AL-AMEEN COLLEGE OF LAW

V Semester 5 Year B.A. LL.B

CONTRACT – II

Model answers

_______________________________________________________________

1. Define contract of guarantee. Explain the rights of surety against creditor,

principal debtor and co-sureties.

2. Explain the modes of discharge of the surety from his liability.

3. Define Bailment. What are the rights and duties of Bailor and Bailee?

4.Define Pledge. What are the rights and duties of Pledgor and Pledgee?

5.Define Agent. Discuss the rights and duties of Agents.

6. What is meant by dissolution of a firm? What are the different modes of dissolution?

7. Who is an unpaid seller? Discuss the rights of an unpaid seller towards the goods and

buyer?

8. Short Note: (any two)

a) Kinds of Agents

b) Implied Condition

c) Remedies for Breach of Contract of Sale

9. Solve any two problems

a) ‘A’ hires a carriage of ‘B’. The carriage is unsafe. ‘B’ is not aware of it. ‘A’ is injured

while using the carriage. Is ‘B’ liable to ‘A’?

b) A directs B to sell his estate. B on looking over the estate before selling it, finds a

mine on the estate unknown to A. B informs A that he wishes to buy the estate for

himself, but conceals the discovery of the mine. A allows B to buy in ignorance of the

existence of the mine. Decide.

c) The plaintiff purchased a motor car from the defendants and used the same for

several months. The defendant had no title to the car and therefore, the plaintiff was

compelled to give it to true owner. The plaintiff sued the defendant to recover back the

price which he had already paid. Can he recover?

1. Define contract of guarantee. Explain the rights of surety against creditor,

principal debtor and co-sureties.

Ans.

Introduction:

The expression ‘Guarantee’ literally means “assurance given by one person to another

at the default of some other”. It is also known as the Contract of Suretyship. The object of a

contract of guarantee is to provide additional security to the creditor in the form of a promise

by the surety to fulfil a certain obligation, in case the principal debtor fails to do that. The

Surety has rights against the Principal Debtor, the Creditor, and the Co-Sureties.

Definition of Contract of Guarantee (Section-126):

According to section 126 of the Indian Contract Act 1872, “a contract of guarantee’ is

a contract to perform the promise, or discharge the liability, of a third person in case of his

default. The section further provides that, the person who gives the guarantee is called the

“Surety”, the person in respect of whose default the guarantee is given is called the

“Principal debtor” and the person to whom the guarantee is given is called the

“Creditor”.”.

Examples:

(a) ‘A’ takes a loan from a bank. ‘A’ promises to the bank to repay the loan. ‘B’ also makes a

promise to the bank saying that if ‘A’ does not repay the loan “then I will pay.” In this case,

‘A’ is the Principal Debtor, who undertakes to repay the loan.

‘B’ is the Surety, whose liability is secondary because he promises to perform the

same duty in case there is default on the part of ‘A’.

The Bank is the Creditor in whose favour the promise has been made.

A contract of guarantee is a tripartite agreement which contemplates the principal

debtor called “P”, the creditor “C” and the surety “S” in it. There is a triangular relationship

in which the following there collateral contracts may be distinguished:

1. As between C and P, there is a contract out of which the guaranteed debt arises.

2. As between S and C, there is a contract by which S guarantees to pay to C, P’s debt in

case of his (P’s) default.

3. As between S and P, there is a contract that P shall indemnify S in case S pays in the

event of a default by P. this contract, if it is not expressed between the parties, is

always implied.

S

Contract- 2 Contract- 3

C P.D

Contract-1

Rights of Surety:

A surety is a person who comes forward to pay the amount in the event of the borrower

failing to pay the amount.

The Surety has rights against-

(1) The Principal Debtor,

(2) The Creditor, and

(3) The Co-Sureties.

Surety’s rights against each one of them are being discussed here under:

1. Rights Against Principal Debtor:

The surety has following two rights against the principal debtor

(1) Right of Subrogation (Section-140):

The term Subrogation means Substitution of one person or group of another in respect of

debt. When the Principal Debtor makes default in the performance of his duty, and on such a

default, the surety makes the necessary payment or makes performance of all what he is liable

for, he becomes invested with all the rights which the creditor had against the principal debtor.

In other words, the surety steps into the shoes of the creditor. This is known as surety’s right of

subrogation. According to section 140 the surety can claim a legal right for payment. The surety

gets into the shoes of creditor as regards all securities existed at the time when the surety

executed the guarantee or if they were required subsequently.

In Kadamba Sugar Industries Pvt. Ltd. and others v/s DevruGanapathiHegde and others,

(AIR 1993), the Karnataka High Court held that the surety stands in a unique position. He is such

a great favourite in law that he is entitled to the benefits of the securities although he is not

aware of their existence. Under section-140, when a guaranteed debt has become due of default

of the principal debtor to perform a guaranteed duty has taken place, the surety upon the

payment or performance of all that he is liable for, is invested with all the rights which the

creditor had against the principal debtor.

(2) Right of Indemnity against the Principal Debtor(Section-145):

In every contract of guarantee there is an implied promise by the principal debtor to

indemnify the surety; and the surety is entitled to recover from the principal debtor all

payments properly made. After the surety makes the payment under the guarantee, he becomes

a creditor of the principal debtor and can recover from him the amount he has paid with

interest. If he sustains damage beyond the amount paid, he can recover that damage also.

For example: P is indebted to C, and S is surety for the debt. C demands payment

from S and, on his refusal, sues him for the amount. S defends the suit, having reasonable

grounds for doing so, but is compelled to pay the amount of the debt with costs. He can

recover from P the amount paid by him for costs, as well as the principal debt.

2. Right Against Creditor :

(1) Right To Securities with the Creditor(Section141):

After the surety has been performed his duty under the contract of guarantee, he is

subrogated to all the rights which are available to the creditors against the principal debtor.

Section 141 further makes the provision that a surety is entitled to the benefit of every

security which the creditor has against the principal debtor at the time when the contract of

Suretyship is entered into. It is, however, not necessary that at the time of making the

contract, the surety should be aware of the securities which the creditor had. It becomes the

duty of the creditor not to lose or part with such securities belonging to the principal debtor

which he possesses at the time of making of the contract of guarantee. If the creditor,

without the consent of the surety, loses or parts with such securities, this is an act

prejudicial to the interest of the surety and he is discharged thereby.

3. Right Against the Co- Sureties(Section- 146 & 147):

(1) Right of Contribution against Co-Sureties (Sec-146):

As against co-sureties every surety has a right to ask the other sureties to pay off the

principal debt. When a debt is guaranteed by two or more sureties, they are called as co-

sureties. The co-sureties are liable to contribute, as agreed towards the payment of the

guaranteed debt. When one of the co-sureties makes the payment to the creditor, he has a

right to claim contribution from the other co-sureties. This principle will apply whether their

liability is joint or several, and whether their liability arises under the same or different

contracts, and whether with or without the knowledge of each other.

For Example: S1, S2, & S3 are sureties to C for the sum of Rs. 3000 lent to P. P makes default

in payment. S1, S2 & S3 are liable as between themselves to pay Rs.1000 each.

(2) Liability of Co- Sureties Bound in Different Sums(Section 147):

Where the co-sureties have agreed to guarantee different sums, they have to contribute

equally subject to the maximum amount guaranteed by each one. The fact that the sureties

are liable jointly or severally under one contract or several contracts or without the

knowledge of each other is immaterial. It may be said that, between co-sureties, there is

equality of burden and benefit.

Conclusion:

The surety is sometimes called a ‘favoured debtor’. This is because; it is not open to

the creditor to call upon the surety to pay under the contract of guarantee unless the

creditor has performed his part of the contract. A surety is an object of some favour

both at law and at equity. A contract of guarantee must thus be strictly construed in

favour of the surety.

2. Explain the modes of discharge of surety from his liability.

Ans.

Introduction:

A surety is said to be discharged when his liability comes to an end. In other words,

when the liability of surety, which he had undertaken under a contract of guarantee, is

extinguished or comes to an end, he is said to be discharged from liability.

The various modes of his discharge are shown in the chart given below:

Discharge of Surety

1. By Revocation 2.By the Conduct of the Creditor 3.By Invalidation of Contract

1. Revocation By Surety(sec-130)

2. Death of Surety(sec-131)

3. Novation(sec-62)

1. Variance in terms of Contract(sec-133)

2. Release or discharge of Principal Debtor(sec-134)

3. Compounding by Creditor with Principal

Debtor(sec-135)

4. Creditors act or omission impairing surety’s

eventual remedy(sec-139)

5. Loss of Security(sec-141)

1. Guarantee obtained by

misrepresentation(sec-142)

2. Guarantee obtained by concealment(sec-143)

3. Failure of a co-surety to join a surety(sec-

144)

4. Failure of consideration.

DISCHARGE OF SURETY

1.DISCHARGE OF SURETY BY REVOCATION:

(1) Revocation of surety by giving a notice (sec-130):A specific guarantee cannot be

revoked by the surety if the liability has already accrued. A continuing guarantee may at any

time, be revoked by the surety, as to future transactions, by giving notice to the creditor. But

the surety remains liable for transactions already entered into.

(2) Revocation by Death (sec-131): The death of the surety operates, in the absence of any

contract to the contrary, as a revocation of a continuing guarantee, so far as regards future

transactions.. The effect of the death of the surety is that it results in automatic revocation of

the guarantee as to future transactions. But such revocation does not affect the transactions

which were executed prior to the death of the surety.

For example: in a contract of guarantee, it is mentioned that on the death of the surety, his

property or his legal representatives will be responsible for such liability, in such a case, the

guarantee is not revoked even if the surety dies.

(3) Revocation by Novation (sec-62):

Novation means substitution of a new contract of guarantee for an old one/ existing contract

of guarantee. The novation may be either between the same parties or between one of the old

parties and a new party. The surety is liable for old contract. According to section62 if the

parties to a contract agree to substitute a new contract for it, or rescind/ alter it the old

contract is need to be performed. The consideration for the new contract being the mutual

discharge of the old contract. The original contract of guarantee in such a case comes to an

end.

2. DISCHARGE OF SURETY BY THE CONDUCT OF THE CREDITOR.

(1) Variance in terms of Contract (sec-133):

If a variation is made in the terms of the contract between the principal debtor and the

creditor, without the surety’s consent, the surety is discharged from liability as to transactions

made after the variance. But the variance must be such as materially affects the position of

surety. Similarly, a surety will not be discharged by a variation if he has consented to the

same. Surety is discharged from the contract even if the alteration is innocently made for his

benefit. If there is a written contract of guarantee and there is no variance of the same in

writing, the validity of the contract is not affected.

For example: (a) C agrees to appoint P as a salesman to sell goods at a yearly salary, upon S

being a surety to C for P’s duly accounting for money received by him as a salesman.

Afterwards without S’s knowledge or consent, C and P agree that P should be paid by a

commission on the goods sold by him and not by a fixed salary. S is not liable for subsequent

misconduct of C.

(b) C contracts to lend P Rs. 5000 on 1st March. S guarantees repayment. C pays the

amount to P on 1st January. Sis discharged from his liability, as the terms of the contract have

been varied.

(c) S guaranteed payment for goods supplied by C to P, upon condition that 18 months

credit was given. C gives only 12 months credit. In this case surety was discharged due to the

variance in terms of contract.

� Leading Cases:

1. Bonar V/S Macdonald:The defendant was a surety for the conduct of a bank

manager. Subsequent to this agreement, the bank enhanced manager’s salary and

the manager agreed to be liable for ¼ of the losses on discounts allowed to him.

This arrangement between bank and its manager had been made without the

knowledge of the surety. It was held that this arrangement had resulted in the

discharge of surety.

