SUBJECT- CONTRACT-II

COURSE- LL.B., II-SEM

VERY SHORT QUES AND ANS.

Q 1. UNIVERSAL AGENT.
A. A universal agent has a universal or an unlimited power to act on behalf of his principal. A
universal agent is one whose authority is unlimited and who can do any act on behalf of his
principal provide such act is legal and is agreeable to the law of land. A universal agent is
practically substituted for his principal for all those transactions wherein his principal cannot
participate. A Universal agent is one who is authorized to do all the acts which the Principal can
lawfully do and can delegate.
For Example:
When a person leaves his country for a long time, he may appoint his son, wife or friend as his
universal agent to act on his behalf in his absence.
Q 2. PARTNERSHIP AT WILL.
A. Partnership at will means a partnership in which the partners have not agreed to remain
partners until the expiration of a definite term or the completion of a particular undertaking. In
other words, it is a partnership that can be dissolved by any partner at any time without any
liability.
section 7 of the Indian partnership act, 1932 defines what is a partnership at will. according to
this section, where no provision is made between a contract for dissolution of the partnership or
for termination of the partnership the partnership is a partnership at will.
Q 3. Hire purchase and an agreement to sell.
A. A contract of hire-purchase may also be distinguished from "an agreement to sell" (or "an
agreement to buy" from buyer's point of view). As already observed, a hire-purchase agreement
initially is merely an irrevocable offer for sale, that is, under it, the owner is bound to sell the
goods later if the hirer pays all the installments as agreed, but on the part of the hire cannot be
compelled to buy. 'An agreement to buy', on the other hand, imports a legal obligation to buy and
therefore there is no option available to the buyer to buy or to terminate the contract in this case.
Again, in a hire-purchase agreement, delivery of goods to the hire-purchaser is necessary
whereas it is not so in an 'agreement to sell.'
Q 4. Sale Distinguished from Contract for Work and Labour.
A. A distinction has to be made between a contract of sale and a contract for work and labour
mainly because of taxation purpose. Sales tax is leveled only in the case of a contract of sale.
When property in the goods is intended to be transferred and goods are ultimately to be delivered
to the buyer, it is a contract of sale even though some labour on the party of the seller of the
goods may be necessary. Where, however, the essence of the contract is rendering of service and
exercise of skill and no goods are delivered as such, it is a contract of work and labour and not of
sale. In fact, the difference between the two is very minute.
Illustrations :
(a) A dentist agreed to make a set of false teeth for a lady and fit it into her mouth. Held, it is a
contract for the sale of goods (Lee vs Griffin).
(b) An order for making and fixing curtains in a house is a contract of sale of goods, though it
involves some work and labour in fixing the same (Love vs Norman Wright (Builders) Ltd.)
(c) G engaged an artist to paint a portrait and supplied the necessary canvas and paint. Held, it is
a contract for work and labour as the substance of the contract is the application of the skill and
labour in the production of the portrait (Robinson vs. Graves). If the canvas and paint are also to
be supplied by the painter, it will become a contract of sale of goods.
(d) A contract to take and supply photographs has been held to be a contract of sale of goods
(Newman vs Lipman).
Q 5. OSTENSIBLE AUTHORITY.
A. In the United States, the United Kingdom, Canada and South Africa, apparent authority (also
called "ostensible authority") relates to the doctrines of the law of agency. ... Apparent
authority refers to a situation where a reasonable third party would understand that an agent had
authority to act.
An association of two parties that would lead a reasonable person to conclude that one party is
acting as an agent for the other party. For example, an insurance salesperson might be employed
by an insurance agency as an independent contractor, but they might actually be considered an
ostensible agent of the business for legal purposes.
Q 6. DIFFERENCE BETWEEN SALE AND AGREEMENT TO SALE.
A. A sale and an agreement to sell can be distinguished as:-

