1. Contract of Guarantee (Sec.

126)

 A contract to perform the promise or discharge the liability of a third

party in case of default.

 Parties: Principal Debtor, Creditor, Surety.

 Can be oral or written.

 Must not be obtained by misrepresentation (Sec. 142) or

concealment (Sec. 143).

 It is a tripartite contract and requires consent of all parties.

2. Discharge of Surety (Sec. 130–141)

 Revocation by surety (Sec. 130)

 Death of surety (Sec. 131)

 Variance in contract terms without surety’s consent (Sec. 133)

 Release of principal debtor (Sec. 134)

 Composition with debtor or giving time (Sec. 135)

 Creditor’s conduct impairing surety’s remedy (Sec. 139)

 Loss of security by creditor (Sec. 141)

 Novation (new contract) – Sec. 62

3. Rights of Surety

Against Principal Debtor:

 Subrogation (Sec. 140) – Surety steps into creditor's shoes.

 Indemnity (Sec. 145) – Recover all rightful payments made.

 Right to be relieved – Can compel debtor to pay.

Against Creditor:

 Right to securities (Sec. 141)

  Right to ask creditor to sue principal debtor (not enforceable)

Against Co-sureties:

 Equal contribution (Sec. 146)

 Different amounts (Sec. 147)

 If one surety is released, others remain liable (Sec. 138)

4. Contract of Indemnity (Sec. 124)

 One party promises to protect another from loss.

 Indemnifier: one who promises.

 Indemnified: one who is protected.

 Can be express or implied.

Rights of Indemnity Holder (Sec. 125):

 Recover:

1. Damages paid

2. Costs in suit (if prudent or authorized)

3. Sums under compromise (if not against indemnifier's

instructions)

Case: Mohit Kumar Saha v. New India Assurance Co. – Full compensation
must be paid; unfair settlement violates Article 14.

5. Bailment (Sec. 148)

 Delivery of goods by one (bailor) to another (bailee) for a purpose.

Essentials:

 Delivery of possession

 For a specific purpose

 Return or disposal after use

Duties of Bailee:
  Take reasonable care (Sec. 151–152)

 No unauthorized use (Sec. 153–154)

 Don’t mix goods (Sec. 155–157)

 Return goods after use (Sec. 160–161)

 Return profits (Sec. 163)

Rights of Bailee:

 Claim damages and reimbursement

 Right of lien (Sec. 170)

 Right to sue third party (Sec. 180)

6. Pledge (Sec. 172)

 Bailment of goods as security for a debt.

Rights of Pledgee (Pawnee):

 Retain goods (Sec. 173–174)

 Recover extra expenses (Sec. 175)

 Sue or sell after notice (Sec. 176)

Duties of Pawnee:

 Take reasonable care

 Return goods and accretions

 Follow terms of pledge

Right of Redemption (Sec. 177):

 Pawnor can reclaim goods before sale by repaying debt and expenses.

7. Agency (Sec. 182–210)

 Agent: Acts for principal in dealings with third parties.

Creation of Agency:

 Express, Implied, By necessity, By estoppel, By ratification

Ratification Essentials:

 Act done on behalf of principal

 Principal must exist and be competent

 Ratify whole act with full knowledge

Termination (Sec. 201–210):

 By act: Revocation, Renunciation

 By law: Death, Insanity, Insolvency, Completion

 Irrevocable if coupled with interest (Sec. 202)

8. Delegatus Non Potest Delegare

 An agent cannot delegate unless:

o Permitted by principal

o Custom of trade

o Nature of work demands it

 Based on Sec. 190 of Indian Contract Act

9. Sale vs Agreement to Sell

Agreement to
Basis Sale
Sell

Future/
Transfer Immediate
Conditional

Type Executed Executory

Risk On buyer On seller

Remedie Goods +
Only damages
s damages

Ownershi
Transfers now Later
p
10. Rights of Unpaid Seller (Sale of Goods Act)

Against Goods:

 Lien (Sec. 47–49)

 Stoppage in transit (Sec. 50–52)

 Resale (Sec. 54)

Against Buyer:

 Suit for price (Sec. 55)

 Damages (Sec. 56, 60)

11. Caveat Emptor (Sec. 16)

 "Let the buyer beware" – Buyer must examine goods.