2. AmritLal v/s State Bank of Travancore: The credit limit of the debtor, which

had been fixed at Rs. 1, 00,000 was first reduced to Rs. 50,000 and then again

raised to 1, 00,000 without consulting the surety. This was done by oral

instructions to the cashier only (not altering any document). It was held that in this

case there was no variation in the terms of the contract within the meaning of

section 133, and therefore, the surety had not been discharged thereby.

(2).Release or Discharge of Principal Debtor (sec-134):

The surety is discharged by any contract between the creditor and the principal debtor, by

which the principal debtor is released. The surety is also discharged by any act or omission of

the creditor, the legal consequence of which is discharge of the principal debtor.

For Example: A contracts to build a house for B and C stands guarantee to B for the due

performance of the contract by A. therefore if B releases A from the performance of the

contract, the liability of C as a surety shall come to an end.

A contract to build a house for B, on the condition that B will supply the necessary timber. C

guarantees A’s performance of the contract. B fails to supply the timber. It would discharge

of the principal debtor.

(3). Compounding by Creditor with Principal Debtor (sec-135):

According to section 135 “A contract between the creditor and the principal debtor by which

the creditor makes a composition or promise to give time or not to sue the Principal debtor

which discharge the surety unless the surety assent to the contract. This section provides three

modes of discharge from liability:

1. When the creditor makes composition with the principal debtor

2. When the creditor promises to give time to the principal debtor, and

3. When the creditor promises not to sue the principal debtor.

It may be noted that in the above stated circumstances, the surety is discharged

if the creditor and the principal debtor make such contract without the consent

of the surety. If such a contract is made with the consent of the surety, he would

not be discharged.

For Example: A borrows Rs. 10,000 from B. C stands as a surety as regards the repayment

of loan by A to B. thereafter, A and B agree that A may repay Rs. 5,000 instead of Rs.

10,000. C is thereby discharged from liability as a surety.

(4). Creditors act or Omission impairing surety’s eventual remedy (sec-139):

A surety is discharged if the creditor does any act which is inconsistent with the

rights of the surety or omits to do any act which his duty to the surety requires him to do, and

the eventual remedy of the surety himself against the principal debtor is thereby impaired. It

is the duty of the creditor not to do anything which is inconsistent with the rights of the

surety.

For Example: P contracts to build a ship for C for a given sum to be paid by instalments as

the work reaches certain stages. S becomes surety to C for P’s due performance of the

contract C, without the knowledge of S, prepays to C the last two instalments. S is discharged

by this prepayment.

(5). Loss of Security (sec-141):

If the creditor loses or, without the consent of the surety, parts with any security

given to him at the time of the contract of guarantee, the surety is discharged from liability to

the extent of the value of security. If there are two or more debts each secured by separate

security, the surety for one of the debts is not discharged if the creditor loses or parts with the

security or securities relating to other debts.

For Example: C advances to B his tenant Rs.2000 on the guarantee of A. C has also a further

security for a sum of Rs. 2000 by a mortgage of B’s furniture. C cancels the mortgage. B

becomes insolvent and C sues A on his guarantee. A is discharged from liability to the

amount of the value of furniture.

3. DISCHARGE OF SURETY BY INVALIDATION OF CONTRACT:

(1). Guarantee obtained by Misrepresentation (sec-142):Any guarantee which has been

obtained by means of misrepresentation made by the creditor, or with his knowledge and

assent, concerning a material part of the transaction, is invalid.

(2). Guarantee obtained by Concealment(sec-143): Any guarantee which the creditor has

obtained by means of keeping silence as to material circumstances is invalid.

(3). Failure of a co-surety to join a Surety(sec- 144): Where a person gives a guarantee

upon a contract that the creditor shall not act upon it until another person has joined in it as

co-surety, the guarantee is not valid if that other person does not join. A surety, who has

agreed to become so on the basis that he will be a co- surety with another, is wholly released,

if the intended co-surety does not join.

(4). Failure of consideration: Where in a contract of guarantee there is a failure of

consideration as between the creditor and the principal debtor, the surety is discharged.

Conclusion:The surety is sometimes called a ‘favoured debtor’. This is because; it is not

open to the creditor to call upon the surety to pay under the contract of guarantee unless the

creditor has performed his part of the contract. A surety is an object of some favour both at

law and at equity. A contract of guarantee must thus be strictly construed in favour of the

surety.

3. Define Bailment. What are the rights and duties of Bailor and Bailee?

Ans:

Introduction: The term Bailment is change of possession voluntarily from one person to another.

Bailment consists in delivery of goods, i.e., movable property by one person to who is

generally owner thereof to another person for some purpose. The goods are to be returned to

their owner after the purpose is fulfilled. It may be in the form of gratuitous bailment or non

gratuitous bailment.A bailment may be made without any consideration for the benefit of the

bailor or for the benefit of the bailee or it may be made with consideration.

Definition of Bailment: . Section-148 defines the term bailment as under “A ‘bailment’ is the delivery of

goods by one person to another for some purpose, upon a contract that they shall, when the

purpose is accomplished, be returned or otherwise disposed of according to the directions of

the person delivering them. The person delivering the goods is called the ‘bailor’. The person

to whom they are delivered is called the ‘bailee’."

For example, when we take a watch for repairs or give a parcel to a carrier for being

transported to some place, there is a bailment in each case

So in the contract of bailmentthe parties are two and there is a one contract. In the

contract of bailment the bailer delivers the goods to the bailee forparticular purpose or for

particular time. In the contract of bailment it arises bydelivery of the goods and the purpose

of delivering the goods is there but thepossession of the goods which goes to the bailee is a

temporarily possession.

Illustrations: (1)Let us take an example when we go to see a movie then we park our vehicle at the

parking place. Now, when we are parking our vehicle at the parking place, the

possession from us is going to the contractor of the parking place. But we remain the

owner.

(2) Let us take another example, when we deliver the cloths to the drycleaner for the dry-

cleaning, we remain the owner but the possession from us goes to the drycleaner. It is

for a particular purpose that the goods are to be or the cloths are to be dry-cleaned.

(3) When we are parking our vehicle at a parking place and when we go to see the

movie the particular time period is there like after three hours when the movie will be

over we will get back the delivery of the goods. So when we parking our vehicle there

the goods goes to the bailee for a particular time.

(4) Let us take one more example if we are giving our scooter to get it repaired at any

auto workshop then the purpose is that it should be brought in the normal condition, it

should be repaired. The movement the purpose is over we get back the goods. So in the

contract of bailment the ownership is always with the bailer and the possession goes to

the bailee for aparticular time or for a particular purpose.

Rights and Duties of Bailor:

Duties of Bailor

A bailor has to observe the following duties:

1. To disclose all known faults in the goods bailed to the bailee:

It is the prime duty of the bailor to disclose the fault in the goods which is

bailing with the bailee. As per section 150 of the Indian Contract Act, when there is a

gratuitous bailment, the bailor is bound to disclose to the bailee all the faults in the

goods bailed of which he is aware and which materially interfere with the use of them

or expose the bailee to extraordinary risks. If he does not disclose the default or if he

does not mention the weaknesses or any defect with the goods is he is going to bail

with the bailee then he will compensate for the loss caused to the bailee.

For example ‘A’ has delivered his scooter to the ‘B’ but the breaks of the

scooter are not functioning properly and ‘B’ wants to use the scooter and suppose

when ‘B’ is using the scooter because the breaks of the scooter are weak and he meets

an accident, in that case ‘A’ will compensate the bailee that is the ‘B’. So it is the

duty of the bailer to disclose the defect in the goods, since ‘A’ here at the time of

giving the goods or the scooter to the ‘B’ has not mentioned that the breaks for the

scooter are weak. It was his duty to mention it.

Let us take another example, ‘A’ has got a horse and the horse is very

naughty, ‘B’ comes to the ‘A’ and say that he wants “A’s” horse for a ride. ‘A’ gives

the horse to the ‘B’ for ride but does not mention that horse is very naughty and the

movement ‘B’ tried to take ride on the horse, the ‘B’ fall down from the horse

because horse was naughty, he didn’t allow to give the ride to the ‘B’ and ‘B’ got his

legs fractured or ‘B’ got hurt. In this case it was duty of the ‘A’ to mention that horse

is naughty. Since he has not mentioned that horse is naughty, he will be responsible

to compensate the loss or the damages to the ‘B’ and it will be the right of the ‘B’

also.

2. Duty to Bear Extraordinary Expenses(Sec-158):

Under section 158, it is the duty of the bailer to bear the extra ordinary

expenses. When bailer has bailed the goods with the bailee and bailee incur certain

extra ordinary expenses to look after the goods then it is the duty of the bailer to bear

the extra ordinary expenses. As per section 158 “where, by the conditions of the

bailment, the goods are to be kept or to be carried, or to have work done upon them by

the bailee for the bailor and the bailee is to receive no remuneration, the bailor shall

repay to the bailee the necessary expenses incurred by him for the purpose of

bailment”.

For example ‘A’ gave his cow to the ‘B’. ‘B’ is feeding the cow and incurring

daily expenses. These are the ordinary expenses and ‘A’ will not bear these ordinary

expenses but one day cow fall sick. ‘B’ has to take the cow to the veterinary doctor.

Now veterinary doctor charge his fee, this is an extra ordinary expenses. So ‘A’ will

bear the extra ordinary expenses that are the veterinary doctor fee will be included in

an extra ordinary expenses heading. It is the duty of the bailor in this case ‘A’ is a

bailor to bear the extra ordinary expenses.

3. To indemnify the Bailee (Sec-159 or 161):

Indemnity means promise to make good the loss. Bailor has a duty to

indemnify the loss suffered by the bailee under the contract. Because of the act of the

bailor if the bailee suffers some loss then it is a duty of the bailor to indemnify the

bailee.

Let us take an example ‘A’ has stolen some goods and has bailed those

goods with the ‘B’. ‘B’ is a now bailee and suppose when the search warrant were

issued in the name of ‘A’, the goods were found at the place of the ‘B’ and ‘B’ was

caught. In this case ‘A’ will compensate the ‘B’ because it is the duty of the bailor to

compensate the ‘B’ because ‘B’ is incurring a loss.

Rights of the Bailor:

The bailor has got following rights against the bailee:

1. Right to enforce bailees duties as his rights by suit: The bailor can enforce by suit

all the duties or liabilities of the bailee as his rights. Under this the bailor has the

following rights:

(a) Right to claim damages for loss caused by bailee’s negligence. Under section 154

the bailor has the right to claim damages from the baileefor any loss caused to the

goods by the bailees negligence.

(b) Under section 155 the bailor has the right to claim compensation from the bailee

for any damage arising from the unauthorised use of the goods bailed.

(c) The bailor has the right to claim compensation for any loss caused by the bailees

unauthorised mixing up of the goods bailed with his own goods.

(d) The bailor has the right to demand the return of the goods bailed from the bailee

as soon as the time expires or as soon as the purpose is accomplished.

(e) If the bailee does not or refuses to deliver the goods bailed after the expiry of the

specified period or after the purpose is accomplished, the bailor has the right to

take action for damages against the bailee.

(f) The bailor is entitled to the natural accretion to the goods bailed (i.e., any natural

increase or profit accruing from the goods bailed).

2. Right to avoid or terminate the contract of bailment: Under section 153 the bailor

can avoid the contracts, if the bailee does any act which is inconsistent with the terms

of the bailment.

3. Right to demand the return of the goods bailed at any time in case of gratuitous

bailment: In the case of gratuitous bailment the bailor can demand the return of the

goods bailed at any time, even if he has lent them for a specified period or for a

specific purpose and the bailee has not used them wrongfully. But if such a return

causes to the bailee loss exceeding the benefit actually derived by him, the bailor is

liable to pay the loss to the bailee.

Rights and Duties of Bailee:

Duties of Bailee:

The duties of the bailee are as follows.