 Transfer of Property (Ownership): In a sale, the property in goods or the ownership is

immediately transferred from the seller to the buyer.
In an agreement to sell the property in the goods is not transferred immediately at the
time of contract, but the ownership is transferred at a later time either at the expiry of a
certain period or fulfillment of certain condition. Until then, the seller continues to be the
owner of the goods.
 Risk of Loss: The general rule is that, unless otherwise agreed, the risk of loss passes
with property. In case of sale, if the goods are destroyed the loss falls on the buyer, even
if the buyer is not in possession of goods because the ownership has been transferred.
In an agreement to sell, the loss is to be borne by the seller because the ownership has
still not passed on to the buyer, even if the buyer has possession of it.
  Consequences of Breach: In case of sale, if the buyer fails or refuses to pay the price of
the goods, the seller can sue for the price, even if he has the possession of goods.
In an agreement to sell, if the buyer fails to accept and pay the price, the seller can sue
him only for damages and not for the price, even if the goods in possession of the buyer.
 Right of Resale: In a sale the property of goods is immediately transferred to the buyer
and so the seller (even if the goods are in his possession) cannot result the goods. If the
seller does so, the subsequent buyer cannot acquire the title to the goods. The original
buyer can recover the goods from the third person and can also sue the seller for the
breach of contract.
In an agreement to sell, the seller can sell the goods to anyone as he has the property of
goods and the new buyer gets the title of goods as he purchases the goods for
consideration and without any notice of prior agreement. In such a case the original
buyer can only sue for damages.

 Buyers Insolvency: In a sale, if the buyer becomes insolvent before he pays the price of
the goods, the seller will have to deliver the goods to the official assignee or receiver and
he can only claim dividend for the price of the goods.
In an agreement to sell, if the buyer becomes insolvent and has not paid the price, the
seller can refuse to deliver the goods to the official assignee or receiver until paid in full.

 Seller’s Insolvency: If the seller becomes insolvent then in case of sale the buyer is
entitled to recover the goods from the official assignee of receiver since the ownership
has been transferred to the buyer.

In case of an agreement to sell, if the buyer has paid the full price, he can only claim a
rateable dividend and not the goods because the property in the goods still rests with the
seller.

 Nature of Contract: A sale is an executed contract. An agreement to sell is an executary

contract.

 Types of Goods: A sale can only be in the case of existing and specific goods. An
agreement to sell mostly takes place in the case of future and contingent goods.

Q 7. DUTIES OF BAILOR.
A. 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.
Who is Bailor: The person delivering the goods is called the ‘bailor’.
DUTIES OF BAILOR
1. Duty to disclose faults
In case of gratuitous bailment, the bailor is expected to disclose to the bailee all the defects
known to him and which would get in the way with the use of goods bailed. A non-gratuitous
bailment or bailment for reward, however, carries a greater responsibility on the part of bailor.
He will be liable even if he was not in the know of the defects. The following instances drive
home the points.
Example: A lends his horse, which he knows to be frisky, to B. He does not disclose the fact that
the horse is frisky. When B tries to ride it, the horse throws him off its back, and B is injured. A
is responsible to B for injury sustained.
2. Duty to repay bailee’s expenses
A bailor is duty bound to repay to the bailee expenses incurred by him for work done on the
goods received under conditions of bailment, and for which he is not receiving any remuneration
or deriving any benefit. In this regard,
3. Duty to indemnify the bailee
The bailor is bound to make good the loss suffered by the bailee that is in excess of the benefit
actually derived, where he had delivered the goods gratuitously and compelled the bailee to
return them before the expiry of the period of bailment.
4. Duty to compensate bailee for breach of warranty
Every contract of bailment warrants the bailee about the bailor’s title being defect free. Thus, if
bailee subsequently suffers any loss by the reason of the bailor’s title being defective, it is the
duty of the bailor to compensate the bailee for breach of warranty.