Exceptions:

 Goods not fit for buyer's purpose

 Sale by sample/description

 Merchantable quality

 Trade usage

 Fraud/misrepresentation

 Dangerous goods

12. Condition vs Warranty

Aspect Condition Warranty

Importanc
Essential Subsidiary
e

Only
Breach Cancel + damages
damages

Conversio Condition → Warranty Not vice

n possible versa
13. Sale by Non-Owner (Good Title Exceptions)

 Mercantile agent

 Estoppel

 Co-owner

 Voidable contract

 Seller/buyer in possession

 Finder of goods (Sec. 71, 169 ICA)

 Pawnee (Sec. 176)

 Court/official sale

1. K hired a car to travel to Bombay but went to Delhi; the car was
damaged.

Law: Section 151, 154 – Indian Contract Act (Bailment)

Decision: K misused the car by deviating from the agreed journey. He is liable
for damages, even if the accident was not his fault.

2. Advocate claims lien over documents entrusted for a case.

Law: Advocate’s lien exists only for unpaid professional fees.

Decision: If the fees are unpaid, the advocate may retain documents. If not,
B can demand return of the documents and even sue for them.

3. Captain signs bills of lading without receiving goods.

Law: Bills of Lading Act, Indian Contract Act

Decision: Captain is personally liable for false representation. Third parties

relying on such bills may sue him.

4. A finds B’s lost article, spends ₹2,000 to preserve it. Can A

recover it?

Law: Sections 71 & 158 – Indian Contract Act

Decision: A is a finder and bailee. He has a right to recover expenses from B.

5. B pledges ring given by A on “sale or return” basis. Can A recover

it from C?

Law: Section 24 – Sale of Goods Act

Decision: B had not accepted the ring. C, not being a bona fide buyer under
law, must return it. A can recover the ring.

6. A receives profits; B is paid wages in a carpentry venture. Are

they partners?

Law: Section 4 – Partnership Act

Decision: No mutual agency or profit sharing. Not a partnership, B is an

employee.

7. A is injured while using unsafe carriage hired from B. Is B liable?

Law: Section 150 – Indian Contract Act

Decision: B is liable even for unknown defects in goods supplied for hire. A
can claim compensation.

8. P authorizes A to sell land and pay himself debt. Later revokes. Is

it valid?

Law: Section 202 – Indian Contract Act

Decision: This is agency coupled with interest. P cannot revoke the authority.

9. A buys necklace and leaves it with B. B resells it to C. Can A

recover it?

Law: Section 27 – Sale of Goods Act

Decision: B had no right to resell. A retains ownership. A can recover the

necklace from C.

10. A, B, C run buses. Losses continue for 4 years. A wants to

continue; others don’t.

Law: Section 44(d) – Partnership Act

Decision: B and C may seek dissolution through court. A cannot force

continuation.

11. X appoints Y to recover debt. Y's negligence causes debt to

become time barred.

Law: Sections 212, 220 – Indian Contract Act

Decision: Y is not entitled to remuneration and is liable for negligence.

12. Narayan sends 150 tons of sugar instead of 100. Can Pradeep
reject the excess?

Law: Section 37 – Sale of Goods Act

Decision: Buyer can accept contract quantity and reject the rest. Pradeep is
right.

13. A pays ₹2 lakh to minor B on guarantee by C. B refuses to repay.

Can A recover from C?

Law: Section 128 – Indian Contract Act

Decision: C’s guarantee is valid even if B is a minor. A can recover from C.

14. Rice supplied doesn't match sample. Can buyer sue?

Law: Section 17 – Sale of Goods Act

Decision: Buyer has right to reject and sue for breach of condition.

15. A guarantees 5 sacks of flour. Later, 4 more sacks delivered

without guarantee.

Law: Section 128 – Indian Contract Act

Decision: A is not liable for the additional 4 sacks. Guarantee was limited to
five.

16. C retires from firm without public notice. X supplies goods. Can
X recover from C?

Law: Section 32(3) – Partnership Act

Decision: Yes. Since no public notice was given, C remains liable to X.

