CONTRACT II

Unit I
[Link] is contract of guarantee Explain the various Modes of discharge of
surety from his liability.
2. Define contract of indemnity state the distinction between contract of
indemnity and contract of guarantee.
3. Write a short note on right of the surety.
4. What are the Rights of an indemnity holder.

Unit II
5. Define contract of bailment and what are the features of contract of bailment.
6. Explain the Right and Duties of Pledge
7. Explain the Rights and duties of the bailee.
8. Define lien.
9. Short note on pledge.

Unit III
10. What is agency by ratification Explain its essential.
11. Explain the Rights and duties of agent.
12. Explain the modes of termination of agency.
13. Explain the various modes of creation of agency.

Unit IV
14. What is Partnership? Types of partners.
15. Define partnership Explain the Rights and duties of partners.
16. Procedure for registration of a partnership firm and consequences of non
registration.

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17. Different modes of Dissolution of partnership firm.

Unit V
18. Explain the various implied conditions and warranties in contract of sale.
19. Write a short note on stoppage in transit.
20. Define Contract sale and distinguish sale from an agreement to sell.

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 Unit I
[Link] IS CONTRACT OF GUARANTEE EXPLAIN THE VARIOUS
MODES OF DISCHARGE OF SURETY FROM HIS LIABILITY.
Ans

Introduction
In everyday life and business, people often borrow money or take loans. When
the lender wants extra assurance, someone else may promise to repay if the
borrower fails. This promise is called a Contract of Guarantee, and the person
who gives this promise is known as a Surety.

Meaning of Contract of Guarantee

A Contract of Guarantee is defined under Section 126 of the Indian
Contract Act, 1872. It is a contract to perform the promise or discharge the
liability of a third person in case of his default.

Parties Involved:
1. Principal Debtor – The person who takes the loan or credit.
2. Creditor – The person who gives the loan.
3. Surety – The person who gives a guarantee to the creditor.

Example:
If A lends ₹10,000 to B, and C promises A that if B fails to pay, C will pay – it
is a contract of guarantee.
Here, A = Creditor, B = Principal Debtor, C = Surety.

Essential Features of Contract of Guarantee

1. Three parties involved.
2. Consideration must be lawful.
3. Liability of surety is secondary.
4. Must be in writing or oral (as per Indian law).

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 5. No misrepresentation or concealment of facts.

Types of Guarantee
1. Specific Guarantee: Given for a single transaction.
2. Continuing Guarantee: Given for a series of transactions.

Discharge of Surety from Liability

The surety can be freed (discharged) from their responsibility in many
situations. These are called modes of discharge.

1. By Revocation
a) Revocation by Notice (Section 130)
In the case of a continuing guarantee, the surety can revoke the guarantee for
future transactions by giving notice to the creditor.

Example: If C gives a continuing guarantee for B's goods from A, C can

revoke it by notice. He is not liable for goods supplied after notice.

b) Revocation by Death (Section 131)

If the surety dies, the continuing guarantee ends for future transactions unless
otherwise stated in the contract.

2. By Conduct of the Creditor

a) Variance in Terms (Section 133)
If the creditor and debtor change the terms of the original contract without the
surety’s consent, the surety is discharged.

Case Law: Bonar v. Macdonald

The court held that any change in contract terms without surety's knowledge
releases him.
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b) Release or Discharge of Principal Debtor (Section 134)
If the creditor releases or discharges the principal debtor by contract or act of
law, the surety is also discharged.

c) Compounding with Principal Debtor (Section 135)

If the creditor makes an agreement with the debtor to give more time or settle
for less money without the surety’s consent, the surety is released.

3. By Loss of Security (Section 141)

If the creditor loses or parts with any security given by the debtor, the surety is
discharged to that extent.

Example: If A gives goods as security, and the creditor loses them, the surety
is not liable for that part.

4. By Invalid Contract
If the contract of guarantee is not valid (due to fraud, misrepresentation, etc.),
the surety is discharged.

5. By Performance
If the principal debtor repays the debt or performs the duty, the surety’s liability
automatically ends.

6. By Novation (New Contract)

If a new contract is formed in place of the old one with the consent of all
parties, the surety is released from the old contract.

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 7. By Act of Creditor Prejudicing Surety (Section 139)
If the creditor does any act that harms the surety's rights, the surety is
discharged.

Example: If the creditor delays legal action, and the surety suffers loss, he
may be discharged.

Conclusion
The Contract of Guarantee is an important tool in business and law. But the
surety’s liability is not unlimited – he can be discharged in many ways,
especially if the creditor acts unfairly or changes terms without consent.
Understanding the modes of discharge helps protect sureties and maintain fair
dealings among all parties.

2. DEFINE CONTRACT OF INDEMNITY STATE THE DISTINCTION

BETWEEN CONTRACT OF INDEMNITY AND CONTRACT OF
GUARANTEE.
Ans

Definition of Contract of Indemnity

A Contract of Indemnity is defined under Section 124 of the Indian Contract
Act, 1872.
“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.”

Simple Meaning:
A contract where one person agrees to compensate the other for any loss they
suffer.

Parties Involved:
1. Indemnifier – The person who promises to pay for the loss.
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 2. Indemnified (or Indemnitee) – The person who is protected against loss.

Example:
A promises to deliver goods to B. B is afraid of loss, so C says, “If A fails, I will
pay you.”
Here, C is the indemnifier, and B is the indemnified.

Features of Contract of Indemnity

1. Involves 2 parties.
2. There must be a promise to compensate.
3. Loss must be caused due to the action of the promisor or a third party.
4. Can be express (written/spoken) or implied (by conduct).
5. The liability of the indemnifier is primary.

Distinction between Contract of Indemnity and Contract of Guarantee

Point of
Contract of Indemnity Contract of Guarantee
Difference

A contract to compensate for a A contract to discharge

Definition
loss. liability of a third person.

Number of Only 2 parties – Indemnifier 3 parties – Creditor, Principal

Parties and Indemnified. Debtor, Surety.

Number of Three contracts between all

Only one contract.
Contracts parties.

To protect the indemnified To assure the creditor of

Purpose
from a possible loss. repayment by the surety.

Liability is primary and Liability of surety is

Liability
absolute. secondary and conditional.

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Point of
Contract of Indemnity Contract of Guarantee
Difference

Based on loss or damage Based on default by

Nature of Risk
suffered. principal debtor.

When principal debtor fails to

Arises When Loss actually occurs.
perform.

Insurance contracts (like fire

Example Bank loan with a guarantor.
or marine insurance).

Conclusion
A Contract of Indemnity is based on compensation for loss, while a Contract
of Guarantee is based on a promise to perform if another fails.
Both are important legal tools but differ in purpose, parties, and liability.

3. WRITE A SHORT NOTE ON RIGHT OF THE SURETY.

Ans

Introduction
A contract of guarantee is an agreement where one person (called the surety)
promises to take responsibility if another person (the principal debtor) fails to
repay a debt or perform a duty owed to a third party (the creditor).
To ensure the surety is not unfairly burdened, the Indian Contract Act provides
several rights to the surety. These rights protect the surety and allow him to
recover losses or avoid unnecessary liability.
These rights are classified into:
1. Rights against the principal debtor

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 2. Rights against the creditor
3. Rights against co-sureties

1. Rights Against the Principal Debtor

These rights arise after the surety pays the creditor on behalf of the principal
debtor.
a) Right of Subrogation (Section 140)
Once the surety repays the creditor, he steps into the shoes of the creditor. This
means he gets all the rights the creditor had against the debtor. The surety can
now sue the principal debtor directly to recover the amount.

