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Harinath Janumpally
- Section 144, inclusion of co-surety. 27
LL.B. II
SEMESTER
PAPER – I:
LAW OF
CONTRACT–II
SYLLABUS
Unit-I:
Indemnity and
Guarantee -
Contract of
Indemnity,
definition - Rights
of Indemnity holder
indemnified -
Contract of
Guarantee -
Definition of
Guarantee -
Essential
characteristics of
Contract of
Guarantee -
Distinction
between Indemnity
and Guarantee -
Kinds of Guarantee
liabilities of Surety -
Discharge of
surety. Contract of
Bailment - Definition of bailment - Essential requisites of bailment - Kinds of
CONTRACT II SHORT QUESTIONS
- CONTRACT OF INDEMNITY (SECTIONS 124 – 125) 3
- LIABILITY OF SURITY / SURETY AS A FAVOURED DEBTOR 4
- CONTINUING GUARANTEE 4
- BAILEE'S LIEN (GENERAL LIEN AND PARTICULAR LIEN) 5
- DEL CREDERE AGENT 6
- NEMODAT QUOD NON-HABET 7
- DISSOLUTION OF FIRM. 8 LONG QUESTIONS
- ESSENTIALS OF GUARANTEE & DISTINGISH FROM INDEMNITY 9
- BAILMENT DEFINITION & KINDS 11
- BAILOR AND BAILEE’S DUTIES AND RIGHTS. 12
- PLEDGE. RIGHTS & DUTIES OF PAWNOR & PAWNEE 13
- DEFINE AGENCY. TERMINATION OF AGENCY. 14 RIGHTS & DUTIES OF AGENT
- DEFINE CONDITIONS AND WARRANTIES, DISCUSS IMPLIED CONDITIONS & WARRANTIES, AND DISTINGUISH CONDITIONS AND WARRANTIES 16
- CAVEAT EMPTOR 17
- WHO IS UNPAID SELLER AND HIS RIGHTS 18
- DEFINE PARTNERSHIP. RIGHTS AND DUTIES OF PARTNERS. 18 DISTINGUISH IT FROM COMPANY. CASE LAWS
- Guarantee in minor’s debt. 20
- Nemo dat quod non habet, sale by a non-owner 21
- Risk follows property – (Section 26). 21
- Retirement of partner without public notice (Section 32). 22
- Ratification by the principal (Section 200). 23
- Bailment, when bailee is responsible 24
- Return of bailed goods. 24
- Gratuitous bailment, (Section 159). 25
- GOODS WERE DESTROYED AT THE TIME OF AGREEMENT 26
- Rights of unpaid seller (Section 45) 27
Harinath Janumpally
bailment - Rights and duties of bailor and bailee - Termination of bailment -
Pledge - Definition of pledge – Rights and duties of Pawnor and Pawnee - Pledge
by non-owner.
Unit-II:
Contract of Agency - Definition of Agent - Creation of Agency - Rights and duties
of Agent – Delegation of authority - Personal liability of agent - Relations of
principal and agent with third parties - Termination of Agency.
Unit-III:
Contract of Sale of Goods - Formation of contract - Subject matter of sale -
Conditions and Warranties - Express and implied conditions and warranties -
Pricing - Caveat Emptor –Hire Purchaser Agreements.
Unit-IV:
Property - Possession and Rules relating to passing of property - Sale by
nonowner -Nemo dat quad non-habet - Delivery of goods - Rights and duties of
seller and buyer before and after-sale - Rights of an unpaid seller - Remedies for
breach.
Unit-V:
Contract of Partnership - Definition and nature of partnership - Formation of
partnership- Test of partnership - Partnership and other associations –
Registration of firm - Effect of non-registration - Relations of partners - Rights
and duties of partners - Property of firm - Relation of partners to third parties –
Implied authority of partners - Kinds of partners - Minor as partner -
Reconstitution of firm - Dissolution of firm – Limited Liability Partnership (LLP)
Suggested Readings:
