the
partnership. However, the guardian of the unsound partner or any other partner
can file a suit with the court for dissolution of a partnership firm. The dissolution
will be effective from the date of the court order.
2] Incapacity of Partner
If a partner has become incapable in a permanent capacity, for example blind,
paralytic etc. then the court will dissolve the firm if a suite is filed by any partner.
3] Misconduct by Partner
If the misconduct of a partner is adversely affecting the business and their
reputation, then the court will consider dissolving the firm in response to a suit
filed by any other partner of the firm. For example, the gambling addiction of
one particular partner is adversely affecting a firm, the court can order
the dissolution of the firm.
4] Breaching of Agreement
If one of the partners is persistently breaching the partnership agreement then
the other partners can approach the court. One point to note is that the partner
must be repeatedly breaching the contract, and continues to do so even after

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warnings. An on-off breach does not warrant the action. But persistent breaching
will result in the court ordering the dissolution of the firm.
5] Transfer of Share by Partner

A partner cannot transfer his shares and interests of the firm to another party
without the permission of all the partners of the firm. He cannot admit a new
partner in the partnership in the firm in such a manner. So if he has sold his
rights/interests the other partners can approach the court and file for dissolution
of the firm.
6] Losses
If the business is operating at a loss and the courts are convinced that the
business cannot turn a profit, it will dissolve the firm.
7] Any Other Just Cause

The list given in Section 44 is not exhaustive. There can be other reasons for the
dissolution of the firm. If the court is convinced the cause in the suit is justifiable
and equitable, it will dissolve the firm. For example, if there is a deadlock
between partners that is not showing signs of respite, the court can dissolve the
firm.
43 Sharing a profit is only a prima facie evidence to show that there exist
partnership discuss.
Sharing of Profit
Sharing of profits is a facet of the true test of a partnership. However, profit

sharing is merely clear evidence of a partnership. But the act doesn’t consider
it a piece of conclusive evidence due to the emergence of some profit-sharing
cases where profit-sharing has been seen contradictory to the partnership.
Let’s have a look at a landmark case where profit sharing was not considered
as a true test of partnership.
Cox v. Hickman (1860) 8 H.L. 268[4]
Facts- Benjamin Smith and Josiah Timmis Smith carried on business as iron
specialists and corn vendors under the name of B Smith & Son. They were

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obligated to pay a lot of money to the creditors as they had taken loan earlier.
So, a meeting took place, amongst whom were Cox and Wheatcroft. An
arrangement deed was executed by more than six-sevenths in number and
value of the creditors. The trusts were identified and the rent was fixed at 21
years. They were to carry on business under the name of “The Stanton Iron
Company”. The deed likewise contained a condition which kept them from
suing the Smiths for existing obligations. Cox never went about as trustee, and
Wheatcroft surrendered following a month and a half after which no trustee
was appointed.
Issue- Now the issue was whether or not the defendants (creditors) including
Cox and Wheatcroft are liable to the Hickman?
Judgement -It was held by the House of Lords that there exists no partnership
and hence Cox was not liable. Lord Cranworth stated that- “Participation in
profits is not the decisive test of a partnership”. The court also said that the
deed was just to pay the creditors out of the existing profits and the profits
that the business would earn in future. Thus, this relationship is not enough to
constitute a principle- agency relationship.
There are some more situations which have been found contradictory to the
partnership:
• The profits arising from the property of persons having a joint or

common interest in that property doesn’t mean that those persons
will be considered as partners.
• An agent or servant will not be considered as a partner if he is given a
share of profit.
• If a partner dies and his wife or child receives a share of profit, the
wife or a child couldn’t claim themselves as partners.
• If the previous owner is shared some profits as goodwill or a form of
consideration, it will not make him a partner.
• There is already an express agreement between existing between the
partners regarding the share of profits, and the law of agency governs
it, there will be no difficulty in determining the existence of
partnership in light of the provisions of section

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It becomes an arduous task when there is no express agreement or when there

is nothing in the contract stating about partnership. Thus, in this case, section
6 has to be referred to determining the partnership relation or existence.
Under Section 6, the real attention between the parties must be given regard
by looking at the relevant facts while determining the existence of a
partnership. This rule doesn’t seem as simple as it is stated, its application is an
intricate part.
44.Write a note on auction sale.
Auction Sale
An auction sale is a public sale. The goods are sold to all members of the public at
large who are assembled in one place for the auction. Such interested buyers are
the bidders.
The price they are offering for the goods is the bid. And the goods will be sold to
the bidder with the highest bid.
The person carrying out the auction sale is the auctioneer. He is the agent of the
seller. So all the rules of the Law of Agency apply to him.
But if an auctioneer wishes to sell his own property as the principal he can do so.
And he need not disclose this fact, it is not a requirement under the law.
Rules of an Auction Sale

As we saw previously, the rules regarding an auction sale are found in the Sale of
Goods Act. Section 64 of the Act specifically deals with the rules governing an
auction sale.
1] Goods Sold in Lots

In an auction sale, there can be many goods up for sale of many kinds. If some
particular goods are put up for sale in a lot, then each such lot will be considered
a separate subject of a separate contract of sale. So each lot ill prima facie be the
subject of its own contract of sale.