5. Duty to claim back the goods
The bailor is bound to accept the goods upon being returned by the bailee in accordance with the
terms of bailment. If he refuses or fails to accept back the goods, if offered at a proper time and
at a proper place, without any reasonable ground, he shall be responsible for any loss or damage
to the goods and not the bailee.
Moreover, the bailee, in such a case, can also claim from the bailor all necessary and incidental
expenses that he might have incurred to keep and protect the goods.
Q 8. POINT OUT THE CONSEQUENCES OF NON-REGISTRATION OF A FIRM.
A. Consequences of Non-Registration of Firm
While the English Law makes registration of firms compulsory and levies a fine for non-
registration, the Indian Partnership Act, 1932 has no such compulsions for firm registration and
no fines for non-registration either. However, under Section 69 of the Act, certain disabilities are
imposed on non-registered firms. These disabilities have a persuasive pressure on firms for
registration.
Section 69 of the Indian Partnership Act, 1932 offers a detailed explanation of the consequences
of not opting for firm registration. These are:
1] No suit in a civil court by the firm or other co-partners against any third party
If the firm registration is not done, then the firm or any other person on its behalf cannot file a
suit against a third party for breach of contract which the firm has entered into. Further, the
person filing the suit on behalf of the firm should be in the register of the firm as a partner.
2] No relief to partners for set-o-ff of claim
Without firm registration, any action brought against the firm by a third party having a value of
more than Rs. 100 cannot be set-off by the firm or any of its partners. Pursuance of other
proceedings to enforce rights arising from the contract cannot be done either.
3] An aggrieved partner cannot bring legal action against other partner or the firm
A partner of the firm or any person on his behalf cannot bring legal action against the firm or
against any partner (or alleged to be a partner) if firm registration is not done. However, if the
firm is dissolved, then such a person can sue the firm for dissolution it accounts and realization
of his share in the firm’s property.
4] A third party can sue the firm
Even if the firm registration is not done a third party can bring legal action against the firm.
It is also, important to note that despite these disabilities, the non-registration of a firm does not
affect the following rights:
 The right of a third party to sue the firm or any partner
 Partners’ right to sue the firm for dissolution or settlement of accounts (in case of
dissolution)
 The power of the Official Assignees, Receiver of Court to release the property of the
insolvent partner and bring an action
 The right of the firm and partners to sue or claim set-off of the value of the suit does not
exceed Rs. 100.
Q 9. DISTINQUISH BETWEEN PLEDGE AND BAILMENT.
A. In simple terms, bailment refers to hand over or assignment the goods, which involves change
in possession but not in the ownership of goods. It is the transfer of goods from one party to
another party for some specific purpose. It is not same as pledge, which is just a variant of
bailment. Pledge implies a contract, in which an article is delivered or say deposited with the
money lender, as security for repayment of a debt owed by him/her or performance of promise.
The main difference between pledge and bailment lies in the use of goods, i.e. the use of goods is
prohibited in pledge, whereas in the case of bailment the party to whom the goods are being
handed over can use them.
The following are the major differences between Bailment and Pledge:
 A Bailment is a contract in which goods are transferred from one party to another party
for a short period for a specific objective. The Pledge is a kind of Bailment in which
goods are pledged as security against payment of debt.
 A Bailment is defined under section 148 while Pledge is defined under section 172 of the
Indian Contract Act, 1872.
 In bailment, the consideration may or may not be present, but in the case of a pledge, the
consideration is always present.
 The objective of bailment is safe custody or repairing of goods delivered. On the other
hand, the sole purpose of delivering the goods is to act as security against the debt.
 The receiver has no right to sell the goods in case of bailment whereas if Pawnor does not
redeem the goods within the reasonable time, the Pawnee can sell the goods after giving
notice to him.
 In bailment, the goods are used by the bailee only for the said purpose. Conversely, in
pledge, Pawnee has no right to use the goods.

