LL.

B DEGREE EXAMINATION, JANUARY 2016

First Semester
Paper II – CONTRACTS - II
(Special contracts including Indian Partnership Act, Sale of Goods Act)
(Common for I/III and III/V candidates)
Time: Three hours
Maximum Marks: 70

PART A – (6 × 2½ = 15 marks)
Answer any SIX of the following questions. Write short notes on:
1. Continuing Guarantee
A continuing guarantee is a guarantee that extends to a series of transactions over time. It
remains valid until revoked by the surety or discharged by law. It is commonly used in cases
of running accounts or recurring credits.
2. Bailee's Right to Lien
A bailee has the right to retain possession of the goods until the bailor pays lawful charges for
services rendered. This is known as a "particular lien" (Section 170 of the Indian Contract
Act). If specified by contract, a "general lien" may also apply (Section 171).
3. Pledge
A pledge is a type of bailment where goods are delivered as security for the payment of a
debt or performance of a promise. The ownership remains with the pledgor, but the
pledgee has the right to sell the goods if the pledgor fails to repay.
Example: X gives his gold to a bank as security for a loan.
Reference: Section 172 of the Indian Contract Act, 1872.
4. Surety's Liability
A surety is liable for the default of the principal debtor. His liability is co-extensive with that
of the principal debtor unless stated otherwise in the contract (Section 128 of the Indian
Contract Act). A surety's liability remains even if the principal debtor becomes insolvent.
5. Rights of an Indemnity Holder
An indemnity holder has the right to be compensated for any loss suffered due to the
promisor’s conduct. Under Section 125 of the Indian Contract Act, an indemnity holder can
recover:
 All damages he is compelled to pay,
 All costs incurred in defending a suit, and
 All sums paid under a valid compromise.
6. Gratuitous Bailment
Gratuitous bailment is a bailment where goods are delivered without any consideration. It can
be for the benefit of either the bailor or the bailee. The bailee must take reasonable care of the
goods and return them when required.
7. Rights and Duties of Pawnor and Pawnee
 Pawnor’s rights: Right to redeem goods before sale upon repayment of the debt.
 Pawnor’s duties: To repay the loan and any reasonable expenses.
 Pawnee’s rights: Right to retain pledged goods until debt repayment and to sell
goods after due notice in case of default.
 Pawnee’s duties: To take reasonable care of pledged goods.
8. Ostensible Authority of an Agent
An agent’s ostensible authority is the apparent authority given by the principal through words
or conduct. If a third party acts based on such authority, the principal is bound by the agent’s
actions, even if no actual authority existed.
9. Dissolution of a Partnership Firm
Dissolution of a partnership firm refers to the termination of the firm's business. It can occur
by mutual consent, expiry of the term, insolvency of a partner, completion of the venture,
court order, or at the will of the partners. After dissolution, assets are liquidated and liabilities
settled.
10. Holder in Due Course
A holder in due course (HDC) is a person who acquires a negotiable instrument for
consideration, in good faith, before its maturity. An HDC gets better rights than the transferor
and can claim payment even if there are defects in the previous holder’s title (Section 9 of the
Negotiable Instruments Act).

PART B – (2 × 7 = 14 marks)
Answer any TWO questions.
11. Define a contract of indemnity and distinguish it from a contract of guarantee.
Definition of Contract of Indemnity
A Contract of Indemnity is defined under Section 124 of the Indian Contract Act, 1872. It
states that:
"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 is called a contract of
indemnity."
Thus, it is a contractual obligation where one party (indemnifier) agrees to compensate the
other party (indemnified) for any loss incurred due to a specified event.
Example:
A contracts with B to deliver goods to C, and B agrees to compensate A for any loss if C fails
to pay. This is an indemnity contract.
Distinction Between Contract of Indemnity and Contract of Guarantee
Basis of
Contract of Indemnity Contract of Guarantee
Difference

One party promises to A contract involving three parties where one

Definition compensate the other for a assures the payment of a debt or performance
loss. of an obligation.

Number of Two parties: Indemnifier & Three parties: Creditor, Principal Debtor, and
Parties Indemnified. Surety.

Liability is primary and

Surety's liability is secondary; it arises when
Liability arises only when loss
the principal debtor defaults.
occurs.

Protects from an uncertain

Purpose Provides security for a debt or obligation.
loss.

An insurance policy
Example A person acting as a guarantor for a bank loan.
compensating for damages.

12. Explain the rule of 'Nemo dat quod non habet with reference to sale of gooda.
Meaning of the Rule
The Latin maxim “Nemo dat quod non habet” means "No one can give what they do not
have." It is a fundamental principle of the Sale of Goods Act, 1930 (Section 27) which states
that a person who does not own goods or has no right to sell them cannot transfer a better title
than what he possesses.
Example:
If A steals a car and sells it to B, B does not get a valid title since A had no ownership rights
over the car.
Exceptions to the Rule:
1. Sale by a Mercantile Agent (Section 27) – If a mercantile agent has possession with
the owner’s consent and sells in ordinary business, the buyer gets a good title.
2. Sale by Joint Owner (Section 28) – If one of several joint owners sells goods in
possession, the buyer gets a valid title.
3. Sale under a Voidable Contract (Section 29) – If the seller obtained goods through
fraud and sold them before the contract was rescinded, the buyer gets a valid title.
4. Sale by an Official Receiver or Liquidator – If goods are sold by an official
authority (e.g., a liquidator in insolvency), the buyer gets a valid title.
5. Sale by a Finder of Goods (Section 169 of Indian Contract Act) – If a finder of
goods sells them under certain conditions (e.g., if the owner is not found), the buyer
gets good title.
Thus, while the general rule restricts unauthorized sales, these exceptions ensure fairness and
protect innocent buyers.
13. How is agency created? Discuss the relevance of the doctrine of 'Relation Back the
agency Ratification of the agency.
Creation of Agency
Agency is a legal relationship where one person (agent) acts on behalf of another (principal).
It can be created in the following ways:
1. By Express Agreement (Section 187) – Agency can be created through written or
oral contracts.
2. By Implied Agreement (Section 187) – Agency can be inferred from the conduct,
trade customs, or circumstances.
3. By Necessity (Section 189) – Agency arises when one person must act to protect
another’s interest (e.g., a ship’s captain selling perishable cargo in an emergency).
4. By Estoppel (Section 237) – If the principal allows a person to act as their agent, they
cannot later deny it.
5. By Ratification (Section 196) – If a person acts without authority but the principal
later approves the act, it is treated as authorized from the beginning.
Doctrine of Relation Back in Agency Ratification
Under Section 196 of the Indian Contract Act, 1872, the Doctrine of Relation Back means
that once a principal ratifies an agent’s unauthorized act, it is treated as if the act was
authorized from the start.
Example:
A, without B’s authority, sells B’s goods to C. Later, B ratifies the sale. Legally, the sale is
considered valid from the original date, not from the date of ratification.
Limitations of Ratification:
1. The principal must have existed when the act was done.
2. The act must have been done on the principal’s behalf.
3. The principal must be aware of all material facts before ratifying.
4. The act must be lawful.
Thus, agency can be created in multiple ways, and ratification retrospectively validates
unauthorized acts through the Doctrine of Relation Back.
14. When does a partner get the implied authority of the order partner? What are the
limits on the authority?
Implied Authority in Partnership:
Under Section 19 of the Indian Partnership Act, 1932, every partner in a partnership firm
has an implied authority to act on behalf of the firm in the ordinary course of business. This
means that each partner’s actions bind the firm and other partners, even without their explicit
consent.
When Does Implied Authority Exist?
1. The act must be done in the firm’s usual course of business.
2. The firm must be a trading concern (e.g., buying and selling goods).
3. The act must be necessary for carrying on the firm's trade or business.
Examples of Implied Authority:
1. Borrowing Money – A partner can take loans for business needs.
2. Hiring Employees – A partner can appoint staff.
3. Purchasing Goods – A partner can buy raw materials.
4. Entering into Contracts – A partner can make agreements relevant to the business.
Limits on Implied Authority (Section 20 of the Partnership Act, 1932):
A partner cannot do the following without the consent of the other partners:
1. Submitting disputes to arbitration.
2. Opening a bank account in their name on behalf of the firm.
3. Compromising on a legal suit involving the firm.
4. Transferring or selling the firm’s assets.
5. Entering into contracts beyond the firm’s business scope.
Additionally, third parties must ensure that a partner’s act falls within the usual course
of business to claim binding authority.
Thus, while implied authority is essential for smooth business operations, it is subject to strict
legal limitations to protect the interests of the firm and other partners.

PART C – (2 × 15 = 30 marks)
Answer any TWO questions.
15. "X" is a surety for a loan taken by "Y" from "Z". "Y" fails to repay the loan,
and "X", the surety, is asked to pay. Before paying the loan, "X" dies. Examine
the liability of X’s legal heirs to Z.
1. Simple Facts of the Case
 X was a surety for Y’s loan taken from Z.
 Y failed to repay the loan, and Z demanded payment from X.
 Before making the payment, X died.
2. Version of the First Part
Z has a valid claim against X as a surety. The surety is liable when the principal
debtor (Y) defaults.
3. Version of the Second Part
X’s death complicates the matter. The question is whether his legal heirs are liable for
the debt.
4. Evidence
 The surety contract binds X to pay in case of Y’s default.
 X died before fulfilling the obligation.
 The liability of legal heirs depends on whether X’s estate has sufficient assets.
5. Connected Law
 Section 128 of the Indian Contract Act, 1872: The liability of a surety is
coextensive with that of the principal debtor unless agreed otherwise.
 Section 130 of the Indian Contract Act, 1872: Death of a surety does not
automatically discharge liability.
 Succession Laws: Heirs inherit liabilities to the extent of the deceased’s estate.
6. Judgment/Decision/Verdict
X’s legal heirs are liable only to the extent of the assets inherited from X. If the estate
has no assets, the heirs are not personally liable.
7. Reason for the Decision
Liabilities of a deceased pass to heirs only if they receive assets. Otherwise, they are
not obligated to pay.
8. Conclusion
Z can claim the loan amount from X’s estate but not from the personal assets of X’s
heirs.
9. Citations
 P.J. Rajappan v. Associated Industries (AIR 1983 SC 61)
 Bank of Bihar v. Damodar Prasad (1969 AIR 297, 1969 SCR (1) 620)

16. A enters a restaurant to dine. His coat was taken by the waiter and hung on a
hook behind him. While A was dining, the coat was stolen. Is the proprietor liable
for the loss?
1. Simple Facts of the Case
 A enters a restaurant, and the waiter hangs his coat behind him.
 The coat is stolen while A is dining.
 A wants to know if the restaurant proprietor is liable.
2. Version of the First Part
A left his coat under the restaurant's control, implying a bailment relationship.
3. Version of the Second Part
The restaurant proprietor must ensure reasonable care but is not an insurer of guests'
belongings.
4. Evidence
 The coat was taken and placed in an open area, not in a secured cloakroom.
 No negligence by the proprietor is explicitly stated.
5. Connected Law
 Section 148 of the Indian Contract Act, 1872 (Bailment): If a person receives goods
from another, he must take reasonable care.
 Section 151 of the Indian Contract Act: The bailee must take care of the goods like
a prudent man.
6. Judgment/Decision/Verdict
If the restaurant had a secured place for coats but failed to ensure its safety, the
proprietor may be liable. Otherwise, liability does not arise.
7. Reason for the Decision
A bailment relationship exists, but there is no absolute liability unless negligence is
proven.
8. Conclusion
The proprietor is liable only if negligence in safeguarding the coat is proved.
9. Citations
 Ulhas v. Hotel Ritz (AIR 1970 Bom 198)
 Gopal Krishna v. Hotel Sringeri (1990 SCC 1356)

17. Rohit, a minor, took a loan of Rs. 50,000 from Rajesh, for which Ramu acted as a
surety. On demand, Rohit denied any liability, claiming minority. Advise Rajesh
on whom he can proceed against and determine the validity of the contract of
guarantee.
1. Simple Facts of the Case
  Rohit (a minor) took a ₹50,000 loan from Rajesh.
 Ramu acted as a surety for Rohit’s loan.
 Rohit refused to repay, citing minority.
2. Version of the First Part
A minor's contract is void ab initio under Indian law.
3. Version of the Second Part
If the principal debtor (Rohit) is not liable, can the surety (Ramu) be held responsible?
4. Evidence
 Rohit was a minor at the time of the contract.
 A minor cannot enter into a legally enforceable contract.
5. Connected Law
 Section 11 of the Indian Contract Act, 1872: A minor’s contract is void.
 Section 126 of the Indian Contract Act: The surety’s liability is coextensive with
that of the principal debtor.
 Mohori Bibee v. Dharmodas Ghose (1903 ILR 30 Cal 539): A minor's contract is
void.
6. Judgment/Decision/Verdict
Since the principal debtor (Rohit) has no liability, Ramu (surety) also has no liability.
7. Reason for the Decision
A contract of guarantee cannot exist without a valid principal contract.
8. Conclusion
Rajesh cannot proceed against Rohit or Ramu, as the contract itself is void.
9. Citations
 Mohori Bibee v. Dharmodas Ghose (1903 ILR 30 Cal 539)
 Siri Ram v. Shobha Ram (AIR 1965 SC 271)

18. Eswar issued a cheque for Rs. 1,00,000 in favor of Kamesh. When the cheque was
sent for collection, it was dishonored. Suggest the way forward for Eswar in light
of various statutory provision
1. Simple Facts of the Case
 Eswar issued a ₹1,00,000 cheque to Kamesh.
 The cheque was dishonored on presentation.
  Kamesh wants to take legal action.
2. Version of the First Part
Dishonor of a cheque can lead to civil and criminal liability under law.
3. Version of the Second Part
Kamesh can file a complaint under Section 138 of the Negotiable Instruments Act, 1881.
4. Evidence
 The cheque was presented within validity.
 Dishonor was due to insufficient funds or other reasons.
 A legal notice should be sent to Eswar within 30 days.
5. Connected Law
 Section 138 of the Negotiable Instruments Act, 1881: Cheque dishonor is an
offense if payment is not made within 15 days of notice.
 Section 142: Complaint must be filed within 30 days after the expiry of 15 days from
notice.
6. Judgment/Decision/Verdict
If Eswar fails to pay within 15 days after receiving notice, Kamesh can file a criminal
complaint in the magistrate’s court.
7. Reason for the Decision
Section 138 ensures cheque integrity by imposing penalties on dishonor.
8. Conclusion
Eswar must either settle the payment or face criminal and civil action.
9. Citations
 M/S Modi Cements Ltd. v. Kuchil Kumar Nandi (1998 AIR 1057 SC)
 K. Bhaskaran v. Sankaran Vaidhyan Balan (1999 7 SCC 510)
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LL.B. DEGREE EXAMINATION, MARCH 2017
First Semester
(Common for I/III and III/V candidates)
Paper II
CONTRACTS - II
(SPECIAL CONTRACTS INCLUDING INDIAN PARTNERSHIP ACT, SALE OF GOODS
ACT)
Time: Three hours
Maximum Marks: 70
PART A (6 × 2 = 12 Marks)
Answer any SIX of the following questions:
1. Partnership at Will
A partnership where no fixed duration is specified and can be dissolved by any partner giving
notice to the others. Governed by Section 7 of the Indian Partnership Act, 1932.
2. Cheque
A negotiable instrument under the Negotiable Instruments Act, 1881, directing a bank to pay
a specified amount to the bearer or a named person. It must be signed by the drawer and
drawn on a bank.
3. Bailor and Bailee
A bailor delivers goods to another person for a specific purpose under a contract, while a
bailee receives the goods and is responsible for their safekeeping. Defined under Section 148
of the Indian Contract Act, 1872.
4. Termination of Agency
An agency relationship ends by revocation, renunciation, completion of purpose, expiry of
time, death, insanity, or insolvency of either party. Governed by Sections 201-210 of the
Indian Contract Act, 1872.
5. Unpaid Seller
A seller is deemed "unpaid" if the full price has not been received, either because the buyer
failed to pay or a negotiable instrument given as payment was dishonored. Defined under
Section 45 of the Sale of Goods Act, 1930.
6. Warranty
A collateral stipulation in a contract of sale that does not affect the main purpose but allows
the buyer to claim damages if breached. Defined under Section 12(3) of the Sale of Goods
Act, 1930.
7. Outgoing Partner
A partner who leaves a firm due to retirement, resignation, or expulsion, while the firm
continues. The outgoing partner remains liable for debts incurred before leaving unless
discharged. Defined under Sections 32-36 of the Indian Partnership Act, 1932.