Example:
A takes a loan from B. C is the surety. If C pays the loan on A’s behalf, then C can
file a case against A just like B could.

b) Right to Indemnity (Section 145)

There is an implied promise that the principal debtor will indemnify
(compensate) the surety for all lawful payments made under the contract of
guarantee.

This means the surety can recover:

• The full amount he paid,
• Plus interest and legal expenses, if any.

Important Point: This right arises only after the surety has paid.

2. Rights Against the Creditor

These rights protect the surety from the acts of the creditor which may increase
the surety’s risk or reduce his chances of recovery.
a) Right to Benefit of Securities (Section 141)

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If the creditor holds any security (like mortgage, pledged goods, or guarantee
documents) from the debtor, the surety is entitled to benefit from those securities
after payment.

Example:
If B (creditor) holds property papers from A (debtor) and C (surety) pays the debt,
C can use those papers to recover the money.

Even if the surety was not aware of the security, he still has this right.

b) Right to Ask for Discharge

The surety can claim to be discharged from liability if the creditor does any of
the following without the surety's consent:
• Changes the terms of the contract (Section 133)
• Releases the principal debtor (Section 134)
• Agrees to give more time or compromise with the debtor (Section 135)

Example:
If the creditor allows the debtor to pay late without asking the surety, the surety
can say “I am not liable anymore.”

These actions affect the surety's rights, and the law protects the surety in such
situations.

3. Rights Against Co-sureties

Sometimes, more than one person acts as surety for the same debtor. In such
cases, each surety has certain rights against the other sureties.
a) Right to Equal Contribution (Section 146)
All co-sureties are expected to contribute equally, unless they agreed otherwise.

Example:
If A, B, and C are co-sureties for a loan of ₹30,000, and A pays the full amount,
then A can recover ₹10,000 each from B and C.

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b) Right When Liability is Unequal (Section 147)
If co-sureties have agreed to be liable for different amounts, each one is
responsible only up to the amount agreed.

Example:
If A agrees to be liable for ₹10,000 and B for ₹20,000, then A cannot be forced to
pay more than ₹10,000.

Summary Table: Rights of the Surety

Category Right Section Effect

Against Surety gets creditor’s rights

Subrogation Sec. 140
Principal Debtor after payment

Surety can recover payment

Indemnity Sec. 145
from debtor

Surety can use securities

Against Creditor Benefit of Securities Sec. 141
held by creditor

Sec. 133– Surety released if terms

Ask for Discharge
135 changed without consent

Against Co- Surety can recover from co-

Equal Contribution Sec. 146
sureties sureties equally

Liability According to Surety is liable only up to

Sec. 147
Agreement agreed amount

Conclusion
The surety plays a secondary but important role in a contract of guarantee. To
protect the surety from being unfairly treated or made to suffer losses, the law
provides strong rights. These include:
• Recovery rights against the debtor,
• Protection against wrongful acts by the creditor, and

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 • Fair sharing of liability with co-sureties.
Understanding these rights helps ensure justice and fairness in business and legal
transactions involving guarantees.

4. WHAT ARE THE RIGHTS OF AN INDEMNITY HOLDER.

Ans

Introduction
A Contract of Indemnity is defined in Section 124 of the Indian Contract Act,
1872.
"A contract by which one party promises to save the other from loss caused to
him by the conduct of the promisor or by the conduct of any other person."
• The person who promises to compensate is called the indemnifier.
• The person who is protected is called the indemnity holder or
indemnified.
The indemnity holder is given important rights and protections under Section
125 and also under general principles of equity and justice.

Statutory Rights of the Indemnity Holder

(Under Section 125)
The indemnity holder can recover from the indemnifier:

1⃣ Right to Recover Damages (Section 125(1))

If the indemnity holder is forced to pay damages to a third party under a legal
claim, and the matter is covered by the contract, he can recover the entire amount
from the indemnifier.

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 Example:
A agrees to indemnify B for any loss caused by A's actions. If B is sued and pays
damages, he can recover from A.

2⃣ Right to Recover Legal Costs (Section 125(2))

If the indemnity holder has to fight a legal case, and does so in a proper and
reasonable manner, he can recover court fees, advocate charges, and other legal
expenses.

This applies only if:

• The indemnity holder acted with the knowledge and authority of the
indemnifier, and
• He defended the case in good faith.

3 Right to Recover Settlement Amount (Section 125(3))

If the indemnity holder settles a legal dispute (by compromise or out-of-court
settlement), and it was done:
• In good faith, and
• Was reasonable and lawful,
Then the amount paid under that settlement can be recovered from the
indemnifier.

Additional Rights (Beyond Section 125)

Apart from the above statutory rights, the indemnity holder has certain implied
and equitable rights, which have been recognized by Indian courts:

4 Right to Be Indemnified Before Actual Loss

Traditionally, the indemnity holder had to wait till he actually paid before
claiming indemnity.

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However, in Indian law, courts have allowed indemnity holders to demand
payment as soon as liability becomes certain, even if he hasn't paid yet.

Case Law:
Gajanan Moreshwar v. Moreshwar Madan (1942)
The Bombay High Court held that the indemnity holder does not need to suffer
actual loss before claiming indemnity. If liability is clear, he can seek protection.

5 Right to Specific Performance of Indemnity

If the indemnifier refuses to perform his obligation, the indemnity holder can
go to court and ask for specific performance of the contract (i.e., force the
indemnifier to pay or act).

This is especially important in insurance contracts or commercial

transactions.

6⃣ Right to Claim Interim Relief

In urgent situations, where a case is pending, and the indemnity holder is likely
to suffer loss soon, the court may grant temporary protection like:
• Stay orders,
• Interim compensation,
• Direction to maintain funds, etc.

7⃣ Right under Insurance Policies (Special Indemnity Contracts)

In the case of contracts of insurance (which are special types of indemnity
contracts), the indemnity holder also has rights under insurance law, including:
• Right to claim on loss of property,
• Right to be reimbursed for medical or life insurance,
• Right to sue for delay in claim processing.

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 Conclusion
The indemnity holder is protected by law under Section 125 of the Indian
Contract Act and through judicial interpretations. His rights ensure that:
• He is not forced to bear losses unfairly,
• He can recover all amounts related to damages, costs, or settlements,
• He can act even before suffering actual loss.

Unit II
5. DEFINE CONTRACT OF BAILMENT AND WHAT ARE THE
FEATURES OF CONTRACT OF BAILMENT.
Ans

Definition of Bailment
A contract of bailment is defined under Section 148 of the Indian Contract
Act, 1872.
"Bailment is the delivery of goods by one person to another for some purpose,
upon a contract that the goods shall be returned after the purpose is fulfilled, or
otherwise disposed of according to the instructions of the person delivering
them."
• The person delivering the goods is called the bailor.
• The person receiving the goods is called the bailee.