1. To take reasonable Care of Goods Bailed:

The prime duty of the bailee is to take care of the goods bailed. In all cases of

bailment the bailee is bound to take as much care of the goods bailed to him as a man

of ordinary prudence would, under similar circumstances, take of his own goods of

the same bulk, quality and value as the goods bailed. The bailer when he has delivered

the goods to the bailee it is the duty of the bailee to look after the goods. To take care

of the goods as a prudent man, as a rational man he should look after those goods as if

he is looking after his own goods.

He should not differentiate between that this is the goods of the bailer and he

cannot adopt the attitude of negligence towards that goods.Prudent man means under

the ordinary circumstances the prudent man is that the way a person looks after his

own goods in the similar fashion, in the similar way he should look after the goods of

the bailer but, In spite of taking care of the goods as a prudent man if the loss occurs

in the goods of the bailer then the bailee is not responsible but he has to prove it, the

bailee has to prove it that he took care of the goods as a prudent man, as a rational

man and in spite of that if there is a losses the bailee will not be answerable for that

loss but if there is an act of God even then the bailee will not be responsible but the

duty of the bailee is that he should try to minimise the loss either because of the act of

the God or under some unwanted circumstances.

Let us take an example: (i) A has given his Car to Mr. ‘B’. It is the duty of

the ‘B’ to look after the car as if he looks after his own car

(ii)If A has given the gold ornament to the ‘B’ then it is the prime duty of the ‘B’ to

look after the gold ornament as if he looks after his own gold ornament. So therefore

in the contract of bailment if negligence has occurred at the part of the bailee, he will

be responsible for that negligence.

(i) Some cattle belonging to A were agisted (given for feeding grass against

payment) with B. without any negligence on B’s part the cattle were stolen. B

did not inform the owner or the police or make any effort to recover them,

because he thought it would be useless to do so. It was held that B was liable

for loss (Coldman v/s Hill)

(ii) M was admitted to Hospital where her jewellery was handed over to the

hospital officials for safe custody. The jewellery was stolen. It was held that

the hospital officials were bailees for reward and were liable for the loss as

they had failed to exercise a care which the nature and quality of the article

required. (Martin v/s London County Council. 1947)

2. Not to make any unauthorised use of goods (Sec-154): if the bailee uses the goods bailed in a manner which is inconsistent with the

terms of the contract, he shall be liable for any loss even though he is not guilty of

negligence, and even if the damage is the result of an accident. When we say

unauthorised use, it means when the bailer is delivering the goods to thebailee he

might have mentioned that a bailee can use the goods in a particular fashion or in a

particular way that is known as authorised way of using the goods.

The instruction which were given by the bailer to use the goods and the

methods and modes have been described by the bailer to the bailee to use to the goods

that is authorised use of the goods and if the bailee cross that limits or the bailee

violates the instructions of the bailer then it will be known as the unauthorised use of

the goods. The bailee duty is not to make the unauthorised use of the goods.

For example: (i) Ram have given a horse to the Shyam to have a ride on it in

an exhibition. But Shyam after getting the horse from the Ram has put the horse in

the horse race. The horse was given by the Ram to the Shyam for a ride in an

exhibition whereas he is using the horse for the horse race this is an unauthorised use

by the Shyam.

(ii) A hires a horse in Kolkata from B expressly to march to Varanasi. A rides with

due care, but marches to Cuttack instead. The horse accidently falls and is injured. A

is liable to compensate B for the injury to the horse.

3. Not to mix the goods bailed with his own goods(Sec-155): Another point in the duty of the bailee is that he should not mix up the goods

of the bailor with this own goods, but must keep them separate from his own goods.

ifhe mixes the bailors goods with his own goods. Some time it happens that bailor

have delivered the goods to the bailee and bailee should not mix up those goods with

his own goods. But if he mix those goods with his own goods and goods can be

separated and he has mix those goods of the bailer with his own goods with the

consent of the bailor then the separation charges will be mutually in proportionate

way will be borne by both the parties.

For example: (i) Mohan have given the hundred bags of the rice of a

particular mark to the Sohan. Sohan later on mix up his hundred bags of the rice of a

particular mark with the Mohan’s bag of the rice but with the consent of the Mohan.

Now, they are to be separated because hundred bags of the rice of the Mohan are of

different quality and the hundred bags of the Sohan are of a different quality or

different marks then they are to be separated later on. The expenses will be borne in a

proportionate manner. If bailor has given the goods to the bailee and the bailee mixes

the goods with his own goods and goods can be separated but he has mixed up the

goods with his own goods without the consent of the bailer. Then the bailee will bear

all the expenses of the separation.

Let us take the same example, if the Mohan has given the hundred bags of

the rice to the Sohan of a particular brand and Sohan mixes those hundred bags of the

rice with his own hundred bags of the rice without the consent of the Mohan but later

on those hundred bags are to be separated then here in this case since he has mix up

the goods without the consent of the Mohan, the Sohan will bear the total expenditure

of the separation. But in the last some time the bailee is mixing the goods of the

bailer without the consent of the bailer and the goods cannot be separated. It is not

possible to separate the goods. In that case total loss will be borne by the bailee if he

had mixed up the goods of the bailer without his consent and goods cannot be

separated.

(ii) 10 kg of the flour of the Madan was mixed up by the Suraj with his 10 kg of the

flour now in that case it cannot be separated. The expenses will be borne by the

bailee.

4. Not to set up an adverse title against the Bailor: The bailee must hold the goods on behalf of and for the bailor. He cannot deny

the right of the bailor to bail the goods and receive them back. If he delivers the goods

bailed to a person other than the bailor, he may prove that such person had a right to

them as against the bailor.

5. To return any Natural Accretion to the goods bailed (Sec-163):

The bailee should return to the bailor the natural accretion to the goods bailed, i.e.,

any natural increase or profit which may accrue from the goods bailed. For example:

A leaves a cow in the custody of B. the cow gets a calf. B is bound to return the calf

as well as well as the cow.

6. To return the goods bailed (Sec-160):

The bailee should return the goods bailed to the bailor without any demand from the

bailor, on the expiry of the time fixed or after the purpose is accomplished, according

to the directions of the bailor. If the bailee does not return the goods bailed according

to the directions of the bailor, he becomes liable for any loss, destruction of the goods

bailed, even if he has taken reasonable care.

Rights of the Bailee:

The rights of the bailee can be explained under the following heads:

1. Right to recover necessary expenses incurred on bailment (Sec-158): When under

a contract of bailment, some remuneration is to be paid to the bailee for services he

renders in respect of them, he has a right to recover the same, or to exercise the right

in lien in respect of such goods until he receive the necessary payment.

For example: A leaves his horse with his neighbour, B for safe custody for one week.

B is entitled to recover the expenses incurred by him in feeding the horse.

2. Right to recover compensation from the bailor (Sec-164): Sometimes the bailor

may not be entitled to make the bailment, or to receive back the goods. This may

result in some loss to the bailee. The bailee is entitled to recover from the bailor such

loss as may be caused due to the above stated reason.

3. Right of lien on the goods bailed (Sec-170 and 171): ‘Lien’ means “right to retain

the goods till the dues are cleared”. Bailee has the right to exercise lien over the goods

bailed to him. In other words 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 Contract Act recognises two kinds of lien: The particular lien entitles the bailee to retain those very goods for the services

regarding which the remuneration is due. The general lien entitles the bailee to retain

the goods of the bailor for a general balance of account.

(1) Particular Lien :

Section-170 contains the provisions relating to Particular lien. According to this

section particular lien means the right of the bailee to retain those goods which

have been bailed and in respect of which some service involving the exercise of

labour or skill has been rendered but the remuneration for the same has not been

paid. This right can be exercised so long as the remuneration in respect of those

goods has not been paid.

For example: a) A delivers a rough diamond to B, a jeweller, to be cut and

polished, which is accordingly done. B is entitled to retain the diamond till he is

paid for the services he has rendered.

b) A gives cloth to B, a tailor, to make into a coat. B promises A to deliver the

coat as soon as it is finished, and to give a 3 months credit for the price. B is not

entitled to retain the coat until he is paid.

The right to lien is a right to retain possession of the goods, and, therefore, this

right can be exercised so long as the bailee continues in possession. Once the

bailee parts with the possession his rights of lien comes to an end. The right of

lien contained in this section is available in the absence of a contract to the

contrary. The parties by an agreement may exclude this right. It means that the

bailee may, if he so likes, waive this rights.

The particular lien has been recognised not only in favour of a bailee but in some

other cases also like

1. Lien of finder of goods

2. Pawnees or pledgee’s lien

3. Agents lien

4. Unpaid seller’s lien

5. Partner’s lien.

(2) General Lien:

According to section 171 a bailee has a right of general lien in favour of

certain kinds of bailees. The general lien entitles the bailee to retain goods of the

bailor “for a general balance of account”. According to this right the bailee may

retain not only those goods of the bailor in respect of which some particular

services are rendered, but also other goods in the possession of the bailee

belonging to the bailor.

The rights of general lien conferred on the following kinds of bailees:

1. Bankers

2. Factors

3. Wharfingers

4. Attorneys of a High Court and

5. Policy- Brokers.

The right is available to the above categories of bailees only and none else, “unless

there is an express contract to that effect”. It means that the parties may, by an express

contract between themselves, confer the right of general lien on the bailee, who has

otherwise got only a right of particular lien.

In K. Sita v/s Corporation Bank: in this case the question for decision of writ

petition was whether the respondent bank can exercise general lien over gold

ornaments pledged by the petitioner to raise a particular loan, even after repayment of

the loan, for the purpose of recovery of another loan subsequently advanced to the

petitioner by the respondent bank. It was held that the bankers lien contemplated by

section 171 has an overriding effect on the general provisions of section 174 which

provides that for relationship between the Pawnor and the Pawnee in respect of the

goods pledged.

In Smt. K.S. Nagalambika v/s Corporation Bank: it was held that a bank has a

general lien over the Fixed Deposit Receipts of the customer. The bank is entitled to

adjust the amount of the F.D.Rs. towards the loan amount.

4. Right of Suit against a Wrongdoer (Section-180):When the goods have been bailed,

if a third person wrongfully deprives the bailee of their use or possession, or causes an

injury to the goods, the bailee can sue such third person for wrong to the goods. It

may be noted that not only the bailee but the bailor also can bring an action against

such third party.

4. Define Pledge. What are the rights and duties of Pledgor and Pledgee?

Ans:

Introduction:

Pledge or Pawn is a kind of bailment of goods with a special purpose. The goods

pledged or pawned serve as security for the payment of a debt or performance of a promise. It

is a special kind of contract between the two parties. The person pledging the goods is known

as the ‘Pawnor’ or Pledgor and the person to whom the goods are pledged is known as the

‘Pawnee’ or ‘Pledgee’.

MEANING AND DEFINITION OF PLEDGE:

According to Section 172 of the Indian Contract Act 1872 “a bailment of goods as

security for payment of a debt or performance of a promise is called Pledge”.

So, a pledge is a contract whereby a person offers his movable property to another as

a security for the amount borrowed or for the performance of a promise on the understanding

that the property given will be returned to the giver when the debt is repaid or the promise is

performed.

For Example: A borrows Rs. 2000 from B and keeps his gold chain as security for

the payment of the debt. The deposit of gold chain with the lender as a security for the

amount borrowed is a pledge.

A pledge is a bailment that conveyspossessory title to property owned by a debtor

(the Pledgor) to a creditor (the pledgee) to secure repayment for some debt or obligation and

to the mutual benefit of both parties. The term is also used to denote the propertywhich

constitutes the security. A pledge is type of security interest

As the pledge is for the benefit of both parties, the pledgee is bound to exercise only

ordinary care over the pledge. The pledgee has the right of selling the pledge if the Pledgor

makes default in payment at the stipulated time. No right is acquired by the wrongful sale of a

pledge except in the case of property passing by delivery, such as money or negotiable

securities. In the case of a wrongful sale by a pledgee, the Pledgor cannot recover the value of

the pledge without a tender of the amount due.