1. Anson'sLaw of Contract, Oxford University Press, London.
2. Venkatesha Iyyer:The Law of Contracts and Tenders, Gogia & Co.Hyderabad.
3. Cheshire & Fifoot:Law of Contract, Butterworth, London.
4. Mulla:The Indian Contract Act, N.M.Tripati (P) Ltd. Bombay.
5. G.C.V. Subba Rao:Law of Contracts, S. Gogia & Co., Hyderabad.
6. Krishnan Nair:Law of Contracts, S. Gogia & Co. Hyderabad.
7. Avatar Singh:Law of Contracts, Eastern Book Company, Lucknow.
8. A Ramaiah'sSale of Goods Act, The Law Book Co., Allahabad.
SHORT ANSWERS
- CONTRACT OF INDEMNITY (Section 124). Meaning:-
Harinath Janumpally as their liability is coextensive with the principal debtor. Liability of Surety, its nature and extent:
- “The liability of the surety is coextensive with that of the principal debtor unless it is otherwise provided by the contract” Section 128 (Narayan Singh v Chattar Singh).
- The creditor can sue the surety without exhausting remedies against the principal debtor,
- Prior action against principal debtor not necessary,
- Prior action against pledged goods not necessary,
- Limit on surety’s liability by contract,
- A condition that there shall be a co-surety,
- If the principal debtor’s liability is affected by illegality, so is also that of the surety. If the principal debtor happens to be a minor and the agreement made by him is void, the surety too cannot be made liable. The surety is a favoured debtor: The surety’s liability is not only secondary but also primary and independent. The creditor can directly proceed against the Surety, ignoring the principal debtor. Liability of Surety (Section 128):- Section 128 deals with nature and extent of surety’s liability. The surety also called as Guarantee, The liability of the surety is co-extensive with that of principle-debtor unless otherwise it is provided by the contract. Example: A guarantees B the payment of a bill of exchange by C, the acceptor. The bill is dishonoured by C. A is liable, not only for the amount of the bill but also for any interest & other charges. Creditor can sue the surety without exhausting remedies against the principal debtor Bank of Bihar v. Damodar Prasad (1969) Prior action against principal debtor not necessary, Prior action against pledged goods not necessary Union Bank of India v Manku Narayan (1987), prior action against mortgaged goods. Condition of co-surety can be put Case Laws: Narayan Singh V. Chattarsingh (AIR, 1973, Rajasthan): The liability of the surety is pro tanto with that of the principal debtor. If the principal debtor’s liability is reduced the liability of the surety is also reduced accordingly.
- Continuing guarantee (Section 129). Answer: According to Section 129 - a guarantee which extends to a series of transactions is called a “continuing guarantee”. Such guarantee may be in respect of a series of transactions during a fixed period, e.g., for one year. The surety may either guarantee the conduct of the principal debtor in respect of a particular transaction, for example, he guarantees the repayment of a loan of Rs. 5000 which the principal debtor may have taken from the creditor, or he may undertake to be
Harinath Janumpally answerable for the conduct of the principal debtor in respect of a series of transactions. The former is known as ‘Specific Guarantee’, whereas the latter is known as ‘Continuing Guarantee’. The surety has been empowered to revoke a continuing guarantee as to future transactions, by giving notice to the creditor. His liability in respect of the transactions which have already been made continues to exist, whereas his liability for the future transactions comes to an end. Unless there is a contract to the contrary, the death of a surety also automatically puts an end to the continuing guarantee, as regards future transactions. Section 129 to 131 of Indian Contract Act, 1872 lays down provisions relating to “Continuing Guarantee” Meaning: (Section 129):- A guarantee which extends to a series of transaction, is called a ‘Continuing Guarantee’ In this case, surety’s liability extends to all the transactions contemplated until the guarantee is revoked. Illustrations: - (a). A, in consideration that B will employ C in collecting the rents of B’s zamindari, promises B to be responsible, to the amount of Rs.5000, for the due collection and payment by C of those rents. This is a continuing guarantee. (b). A guarantees payment to B, a tea dealer, to the amount of 100, for any tea he may from time to time supply to C. B supplies C with tea to the above value of 100 and C pays B for it. Afterwards, B supplies C with tea to the value of 200. C fails to pay. The guarantee given by A was a continuing guarantee, and he is accordingly liable to the extent of 100. Revocation of Continuing Guarantee: (Section 130):- A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor. A continuing Guarantee may be revoked by the surety in the following ways: I. By Notice (Section 130), II. By the death of Surety (Section 131). III. By variance in the terms of the contract (Section 133). IV. By release or discharge of the principal debtor (Section 134). V. When creditor compounds with, gives time to, or agrees not to sue the principal debtor (Section 135). VI. By creditor’s act or omission impairing surety’s eventual remedy (Section 139). VII. By loss of security by the creditor (Section 141).