Example of Bailment
A gives his bike to B, a mechanic, for repair. B is the bailee, and A is the bailor.
After repair, B must return the bike to A. This is a contract of bailment.

Essential Features of Bailment

To be a valid contract of bailment, the following features must be present:
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1 Delivery of Goods
• There must be delivery of movable goods (not immovable property or
money).
• Delivery can be:
o Actual (physically handing over the goods), or
o Constructive (symbolic, e.g., handing over keys).

Example: Giving a gold chain to a jeweller for polishing.

2 Purpose
• The goods must be delivered for a specific purpose.
• After the purpose is completed, the goods must be returned or dealt with
as per the bailor’s instructions.

Example: Giving clothes to a dry cleaner.

3 Return of Goods
• The bailee must return the same goods after the purpose is completed.
• If the bailee fails to return them, it becomes a breach of contract.

Example: If A gives B a book for safe keeping, B must return the same
book.

4⃣ Ownership Remains with Bailor

• In a bailment, ownership of goods does not transfer to the bailee.
• Only possession is transferred temporarily.

Important: Bailment is not a sale.

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5 Voluntary Agreement
• The delivery of goods must be done willingly.
• There should be a mutual agreement (express or implied).

Even if there is no written contract, an implied bailment can still exist.

6 Consideration is Not Necessary

• A bailment can be with or without consideration.
o Gratuitous bailment – Without payment (e.g., lending a book to a
friend).
o Bailment for reward – With payment (e.g., storing goods in a
warehouse for rent).

7 Duties and Rights

• The law imposes duties on bailee (e.g., to take care of goods, not to
misuse).
• Similarly, the bailor has duties (e.g., to disclose known faults in goods).

Case Law Example

Ultzen v. Nicolls (1894):
A waiter took a customer's coat and hung it. The coat was stolen. The court held
it was a bailment, and the hotel was responsible as a bailee.

Conclusion
A contract of bailment involves delivery of movable goods by one person to
another for a specific purpose, under the condition that the goods will be
returned. The contract is based on trust, responsibility, and the temporary
transfer of possession, not ownership.

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6. EXPLAIN THE RIGHT AND DUTIES OF PLEDGE
Ans

Introduction
A pledge is a bailment of goods as security for payment of a debt or
performance of a promise. The person who gives the goods is called the
pawnor, and the person who receives them as security is called the pledgee or
pawnee.
This is governed under Sections 172 to 179 of the Indian Contract Act, 1872.
Let’s discuss the rights and duties of the pledgee in detail.

Rights of Pledgee
The pledgee has several legal rights to protect his interest in the pledged goods.

1⃣ Right of Retainer (Section 173 & 174)

The pledgee can retain the goods pledged:
• For payment of the debt or loan,
• For interest on the debt,
• For any other lawful charges related to the goods.
He can retain only till full repayment is made.

Example: If A pledges gold to B for ₹50,000, B can keep the gold until A
repays the full loan.

2 Right to Recover Extraordinary Expenses (Section 175)

If the pledgee has to spend money for the preservation or maintenance of the
goods (e.g., storing perishable items), he has a right to recover those expenses
from the pawnor.

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 Note: He cannot retain the goods for these expenses but can sue to recover
them.

3 Right of Sale (Section 176)

If the pawnor fails to repay the debt, the pledgee can:
• File a suit to recover the amount, or
• Sell the goods after giving reasonable notice to the pawnor.

Case Law: Lallan Prasad v. Rahmat Ali (1967)

The Supreme Court held that the pledgee must return the goods or their value if
he files a suit and does not sell the goods.

4 Right to Sue the Pawnor

The pledgee can sue the pawnor for non-payment of the debt, without selling the
goods.

5 Right to Pledge by Possession

The pledgee’s rights are protected as long as he lawfully possesses the goods.
If the goods are taken from him by force or theft, he can recover possession.

Duties of Pledgee
With these rights, the pledgee also has important duties under the law.

1 Duty to Take Reasonable Care (Section 151 & 152)

The pledgee must take the same care of the goods as a person would take of their
own property. He should prevent theft, damage, or loss.

Case: Union Bank of India v. K.V. Venugopalan

The court held the bank liable for not taking proper care of the pledged goods.

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2 Duty Not to Use the Goods
The pledgee cannot use the goods pledged for personal benefit unless the pawnor
has allowed it.
Use without permission is unauthorised and may make him liable for damages.

3 Duty Not to Mix Goods

He must keep the pledged goods separate from his own goods and not mix them.
If mixed and damaged, he may be liable.

4 Duty to Return the Goods (Section 177)

When the debt is repaid, the pledgee must return the goods to the pawnor. If he
fails to do so, he may be sued for conversion or compensation.

5 Duty to Return Accretions

If any increase or profit is added to the goods (e.g., lambs from pledged sheep),
the pledgee must return such accretions to the pawnor.

Conclusion
The pledgee plays a very important role in a pledge. The law gives him strong
rights to protect the security of the debt, but also imposes clear duties to ensure
he does not misuse or harm the goods. The balance between rights and duties is
essential for fairness and protection in commercial transactions.

7. EXPLAIN THE RIGHTS AND DUTIES OF THE BAILEE

Ans

Introduction

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A bailment is a contract where one person (bailor) delivers goods to another
person (bailee) for a specific purpose, under the condition that the goods will be
returned after the purpose is fulfilled.
• The bailor is the owner of the goods.
• The bailee is the person who receives the goods for safekeeping or use.
Example: Giving your clothes to a dry cleaner is a bailment.

Rights of the Bailee

The bailee enjoys several legal rights to protect his interest in the goods.

1 Right to Compensation for Loss Due to Bailor's Fault (Sec. 158)

If the bailor gives goods that are defective or dangerous, and the bailee suffers
damage while handling them, the bailee has a right to claim compensation.
Example: If A gives B a car with faulty brakes without informing him, and B
meets with an accident, B can claim damages.

2 Right to Recover Expenses (Sec. 158)

The bailee has the right to be reimbursed by the bailor for necessary expenses
incurred in preserving the goods.
E.g., Feeding and maintaining a horse that was bailed.

3 Right of Lien (Sec. 170 & 171)

The bailee can retain the goods until he is fully paid for:
• His services, or
• Lawful charges incurred.
This is called bailee’s lien.

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 Case: Pawanpuri v. Surajbhan (1971) – Bailee was allowed to retain the
goods for unpaid charges.

4 Right to Sue Third Parties

If a third party wrongfully takes or damages the goods, the bailee can sue that
person in his own name, as if he were the owner.

Duties of the Bailee

The bailee has a number of legal duties to ensure proper handling and return of
the goods.

1 Duty to Take Reasonable Care (Sec. 151 & 152)

The bailee must take the same care of goods as a prudent man would take of his
own goods.
If goods are lost/damaged due to his negligence, he is liable.

2 Duty Not to Use Goods Without Permission (Sec. 154)

The bailee must not use the goods for personal use unless the bailor has allowed
it.
If he misuses them, he is responsible for any loss or damage.

