Legum Baccalaureus (LLB) - Contract Law - 2 2nd Semester Syllabus Short Notes
*** Download the PDF from the link provided at the bottom of this page.
Each subject's PDF will be in its respective blog.
UNIT – 1
Indemnity
and Guarantee
Indemnity refers to a contractual obligation
in which one party (the indemnitor or indemnifier) agrees to compensate the
other party (the indemnitee holder or indemnified) for losses, damages, or
liabilities that the indemnitee may suffer as a result of a specified event or
circumstances. An indemnity clause is typically included in a contract to
allocate risks and protect the parties from potential losses. Mentioned in section
124 of Indian Contract act, 1872.
guarantee is a promise by one person (the
guarantor) to be responsible for the debts, obligations, or liabilities of
another person (the principal debtor) in the event that the principal debtor
fails to fulfill their contractual obligations. The guarantee is a separate
contract between the guarantor and the creditor, and the guarantor's liability
is secondary to that of the principal debtor. Mentioned in section 126
of Indian Contract act, 1872.
In an
indemnity, the indemnitor's liability is primary, and the indemnitee can
recover the losses directly from the indemnitor. In a guarantee, the
guarantor's liability is secondary, and the creditor must first seek to recover
the debt from the principal debtor before pursuing the guarantor.
Contract of Indemnity, definition - Mentioned in section 124 of Indian
Contract act, 1872.
A contract
of indemnity is a contract by which one party promises to protect the other
party against any loss caused to him by the conduct of the promisor himself or
by the conduct of any other person. It is a contract whereby the promisor
undertakes to save the promisee from any loss caused to him by the conduct of
the promisor himself or by the conduct of any other person. In other words, it
is a contract of insurance against any loss or damage that may be suffered by
the promisee.
Rights of Indemnity holder
Mentioned
in section 125 of Indian Contract act, 1872.
The rights
of an indemnity holder under a contract of indemnity are as follows:
1. Right to be indemnified: The indemnity holder has the right
to claim indemnity from the indemnifier for any loss suffered by him due to the
conduct of the indemnifier or any other person.
2. Right to recover damages: If the indemnity holder has paid
any damages to a third party due to the conduct of the indemnifier or any other
person, he has the right to recover such damages from the indemnifier.
3. Right to sue in his own name: The indemnity holder has the right
to sue the third party in his own name and recover the damages from the third
party.
4. Right of subrogation: If the indemnity holder has been
indemnified by the indemnifier, he has the right of subrogation, which means
that he can step into the shoes of the indemnified party and sue the third
party for the recovery of the damages.
5. Right to recover costs and expenses: The indemnity holder has the right
to recover all the costs and expenses incurred by him in defending any action
or suit brought against him by a third party.
It is
important to note that the rights of the indemnity holder are subject to the
terms and conditions of the contract of indemnity.
Liability of the indemnified
The
liability of the indemnified party in a contract of indemnity arises when a
third party makes a claim against the indemnity holder for the loss or damage
that the third party has suffered. In such a situation, the indemnified party
is bound to take all necessary steps to defend the claim and mitigate the loss.
If the indemnified party fails to take the necessary steps, the indemnifier can
claim damages from the indemnified party for the loss suffered due to such
negligence.
However, if
the indemnified party acts in good faith and without negligence, and still
suffers a loss, the indemnity holder is liable to compensate the indemnified
party for the loss suffered. The indemnity holder is bound to indemnify the
indemnified party for any loss suffered by the indemnified party due to the
actions of the third party.
In simple
terms, the indemnified party is entitled to claim indemnity from the indemnity
holder for any loss suffered due to the third party's actions, subject to the
terms of the contract of indemnity.
Contract of Guarantee
A contract
of guarantee is a contract where a person agrees to perform the promise
or discharge the liability of a third person in case of their default. In this
type of contract, there are three parties involved: the principal debtor, the
surety or guarantor, and the creditor. The guarantor undertakes to fulfill the
obligation of the principal debtor if they fail to do so.
For
instance, if A borrows money from a bank, and B guarantees to repay the loan
amount if A fails to do so, it would be a contract of guarantee.
In a
contract of guarantee, the surety is liable only if the principal debtor fails
to perform their obligation. The liability of the guarantor is co-extensive
with that of the principal debtor, unless otherwise provided in the contract.