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2] Completion of Sale
The sale is complete when the auctioneer says it is complete. This can be done by
actions also – like the falling of the hammer, or any such customary action. Till
the auctioneer does not announce the completion of the sale the prospective
buyers can keep bidding.
3] Seller may Reserve Right to Bid

The seller may reserve his right to bid. To do so he must expressly reserve such
right to bid. In this case, the seller on any person on his behalf can bid at the
auction.
4] Sale Not Notified

If the seller has not notified of his right to bid he may not do so under any
circumstances. Then neither the seller nor any person on his behalf can bid at the
auction. If done then it will be unlawful.
The auctioneer also cannot accept such bids from the seller or any other person
on his behalf. And any sale that contravenes this rule is to be treated as
fraudulent by the buyer.
5] Reserve Price
An auction sale may be subject to a reserve price or an upset price. This means
the auctioneer will not sell the goods for any price below the said reserve price.
6] Pretend Bidding
But if the seller or any other person appointed by him employs pretend bidding
to raise the price of the goods, the sale is voidable at the option of the buyer.
That means the buyer can choose to honor the contract or he can choose to void
it.
7] No Credit
The auctioneer cannot sell the goods on credit as per his wishes. He cannot
accept a bill of exchange either unless the seller is expressly fine with it.
45.Write a note on co-surety.

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Section:146
A contract of guarantee refers to a contract to perform the promise or discharge
the liability of a third person in case of any default by him. Surety is the person
giving the guarantee. The person for whom the guarantee is given is the Principle
Debtor. The person to whom the surety gives the guarantee is the Creditor. A
guarantee may be oral or in writing.
Where two or more persons are co-sureties for the same debt or duty, either
jointly or severally, and whether under the same or different contracts, and
whether with or without the knowledge of each other, the co-sureties, in the
absence of any contract to the contrary, are liable, as between themselves, to
pay each an equal share of the whole debt, or of that part of it which remains
unpaid by the principal debtor.
Illustration
(a) A, B and C are sureties to D for the sum of 3,000 rupees lent to E. E makes
default in payment. A, B and C are liable, as between themselves, to pay 1,000
rupees each.
(b) A, B and C are sureties to D for the sum of 1,000 rupees lent to E, and there
is a contract between A, B and C that A is to be responsible to the extent of
one-quarter, B to the extent of one- quarter, and C to the extent of one-half. E
makes default in payment. As between the sureties, A is liable to pay 250
rupees, B 250 rupees, and C 500 rupees.
BY

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Contract Law II KSLU Notes Final

Law (IFIM College)

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MOST IMPORTANT PREVIOUS YEAR QUESTIONS

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Karnataka State law university 3 & 5 year LLB

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24.Define agency? Explain various modes of creation of agency?

ANIL KUMAR K T LLB COACH

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1.Define contract of indemnity? Explain the rights of indemnity holder?

To indemnify something basically means to make good a loss. In other words, it

A contract of indemnity is defined by Section 124 of the Indian Contract Act as

A contract of insurance is very similar to indemnity contracts. Here, the insurer

As per the section 125 the rights of indemnity holder are

1. Damages. In a contract of indemnity the indemnity holder is entitled to

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3. Sums. An indemnity holder is entitled to recover from indemnified all sums

2.Explain circumstances under which the surety is discharged?

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1. Revocation of guarantee by giving notice (Section 130);

• Discharge by the conduct of the parties

1. Variance in terms of the contract (Section 133);

• Discharge by the invalidation of the contract

1. Guarantee obtained by misrepresentation (Section 142);

Revocation of surety by giving notice

Discharge by variance in terms of the contract

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Release or discharge of the principal debtor

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• Promise not to sue

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3.What is bailment? Explain its important features with decided cases.

A bailment is a delivery of goods one person to another for some purpose

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8. Change in Shape: If bailed goods shape changes in the meantime even

4.What is continuing guarantee? Explain the various modes of discharge of

What is the continuing guarantee?

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