3 Duty Not to Mix Bailor’s Goods (Sec. 155–157)

The bailee must not mix the goods with his own:
• If mixed with consent, both share in proportion.
• If mixed without consent, bailee must separate them.
• If mixing causes loss, the bailee must compensate the bailor.

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4 Duty to Return Goods (Sec. 160 & 161)
After the purpose is completed, the bailee must:
• Return the goods to the bailor.
• If he delays, he is liable for any loss or damage.

5 Duty to Return Increase or Profit from Goods (Sec. 163)

If the goods give any natural increase or profit, the bailee must return it along
with the goods.
Example: If A gives B a cow and it gives birth, the calf must also be returned.

6 Duty to Deliver to the Right Person

The bailee must return the goods only to the real bailor, or someone authorised
by the bailor.

Conclusion
The bailee plays a very important role in protecting and managing another’s
property. The Indian Contract Act clearly outlines the rights that safeguard the
bailee’s interest and the duties that ensure he does not misuse the goods. This
helps maintain trust and fairness in bailment contracts.

8. DEFINE LIEN.
Ans

Definition of Lien
Lien means the right to retain possession of goods or property belonging to
another person until a debt or obligation is paid.
It is a legal right available to someone (usually a bailee or creditor) to hold goods
lawfully until they are paid for services rendered or money due.

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 Statutory Definition under Indian Contract Act, 1872
The Indian Contract Act does not define the word lien directly, but Sections 170
and 171 provide for bailee’s lien in two forms:
• Particular Lien (Sec. 170)
• General Lien (Sec. 171)

Types of Lien

1⃣ Particular Lien (Section 170)

• When a person has worked on goods and has added labor, skill or value,
he can retain those goods until paid for that specific service.
• Applies only to those goods on which the service was rendered.

✔️ Example:
A goldsmith repairs a gold chain. He can hold (retain) the chain until the repair
charges are paid.

Important Point: Particular lien applies only to that specific item, not others.

2⃣ General Lien (Section 171)

• The right to retain any goods of the debtor in possession of the creditor,
not just those goods on which service was done.
• This lien is available only to certain professions:
✔️ Bankers
✔️ Factors (merchants who sell goods on commission)
✔️ Wharfingers (owners of docks/warehouses)
✔️ Attorneys of High Court
✔️ Policy Brokers

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✔️ Example:
A bank can retain securities or documents of the customer for any general
unpaid dues, not just one specific transaction.

Key Case Laws

Suraj Pal v. Union of India

It was held that lien is not the same as ownership. The lien holder only has the
right to retain, not to sell the goods (unless given by contract or law).

Bank of India v. Messrs Vijay Transport (1990)

The court upheld the bank’s right to general lien over the goods pledged for
general dues.

Important Features of Lien

• Possessory Right – Lien exists only as long as possession is with the
creditor.
• No Right to Sell (Generally) – Unless specifically allowed by law or
contract.
• Ends when debt is paid – Once payment is made, the goods must be
returned.

When Lien Cannot Be Exercised

• When there is no lawful possession.
• When the debt is not related to the goods.
• When the person has voluntarily surrendered possession.
• If there is an agreement to waive the lien.

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 Conclusion
Lien is a vital right that helps protect the interest of service providers, banks, and
other lawful possessors of goods. It acts as a legal security and ensures that the
person providing service or credit is not left unpaid. Understanding the types,
scope, and limitations of lien is essential in commercial and legal practice.

9. SHORT NOTE ON PLEDGE.

Ans
(Under Indian Contract Act, 1872 – Sections 172 to 179)

Meaning of Pledge
A pledge is a special type of bailment where goods are delivered by one person
to another as security for the repayment of a loan or performance of a promise.

Definition (Section 172):

“The bailment of goods as security for payment of a debt or performance of a
promise is called a pledge.”

Parties to a Pledge:
1. Pawnor – The person who pledges the goods (e.g., borrower).
2. Pawnee – The person to whom goods are pledged (e.g., lender).

Examples of Pledge:
• A pledges gold to a bank for a loan.
• A gives his valuable watch to B as security for a debt.

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 Essential Features of a Pledge
1. Delivery of goods – There must be actual or constructive delivery of
goods.
2. Purpose – Delivery must be for securing a debt or promise.
3. Ownership – Ownership remains with the pawnor.
4. Returnable – Goods must be returned once the debt is repaid.

Rights of the Pawnee (Sec. 173–176)

1. Right to retain the goods until the debt is paid.
2. Right to receive expenses incurred for the preservation of goods.
3. Right to sell the goods after giving reasonable notice, if the debt is not
paid.

Duties of the Pawnee

1. Take reasonable care of the goods.
2. Must not use the goods for personal use.
3. Must return the goods after debt is repaid.
4. Return any increase or profit from the goods.

Rights of the Pawnor (Sec. 177)

1. Right to redeem goods at any time before sale.
2. Right to get back goods after fulfilling obligations.

Pledge by Non-Owners (Sec. 178–179)

In some cases, even non-owners can make a valid pledge:
• By a mercantile agent with permission.

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 • By a person in possession under a voidable contract.
• By a person with limited interest (e.g., co-owner or finder of goods).

✔️ The pledge is valid if the pawnee acts in good faith and has no knowledge of
defect in title.

Case Law: Lallan Prasad v. Rahmat Ali (1967)

The Supreme Court held that the pawnee must either sell the goods or sue for
debt, but cannot do both. If goods are retained and no sale is done, the pawnee
must return them after repayment.

Conclusion
Pledge is an important legal arrangement in business and banking. It protects both
the borrower and lender. While the pawnor keeps ownership, the pawnee gets
possession and security, ensuring the debt is r

Unit III
10. WHAT IS AGENCY BY RATIFICATION EXPLAIN ITS ESSENTIAL
Ans

Introduction
In a contract of agency, one person (called the agent) is authorized to act on
behalf of another (called the principal) to create legal relationships with third
parties.
Sometimes, a person acts without authority, or goes beyond the authority
given to him. If the principal later approves or ratifies that act, it becomes
valid.
This is known as Agency by Ratification.

Definition of Ratification (Section 196):

28
“Where acts are done by one person on behalf of another, but without his
knowledge or authority, he may choose to ratify or disown such acts. If he
ratifies them, it is as if he had originally authorized them.”

Simple Meaning:
Agency by ratification arises when the principal accepts and confirms the act
done by another without authority (or with insufficient authority) as if it had
been originally authorized.

Example:
A, without B’s authority, buys goods from C in B’s name. If B later accepts the
purchase, he has ratified the act. Now, it is as though A was B’s agent from the
beginning.

Essentials (Conditions) of a Valid Ratification

To be legally effective, certain conditions must be met:

1⃣ The act must be done on behalf of another person

• The person performing the act must intend to act for someone else.
• If the act was done on personal account, ratification is not possible.

✔️ Example: A buys goods in his own name. B cannot later claim it as his.

2⃣ The principal must be in existence and competent

• The person ratifying the act must have been in existence and legally
capable to make the contract at the time the act was done.

✔️ A company not yet incorporated cannot ratify acts done before it came into
existence.

29
3⃣ Full knowledge of material facts (Sec. 198)
• The principal must have complete knowledge of the act or must have
acted with the intention to ratify regardless of knowledge.