17. C sells horse owned jointly with A and B, without their consent.
Sale to D valid?

Law: Section 28 – Sale of Goods Act

Decision: Sale is void. C had no authority. A and B can recover horse from D.

Under the Indian Contract Act, 1872, generally only the owner of goods can
make a valid pledge. However, in certain circumstances, a non-owner
can also make a valid pledge of goods. These exceptions are recognized
under Sections 178, 178A, and 179 of the Act.

Circumstances where a non-owner can make a valid pledge:

1. Pledge by Mercantile Agent (Section 178)

A mercantile agent can make a valid pledge if:

 He is in possession of the goods or documents of title with the

consent of the owner,

 He acts in the ordinary course of business as a mercantile agent,

and

 The pledgee acts in good faith and has no notice that the agent had
no authority to pledge.

📌 Case Law: Folkes v. King – A valid pledge by a mercantile agent was

upheld when the agent had possession with the owner's consent.

2. Pledge by Person in Possession under Voidable Contract (Section

178A)

If a person has obtained possession of goods under a voidable contract

(e.g., by fraud, misrepresentation), and:

 The contract has not been rescinded, and

 The pledgee has acted in good faith and without notice of the
defect,

then the pledge is valid.

📌 Case Law: Phillips v. Brooks – The pledge was held valid as the original
contract was voidable but not yet rescinded.

3. Pledge by a Person with Limited Interest (Section 179)

A person having limited interest in goods (e.g., a bailee or a finder of

goods) can pledge them to the extent of his interest.
📌 Example: A person who finds goods and incurs expenses in preserving
them can pledge to recover those expenses.

4. Pledge by a Co-owner in Possession

If one co-owner is in sole possession of the goods with the consent of

other co-owners, he can make a valid pledge.

5. Pledge by Seller in Possession after Sale (Sale of Goods Act,

Section 30(1))

A seller, who continues in possession of goods even after the sale, can make
a valid pledge to a pledgee who acts in good faith and without notice of
the prior sale.

6. Pledge by Buyer in Possession before Payment (Sale of Goods

Act, Section 30(2))

A buyer, who obtains possession of goods before actual ownership passes,

can make a valid pledge if the pledgee acts in good faith and without
notice of the seller’s rights.

✅ 1. What is the Unpaid Seller’s Right of Lien?

Definition:
The right of lien means the unpaid seller’s right to retain possession of the
goods until the full price is paid.

Applicable Sections:
Section 47 to 49 of the Sale of Goods Act, 1930.

When this right arises:

 When the seller is in possession of goods.

 When the buyer has not paid the price.

 When the sale is without credit or the credit period has expired.

Conditions for exercising lien:

  Possession must be with the seller.

 There is no agreement to give credit or credit term has expired.

 The buyer has become insolvent.

✅ 2. What is the Right of Stoppage in Transit?

Definition:
It is the right of the unpaid seller to stop the goods while they are in
transit and regain possession, if the buyer becomes insolvent.

Applicable Sections:
Section 50 to 52 of the Sale of Goods Act, 1930.

Conditions:

 The seller must have parted with possession.

 Goods must be in transit.

 The buyer must have become insolvent.

🔁 3. Difference between Right of Lien and Right of Stoppage in

Transit

Point Right of Lien Right of Stoppage in Transit

Seller is still in possession of Seller has parted with

Possession
goods possession; goods are in transit

Arises due to non-payment of Arises due to buyer’s insolvency

Condition
price and non-payment

Not applicable – goods not yet Applies only when goods are in
Transit
in transit transit

Mode of By instructing the carrier to stop

By retaining goods
Exercise delivery

Transit ends (buyer receives or

Ends When Seller gives up possession
carrier holds for buyer)

Example Seller holds goods in Seller sends goods by train, but

Point Right of Lien Right of Stoppage in Transit

warehouse – refuses delivery stops train midway

📝 In Short:

 Lien is the right to retain goods.

 Stoppage in transit is the right to recover goods.

 Both are rights of unpaid seller, but apply at different stages.

✅ Remedies for Breach of Contract

When a contract is broken by one party, the aggrieved party (non-breaching

party) has certain legal remedies under the Indian Contract Act, 1872
and principles of equity.