8. Particular Lien
A legal right allowing a person to retain possession of goods until payment for services
rendered on those specific goods is received. Defined under Section 170 of the Indian
Contract Act, 1872.
9. Acknowledgement
A formal acceptance or recognition of a fact, obligation, or debt. In legal terms, an
acknowledgment of debt extends the limitation period under Section 18 of the Limitation Act,
1963.
10. Finder of Lost Goods
A person who finds lost goods has a duty to take reasonable steps to locate the owner but has
rights similar to a bailee, including claiming expenses and, in some cases, ownership.
Defined under Sections 71 & 168 of the Indian Contract Act, 1872.

PART B (2 × 14 = 28 Marks)
Answer any TWO questions:
11. What do you understand by a Negotiable Instrument? Explain the different
negotiable instruments discussed in the enactment.
Meaning:
A negotiable instrument is a written document that guarantees the payment of a
fixed sum of money, either on demand or at a future date, with the ability to be
transferred from one person to another. It is governed by the Negotiable Instruments
Act, 1881.
Essential Features:
1. Freely Transferable – Can be transferred from one person to another without
formalities.
2. Title of Holder – A bona fide holder in due course gets a good title, even if there was
a defect in the previous holder’s title.
3. Unconditional Promise or Order – It must contain an unconditional order or
promise to pay a definite sum of money.
Types of Negotiable Instruments:
1. Promissory Note – A written promise by one person to pay a specific sum to another
or to the bearer of the note.
o Example: A promises to pay ₹10,000 to B after six months.
2. Bill of Exchange – An order by one person (drawer) to another (drawee) to pay a
fixed sum to a third party (payee) at a specified time.
o Example: X orders Y to pay ₹50,000 to Z after 90 days.
3. Cheque – A written order to a bank by an account holder to pay a specified sum to the
bearer or a specific person.
o Example: A issues a cheque of ₹5,000 in favor of B, which B deposits in his
bank.
 Conclusion:
Negotiable instruments facilitate smooth commercial transactions by ensuring quick
payments and reducing financial risks.

12. Explain with illustrations the differences between Condition and Warranty.
Meaning:
In a contract of sale, conditions and warranties are stipulations relating to the goods
being sold. They are defined under Section 12 of the Sale of Goods Act, 1930.
Condition:
A condition is an essential term of the contract, the breach of which gives the right to
the aggrieved party to terminate the contract and claim damages.
 Example: A buys a car for racing, but it does not meet the required speed. A can
cancel the contract.
Warranty:
A warranty is a subsidiary term of the contract, the breach of which allows the buyer
to claim damages but not cancel the contract.
 Example: A buys a mobile phone with a six-month warranty on accessories. If the
charger is defective, A can only demand a replacement, not cancel the entire purchase.
Key Differences:

Feature Condition Warranty

A subsidiary term of
Definition A vital term of the contract
the contract

Breach Buyer can cancel the Buyer can only claim

Consequence contract & claim damages damages

Defective car stereo

Example Buying a car that cannot run
in a new car

Conclusion:
Understanding the difference is crucial in legal disputes as it affects the remedies
available to the aggrieved party.

13. Whether an agent is otherwise known as a servant? Explain the significance of

an agent in the Law of Agency.
Agent vs. Servant:
 An agent and a servant both work under a principal or employer, but they have
different legal positions.

Feature Agent Servant

Can bind the principal Acts under the direct

Authority
legally control of the employer

Has discretion in decision- No discretion; follows

Independence
making orders

A real estate broker selling A driver employed by a

Example property on behalf of the company for
owner transportation

Significance of an Agent in the Law of Agency:

1. Acts on Behalf of the Principal – An agent performs tasks such as signing contracts,
making purchases, or selling goods.
2. Legal Representation – An agent can enter into legally binding agreements for the
principal.
3. Types of Agents:
o Special Agent – Appointed for a specific task.
o General Agent – Has broader authority to act in business transactions.
o Mercantile Agent – A commercial agent involved in trade.
Legal Provisions:
Defined under Section 182 of the Indian Contract Act, 1872, which states that an
agent is a person employed to act on behalf of another (principal).
Conclusion:
An agent is not merely a servant but a representative with legal authority, playing a
significant role in commerce and trade.

14. Write a note on various modes of dissolution of a partnership firm.

Meaning:
Dissolution of a partnership firm refers to the termination of the relationship between
partners and the winding up of business affairs. It is governed by the Indian Partnership
Act, 1932.
Modes of Dissolution:
1. By Agreement (Section 40) – Partners can dissolve the firm by mutual consent or
agreement.
 o Example: A, B, and C agree to dissolve their firm due to losses.
2. Compulsory Dissolution (Section 41) – The firm dissolves automatically if:
o Insolvency of all partners or all except one.
o Unlawful Business – If the firm’s business becomes illegal.
3. Dissolution by Notice (Section 43) – In a partnership at will, any partner can
dissolve the firm by giving notice to other partners.
o Example: A and B run a firm without a fixed term. A gives written notice to
dissolve it.
4. Dissolution by Court (Section 44) – A partner can seek court intervention under
conditions such as:
o Insanity of a partner.
o Misconduct affecting business.
o Breach of Agreement (e.g., refusing to share profits).
5. Death or Retirement of a Partner – The firm may dissolve if no agreement allows
the remaining partners to continue.
o Example: A, B, and C are partners. If A dies and there is no continuation
clause, the firm dissolves.
6. Completion of Business Purpose – If the firm was created for a specific purpose and
it is completed, it dissolves automatically.
o Example: A firm formed to construct a building dissolves once construction is
completed.
Effects of Dissolution:
 Partners settle accounts, clear liabilities, and distribute remaining assets.
 Public notice is issued to avoid future liabilities.
Conclusion:
A partnership firm can be dissolved by mutual agreement, legal necessity, or court
intervention. Understanding these modes ensures proper handling of business termination.

PART C (2 × 15 = 30 Marks)
Answer any TWO questions:
15. A, an agent of a buyer, obtained goods from the Railway Organization and
loaded them onto his private vehicle. Meanwhile, the Railway Organization
 received a notice from B, the seller, to stop the goods in transit as the buyer had
become insolvent. Decide the case.
1. Simple Facts of the Case:
o A, an agent of the buyer, obtained goods from the Railway Organization and
loaded them onto his private vehicle.
o Meanwhile, the Railway Organization received a notice from B, the seller, to
stop the goods in transit due to the buyer’s insolvency.
2. Version of the First Party (A - Agent of Buyer):
o A argues that the goods were already obtained from the Railway Organization
and loaded onto his private vehicle, meaning the transit had ended.
3. Version of the Second Party (B - Seller):
o B contends that since the buyer became insolvent, he has the right to stop the
goods in transit and reclaim possession.
4. Evidence:
o The sequence of events showing when A took possession of the goods.
o The timing of B’s notice to the Railway Organization.
o Legal definitions of "transit" and "possession."
5. Connected Law:
o Section 50 of the Sale of Goods Act, 1930 – Defines when goods are in
transit and the seller’s right to stoppage.
o Section 51 of the Sale of Goods Act, 1930 – States that the seller can stop
goods in transit if the buyer becomes insolvent, but only if the goods have not
been delivered to the buyer.
6. Judgment/Decision/Verdict:
o If the goods were still in the Railway Organization’s custody when the notice
was received, B has the right to stop them in transit.
o However, if A had already taken possession, then transit had ended, and B
cannot reclaim the goods.
7. Reason for Decision:
o The right of stoppage in transit applies only when the goods are still in the
carrier’s possession. Once the buyer or his agent takes possession, the seller
loses this right.
8. Conclusion:
o If the goods were still under the Railway Organization's control, the seller can
stop them.
 o If A had already taken delivery, the stoppage request is invalid.
9. Citations:
o Sale of Goods Act, 1930, Sections 50 & 51.
o Great Indian Peninsula Railway Co. v. Hanmandas (1880).

16. A, B, and C are partners in a business. According to the partnership contract, A

is entitled to half of the partnership property and profits. A becomes insolvent,
but B and C continue the business without paying A’s share of assets and profits.
Advise A’s official receiver on collecting the dues from the firm.
1. Simple Facts of the Case:
 A, B, and C are partners.
 A is entitled to half of the partnership’s property and profits.
 A becomes insolvent, but B and C continue the business without paying A’s share.
[Link] of the First Party (A’s Official Receiver):
 A’s receiver demands A’s rightful share of assets and profits.
[Link] of the Second Party (B & C - Other Partners):
 They argue that A’s insolvency dissolves the partnership and that they are not liable to
pay A’s share.
[Link]:
 The partnership agreement specifying A’s entitlement.
 Financial records showing the business’s continuity and profits.
[Link] Law:
 Section 42 of the Indian Partnership Act, 1932 – Dissolution of a partnership due to
a partner’s insolvency.
 Section 48 of the Indian Partnership Act, 1932 – Distribution of assets upon
dissolution.
[Link]/Decision/Verdict:
 A’s insolvency leads to dissolution, but A’s estate is still entitled to his share of assets
and profits.
 B and C must settle A’s dues before continuing their business.
[Link] for Decision:
 Under partnership law, an insolvent partner’s share is still payable to his creditors, and
the remaining partners cannot exclude him from assets.
[Link]:
 A’s receiver can claim A’s share of the assets.
 B and C must settle the dues before continuing business.
9. Citations:
 Indian Partnership Act, 1932, Sections 42 & 48.
 Ram Kumar v. Bhagwan Das (1945).

17. A agreed to sell B 10 kg of rice described as "Indian Basmati" based on a sample

shown. Although the rice supplied matched the sample, the sample itself was
"Punjab Sela". The buyer returned the rice and demanded payment and
damages. Decide the case.
1. Simple Facts of the Case:
o A agreed to sell B 10 kg of rice labeled as "Indian Basmati."
o The rice matched the sample shown, but the sample itself was "Punjab
Sela."
o B rejected the rice and demanded payment and damages.
2. Version of the First Party (B - Buyer):
o B claims he was misled because the rice was not "Indian Basmati" as
described.
3. Version of the Second Party (A - Seller):
o A argues that the goods matched the sample provided, fulfilling the
contract.
4. Evidence:
o Contract terms specifying "Indian Basmati."
o The sample and supplied rice’s actual identity.
5. Connected Law:
o Section 15 of the Sale of Goods Act, 1930 – Goods must correspond with
both the sample and description.
o Section 16 of the Sale of Goods Act, 1930 – Implied conditions regarding
quality.
6. Judgment/Decision/Verdict:
o Since the rice does not match the contract description, B can reject it and
claim damages.
7. Reason for Decision:
o A sale by sample and description must satisfy both conditions. If the
description is incorrect, the buyer can refuse the goods.
8. Conclusion:
o B is entitled to a refund and possible damages.
9. Citations:
o Sale of Goods Act, 1930, Sections 15 & 16.
o Varley v. Whipp (1900).

18. A draws a cheque in favor of B, a minor. B endorses it in favor of C, who in turn

endorses it in favor of D. The cheque is dishonored by the bank. Discuss the
rights of C and D.
1. Simple Facts of the Case:
o A agreed to sell B 10 kg of rice labeled as "Indian Basmati."
o The rice matched the sample shown, but the sample itself was "Punjab Sela."
o B rejected the rice and demanded payment and damages.
2. Version of the First Party (B - Buyer):
o B claims he was misled because the rice was not "Indian Basmati" as
described.
3. Version of the Second Party (A - Seller):
o A argues that the goods matched the sample provided, fulfilling the contract.
4. Evidence:
o Contract terms specifying "Indian Basmati."
o The sample and supplied rice’s actual identity.
5. Connected Law:
o Section 15 of the Sale of Goods Act, 1930 – Goods must correspond with
both the sample and description.
o Section 16 of the Sale of Goods Act, 1930 – Implied conditions regarding
quality.
6. Judgment/Decision/Verdict:
o Since the rice does not match the contract description, B can reject it and
claim damages.
7. Reason for Decision:
o A sale by sample and description must satisfy both conditions. If the
description is incorrect, the buyer can refuse the goods.
8. Conclusion:
o B is entitled to a refund and possible damages.
9. Citations:
o Sale of Goods Act, 1930, Sections 15 & 16.
o Varley v. Whipp (1900).

****************************************************************

LL.B. DEGREE EXAMINATION, MARCH 2018

First Semester
 Paper II – CONTRACTS-II
(Common for I/III and III/V candidates)
(Special Contracts including Indian Partnership Act, Sale of Goods Act)
Time: Three hours
Maximum Marks: 70

PART A (6 × 2½ = 15 marks)
Write short notes on any SIX of the following:
1. Meaning of Indemnity

Indemnity refers to a contractual obligation where one party (the indemnifier)

promises to compensate another party (the indemnified) for any loss incurred due to
the actions of the indemnifier or a third party. It is governed by Section 124 of the
Indian Contract Act, 1872.

2. Kinds of Guarantee
There are three main types of guarantees:
1. Specific Guarantee – Given for a single transaction and expires upon its completion.
2. Continuing Guarantee – Applies to multiple transactions until revoked.
3. Fidelity Guarantee – Ensures honesty and good conduct of a person, often an
employee.

3. Kinds of Bailment
Bailment can be classified into:
1. Gratuitous Bailment – When goods are delivered for free, either for the benefit of
the bailor or bailee.
2. Bailment for Reward – When goods are delivered for some consideration (e.g.,
leasing a car).

4. Rights and Duties of Pawnee

4. Rights and Duties of Pawnee

Rights of Pawnee:
1. Retain goods until payment is made.
2. Sell goods if the pawnor defaults (after due notice).
3. Recover expenses for maintaining the pledged goods.
Duties of Pawnee:
1. Take reasonable care of pledged goods.
2. Return goods upon repayment of the debt.
3. Not make unauthorized use of goods.