The rights
and liabilities of the parties to a contract of guarantee are governed by the
terms of the contract. If the terms are not specified, the provisions of the
Indian Contract Act, 1872 apply.
It is
important to note that a contract of guarantee is a form of secondary
obligation, meaning that the guarantor's obligation arises only when the
principal debtor fails to fulfill their obligation.
Definition of Guarantee
Section
126 of the Indian
Contract Act, 1872 defines a contract of guarantee as follows: "A
'contract of guarantee' is a contract to perform the promise, or discharge the
liability, of a third person in case of his default."
A guarantee
is a contract that involves three parties, namely the principal debtor, the
creditor, and the surety. A contract of guarantee is a collateral contract
where a person promises to fulfill the obligations of another person, in case
that person fails to perform his obligations. The person who gives the
guarantee is known as the surety, and the person to whom the guarantee is given
is known as the creditor.
Essential characteristics of Contract of
Guarantee
The
essential characteristics of a contract of guarantee are as follows:
1. Three parties: A contract of guarantee involves
three parties, namely the principal debtor, the creditor, and the surety.
2. Primary liability: The liability of the principal
debtor is primary and that of the surety is secondary. The surety’s liability
arises only when the principal debtor defaults on the payment of the debt.
3. Secondary contract: A contract of guarantee is a
collateral contract. It is secondary to the principal contract between the
creditor and the principal debtor.
4. Consensual contract: A contract of guarantee is a
consensual contract, which means that it is formed by the mutual consent of the
parties involved.
5. Unilateral contract: A contract of guarantee is a
unilateral contract, where only the surety is bound to perform his obligation,
and the creditor and the principal debtor are not bound to do anything.
6. Continuing guarantee: A contract of guarantee may be a
continuing guarantee, which means that the liability of the surety extends to
all transactions that take place between the creditor and the principal debtor.
7. Revocable contract: A contract of guarantee may be a
revocable contract, which means that the surety may revoke his guarantee at any
time before the credit is granted.
These are
the essential characteristics of a contract of guarantee.
Distinction between Indemnity and Guarantee
Kinds of Guarantee
There are
several kinds of guarantees recognized under the Indian Contract Act, 1872,
including:
1. Specific Guarantee: This type of guarantee is given for
a particular debt or liability.
2. Continuing Guarantee: A continuing guarantee is one where
the liability of the guarantor continues until revoked by the guarantor.
3. Limited Guarantee: A limited guarantee is one where the
liability of the guarantor is limited to a specific amount or time period.
4. Performance Guarantee: A performance guarantee is given to
ensure that the guaranteed party performs its obligations under the contract.
5. Financial Guarantee: A financial guarantee is given to
ensure that a debt or obligation will be paid by the guarantor if the debtor
fails to pay.
6. Advance Payment Guarantee: An advance payment guarantee is
given to ensure that an advance payment made by one party is repaid if the
other party fails to perform its obligations.
7. Deferred Payment Guarantee: A deferred payment guarantee is
given to ensure that deferred payments are made by the guarantor if the debtor
fails to make the payment on the due date.
8. Guarantee of Collection: A guarantee of collection is given
to ensure that a debt will be collected by the guarantor if the debtor fails to
pay.
Rights and liabilities of Surety - Mentioned in section 128 of Indian
Contract act, 1872.
The rights
and liabilities of a surety in a contract of guarantee are as follows:
1. Liability of the surety: The primary liability for the debt
or obligation rests with the principal debtor. However, in the event of the
debtor’s default, the surety becomes liable to the creditor for the same debt
or obligation.
2. Rights of the surety: When the surety pays off the debt,
he has certain rights against the principal debtor. He is entitled to all the
rights that the creditor has against the debtor, including the right to recover
the debt. The surety also has the right to be indemnified by the debtor for any
loss he may have suffered as a result of guaranteeing the debt.
3. Right to set-off: If the surety has any claim against
the creditor, he may set it off against the amount due to the creditor from the
principal debtor.
4. Right of subrogation: When the surety pays off the debt,
he is entitled to the rights of the creditor against the principal debtor. This
means that the surety can sue the debtor for the recovery of the debt in the
same way that the creditor could have sued the debtor.
5. Right to be discharged: The surety has the right to be
discharged from his liability under the contract of guarantee if the creditor
alters the terms of the contract without the surety’s consent. The surety is
also discharged if the creditor releases the principal debtor from his
liability without the surety’s consent.