- BAILEE’S LIEN (GENERAL LIEN AND PARTICULAR LIEN). Answer: Lien is the right of the bailee under which the bailee can retain the goods of the bailor, and refuse to deliver them to the bailor until his due remuneration for services in respect of the goods bailed, or the amount due is paid. The Act recognizes two kinds of lien: 1. Particular lien (Section 170): The right of ‘particular lien’ entitles the bailee to
Harinath Janumpally Thus if such a third person fails to perform his contract, a Del credere agent will be responsible to the principal for the same. If in such a case the third person, for instance, fails to pay for the goods supplied to him, the principal can bring an action against the Del credere agent for the same. The liability of the Del credere agent, like that of a surety, is secondary and the same arises if the third person fails to pay to the principal what is due under the contract. The Del credere agent should be a competent person; this is an exception to the rule, under Section 184, which says “the agent may not be competent to contrac t”.
- NEMO DAT QUOD NON HABET (SECTION 27). Answer: When the seller himself is the owner of the goods which he sells or he is somebody’s agent to dispose of the goods, he conveys a good title in the goods to the buyer. Difficulty arises when the seller is neither himself the owner nor has he any such authority from the owner to sell the goods, e.g., a person finds goods lying on the road and sells them, or a thief sells the goods after he has stolen them, or a person purchases the goods on credit or hire-purchase basis and disposes them off, or a person continuing in possession of the goods which he has already sold resells the goods. Should the rights of the owner of the goods be protected and he be entitled to recover back the possession of the goods from one to whom they have been sold, or, should the buyer, who might have bought them in good faith and for value be protected and allowed to retain the goods defeating the rights and the title of the real owner? In regard to the above question, the general rule contained in Sec. 27 is as follows: “Subject to the provisions of this Act and of any other law for the time being in force, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had”. Section 27, as a general rule, tries to protect the interest of the true owner when it provides that where the goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had. This rule is derived from the maxim “Nemo dat quod non-habet”, which means that nobody can give what he himself has not got, i.e., a seller cannot convey a better title than that of his own. If the title of the seller is defective, the buyer’s title will also be subject to the same defect. Rowland v. Divall. Venkateshwar v Rampratap. Exceptions to the rule: The above rule contained in Sec. 27, as stated in the opening words of the section itself, is “subject to the provisions of this Act and of any other law for the time being in force.” The exceptions are:
- Transfer of Title by estoppels – Section 27,
- Sale by a mercantile agent – Proviso to Sec. 27,
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- Sale by one of the joint owners – Sec. 28,
- Sale by a person in possession under a Voidable contract – Sec. 29,
- Sale by the seller in possession of goods, the property in which has passed to the buyer (Sec. 30(1)),
- Sale by the buyer in possession of the goods before the property in them has passed to him (Sec. 30(2)),
- Re-sale of the goods by an unpaid seller after he has exercised the right of lien or stoppage in transit (Sec. 54(3)),
- Sale by the finder of goods (Sec 169, Contract Act),
- Sale by a Pawnee when the pawner makes a default in payment (Sec. 176, Contract Act).
- Sale in market overt-exception recognized in England.
- DISSOLUTION OF FIRM. Answer: Dissolution of partnership means coming to an end of the relation known as a partnership, between various partners. When one or more partners cease to be partners but others continue the business in partnership, there is a dissolution of the partnership between the outgoing partners on the one hand and remaining partners on the other. The remaining partners as between themselves still continue as partners. For example, when the firm consists of A, B and C and A retires, there is a dissolution of the partnership between A and others but partnership as between B and C is not dissolved. In such a case, there is a dissolution of the partnership between some of the partners only, but there is no dissolution of the firm. According to Section 39, when the dissolution of a partnership between all the partners of the firm occurs, this is called dissolution of the firm. For example, when in a firm consisting of A, B and C all of them cease to be partners with one another, it amounts to the dissolution of the firm. Modes of dissolutions (Sections 40-41):
- By agreement (Sec. 40): a. With the consent of all the partners, or b. In accordance with a contract between the partners.