✔️ If B ratifies A’s contract without knowing the price or terms, the ratification is
not valid.

4⃣ Whole transaction must be ratified

• Ratification must be of the entire act, not just the favorable part.

Partial ratification is not allowed.

5⃣ Act must be lawful

• The act to be ratified must be legal.
• Illegal or void acts cannot be ratified.

6⃣ Ratification must be made within a reasonable time (Sec. 200)

• Ratification must be done before the third party withdraws or the
situation changes (like expiry of offer).

✔️ If the seller cancels the offer before ratification, it becomes invalid.

7⃣ Act should not harm a third party

• Ratification should not affect the rights of third parties unfairly.

✔️ Example: If goods are already sold to someone else, ratification later cannot
make the first contract valid.

Case Laws on Agency by Ratification

30
 Keighley, Maxsted & Co v. Durant (1901)
A bought goods in his own name, intending to buy for B. B later tried to ratify,
but the court held it invalid because the act was not originally done on B’s
behalf.

Bolton Partners v. Lambert (1889)

An agent made a contract without authority. Before the other party revoked the
offer, the principal ratified it. Court held the ratification valid, and the contract
binding.

Effects of Valid Ratification

• The act is treated as if it was originally authorized.
• The principal becomes bound by the contract.
• The agent is free from liability if the act is ratified.

Conclusion
Agency by ratification allows a principal to adopt acts done without authority
and thereby protect or benefit from those actions. It is based on the legal
maxim:
“Omnis ratihabitio retro trahitur et mandato priori aequiparatur”
(Every ratification relates back and is equivalent to prior authority.)

11. EXPLAIN THE RIGHTS AND DUTIES OF AGENT.

Ans

Introduction
An agent is a person who is authorized to act on behalf of another (called the
principal) to create legal relationships with third parties.

31
The Indian Contract Act, 1872 lays down the duties and rights of agents in a
contract of agency.

Rights of an Agent
These are the legal entitlements or powers given to an agent while acting for the
principal.

1⃣ Right to Remuneration (Sec. 219)

The agent has the right to receive payment or commission agreed upon for the
services provided.

However, if the agent is guilty of misconduct, he may lose this right.

2⃣ Right of Retainer (Sec. 217)

The agent can retain money received on behalf of the principal to cover:
• Remuneration
• Advances
• Expenses incurred in agency

3⃣ Right of Lien (Sec. 221)

The agent has a right to hold goods, papers, or property of the principal until
dues are paid.
This is similar to a bailee’s lien.

4⃣ Right to Indemnity (Sec. 222)

If the agent suffers any loss or damage while doing lawful acts under the
agency, the principal must compensate him.

32
5⃣ Right to be Indemnified for Acts Done in Good Faith (Sec. 223)
Even if the agent causes harm to a third party while acting in good faith, the
principal must indemnify (protect) him.

Example: Selling fake goods in good faith on the instruction of the

principal.

6⃣ Right to Compensation (Sec. 225)

If the principal’s negligence or wrongdoing causes harm to the agent, he is
entitled to compensation.

Duties of an Agent
These are legal and moral responsibilities the agent must follow while
representing the principal.

1⃣ Duty to Follow Instructions (Sec. 211)

The agent must strictly follow the lawful directions of the principal.
If there are no instructions, he must act according to the custom of the trade.

2⃣ Duty to Act with Skill and Care (Sec. 212)

The agent must use reasonable skill, care, and diligence while performing his
duties.
He is liable for gross negligence or misconduct.

3⃣ Duty to Render Accounts (Sec. 213)

The agent must maintain proper accounts and submit them when asked by the
principal.

4⃣ Duty to Communicate (Sec. 214)

33
In difficult situations, the agent should seek instructions from the principal and
communicate important facts.

5⃣ Duty Not to Make Secret Profits (Sec. 216)

The agent must not make personal profit from the agency position. If he does,
he must return it to the principal.

Case Law: Regal (Hastings) Ltd. v. Gulliver – Secret profit taken by

directors held to be breach of duty.

6⃣ Duty Not to Deal on His Own Account (Sec. 215)

The agent cannot buy or sell to himself without the principal’s permission.
Such transactions can be cancelled by the principal.

7⃣ Duty Not to Delegate (Sec. 190)

The agent cannot delegate his authority to another unless:
• Allowed by principal,
• Custom of trade,
• Ministerial acts, or
• Law permits it.

8⃣ Duty to Protect Principal’s Interest

The agent must act in the best interest of the principal and must not do
anything that harms him.

Conclusion
An agent plays a vital role in business and commercial transactions. The law
ensures that the agent is protected with certain rights while also being bound

34
by important duties to maintain trust, loyalty, and accountability. Violation
of duties can result in termination and legal liability.

12. EXPLAIN THE MODES OF TERMINATION OF AGENCY.

Ans
ChatGPT said:
Here is a simple and exam-friendly answer on Modes of Termination of
Agency, suitable for KSLU and other Indian law exams (2–3 pages):

Modes of Termination of Agency

(Indian Contract Act, 1872 – Sections 201 to 210)

Introduction
An agency is a relationship where one person (called the agent) is authorized to
act on behalf of another (called the principal).
This relationship does not last forever and may come to an end in several
ways.
Termination of agency means ending the legal relationship between agent and
principal, after which the agent can no longer bind the principal.

Modes of Termination of Agency

The Indian Contract Act provides two types of termination:
1. By the act of the parties
2. By operation of law

I. Termination by Act of the Parties

35
1⃣ By Agreement (Mutual Consent)
The principal and agent can mutually agree to end the agency at any time.

Example: A and B enter into agency but later decide to cancel it.

2⃣ Revocation by Principal (Sec. 203)

The principal can revoke (cancel) the agent’s authority before it is exercised.

If the agent has already acted, that act remains valid.

• In case of continuous agency, reasonable notice must be given.
• If revoked without notice, the principal may be liable to pay damages.

3⃣ Renunciation by Agent (Sec. 206)

The agent can voluntarily give up the agency.
• The agent must give reasonable notice.
• If the renunciation causes loss to the principal, the agent may be required
to compensate.

4⃣ Completion of Business (Sec. 201)

The agency ends when the purpose for which it was created is fulfilled.

Example: A appoints B to sell a car. Once sold, the agency ends.

II. Termination by Operation of Law

1⃣ Expiry of Time
If the agency was created for a specific period, it ends when the time expires.

Example: Agency for 6 months automatically ends after 6 months.

36
2⃣ Death of Principal or Agent (Sec. 201)
The death of either party automatically ends the agency.
• The agent must stop acting once he knows of the principal’s death.

3⃣ Insanity of Principal or Agent (Sec. 201)

If either becomes of unsound mind, the agency ends.

4⃣ Insolvency of Principal (Sec. 201)

If the principal is declared insolvent (bankrupt), the agency ends.

5⃣ Destruction of Subject Matter

If the goods or property related to the agency are destroyed, the agency ends.

Example: A appoints B to sell a ship. If the ship sinks, the agency ends.

6⃣ Principal or Agent Becomes Alien Enemy

If war breaks out between the countries of the principal and agent, and they
become alien enemies, the agency ends.

7⃣ Change in Law
If a new law makes the agency unlawful, it automatically terminates.