6. Right to contribution: If there is more than one surety
for a debt, each surety is liable to the creditor for the full amount of the
debt. However, if one surety pays more than his share of the debt, he is
entitled to contribution from the other sureties in proportion to their
respective liabilities.
7. Right to notice: The surety has the right to notice
of the debtor’s default and the creditor’s intention to enforce the guarantee.
If the creditor fails to give the notice, the surety is discharged from his
liability to the extent that he is prejudiced by the failure to give notice.
In summary, the surety's liability under the
contract of guarantee is secondary to the liability of the principal debtor,
and the surety has certain rights against the debtor and the creditor when he
pays off the debt.
Discharge of surety
A surety
can be discharged from their obligations under a contract of guarantee in
several ways, including:
1. Revocation: A surety can revoke their guarantee
at any time before the actual contract is formed, as long as the revocation is
communicated to the creditor.
2. Release: A surety may be released from their
obligations if the creditor releases them, either by a contract between the
creditor and the principal debtor, or by the creditor's conduct.
3. Discharge by performance: If the principal debtor performs
their obligations under the contract, the surety's obligations are also
discharged.
4. Discharge by alteration of terms: Any material alteration of the
terms of the contract without the surety's consent will discharge the surety
from their obligations under the contract.
5. Discharge by impairment of the
creditor's remedy: If the creditor impairs their remedy against the principal debtor, such
as by compromising the debt or by releasing the security, the surety may be
discharged to the extent of the impairment.
6. Discharge by loss of security: If the creditor loses the security
provided by the principal debtor, the surety may be discharged to the extent of
the loss.
It is
important to note that the discharge of the surety does not necessarily
discharge the principal debtor from their obligations under the contract. The
creditor may still pursue the principal debtor for the outstanding debt.
Contract of Bailment
A contract
of bailment is a type of contract in which the owner of the goods, known as the
bailor, delivers the possession of his goods to another person, known as the
bailee, for a specific purpose or period of time. The goods are delivered to
the bailee for safekeeping, storage, transportation, or some other purpose,
with the understanding that they will be returned to the bailor or dealt with
in accordance with his instructions.
The key
characteristics of a contract of bailment are the transfer of possession of
goods and the requirement that the bailee exercise due care and diligence in
protecting and preserving the goods. The bailee is responsible for the
safekeeping and return of the goods to the bailor, and is liable for any loss,
damage or destruction of the goods that occurs while they are in his
possession.
The Indian
Contract Act, 1872, defines a bailment as “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.”
Examples of
bailment contracts include leaving your car with a valet parking attendant,
storing your furniture in a storage facility, or hiring a shipping company to
transport goods from one place to another.
Definition of bailment
Bailment
refers to a legal relationship between two parties, where one party temporarily
transfers possession and control of a tangible personal property to the other
party, with the understanding that the property will be returned or disposed of
in accordance with the parties' agreement. The party that delivers the property
is known as the bailor, while the party that receives the property is called
the bailee. The contract that governs the relationship between the bailor and
bailee is known as a contract of bailment.
Essential requisites of bailment
The essential
requisites of bailment are:
1. Delivery of possession: There must be a delivery of the
possession of the goods by one person to another person.
2. Purpose of delivery: The delivery of possession must be
for some specific purpose, such as safe custody, transportation, or repairs.
3. Temporary nature: The possession of the goods is
given temporarily, and the bailor has a right to get the goods back once the
purpose is fulfilled.
4. Transfer of possession: There is no transfer of ownership
of the goods; only possession is transferred.
5. Goods must be returned in the same
condition: The
bailee has a duty to take care of the goods and return them to the bailor in
the same condition as they were when delivered to him, except for any changes
caused by ordinary wear and tear.
6. Gratuitous or for a consideration: A bailment may be for a
consideration, where the bailee is paid for his services, or it may be
gratuitous, where no consideration is given.
All of
these elements must be present for a contract to be considered a bailment.
Kinds of bailment
There are
different kinds of bailment, which are as follows:
1. Bailment for the benefit of the
bailor: This
kind of bailment happens when the goods are delivered by the bailor to the
bailee for safekeeping or for some specific purpose without any consideration.
2. Bailment for the benefit of the
bailee: In this
type of bailment, the goods are delivered by the bailor to the bailee for his
benefit, such as when a person gives his car to a mechanic for repairs.
3. Gratuitous Bailment: When the bailment is made without
any consideration or compensation, it is called a gratuitous bailment.