RIGHTS AND DUTIES OF THE PAWNOR or PLEDGOR

Rights of the PLEDGOR:

The important rights of the Pledgor are as follows

1. Right to Redeem the Goods Pledged:Under section 177, a Pledgor has the right to

redeem the goods pledged even after the expiry of the stipulated period. That is, if a

time is fixed for the payment of the debt or for the performance of the promise for

which the pledge is made, and if the Pledgor makes a default in payment of the debt

or in the performance of the promise at stipulated time, he may redeem the goods or

properly pledged at any subsequent date before the actual sale of the pledged goods

by the pledgee. Of course, in such a case, the Pledgor must pay, in addition to the

amount borrowed, the expenses incurred by the pledgee due to the pledgors default in

payment.

In Lallan Prasad v/s Rahmat Ali [AIR 1967]: The Court observed that the

Pawnor has as absolute right to redeem his property upon satisfaction or the debt or

the promise. This right is not extinguished by the expiry of the stipulated time for

repayment of debt or performance of the promise but only by the actual sale of the

goods. If the Pawnor redeems his goods after the expiry of the stipulated time, he is

bound to pay the expenses as have arisen on account of his default.

2. Right to Enforce Pledgee’s Duties: The duties of the pledgee are the rights of the

Pledgor. As such the Pledgor can enforce by suit all the pledgee as his rights. For

example, he has the right to receive back the goods pledged along with the natural

accretion, if any, on making the payment on the stipulated date. Again, if the pledgee

makes an unauthorised sale the Pledgor can file a suit for redemption of the goods,

treating the sale as void or for damages for conversion

The Pawnor also has a right to take back any increase in the property. In M R

Dhawan v/s Madan Mohan AIR 1969, certain shares of a company were pledged.

During the period of the pledge, the company issued bonus shares. Delhi HC held that

the Pawnor was entitled to those at the time of redemption.

3. Right to Enforce the Preservation and Maintenance of the Property Pledged: The

Pledgor can force the pledgee to maintain and preserve the property pledged properly.

In other words, the Pledgor can force the pledgee to take reasonable care of the

property pledged.

4. Legal Heir’s Right to Redeem: In case of death of a Pledgor, the pledge made by

him, can be redeemed by his legal heirs on meeting the liabilities concerning the

pledge. In KamiliSarojini v/s Indian Bank, [AIR 2008 A.P. 71] gold ornaments

were pledged by the husband of the petitioner with the respondent bank, as security

for gold loan. During his life time, the husband of the petitioner head executed a

notarised will, where under she was to clear the gold loan availed by the husband and

take the ornaments pledged as a surety for the loan, along with the balance amount

existing in his account with the Bank. The bank insisted on production of probate of

will or obtaining succession certificate. Rejecting the demand of the bank, the Andra

Pradesh High Court directed the bank to permit the petitioner to repay the loan

amount and to hand-over to the petitioner the ornaments as also amount lying in the

deceased husbands account.

Duties of Pledgor: The duties of the Pledgor are as follows:

1. Duty to Compensate the Pledgee:

Under Section 175 of the Indian Contract Act 1872, the Pledgor is bound to

compensate the pledgee for any extraordinary expenses incurred by the

pledgee.Pawnor has to bear the extraordinary expenses incurred by the pledgee in

preserving the goods pledged by taking extraordinary care.

2. Duty to meet the Obligation: The Pledgor is required to meet his obligation at the stipulated time and

comply with the terms of the contract of pledge. It is the most important duty of the

pledgor to meet the necessary obligation within the time mentioned and also to be

abide by the terms and conditions of the contract. If the pledgor fails to meet the

required obligation then the pledgor himself will be held liable and he must face the

consequences of the default.

RIGHTS AND DUTIES OF THE PAWNEE OR PLEDGEE

Rights of Pawnee OR Pledgee:

1. Right to retain the goods pledged: Under Section 173 the Pledgee or Pawnee has a

right to retain possession on the goods pledged till he obtains payment of his debt interest

on that debt and all other necessary expenses which he might have incurred for the

preservation of the goods pledged or in respect, of his possession. Although ordinarily a

pledgee can retain the goods pledged only as a security for that promise for which they are

pledged, but there is a presumption that if there are subsequent advances, they are also the

part of the original debt, and the Pledgee may retain the goods to recover subsequent

advances also. This is merely a presumption which could be rebutted by a contract to the

contrary.

2. Right of Particular lien (Sec. 174): Pawnee has no right to retain his possession over the

goods pledged for any debt or promise other than the debt or promise for which they were

pledged unless otherwise provided for, by a contract. In short, the pledgee has the right of

lien over the goods pledged. It may be noted that the pledgee can exercise only the particular

lien over the goods. He cannot have a general lien. In other words, he cannot retain the goods

pledged for any debt other than the debt for which the security is given, unless there is an

express contract to the contrary.

3. Right to receive extraordinary expenses (Sec. 175): Pawnee is also entitled to

receive from the Pawnor any extraordinary expenses which he might have incurred for the

preservation of the goods pledged. For example, if the pledgee has to arrange for a bank

locker for the safety of the goods or he spends some amount for insuring them against theft,

etc., he can recover such expenses from the Pawnor. He can enforce this right by filing a suit.

4. Pawnee’s right in case of default of the Pawnor (Sec. 176): In the case of default by the

Pawnor in the payment of debt or the performance of promise at the stipulated time or on

demand or within reasonable time, the Pawnee can exercise the following two rights:

(a) He has a right to bring a suit on the debt or promise and can retain the goods pledged as a

collateral security.

(b) He has also a right to sell the goods pledged after giving reasonable notice of sale to the

Pawnor.

If the Pawnor makes a default in the payment of the debt, or performance of duty, as

agreed , the pawnee has also the right to sell the thing pledged, on giving Pawnor a

reasonable notice of the sale.

(c) He can retain the goods pledged as a collateral security till the debt is repaid or promise is

performed.

(d) He can file a suit for the sale of goods for the realisation of the money due.

(e) He can recover the deficiency if any, arising on the sale of the pledged goods from the

Pledgor, of course, if there is any surplus on the sale of the goods pledged he has to pay the

same to the Pledgor.

(f) He has a right to claim any deficit arising from the sale of the goods pledged from the

Pawnor. He will have to return to the Pawnor any excess obtained by the sale of

goods pledged beyond the amount necessary to pay the debt and other expenses due.

In State Bank of India v/s Smt. Neela Ashok Naik, [AIR. 2000 Bom. 151], it was

held that if an F.D.R. (Fixed Deposit Receipt) has been pledged with a Bank, the bank is not

obliged to adjust the instalments of repayable instalments of loan against the F.D.R. He may

retain F.D.R. as such, and bring a suit to recover the loan.

5. Pawnee must not use the goods pledged: He must not use goods pledge unless they are

such as will not deteriorate by wear.

Besides the above rights and duties, all other rights and duties of the bailor and bailee apply

equally to Pawnor and the Pawnee.

Duties of the Pledgee or Pawnee:

A pledge is a special kind of bailment. As such, the duties of the Pledgee are the same as

those of a bailee. To be specific the Pledgee has the following duties:

1. He is bound to take reasonable care of the goods pledged with him: The prime duty of the pledgeeis to take care of the goods pledged. In all cases of

pledge the pledgee is bound to take as much care of the goods pledged to him as a man of

ordinary prudence would, under similar circumstances, take of his own goods of the same

bulk, quality and value as the goods pledged. Thepledgorwhen he has delivered the goods

to the pledgee it is the duty of the pledgee to look after the goods. To take care of the

goods as a prudent man, as a rational man he should look after those goods as if he is

looking after his own goods.

2. He must not make any unauthorised use of the goods pledged: if the pledgee uses the goods pledged in a manner which is inconsistent with

the terms of the contract, he shall be liable for any loss even though he is not guilty of

negligence, and even if the damage is the result of an accident. When we say

unauthorised use, it means when the pledgor is delivering the goods to the pledgee he

might have mentioned that a pledgee can use the goods in a particular fashion or in a

particular way that is known as authorised way of using the goods.

3. He must not mix the goods pledged with his own goods:

The duty of the pledgee is that he should not mix up the goods of the pledgor

with this own goods, but must keep them separate from his own goods. Some time it

happens that pledgor have delivered the goods to the pledgee and pledgee should not

mix up those goods with his own goods. But if he mix those goods with his own

goods and goods can be separated and he has mix those goods of the pledgor with his

own goods with the consent of the pledgor then the separation charges will be

mutually in proportionate way will be borne by both the parties.

4. He must not do any act in violation of the terms of the contract of pledge: The pledgee should not sell the goods pledged without a reasonable notice to

the Pledgor.

5. He must return the goods pledged on the realisation or receipt of the debt: The pledgee should return the goods pledged to the pledgor without any demand

from the pledgor, on the expiry of the time fixed or after the purpose is accomplished,

according to the directions of the pledgor. If the pledgee does not return the goods

pledged according to the directions of the pledgor, he becomes liable for any loss,

destruction of the goods bailed, even if he has taken reasonable care.

6. He must deliver the natural accretion to the goods pledged to the Pledgor:

The pledgee should return to the pledgor the natural accretion to the goods

pledged, i.e., any natural increase or profit which may accrue from the goods bailed. For

example: A leaves a cow in the custody of B. the cow gets a calf. B is bound to return the

calf as well as well as the cow.

5. Define Agent. Discuss the rights and duties of Agents.

Ans:

INTRODUCTION:

The complexities of modern business are such that it is not possible for any man to

transact all his business by himself. He cannot personally attend to all matters in which it is

necessary for him to be brought into legal relations with other people. Of necessity he had to

depend on the services of other persons in order to run his day-to-day business affairs. Such

other person is called agents. At all times all of us act as principals and agents.

MEANING AND DEFINITION OF AGENT AND PRINCIPAL

Section 182 of the Indian Contract Act 1872 defines the term ‘AGENT’ and

‘PRINCIPAL’ as follows:

“An Agent is a person employed to do any act for another or to represent another in

dealings with third persons. The person for whom such act is done, or who is so represented,

is called the Principal”.

When a person appoints another to act on his behalf with a third party, it is called

‘Agency’. The person who appoints is called ‘Principal’. The person, who is appointed, is

called ‘Agent’. The contract between them i.e., the principal and Agent is called ‘Contract of

Agency.

‘Agency is the legal relationship between an agent and principal; to bring the

principal into legal relationship with the third party’.

Example: ‘A’ appoints ‘B’ to purchase some land on his behalf. Here, ‘A’ is principal and

‘B’ is Agent. The relationship between ‘A’ and ‘B’ is called Agency.

RIGHTS AND DUTIES OF AN AGENT

RIGHTS OF AN AGENT:

The Act confers a number of rights of an agent, and imposes some corresponding

duties on the Principal. They are as follows:

1. Rights of Retainer[ Section- 217]:

The agent may retain, out of any sums received on account of the principal in the

business of the agency, all moneys due to himself in respect of his remuneration and

advances made of expenses properly incurred by him in conducting such business.

The agent has a duty to pay to his principal all sums received on principals account.

But he has also a right to retain, out of any sums received on account of principal in

the business of the agency, all money due to himself in respect of advances made or

expenses properly incurred by him in conducting such business and also such

remuneration as may be payable to him for acting as agent. Similarly, when an agent

sells his principals goods, he may detain moneys received, for his remuneration on

account of the goods sold by him. Such right can be exercised by an advocate also but

the lien must be confined to the costs incurred in that particular case.

2. Right to Receive Remuneration[Section- 219]:

Where an agent agrees to serve for nothing, he cannot claim remuneration. But where

the services rendered by the agent is entitled to receive the agreed remuneration. The

agent is entitled to his agreed remuneration or if there is no agreement to a reasonable

remuneration. But in the absence of any special contract payment for the performance

of any act is not due to the agent until the completion of such act.

