Contract of Indemnity

- Definition: A contract of indemnity is defined under Section 124 of the Indian Contract Act,
1872. It is a contract by which one party promises to save the other from loss caused to him by
the conduct of the promisor himself or by the conduct of any other person.

Nature:

- Contingent Contract: It is a contingent contract, meaning the liability of the indemnifier arises
only on the happening of a specified event.
- Primary Liability: The indemnifier’s liability is primary and independent.

Extent of Indemnifier’s Liability:

- The indemnifier is liable for all damages, costs, and sums that the indemnified may be
compelled to pay in any suit in respect of any matter to which the promise to indemnify applies.

Case Law: In Adamson v. Jarvis (1827), the court held that the indemnifier must compensate the
indemnified for all losses incurred due to the indemnifier’s actions⁵.

2. Contract of Guarantee

- Definition: A contract of guarantee is defined under Section 126 of the Indian Contract Act,
1872. It is a contract to perform the promise or discharge the liability of a third person in case of
his default. The person who gives the guarantee is called the ‘surety’, the person in respect of
whose default the guarantee is given is called the ‘principal debtor’, and the person to whom
the guarantee is given is called the ‘creditor’.

Nature:

- Tripartite Agreement: It involves three parties – the surety, the principal debtor, and the
creditor.
- Secondary Liability: The surety’s liability is secondary and arises only when the principal debtor
defaults.

Rights of Surety:

- Right of Subrogation: After paying the debt, the surety steps into the shoes of the creditor.
- Right to Indemnity:The surety can claim indemnity from the principal debtor for any sums paid
under the guarantee.

Liability of Surety:

- The surety’s liability is co-extensive with that of the principal debtor unless otherwise provided
by the contract.

Discharge of Surety:

- Revocation: By notice to the creditor.

- Death: The surety’s liability is discharged upon his death.
 - Variation in Contract: Any material variation in the terms of the contract without the surety’s
consent discharges the surety.
Case Law: In Bank of Bihar v. Damodar Prasad (1969), the Supreme Court held that the surety’s
liability is co-extensive with that of the principal debtor¹².

3. Bailment

- Definition: Bailment is defined under Section 148 of the Indian Contract Act, 1872. It is the
delivery of goods by one person to another for some purpose, upon a contract that they shall,
when the purpose is accomplished, be returned or otherwise disposed of according to the
directions of the person delivering them.

Nature:

 Temporary Transfer: It involves the temporary transfer of

 Possession but not ownership.
 Specific Purpose: The goods are delivered for a specific purpose.

Rights and Duties of Bailee:

 Rights: To claim compensation for any loss due to the bailor’s defective title,Right to
necessary expenses and Right to lien.
 Duties: To take reasonable care of the goods Not to make unauthorized use., Return the
goods after the purpose is fulfilled.

Rights and Duties of Bailor:

 Rights: Right to enforce the return of goods, right to claim damages for unauthorized use,
and right to terminate the bailment.
 Duties: Duty to disclose known faults, duty to bear extraordinary expenses, and duty to
indemnify the bailee.

Case Law: In Lily White v. R. Munuswami (1966), the court held that the bailee must take as much care
of the goods bailed as a man of ordinary prudence would take of his own goods.

4. Pledge

- Definition: Pledge is a special kind of bailment defined under Section 172 of the Indian Contract
Act, 1872. It is the bailment of goods as security for the payment of a debt or performance of a
promise.

Pledge by Persons Other than the Owner:

- Mercantile Agent: A mercantile agent can pledge goods if acting in the ordinary course of
business.
- Possession with Consent: A person in possession of goods with the owner’s consent can pledge
them.

Case Law: In Lallan Prasad v. Rahmat Ali (1967), the Supreme Court held that the pawnee has the right
to retain the goods pledged until the debt is paid¹.
5. Agency

Definition: Agency is a relationship where one person (the agent) is authorized to act on behalf of
another (the principal) to create a legal relationship with a third party.

Modes of Creation: Agency can be created by

Express and Impliedagreement,Necessity,Ratification.

Termination of Agency:

- By Act of Parties: Mutual agreement, revocation by the principal, or renunciation by the agent.
- By Operation of Law: Death or insanity of either party, insolvency of the principal, or completion
of the agency’s purpose.