Example: A appoints B to trade in a product, but the government bans that

product.

Notice of Termination (Sec. 208)

Termination is effective:
• To the agent: When it becomes known to him.
37
 • To third parties: When they are informed.
If notice is not given, the principal may still be bound by the agent’s acts.

Irrevocable Agency (Sec. 202)

In some cases, the agency cannot be terminated by the principal if:
• The agent has an interest in the subject matter, and
• The agency was created for the benefit of the agent.

Example: A gives goods to B to sell and recover his loan from the proceeds.
A cannot revoke this agency.

Conclusion
The agency relationship can be ended in various ways depending on the
intention of parties or by circumstances such as death, insanity, or completion
of business.
However, in some special cases like agency coupled with interest, the
principal cannot terminate it unilaterally.

13. EXPLAIN THE VARIOUS MODES OF CREATION OF AGENCY

Ans
(Indian Contract Act, 1872 – Sections 182 to 191)

Introduction
An agency is a legal relationship where one person (called the agent) is
authorized to act on behalf of another (called the principal) to create legal
relations with third parties.
The Indian Contract Act, 1872, provides different ways in which an agency
can be created. Agency is based on trust, consent, and authority.

38
 Various Modes of Creation of Agency
Agency can be created in the following ways:

1⃣ Agency by Express Agreement (Sec. 186)

• This is the most common and direct method.
• The principal expressly appoints someone as an agent.
• The agreement can be oral or written.

Example: A gives a power of attorney to B to sell land. B is now A's agent.

2⃣ Agency by Implied Agreement (Sec. 187)

• An agency may also arise from the conduct of the parties or the
circumstances.
• No formal words are required; it is inferred from the relationship.
Types of implied agency:
a) Agency by Estoppel
• If the principal, by words or conduct, makes others believe that someone
is his agent, he cannot later deny it.

Example: A allows B to act as his agent in front of others. A is "estopped"

from denying the agency.
b) Agency by Holding Out
• Similar to estoppel, but based on past conduct that implies a person has
authority.

Example: A regularly lets B order goods on his behalf. The shopkeeper

believes B is A’s agent.
c) Agency by Necessity

39
 • In emergency situations, when a person must act to protect someone’s
interest, agency is created.

Example: A sends goods to B, but due to flood, B sells them to prevent loss.
B is an agent by necessity.

3⃣ Agency by Ratification (Secs. 196–200)

• When someone acts on behalf of another without permission, and the
other person later approves the act, it is called ratification.
• It makes the act valid from the beginning.

Example: A buys goods for B without authority. B later accepts the deal. B
has ratified the act.

4⃣ Agency by Operation of Law

In certain situations, the law itself creates an agency relationship:
a) Partners (Partnership Act, Sec. 18)
• Every partner is the agent of the firm and other partners for the
purpose of business.
b) Company Directors
• Directors act as agents of the company in contracts.
c) Husband and Wife
• A wife may act as her husband's agent for household necessities in his
absence.

5⃣ Agency by Statute
• In some cases, statutory provisions create an agency.
• Example: Registrar of Companies acts as an agent of the government in
certain matters.

40
 Important Points to Remember
• Agency does not always need a contract; consent can be enough.
• Consideration is not required to create an agency (Sec. 185).
• A minor can be an agent, but cannot be held personally liable.
• Agency can be general (for all acts) or special (for specific acts).

Conclusion
Agency can be created in multiple ways — through agreement, conduct,
necessity, ratification, or law.
Understanding these modes helps in identifying whether a person is legally
bound by the actions of another.

Unit IV
14. WHAT IS PARTNERSHIP? TYPES OF PARTNERS.
Ans

Introduction
Partnership is a popular form of business organization where two or more
persons agree to share profits and losses of a business carried on by all or any
of them on behalf of all.
The law governing partnerships in India is the Indian Partnership Act, 1932.

Definition of Partnership (Sec. 4)

"Partnership is the relation between persons who have agreed to share the
profits of a business carried on by all or any of them acting for all."
The persons who enter into a partnership are called partners, and the group is
known as a firm.

Essential Elements of Partnership:

41
 1. Agreement between persons
2. Sharing of profits
3. Business must be lawful
4. Mutual agency – one partner can act on behalf of others

Types of Partners
Partners in a firm can be classified based on their role, liability, and
participation.

1⃣ Active Partner (Working Partner)

• Actively participates in the day-to-day business.
• Has unlimited liability.
• Also known as a managing partner.

Example: A and B are partners. A manages the business daily — he is an

active partner.

2⃣ Sleeping Partner (Dormant Partner)

• Invests capital but does not take part in daily business.
• Still has unlimited liability.
• Not known to the public as a partner.

Example: B contributes money but does not work — he is a sleeping

partner.

3⃣ Nominal Partner
• Lends his name to the firm but does not contribute capital or work.
• Liable to outsiders for the firm’s acts because of his association.

42
 Example: A celebrity lends his name as a partner for goodwill.

4⃣ Partner by Estoppel or Holding Out

• A person who represents himself as a partner (by words or conduct) and
makes others believe so.
• He is liable to third parties, even if he is not an actual partner.

Estoppel = Stop from denying

Holding out = Allowing others to believe

Example: C attends business meetings as a partner; he will be liable.

5⃣ Minor Partner (Sec. 30)

• A minor cannot become a full partner, but can be admitted to benefits
of the firm.
• He has no liability, but he can share profits.
• On becoming major, he must decide to continue or not.

6⃣ Sub-Partner
• Not a partner in the firm itself.
• He shares profits from another partner's share.
• Has no rights or liabilities against the firm.

7⃣ Incoming Partner
• A person who joins an existing firm.
• Needs consent of all existing partners.
• Not liable for past debts unless agreed.

43
 8⃣ Outgoing Partner
• A partner who leaves the firm.
• May remain liable for old debts unless proper notice is given.

9⃣ Partner in Profit Only

• Entitled to only a share of profits, not liable for losses.
• Usually does not take part in business.

Conclusion
A partnership is a relationship of trust and cooperation. Different types of
partners play different roles, and their rights and liabilities vary accordingly.
Understanding the types helps in managing responsibilities and protecting legal
interests in business.

15. DEFINE PARTNERSHIP EXPLAIN THE RIGHTS AND DUTIES OF

PARTNERS.
Ans
(Indian Partnership Act, 1932 – Sections 4, 9–13)

Definition of Partnership (Sec. 4)

“Partnership is the relation between persons who have agreed to share the
profits of a business carried on by all or any of them acting for all.”

Key Features of Partnership:

1. Agreement between persons
2. Sharing of profits
3. Mutual agency (one partner can act on behalf of all)

44
 4. Lawful business
5. Governed by the Indian Partnership Act, 1932

Who is a Partner?
A partner is a person who enters into a partnership agreement.
They jointly manage the business and share profits and losses.

Rights of Partners
(Under Sections 12 & 13 of the Indian Partnership Act)

1⃣ Right to Take Part in Business (Sec. 12(a))

• Every partner has the right to participate in the daily affairs and
decision-making of the business.

2⃣ Right to be Consulted (Sec. 12(c))

• Partners have the right to be consulted and give opinions.
• Majority decision works, but unanimous consent is needed for major
matters.