Q 10. EXPLAIN DIFFERENT METHODS BY WHICH AN AGENCY MAY BE

TERMINATED.
A. Termination of agency
An agency may be terminated either by – 1) act of the parties, or 2) operation of law.

 By act of the parties:

1. By agreement: An agency, like any other contract, can be terminated at any time by a mutual
agreement between the Principal and the Agent.
2. Revocation by the Principal: The Principal is empowered to revoke the authority of the
Agent at any time. The agency stands terminated from the time such revocation is effected.
Revocation can be express or implied.
a. In the case of a continuous agency, it can be terminated by revocation only for the future. It
cannot be revoked in relation to the acts already done by the Agent. In other words, revocation
cannot be with retrospective effect. Reasonable notice should be given to the Agent and also the
third parties before revocation.
b. An agency, which is created for a fixed period, can be terminated by revocation even before
the expiry of that period. However, the Principal is bound to pay compensation to the Agent,
even if the authority is revoked after giving notice.
3. Renunciation by the Agent: It is the termination of the agency at the instance of the Agent,
when he no longer wishes to continue working as Agent. The Agent has to give a reasonable
notice to the Principal of his intention to renounce the agency; otherwise he is liable to
compensate the Principal for any loss due to renunciation without notice. Further, if the agency is
for a fixed period and the Agent renounces it without sufficient cause before the expiry of the
period, he shall have to compensate the Principal for the resulting loss, if any.