🔹 1. Damages (Section 73)

Meaning:
Monetary compensation awarded to the aggrieved party for the loss suffered
due to breach.

Types of Damages:

Type Description Example

Ordinary Loss that naturally arises from Delay in delivery causing

(General) breach loss of sales

Loss due to special

Special Seller told that delay would
circumstances communicated
Damages cause factory shutdown
earlier

Exemplary
To punish and deter; rare Breach of promise to marry
(Punitive)

Small damages when there is no Breach of contract but no

Nominal
actual loss monetary loss

Liquidated Pre-fixed amount agreed in ₹10,000 penalty for delay in

Damages contract work
🔹 2. Specific Performance (Section 10, Specific Relief Act, 1963)

Meaning:
Court orders the breaching party to perform the contract as agreed.

When granted:

 Monetary compensation is inadequate (e.g., sale of rare art, land).

 Contract is fair and enforceable.

Example:
A agrees to sell a unique painting to B, but refuses. Court may order A to
deliver the painting.

🔹 3. Injunction (Section 38, Specific Relief Act)

Meaning:
Court order preventing a party from doing something in breach of
contract.

Types:

 Prohibitory Injunction – Stops breach.

 Mandatory Injunction – Requires a positive act.

Example:
Stopping an actor from performing for a rival company during the contract
period.

🔹 4. Rescission of Contract (Section 39, 64, Specific Relief Act)

Meaning:
Contract is cancelled, and both parties are restored to original position.

Example:
If A fails to perform, B may cancel the contract and demand return of
advance payment.

🔹 5. Restitution (Section 65)

Meaning:
A party who has received a benefit under a contract that becomes void or is
rescinded, must return such benefit.

Example:
Advance money paid must be returned if contract is cancelled.

🔹 6. Quantum Meruit

Meaning:
"When one party partly performs the contract and the other party prevents
completion", the performing party can claim reasonable compensation for
the part done.

Example:
If a contractor builds half a wall and is then stopped by the client, he can
claim payment for the work completed.

✅ Summary Table:

Remedy Purpose

Damages Monetary compensation

Specific
Enforce performance of contract
Performance

Injunction Prevent breach or enforce action

Rescission Cancel contract and restore parties

Restitution Refund of benefit received

Reasonable payment for partial

Quantum Meruit
performance

State the rules regarding the settlement of account of the firm after
dissolution.

Rules Regarding the Settlement of Accounts of the Firm After

Dissolution
(Under Section 48 of the Indian Partnership Act, 1932)
When a firm is dissolved, its accounts must be settled as per the rules laid
down in Section 48 of the Indian Partnership Act, 1932. The settlement is
done in the following manner:

1. Losses to be Paid First

Losses, including deficiencies of capital, are to be paid in the following order:

 First, out of profits (if any);

 Then, out of capital of the partners;

 If needed, by the partners individually in the proportion in which they

were entitled to share profits.

2. Application of the Firm’s Assets

After paying off losses, the assets of the firm (including any amount brought
in by the partners) are to be applied in the following order:

(a) Paying Debts to Third Parties

 First, the debts and liabilities of the firm to outsiders (third parties)
must be paid.

(b) Repayment of Loans from Partners

 Any loan or advance made by a partner to the firm (distinct from

capital) is to be repaid.

(c) Return of Capital to Partners

 The capital contributed by each partner must then be returned.

(d) Distribution of Surplus

 If any amount remains after paying the above, it is distributed among

the partners according to their profit-sharing ratio.

Example:

Suppose a firm has three partners A, B, and C. After dissolution:

 The firm owes ₹10,000 to outsiders.

  A had given a loan of ₹5,000 to the firm.

 Capital contributions: A – ₹10,000, B – ₹5,000, C – ₹5,000.

 Remaining assets after realization: ₹30,000.

Settlement would be as follows:

1. ₹10,000 paid to outsiders.

2. ₹5,000 repaid to A as loan.

3. Remaining ₹15,000 distributed to partners as capital: A ₹10,000, B

₹5,000.
(No surplus remains for profit distribution.)

Important Case Law:

 Garner v. Murray (1904) – Applied in case of insolvency of a partner;

his deficiency is borne by other solvent partners in their capital ratio
(not profit-sharing ratio).