- Compulsory dissolution (Sec. 41): a. When all the partners or all except one are adjudicated insolvent, b. If the business of the firm becomes unlawful, c. If the partners are from two different countries and war breaks out between these two countries,
- On the happening of certain contingencies (Sec. 42): a. Expiration of the partnership term, b. Completion of the adventure, c. Death of a partner, and d. Insolvency of a partner.
- Dissolution by notice in “Partnership at will” (Sec. 43),
- By the court (Sec. 44): a. Unsoundness of mind, b. Permanent incapacity to perform duties, c. Conduct injurious to the partnership business, d. Persistent breach of the partnership agreement, e. Transfer of the whole of a partner’s interest,
Harinath Janumpally
- Primary liability is on some person.
- There must be a tri-party agreement.
- There must be concurrent of all the 3 parties.
- Essentials of a Valid contract must be fulfilled.
- The benefit to the principal debtor is sufficient consideration (Section 127)
- Consent of the surety should not have been obtained by misrepresentation(Sec
- or concealment(Sec 143),
- Contract in Writing is not necessary, but in England, it must be in writing.
- Limit on surety’s liability by contract.
- There can be more than one surety. Differences between Indemnity and guarantee. Contract of Indemnity Contract of Guarantee Parties Two Parties
- Indemnifier
- Indemnity Holder Three Parties
- Surety
- Creditor
- Principal Debtor Number of Contracts There is only one contract between Indemnifier and Indemnity holder. There are 3 contracts between Surety, Creditor, Principal Debtor Purpose of Contract One party promises to save the other from loss caused to him by the conduct of the promisor himself or any other person. It is a contract to perform the promise or to discharge the liability of the third person in case of his default. Object of contract Provide security to the creditor Protect the promisee against some likely loss. Nature of Liability The liability of the indemnifier to the indemnified is primary and Independent. The liability of the surety to the creditor is collateral or secondary Interest of Parties The person giving indemnity may have some interest in the transaction apart from Indemnity. The person giving Guarantee should not have any interest in the transaction apart from Guarantee. Answerability Indemnifier is not answerable The guarantor is answerable to the creditor. Formation Indemnity formed by the contract between the parties. Guarantee formed by the consent of 3 parties. Acting upon Request It is not necessary for the indemnifier to act on the request of indemnified. It is necessary that the surety should be given guarantee at the request of the creditor. Basis of Liability The liability of Indemnifier arises only on the happening of the contingency. There is an existence of debt or duty, the performance of which is guaranteed by the
Harinath Janumpally surety. Existence of Risk Indemnifier promises to save the indemnified from contingency risk. The surety agrees to discharge the liability of the principal debtor, which is not contingency, but subsisting or existing. Rights of parties The Indemnifier cannot sue a third party for loss in his own name because there is no privity of contract. The surety can sue the principal debtor in his own name after paying the creditor. Undertaking It is collateral It is original Legal Formalities May be either oral or in writing. May be either oral or writing in India, but in English law must be in writing. Risk There is a risk of loss and it may arise in future and the same is anticipated. The debt for which guarantee is sought is an existing one. Relief Provides security Provides surety Subrogatio n Right of subrogation is not applicable Right of subrogation is applicable. Sec 140 Definition Defined under Section 124 Defined under Section 126
- BAILMENT DEFINITION & KINDS. Chapter IX containing sections 148 to 181 of the Indian Contract Act, 1872 lays down the provisions relating to the contracts of Bailment and Pledge. Meaning& Definition - The term Bailment is derived from the French word Bailor, which means ‘to deliver’. It means a change of possession voluntarily. According to Section 148 of the Indian Contract Act, a bailment is delivery of goods from one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called ‘Bailor’. The person to whom the goods are delivered is called ‘Bailee’. Examples: A delivers a suit to B for dry cleaning, here ‘A’ is Bailor and ‘B’ is Bailee. Essential Elements:-
- Delivery of goods for a specific purpose. Jagdish Chandra Trikha v. Punjab National Bank, Kaliaporumal Pillai v. Visalakshmi.
- Contract (there can be a bailment without a contract – State of Gujarat v Memon
Harinath Janumpally the goods are damaged, Duties of bailee:
- Duty to take reasonable care of the goods bailed (Sections 151-152).
- Duty not to make unauthorized use of the goods bailed (Sections 153 – 154).
- Duty not to mix bailor’s goods with his own goods (Sections 155 -157).