 By operation of law:
An agency comes to end automatically by operation of law in the following conditions:
1. Completion of business of agency: If the purpose for which the agency is created is served
and achieved, the agency stands terminated, e.g. where an advocate is appointed to appear in a
suit, his authority comes to end when the adjudication is complete and the judgment is delivered.
2. Expiry of time: When the agency is created for a specified period of time, the agency comes
to end with that period, even though the business or reason for which the agency was created
continues.
3. Death of the Principal or the Agent: An agency is terminated automatically on the death of
the Principal or the Agent. In the event of the death of the Principal, the Agent must take all
reasonable care to protect the interests of the deceased Principal, which were entrusted to him.
4. Insanity of the Principal or the Agent: If the Principal or the Agent becomes of unsound
mind, the agency is terminated automatically. Here also, in the case of insanity of the Principal,
the duty of the Agent is the same as in the event of death of the Principal.
5. Insolvency of the Principal: When the Principal becomes insolvent, the agency is terminated.
However, the termination of agency on the insolvency of the Agent is at the discretion of the
Principal.
6. Destruction of the subject matter: Where the agency is created with reference to a particular
property or subject matter, it stands terminated automatically with the destruction of that
property. When the Agent is appointed for the sale of a house, the agency is terminated when the
house is destroyed by fire.
7. Dissolution of a Company: It is like the death of the Principal or the agent. When Principal or
the Agent is an artificial person created only in the eyes of law (such as incorporated companies),
the agency is terminated with the dissolution of that company.
8. Becoming an alien enemy: If the Principal or the Agent is a citizen of another country and
the war breaks between India and that country, the contract of agency is automatically
terminated, as the continuance of the same is unlawful.
Q 11. DISCUSS THE RIGHTS AND LIABILITIES OF SURETY IN A CONTRACT OF
GUARANTEE.
A. The contract of guarantee is also known as the Contract of Suretyship. Section 126 of the
Indian Contract Act, 1872 defines the Contract of guarantee - 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 person who gives the guarantee is called the “surety”. Surety is also known as Guarantor.
Rights of Surety:
1) Rights of surety on payment or performance:
According to Section 140 of the Indian Contract Act 1872, where a guaranteed debt has become
due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety
upon 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) Surety's right to benefit of creditor's securities (Section 141):
According to Section 141 of the said Act, 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
entered into, whether the surety knows of the existence of such security or not; and if the creditor
loses, or without the consent of the existence of such security or not; and if the creditor loses, or
without the consent of the surety, parts with such security, the surety, the surety is discharged to
the extent of the value of the security.
Illustrations
(a) C, advances to B, his tenant, 2,000 rupees on the guarantee of A. C has also a further security
for the 2,000 rupees 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 the furniture.
(b) C, a creditor, whose advance to B is secured by a decree, receives also a guarantee for that
advance from A. C afterwards takes B’s goods in execution under the decree, and then, without
the knowledge of A, withdraws the execution. A is discharged.
According to Section 145 of the Indian Contract Act,1872 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 whatever sum he has rightfully paid under the guarantee, but
no sums which he has paid wrongfully.
Illustrations
(a) B is indebted to C, and A is surety for the debt. C demands payment from A, and on his
refusal sues him for the amount. A defends the suit, having reasonable grounds for doing so, but
he is compelled to pay the amount of debt with costs. He can recover from B the amount paid by
him for costs, as well as the principal debt.
(b) C lends B a sum of money, and A, at the request of B, accepts a bill of exchange drawn by B
upon A to secure the amount. C, the holder of the bill, demands payment of it from A, and, on
A’s refusal to pay, sues him upon the bill. A, not having reasonable grounds for so doing,
defends the suit, and has to pay the amount of the bill and costs. He can recover from B the
amount of the bill, but not the sum paid for costs, as there was no real ground for defending the
action.
4) Right against Co-Sureties (Section 146):
In a contract of guarantee if there are more than one surety, they are called co-sureties. Co-
sureties are equally liable Creditor can sue one or all. If only one surety is sued and he has to
paid the debt then he may demand co-sureties to contribute.
According to Section 146 of the said Act, Co-sureties liable to contribute equally. where two or
more persons are co-sureties for the same debt or duty, either jointly or severally, and whether
under the same or different contract, and whether with or without the knowledge of each other
the co-sureties, in the absence of any contract to the contrary, are liable, as between themselves,
to pay each an equal share of the whole debt, or of that part of it which remains unpaid by the
principal debtor.
Illustrations
(a) A, B and C are sureties to D for the sum of 3,000 rupees lent to E. E makes default in
payment. A, B and C are liable, as between themselves, to pay 1,000 rupees each.
(b) A, B and C are sureties to D for the sum of 1,000 rupees lent to E, and there is a contract
between A, B and C that A is to be responsible to the extent of one-quarter, B to the extent of
one-quarter, and C to the extent of one-half. E makes default in payment. As between the
sureties, A is liable to pay 250 rupees, B 250 rupees, and C 500 rupees.
5) Right to Request :
In a contract of guarantee surety has a right to request the creditor to choose the principal debtor
to sue before he is called upon to pay the debt.
Surety's liability (Sec. 128)
The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise
provided by the contract. The expression 'co-extensive shows the maximum extent of surety's