5. Discharge of Surety
A surety is discharged from liability in the following ways:
1. By Revocation – The surety can revoke the guarantee for future transactions.
2. By Death – A surety's liability ends upon death unless stated otherwise.
3. By Variance in Contract – Any change in the original contract without the surety’s
consent releases him.
4. By Discharge of Principal Debtor – If the principal debtor is discharged, so is the
surety.

6. Caveat Emptor
The principle of Caveat Emptor ("Let the buyer beware") means that the buyer
must examine the goods before purchase. The seller is not responsible for defects
unless:
1. There is fraud or misrepresentation.
2. The buyer relies on the seller’s skill and judgment.
3. A condition or warranty is implied by law.
Exception: Section 16 of the Sale of Goods Act, 1930 provides protections to buyers
in certain cases.

7. Conditions and Warranties

1. Condition: A fundamental term of the contract, the breach of which allows the buyer
to terminate the contract (e.g., buying a new car that turns out to be used).
2. Warranty: A secondary term; its breach allows only for damages, not contract
termination (e.g., a car’s music system not working).
Under the Sale of Goods Act, 1930, conditions may be implied or express, and can
sometimes be treated as warranties.
8. Dissolution of Firm
A partnership firm may be dissolved in the following ways:
1. By Agreement – All partners agree to dissolve.
2. By Expiry – If formed for a fixed term, it dissolves upon expiry.
3. By Death or Insolvency – If a partner dies or is declared insolvent.
4. By Court Order – Due to misconduct, incapacity, or breach of partnership
agreement.
Relevant Law: Section 39-44 of the Indian Partnership Act, 1932.

9. Promissory Note
A promissory note is a written instrument where one party (the maker) promises to
pay a certain sum to another (the payee) on demand or at a future date.
Essentials of a Promissory Note:
1. Must be in writing.
2. Must contain an unconditional promise to pay.
3. Must be signed by the maker.
4. The amount must be definite.
5. It must be payable to a specific person or bearer.
Example: "I promise to pay ₹5,000 to X on demand. – Signed: A."
Law: Section 4 of the Negotiable Instruments Act, 1881.

10. Crossing of Cheque

Crossing a cheque means drawing two parallel lines on the top left corner, restricting
its payment.
Types of Crossing:
1. General Crossing – Requires the cheque to be deposited into a bank account (e.g.,
two parallel lines with or without "A/C Payee").
2. Special Crossing – Specifies a particular bank where it must be deposited.
3. Restrictive Crossing – The cheque is payable only to a named payee.
4. Not Negotiable Crossing – If transferred, the transferee does not get a better title
than the transferor.
Law: Section 123-131 of the Negotiable Instruments Act, 1881.
PART B (2 × 14 = 28 marks)
Answer any TWO of the following:
11. What are the essential characteristics of a Contract of Guarantee? State the
rights of surety.
Definition of a Contract of Guarantee
A contract of guarantee is a contract in which one party (the surety) promises to
perform the obligation or pay the debt of a third party (the principal debtor) if the
latter fails to do so. It involves three parties:
1. Creditor – The party to whom the guarantee is given.
2. Principal Debtor – The person whose debt is guaranteed.
3. Surety – The person who gives the guarantee.
Essential Characteristics of a Contract of Guarantee
1. Tripartite Agreement – It involves three parties: creditor, principal debtor, and
surety.
2. Primary Liability of the Principal Debtor – The surety is liable only if the debtor
defaults.
3. Consideration – There must be a valid consideration between the parties (as per
Section 127 of the Indian Contract Act, 1872).
4. No Misrepresentation or Concealment – Any misrepresentation or concealment of
material facts by the creditor makes the guarantee void.
5. Must be in Writing or Oral – A contract of guarantee may be either written or oral,
as per the Indian Contract Act, 1872.
6. Existence of a Debt or Liability – There must be an enforceable debt or liability of
the principal debtor.
Rights of Surety
1. Rights Against the Principal Debtor:
o Right of Subrogation: After paying the creditor, the surety gets all the rights
of the creditor against the debtor.
o Right of Indemnity: The surety can recover the amount paid from the
principal debtor.
2. Rights Against the Creditor:
o Right to Security: If the creditor has received any security from the debtor,
the surety is entitled to its benefit.
 o Right to Discharge: If the creditor alters the terms of the contract without the
surety’s consent, the surety is discharged.
3. Rights Against Co-Sureties:
o If multiple sureties exist, each is liable for their share of the guarantee.
o If one surety pays the full amount, he can recover proportionate shares from
co-sureties.
Relevant Law: Sections 126-147 of the Indian Contract Act, 1872.

12. Define Bailment. Discuss the rights and duties of a bailee.

Definition of Bailment
Bailment is the delivery of goods by one party (the bailor) to another (the bailee) for
a specific purpose, under the condition that the goods will be returned or disposed of
after the purpose is fulfilled.
Relevant Law: Section 148 of the Indian Contract Act, 1872.
Rights of Bailee
1. Right to Compensation – If the bailor’s goods cause any loss to the bailee, he can
claim compensation.
2. Right to Lien – The bailee can retain the goods until due payment is received.
3. Right to Recover Expenses – If the bailee incurs any necessary expenses in
maintaining the goods, he can recover them from the bailor.
4. Right to Return Goods – If the bailor refuses to take back the goods, the bailee can
return them and claim damages.
Duties of Bailee
1. Duty to Take Reasonable Care – The bailee must take reasonable care of the goods.
2. Duty to Not Make Unauthorized Use – The bailee cannot use the goods for any
unauthorized purpose.
3. Duty to Return Goods – The bailee must return or dispose of the goods as per the
bailor’s instructions.
4. Duty to Not Mix Goods – If the bailee mixes the goods with his own, he must bear
the cost of separation.
5. Duty to Return Profits – If the goods generate profits, the bailee must return them to
the bailor.

13. Delegatus non potest delegare – Explain this doctrine in relation to the Law of
Agency. State the exceptions.
 Meaning of the Doctrine
The Latin maxim "Delegatus Non Potest Delegare" means "a delegate cannot
further delegate". In agency law, it means that an agent cannot delegate his powers
to another person unless allowed by the principal.
Application in Law of Agency
1. The agent is personally entrusted with a duty – The principal selects the agent
based on skill, trust, or expertise.
2. If the agent delegates his duty – The principal may not be bound by the acts of the
sub-agent.
Exceptions to the Rule
1. Express Delegation – If the contract allows sub-delegation.
2. Implied Delegation – If the nature of the business requires delegation.
3. Ministerial Acts – Routine or clerical tasks can be delegated.
4. Trade Custom – If industry practice allows delegation.
5. Principal’s Consent – If the principal gives permission.
6. Emergency – If delegation is necessary to prevent loss.
Relevant Law: Section 190 of the Indian Contract Act, 1872.

14. What is the difference between a cheque and a bill of exchange? Explain the
various kinds of crossing of a cheque.
Differences Between Cheque and Bill of Exchange

Feature Cheque Bill of Exchange

A cheque is an A bill of exchange is an

unconditional order to a unconditional order
Definition
bank to pay a specific directing one party to pay
amount. another.

Always an account Can be any individual or

Drawer
holder. business.

Drawee Always a bank. Can be a person or entity.

A person or entity The person entitled to

Payee
specified in the cheque. receive payment.

No acceptance is Must be accepted by the

Acceptance
required. drawee.
 Feature Cheque Bill of Exchange

May result in criminal

Dishonour liability under the Does not attract criminal
Consequence Negotiable Instruments liability.
Act, 1881.

May be payable on
Payment Payable only on demand. demand or at a future
date.

Types of Cheque Crossing

1. General Crossing – Two parallel lines are drawn, with or without "A/C Payee." The
cheque must be deposited in a bank account.
2. Special Crossing – The cheque is crossed with the name of a specific bank, meaning
it can only be deposited there.
3. Restrictive Crossing – The cheque is marked for a particular payee only.
4. Not Negotiable Crossing – The cheque, if transferred, does not give the transferee a
better title than the transferor.
Relevant Law: Sections 5, 6, 123-131 of the Negotiable Instruments Act, 1881.

PART C (2 × 13.5 = 27 marks)

Answer any TWO of the following:
15. A promises C that he will stand as a surety for B if C employs B for collecting
rent of Rs. 10,000 from A’s property every month for a period of 5 years. B
collects the rent for one year and then defaults. State the liability of A.
Case : Surety’s Liability in Rent Collection Default
1. Simple Facts of the Case
 A promised C that he would act as a surety for B if C employed B to collect Rs.
10,000 rent every month from A’s property for 5 years.
 B collected rent for one year and then defaulted.
 C wants to hold A (the surety) liable for B’s default.
2. Version of the First Party (C - the Creditor)
 C argues that A is the surety and, therefore, liable for B’s default.
 Since B failed to perform his duty, A must compensate for the unpaid rent collection
as per the contract of guarantee.
3. Version of the Second Party (A - the Surety)
 A can argue that his liability as a surety depends on the terms of the guarantee.
 If the contract does not specify continuing guarantee, A may be liable only for
defaults within the first year.
 If there were any material changes in employment terms without A’s consent, he
may be discharged from liability.
4. Evidence
 Written or oral contract between A and C.
 Proof of default by B.
 Terms of guarantee—whether it was continuing or for a limited period.
5. Connected Law
 Section 126, Indian Contract Act, 1872 – Defines a contract of guarantee.
 Section 129, Indian Contract Act, 1872 – Defines continuing guarantee, which
extends to a series of transactions.
 Section 130, Indian Contract Act, 1872 – Continuing guarantee can be revoked by
notice.
6. Judgment/Decision/Verdict
 If the guarantee was continuing, A is liable for the amount B failed to collect.
 If A had revoked the guarantee or if the contract did not specify a continuing
guarantee, A is not liable beyond the first year.
7. Reason for the Decision
 A’s liability depends on whether the guarantee was continuing or limited.
 If no revocation or alteration occurred, A remains bound as a surety.
 If C changed the employment terms without A’s consent, A could be discharged from
liability.
8. Conclusion
 A is liable if the guarantee was continuing and not revoked.
 A is not liable if it was limited or if the terms were altered without his consent.
9. Citations
 Indian Contract Act, 1872 – Sections 126, 129, 130.
 Case laws related to continuing guarantees and discharge of surety.
16. X hired his lorry to Z for carrying vegetables from his farm to the market. Z,
instead of carrying vegetables, carried wood logs and met with an accident. On
what grounds can X claim compensation from Z?
Case: Breach of Contract in Hiring a Lorry
1. Simple Facts of the Case
 X hired his lorry to Z to carry vegetables from the farm to the market.
 Z misused the lorry by carrying wood logs instead of vegetables.
 The lorry met with an accident.
2. Version of the First Party (X - the Lorry Owner)
 X argues that Z breached the contract by misusing the lorry.
 X suffered damage because Z did not use the vehicle for the agreed purpose.
3. Version of the Second Party (Z - the Hirer)
 Z may argue that no specific condition was imposed on what goods could be
transported.
 If no damage occurred due to wood logs, he may claim no liability.
4. Evidence
 Written/oral agreement specifying the purpose.
 Police report on the accident.
 Proof of damage due to unauthorized use.
5. Connected Law
 Section 153, Indian Contract Act, 1872 – Bailor can terminate a contract if bailee
uses goods for an unauthorized purpose.
 Section 154, Indian Contract Act, 1872 – Bailee is responsible for loss caused by
unauthorized use.
6. Judgment/Decision/Verdict
 Z is liable for damages as he breached the contract by misusing the lorry.
 X can claim compensation for the accident.
7. Reason for the Decision
 Unauthorized use violates Sections 153 & 154 of the Indian Contract Act.
 Z’s misuse directly caused the loss, making him liable.
8. Conclusion
 X has a valid claim against Z for compensation.
9. Citations
 Indian Contract Act, 1872 – Sections 153, 154.

17. K, representing himself as an agent of L, let out the house of L to M. L received

the rent but after two months, L asked M to vacate the house on the ground that
K had no authority to let the house. Advise M.
Case : Unauthorized Agency in Property Leasing
1. Simple Facts of the Case
 K, claiming to be L’s agent, let L’s house to M.
 L accepted rent but later denied K’s authority and asked M to vacate.
2. Version of the First Party (M - the Tenant)
 M argues that L accepted rent, implying authorization.
 L cannot now deny the agreement.
3. Version of the Second Party (L - the Landlord)
 L argues that K had no authority, so the agreement is invalid.
4. Evidence
 Rental agreement (if any).
 Proof of rent payment to L.
5. Connected Law
 Section 237, Indian Contract Act, 1872 – Principal is bound by an agent’s
unauthorized act if they accept its benefits.
 Doctrine of Estoppel – L cannot deny K’s authority if he accepted rent.
6. Judgment/Decision/Verdict
 L cannot evict M immediately as he accepted rent, implying authorization.
7. Reason for the Decision
 L’s conduct (accepting rent) validates K’s actions.
 L must give M reasonable notice before eviction.
8. Conclusion
 M has the right to stay for now, but L can terminate the lease with notice.
9. Citations
 Indian Contract Act, 1872 – Section 237.

18. P went to Q to buy rice. Q showed P various kinds of rice, from which P selected
one variety and ordered 100 kgs. The rice was delivered to P’s house. When P
opened the rice bag, he found that it was not the same rice as shown by Q. What
remedy is available to P?
Case 18: Wrong Delivery of Goods in a Sale Contract
1. Simple Facts of the Case
 P selected a variety of rice from Q’s shop.
 Q delivered different rice.
 P wants replacement/refund.
2. Version of the First Party (P - the Buyer)
 P argues that the delivered rice was not what was shown.
 P is entitled to replacement or refund.
3. Version of the Second Party (Q - the Seller)
 Q may argue that P had a chance to inspect before accepting.
4. Evidence
 Sample selection proof.
 Delivery receipt/invoice.
5. Connected Law
 Section 17, Sale of Goods Act, 1930 – If goods are sold by sample, they must match
the sample.
 Section 16, Sale of Goods Act, 1930 – Buyer can reject goods if they do not match
description.
6. Judgment/Decision/Verdict
 P has the right to reject the goods and demand a refund or correct rice.
7. Reason for the Decision
 Breach of Condition – The rice does not match the sample.
8. Conclusion
 P is entitled to a refund or replacement.
9. Citations
 Sale of Goods Act, 1930 – Sections 16, 17.
 **********************************************************

LL.B. DEGREE EXAMINATION, MARCH 2019

First Semester
(Regular/Supplementary)
Paper II - CONTRACTS - II
(Common for I/III and III/V candidates)
(Special Contracts including Indian Partnership Act, Sale of Goods Act)
Time: Three hours
Maximum Marks: 70

PART A (6 × 2 ½ = 15 Marks)
Answer any SIX of the following questions.
1. Contract of Guarantee
A contract of guarantee is a contract in which a person (surety) promises to
discharge the liability of a third party (principal debtor) in case of their default. It
involves three parties:
1. Principal Debtor – The person who takes the debt.
2. Creditor – The person to whom the debt is owed.
3. Surety – The person who gives the guarantee.
Example: A guarantees to a bank that if B does not repay the loan, A will do so.
Reference: Section 126 of the Indian Contract Act, 1872.