Rights, Duties, and Liabilities:

•Principal: Right to demand accounts,Duty to indemnify the agent,Liability for acts of the agent within
the scope of authority.

•Agent: Right to remuneration,Duty to act in good faith, Liability for breach of duty.

•Undisclosed Principal:

•The undisclosed principal can sue and be sued by third parties, but the agent is also liable.

Contract of Partnership

- Definition: According to Section 4 of the Indian Partnership Act, 1932, a partnership is the
relation between persons who have agreed to share the profits of a business carried on by all or
any of them acting for all.

Nature:

- Voluntary Association: Formed by agreement between partners.

- Mutual Agency: Each partner acts as an agent of the firm and other partners.
- Profit Sharing: Partners share profits and losses.
- Unlimited Liability: Partners have unlimited liability for the firm’s debts.

Non-Partnership Interests:

- Co-Ownership: Mere co-ownership of property does not constitute a partnership.

- Joint Hindu Family Business: Governed by Hindu law, not by the Partnership Act.

Formation of Partnership:

 Agreements: Can be oral or written.

 Essential Elements: Agreement
-to share profits
-mutual agency
-lawful business.
  Partner by Holding Out: A person who represents himself as a partner or allows others to do
so is liable as a partner to anyone who gives credit to the firm based on such representation
(Section 28).

Case Law: In Cox v. Hickman (1860), it was held that mere sharing of profits does not create a
partnership unless there is mutual agency¹.

2. Minor’s Relationship with Partnership Firm

•Minor as a Partner:

 Admission: A minor cannot become a partner, but can be admitted to the benefits of
partnership (Section 30).
 Rights: Right to share profits and access to accounts.
 Liabilities: No personal liability for firm’s debts, but his share in the firm is liable.

Case Law: In S. C. Mandal v. Krishnadhan Banerji (1940) it was held that a minor admitted to the benefits
of partnership is not personally liable for the firm’s debts².

3. Registration of Partnership

- Procedure:
- Application: Submit an application to the Registrar of Firms.
- Details: Include firm name, place of business, names and addresses of partners, etc.
- Certificate: Registrar issues a certificate of registration.

Effect of Non-Registration:

- Legal Consequences: An unregistered firm cannot sue to enforce a right arising from a contract.
- Exceptions: Right to sue for dissolution, accounts, or realization of property.

Case Law: In Jagdish Chandra Gupta v. Kajaria Traders (India) Ltd. (1964), the Supreme Court held that
an unregistered firm cannot enforce a contract in a court of law.

4. Dissolution of Firms

•Modes of Dissolution:

 By Agreement: Mutual consent of all partners.

 Compulsory Dissolution: Insolvency of all partners or the firm, or unlawful business.
 On Certain Contingencies: Expiry of term, completion of venture, death, or insolvency of a
partner.
 By Notice: In case of a partnership at will.
 By Court: On grounds such as insanity, misconduct, persistent breach of agreement, etc.

Case Laws: In S. V. Chandra Pandian v. S. V. Sivalinga Nadar (1993), the Supreme Court held that a firm
can be dissolved by the court on just and equitable grounds.

5. Contract of Sale of Goods

Definition: According to Section 4 of the Sale of Goods Act, 1930, a contract of sale of goods is a contract
whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.

Nature:

- Transfer of Ownership: Involves the transfer of ownership of goods.

- Consideration: Must be for a price in money.

Conditions and Warranties:

- Conditions: Essential terms of the contract, breach of which allows the buyer to repudiate the
contract.
- Warranties: Collateral terms, breach of which allows the buyer to claim damages but not
repudiate the contract.

Rule of Caveat Emptor: “Let the buyer beware” – the buyer must examine the goods and ensure they
meet his requirements.

Exceptions: Misrepresentation, fraud, or if the seller is aware of the buyer’s purpose and the buyer relies
on the seller’s skill and judgment.

Nemo Dat Quod Non Habet: “No one can give what they do not have” – a person cannot transfer a
better title than they themselves have.

Exceptions: Sale by a mercantile agent, sale by one of joint owners, sale by a person in possession under
a voidable contract, etc.

Case Law: In Rowland v. Divall (1923), it was held that a buyer can recover the price paid if the seller had
no title to the goods.