liability. Surety is liable for the whole of the amount for which the principal debtor is liable. So,
in extent, surety's liability is at par with principal debtor's liability. ... The surety's liability arises
immediately on default by the principal debtor.
Illustration
A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is dishonored by
C. A is liable not only for the amount of the bills but also for any interest and charges which may
have become due on it.
The liabilities of a surety arises from the creation of a contract. But it comes into execution only
when the principal debtor fails to perform his obligation. The nature of liability of a surety
according to the contract of guarantee is give below:
1. Primary or co-extensive nature of liability: The liability of the surety is secondary and
co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. In
general terms the quantum of obligation of a surety wills neither be more nor less than the surety
will be responsible until the principal debtor becomes free his liability.
2. Secondary and Contingent nature of liability: The surety is liable only when the
principal debtor fails to fulfill promise made to the creditor.
3. Limited nature of liability: When a security and guarantee both are given as a
consideration for the debt or liability, the surety will not be liable to the extent of the security.
Sometimes, a discharge of the principal debtor by the operation of law does not discharge the
surety from his liability.
 The surety will be liable for the remaining part of the debt from the sale of the security of
the principal debtor.
 The surety will not be liable if any alterations are made by the principal debtor and
creditor without the consent of the surety.
 The surety will not be liable to the extent of loss or destruction.
 The surety will be liable for the entire debt if:
 The principal debtor is minor;
 The principal debtor becomes insolvent; or
 The principal debtor dies.
Q 12. DEFINE PARTNERSHIP. DISCUSS DIFFERENT MODES FOR DETERMINING
THE EXISTENCE OF A PARTNERSHIP.
A. THE INDIAN PARTNERSHIP ACT' 1932 Section.4 of the Indian Partnership Act, 1932
defines Partnership in the following terms: “Partnership is the relation between persons who
have agreed to share the profits of a business carried on by all or any of them acting for all.”
The term partnership, is used to mean a business structure wherein two or more individuals,
come together for undertaking a lawful business and have agreed to share the profits and losses
arising from it. The management and operation of the business should be performed either by all
the partners or any of them, acting for all the partners.
The Partnership is the relation which subsists between individuals, who have decided to pool
their money, skill and resources in business, to share profits and losses, in an agreed ratio. The
members of a partnership, are jointly known as the partnership firm and severally known as
partners.
In India, it is governed by the Indian Partnership Act, 1932 and is formed as per the provisions of
the act. It is started through a legal agreement between partners, called as partnership deed. It
lays down the terms and conditions regulating partnership, such as profit and loss sharing ratio,
nature of the business, duration of business, duties and obligations of partners, capital
contributed by each partner, manner of conducting business and so on.
In a partnership, each person contributes something to the business -- such as ideas, money,
property, or some combination of these. Management rights, profit share, and personal liability
will vary depending on which of the three modern partnership forms the business takes: general
partnership, limited partnership, or limited liability partnership (LLP). Below are basic
summaries of the main types of business partnerships.
General Partnerships
A general partnership involves two or more owners carrying out a business purpose. General
partners share equal rights and responsibilities in connection with management of the business,
and any individual partner can bind the entire group to a legal obligation. Each individual partner
assumes full responsibility for all of the business's debts and obligations. Although such personal
liability is daunting, it comes with a tax advantage: partnership profits are not taxed to the
business, but pass through to the partners, who include the gains on their individual tax returns at
a lower rate.
Limited Partnerships
A limited partnership allows each partner to restrict his or her personal liability to the amount of
his or her business investment. Not every partner can benefit from this limitation -- at least one
participant must accept general partnership status, exposing himself or herself to full personal
liability for the business's debts and obligations. The general partner retains the right to control
the business, while the limited partner(s) do(es) not participate in management decisions. Both
general and limited partners benefit from business profits.
Limited Liability Partnerships (LLP)
Limited liability partnerships (LLP) retain the tax advantages of the general partnership form, but
offer some personal liability protection to the participants. Individual partners in a limited
liability partnership are not personally responsible for the wrongful acts of other partners, or for
the debts or obligations of the business. Because the LLP form changes some of the fundamental
aspects of the traditional partnership, some state tax authorities may subject a limited liability
partnership to non-partnership tax rules. The Internal Revenue Service views these businesses as
partnerships, however, and allows partners to use the pass through technique.
Existing partnerships that wish to take advantage of LLP status do not need to modify their
existing partnership agreement, though they may choose to do so. In order to change status, a
partnership simply files an application for registration as a limited liability partnership with the
appropriate state agency. All states require disclosure of the partnership's name and principle
place of business. Some states also require, among other things, identification of the number of
partners, a brief description of the business, a statement that the partnership will maintain
insurance, and written acknowledgment that the limited liability status may expire.
Q 13. DEFINE SALE. HOW IT IS DIFFERENT FROM HIRE AND PURCHASE.