- Duty to return the goods on fulfilment of the purpose (Sections 159 -161,
- Duty to deliver to the bailor increase or profit on the goods bailed (Section 163). Rights of bailee: The bailee of the goods has the following rights under the Act:
- Right to recover necessary expenses incurred on bailment (Section 158).
- Right to recover compensation from the bailor (Section 164).
- Right to have a lien on the goods bailed (Sections 170 – 171).
- Right of suit against a wrongdoer (Section 180).
- PLEDGE. RIGHTS & DUTIES OF PAWNOR & PAWNEE:- Answer: Pledge (Section 172): Pledge is a special kind of bailment. It is also known as 'Pawn'. If the goods are bailed as security for payment of a debt or performance of a promise, it is called 'Pledge'. The person delivering the goods (Bailor) in this case is called 'Pledger' or 'Pawner'. The person to whom the goods are delivered (Bailee) is called the 'Pledgee' or 'Pawnee'. DEFINITION: Section 172 of the Indian Contract Act, 1872 defines "Pawn" or "Pledge", "Pawner" and "Pawnee" as 'the bailment of goods as security for payment of a debt or performance of a promise, is called pledge'. The bailor, in this case, is called the 'Pawner' or 'Pledger'. The bailee is called the 'Pawnee' or 'Pledgee'. Example: — If a farmer delivers to the Bank 100 bags of wheat as security for obtaining a loan, it is called pledge. The farmer is called pledger or pawner. The Bank is called pledgee or Pawnee. Essential Elements of the Pledge or Pawn (Sec. 172): To constitute a pledge, the following conditions are to be satisfied.
- Delivery of Goods, the delivery may be physical or constructive (Morvi Mercantile Bank v UoI) or delivery by attornment (Bank of Chittoor v Narsimhulu).
- Security for payment of Debt.
- The subject matter must be movable property.
- There must be two parties Pawner (pledger) and Pawnee (pledge).
- The contract must fulfil all the essentials of a valid contract. RIGHTS & DUTIES OF PAWNOR & PAWNEE:-
Harinath Janumpally Rights of Pledgee or Pawnee (Section 173 to 176):— A Pawnee has the following rights.
- Right to retain the goods pledged (Ss. 173, Right of Lien).
- Right to recover extraordinary expenses (S.175)
- Right to sue and to sell the pledged goods (S.176) Duties of Pledgee or Pawnee: - The duties of Pawnee are identical to that of a bailee as stated below:
- The Pawnee must take care of the goods pledged as a reasonable and prudent man would take care of the goods bailed under similar circumstances.
- He must not make unauthorized use of the goods pledged.
- He should not mix the goods pledged with his own goods without the consent of the pawnor. 4. He has a duty to return the goods pledged on payment of the amount due or on the performance of his promise.
- He must act in conformity with terms and conditions of the contract of pledge/pawn.
- Duty to deliver increase or profit on the goods pledged (Section 163). Rights of Pledger (or) Pawnor (Sec.177):— Section deals with defaulting pawner's right to redeem. It reads as follows – "If a time is stipulated for the payment of the debt, or performance of the promise, for which the pledge is made, and the pawnor makes default in payment of the debt or performance of the promise at the stipulated time, he may redeem the goods pledged at any subsequent time before the actual sale of them, but he must, in that case, pay, in addition, any expenses which have arisen from his default. Sec. 177 confers on the Pawnor, the following rights.
- He has a right to redeem (to set back) the goods pledged. This right is called the right of redemption.
- He has a right to insist upon the Pawnee for proper preservation and maintenance of the goods pledged. Duties of the Pawnor: —The rights of the pawnee are corresponding to the duties of the pawnor as stated earlier/above.
- DEFINE AGENCY. DISCUSS TERMINATION OF AGENCY, RIGHTS AND DUTIES OF AGENT. Contract of Agency: Chapter X containing sections 182 to 238 of the Indian Contract Act, 1872 lay down the provisions relating to the contract of Agency. When a person appoints another to act on his behalf with a third party, it is called as Agency.