4. Non-gratuitous Bailment: When the bailment is made for some
consideration or reward, it is called a non-gratuitous bailment.
5. Pledge: A pledge is a type of bailment
where the bailor delivers the goods to the bailee as security for a debt or
obligation.
6. Mandate: A mandate is a type of bailment
where the bailor delivers the goods to the bailee for a specific purpose, such
as selling or disposing of them.
7. Hypothecation: Hypothecation is a type of bailment
where the goods are delivered to the bailee as security for a debt, but the
bailee is allowed to retain possession of the goods.
8. Lease: A lease is a type of bailment where
the bailor delivers possession of the goods to the bailee for a specific period
in exchange for rent or consideration.
9. Custody: Custody is a type of bailment where
the bailor delivers the goods to the bailee for safekeeping without any
transfer of ownership or possession.
These are
some of the common kinds of bailment.
Rights and duties of bailor and bailee
The rights
and duties of bailor and bailee are as follows:
Rights
and duties of Bailor:
1. Right to receive the goods back: The bailor has the right to receive
the goods back from the bailee after the purpose of bailment is over.
2. Duty to disclose faults: The bailor has a duty to disclose
any faults in the goods which may not be apparent to the bailee.
3. Duty to indemnify: The bailor has a duty to indemnify
the bailee for any loss suffered by him due to defects in the goods bailed,
unless the bailee was aware of such defects at the time of the bailment.
4. Right to receive any increase or
profit: If any
increase or profit arises from the goods bailed, the bailor is entitled to
receive it.
5. Right to terminate bailment: The bailor has the right to
terminate the bailment before the expiry of the time period, in case of breach
of contract by the bailee.
Rights and
duties of Bailee:
1. Right of possession: The bailee has the right to possess
the goods bailed during the term of the bailment.
2. Duty to take care: The bailee has a duty to take care
of the goods bailed as a man of ordinary prudence would take of his own goods.
3. Duty to return the goods: The bailee has a duty to return the
goods bailed to the bailor after the purpose of bailment is over.
4. Right to claim expenses: The bailee is entitled to claim
expenses incurred in respect of the bailment from the bailor.
5. Right to claim compensation: The bailee has a right to claim
compensation from the bailor in case of any loss or damage to the goods bailed
due to the fault of the bailor.
These
rights and duties are subject to any agreement to the contrary between the
bailor and the bailee.
Termination of bailment
Bailment
can be terminated in several ways:
1. By agreement: Bailment can be terminated by
mutual agreement between the bailor and bailee.
2. By expiry of time: If the bailment is for a specified
period of time, it terminates when the time period expires.
3. By the purpose being accomplished: When the purpose for which the
goods were bailed is accomplished, the bailment comes to an end.
4. By breach of contract: If either the bailor or bailee
breaches the terms of the agreement, the other party can terminate the
bailment.
5. By the death or insolvency of the
bailor or bailee: The death or insolvency of either the bailor or bailee terminates the
bailment.
6. By destruction of the subject
matter: If the
subject matter of the bailment is destroyed, the bailment comes to an end.
Upon
termination of bailment, the bailee is under a duty to return the goods to the
bailor or dispose of them as directed by the bailor. If the bailee fails to do
so, the bailor may take legal action to recover the goods or seek damages.
Pledge
Pledge,
also known as pawn or hypothecation, is a type of bailment where a borrower
(pledger) gives possession of his movable property to a lender (pledgee) as
security for a debt or obligation. In this type of transaction, the ownership
of the property remains with the borrower, but the lender has the right to
retain possession of the property until the debt is repaid or the obligation is
fulfilled.
For
example, a person may pledge their jewelry to a pawn shop to secure a loan. The
pawn shop retains possession of the jewelry until the loan is repaid with
interest.
The rights
and duties of the pledger and pledgee are governed by the terms of the
agreement between them, as well as by the provisions of the Indian Contract
Act, 1872.
Definition of pledge
Pledge is a
special kind of bailment where a borrower pledges his or her personal property
as security for a loan or debt. The borrower, known as the pledger or pawner,
transfers the possession of the property to the lender, known as the pledgee,
who holds it as security until the debt is paid. Once the debt is paid, the
pledgee is obligated to return the property to the pledger.