A. Sale of commodities constitutes one of the important types of contracts under the law in India.
India is one of the largest economies and also a great country where and thus has adequate
checks and measures to ensure the safety and prosperity of its business and commerce
community. Here we shall explain The Sale of Goods Act, 1930 which defines and states terms
related to the sale of goods and exchange of commodities.
Definition sale of goods. A contract of sale is a legal contract an exchange of goods, services or
property to be exchanged from seller to buyer for an agreed upon value in money paid or the
promise to pay same. It is a specific type of legal contract.
Contracts of sale resemble contracts of hire purchase very closely, and indeed the real object of a
contract of hire purchase is the sale of the goods ultimately.-Nonetheless, a sale has to be
distinguished from a hire purchase as their legal incidents are quite different.
Under hire purchase agreement, the goods are delivered to the hire purchaser for his use at the
time of the agreement but the owner of the goods agrees to transfer the property in the goods to
the hire purchaser only when a certain fixed number of installments of price are paid by the hirer.
Till that time, the hirer remains the bailee and the installments paid by him are regarded as the
hire-charges for the use of the goods. If there is a default by the hire purchaser in paying an
installment, the owner has a right to resume the possession of the goods immediately without
refunding the amount received till then, because the ownership still rests with him. Thus, the
essence of hire- purchase agreement is that there is no agreement to buy, but there is only a
bailment of the goods coupled with an option to purchase them which may or may not be
exercised.
It may be noted that mere payment of price by installments under an agreement does not
necessarily make it a hire-purchase, but it may be a sale. For example, in the case, of
"Installment Purchase Method,"
there is a sale, because in this case the buyer is bound to buy with no option to return and the
property in goods passes to the buyer at once.
The main points of distinction between the 'sale' and 'hire-purchase' are as follows:
1. In a sale, property in the goods is transferred to the buyer immediately at the time of contract,
whereas in hire-purchase, the property in the goods passes to the hirer upon payment of the last
installment.
2. In a sale, the position of the buyer is that of the owner of the goods but in hire purchase, the
position of the hirer is that of a bailee till he pays the last installment.
3. In the case of a sale, the buyer cannot terminate the contract and is bound to pay the price of
the goods. On the other hand, in the case of hire-purchase, the hirer may, if he so likes, terminate
the contract by returning the goods to its owner without any liability to pay the remaining
installments.
4. In the case of a sale, the seller takes the risk of any loss resulting from the insolvency of the
buyer. In the case of hire purchase, the owner takes no such risk, for if the hirer fails to pay an
installment, the owner has the right to take back the goods.
5. In the case of a sale, the buyer can pass a good title to a bonafide purchaser from him but in a
hire-purchase, the hirer cannot pass any title even to a bonafide purchaser.
6. In a sale, sales tax is levied at the time of the contract whereas in a hire-purchase, sales tax is
not leviable until it eventually ripens into a sale (K.L. Johar & Co. vs. Dy. Commercial Tax
Officer).
Q 14. BUYERS REMEDIES AGAINST THE SELLER FOR BREACH OF CONTARCT
OF SALE.
A. Buyer's Remedies Against Seller For Breach of Contract
A buyer also has certain remedies against the seller who commits a breach. These are:
1. Suit for Damages for Non-Delivery- When the seller wrongfully neglects or refuses to
deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery. This is
in addition to the buyer's right to recover the price, if already paid, in case of non-delivery.
Section 57 – Where the seller wrongfully neglects or refuses to deliver the goods to the buyer,
the buyer may sue the seller for damages for non-delivery.
2. Suit for price- Where the buyer has paid the price and the goods are not delivered to him, he
can recover the amount paid.
3. Suit for specific performance- When the goods are specific or ascertained, a buyer may sue
the seller for specific performance of the contract and compel him to deliver the same goods. The
court orders for specific performance only when the goods are specific or ascertained and an
order for damages would not be an adequate remedy. Specific performance is generally allowed
where the goods are of special significance or value e.g. a rare paining, a unique piece of
jewellery, etc.
4. Suit for Breach of Warranty- Where there is a breach of warranty by the seller, or where the
buyer elects or is compelled to treat the breach of condition as breach of warranty, the buyer
cannot reject the goods. The buyer may, (a) set up the breach of warranty in extinction or
diminution of the price payable by him, or (b) sue the seller for damages for breach of warranty.
5. Suit for Damages for Repudiation of contract before Due date-Where the seller repudiates
the contract before the date of delivery, the buyer may adopt any of the following two courses of
action --
He may treat the contract as rescinded and sue the seller for damages. This is also known as
'damages for anticipatory breach'. The damages will be assessed according to the prices
prevailing on the date of breach.
He may treat the contract as subsisting and wait till the date of delivery. The contract remains
open at the risk and for the benefit of both the parties. If the seller subsequently chooses to
perform there shall be no damages otherwise he shall be liable to damages assessed according to
the prices on the day stipulated for delivery.
6. Suit for interest- The buyer may recover such interest or special damages, as may be
recoverable bylaw. He may also recover the money paid where the consideration for the payment
of it has failed.
In the absence of a contract to the contrary, the court may award interest, to the buyer, in a suit
by him for the refund of the price in a case of a breach on the part of the seller, at such rate as it
thinks fit on the amount of the price from the date on which the payment was made.