2. Pledge
A pledge is a type of bailment where goods are delivered as security for the payment
of a debt or performance of a promise. The ownership remains with the pledgor, but
the pledgee has the right to sell the goods if the pledgor fails to repay.
Example: X gives his gold to a bank as security for a loan.
Reference: Section 172 of the Indian Contract Act, 1872.

3. Principal Creditor
 A principal creditor is a person or entity to whom a debt is owed by the principal
debtor. In a contract of guarantee, the principal creditor is the party to whom the
surety promises to make the payment in case of the debtor’s default.
Example: In a bank loan, the bank is the principal creditor, the borrower is the
principal debtor, and the guarantor is the surety.

4. Lien
A lien is the right of a person to retain possession of goods or property belonging to
another until a debt or obligation is satisfied.
Types of Lien:
1. Particular Lien – Right to retain only specific goods for unpaid charges (e.g., a tailor
retains a suit until paid).
2. General Lien – Right to retain all goods for a general balance due (e.g., banks and
attorneys).
Reference: Section 170 and 171 of the Indian Contract Act, 1872.

5. Sub-agent
A sub-agent is a person appointed by an agent to perform some duties on behalf of
the principal, under the authority given by the agent.
 A sub-agent is responsible to the original agent, not directly to the principal.
 The principal is liable for the sub-agent’s acts only if the appointment was
authorized.
Reference: Section 191 of the Indian Contract Act, 1872.

6. Bill of Exchange
A bill of exchange is a negotiable instrument in writing that contains an unconditional
order to pay a certain sum of money either on demand or at a fixed future date.
Parties Involved:
1. Drawer – Person who makes the bill.
2. Drawee – Person who has to pay.
3. Payee – Person to whom payment is made.
Reference: Section 5 of the Negotiable Instruments Act, 1881.

7. Active Partner
 An active partner is one who takes part in the daily business operations of a firm
and is responsible for its management.
 He contributes capital and shares profits/losses.
 He has unlimited liability.
 He is also called a managing partner.
Example: In a law firm, if one partner handles client meetings and legal work, he is
an active partner.

8. Holder in Due Course

A holder in due course (HDC) is a person who acquires a negotiable instrument for
consideration, before its maturity, and in good faith, without any knowledge of
defects in the title of the transferor.
 An HDC gets better rights than the previous holder.
 No prior defects can be claimed against him.
Reference: Section 9 of the Negotiable Instruments Act, 1881.

9. Condition
A condition in a contract is a fundamental term, the breach of which gives the
aggrieved party the right to repudiate the contract and claim damages.
Types of Conditions:
1. Express Condition – Clearly mentioned in the contract.
2. Implied Condition – Presumed by law, such as quality in a sale of goods contract.
Reference: Section 12 of the Sale of Goods Act, 1930.

10. Unpaid Seller

An unpaid seller is a seller who has not received the full price of goods sold.
Rights of an Unpaid Seller:
1. Right of Lien – Retain goods until paid.
2. Right to Resell – Sell goods if the buyer defaults.
3. Right to Stop Goods in Transit – If the buyer becomes insolvent.
Reference: Section 45 of the Sale of Goods Act, 1930.

PART B (2 × 14 = 28 Marks)
 Answer any TWO questions.
11. Write notes on Indemnity and Guarantee with illustrations.
1. Meaning of Indemnity
A contract of indemnity is a contract in which one party (indemnifier) promises to
compensate the other party (indemnified) for any loss or damage suffered due to the
conduct of the promisor or a third party.
Example:
A contracts with B to compensate him for any loss he may suffer if he sells goods to C
on credit and C fails to pay.
Reference: Section 124 of the Indian Contract Act, 1872.
2. Meaning of Guarantee
A contract of guarantee is a contract where one party (surety) agrees to be
responsible for the debt, default, or wrongdoing of another party (principal debtor) to
a third party (creditor).
Example:
A takes a loan from a bank, and B promises to repay it if A fails. Here, A is the
principal debtor, the bank is the creditor, and B is the surety.
Reference: Section 126 of the Indian Contract Act, 1872.
3. Differences Between Indemnity and Guarantee

Basis Indemnity Guarantee

Two parties (Indemnifier & Three parties (Creditor,

Parties
Indemnified) Principal Debtor & Surety)

Promise to compensate for Promise to pay in case of

Nature
a loss default

Liability Only one person is liable Surety’s liability is secondary

Example Insurance contracts Loan repayment guarantee

4. Conclusion
Indemnity and Guarantee both provide security in contracts, but indemnity focuses on
compensation, while guarantee ensures payment or performance.

12. Discuss the difference between Sale and Agreement to Sell and the respective
rights and liabilities of the parties.
1. Meaning of Sale and Agreement to Sell
A sale is a contract where the ownership of goods is transferred immediately, whereas an
agreement to sell is a contract where the transfer happens in the future.
2. Differences Between Sale and Agreement to Sell

Basis Sale Agreement to Sell

Ownership transfers in the

Ownership Ownership transfers immediately
future

Seller bears the risk until

Risk Buyer bears the risk
transfer

Legal Status Executed contract Executory contract

Seller can resell if the buyer

Rights of Seller Seller cannot resell
breaches

Insolvency of
Seller can claim payment Seller can refuse to deliver
Buyer

A sells a car to B, and B takes A agrees to sell a car to B

Example
possession immediately after one month

3. Rights and Liabilities of the Parties

 Buyer’s Rights: Right to receive goods in proper condition.
 Seller’s Rights: Right to payment.
 Buyer’s Liabilities: Must pay the agreed price.
 Seller’s Liabilities: Must deliver the goods as per the contract.
4. Conclusion
A sale is a completed transaction, whereas an agreement to sell is a promise for the
future. Legal remedies differ based on the contract type.
Reference: Section 4 of the Sale of Goods Act, 1930.

13. How does a Contract of Agency emerge? Explain the obligations of the principal
towards the agent.
1. Meaning of Contract of Agency
A contract of agency is a legal relationship where one party (agent) is authorized to
act on behalf of another party (principal) to create legal obligations.
Example: A businessman (principal) appoints a broker (agent) to sell goods.
2. How a Contract of Agency is Created
1. By Express Agreement: Oral or written agreement.
2. By Implied Agreement: Arises from conduct (e.g., a manager acting as an agent).
3. By Necessity: Created in emergencies (e.g., a ship captain selling perishable cargo).
4. By Estoppel: If a principal allows a third party to believe someone is their agent.
3. Obligations of the Principal Towards the Agent
1. Payment of Commission: The principal must pay the agreed commission or salary.
2. Reimbursement of Expenses: The agent must be reimbursed for reasonable expenses
incurred in business.
3. Indemnification: The agent must be compensated for losses suffered while acting
lawfully.
4. No Unfair Termination: The principal cannot dismiss the agent unfairly without
proper cause.
5. Duty to Provide Work: If an agent is hired for a particular job, the principal must
ensure work is available.
4. Conclusion
The principal-agent relationship is based on trust, and the principal is legally bound
to fulfill obligations to avoid liability.
Reference: Sections 182-190 of the Indian Contract Act, 1872.

14. What do you understand by Partnership? How is it different from a Hindu

Undivided Family (HUF)?
1. Meaning of Partnership
A partnership is an agreement between two or more persons to share the profits and
losses of a business.
Example: A and B start a business together, investing capital and sharing profits
equally.
Reference: Section 4 of the Indian Partnership Act, 1932.
2. Features of Partnership
1. Agreement: Formed by a contract between partners.
2. Profit-Sharing: Profits and losses are shared as per the agreement.
3. Unlimited Liability: Each partner is personally liable for debts.
4. Mutual Agency: One partner can bind others by their actions.
5. Number of Partners: Minimum 2, maximum 50 (as per Companies Act).
 3. Differences Between Partnership and HUF

Hindu Undivided Family

Basis Partnership
(HUF)

Formation By contract By birth

Governing Indian Partnership Act,

Hindu Law
Law 1932

All partners or one Managed by Karta (head of

Management
partner the family)

Unlimited for all Only Karta has unlimited

Liability
partners liability

Any person can join by Only family members can

Membership
agreement be part of HUF

Can be dissolved by Continues even after a

Dissolution
agreement member’s death

4. Conclusion
A partnership is a voluntary business association, whereas an HUF is a family-
based entity that exists under Hindu Law. The liability and formation process of both
structures are distinct.

PART C (2 × 15 = 30 Marks)
Answer any TWO questions.
15. A, a major, and B, a minor, executed a promissory note in favor of C.
Subsequently, B (the minor) wants to avoid liability by taking advantage of his
minority. Decide.
Case : Minor’s Liability on a Promissory Note
1. Simple Facts of the Case
A (major) and B (minor) executed a promissory note in favor of C. Later, B (the
minor) wants to avoid liability by using the defense of his minority.
2. Version of the First Party (C - Creditor)
C argues that both A and B executed the promissory note, so both should be liable to
pay the amount.
3. Version of the Second Party (B - Minor)
 B claims that since he is a minor, he cannot be held liable for the promissory note.
4. Evidence
 Promissory note executed by A and B.
 Age proof of B showing that he is a minor.
 Indian law on contracts with minors.
5. Connected Law
 Section 11 of the Indian Contract Act, 1872 – A minor is incompetent to contract.
 Mohori Bibee v. Dharmodas Ghose (1903) – A minor’s contract is void ab initio
(invalid from the beginning).
6. Judgment/Verdict
B, being a minor, is not liable for the promissory note as contracts with minors are
void. However, A, the major, will be held liable for the entire amount.
7. Reason for Decision
Since a minor cannot legally contract, B has no liability. But A, being a competent
party, is bound by the promissory note.
8. Conclusion
The contract is void concerning B (minor) but valid against A (major), making A
solely responsible for payment.
9. Citations
 Mohori Bibee v. Dharmodas Ghose (1903) ILR 30 Cal 539 (PC)
 Indian Contract Act, 1872 – Section 11

16. A delivered gold to a jeweler (B) for making certain ornaments. When the
ornaments were ready, B refused to deliver them. He claims making charges and
also demands Rs. 5,000 that A owes him from an earlier transaction. Advise A.
Case : Jeweler’s Refusal to Deliver Gold Ornaments
1. Simple Facts of the Case
A delivered gold to B (jeweler) to make ornaments. When the ornaments were ready,
B refused to deliver them, demanding both making charges and Rs. 5,000 due from a
past transaction.
2. Version of the First Party (A - Owner of Gold)
A claims that B must return the ornaments upon payment of making charges and
cannot retain them for past dues.
3. Version of the Second Party (B - Jeweler)
 B argues that he has a right to hold the ornaments until A clears both the making
charges and the earlier debt of Rs. 5,000.
4. Evidence
 Proof of gold delivery and making agreement.
 B’s demand for past dues unrelated to this transaction.
 Law on lien and bailment.
5. Connected Law
 Section 170 of the Indian Contract Act, 1872 – Particular lien applies only to the
charges for the same transaction.
 Bock v. Gorrissen (1860) – A creditor cannot retain goods for a past unrelated debt.
6. Judgment/Verdict
B has the right to retain the ornaments for the making charges only but cannot
hold them for the past debt of Rs. 5,000.
7. Reason for Decision
The law of particular lien states that retention of goods is valid only for the same
transaction’s charges, not for past debts.
8. Conclusion
A must pay the making charges to receive the ornaments. B cannot demand past dues
as a condition for returning the ornaments.
9. Citations
 Section 170 of the Indian Contract Act, 1872
 Bock v. Gorrissen (1860) 1 F. & F. 683

17. Ramesh, an agent, had authority from his principal to sell goods on credit. He
sold the goods to Chandra without properly verifying Chandra’s financial status.
Later, Ramesh discovered that Chandra was insolvent. Decide the case.
Case : Agent Selling Goods to an Insolvent Person
1. Simple Facts of the Case
Ramesh, an agent, was authorized to sell goods on credit. He sold them to Chandra
without checking his financial status. Later, Chandra was found to be insolvent.
2. Version of the First Party (Principal - Owner of Goods)
The principal claims that Ramesh was negligent in verifying Chandra’s financial
status and should be liable for the loss.
3. Version of the Second Party (Ramesh - Agent)
 Ramesh argues that he acted within his authority and cannot be held responsible for
Chandra’s insolvency.
4. Evidence
 Agency contract granting Ramesh authority to sell on credit.
 Proof that Chandra was already financially unstable.
 Indian law on agent’s duty of care.
5. Connected Law
 Section 212 of the Indian Contract Act, 1872 – An agent must act with reasonable
care and diligence.
 Laxmidas v. Nana (1903) – An agent must exercise due diligence when granting
credit.
6. Judgment/Verdict
Since Ramesh failed to verify Chandra’s financial status, he is liable for the loss
suffered by the principal.
7. Reason for Decision
An agent must exercise proper diligence, and failing to do so amounts to negligence,
making him responsible for the loss.
8. Conclusion
Ramesh is liable to compensate the principal for the loss due to his negligence in
verifying Chandra’s financial status.
9. Citations
 Section 212 of the Indian Contract Act, 1872
 Laxmidas v. Nana (1903) ILR 27 Bom 40

18. A buys bags of wheat from B without properly inspecting the quality. Later, A
resold the wheat to different buyers. Afterward, A discovered that the wheat was of
inferior quality. Can A repudiate the contract? Decide.
Case 18: Buyer Reselling Defective Wheat
1. Simple Facts of the Case
A bought wheat from B without inspecting its quality. A later sold it to others and later
discovered it was of inferior quality. A now wants to repudiate the contract.
2. Version of the First Party (A - Buyer)
A argues that the wheat was not of the agreed quality and wants to reject the contract.
3. Version of the Second Party (B - Seller)
 B claims that since A did not inspect the wheat, caveat emptor (buyer beware)
applies, and A cannot repudiate the contract.
4. Evidence
 Purchase agreement terms.
 Proof that A did not inspect the wheat before buying.
 Quality test results showing inferior wheat.
5. Connected Law
 Section 16 of the Sale of Goods Act, 1930 – Caveat emptor (buyer must inspect
goods before purchase).
 Ward v. Hobbs (1878) – Buyer cannot reject goods if they failed to inspect them.
6. Judgment/Verdict
Since A failed to inspect the wheat before purchase, he cannot repudiate the
contract based on quality issues.
7. Reason for Decision
The caveat emptor rule applies, meaning A was responsible for checking the quality
before purchase. Since A has already resold the wheat, he cannot claim a refund.
8. Conclusion
A has no legal remedy against B, as the law places the responsibility on the buyer to
verify the goods before purchase.
9. Citations
 Section 16 of the Sale of Goods Act, 1930
 Ward v. Hobbs (1878) 4 App Cas 13

LL.B. (5 Year) DEGREE EXAMINATION, MARCH 2020

First Semester
Paper II – CONTRACTS - II
(Common for I/III and III/V Candidates)
(Special Contracts Including Indian Partnership Act, Sale of Goods Act)
Time: Three Hours
Maximum: 70 Marks
PART A (6 × 2 = 12 Marks)
Answer any SIX of the following questions:
1. Continuous Guarantee
A continuous guarantee is a type of guarantee that applies to a series of transactions over
time, rather than a single transaction. It remains in effect until it is revoked by the guarantor
or until the agreed-upon conditions are fulfilled.
Example: A guarantees to a bank that he will be responsible for any loans given to B over the
next five years.