3⃣ Right to Access Books (Sec. 12(d))

• Every partner has the right to inspect, copy, and access the books of
accounts.

4⃣ Right to Share Profits (Sec. 13(b))

• Partners are entitled to equal share in profits unless agreed otherwise.

5⃣ Right to Interest on Capital (Sec. 13(c))

45
 • A partner is not entitled to interest on capital unless agreed.
• If agreed, interest is paid only out of profits.

6⃣ Right to Indemnity (Sec. 13(e))

• A partner has the right to be reimbursed for expenses or liabilities
incurred while doing the firm's work.

7⃣ Right to Use Partnership Property

• Partners can use firm property only for business purposes, not personal
use.

8⃣ Right to Retire
• A partner can retire with consent of other partners, or according to
agreement, or by giving notice in case of partnership at will.

Duties of Partners
(Under Section 9 to 11 of the Indian Partnership Act)

1⃣ Duty to Work in Good Faith (Sec. 9)

• Partners must act with honesty, loyalty, and fairness towards the firm
and each other.

2⃣ Duty to Carry on Business to Greatest Common Advantage

• Each partner must work for the success of the business, not for personal
benefit.

3⃣ Duty to Render True Accounts (Sec. 9)

46
 • Partners must keep and share true and complete financial records.

4⃣ Duty to Provide Full Information (Sec. 9)

• Each partner must inform others about all relevant matters related to the
business.

5⃣ Duty to Indemnify for Loss (Sec. 10)

• A partner must compensate the firm for losses caused by fraud or
negligence.

6⃣ Duty Not to Compete (Sec. 11)

• A partner must not start a competing business during the existence of
the firm.

7⃣ Duty to be Diligent
• Every partner must work sincerely and carefully for the firm's business.

8⃣ Duty to Use Firm Property Properly

• Partners must use firm assets only for business use, not personal.

Case Law: Bentley v. Craven

A partner secretly sold his own sugar to the firm and made profit. Held: He must
share that profit with the firm.

Conclusion
A partnership is built on trust, good faith, and cooperation. The rights of
partners ensure equal participation and profit sharing, while duties ensure

47
honesty and protection of the firm’s interest.
Following these rights and duties helps avoid disputes and ensures smooth
functioning of the partnership.

16. PROCEDURE FOR REGISTRATION OF A PARTNERSHIP FIRM

AND CONSEQUENCES OF NON REGISTRATION.
Ans

Introduction
A partnership firm in India may be registered under the Indian Partnership
Act, 1932.
Registration is not compulsory, but it is highly recommended due to its legal
benefits.

1. Procedure for Registration of a Partnership Firm

(Sec. 58 and 59)
Registration is done with the Registrar of Firms in the state where the business
is located.

Step-by-Step Process:

1⃣ Prepare a Partnership Deed

• A partnership deed is a written agreement containing:
o Name of firm
o Names and addresses of partners
o Nature and duration of business
o Profit-sharing ratio, capital contribution, etc.

2⃣ Application to Registrar (Sec. 58)

48
 • Submit an application in Form No. 1 signed by all partners.
• It must include:
o Name of the firm
o Place of business
o Names and addresses of all partners
o Date of joining each partner

3⃣ Pay the Prescribed Fee

• A nominal registration fee is to be paid, which varies by state.

4⃣ Verification and Recording by Registrar (Sec. 59)

• If all details are correct, the Registrar will:
o Record the firm’s details in the Register of Firms.
o Issue a Certificate of Registration.

Note:
• Registration can be done at any time, even after the formation of the
firm.
• However, benefits apply only from the date of registration, not before.

2. Consequences of Non-Registration
(Sec. 69 of the Indian Partnership Act)

If a firm is not registered, the following legal disabilities apply:

1⃣ No Suit by Firm Against Third Party

49
 • An unregistered firm cannot sue any third party to enforce a contractual
right.

Example: A firm supplies goods to a shopkeeper. If unpaid, it cannot sue

unless registered.

2⃣ No Suit by Partner Against Firm or Other Partners

• A partner cannot file a case against the firm or any other partner
regarding the partnership.

Example: A partner cannot claim his share of profit through court unless the
firm is registered.

3⃣ No Right to Set-Off
• An unregistered firm cannot claim a set-off in any legal proceeding.

Example: If a third party sues the firm for ₹1 lakh, the firm cannot claim it
is owed ₹50,000 in return.

4⃣ Other Disadvantages
• Difficult to raise loans, get licenses, or open bank accounts.
• Public and legal recognition is limited.

Exceptions to Sec. 69 (When suit is allowed even if firm is

unregistered):
1. Firms with no place of business in India
2. Suits for dissolution of firm
3. Suits for settlement of accounts after dissolution
4. Firms with value of claim less than ₹100 (now outdated in practice)

50
 Conclusion
While registration is not mandatory, it is very important for enjoying legal
benefits.
Without registration, a firm cannot sue, and partners lose their rights to enforce
claims through court.

17. DIFFERENT MODES OF DISSOLUTION OF PARTNERSHIP FIRM.

Ans

Introduction
Dissolution of a partnership firm means bringing an end to the partnership
business, where all the partners stop working together and the firm is closed
down completely.
The Indian Partnership Act, 1932, provides for various modes by which a
firm can be dissolved either voluntarily or by law.

Types of Dissolution
There are two main types:
1. Dissolution of Partnership – Only a change in relationship (e.g., one
partner retires). Business continues.
2. Dissolution of Firm – Entire firm ends. All partners cease to carry on the
business.
We focus here on Dissolution of Firm (Sections 39–44).

1. Dissolution by Agreement (Sec. 40)

• A firm may be dissolved with the consent of all partners, or
• According to the terms of the partnership agreement.

Example: A partnership deed may say that the firm will be dissolved after 5
years.

51
 2. Compulsory Dissolution (Sec. 41)
Occurs when:
• All partners become insolvent, or
• Business becomes unlawful (e.g., ban on certain trade)

Example: If a firm trades in fireworks and the government bans it, the firm
must dissolve.

3. Dissolution on the Happening of Certain Events (Sec. 42)

Occurs when:
1. Expiry of fixed term (if the firm was for a fixed period)
2. Completion of specific project (for a single venture)
3. Death of a partner
4. Insolvency of a partner

Example: A firm formed for construction of a bridge ends after the bridge is
built.

4. Dissolution by Notice (Sec. 43)

• Applicable only to partnership at will.
• Any partner can dissolve the firm by giving a written notice to other
partners.

Example: In a partnership at will, if one partner sends a written notice, the

firm is dissolved from the date mentioned.

5. Dissolution by Court (Sec. 44)

A partner can apply to the court to dissolve the firm on any of the following
grounds:

52
 (a) Insanity of a Partner
• If a partner becomes mentally unstable, the court may dissolve the firm.

(b) Misconduct
• If a partner’s behavior harms the firm (e.g., cheating, criminal act).

(c) Persistent Breach of Agreement

• Continuous breaking of the partnership agreement (e.g., not maintaining
accounts).

(d) Incapacity
• If a partner becomes physically incapable (e.g., permanent disability).

(e) Losses
• If the firm cannot earn profit and continues to make losses.