Examples: (a) A was appointed an agent to secure orders for advertisements in a

newspaper. The commission was agreed to be paid when an advertisement was

published. After A had obtained orders for certain advertisements, the agency was

terminated. Held, he was entitled to commission on orders obtained by him although

the advertisements were not published. [Sellers v/s London County Newspaper,

1951]

(b) An agent was appointed to introduce a customer to purchase the principal’s

property. He did introduce one customer: the sale was settled and earnest money paid.

The sale fell through because of the customer’s inability to find money. Held, the

agent was entitled to his agreed commission. [Sheik FaridBaksh v/s Hargulal

Singh, A.I.R. (1937) All. 46]

An agent who is guilty of misconduct in the business of the agency is not

entitled to any remuneration in respect of that part of the business which he has

misconducted. Thus section 220 penalises an agent who misconducts himself and

debars such an agent from claiming any remuneration.

3. Right of Lien [Section 221]:

In the absence of any contract to the contrary, an agent is entitled to retain goods,

papers and other property. Whether movable or immovable, of the principal received

by him, until the amount due to himself for commission, disbursements and services

in respect of the same has been paid or accounted for to him. This lien of the agent is

particular lien. It is confined to claims arising in connection with the goods or

property in respect of which the right is claimed.

4. Right to be indemnified against Consequences of Lawful Acts [Section.222]:

A principal is bound to indemnify an agent against losses sustained by an agent in the

course of the agency business. An agent can claim indemnity only in respect of lawful

acts done by him in exercise of the authority. Thus, where the agent incurred damages

and expenses in defending action on behalf of principal, he is entitled to

reimbursement of the same. If the contract is illegal, the claim of the agent against the

principal cannot be enforced.

Example: B at Singapore under instruction from A of Calcutta contracts with C to

deliver certain goods to him. A does not send the goods to B and C sues B for breach

of contract. B informs A of the suit and A authorises him to defend the suit. B is

compelled to pay damages and costs and incurs expenses. A is liable to B for such

damages, costs and expenses.

5. Right to compensation [Section 225]:

The agent has a right to be compensated for injuries sustained by him be neglect or

want of skill on the part of the principal. Thus where the principal keeps any

dangerous premises and the agent meets an accident; the principal is liable to pay

compensation to the agent.

6. Right to be indemnified against consequences of acts done in good faith [Section-

223]:

When an agent does the act in good faith, the employer is liable to indemnify the

agent against the consequences of that act even though such act causes injury to the

rights of the third persons. Section 222 grants indemnity in respect of lawful acts of

the agent while section 223 grants indemnity in respect of unlawful acts done by the

agent in good faith. But the agent cannot claim indemnity, in respect of acts which he

knows to be unlawful. Thus, where the agent buys smuggled goods for the principal

the principal is not liable to pay.

7. Right of stoppage of goods in transit:

This right is available to the agent in the following two cases:

(1) Where he has bought goods for his principal by incurring a personal liability, he

has a right of stoppage in transit against the principal, in respect of the money

which he has paid or is liable to pay. This right of the agent is similar to that of the

unpaid seller.

(2) Where he is personally liable to the principal for the price of the goods sold, he

stands in the position of an unpaid seller towards the buyer and can stop the goods

in transit on the insolvency of the buyer.

DUTIES OF AN AGENT:

1. Duty to follow the instructions of the principal(Section- 211):

It is the duty of an agent to follow the instruction given by the principal. In the

absence of any such directions, he must act according to the customs which prevails in

doing business of the same kind at the place where he conducts such business.

According to section 211, an agent has a duty to follow the directions given to him by

the principal.

1. An agent is bound to conduct the business of his principal according to the

directions given by the principal

2. If there are no such directions, the agent should conduct the business according to

the same kind at the place where the agent conducts such business.

Examples: An advocate being an agent of his client. If he acts in a manner contrary to

the directions given by his client, or against the custom, or practice of his profession

and any loss is caused to his client thereby, he must make good such loss.

(a) A, an agent, engaged in carrying on for B a business, in which it is the custom to

invest from time to time, at interest, the money which may be in hand, omits to

make such investment.

(b) B, a broker, in whose business, it is not the custom to sell on credit sells goods of

A on credit to C, whose credit at the time was very high. C, before payment,

becomes insolvent. B must make good the loss to A.

2. Duty to carry out the work with care, skill and Diligence (Section-212):

An agent is bound to conduct the business of the agency with as much skill as is

generally possessed by person’s engaged in similar business, unless the principal has

notice of his want of skill. He is always bound to act with reasonable diligence, to use

skill as he possesses, and to make compensation to his principal in respect of the credit

consequences of his neglect, want of skill or misconduct. But he is not liable to his

principal in respect of loss or damage which is indirectly or remotely caused by such

neglect, want of skill.

Examples: A, an agent for the sale of goods, having authority to sell on credit, sells to

T. on credit, without making the proper and usual inquiries as to the solvency of T.T,

at the time of such sale, is insolvent. A must make compensation to his principal in

respect of any loss thereby sustained.

3. Duty to render accounts to the principal(Section-213):

Another duty of an agent is to render proper accounts to his principal on demand. This

means that he should maintain proper accounts of the sums belonging to the principal

which are in his hands; he should render true accounts to his principal.

4. Duty to communicate with principal in case of Difficulty (Section- 214):

It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in

communicating with his principal, and in seeking to obtain his instructions.

5. Duty not to deal on his own account (Section-215 &216):

An agent must not deal on his own account in the business of the agency without first

obtaining the consent of the principal and acquainting him with all the material

circumstances which have come to his knowledge.

If an agent without the knowledge of his principal, deals in the business of the agency

on his own account, the principal may-

(1) Repudiate the contract or transactions, if the case shows either that any material

fact has been dishonestly concealed from him by the agent or that the agent has

been disadvantageous to him. For example: P directs A to sell his property. A

buys the property for himself in the name of T. P, on discovering that A has

bought the property for himself, may repudiate the sale, if he can show that A has

dishonestly concealed any material fact, or that the sale has been disadvantageous

to him.

(2) Claim from the agent any benefit which may have resulted to him from the

transactions. For example: P directs A, his agent, to buy a certain house for him.

A tells P it cannot be bought, and buys the house for himself. P may, on

discovering that A has bought the house, compel him to sell it to him at the price

he gave it for.

6. Duty to pay the amount received for the principal (Section-217):

An agent is bound to pay to his principal all sums received on his account. He may

deduct there from all moneys due to himself in respect of advances made or expenses

properly incurred by him in conducting such business and also such remuneration as may

be payable to him for acting as agent.

7. Duty not to use the information, received in the course of agency, against the

principal:

It is the duty of the agent to pass on any information which he receives in the course

of the agency to his principal. Where he uses any such information against the interest of

principal and the principal suffers a loss, he is bound to compensate the principal. The

principal may also restrain the agent from using such information by an injunction.

8. Duty to protect the interest of the principal in case of his death or insanity:

When an agency is terminated by the principal dying or becoming of unsound mind,

the agent is bound to take, on behalf of the representatives of his late principal, all reasonable

steps for the protection and preservation of the interest entrusted to him.

9. Duty not to make secret profits from agency:

An agent occupies fiduciary position. He must not, except with the knowledge and

assent of the principal, make any profit beyond the agreed commission or remuneration.

Examples: An auctioneer received from the buyer commission in addition to what his

principal paid him as commission. Held, he was bound to hand over the total commission to

the principal.

If the agent makes profit or takes a bribe from the other party with whom he contracts

on behalf of his principal, the principal may-

1. Recover the amount of the secret profit from the agent

2. Refuse to pay the agent his commission or remuneration

3. Dismiss the agent without notice

4. Repudiate the contract with the other party

10. Duty not to delegate authority:

Ordinarily, an agent cannot further delegate the work which has been delegated to him

by his principal. Section 180 provides that an agent cannot delegate his authority or employ

another person to perform acts which he has expressly or impliedly undertaken to perform

personally. It is based on the principle that a delegate cannot further delegate. But under

certain circumstances agent can delegate his authority to sub-agent with the consent of

principal.

6. What is meant by dissolution of a firm? What are the different modes of dissolution?

Ans:

Introduction:

The partnership may be voluntarily dissolved at any time with the mutual consent of

the partners. In such an eventuality, the withdrawing partner should move reasonably swiftly

to facilitate the liquidation. In case a partner was to die, the remaining partners will have the

option to either liquidate the partnership or to buy out the share of the deceased

partner.Dissolution of a firm implies dissolution of the partnership between all partners of a

firm. It may be by agreement, compulsory, due to contingency, by will and by the court.

Meaning and Definition of dissolution of firm:

Section 39 of the Indian Partnership Act lays down that the dissolution of partnership

between all the partners of a firm is called the “dissolution of the firm”. This is different

from the dissolution of partnership. A partnership may be dissolved without dissolution the

firm. But dissolution of firm involves dissolution of partnership. In the firm of A, B and C, if

C dies or retires the firm will be dissolved. But A and B may take in D and continue doing

the business. This new firm of A, B and D is called the new or reconstituted firm.

Dissolution of partnership means coming to an end of the relation known as

partnership, between various partners. When one or more partners cease to be partners but

others continue the business in partnership, there is dissolution of partnership between the

outgoing partners on the one hand and remaining partners on the other.

Dissolution of Firm: It means complete breakdown or extinction of the relationship of

partnership between all the partners of a firm. If this breakdown or severance of partnership

relation is between a few and not all the partners, this amounts to dissolution of partnership

and not the firm.

Dissolution of Partnership: It involves only a change in the relation of the partners. For

example, if there is a partnership between A, B, and C and C, retires. The partnership

between A and C comes to an end and partnership between A and B comes into being. The

new firm with A and B as its partners is called reconstituted firm. Thus retirement of a

partner from firm does not dissolve the firm. It merely serves the partnership relation between

the retiring partner and the continuing partners. It leaves the partnership amongst the

continuing partners unaffected and the firm continues with the changed constitution.

Modes of Dissolution of Firm(Section 40 to 44)

Dissolution without the Order of Court Dissolution by the Order of Court

1. By Agreement 1. Unsoundness of Mind

2. Compulsory Dissolution 2. Permanent Incapacity to Perform Duties

3. On the Happening of certain 3.Misconduct of the Partners

Contingence

4.Persistent Breach of Partnership

Agreement.

4. By Notice 5. Transfer of Interest

6. Business Working at Loss

7. When Dissolution is Just and Equitable

DISSOLUTION WITHOUT THE ORDER OF COURT:

It may takes place in one of the following ways:

1. BY AGREEMENT (Section40) :

A firm may be dissolved either:-

(i) With the consent of all the partners, or

(ii) In accordance with a contract between the partners.

As partners can create partnership by making a contract as between them, they

are also similarly free to end this relationship and thereby dissolve the firm by their

mutual consent. When all the partners so agree, they may dissolve the firm at any time

they like. Sometimes there may have been a contract between the partners indicating

as to when and how a firm may be dissolved, a firm can be dissolved, in accordance

with such a contract. For example, if the contract between the partners provides that

on a 6 months’ notice by a partner the firm may be dissolved, then in accordance with

this contract, a partner could give 6 months notice and get the firm dissolved.

2. BY COMPULSORY DISSOLUTION (Section 41):

A firm is compulsorily dissolved:-

(a) By the adjudication of all partners or all the partners but one as insolvent. The

reason for this is simple. A partner on, being adjudicated insolvent ceases to be a

partner on the date on which the order of adjudication is made. If therefore, all or all

the partners but one are adjudicated insolvent, the firm can no longer exist, for there

must be at least two partners to constitute a firm.

(b) By the happening of any event which makes it unlawful for the business of the

firm to be carried on, or for the partners to carry it on in partnership.

Example. A, a resident in India, and B, a resident in Pakistan, are partners.