Harinath Janumpally (Section 209),
- Time from which the termination of agent’s authority becomes effective (Section 208), Rights of agent: The Act confers a number of rights on an agent. They are as follows:
- Right to remuneration (Sec 219),
- Right to retain sums ( Sec 217 and 218),
- Right of lien on the principal’s property (Sec 221),
- Right to be indemnified (Sections 222-224),
- Right to compensation for damages due to the principal’s neglect or want of skill (Section 225). Duties of Agent:
- Duty not to delegate his duties (Section 190),
- Duty to follow the principal’s directions (Section 211),
- Duty to show proper skill and care (Section 212),
- Duty to render proper accounts (Section 213),
- Duty to communicate with the principal (Section 214),
- Duty not to deal on his own account (Sections 215 and 216),
- Duty to pay sums received for the principal (Sections 217 & 218).
- DEFINE CONDITIONS AND WARRANTIES, DISCUSS IMPLIED CONDITIONS AND WARRANTIES, AND DISTINGUISH BETWEEN CONDITIONS AND WARRANTIES. Answer: In a contract of sale of goods there may be various terms or stipulations. Such stipulations may be either conditions or warranties. Definition of Condition: If a stipulation forms the very basis of the contract, or, as stated in Sec. 12(2), is “essential to the main purpose of the contract”, it is called a condition. Definition of Warranty: If the stipulation is not essential to the main purpose of the contract but is only of secondary importance, or as Sec. 12(3) puts it, is “collateral to the main purpose of the contract”, it is called a warranty. There is no hard and fast rule as to which stipulation is a condition and which one is a warranty. Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract. For example, a lady orders for a red saree, it is agreed between her and the seller that it will be sent by a registered parcel and that she will pay the price by 15 th January, the day of her marriage. In this illustration, the stipulations regarding the colour of the saree as well as the date of supply are essential to the main purpose of the contract and are conditions, whereas stipulations regarding the time of payment of the price and the mode of dispatch of the goods are not essential to the main purpose of the contract but are only collateral, they are warranties. Consequences of breach of a condition or a warranty: Since a condition is a stipulation essential to the main purpose of the contract, its breach by one party entitles the other to treat contract, as repudiated. A warranty is a stipulation collateral to the main purpose of the contract, its breach is not considered to be serious. The breach of a warranty by one party entitles the other only to claim damages rather than avoiding the
Harinath Janumpally contract (Sec. 12(3). Implied conditions and warranties: Parties may expressly provide any conditions or warranties in their contract. Apart from what may be provided by the parties in the contract, certain conditions and warranties, as provided in Sections 14 to 17, are impliedly there in every contract of sale of goods. The implied conditions and warranties provided in the Act are binding in every contract of sale unless they are inconsistent with any express conditions and warranties agreed to by the parties. The implied conditions and warranties recognized by the Act are being discussed below: Implied Conditions:
- Implied condition as to title Sec. 14(a) (Venkateshwar v. Ram Pratap, Rowland v. Diwall),
- Implied condition in a sale by description (Sec 15),
- Implied condition in a sale by sample as well as a description (Sec 15),
- Implied condition as to quality or fitness (Sec. 16(1)) (Priest v. Last),
- Implied condition of merchantable quality (Sec 16(2)),
- Implied conditions in a sale by sample (Sec. 17). 4 and 5 are exceptions to the rule of Caveat Emptor. Implied warranties:
- Implied warranty of quiet possession (Sec. 14(b)),
- Implied warranty against encumbrances (Sec. 14©). Differences between Conditions and Warranties:
- A condition is essential to the main purpose of the contract {Sec 12(2)}; whereas a warranty is a collateral to the main purpose of the contract {Sec. 12(3)}.
- In breach of a contract, the party may repudiate the contract; but in breach of warranty, the party is entitled to damages only.
- A condition is very vital to the contract and a warranty is secondary to the contract.
- In breach of contract, the party may treat the breach of the condition as a breach of warranty, whereas in breach of warranty this is not possible. Liability for all the natural consequences: When the seller makes a breach of such an implied condition, he is liable for all the natural consequences of such a breach.
- CAVEAT EMPTOR. Answer: The rule of Caveat Emptor (Sec. 16): Sometimes the goods purchased by the buyer may not suit the particular purpose for which the buyer wants them. The question which in such a case arises is, whether the buyer can reject the goods or he is supposed to take the risk of the goods turning out not suitable for the required purpose. The section provides that, as a general rule, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale. It is the incorporation of the rule contained in the maxim caveat emptor, which means buyer beware. According to this rule, the buyer himself should be careful while purchasing the goods and he should himself ascertain that the goods suit his purpose. For example, ‘A’ purchases a horse from ‘B’, ‘A’ needs the horse for riding but he does
Harinath Janumpally
- Right to sue the buyer for breach of contract.