Q 15. TRANSFER OF TITLE.

A. Transfer of Title
A Latin maxim says: ‘Nemo dat quod non habet’ which means that no one can give what he
doesn’t have. This is the ground principle regarding the transfer of title. Sections 27 to 30 of the
Sale of Goods Act, 1930 specify these laws about the transfer of title. Let us take a look.
Transfer of Title
 Section 27 deals with the sale by a person who is not the owner. Imagine a sale contract
where the seller Is not the owner of the goods
 Does not have consent from the owner to sell the goods
 Has not been given authority by the owner to sell the goods on his behalf
In such cases, the buyer acquires no better title to these goods than the seller had, provided the
conduct of the owner precludes the seller’s authority to sell.
Section 27, as a general rule, tries to protect the interest of the true owner when it provides that
where the goods are sold by a person who is not the owner thereof and who does not sell them
under the authority or with the consent of the owner, the buyer acquires no better title to the
goods than the seller has.
If the title of the seller is defective, the buyer’s title will also be subject to the same defect. The
rule does not imply that buyer’s title will always be a bad one. What it means is that the buyer
cannot acquire a superior title to that of the seller. If a thief disposes of stolen goods, the buyer of
such goods has the same title as the seller had. Similarly, where a person taking goods on hire-
purchase basis sells them before he had paid all the instalments, the owner can recover the goods
from the transferee, on default of payment, in the same way as he could have recovered them
from the person to whom they had been given on the hire purchaser basis.
The rule can be demonstrated by the case of Greenwood v Bennett. In this case the original
owner of a Jaguar car (Bennett) entrusted it to a man named Searle for repairs to be carried out.
Searle then used the car for his own purposes, crashed it and caused extensive damage. Searle
then sold the car to Harper, who owned a garage, for £75. Harper did not realise that Searle was
not the owner of the car. Harper then spent £226 repairing the car and sold it on to a finance
company. It was held by the court that the car belonged to Bennett as Searle did not have title
and could therefore not transfer that title to Harper. For the same reason, Harper could not
transfer title to the finance company. Bennett was therefore able to recover the car but had to
compensate Harper for the work done to it.
In India in the case of Life Insurance Corporation vs United Bank Of India Ltd. And Anr,
court held that Under the Indian Law, an actionable claim is no doubt transferable but it is
transferable only by the person who has a title to the property in respect of which the claim lies.
The position is the same in English law. Nemo dat quod non habet, no one gives what he does
not possess. If the nominee has no title to the policy money he can neither surrender the policy
nor can he transfer by assignment any right, title or interest in the moneys payable under the
policy. In the contemplation of the statute, the right of a nominee is a mere right to collect the
proceeds of the policy and the right has been given only to obviate the inconvenience of
obtaining representation to the estate of the deceased policy-holder or a succession certificate.
Q 16. DISCUSS THE DUTIES OF AN AGENT.
A. An “agent” is a person employed to do any act for another, or to represent another in dealing
with third persons. The person for whom such act is done, or who is so represented, is called the
“principal”. The contract between Principal and Agent is called 'Contract of Agency'. The rights
and duties of the Agent are corresponding to the duties. Duties of an Agent are as follows :
A) Duties of an Agent :
1) Agent's duty in conducting principal's business (Section 211) :
An agent is bound to conduct the business of his principal according to the directions given by
the principal, or, in the absence of any such directions, according to the custom which prevails in
doing business of the same kind at the place where the agent conducts such business. When the
agent acts otherwise, if any loss be sustained, he must make it good to his principal, and, if any
profit accrues, he must account for it.
Illustrations :
(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 moneys which may be in hand, on its to make such investments. A
must make good to B the interest usually obtained by such investments.
(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) Skill and diligence required from agent (Section 212) :
An agent is bound to conduct the business of the agency with as much skill as is generally
possessed by persons engaged in similar business, unless the principal has notice of his want of
skill. The agent is always bound to act with reasonable diligence, and to use such skill as he
possesses; and to make compensation to his principal in respect of the direct consequences of his
own neglect, want of skill or misconduct, but not in respect of loss or damage which are
indirectly or remotely caused by such neglect, want of skill or misconduct.
Illustrations
(a) A, a merchant in Calcutta, has an agent, B, in London, to whom a sum of money is paid on
A’s account, with orders to remit. B retains the money for a considerable time. A, in
consequence of not receiving the money, becomes insolvent. B is liable for the money and
interest, from the day on which it ought to have been paid, according to the usual rate, and for
any further direct loss - as, e.g., by variation of rate of exchange — but not further.
(b) A, an agent for the sale of goods, having authority to sell on credit, sells to B on credit,
without making the proper and usual inquiries as to the solvency of B. B at the time of such sale
is insolvent. A must make compensation to his principal in respect of any loss thereby sustained.
(c) A, an insurance-broker employed by B to effect an insurance on a ship, omits to see that the
usual clauses are inserted in the policy. The ship is afterwards lost. In consequence of the
omission of the clauses nothing can be recovered from the underwriters. A is bound to make
good the loss to B.
3) Duty to render proper accounts (Section 213):
According to Section 213 of Indian Contract Act 1872, An agent is bound to render proper
accounts to his principal on demand.
4) Duty to communicate with principal (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) Not to deal on his own Account :
Section 215 of the Indian Contract Act 1872 deals with right of principal when agent deals, on
his own account, in business of agency without principal's consent. Section 215 runs as follows -
If an agent deals on his own account in the business of the agency, without first obtaining the
consent of his principal and acquainting him with all material circumstances which have come to
his own knowledge on the subject, the principal may repudiate the transaction, if the case shows
either that any material fact has been dishonestly concealed from him by the agent, or that the
dealings of the agent have been disadvantageous to him.
Illustrations
(a) A directs B to sell A’s estate. B buys the estate for himself in the name of C. A, on
discovering that B has bought the estate for himself, may repudiate the sale, if he can show that
B has dishonestly concealed any material fact, or that the sale has been disadvantageous to him.
(b) A directs B to sell A’s estate. B, on looking over the estate before selling it, finds a mine on
the estate which is 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.
A, on discovering that B knew of the mine at the time he bought the estate, may either repudiate
or adopt the sale at his option.
6) Not to make Secret Profits:
Section 216 of Indian Contract Act, deals with Principal's right to benefit gained by agent
dealing on his own account in business of agency. An Agent, without the knowledge of his
principal, should not deal in the business of agency on his own to make secret profit.
Section 216 of the Indian Contract Act,1872 reads as - "If an agent, without the knowledge of his
principal, deals in the business of the agency on his own account instead of on account of his
principal, the principal is entitled to claim from the agent any benefit which may have resulted to
him from the transaction."
Illustration
A directs B, his agent, to buy a certain house for him. B tells A it cannot be bought, and buys the
house for himself. A may, on discovering that B has bought the house, compel him to sell it to A
at the price he gave for it.
7) Duty to pay sums received for principal:
According to Section 218 of the said Act, an agent is bound to pay to his principal all sums
received on his account.
8) Not to Disclose Secret:
It is duty of an agent to maintain secrecy of the business of agency and should not reveal the
confidential matters.