2. Rights of Agency
The rights of an agent in a contract of agency include:
1. Right to receive remuneration for services.
2. Right to indemnity from the principal for lawful acts.
3. Right to retain goods, papers, and other properties until payment is received.
4. Right to compensation for losses due to the principal's negligence.

3. Gratuitous Bailment
A gratuitous bailment is a type of bailment where one party delivers goods to another
without any consideration (i.e., free of charge). It can be for the benefit of either the bailor
or the bailee.
Example: A lends his bicycle to B for free for one week.

4. Subrogation
Subrogation refers to the right of one party (usually a guarantor or insurer) to step into the
shoes of another party and claim rights or remedies.
Example: If an insurance company pays for damage caused by a third party, it can claim
compensation from the third party.

5. Relation of Principal and Third Parties

In an agency contract, the principal is bound by the acts of the agent performed within the
scope of authority. The agent can:
1. Create contractual relations between the principal and third parties.
2. Bind the principal to third-party agreements.
3. Hold the principal liable for wrongful acts within the scope of employment.
6. Sub-Agent
A sub-agent is a person appointed by an agent to perform duties on behalf of the principal,
with the principal’s consent.
Example: A company hires a real estate agent to sell its property. The agent appoints another
person (sub-agent) to help with negotiations.

7. Ostensible Authority of an Agent

Ostensible (or apparent) authority arises when a principal, by words or conduct, allows third
parties to believe that an agent has authority. Even if no actual authority exists, the principal
may be bound by the agent’s actions.
Example: A manager makes a deal on behalf of a company, and the company is bound if it
led others to believe the manager had authority.

8. Promissory Note
A promissory note is a written document where one party (the maker) unconditionally
promises to pay a certain amount to another party (the payee) at a specified time.
Example: A signs a note stating, “I promise to pay B Rs. 10,000 on demand.”

9. Reconstitution of a Firm
Reconstitution of a firm occurs when there is a change in the partnership due to:
1. Admission of a new partner.
2. Retirement or death of an existing partner.
3. Change in profit-sharing ratio.
The firm continues but with a modified agreement.

10. Distinction between Condition and Warranty

Basis Condition Warranty

Definition A fundamental term of the contract. A secondary term of the contract.

Breach Breach allows termination of the Breach allows only a claim for
Effect contract. damages.

Example "The car must be brand new." "The car must have a music system."
PART B (2 × 14 = 28 Marks)
Answer any TWO questions:
11. Surety's liability is co-extensive with that of the principal debtor. Explain this
with case law.
[Link] Facts of the Case
A surety is a person who guarantees the performance of a debtor's obligation in case
of default. According to Section 128 of the Indian Contract Act, 1872, the liability of
the surety is "co-extensive" with that of the principal debtor unless otherwise agreed
upon.
[Link] of the First Party (Creditor)
The creditor claims that the surety must fulfill the payment obligation since the
principal debtor has defaulted.
[Link] of the Second Party (Surety)
The surety may argue that they are only secondarily liable or that the debtor should be
exhausted first before enforcing the surety's liability.
[Link]
 The contract of guarantee between the creditor, debtor, and surety.
 Proof of default by the principal debtor.
[Link] Law
 Section 128, Indian Contract Act, 1872 – Surety's liability is co-extensive with the
principal debtor.
 Section 133 – Discharge of surety when the contract is altered without the surety’s
consent.
[Link]/Decision/Verdict
In the case of Bank of Bihar v. Damodar Prasad (1969 AIR 297), the Supreme
Court held that the creditor is not required to exhaust remedies against the principal
debtor before proceeding against the surety.
[Link] for the Decision
The court reasoned that since the liability of the surety is the same as the debtor, the
creditor can directly sue the surety without first demanding payment from the debtor.
8. Conclusion
A surety’s liability is as wide as the debtor's unless a contract limits it, and the creditor
has the right to claim directly from the surety.
9. Citations
 Bank of Bihar v. Damodar Prasad (1969 AIR 297, SCR (3) 737)
 State Bank of India v. Indexport Registered (1992 AIR 1740, 1992 SCR (2) 145)

12. When is a seller of goods deemed to be an 'unpaid seller'? What are the rights
against the goods sold?
Definition of an Unpaid Seller
Under Section 45 of the Sale of Goods Act, 1930, a seller is deemed to be an 'unpaid
seller' when:
1. The whole price has not been paid or tendered.
2. A negotiable instrument received as payment has been dishonored.
Rights Against the Goods Sold
1. Right of Lien (Section 47-49) – The seller can retain goods if the buyer fails to pay.
2. Right of Stoppage in Transit (Section 50-52) – If the buyer becomes insolvent, the
seller can stop goods in transit.
3. Right of Resale (Section 54) – If the buyer defaults, the seller can resell goods.
4. Right to Sue for Price (Section 55) – If the goods have passed to the buyer, the seller
can sue for the price.
5. Right to Sue for Damages (Section 56) – If there is a breach of contract, the seller
can claim damages.
Case Law: Madura Co. Ltd. v. Commissioner of Income Tax (1954 AIR 1109)
The Supreme Court ruled that an unpaid seller has the right to reclaim goods if
conditions of lien or stoppage in transit are met.

13. Discuss the contract of Bailment and the Rights and Duties of Bailor and Bailee.
Definition of Bailment
A bailment is the delivery of goods by one party (bailor) to another (bailee) for a specific
purpose, with an agreement to return them after use. Governed by Sections 148-181 of
the Indian Contract Act, 1872.
Rights & Duties of Bailor
Rights:
1. Right to claim damages if the bailee causes loss.
2. Right to terminate the contract if unauthorized use is made.
3. Right to demand return of goods after the purpose is complete.
Duties:
1. To disclose known defects.
2. To compensate the bailee for losses incurred due to undisclosed defects.
Rights & Duties of Bailee
Rights:
1. Right to receive compensation for expenses incurred.
2. Right to retain goods until dues are paid.
Duties:
1. To take reasonable care of goods.
2. To return goods after the agreed purpose is complete.
Case Law: Coggs v. Bernard (1703)
The court ruled that a bailee is liable for loss caused by negligence.

14. Explain the Contract of Agency and how it is created. Also, explain the Rights
and Duties of an Agent.
Definition of Agency
A contract of agency is where one person (agent) is authorized to act on behalf of
another (principal). Governed by Sections 182-238 of the Indian Contract Act,
1872.
Creation of Agency
1. Express Agreement – Written or oral agreement.
2. Implied Agreement – Conduct of parties implies agency.
3. Agency by Necessity – When an emergency requires an agent to act.
4. Agency by Estoppel – When a principal’s actions lead others to believe someone is
their agent.
Rights & Duties of an Agent
Rights:
1. Right to be compensated for services.
2. Right to claim indemnity from the principal.
3. Right to retain money received for the principal’s transactions.
 Duties:
1. To act in the principal’s best interest.
2. To avoid conflicts of interest.
3. To follow lawful instructions of the principal.
4. To maintain accounts of all transactions.
Case Law: Pannalal Jankidas v. Mohanlal (1951 AIR 1448)
The court held that an agent must act with due care and skill and is liable for
negligence.

PART C (2 × 15 = 30 Marks)
Answer any TWO questions:
15. Nandan, a minor, took a loan of Rs. 50,000 from Prabhu, for which Raju has
given surety. On demand, Nandan denied any liability as he is a minor. Advise
Prabhu against whom he can proceed and also decide the validity of the contract
of guarantee.
Case: Validity of a Guarantee When the Principal Debtor is a Minor
Simple Facts of the Case
Nandan, a minor, took a loan of Rs. 50,000 from Prabhu, with Raju acting as the
surety. Nandan refused to pay, citing his minority.
Version of the First Party (Prabhu - Creditor)
Prabhu wants to recover the loan amount and believes he can claim from either
Nandan or Raju.
Version of the Second Party (Raju - Surety)
Raju may argue that since Nandan's contract is void due to minority, the guarantee
also becomes invalid.
Evidence
 Loan agreement between Prabhu and Nandan.
 Guarantee agreement signed by Raju.
Connected Law
 Section 11, Indian Contract Act, 1872 – A minor’s agreement is void ab initio.
 Section 128 – Surety’s liability is co-extensive with the principal debtor.
 Case: Mohori Bibee v. Dharmodas Ghose (1903) – A minor’s contract is void, and
no liability arises.
Judgment/Decision/Verdict
The contract of guarantee is invalid because the primary contract (loan to the minor)
itself is void. Since a surety’s liability is dependent on a valid principal debt, Raju (the
surety) also cannot be held liable.
Reason for the Decision
A surety cannot be held liable when the principal debtor is legally incapable of
contracting.
Conclusion
Prabhu cannot recover the loan from either Nandan or Raju.
Citations
 Mohori Bibee v. Dharmodas Ghose (1903 ILR 30 Cal 539)

16. Krishna issued a cheque of Rs. 1,00,000 in favor of Rajesh. When the cheque was
sent for collection, it was dishonored. Suggest the way forward for Krishna in
light of various statutory provisions.
Case: Dishonored Cheque - Remedies for Krishna
Simple Facts of the Case
Krishna issued a cheque of Rs. 1,00,000 in favor of Rajesh, but it was dishonored.
Version of the First Party (Rajesh - Payee)
Rajesh has the right to sue Krishna under the Negotiable Instruments Act, 1881 for
non-payment.
Version of the Second Party (Krishna - Drawer of Cheque)
Krishna must either settle the dues or face legal consequences.
Evidence
 The dishonored cheque.
 Bank memo stating "insufficient funds" or "stop payment."
 Legal notice to Krishna under Section 138.
Connected Law
 Section 138, Negotiable Instruments Act, 1881 – Dishonor of cheque is a criminal
offense.
 Section 142 – Complaint must be filed within 30 days of notice.
 Judgment/Decision/Verdict
Krishna must either pay within 15 days of receiving the legal notice or face criminal
proceedings.
Reason for the Decision
Cheque dishonor is a strict liability offense, and Krishna has limited defenses unless
he can prove lack of liability.
Conclusion
Krishna should either settle the amount with Rajesh or prepare for legal consequences
under Section 138 of the Negotiable Instruments Act.
Citations
 Dalmia Cement Ltd. v. Galaxy Traders (2001) – Established strict liability for
dishonored cheques.

17. "A" purchased a hot-water bag from a chemist shop. The bag burst when A's
wife poured boiling water into it, causing injuries to her. Can "A" sue the
chemist for damages?
Case: Product Liability - Hot Water Bag Injury
Simple Facts of the Case
"A" bought a hot-water bag from a chemist shop. It burst when his wife poured
boiling water, causing injury.
Version of the First Party (A - Buyer)
"A" may claim damages under Consumer Protection Law for a defective product.
Version of the Second Party (Chemist - Seller)
The chemist may argue that the product was not defective and that improper use
caused the damage.
Evidence
 Purchase invoice of the hot-water bag.
 Medical report of the injuries.
 Expert opinion on the defect.
Connected Law
 Consumer Protection Act, 2019 – Defective goods lead to liability.
 Sale of Goods Act, 1930, Section 16 – Implied condition as to quality or fitness.
Judgment/Decision/Verdict
 The chemist may be liable if the product was defective or if the manufacturer failed to
provide proper usage instructions.
Reason for the Decision
Under product liability, the seller is responsible for providing goods free from defects.
Conclusion
"A" can sue the chemist for damages under consumer protection laws.
Citations
 Donoghue v. Stevenson (1932 AC 562) – Established the principle of product
liability.

18. Ramana directed Akhil to sell his estate. Akhil found a mine in the estate, but
Ramana was unaware of it. Akhil informed Ramana that he wished to buy the
estate for himself, and Ramana allowed the sale. Later, Ramana discovered that
Akhil had concealed information about the mine. Ramana now seeks legal advice
to evade the sale. Advise him.
Case: Concealment of Material Fact in Agency - Mine Discovery Case
Simple Facts of the Case
Ramana directed Akhil to sell his estate. Akhil discovered a mine but did not disclose
it and bought the estate himself.
Version of the First Party (Ramana - Principal)
Ramana claims Akhil breached his duty as an agent by not disclosing the existence of
the mine.
Version of the Second Party (Akhil - Agent)
Akhil may argue that he bought the estate fairly.
Evidence
 Documents showing Akhil was acting as an agent.
 Proof that Akhil knew about the mine before purchasing.
Connected Law
 Section 215, Indian Contract Act, 1872 – Agent must disclose material facts.
 Section 16, Indian Contract Act – Undue influence can make a contract voidable.
Judgment/Decision/Verdict
The contract can be set aside due to Akhil’s fraudulent concealment.
Reason for the Decision
 An agent must act in the principal’s best interest and disclose all material facts.
Conclusion
Ramana can legally cancel the sale.
Citations
 Image Supply Co. v. Bholaram (1954 AIR 313) – Held that an agent must not act
against the interest of the principal.

LL.B. DEGREE EXAMINATION, AUGUST/SEPTEMBER 2021

First Semester
Law
(Regular & Supplementary)
Paper II – CONTRACTS - II
(Special Contracts Including Indian Partnership Act, Sale of Goods Act)
Time: Three hours
Maximum Marks: 70

PART A (6×2=12 marks)

Answer any SIX of the following questions.
1. Subrogation
Subrogation is the substitution of one party in place of another concerning a lawful claim or
right. It commonly occurs in insurance, where an insurer, after compensating the insured,
steps into their shoes to recover from the responsible third party.
Example: If an insurance company pays for car accident damages, it can sue the negligent
driver.

2. Indemnity
Indemnity refers to a contractual obligation where one party (indemnifier) promises to
compensate another (indemnified) for any loss or damage suffered due to the conduct of the
promisor or a third party.
Example: A fire insurance policy indemnifies the policyholder against losses due to fire.

3. Bailment
Bailment is a contract in which the owner (bailor) delivers goods to another party (bailee) for
a specific purpose, with the condition that they will be returned after use.
Example: Giving clothes to a dry cleaner for washing.

4. Agent
An agent is a person authorized to act on behalf of another (the principal) to create legal
relations with a third party.
Example: A real estate broker acts as an agent in selling property.

5. Guarantor
A guarantor is a person who guarantees the repayment of a debt or performance of an
obligation in case the principal debtor fails.
Example: In a bank loan, a guarantor is responsible for repayment if the borrower defaults.

6. Goods
Goods refer to every type of movable property, excluding money and actionable claims,
under the Sale of Goods Act, 1930.
Example: Cars, electronics, and furniture are considered goods.

7. Principal
A principal is a person who authorizes another (agent) to act on their behalf in dealings with
third parties.
Example: A company appointing a sales representative as its agent.