- DEFINE PARTNERSHIP, RIGHTS AND DUTIES OF PARTNERS. DISTINGUISH IT FROM COMPANY. Answer: Nature of Partnership: Partnership is a form of business organization, where two or more persons join together for jointly carrying on some business. It is an improvement over the ‘sole-trader businesses. Definition: Section 4 of the Indian Partnership Act, 1932 defines ‘Partnership” as under: A partnership is a relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Essentials of partnership:
- There should be an agreement between the persons who want to be partners,
- The purpose of creating partnership should be carrying on of a business,
- The motive for the creation of partnership should be earning and sharing profits,
- The business of the firm should be carried on by all of them or any of them acting for all, i.e., in mutual agency. Partnership firm – Not a separate legal entity. Rights of the Partners:
- Right to take part in the conduct of the business {Section 12 (a)},
- Right to express opinion {Section 12(c)},
- Right to have access to books of the firm {Section 12(d)},
- Right to share profits {Section 13(b)},
- Right to interest on capital and advances {Section 13(c) & (d)},
- Right to indemnity {Section 13(e)}, Duties of the Partners:
- Duty to carry on the business to the greatest common advantage,
- Duty to be just and faithful to each other,
- Duty to render true accounts,
- Duty to render full information of all things affecting the firm (Section 9),
- Duty to indemnify for fraud (Section 10),
- Duty to be diligent {Sections 12(b) and 13(f)},
- Duty to properly use the firm’s property (Section 14 and 15),
- Duty not to earn personal profits or to compete (Section 16), Distinguish between Partnership and a Company.
- No separate legal entity: In a partnership, the persons who have entered into partnership are individually called partners and collectively a firm. A partnership firm, therefore, is merely a collective name of all the partners. A partnership firm does not have a separate legal personality. A company is a legal entity different from its members. Salomon v. A Salomon and Co. Ltd., Lee v Lee’s Air Farming Ltd.
- Continuity: A partnership firm means all the partners put together if all the partners cease to be partners, e.g., all of them dies or become insolvent, the
Harinath Janumpally partnership firm gets dissolved. A company being a person different from the members, the members may come and go but the company’s life is not affected thereby.
- Transferability of stake: The shareholder of a company can transfer his share to anybody he likes, but a partner cannot substitute another person in his place unless all the other partners agree to the same.
- After the death of a member: On the death of the member of a company his legal representatives will step into his shoes for the purpose of the rights in the company, but on the death of a partner his legal representatives do not get substituted in his place in partnership.
- Minimum and Maximum members: The minimum number of members in partnership is two and maximum in case of a partnership carrying on banking business is 10 and in case of any other business is 20. In the case of a private company, the minimum number is 2 and the maximum is 50, whereas in the case of a public company the minimum number of members should be 7 but there is no limit to the maximum number and, therefore, any number of persons can hold shares in a public company.
- Liability: The liability of the members of a company is limited but the liability of the partners is unlimited.
- Starting a partnership firm is very is, it requires an agreement; whereas, in the case of a company, there are a lot of procedural formalities which have to be done to create a company. PART C – CASE LAWS
- Guarantee in minor’s debt. A. ‘X’ advances to ‘Y’ a minor, Rs. 50000/- on a guarantee given by ‘Z’. ‘Y’ refuses to pay. Is ‘Z’ liable? (May 2017) B. ‘A’ advances to B a minor, Rs. 50000/- on the guarantee of C. On demand for repayment, B refuses to pay on the ground of minority. Can A recover the amount from C. (May-16, Aug-15) Issue: Whether the contract with the minor is a valid contract? No. Whether the contract of guarantee is a valid contract? No. Can ‘A’ (the creditor) recover the amount from C (guarantor)? No. Rule: Section 11 of the Indian Contract Act, 1872 states that: Who are competent to contract: Every person is competent to contract who is of the age of majority according to law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject. Section 128 of the Indian Contract Act, 1872 states that: “The liability of the surety is coextensive with that of the principal debtor unless it is otherwise provided by the contract”. Application: The provision that the surety’s liability is coextensive with that of the principal debtor means that his liability is exactly the same as that of the principal debtor. It means that