War breaks out between India and Pakistan. The partnership becomes un lawful and is

dissolved automatically on the outbreak of war.

If the business of a partnership is unlawful from its very inception such

partnership is void and no question of its dissolution arises. If some out of the several

businesses or adventures of a partnership become unlawful, the illegality of one or

more of the businesses or adventures will not of itself cause the dissolution of the firm

in respect of its lawful businesses or adventures.

3. DISSOLUTION ON THE HAPPENING OF CERTAIN CONTINGENCIES:

Section 42 mentions certain contingencies on the happening of which the firm

is dissolved, unless there is a contract to the contrary. Unlike the dissolution under

Section 41, which is compulsory, the dissolution contemplated under Section 42 is not

compulsory. Even on the happening of the contingencies mentioned in Section 42,

partners may agree that the firm will not be dissolved, but the business of the firm will

be continued as before. The contingencies mentioned in the Section are:

1. Expiration of the Partnership Term: -

When the partnership had been constituted for a fixed term, it continues obviously

for the contemplated term and would be dissolved on the expiry of such term. If the

partners so like they may agree to the contrary and continue the business even beyond that

time. Such an agreement may be express or implied. If a fresh term is not stipulated, then it

will be considered to be a partnership at will.

2. Completion of the Adventure:-

Partnership created for some specific adventures or undertakings comes to an end

on the completion of such adventures or undertakings. Thus, when the partnership was

created specifically for carrying out contract of construction of a road and the road was

completed on 24.7.63 and final bill prepared on 18.2.65, the partnership stood dissolved on

18.2.65. The suit for dissolution filed within 3 years of 18.2.65.Was held to be within time.

There can, however, be an agreement by which the partnership may not be

dissolved and the business may be continued for some other adventures or undertakings

after the completion of the earlier ones. Unless otherwise agreed, the same mutual rights

and duties between the partners continue in respect of their relationship for the new

adventures and undertakings also.

3. Death of a Partner:-

Death of a partner results in the dissolution of the firm unless the remaining

partners agree to the contrary. Section 42 of the Partnership Act, 1932 provides that a firm

stands dissolved on the death of a partner. However, the firm would not stand dissolved if

there is a contract to the contrary between the partners. It is not necessary that such a

contract must be express. The contract may be implied and can also be spelt out from the

conduct of the partner subsequent to the death of a partner.

4. Insolvency of Partners:-

When a partner is adjudicated insolvent, he ceases to be a partner. The firm is also

dissolved unless there is an agreement between the remaining partners to the contrary. This

provision has to be read along with. When all or all except one partner become insolvent,

there is compulsory dissolution of the firm. If, therefore, there are only two partners and

one of them is adjudicated insolvent, there is compulsory dissolution under section 41 and

there is no question of there being a contract to the contrary making the firm to continue.

4. DISSOLUTION BY NOTICE (Section-43):-

Where the partnership is at will, the firm may be dissolved by any partner giving

notice in writing to all the other partners of his intention to dissolve the firm. The firm, in

such a case, is dissolved as from the date mentioned in the notice as the date of dissolution or,

if no date is so mentioned, as from the date of the communication of the notice. The notice

should be an unambiguous intimation of a final intention to dissolve the partnership, and

should be served on all the other partners. Notice once given cannot be withdrawn unless all

the other partners agree to it.

� DISSOLUTION BY THE ORDER OF COURT (Section-44):-

Section-44 mentions certain grounds on which a suit can be filed for the

dissolution of a firm. A sit for the dissolution for the firm, may be filed, by the

innocent partners and not by the partner whose conduct, is the subject-matter for the

suit.

The need for dissolution by the Court arises when all the partners do not want

the dissolution. The partner or partners who want dissolution can file a suit and the

other partners may contest the same. It may be noted that Section 44 which permits a

partner to invoke the jurisdiction of the court for the dissolution of the firm, is not

subject contract between the partners permitted under Section 11. Therefore, a partner

can always file a suit for the dissolution of the firm if his case is covered under

Section 44.

A suit for dissolution can be filed only when one or the other ground

mentioned in section 44 is there. Even when there is a valid ground for filing the suit

for dissolution and a partner accordingly files the suit, the Court is not bound to

decree dissolution as this section clearly provides that “At the suit of a Partner,the

Court may dissolve the firm.”

The grounds which justify the filing of suit by a partner for the dissolution of

the firm as mentioned in Section 44 are as under:

1. Unsoundness of Mind:-

When a partner becomes of unsound mind, a suit for the dissolution of

the firm can be filed. Such a suit may be filed either on behalf of the partner

who has become of unsound mind, or by any other partner.

2. Permanent Incapacity to Perform Duties:-

When a partner becomes permanently incapable of performing his

duties as a partner that is a good ground for applying to the court for the

dissolution of the firm. When the incapacity is not permanent, the court would

not grant relief. InWhitwell v/s Arthur, one partner filed a suit for the

dissolution of the firm when the other suffered from the paralytic attack and

was thereby incapacitated from performing his duties as a partner. It was

found from medical evidence that the incapacity was not likely to be

permanent as the defendants health was improving. The court did not grant the

dissolution of the firm.

3. Misconduct of the Partners:-

When a partner is guilty of conduct which is likely to effect the

carrying on the business of the firm, the court may dissolve the firm on that

ground. Misconduct need not be with regard to the partnership business, but

the conduct should be such as should prejudicially affect the partnership

business. The acts of adultery by a partner in a firm of banker’s partnership

business. The acts of adultery by a partner in a firm of banker’s ha s been

considered to be no ground for seeking dissolution by the other partners but

that may be so if it is a firm of medical practitioners. Conviction for a breach

of trust or the adultery by one partner, with another partner’s wife are grounds

for dissolution of the firm.

4. Persistent Breach of Partnership Agreement:-

Where a Partner other than the partner suing, wilfully or persistently

commits breach of the Partnership agreement relating to the management of

the affairs of the firm or the conduct of its business, or otherwise so conducts

himself that it is not reasonably practicable for the other partners to carry on

the business of the firm with him, the Court may, at the instance of any of the

other partners, dissolve the firm. Thus if one of the partners keeps erroneous

accounts and omits to enter receipts or if there is continued quarrelling

between the partners or there is such a state of animosity that all mutual

confidence is destroyed, the Court may order for the dissolution of the firm.

5. Transfer of Interest:-

Where a partner has in any way transferred the whole of his interest in

the firm to a third party or where his share has been attached under a decree,

or sold in the recovery of arrears of land revenue, the court may dissolve the

firm at the instance of any other partner.

6. Business Working at Loss:-

Where the business of the firm cannot be carried on except at a loss,

the Court may dissolve the firm at the suit of a partner. This clause gives

discretion to the Court to dissolve a firm for a fixed term even though the term

has not expired, if the business thereof cannot be carried on except at a loss. A

partnership is formed essentially to earn and share profits of the partnership. If

the business can be carried on only at a loss, the attainment of the common

end, with a view to which the partnership was formed, becomes impossible. In

such a case, the Court may dissolve the firm.

7. When Dissolution is Just and Equitable:-

The Court has been given wide power of dissolution. Apart from

ordering the dissolution of the firm on the grounds stated above, the court has

been vested with the power of dissolving the firms on any other ground which

renders it just and equitable that the firm should be dissolved.

7. Who is an unpaid seller? Discuss the rights of an unpaid seller towards the goods and

buyer?

Ans:

Introduction:

Sale of Goods is the most common of all commercial contracts. A knowledge of its main

principles is of the utmost importance to all classes of the community. Contracts for the Sale of

Goods are subject to the general legal principles applicable to all contracts, such as offer and its

acceptance, the capacity of parties, free and real consent, consideration and legality of the object.

Section 45 of the Sale of Goods Act 1930 deals with the who is an unpaid seller and Sections from 46

to 54 deal with Rights of Unpaid Seller against the goods and sections from 55 to 56 deals with the

rights of unpaid seller against the buyer.

Who is an unpaid seller? (Section 45)

The seller of goods is deemed to be unpaid seller:

(a) When the whole of the price has not be paid or tendered; or

(b) When a conditional payment was made by a bill of exchange or other negotiable

instrument, and the instrument has been dishonored

The following conditions must be fulfilled before a seller of goods can be deemed to be

an unpaid seller:

(1) He must be unpaid and the price must be due.

(2) He must have an immediate right of action for the price.

(3) A bill of exchange or other negotiable instrument was received but he same has been

dishonored.

When payment is made by a negotiable instrument it is usually a conditional payment,

the condition being that the instrument shall be duly honored. If the instrument is not

honored, the seller is deemed to be an unpaid seller. ‘Seller’ here means not only the

actual seller, but also any person who is in the position of a seller, e.g. an agent of the

seller to whom a bill of lading has been endorsed, or a consignee or agent who has

himself paid for the goods or is directly responsible for the price.

RIGHTS OF AN UNPAID SELLER

1.Against the Goods 2.Against the Buyer

1. Right of Lien 1. Suit for Price

2. Right to stoppage of Transit 2. Suit for Damages for Non-

Acceptance

3. Right of Re- Sale. 3. Repudiation of Contract before Due

date.

4. Right of Withholding Delivery 4. Suit for Interest

1. RIGHTS OF AN UNPAID SELLER AGAINST THE GOODS

An unpaid seller's right against the goods are:

(1) Rightof Lien(Sections 47-49 and 54)

An unpaid seller in possession of goods sold may exercise his lien on the

goods, i.e., keep the goods in his possession and refuse to deliver them to the buyer

until the fulfillment or tender of the price in cases where:

(i) The goods have been sold without stipulation as to credit; or

(ii) The goods have been sold on credit, but the term of credit has expired;

or

(iii) The buyer becomes insolvent.

The lien depends on physical possession. The seller's lien is possessory

lien, sothat it can be exercised only so long as the seller is in possession of the

goods. It can only be exercised for the non-payment of the price and not for

any other charges.A lien is lost..

(i) When the seller delivers the goods to a carrier or other bailee for the purpose of

transmission to the buyer, without reserving the right of disposal of the goods;

(ii) When the buyer or his agent lawfully obtains possession of thegoods;

(iii) By waiver of his lien by the unpaid seller.

(2) Stoppage in Transit (Sections 50-52)

The right of stoppage in transit is a right of stopping the goods while they are in

transit, resuming possession of them and retaining possession until payment of the price.

The right to stop goods is available to an unpaid seller

(i) when the buyer becomes insolvent; and

(ii) the goods are in transit.

The buyer is said to be insolvent if he has ceased to pay his debts in the ordinary

course of business, or cannot pay his debts as they become due. It is not necessary that he

has actually been declared insolvent by the Court.The goods are in transit from the time

they are delivered to a carrier or other bailee like a wharfing or warehouse keeper for the

purpose of transmission to the buyer and until the buyer takes delivery of them.

The transit comes to an end in the following cases:

(i) If the buyer obtains delivery before the arrival of the goods at theirdestination;

(ii) If, after the arrival of the goods at their destination, the carrier acknowledges to the

buyer that he holds the goods on his behalf, even if further destination of the goods is

indicated by the buyer.

(iii) If the carrier wrongfully refuses to deliver the goods to the buyer.

If the goods are rejected by the buyer and the carrier or other bailee holds them, the

transit will be deemed to continue even if the seller has refused to receive them

back.The right to stop in transit may be exercised by the unpaid seller either by

taking actual possession of the goods or by giving notice of the seller's claim to the

carrier or other person having control of the goods. On notice being given to the

carrier hemust redeliver the goods to the seller, who must pay the expenses of the

redelivery.The seller's right of lien or stoppage ,in transit is not affected by any sale

on the part of the buyer unless the seller has assented to it. A transfer, however, of the bill of

lading or other document of seller to a bona fide purchaser for value is valid against

the seller's right.