8. Pawnee
A pawnee is a person to whom goods are pledged as security for a loan or obligation. The
pawnee has the right to retain the goods until repayment.
Example: A bank holding gold as security for a loan.

9. Bailor
A bailor is a person who delivers goods to another (bailee) under a bailment contract for
safekeeping or a specific purpose.
Example: Leaving a car in a valet parking service.

10. Substituted Agent

A substituted agent is an agent lawfully appointed by the original agent with the principal's
consent, transferring the agency relationship to another party.
Example: A lawyer appointing another lawyer for court proceedings with the client’s
approval.

PART B (2×14=28 marks)

Answer any TWO questions.
11. Explain the essentials of a contract of indemnity and guarantee.
Contract of Indemnity
Definition
A contract of indemnity is a contract in which one party (indemnifier) promises to
compensate another (indemnified) for any loss suffered due to the conduct of the
promisor or a third party. It is governed by Section 124 of the Indian Contract Act,
1872.
Essentials of Indemnity
1. Two Parties – Indemnifier (who gives indemnity) and Indemnified (who receives
protection).
2. Promise to Compensate – The indemnifier agrees to protect against a specific loss.
3. Loss or Damage – The loss must arise due to an event mentioned in the contract.
4. Lawful Object – The contract must be for a legal purpose.
5. Express or Implied – Can be explicitly stated or implied from conduct.
Example
A contracts with B to indemnify him against loss due to C’s actions. If B suffers a
loss, A must compensate.
Contract of Guarantee
Definition
A contract of guarantee is a contract in which a third party (surety) assures the
creditor that the debtor will fulfill an obligation. If the debtor defaults, the surety is
liable. It is governed by Section 126 of the Indian Contract Act, 1872.
Essentials of Guarantee
1. Three Parties – Principal debtor, creditor, and surety.
2. Tripartite Agreement – The agreement exists between all three parties.
3. Existence of Debt or Liability – The guarantee is for an existing or future debt.
4. Consideration – Must be valid as per the Indian Contract Act.
5. Surety’s Liability – Secondary and arises only if the debtor defaults.
Example
C lends money to D with F as a guarantor. If D defaults, F must pay C.

12. Define the rights and liabilities of a finder of lost goods with illustrations.
Definition
A finder of lost goods is a person who finds goods belonging to someone else and
takes possession of them. His rights and duties are governed by Sections 168 and
169 of the Indian Contract Act, 1872.
Rights of a Finder of Lost Goods
1. Right to Retain Goods – The finder can retain the goods until he receives reasonable
compensation for expenses incurred (Section 168).
2. Right to Sue for Reward – If a reward was promised, the finder can sue for it.
3. Right to Sell – The finder can sell the goods if:
o The true owner cannot be found with reasonable efforts.
o The owner refuses to pay lawful charges.
o The goods are perishable.
o The expenses exceed two-thirds of the value.
Liabilities of a Finder of Lost Goods
1. Duty to Take Reasonable Care – Must preserve the goods like a bailee.
2. Duty to Find the True Owner – Reasonable efforts must be made.
3. Duty Not to Use Goods – Cannot use the goods for personal benefit.
4. Duty to Return Goods – Must return the goods when the owner is found and
demands them.
Example
X finds Y’s lost phone and incurs Rs. 500 for repairs. X can retain the phone until Y
reimburses him but must return it upon payment.

13. What is a contract of sale? Explain the rights of an unpaid seller.

Definition of Contract of Sale
A contract of sale is an agreement where the seller transfers or agrees to transfer
goods to the buyer for a price. It is governed by the Sale of Goods Act, 1930.
 Essentials of a Contract of Sale
1. Two Parties – Seller and buyer.
2. Transfer of Property – Ownership must be transferred or agreed to be transferred.
3. Goods – The subject matter must be goods.
4. Price Consideration – Money must be paid or promised.

Rights of an Unpaid Seller

Definition
An unpaid seller is one who has not received the full price or whose payment has
been dishonored (Section 45, Sale of Goods Act).
Rights Against the Goods
1. Right of Lien (Section 47) – The seller can retain goods until payment is made.
2. Right to Stoppage in Transit (Section 50) – If the buyer is insolvent, the seller can
stop goods before delivery.
3. Right of Resale (Section 54) – The seller can resell the goods if the buyer defaults.
Rights Against the Buyer
1. Right to Sue for Price (Section 55) – If ownership has passed, the seller can sue for
the price.
2. Right to Sue for Damages (Section 56) – If the buyer refuses to accept delivery, the
seller can sue for losses.
3. Right to Sue for Interest – The seller can claim interest on the unpaid amount.
Example
A sells goods worth Rs. 10,000 to B. B fails to pay. A can retain the goods or sue for
payment.

14. Explain the meaning of 'implied authority'. State the matters in which a partner
does not have implied authority.
Meaning of Implied Authority
Implied authority of a partner refers to the power of a partner to bind the firm in business
transactions even without explicit approval. It is governed by Section 19(1) of the Indian
Partnership Act, 1932.
Essentials of Implied Authority
1. Acts Within Ordinary Course of Business – The act must relate to the firm’s usual
business.
 2. Binding on All Partners – If done in the firm's name, it binds all partners.
3. Necessary for Business – The act must be essential for conducting business.
Matters in Which a Partner Does Not Have Implied Authority (Section 19(2))
A partner cannot, without consent of other partners:
1. Submit a dispute to arbitration.
2. Open a bank account in the firm’s name.
3. Compromise or relinquish a firm’s claim.
4. Withdraw a lawsuit filed on behalf of the firm.
5. Admit liability in a suit against the firm.
6. Acquire immovable property for the firm.
7. Transfer firm’s property.
Example
If a partner borrows money for purchasing stock, it binds the firm. But if a partner sells firm
property without consent, it does not bind the firm.

PART C (2×15=30 marks)

Answer any TWO questions.
15. C gives a loan to D, guaranteed by F. D defaults in repayment to C. Explain the
liability of F.
Case: Liability of F in a Contract of Guarantee
Simple Facts of the Case
 C gives a loan to D.
 F guarantees the repayment of the loan.
 D defaults on repayment.
 C seeks to enforce liability against F.
Version of the First Party (C's Side)
C argues that since F acted as a guarantor, he is liable to repay the loan when D
defaults.
Version of the Second Party (F's Side)
F may argue that he should not be held liable due to any misrepresentation, lack of
consent, or changes in contract terms without his knowledge.
Evidence
1. Loan agreement between C and D.
2. Guarantee contract signed by F.
3. Proof of D’s default.
Connected Law
 Section 126, Indian Contract Act, 1872: Defines a contract of guarantee.
 Section 128: The liability of a surety is co-extensive with that of the principal debtor.
 Section 133-135: Conditions under which a surety may be discharged.
Judgment/Decision/Verdict
Since a surety's liability is co-extensive with that of the principal debtor, F is
legally obligated to pay C in case of D’s default.
Reason for the Decision
 The contract of guarantee holds F responsible.
 There is no evidence of fraud, misrepresentation, or discharge of the surety.
Conclusion
F must repay C, but he can later recover the amount from D.
Citations
 Mahalaxmi Bank Ltd. v. Dadani Textiles (2003) – Surety’s liability upheld.
 State Bank of India v. Premco Saw Mill (1984) – Surety is liable upon debtor’s
default.

16. X delivers a cloth to Y to make a shirt. Later, X refuses to pay charges to Y. Y

refuses to give back the shirt. Decide.
Case: Right of Retention in Bailment
Simple Facts of the Case
 X gives cloth to Y for stitching a shirt.
 X refuses to pay charges.
 Y refuses to return the shirt.
Version of the First Party (X's Side)
X claims that Y must return the shirt, as he is the owner of the cloth.
Version of the Second Party (Y's Side)
Y argues that he has a right of lien and can retain the shirt until payment is made.
 Evidence
1. Proof of delivery of cloth to Y.
2. Agreed stitching charges.
3. Proof of X’s refusal to pay.
Connected Law
 Section 170, Indian Contract Act, 1872: A bailee has the right to retain goods until
payment is received (particular lien).
Judgment/Decision/Verdict
Y has the right to retain the shirt until X pays the stitching charges.
Reason for the Decision
 A bailee’s lien allows retention of goods until lawful charges are paid.
 The contract was partially fulfilled by Y.
Conclusion
Y can legally refuse to return the shirt unless paid.
Citations
 Halsbury’s Laws of England – A bailee has the right to detain goods until
compensation.
 Surya Investments v. SB Industries (2011) – Right of lien upheld.

17. X lends a horse to Y for his own riding. Y allows Z, his family member, to ride it.
Z accidentally falls from the horse and gets injured. Whether X is liable to pay
damages to Z?
Case: Liability for Injury in Bailment
Simple Facts of the Case
 X lends a horse to Y for personal use.
 Y allows Z to ride the horse.
 Z falls and gets injured.
 Z wants compensation from X.
Version of the First Party (Z’s Side)
Z argues that X should be liable for providing a defective or dangerous horse.
Version of the Second Party (X’s Side)
X claims that:
 1. He lent the horse only for Y’s use, not Z’s.
2. Y exceeded his authority by allowing Z to ride it.
3. There was no negligence on X’s part.
Evidence
1. Terms of the bailment agreement between X and Y.
2. Medical report of Z’s injury.
3. Whether the horse was defective or unsafe.
Connected Law
 Section 150, Indian Contract Act, 1872: Bailor must disclose known defects in
goods.
 Section 154: If the bailee misuses the goods, the bailor is not liable.
Judgment/Decision/Verdict
X is not liable for Z’s injuries because:
1. He lent the horse only for Y’s use.
2. Y allowed Z to ride it without X’s permission.
3. No proof that the horse was defective.
Reason for the Decision
 Unauthorized use by Y makes him liable, not X.
Conclusion
X has no legal responsibility for Z’s injuries.
Citations
 Reed v. Dean (1949) – Bailor liable only if goods are defective.
 Laxmi Finance Ltd. v. Debi Prasad (1995) – Unauthorized use shifts liability.

18. X, Y, and Z are partners in a partnership firm. X is caught by the police while
indulging in gambling. Y files a petition for dissolution of the firm. Decide.
Case: Dissolution of Partnership Due to Misconduct
Simple Facts of the Case
 X, Y, and Z are partners.
 X is caught gambling.
 Y wants to dissolve the firm.
Version of the First Party (Y's Side)
Y argues that X’s illegal gambling brings disrepute to the firm, justifying dissolution.
Version of the Second Party (X’s Side)
X may argue that his personal misconduct does not directly affect the firm.
Evidence
1. Partnership agreement terms.
2. Proof of X’s gambling.
3. Any impact on the firm’s reputation.
Connected Law
 Section 44 of the Indian Partnership Act, 1932: A firm can be dissolved if a
partner’s misconduct affects business.
Judgment/Decision/Verdict
Y can dissolve the partnership due to X’s misconduct under Section 44(d).
Reason for the Decision
 Gambling damages the firm’s reputation.
 Continuation of the partnership is not feasible.
Conclusion
The court will likely allow dissolution of the firm.
Citations
 K.M. Adam v. Gopalakrishna (1953) – Partnership dissolved for misconduct.
 Jennings v. Baddeley (1856) – Criminal behavior of a partner justified dissolution.

LL.B. DEGREE EXAMINATION, JUNE 2022

First Semester
Paper II
CONTRACTS - II
(Common for I/III and III/V candidates)
(Special contracts including Partnership Act, Sale of Goods Act)
 Time: Three hours
Maximum Marks: 70

PART A (6 × 2 = 12 Marks)
Answer any SIX of the following questions.
1. Bailment
Bailment is a contract where the owner of goods (bailor) delivers the goods to another person
(bailee) for a specific purpose, with the understanding that the goods will be returned once
the purpose is completed. A bailee must take reasonable care of the goods and return them in
the condition in which they were received.
Example: If you leave your car with a mechanic for repairs, it is a bailment.

2. Rights and Duties of an Agent

 Rights of an Agent:
1. Right to be indemnified by the principal for lawful acts done in the course of
agency.
2. Right to receive remuneration as agreed.
3. Right to a lien on principal’s property for unpaid dues.
 Duties of an Agent:
1. Duty to act according to the principal's instructions.
2. Duty to act in good faith and with due care.
3. Duty to keep the principal informed about the transactions.

3. Indemnity and Guarantee

 Indemnity: A contract where one party agrees to compensate the other for any loss
incurred due to specific events or circumstances.
Example: A contract where A agrees to compensate B for loss caused by C.
 Guarantee: A contract where one party (guarantor) agrees to pay the debt of a third
party (principal debtor) if they default.
Example: A co-signer for a loan agreement.

4. Sale of Property by Non-Owner

Under the Sale of Goods Act, 1930, a person who is not the owner of goods cannot transfer
the ownership of those goods to another. However, if the buyer is acting in good faith and
without knowledge of the defect in title, they may acquire good title.
Example: If a stolen car is sold, the buyer does not get ownership rights, but if they buy in
good faith, they may be protected under certain circumstances.

5. Kinds of Partners
1. Active Partner: A partner who is involved in the day-to-day operations of the
business and contributes capital.
2. Sleeping or Dormant Partner: A partner who invests capital but does not take part in
the daily management.
3. Nominal Partner: A partner who lends their name to the partnership but does not
share in the profits or management.
4. Partner by Estoppel: A person who is not actually a partner but is held out as one,
leading others to believe they are a partner.

6. Nature of Partnership
A partnership is a relationship between two or more persons who agree to carry on a
business and share its profits and losses. It is formed by mutual consent, and the partners are
jointly and severally liable for the obligations of the business. The relationship is governed by
the Indian Partnership Act, 1932.
Example: A law firm where partners share both profits and liabilities.

7. Right of Unpaid Seller

An unpaid seller is a seller who has not received payment for the goods. The rights of an
unpaid seller include:
1. Right of Lien: The right to retain possession of the goods until payment is made.
2. Right to Stoppage in Transit: The right to stop goods in transit if the buyer becomes
insolvent.
3. Right to Rescind the Contract: The right to cancel the contract if the buyer fails to
pay.

8. Pawner and Pawnee

 Pawner: The person who gives goods as security for a loan in a pledge arrangement.
Example: A borrower who gives gold ornaments as security for a loan.
 Pawnee: The person who receives the goods as security for the repayment of the loan.
Example: A moneylender holding gold ornaments until the loan is repaid.
9. Termination of Agency
An agency relationship can terminate by:
1. Completion of the task: The purpose for which the agency was created has been
fulfilled.
2. Revocation by the Principal: The principal withdraws authority.
3. Renunciation by the Agent: The agent refuses to act or terminates the relationship.
4. Death or Insanity of Principal or Agent: The agency ends automatically in case of
the death or mental incapacity of either party.

10. Dishonour of Cheque

A cheque is dishonored when the bank refuses to pay the amount specified on the cheque.
Reasons for dishonor include:
1. Insufficient funds: There isn’t enough money in the account.
2. Signature mismatch: The signature on the cheque doesn’t match the one on record.
3. Stale Cheque: The cheque is presented after the validity period.
The drawer may be subject to legal action, including a criminal offense under Section
138, Negotiable Instruments Act, 1881.