Rights and duties of Pawnor and Pawnee
In a
pledge, the pawnor (also known as the pledgor) delivers his movable property to
the pawnee as security for a loan or performance of an obligation. The rights
and duties of both parties are as follows:
1. Rights of Pawnor:
a. Right to redeem: The pawnor has the right to redeem
the pledged property by paying the loan amount along with interest and other
expenses.
b. Right to receive surplus: If the proceeds of the sale of the
pledged property exceed the amount due to the pawnee, the pawnor is entitled to
receive the surplus amount.
c. Right to sue for damages: The pawnor can sue the pawnee for
any damage caused to the pledged property while it was in the pawnee's
possession.
d. Right to sue for wrongful sale: If the pawnee wrongfully sells the
pledged property, the pawnor can sue for damages.
2. Duties of Pawnor:
a. Duty to disclose defects: The pawnor has a duty to disclose
any defects or encumbrances in the pledged property.
b. Duty to pay expenses: The pawnor must pay any expenses
related to the maintenance or preservation of the pledged property.
c. Duty to repay loan: The pawnor must repay the loan
along with interest within the agreed timeframe.
d. Duty to indemnify: The pawnor must indemnify the
pawnee for any loss or damage caused by defects in the pledged property.
3. Rights of Pawnee:
a. Right to retain possession: The pawnee has the right to retain
possession of the pledged property until the loan is repaid.
b. Right of sale: If the pawnor fails to repay the
loan, the pawnee has the right to sell the pledged property after giving due
notice to the pawnor.
c. Right to sue for debt: The pawnee can sue the pawnor for
the amount of the loan if it is not repaid within the agreed timeframe.
d. Right to claim expenses: The pawnee has the right to claim
any expenses related to the preservation or maintenance of the pledged
property.
4. Duties of Pawnee:
a. Duty to take reasonable care: The pawnee has a duty to take
reasonable care of the pledged property.
b. Duty to return excess: If the proceeds of the sale of the
pledged property exceed the amount due to the pawnee, the pawnee must return
the excess to the pawnor.
c. Duty to return property: After the loan is repaid, the
pawnee must return the pledged property to the pawnor.
d. Duty to account: The pawnee must account for any
profits made from the pledged property.
Pledge by non-owner
Pledge by
non-owner refers to a situation where a person who is not the owner of the
goods pledges or hypothecates them with the pledgee as security for a loan or
debt. In such a situation, the pledgee acquires only a special property in the
goods, i.e., the right to retain the goods until the debt is paid off. The
ownership of the goods remains with the pledger.
In India,
pledge by non-owner is governed by Section 178 of the Indian Contract Act,
1872. According to this section, a person who is in possession of goods with
the consent of the owner may pledge them with the pledgee. The pledgee, in such
a case, acquires a special property in the goods pledged, subject to any right
the owner may have against the goods or the person pledging them.
However, if
the pledger is not authorized to pledge the goods or if he has obtained
possession of the goods by unlawful means, then the pledge will be considered
as voidable at the option of the true owner of the goods.
It is
important to note that in case of a pledge by a non-owner, the pledgee must
exercise reasonable care and caution while accepting the goods as security for
the loan. If the pledgee fails to exercise such care and the goods turn out to
be stolen or otherwise wrongfully obtained, he may be held liable for damages.
UNIT – 2
Contract of Agency
A contract
of agency is a legal agreement between two parties in which one party agrees to
act on behalf of the other party to perform certain tasks or make decisions.
The person who agrees to act on behalf of the other party is known as the
agent, and the person who authorizes the agent to act on their behalf is known
as the principal.
Under this
contract, the agent is authorized to act on behalf of the principal and make
legal decisions or transactions as per the agreement between them. The agent is
responsible to carry out the tasks as per the instructions given by the
principal and has a duty to act in good faith and in the best interest of the
principal.
The
principal, on the other hand, has the right to control the actions of the agent
and has the duty to provide the necessary resources and information to the
agent to perform their tasks. The principal is also responsible for paying the
agent for their services as per the agreement.
The
contract of agency can be expressed or implied, and it can be terminated by
mutual agreement, expiration of the agreed-upon time, or by operation of law.
The Indian Contract Act, 1872, contains provisions related to agency and
defines the rights and duties of both the agent and the principal.
Definition of Agent– Sec 182 of ICA 1872
In legal
terms, an agent is a person who is authorized by another person (called the
principal) to act on their behalf in legal matters or to perform specific
tasks. The agent is empowered to create a legal relationship between the
principal and a third party, with the understanding that the principal will be
bound by the agent's actions. The relationship between the principal and the
agent is known as an agency relationship.