(3)Right of Re-Sale (Section 54):

The unpaid seller may re-sell:

(i) where the goods are perishable; "

(ii) where the right is expressly reserved in the contract;

(iii) where in exercise of right of lien or stoppage in transit, the seller gives notice to the

buyer of his intention to re-sell, and the buyer, does not payor tender the price within a

reasonable time. '

If on a re-sale, there is a deficiency between the price due and amount realised, the

re-seller is entitled to recover it from the buyer. If there is a surplus, he can keep it. He will

not have these rights if he has not given any notice and he will have to pay the buyer any

profits.

(4) Rights to withhold delivery:

If the property in the goods has passed, the unpaid seller has right as described above.

If, however, the property has not passed, the unpaid seller has a right of withholding delivery

similar to and co-extensive with his rights of lien and stoppage in transit.

2.RIGHTS OF AN UNPAID SELLER AGAINST THE BUYER(SECTIONS 55 AND 56)

An unpaid seller may sue the buyer for the price of the goods in case of breach of contract where

the property in the goods has passed to the buyer or he has wrongfully refused to pay the price

according to the terms of the contract.The seller may sue the buyer even if the property in the goods

has not passedwhere the price is payable on a certain day.Under Section 56, the seller may sue the

buyer for damages for breach of contract where the buyer wrongfully neglects or refuses to accept and

pay for the goods.

Thus unpaid sellers rights against the buyer personally are:

(1) ASuit for the Price (Section-55):

Where the property has passed, under a contract of sale the property in the goods

has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods,

the seller may sue him for the price of the goods. Where the property has not passed

under the contract of sale, the price is payable on a certain day irrespective of delivery

and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for

the price. It makes no difference even if the property in the goods has not passed and the

goods have not been appropriated to the contract.

(2) Suit for Damages for Non- Acceptance (Section

56):

Where the buyer wrongfully neglects or refuses to accept and pay for the

goods, the seller may sue him for non- acceptance. As regards measure of damages,

Sec-73 of the Indian Contract Act 1872 applies. Where the buyer wrongfully neglects

or refuses to accept the goods and pay for them, the seller may sue the buyer for

damages for non-acceptance. Where the seller wrongfully neglects or refuses to

deliver the goods to the buyer, the buyer may sue him for damages for non-delivery.

(3) Repudiation of Contract Before Due Date (Section 60):

Where the buyer repudiates the contract before the due date of delivery, the

seller may either—

(a) Treat the contract as subsisting and wait till the date of delivery, or

(b) He may treat the contract as rescinded and sue for damages for the breach;

this rule is known as “rule of anticipatory breach of contract”.

(4) Suit for Interest (Section 61):

Where there is a specific agreement between the seller and the buyer as to interest

on the price of the goods from the date on which payment, becomes due, the seller may

recover interest from the buyer. If, however there is no specific agreement to this effect,

the seller may charge interest on the price when it becomes due from such day as he may

notify to the buyer.

In the absence of a contract to the contrary, the Court may award interest to the

seller in a suit by him at such rate as it thinks fit on the amount of the price from the

date of the tender of the goods or from the date on which the price was payable.

8. Short Note

a) Kinds of Agents

Section 182 of the Indian Contract Act 1872 defines the term ‘AGENT’ and

‘PRINCIPAL’ as follows:

“An Agent is a person employed to do any act for another or to represent another in

dealings with third persons. The person for whom such act is done, or who is so represented,

is called the Principal”.

In an agency one person (principal) employs another person (agent) to represent him

or to act on his behalf, in dealing with a third person. The act of the agent binds the principal

in the same manner in which he would be bound if he does that act himself. The agent may be

expressly or impliedly authorised to do an act on behalf of the principal.

The term agent applies to anyone who by authority performs an act for another, and

includes a great many classes of persons to whom distinctive names are given. There may be

various types of agents whose powers and duties are settled by usage and custom of

trade recognized by the courts of law. The important one are classified as under:

1. Express or Implied Agents: An express agent is one who is appointed verbally or by

writing. An implied agent is one whose appointment is to be inferred from the conduct of the

parties.

2. General, Special or Universal Agents: A general agent is one who is employed to

transact generally all the business of the principal in regard to which he is employed. A

special agent has only authority to do some particular act or represent his principal in some

particular transaction. A universal agent is one who is authorized to transact all the business

of his principal of every kind and to do all the acts which the principal can lawfully do and

can delegate.

3. Sub-agent: An agent derives his authority directly from the principal. A sub-agent derives

his authority from the agent who has been appointed to do the act.

4. Mercantile Agent: One broad classification of agents is mercantile or commercial agents.

A mercantile agent is a person who is authorised by a principal to buy or sell the goods or to

raise a loan by using principal goods as a security. A mercantile agent may be classified

under the following heads:

1. Auctioneer:

An auctioneer is an agent who is appointed to sell goods at a public auction for

remuneration. He may or may not be entrusted with the possession or control of the goods

which he sells. He may be agent both for the seller and buyer. The authority vested in him is

to sell the goods only, and not to give warranties on behalf of the seller, unless expressly

authorised in that behalf. An auctioneer is an agent whose business is to sell goods or other

property by auction, i.e., by open sale. He is a mercantile agent within the meaning of Section

2(9) of the Sale of Goods Act. If the owner of the goods puts him in possession of the goods

although the authority to sell has not been conferred in him, a buyer in good faith from such

an auctioneer will get a good title in respect of the goods. An auctioneer has implied authority

to sell the goods without any restriction. Hence a sale by him in violation of the instruction is

binding on the owner. If the owner directs the auctioneer not to sell below a reserve price and

the auctioneer sells it below that price, the sale is even then binding on the owner except in

cases where the buyer knew that there was limitation on the auctioneer’s authority.

2. Factors:

A factor is a mercantile agent who is entrusted with the possession of the goods for

the purpose of sale. He is a person to whom goods are consigned for sale by a merchant

residing abroad. He has also the power to sell goods on credit and also to receive the price

from the buyer. He usually sells the goods in his own name. He cannot barter or pledge the

goods. He has a general lien for the balance of account as between himself and the principal.

If the owner has put a factor in possession of the goods or the document of title but without

authorising him to sell the goods, the sale of goods by him will convey a good title to a bona

fide buyer.

3. Brokers:

A broker is an agent who has an authority to negotiate the sale or purchase of goods

on behalf of his principal, with a third person. A broker is a mercantile agent who is

employed to make contracts for the purchase and sale of goods for a commission called

brokerage. Unlike a factor, he himself has no possession of the goods. He merely makes the

two parties to enter into a contract. He gets his commission whenever any transactions

materialises through his efforts. His business is to find purchasers for those who wish to sell,

and sellers for those who wish to buy. His duty is to bring parties together to bargain for them

in various matters. He makes contracts in the name of his principal and not in his own name.

He is a mere negotiator or in senses a middleman.

4. Del Credere Agents:

A Del Credere (Italian word which means belief or trust) agent, is one who, selling

goods for his principal on credit, undertakes for an additional commission to sell only to

persons who are absolutely solvent. Generally, the function of an agent is over after a

contract is established between his principal and a third person. He is not answerable to his

principal for the failure of the third person to perform the contract. A del Credere agent

constitutes an exception to this rule. He is a mercantile agent, who, on the payment of some

extra commission, known as del Credere commission, guaranteed the performance of the

contract by the third person. 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.

5. Commission Agent:

A commission agent is a mercantile agent who in consideration of a certain

commission engages to purchase or sell goods for his principal. He buys and sells goods in

the market on the best terms and in his own name. His only interest in the transaction is his

commission. All profits and losses accrue to the principal. A commission agent may or may

not be in actual possession of the goods. His position is very similar to that of the broker.

-------***-------

b) IMPLIED CONDITIONS

Even where no definite representations have been made, the law implies certain representations

as having been made which may be warranties or conditions. An express warranty or condition does

not negative an implied warranty or condition unless inconsistent therewith.

Different implied conditions apply under different types of contracts of sale of goods,

such as sale by description, or sale by sample, or sale by description as well as sample. The

condition, as to title to goods applies to all types of contracts, subject to that there is

apparently no other intention.

1. Implied Conditions as to title [Section 14(a)]

There is an implied condition that the seller, in an actual sale, has the right to sell the

goods, and, in an agreement to sell, he will have to it when property is to pass. As a result, if

the title of the seller turns out to be defective, the buyer is entitled to reject the goods and can

recover the full price paid by him. In a contract of sale , unless the circumstances of the

contract are such so as to show a different intention, there is an implied condition on the part

of the seller that—

(a) In case of a sale, he has a right to sell the goods and,

(b) In the case of an agreement to sell, he will have a right to sell the goods at the time

when the property is to pass.

In Rowland v. Divali (1923): 'A' had bought a second hand motor car from 'B' and paid

for it. After he had used it for six months, he was deprived of it because the seller had no title

to it. It was held that 'A' could recover the full price from 'B' even though he had used the car

for six months, as the consideration had totally failed.

In Niblett Ltd v/s Confectioners Material Co: ‘A’ bought 3000 tins of condensed milk

from USA. The tins were labeled an such a way so as to infringe the Nestle’s trademark. As a

result, they were detained by the custom authorities. To get the clearance certificate from the

custom authorities, A had to remove the labels and sell the tins at a loss. It was held that, the

seller had broken the conditions that he had the right to sell.

1. Implied conditions under a sale by description (Section15)

Where there is a contract for the sale of goods by description, there is an implied

conditions that the goods shall correspond with the description. The rule of law

contained in Sec.15 is summarized in the following maxim: “if you contract to sell

peas, you cannot oblige a party to take beans. If the description of the article tendered

is different in any respect, it is not the article bargained for the other party is not bound

to take it”.

In a sale by description there are the following implied conditions:

(a) Goods must correspond with description: Under Section 15, when there is a sale of

goods by description, there is an implied condition that the goods shall correspond with

description.

In a sale by description, the buyer relies for his information on the description of the

goods given by the seller, e.g. in the contract or in the preliminary negotiations. Where 'A'

buys goods which he has not seen, it must be sale by description, e.g., where he buys a 'new

Fiat car' from 'B' and the car is not new, he can reject the car. Even if the buyer has seen the

goods, the goods must be in accordance with the description (Beale v. Taylor (1967) All E.R.

253).

(b) Goods must also be of merchantable quality: If they are bought by description from

dealer of goods of that description. [Section 16(2)].

Merchantable quality means that the goods must be such as would be acceptable to a

reasonable person, having regard to prevailing conditions. They are not merchantable if they

have defects which make them unfit for ordinary use, or are such that a reasonable person

knowing of their condition would not buy them. 'P' bought black yarn from' '0' and, when

delivered, found it damaged by the white ants. The condition of merchantability was broken.

But, if the buyer has examined the goods, there is no implied condition as regards defects

which such examination ought to have revealed. If, however, examination by the buyer does

not reveal the defect, and he approves and accepts the goods, but when put to work, the

goods are found to be defective, there is a breach of condition of merchantable quality.

The buyer is given a right to examine the goods before accepting them. But a mere

opportunity without an actual examination, however, cursory, would not suffice to deprive

him of this right.

(c) Condition as to wholesomeness: The provisions, (i.e., eatables) supplied must not only

answer the description, but they must also be merchantable and wholesome or sound. 'F'

bought milk from 'A' and the milk contained typhoid. germs. 'F's wife became infected and

died. 'A' was liable for damages. Again, 'C' bought a bun at 'M's bakery, and broke one of his

teeth by biting on a stone present in the bun. 'M' was held liable.

(d) Condition as to fitness for a particular purpose: Ordinarily, in a contract of sale, there

is no implied warranty or condition as to the quality of fitness for any particular purpose of

goods supplied. But there is an implied condition that the goods are reasonably fit for the

purpose

for which they are required if:

(i) the buyer expressly or impliedly makes known the intended purpose, so as

to show that he relies on the seller's skill and judgment, and

(ii) the goods are of a description which it is in the course of the seller's business

to supply (whether he be the manufacturer or not). There is no such condition

if the goods are bought under a patent or trade name.