(f) Just and Equitable Ground

• If it is just and fair (e.g., constant quarrels, lack of trust among partners).

Case Law: Garner v. Murray

This case explains how losses, including capital deficiency, should be shared
among solvent partners during dissolution.

Important Note

53
Dissolution must be followed by settlement of accounts (Section 48) and
distribution of assets and liabilities.

Conclusion
Dissolution of a firm can take place in many ways – by agreement, operation
of law, or by court order.
The Indian Partnership Act provides a clear structure to ensure a smooth
winding up process.

Unit V
18. EXPLAIN THE VARIOUS IMPLIED CONDITIONS AND
WARRANTIES IN CONTRACT OF SALE.
Ans

Introduction
In a contract of sale of goods, conditions and warranties are two important
terms that affect the rights and duties of the buyer and the seller.
• Condition: A fundamental term. If breached, the buyer can cancel the
contract.
• Warranty: A secondary term. If breached, the buyer can claim damages,
but cannot cancel the contract.
Some of these are express (written or spoken) and some are implied by law –
even if not mentioned in the contract.

What are Implied Conditions?

These are automatically included by law in a contract of sale, unless the
contract says otherwise.

1⃣ Condition as to Title (Sec. 14(a))

• The seller must have the right to sell the goods.
54
 • If the title (ownership) is defective, the buyer can reject the goods and
claim compensation.

Example: If someone sells stolen goods, the buyer can cancel the sale.

2⃣ Condition as to Description (Sec. 15)

• Goods must match the description given in the contract.
• If not, the buyer can reject the goods.

Example: If a contract is for “organic apples” and the seller delivers regular
apples, it’s a breach.

3⃣ Condition as to Sample (Sec. 17)

• If goods are sold by sample, the bulk must match the sample in quality.
• The buyer should also get a chance to compare the bulk with the
sample.

4⃣ Condition as to Quality or Fitness for Purpose (Sec. 16(1))

• Usually, buyer must check the quality, but if:
o Buyer tells the seller the purpose
o Relies on seller’s skill
o Goods are of the kind the seller supplies
Then there is an implied condition that goods must be fit for that purpose.

Example: If a buyer tells a seller he wants paint for outdoor use, and the
paint washes off in rain, it’s a breach.

5⃣ Condition as to Merchantable Quality (Sec. 16(2))

• Goods must be of merchantable quality – i.e., they should be usable and
sellable for the purpose they’re made.

55
 Example: A phone with a faulty screen is not of merchantable quality.

6⃣ Condition in Sale by Sample and Description

• If a contract is based on both sample and description, the goods must
match both.

What are Implied Warranties?

Warranties are less serious terms. If breached, buyer can only claim
compensation, not cancel the sale.

1⃣ Warranty of Quiet Possession (Sec. 14(b))

• The buyer should enjoy peaceful possession of the goods.
• If someone disturbs it (e.g., legal owner claims it), warranty is breached.

2⃣ Warranty of Freedom from Encumbrance (Sec. 14(c))

• Goods should be free from any charge, mortgage, or legal burden.
• If not, buyer can claim damages.

3⃣ Warranty as to Quality or Fitness (in certain cases)

• If the buyer relies on seller's skill, it can also be a warranty, if not a
condition.

4⃣ Warranty of Disclosure of Dangerous Nature of Goods

• If goods are dangerous (like chemicals), the seller must warn the buyer.
• If not, and injury occurs, the seller is liable.

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 Case Laws:

Rowland v. Divall (1923)

• Seller had no title. Buyer was forced to return the car.
• Held: Condition as to title was breached.

Drummond v. Van Ingen

• Goods didn’t match description – held to be breach of condition.

Conclusion
The Sale of Goods Act, 1930 protects the buyer by implying conditions and
warranties into every sale.
While conditions go to the root of the contract, warranties are
supplementary.
Knowing the difference helps in deciding whether the buyer can cancel the sale
or just claim damages.

19. WRITE A SHORT NOTE ON STOPPAGE IN TRANSIT.

Ans
ChatGPT said:
Here is a short, exam-oriented note on Stoppage in Transit, ideal for KSLU
and similar law exams:

Short Note: Stoppage in Transit

(Under Section 50 to 52 of the Sale of Goods Act, 1930)

Meaning:
Stoppage in transit is the right of an unpaid seller to stop the goods while
they are in transit and resume possession, if the buyer becomes insolvent.

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This right protects the seller from suffering loss when the buyer is unable to
pay after the goods have been dispatched but before they are delivered.

Conditions for Exercising the Right:

1. Seller must be unpaid
2. Goods must be in transit
3. Buyer must have become insolvent
4. Ownership should have passed to the buyer

When is Transit Said to Be ‘In Transit’?

(Sec. 51)
Goods are said to be in transit from the time they are handed over to the
carrier until delivery to the buyer or his agent.

When is Transit Considered to Have Ended?

• If the buyer or his agent takes delivery before reaching the destination
• If the goods reach the buyer and the carrier holds them on buyer’s
behalf

How Can the Seller Stop the Goods?

(Sec. 52)
• By taking actual possession, or
• By giving notice of stoppage to the carrier or bailee in time, before
delivery to buyer.

Case Law:

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Schotsmans v. Lancashire & Yorkshire Railway (1867)
→ The seller successfully stopped goods in transit as buyer became insolvent
and goods were still with the carrier.

Conclusion:
Stoppage in transit is an important protective right of the unpaid seller.
It ensures that the seller can recover or withhold goods from an insolvent buyer
and avoid loss when payment is not received.

20. DEFINE CONTRACT SALE AND DISTINGUISH SALE FROM AN

AGREEMENT TO SELL.
Ans

Definition of Contract of Sale (Section 4(1)):

A contract of sale of goods is a contract whereby the seller transfers or
agrees to transfer the ownership of goods to the buyer for a price.
It includes both:
• Sale – when the transfer is immediate
• Agreement to Sell – when the transfer is to take place in future or
subject to a condition

Essential Elements of Contract of Sale:

1. Two parties – Seller and Buyer
2. Goods
3. Price
4. Transfer of ownership (either now or later)
5. Free consent
6. Parties must be competent to contract

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 Distinction between Sale and Agreement to Sell (Sec. 4(3))

Basis Sale Agreement to Sell

1. Transfer of
Immediate Future or conditional
Ownership

2. Type of Contract Executed contract Executory contract

On buyer (even if
3. Risk of Loss On seller
goods with seller)

Seller can sue for

4. Legal Remedy Seller can sue for damages
price

Buyer has only a right to future

5. Rights of Buyer Buyer becomes owner
ownership

6. Effect of Seller must deliver

Seller can refuse delivery
Insolvency of Buyer goods

It becomes a sale upon condition

7. Conversion It is absolute
fulfilment or time arrival

Example:
• Sale: A sells a laptop to B for ₹30,000. Ownership is transferred
immediately.
• Agreement to Sell: A agrees to sell a laptop to B after 10 days, or when
B pays full amount.

Conclusion:
A contract of sale includes both sale and agreement to sell, and the key
difference lies in timing of ownership transfer.
Understanding the distinction is important to determine the rights and duties of
both parties in the contract.
……….xxxx………

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