6. Rights of Unpaid Seller

- Definition: An unpaid seller is one who has not been paid the whole price or has received a bill
of exchange or other negotiable instrument which has been dishonored.

Rights:

 Right of Lien: Retain possession of goods until payment.

 Right of Stoppage in Transit: Stop goods in transit and regain possession if the buyer
becomes insolvent.
 Right of Resale: Resell the goods if the buyer defaults.
 Right to Sue for Price: Sue the buyer for the price of goods.

Case Laws:

Indemnity

Manmohan Nanda vs. United India Assurance Co. Ltd. (2021)

• Indemnified: Manmohan Nanda Indemnifier: United India Assurance Co. Ltd.

  Context: Manmohan Nanda sought indemnification for medical expenses incurred in the USA
under a foreign medical insurance policy.
 Charges: The insurance company denied the claim, citing non-disclosure of material facts
(hyperlipidemia).
 Conclusion: The Supreme Court ruled in favor of the insurance company, emphasizing the
importance of full disclosure in indemnity contracts1.

Adamson vs. Jarvis (1827)

Context: This case involved an auctioneer, Adamson, who was instructed by Jarvis to sell cattle. Jarvis
represented himself as the owner of the cattle. However, it was later discovered that Jarvis was not the
true owner.

Charges: The true owner sued Adamson for conversion (wrongful sale of property). Adamson, in turn,
sought indemnity from Jarvis for the losses incurred due to the lawsuit.

Conclusion: The court held that Jarvis was liable to indemnify Adamson for the losses incurred. The court
ruled that Adamson, who acted in good faith based on Jarvis’s representations, was entitled to be
indemnified for the damages paid to the true owner and the legal costs incurred

Guarantee

Bank of Bihar vs. Damodar Prasad (1969)

•Creditor: Bank of Bihar Guarantor: Damodar Prasad

 Context: The bank sought to recover a loan guaranteed by Damodar Prasad.

 Charges: The guarantor argued that the bank should first exhaust remedies against the principal
debtor.
 Conclusion: The Supreme Court ruled that the creditor can directly proceed against the
guarantor without exhausting remedies against the principal debtor3.

Amrit Lal Goverdhan Lalan vs. State Bank of Travancore (1968)

•Creditor: State Bank of Travancore Guarantor: Amrit Lal Goverdhan Lalan

 Context: The bank sought to enforce a guarantee against Amrit Lal for a loan default.
 Charges: The guarantor claimed that the guarantee was not enforceable due to lack of
consideration.
 Conclusion: The court held that the guarantee was enforceable as it was supported by valid
consideration4.

Bailment

Lily White vs. R. Munuswamy (1964)

Context: This case involved a dispute between a customer and a dry-cleaning firm, Lily White. The
customer, R. Munuswamy, gave a new saree and blouse for dry cleaning. The saree was lost, and the
customer claimed the market value of the saree.
Charges: The dry-cleaning firm argued that according to the terms printed on the reverse of their bill,
they were only liable to pay 50% of the market value in case of loss. The customer contested this
condition, claiming the full market value of the saree.

Conclusion: The Madras High Court ruled in favor of the customer, stating that the condition limiting
liability to 50% of the market value was not enforceable as it was against public policy. The court
decreed that the customer was entitled to the full market value of the saree

Atul Mehra vs. Bank of Maharashtra (2002)

Context: Atul Mehra hired a locker from the Bank of Maharashtra to store jewelry, which was later
stolen. The issue was whether hiring a locker constituted a contract of bailment.

Charges: Atul Mehra claimed the bank was liable for the loss under the principles of bailment.

Conclusion: The Punjab and Haryana High Court held that hiring a locker does not constitute a contract
of bailment, as there is no delivery of possession to the bank. Therefore, the bank was not liable for the
theft

Pledge

Lallan Prasad vs. Rahmat Ali (1967)

Context: This case involved a dispute over a loan of Rs. 20,000 advanced by Lallan Prasad to Rahmat Ali,
secured by a pledge of goods. The issue was whether the goods were delivered to Lallan Prasad, making
the pledge valid.

Charges: Lallan Prasad claimed that Rahmat Ali failed to deliver the goods, thus the pledge did not
materialize, and he sought to recover the loan amount.