PART B (2 × 14 = 28 Marks)
Answer any TWO of the following questions.
11. Explain the essentials of a contract of guarantee. Distinguish it from a contract of
indemnity.
Contract of Guarantee:
A contract of guarantee is an agreement in which one party (the guarantor) agrees to
be liable for the debt or default of another party (the principal debtor) in case of their
default, to the third party (the creditor). It is a tripartite agreement involving the
principal debtor, the creditor, and the guarantor.
Essentials of a Contract of Guarantee:
1. Tripartite Agreement: There must be three parties: the principal debtor, the creditor,
and the guarantor.
2. Promise to Pay: The guarantor promises to pay the debt of the principal debtor if the
debtor defaults.
3. Existence of a Primary Debt: A contract of guarantee can only exist if there is an
underlying primary debt.
4. Consideration: Like all contracts, there must be consideration for the guarantee,
usually in the form of a benefit to the principal debtor or a detriment to the creditor.
5. Written or Oral: The guarantee can be oral or written, but it is preferable to be in
writing for clarity.
Distinction between Guarantee and Indemnity:

Aspect Contract of Guarantee Contract of Indemnity

Parties Three parties: Principal debtor, Two parties: Indemnifier

Involved creditor, and guarantor. and indemnity-holder.

Secondary liability: Primary liability: The

Nature of Guarantor’s liability arises only indemnifier promises to
Liability after the default of the principal make good the loss
debtor. directly.

To secure the performance of

To compensate for the loss
Purpose an obligation or payment of
or damage caused.
debt.

A person agrees to
A person guarantees a loan
Example indemnify another for loss
taken by someone else.
caused by a third party.

12. What are the conditions and warranties under the Sale of Goods Act, 1930?
Under the Sale of Goods Act, 1930, conditions and warranties are terms that are
implied in a contract of sale and govern the buyer-seller relationship.
Conditions: Conditions are fundamental terms of the contract, and their breach may
entitle the aggrieved party to terminate the contract and claim damages. Conditions can
be classified as:
1. Condition as to Title: The seller must have the right to sell the goods. If the title is
defective, the buyer can reject the goods.
2. Condition as to Description: The goods sold must correspond to the description
provided.
3. Condition as to Quality or Fitness: The goods must be of the quality and fitness
specified, and they must be fit for the purpose for which they are bought (unless the
buyer has examined the goods).
4. Condition as to Sale by Sample: The bulk of goods sold must correspond to the
sample provided.
5. Condition as to Sale by Description and Sample: Goods sold by both sample and
description must correspond to both.
Warranties: Warranties are secondary terms, and their breach does not entitle the buyer to
reject the goods but allows for a claim for damages.
1. Implied Warranty of Quiet Possession: The buyer has the right to enjoy the goods
without disturbance from the seller.
2. Implied Warranty of No Encumbrances: The goods must be free from any
encumbrance or legal claim.
3. Implied Warranty of Fitness for a Particular Purpose: If the buyer relies on the
seller's expertise, the goods must be fit for the particular purpose.
4. Implied Warranty of Correspondence with Description or Sample: The goods
must conform to the sample or description provided.

13. Define negotiable instrument. What are the features of a promissory note and bill
of exchange?
Negotiable Instrument:
A negotiable instrument is a written document that guarantees the payment of a
specific amount of money either on demand or at a set time, and is transferable from
one person to another. It can be freely transferred to a third party, which makes it an
effective medium for payment and business transactions. The Negotiable Instruments
Act, 1881 governs the rules for such instruments in India.
Features of a Negotiable Instrument:
1. Transferable: The instrument can be transferred by endorsement or delivery.
2. Payable to Order or Bearer: The holder can demand payment from the drawer or
issuer.
3. Unconditional Promise or Order: It contains an unconditional promise or order to
pay a specific sum of money.
4. Clear Amount: The sum payable must be clear and definite.
5. Date of Payment: It may specify a certain date for payment or be payable on demand.
Promissory Note: A promissory note is a written promise made by one person (the
maker) to pay a certain amount of money to another person (the payee) either on
demand or at a future date.
 Features:
1. The maker promises to pay a sum of money to the payee.
2. It is a written, signed document containing an unconditional promise.
3. No conditions attached to the payment.
Bill of Exchange: A bill of exchange is a written order from one person (the drawer)
to another (the drawee) to pay a certain sum of money to a third party (the payee).
  Features:
1. The drawer orders the drawee to pay the payee.
2. It must be signed by the drawer.
3. It can be accepted or refused by the drawee before payment is made.

14. Enumerate the rights and liabilities of a minor admitted to the benefits of a
partnership.
Under the Indian Partnership Act, 1932, a minor can be admitted to the benefits of
an existing partnership, but they cannot be a full partner, as they cannot be held personally
liable for the debts of the partnership.
Rights of a Minor Partner:
1. Right to Share Profits: A minor is entitled to a share of the profits of the partnership
as per the agreement.
2. Right to Inspect Books: A minor partner has the right to inspect the books of the
partnership.
3. Right to Sue: The minor can sue for their share of the profits, but they cannot file a
suit against other partners for breach of partnership duties.
4. Right to Withdraw from Partnership: A minor can choose to withdraw from the
partnership, and their liability will be limited to their share in the partnership assets.
Liabilities of a Minor Partner:
1. Liability for Losses: A minor is not personally liable for the debts of the partnership.
Their liability is limited to their share in the partnership profits and assets.
2. Liability Upon Withdrawal: Upon turning major, if the minor decides to continue
the partnership, they will become personally liable for the partnership's obligations. If
they choose not to continue, their liability for past debts is limited to the amount of
their share.

PART C (2 × 15 = 30 Marks)
Answer any TWO of the following questions.
15. A purchased a garment worth Rs. 20,000/- from 'B' shop and wore it. A got a skin
disease because of chemicals presumed in the garment. A sued for damages against B on
the ground of merchantable quality. B denied it. Advise.
1. Simple Facts of the Case:
A purchased a garment from B’s shop worth Rs. 20,000. Upon wearing the garment, A
developed a skin disease, allegedly due to chemicals presumed in the garment. A sued
B for damages, arguing that the garment was not of merchantable quality.
 2. Version of the First Part:
A claims that the garment was defective due to the chemicals in it, which made it unfit
for wear and caused skin damage. A argues that the garment did not meet the standard
of merchantable quality as it caused harm.
3. Version of the Second Part:
B denies the claim and argues that the garment was of merchantable quality and that
A’s skin disease was unrelated to the garment. B may also argue that A failed to
properly examine the garment before wearing it.
4. Evidence:
o A’s medical records confirming the skin disease.
o The garment’s examination, possibly showing traces of harmful chemicals.
o Any expert testimony on whether chemicals in garments can cause such skin
diseases.
5. Connected Law:
o Section 16 of the Sale of Goods Act, 1930, which implies that goods sold
must be of merchantable quality.
o Merchantable quality implies the goods should be fit for their ordinary
purpose and free from harmful defects.
6. Judgment (or) Decision (or) Verdict:
The court would likely rule in favor of A, as the garment did not meet the standard of
merchantable quality, causing harm to the buyer. Since A can prove the link between
the chemicals in the garment and the skin disease, B would be liable for damages.
7. Reason for the Decision:
The judgment is based on the principle that the goods must be fit for their intended
purpose. A garment that causes injury due to its chemicals does not fulfill this
condition. B failed to ensure the goods were safe for use.
8. Conclusion:
A has the right to claim damages from B due to the sale of defective goods that caused
harm. The sale violated the implied condition of merchantable quality.
9. Citations:
o Section 16 of the Sale of Goods Act, 1930
o Case: Grant v Australian Knitting Mills Ltd. (1936)

16. X bailed goods with Y. Y took reasonable care of the goods. Despite Y’s care, the
goods were lost. X claimed the cost from Y. Decide.
 1. Simple Facts of the Case:
X bailed goods to Y for safekeeping. Y took reasonable care of the goods, but despite
Y’s care, the goods were lost. X claims the cost of the goods from Y.
2. Version of the First Part:
X argues that Y is liable for the loss of goods, even though Y took care, because the
goods were lost under Y’s custody.
3. Version of the Second Part:
Y claims that they took reasonable care of the goods and that the loss was due to
circumstances beyond their control (such as theft, natural disaster, etc.).
4. Evidence:
o Evidence of reasonable care by Y, such as proper storage or security measures.
o Evidence of how the goods were lost, possibly showing no negligence on Y’s
part.
o Witness testimonies or police reports in case of theft.
5. Connected Law:
o Section 151 of the Indian Contract Act, 1872, requires the bailee to take
reasonable care of the goods.
o If the bailee has taken reasonable care, they are not liable for the loss unless it
occurred due to their negligence.
6. Judgment (or) Decision (or) Verdict:
The court would likely rule in favor of Y, as Y took reasonable care of the goods and
the loss was not due to any fault or negligence on Y’s part.
7. Reason for the Decision:
Y’s reasonable care and the loss due to factors beyond their control mean Y is not
liable. The loss must not be attributed to negligence or a breach of duty.
8. Conclusion:
Y is not liable to pay for the lost goods, as they exercised reasonable care and the loss
was not caused by any failure on their part.
9. Citations:
o Section 151 of the Indian Contract Act, 1872
o Case: Khatri Bros. v. Union of India (1967)

17. An unregistered partnership firm has supplied goods worth Rs. 5 lakhs to X. X
refuses to pay the price. Can the firm file a suit against X for the price? If so, what are
the conditions to be fulfilled?
1. Simple Facts of the Case:
An unregistered partnership firm supplied goods worth Rs. 5 lakhs to X, but X refuses
 to pay for them. The firm wishes to know whether it can file a suit to recover the price
of the goods.
2. Version of the First Part:
The partnership firm claims that they supplied goods as per the contract, but X is
refusing to pay the agreed price of Rs. 5 lakhs. The firm wants to file a suit to recover
the price.
3. Version of the Second Part:
X argues that the firm has no legal right to sue since the partnership firm is
unregistered, which would prevent it from filing a suit.
4. Evidence:
o Evidence of the contract for the sale of goods.
o Invoice or delivery receipts showing goods worth Rs. 5 lakhs were supplied.
o Communication or evidence of refusal by X to pay.
5. Connected Law:
o Section 69 of the Indian Partnership Act, 1932 prohibits unregistered firms
from suing to enforce contracts unless the suit is against a third party who is
not a partner.
o However, the firm can sue X for the goods supplied as the contract is external
to the partnership relationship.
6. Judgment (or) Decision (or) Verdict:
The court would likely allow the unregistered firm to file a suit against X for the price
of the goods, as the dispute involves a third party and does not relate to internal
matters of the partnership.
7. Reason for the Decision:
Section 69 permits unregistered firms to sue third parties for the enforcement of
external obligations like contracts involving the supply of goods.
8. Conclusion:
The unregistered partnership firm can file a suit against X for the payment of the price
of goods supplied.
9. Citations:
o Section 69 of the Indian Partnership Act, 1932
o Case: Mohd. Ibrahim v. Mohammed Usman (1951)

18. X, on attaining the age of majority, executes a fresh promissory note in consideration
of a promissory note executed by him during his minority. Can a suit be maintained on
the promissory note? Explain.
1. Simple Facts of the Case:
X executed a promissory note during his minority. Upon reaching the age of majority,
X executes a fresh promissory note in consideration of the earlier promissory note
made during minority. X’s question is whether a suit can be maintained on the new
promissory note.
2. Version of the First Part:
X argues that the promissory note executed during his minority is void, but the fresh
promissory note is valid, and thus, a suit should be maintainable on the new note.
3. Version of the Second Part:
The creditor may argue that the original promissory note, though executed during
minority, can be ratified after X reaches majority, and therefore, the new note is valid
for enforcement.
4. Evidence:
o The original promissory note executed during X’s minority.
o The fresh promissory note executed after X attained majority.
o Proof of consideration for the new note.
5. Connected Law:
o Section 64 of the Indian Contract Act, 1872: A contract made during
minority is void, but after attaining majority, a person may execute a new
contract to honor the voidable contract.
o Section 25 of the Indian Contract Act, 1872: An agreement made after
majority for the consideration of a previous voidable contract can be
enforceable.
6. Judgment (or) Decision (or) Verdict:
The court would likely allow the suit to be maintained on the new promissory note, as
it is executed after X reaches the age of majority and constitutes valid consideration.
7. Reason for the Decision:
Since the fresh promissory note was executed after X attained majority, it is valid and
enforceable. The earlier void contract (due to minority) can be ratified with a new
valid agreement.
8. Conclusion:
A suit can be maintained on the fresh promissory note executed by X after reaching
the age of majority, as it is valid and enforceable.
9. Citations:
o Section 64 and Section 25 of the Indian Contract Act, 1872
o Case: G. N. Verma v. R. N. Shukla (1990)
 LL.B. DEGREE EXAMINATION, APRIL 2023
(Regular & Supplementary)
First Semester
Law
Paper-II: CONTRACTS-II (SPECIAL CONTRACTS INCLUDING INDIAN
PARTNERSHIP ACT, SALE OF GOODS ACT)
Time: Three hours
Maximum Marks: 70

LL.B. DEGREE EXAMINATION, APRIL 2024

(Regular & Supplementary)
First Semester
Law
Paper-II: CONTRACTS-II (SPECIAL CONTRACTS INCLUDING INDIAN
PARTNERSHIP ACT, SALE OF GOODS ACT)
Time: Three hours
Maximum Marks: 70
SECTION A (6 × 2 = 12 marks)
Answer any SIX questions.
1. Cheque:
A cheque is a negotiable instrument that directs a bank to pay a specific amount of money
from the drawer’s account to the payee. It must be signed by the drawer and should have a
specific date. It is governed by the Negotiable Instruments Act, 1881.
2. Condition and Warranty:
 A condition is an essential term in a contract, the breach of which allows the
aggrieved party to terminate the contract and claim damages.
 A warranty is a secondary term, the breach of which only allows a claim for damages
but does not allow contract termination.
  Example: In a car sale, if the car is defective, the condition is breached; if a minor
part (like a radio) is faulty, a warranty is breached.
3. Relation between Principal and Third Parties:
The principal is bound by the acts of the agent when the agent acts within the scope of
authority. The principal can be directly sued or sue third parties for any contract made by the
agent. If the agent exceeds authority, the principal is not liable unless they ratify the act.
4. Indemnity:
A contract of indemnity (under Section 124 of the Indian Contract Act, 1872) is an
agreement where one party (indemnifier) promises to protect the other (indemnified) from
losses due to a third party’s act. Example: A company insuring goods against loss.
5. Agent:
An agent is a person authorized to act on behalf of another (the principal) in dealings with
third parties. An agent can be of various types—general, special, mercantile, etc. Example: A
lawyer representing a client in court.
6. Lien:
A lien is the right of a creditor to retain possession of goods or property until a debt is paid. It
is of two types:
1. General lien – Right to retain any goods for any debt. (E.g., bankers)
2. Particular lien – Right to retain specific goods for a specific debt. (E.g., jewelers)
7. Define Sale and Agreement to Sell:
 Sale (Sec. 4 of the Sale of Goods Act, 1930) – When ownership of goods is
transferred immediately for a price.
 Agreement to Sell – When ownership is to be transferred at a future date or after a
condition is met.
8. Position of Finder of Goods:
A finder of lost goods has certain rights and duties under Section 71 of the Indian Contract
Act, 1872:
 Rights: Can retain goods until receiving a lawful reward and claim expenses for
preservation.
 Duties: Must return goods to the rightful owner and take reasonable care of them.
9. Minor’s Status in a Partnership Firm:
 A minor cannot become a partner but can be admitted to the benefits of a
partnership (Section 30 of the Indian Partnership Act, 1932).
 He has rights to profits but is not liable for losses beyond his capital investment.
 On attaining majority, he must decide whether to become a full partner.
10. Doctrine of Holding Out:
Under Section 28 of the Indian Partnership Act, 1932, if a person represents or allows
himself to be represented as a partner, he is liable to third parties for firm debts, even if he
is not an actual partner.
Example: If X allows his name to be used in a firm’s dealings, he can be held liable for firm
debts.