In Priest v. Last (1903) 2 K.B. 148, a hot water bottle was bought by the plaintiff, a

draper, who could not be expected to have special skill knowledge with regard to hot water

bottles, from a chemist, who sold such articles. While being used by the plaintiff's wife, the

bottle bursted and injured her. Held, the seller was responsible for damages.

In Grant v. Australian Knitting Mills (1936) 70 MLJ 513, 'G' purchased woollen

underpants from 'M' a retailer whose business was to sell goods of that description. After

wearing the underpants, G developed some skin diseases. Held, the goods were not fit for

their only use and 'G' was entitled to avoid the contract and claim damages.

2. Implied conditions under a sale by sample (Section 15)

In a sale by sample:

(a) there is an implied condition that the bulk shall correspond with the sample in quality;

(b) there is another implied condition that the buyer shall have a reasonable opportunity

of comparing the bulk with the sample;

(c) it is further an implied condition of merchantability, as regards latent or hidden

defects in the goods which would not be apparent on reasonable examination of the

sample. "Worsted coating" quality equal to sample was sold to tailors, the cloth was

found to have a defect in the fixture rendering 'the same unfit for stitching into coats. The

seller was held liable even though the same defect existed in the sample, which was

examined.

4. Implied conditions in sale by sample as well as by description

In a sale by sample as well as by description, the goods supplied must correspond both

with the samples as well as with the description. Thus, in Nichol v. Godis (1854) 158 E.R.

426, there was a sale of "foreign refined rape-oil having warranty only equal to sample".

The oil tendered was the same as the sample, but it was not "foreign refined rape-oil"

having a mixture of it and other oil. It was held that the seller was liable, and the buyer

could refuse to accept.

------****-----

c) Remedies for breach of contract of Sale

The Sale of Goods Act, 1930 gives the following remedies to a seller and a buyer for

breach of a Contract of Sale.

� Suits by the Seller against the Buyer

The seller has got the following remedies for breach of contract by the

buyer:

1. Suit for Price

The buyer has to pay the price in accordance with the contract. Apart from

existing rights against the goods, if the buyer does not pay for them, seller may sue

the buyer to recover the price. Where the property in the goods has passed to the

buyer and he wrongfully neglects or refuses to pay for the goods according to the

terms of the contract, the seller may sue him for the price of the goods. For an action

of the price, it is necessary that the property in the goods must have passed to the

buyer and there must have been a wrongful neglect or refusal on the part of the buyer

to pay the price after the same has become payable.

If the goods have been sold at credit, the price would become payable only on

the expiry of the period of credit, and, therefore, no action for the recovery of the

price can be brought by the seller until the expiry of that period. After the price

becomes payable the buyer becomes the debtor and the seller can recover the price

like any other debt.

In Dunlop v/s Groat: There was a contract for the sale of a certain quantity of

iron and the delivery was to be made, if the buyer so required, between 3rd March and

30th April. The Price was agreed to be paid by 30th April. By 30th April delivery of

only a portion of the iron was made, as the buyer did not require the delivery of the

remainder. It was held that the seller was entitled to recover the price of the whole of

the iron and he was not required to show that he had appropriated any specific iron to

the contract for completing the delivery of the remaining iron.

2. Suit for Damages to Repudiate the Contract:

It has been noted that the buyer has a duty to accept the goods and pay for

them in accordance with the contract. On failure to pay the price, one of the remedies

available to the seller is to sue the buyer for price. Suit for the price can lie against the

buyer when the property in the goods has passed to the buyer or the price is to be paid

on a day certain.

According to Section 56, where the buyer wrongfully neglects or refuses to

accept and pay for the goods, the seller may sue him for damages for non-acceptance.

Such a suit generally arises when the property in the goods has not yet passed to the

buyer. The seller being still the owner of the goods can dispose them of and recover

from the buyer damages to the loss according to him in accordance with the rules

regarding damages contained in Section 73 of the Indian Contract Act.

In Bungo Steel Furniture v/s Union of India: There was a contact for the

supply of steel bin to the Govt. of India by the appellants. The Govt wrongfully

terminated the contract before the steel bins had been actually manufactured. It was

held that, in this case, since the property in the goods has not yet passed to the buyer,

the case was not covered by Sec-55 and an action for the recovery of the price could

not lie but lie but appellants were entitled to recover damages from the Govt. for

wrongfully refusing to accept the goods.

3. Suit for Repudiation of Contract Before Due Date (Section 60): Where the buyer repudiates the contract before the due date of delivery, the

seller may either—

(c) Treat the contract as subsisting and wait till the date of delivery, or

(d) He may treat the contract as rescinded and sue for damages for the breach;

this rule is known as “rule of anticipatory breach of contract”.

4. Suit for Interest (Section 61):

Where there is a specific agreement between the seller and the buyer as to interest

on the price of the goods from the date on which payment, becomes due, the seller may

recover interest from the buyer. If, however there is no specific agreement to this effect,

the seller may charge interest on the price when it becomes due from such day as he may

notify to the buyer.

In the absence of a contract to the contrary, the Court may award interest to the

seller in a suit by him at such rate as it thinks fit on the amount of the price from the

date of the tender of the goods or from the date on which the price was payable.

� Suits for the Buyer against the Seller

The buyer has the following remedy against the Seller for breach of

contract:

1. Suit for Damages for Non- Delivery:

Section 55 and 56 deals with the rights of the seller of the goods by way of

suits against the buyer either for the recovery of the price or for the non-acceptance

of the goods. The sellers duty is to deliver the goods to the buyer in accordance with

the terms of the contract. When the seller wrongfully neglects or refuses to deliver

the goods to the buyer, the buyer may sue him for damages for the non-delivery of

the goods.

The measures of damages in this case also would be the same as for breach of

any other contract and the rules contained in section 73 of the India Contract Act

will apply.

2. Suit for Specific Performance:

Section 57 entitles the buyer to sue the seller for damages if the latter neglects

or refuses to deliver the goods. Damages sometimes may not be an adequate remedy,

for instance, when the subject-matter of the contract is rare good, say, the picture of

the dead painter. Section58 entitles the buyer to bring an action for the specific

performance of the contract. it means that instead of permitting the seller to retain

the goods and pay damages for the non-delivery of the goods, the Court may pass a

decree directing the seller to specifically perform the contract.

3. Remedy for Breach of warranty:

According to Section 12 (3), the breach of warranty gives rise to a claim for

damages but not a right to reject the goods and treat the contract ass repudiated. It

has been stated in Section13 that even when there is a breach of condition, the buyer

may teat as a breach of warranty, or, when the buyer accepts the goods or a part

thereof, the buyer is bound to treat the breach of condition as a breach of warranty. It

means that when the breach of condition is treated as a breach of warranty the

remedy available to the buyer is an action for damages.

9. Problems:

a) ‘A’ hires a carriage of ‘B’. The carriage is unsafe. ‘B’ is not aware of it. ‘A’ is injured

while using the carriage. Is ‘B’ liable to ‘A’?

Ans. Yes. B is liable to A. In the said problem ‘A’ hires a carriage of ‘B’. That means, the

bailment is non-gratuitous. According to Sec. 150 of the Indian Contract Act, 1872 Where

a bailment is for hire, the bailor is responsible to the bailee for any damage arising out of the

faults of the goods bailed, whether he is aware of the faults or not. This point was upheld in

the case of Hyman & Wife v. Nye & Sons. In this case, the plaintiff hired from the

defendant for a specific journey a carriage, a pair of horses and a rider. During the journey, a

bolt in the under part of the carriage broke, the splinter bar became displaced, the carriage

was upset and the plaintiff was injured. So, a suit was filed by the plaintiff against the

defendant, claiming damages. The court held that the defendant was liable.

In this case judge observed that “A person who lets out carriage is not responsible for

all defects, discoverable or not; he is not an insurer against all defects. But he is an insurer

against all the defects which care and skill can guard against. His duty to supply a carriage as

fit for the purpose for which it is hired as care and skill can render it.

The court held that there was an implied undertaking that the carriage was as fit for

the purpose for which it was hired as reasonable care and skill could make it, and so, the

defendant was held liable.

We should consider the point that the duty of a bailor for consideration is much

greater. As he is making profit from his profession, it is his duty to see that the goods which

he delivers are reasonably safe for the purpose of the bailment. It is no defence for him to say

that he was not aware of the defect. So in the said problem ‘B is a bailor who delivered the

carriage on hire to ‘A’ bailee. It is the duty of the ‘B’ as a bailor to see that the carriage

delivered was safe for the purpose of the bailment. It is no defence for him to say that he was

not aware of the defect. So ‘B’ is liable to ‘A’.

b) A directs B to sell his estate. B on looking over the estate before selling it, finds a

mine on the estate unknown to A. B informs A that he wishes to buy the estate for

himself, but conceals the discovery of the mine. A allows B to buy in ignorance of the

existence of the mine. Decide.

Ans: In the said problem A can repudiate the contract, when he comes to know that B was

aware of the existence of the mine in the estate at the time of the purchase. Under Sections

215 and 216 of the Indian Contract Act 1872 an agent must not deal on his own account in

the business of agency without obtaining the consent of the principal and acquainting him

with all material facts on the subject which have come to his knowledge in the course of

agency business.

If an agent deals on his own account without the consent and the knowledge of the

principal, the principal can repudiate the transaction. Again, in such a case, the principal can

also claim from the agent any benefit which may have resulted to the agent from the

transaction.

In the said problem A, principal, directs his agent B to sell his estate. B on looking

over the estate before selling it, finds a mine on the estate unknown to A. B informs A that he

wishes to buy the estate for himself, but conceals the discovery of the mine. A allows B to

buy in ignorance of the existence of the mine. So when A comes to know that B was aware of

the existence of the mine in the estate at the time of the purchase then A can repudiate the

contract. Again A, the principal can also claim from the agent B any benefit which may have

resulted to the agent from the transaction.

c) The plaintiff purchased a motor car from the defendants and used the same for

several months. The defendant had no title to the car and therefore, the plaintiff was

compelled to give it to true owner. The plaintiff sued the defendant to recover back the

price which he had already paid. Can he recover?

Ans: Yes, plaintiff can recover the price from defendant which he had already paid.

According to Sec. 14(b) of Sale of Goods Act, 1930 in every contract of sale, unless there is

an agreement to the contrary, there is “an implied warranty that the buyer shall have and

enjoy quiet possession of the goods”. It is a warranty that the vendor shall not, nor shall

anybody claiming under a superior title, or under his authority, interfere with the quiet

enjoyment of the vendee. If the possession of the buyer is disturbed by a person having a

superior right than that of the seller, the buyer is entitled to hold the seller responsible for

breach of this warranty.

It was upheld in Rowland v. Divall case. In this case the plaintiff purchased a motor

car from the defendants. The car turned out to be stolen property and the plaintiff had to

restore it to the true owner. The plaintiff was held entitled to recover the whole of the price

paid by him despite the fact that he had used the car for some months.

Court observed in this case that the buyer has not received any part of that which he

contracted to receive namely, the property and right to possession and that being so, there has

been a total failure of consideration.

To a certain extent the implied condition as to title contained in Section 14(a) and the

warranty of quiet possession in section 14(b) are overlapping. Thus in the leading case of

Niblett v. Confectioners Materials Co, the buyers were held entitled to recover for the

breach of both the condtions as to title and warranty of quit possession.

In another case Mason v. Burningham, the plaintiff, a lady, purchased a second-hand

typewriter. She used it for some months and also spent some money on its repair. But then

she was dispossessed by the true owner. She recovered from the sellers for the breach of this

warranty damages reflecting not merely the price paid but also the cost of repair. So in the

said problem plaintiff can recover the price from defendant which he had already paid.

*******