Conclusion: The Supreme Court held that the goods were indeed delivered to Lallan Prasad, making the
pledge valid. However, since Lallan Prasad denied the pledge and failed to offer to redeliver the goods,
he could not obtain a decree on the promissory note

Morvi Mercantile Bank Ltd. Vs. Union of India (1965)

Context: A firm in Bombay consigned goods to Delhi and endorsed the railway receipts to Morvi
Mercantile Bank against an advance. The goods were not delivered as expected, leading to a dispute
over the validity of the pledge.

Charges: The bank sued the railway for the value of the goods, arguing that the endorsement of the
railway receipt constituted a valid pledge.

Conclusion: The Supreme Court held that the endorsement of the railway receipt did constitute a valid
pledge, and the bank, as the pledgee, was entitled to sue for the full value of the goods

Agency

Syed Abdul Khader vs. Rami Reddy (1979)

Context: This case involved a dispute over the management of lands granted to Syed Abdul Khader by
the Nizam of Hyderabad. Rami Reddy was appointed as a caretaker with a power of attorney.
Charges: Syed Abdul Khader sought to recover possession of the lands, alleging fraud and
mismanagement by Rami Reddy.

Conclusion: The Supreme Court held that the relationship between the parties was one of agency, and
Rami Reddy, as an agent, was liable for mismanagement. The court ordered the recovery of possession
of the lands.

Pannalal Jankidas vs. Mohanlal (1951)

Context: Pannalal Jankidas, as an agent, stored goods in a government godown, which were destroyed
by fire. The goods were uninsured, and Pannalal Jankidas sought indemnity from Mohanlal for the loss.

Charges: Mohanlal argued that Pannalal Jankidas had agreed to insure the goods and failed to do so,
thus breaching his duty as an agent.

Conclusion: The Supreme Court held that Pannalal Jankidas was liable for the loss due to his failure to
insure the goods as agreed. The court emphasized the agent’s duty to act according to the principal’s
instructions Indian Partnership Act

Indian Partnership Act

Sanyasi Charan Mandal v. Krishnadhan Banerji

Context: This case involved a dispute over the liability of a minor in ancestral business debts. The
minor’s brothers had borrowed money for business purposes, and the question was whether the minor
was liable for these debts.

Charges: The plaintiff sought a money decree against the minor, arguing that the borrowed money was
for the ancestral business, making the minor liable.

Conclusion: The Privy Council upheld the High Court’s decision, which reversed the Subordinate Judge’s
decree. The High Court directed accounts to determine the minor’s liability, emphasizing that the
minor’s liability was limited to his share of the partnership properties.

S.V. Chandra Pandian v. S.V. Sivalinga Nadar)

Context: This case involved a dispute among six brothers over the dissolution of their partnership and
the distribution of partnership assets, including immovable properties.

Charges: The appellants sought to enforce an arbitration award that allocated partnership properties
among the brothers. The respondents contested the award, arguing it required registration under the
Registration Act.

Conclusion: The Supreme Court held that the interest of a partner in partnership assets is treated as
movable property for the purposes of Section 17 of the Registration Act. The Court emphasized that a
partner’s share in the firm’s properties is not fixed until accounts are settled, and the award did not
require registration

Sale of Goods Act

Rowland vs. Divall (1923)

Context: This case involved the sale of a stolen car. Rowland, a car dealer, bought a car from Divall and
later sold it to a customer. The car was subsequently impounded by the police as it had been stolen, and
Rowland had to return the purchase price to his customer.

Charges: Rowland sued Divall to recover the purchase price he had paid, arguing that there was a total
failure of consideration since Divall did not have the right to sell the car.

Conclusion: The Court of Appeal held that there was a breach of the implied condition under the Sale of
Goods Act that the seller has the right to sell the goods.

Varley vs. Whipp (1900)

Context: This case from involved a dispute over the sale of a second-hand self-binder reaping machine.
Varley sold the machine to Whipp, claiming it was nearly new and had only been used to cut 50-60
acres.

Charges: Whipp rejected the machine upon delivery, arguing that it was old and had been mended, thus
not matching the description provided by Varley. Varley sued to recover the price of the machine.

Conclusion: The court held that this was a sale by description under the Sale of Goods Act 1893. Since
the machine did not match the description, Whipp was entitled to reject it. The property in the goods
had not passed to Whipp, and Varley could not recover the price