SECTION B (2 × 14 = 28 marks)
Answer any TWO questions.
11. Define and distinguish between a "Condition" and "Warranty". Under what
circumstances can a breach of condition be treated as a breach of warranty?
Definition:
 A Condition is an essential term in a contract, the non-fulfillment of which gives the
aggrieved party the right to terminate the contract and claim damages.
 A Warranty is a secondary term in a contract, the breach of which allows the
aggrieved party to claim damages but does not permit contract termination.
Distinction between Condition and Warranty:

Basis Condition Warranty

An essential term of the contract A secondary term that does not affect
Definition
that goes to its root. the contract's core.

Effect of The buyer can repudiate the The buyer can only claim damages but
Breach contract and claim damages. cannot cancel the contract.

A car is purchased, but it does not A car is purchased, but the music system
Example
work. does not work.

When can a breach of condition be treated as a breach of warranty?

 Section 13 of the Sale of Goods Act, 1930 states that a condition may be treated as a
warranty when:
1. The buyer waives the condition and chooses to continue with the contract.
2. The buyer accepts the goods despite the breach of condition.
3. The contract is non-severable, and rejecting goods is not possible.
4. The breach is minor and does not affect the core purpose of the contract.
Conclusion:
Understanding the distinction between conditions and warranties is crucial in contract law.
Courts often decide based on the impact of the breach on the contract's purpose.
12. Who is an agent? Discuss the various duties of an agent towards his principal.
Definition of Agent:
As per Section 182 of the Indian Contract Act, 1872, an agent is a person employed by the
principal to act on his behalf and bring him into legal relations with third parties.
Duties of an Agent Towards His Principal:
1. Duty of Care and Skill (Sec. 212): The agent must act with reasonable skill and
diligence while performing duties.
2. Duty to Follow Instructions (Sec. 211): The agent must strictly follow the
principal’s lawful instructions.
3. Duty to Avoid Conflict of Interest: The agent must not undertake any action where
his personal interest conflicts with the principal's.
4. Duty to Render Accounts (Sec. 213): The agent must maintain proper accounts and
furnish them when asked.
5. Duty Not to Delegate (Sec. 190): The agent cannot delegate duties unless allowed by
the principal or necessary under trade customs.
6. Duty to Act in Good Faith: The agent must act honestly and not make any secret
profits.
7. Duty to Pay the Principal (Sec. 218): If the agent receives money or benefits on
behalf of the principal, he must pay it promptly.
8. Duty Not to Disclose Confidential Information: The agent must not disclose trade
secrets or confidential matters of the principal.
9. Duty Not to Compete: The agent must not engage in any business that competes with
the principal’s business.
Conclusion:
The agent-principal relationship is based on trust. Any breach of duties can lead to the agent
being held legally accountable.

13. Define Pledge. Explain the Rights and Duties of Pawnor and Pawnee.
Definition of Pledge:
A pledge is a contract where a debtor (pawnor) delivers goods to a creditor (pawnee) as
security for repayment of a loan. It is governed by Sections 172-176 of the Indian Contract
Act, 1872.
Rights of a Pawnor (Pledger):
 1. Right to Redeem (Sec. 177): The pawnor can recover pledged goods upon
repayment.
2. Right to Receive Surplus: If the pawnee sells the goods, any surplus from the sale
must be returned to the pawnor.
3. Right Against Wrongful Sale: If the pawnee sells goods without fulfilling legal
conditions, the pawnor can claim compensation.
Duties of a Pawnor:
1. Duty to Repay the Loan: The pawnor must repay the loan to recover the pledged
goods.
2. Duty to Bear Risk: If the pledged goods are lost due to an unforeseen event, the
pawnor bears the loss.
3. Duty to Disclose Defects: The pawnor must inform the pawnee of any known defects
in the goods.
Rights of a Pawnee (Pledgee):
1. Right to Retain Goods (Sec. 173): The pawnee can retain the pledged goods until
repayment.
2. Right to Recover Expenses (Sec. 175): The pawnee can claim necessary expenses
for the preservation of goods.
3. Right to Sell Pledged Goods (Sec. 176): If the pawnor defaults, the pawnee can sell
the goods after giving reasonable notice.
Duties of a Pawnee:
1. Duty to Take Reasonable Care (Sec. 151): The pawnee must take proper care of
pledged goods.
2. Duty Not to Make Unauthorized Use: The pawnee cannot use the goods for
personal purposes.
3. Duty to Return Goods After Payment: Once the debt is repaid, the pawnee must
return the pledged goods.
Conclusion:
Pledge is an important mode of security in commercial transactions. The rights and duties of
both parties ensure fair dealing and protection of interests.

14. Discuss the Nature of Partnership and the Process for the Registration of a
Partnership Firm.
Nature of Partnership:
  A partnership is defined under Section 4 of the Indian Partnership Act, 1932, as
"the relation between persons who have agreed to share profits of a business carried
on by all or any of them acting for all."
 The key elements of a partnership are:
1. Agreement: There must be a mutual agreement among partners.
2. Profit-sharing: Partners must agree to share profits.
3. Mutual Agency: Every partner acts as an agent for the firm and other
partners.
4. Lawful Business: The business must be legal.
5. Unlimited Liability: Partners have unlimited liability.
Process for Registration of a Partnership Firm (Section 58):
Though registration is not mandatory, it provides legal benefits. The process is:
1. Filing an Application: Partners must submit a form to the Registrar of Firms with
details like:
o Name of the firm.
o Names and addresses of partners.
o Duration of the partnership.
o Principal place of business.
2. Payment of Fees: A nominal registration fee is paid.
3. Verification by the Registrar: If all details are in order, the registrar enters the firm’s
name in the Register of Firms.
4. Issuance of Certificate: A Certificate of Registration is issued as proof.
Effects of Non-Registration:
If a firm is not registered, it faces the following consequences:
 It cannot file a suit against third parties.
 Partners cannot sue each other for enforcement of rights.
 The firm loses its legal recognition in disputes.
Conclusion:
A partnership is a widely used business structure due to its flexibility. Though registration is
not mandatory, it ensures better legal protection.

SECTION C (2 × 15 = 30 marks)
Answer any TWO questions.
15. 'A' entered a clause of penalty in the contract of surety, stating that in case of
default, the penalty shall be 10 times the actual loss. The principal debtor defaulted in
the contract. Is this clause justifiable? If the parties approach the court, is the court
bound by this clause? Explain your answer with relevant provisions of contract law.
1. Simple Facts of the Case:
'A' entered a surety contract with 'B' where a penalty clause was inserted, stating that in case
of default by the principal debtor, the penalty shall be 10 times the actual loss incurred. The
principal debtor defaulted in the contract.
2. Version of the First Part:
'A' claims that the penalty clause should be enforced as per the contract, where the penalty is
10 times the actual loss incurred due to the default.
3. Version of the Second Part:
The principal debtor argues that the penalty is excessive and violates the principle of
reasonable compensation as per contract law.
4. Evidence:
 The contract, which includes the penalty clause.
 Evidence of the actual loss incurred by 'A' due to the default.
 Legal precedents on penalty clauses in contracts.
5. Connected Law:
 Indian Contract Act, 1872 (Section 74): A penalty clause is enforceable to the extent
of the actual loss suffered, and the courts may not enforce an excessive penalty.
 Section 74: "When a contract has been broken, if a sum is named in the contract as
the amount to be paid in case of such breach, the party complaining of the breach is
entitled to receive from the party who has broken the contract, reasonable
compensation not exceeding the sum so named."
6. Judgment/Decision:
The clause specifying 10 times the actual loss is unjustifiable and will be subject to judicial
review. The court will enforce compensation based on the actual loss suffered, but not the
agreed penalty amount, as it is deemed excessive and punitive.
7. Reason for the Decision:
The court's reasoning is based on Section 74 of the Indian Contract Act, which limits
penalty clauses to reasonable compensation for actual loss. Courts aim to prevent unjust
enrichment through excessive penalties and instead award compensation proportionate to the
actual damage suffered.
8. Conclusion:
While the penalty clause is included in the contract, it will not be enforced in its entirety. The
court will reduce the penalty to a reasonable amount based on the actual loss incurred by 'A'.
The excess penalty will be deemed unenforceable.
9. Citations:
 K.K. Verma v. Union of India (1954): The court reduced the penalty to reflect actual
loss.
 Chitty on Contracts (30th Edition), Vol. 1, p. 500.

16. Mr. Rahul agreed to act as a surety on behalf of Mr. Balu in a contract of guarantee.
Mr. Balu was the Principal Debtor, and Mr. James was the Principal Creditor. Mr.
Rahul paid a bribe to get government work done on behalf of Mr. Balu. Later, Mr.
Rahul asked the Principal Debtor to indemnify the bribe money. Is Mr. Balu bound
under the law of guarantee to indemnify the surety? Explain your answer with relevant
provisions of contract law with appropriate justification.
1. Simple Facts of the Case:
Mr. Rahul acts as a surety for Mr. Balu in a contract of guarantee. Mr. Rahul pays a bribe to
secure government work for Mr. Balu. Later, Mr. Rahul seeks indemnity from Mr. Balu for
the bribe paid.
2. Version of the First Part:
Mr. Rahul argues that since he acted as a surety for Mr. Balu, he is entitled to be indemnified
for the bribe money paid to facilitate the work.
3. Version of the Second Part:
Mr. Balu asserts that the bribe was illegal and that the contract of guarantee cannot be used to
indemnify Rahul for an illegal act.
4. Evidence:
 Agreement between Mr. Rahul and Mr. Balu (Guarantee contract).
 Proof of bribe paid by Mr. Rahul.
 Correspondence between Mr. Rahul and Mr. Balu regarding the indemnity.
5. Connected Law:
 Indian Contract Act, 1872 (Section 133): A contract of guarantee is valid if the
principal debtor defaults, but indemnification cannot be claimed for illegal actions.
 Section 27 (Indian Contract Act, 1872): "Agreement in restraint of trade" prohibits
agreements made for illegal purposes, such as bribes.
6. Judgment/Decision:
Mr. Balu will not be bound to indemnify Mr. Rahul for the bribe. The contract of guarantee
remains valid, but indemnification for an illegal act (bribe) is unenforceable under contract
law.
7. Reason for the Decision:
The law does not allow a party to claim indemnification for an illegal act, such as bribery.
The Indian Contract Act (Section 27) invalidates agreements made for illegal purposes.
Thus, the indemnity for the bribe is not legally enforceable.
8. Conclusion:
Mr. Balu is not liable to indemnify Mr. Rahul for the bribe money, as the payment of a bribe
is illegal and cannot be enforced under contract law.
9. Citations:
 K.K. Verma v. Union of India (1954): Court ruled that indemnification cannot be
claimed for illegal acts.
 Section 133, Indian Contract Act, 1872.

17. 'A' purchased a gold bangle from 'B' by exercising fraud and pledged it with 'C'
before the contract was rescinded by 'B'. Is this pledge valid? Explain.
1. Simple Facts of the Case:
'A' purchases a gold bangle from 'B' through fraudulent means and then pledges the bangle
with 'C'. Later, the contract between 'A' and 'B' is rescinded, and 'B' seeks to recover the
bangle.
2. Version of the First Part:
'A' claims that the bangle was validly pledged with 'C', as he was the rightful holder at the
time of the pledge.
3. Version of the Second Part:
'B' asserts that the contract of sale was fraudulent, and thus, the bangle should be returned,
invalidating any subsequent pledge made by 'A'.
4. Evidence:
 Proof of fraud in the transaction between 'A' and 'B'.
 Evidence of the pledge made by 'A' with 'C'.
 Rescinded contract between 'A' and 'B'.
5. Connected Law:
 Indian Contract Act, 1872 (Section 19): A contract entered into by fraud is voidable
at the discretion of the party defrauded.
  Section 172-176 (Indian Contract Act, 1872): Pledge is only valid when the pawnor
has rightful ownership or authority over the goods.
6. Judgment/Decision:
The pledge is invalid, as 'A' acquired the bangle through fraud. Since the contract of sale was
rescinded due to fraud, 'A' did not have the right to pledge the goods, and thus, the pledge
with 'C' cannot be enforced.
7. Reason for the Decision:
The Indian Contract Act (Section 19) makes the contract voidable when fraud is involved,
and a fraudulent transaction does not confer ownership. Therefore, any subsequent pledge by
'A' is not valid.
8. Conclusion:
The pledge made by 'A' with 'C' is not legally binding, as 'A' had no valid ownership of the
bangle due to the fraudulent sale.
9. Citations:
 K.K. Verma v. Union of India (1954): A transaction based on fraud is voidable.
 Section 172-176, Indian Contract Act, 1872.

18. Under a contract of sale, 'A' has dispatched one lorry load of apples to 'B'. What are
the rights of A?
1. Simple Facts of the Case:
'A' has sent a lorry load of apples to 'B' under a contract of sale.
2. Version of the First Part:
'A' claims that he has fulfilled his part of the contract by dispatching the apples and expects
payment as agreed.
3. Version of the Second Part:
'B' may argue that the apples were defective or not in accordance with the agreed
specifications.
4. Evidence:
 The sale agreement between 'A' and 'B'.
 Delivery receipt or proof of dispatch.
 Inspection reports regarding the apples.
5. Connected Law:
 Sale of Goods Act, 1930 (Section 32): Transfer of ownership occurs once goods are
delivered.
  Section 39: The seller is entitled to payment as agreed upon delivery.
6. Judgment/Decision:
'A' has the right to claim the price of the apples as per the contract, provided the goods
comply with the contract terms. If 'B' refuses to accept them without reasonable cause, 'A' can
seek damages for non-acceptance.
7. Reason for the Decision:
The Sale of Goods Act ensures that once goods are delivered according to the contract, the
seller has the right to claim the price, unless the goods are defective or not as agreed.
8. Conclusion:
'A' has the right to demand payment for the apples, provided there is no breach of contract on
his part. If 'B' refuses without valid reason, 'A' can claim damages for the non-acceptance.
9. Citations:
 Sale of Goods Act, 1930 (Section 32 and Section 39).

THE END

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