Creation of Agency
An agency relationship
can be created in several ways:
1. Express appointment: An agency relationship can be
created by express appointment, which can be either written or oral. The
principal and the agent can enter into a contract that specifies the terms and
conditions of the agency.
2. Implied appointment: An agency relationship can also be
created by implication. For example, if a person allows another person to act
on their behalf without any objection, an agency relationship may be implied.
3. Ratification: An agency relationship can also be
created through ratification. Ratification occurs when a principal accepts the
actions of another person who acted on their behalf without prior authority.
4. Estoppel: An agency relationship can be
created by estoppel when the principal leads others to believe that a person is
their agent, and others rely on that belief to their detriment.
In India,
the creation of an agency is governed by the Indian Contract Act, 1872.
Rights and duties of Agent
The rights
and duties of an agent are governed by the terms of the agency agreement as
well as the general principles of agency law. Some of the key rights and duties
of an agent are as follows:
Rights
of an Agent:
1. Right to receive remuneration or
commission for the services rendered.
2. Right to receive reimbursement for
all expenses incurred in the course of performing the agency duties.
3. Right to retain any amounts received
on behalf of the principal.
4. Right to be indemnified by the
principal for any losses suffered by the agent in the course of performing the
agency duties.
Duties
of an Agent:
1. Duty to follow the principal's
instructions and act in good faith.
2. Duty to exercise reasonable care and
skill in performing the agency duties.
3. Duty to keep accurate records of all
transactions and report to the principal as required.
4. Duty not to disclose confidential
information to third parties.
5. Duty to avoid conflicts of interest
and act solely in the best interests of the principal.
These are
some of the general rights and duties of an agent. However, the exact rights
and duties will depend on the terms of the agency agreement and the specific
circumstances of the agency relationship.
Delegation of authority
Delegation
of authority refers to the act of transferring or assigning certain powers or
functions by an agent to another person. It involves the transfer of the right
to act on behalf of the principal to a third party. The delegation can be made
to another person or to a sub-agent.
Under the
Indian Contract Act, 1872, an agent can delegate his authority to another
person only with the express or implied consent of the principal. If the
principal has not given such consent, the delegation of authority is considered
to be invalid. The agent remains liable for the acts of the sub-agent or
delegate.
It is
important to note that delegation does not relieve the agent of his
responsibilities and liabilities towards the principal. The agent continues to
be responsible for the actions of the sub-agent, and he must ensure that the
sub-agent performs his duties with due care and diligence.
Personal liability of agent
In general,
an agent is not personally liable on contracts entered into on behalf of the
principal. However, an agent may become personally liable if the agent fails to
disclose that they are acting as an agent, or if the agent exceeds the scope of
their authority. Additionally, an agent may become personally liable for
tortious acts committed in the course of their agency, such as negligence or
fraud. It is important for agents to act within the scope of their authority
and disclose their agency status to avoid personal liability.
Relations of principal and agent with third
parties
The
relationship between the principal and the agent affects the legal rights and
obligations of third parties dealing with either of them. Section 186 of the
Indian Contract Act, 1872 specifies that an agent can bind the principal with
third parties, provided that he acts within the scope of his authority.
If the
agent exceeds his authority, the principal is not bound by the contract, unless
he ratifies it. Section 190 of the Act provides for the ratification of
unauthorized acts of an agent, which occurs when the principal approves an act
that the agent was not authorized to perform.
On the
other hand, third parties who deal with the agent in good faith and without
knowledge that the agent is acting outside the scope of his authority can hold
the principal responsible for the agent's actions, as provided under Section
237 of the Act.
Therefore,
the rights and obligations of third parties in relation to a principal and an
agent depend on the scope of the agent's authority and whether the principal
ratifies the agent's unauthorized acts.
Termination of Agency.
Termination
of Agency refers to the end of a contractual relationship between a principal
and an agent. The contract of agency may come to an end in a variety of ways,
including:
1. By agreement: The agency contract can be
terminated by mutual agreement between the principal and the agent.
2. By performance: When the purpose of the agency is
completed, or the agreed-upon period of time has elapsed, the agency contract
comes to an end.
3. By breach: If either party fails to perform
its obligations under the contract, the other party may terminate the contract.
4. By revocation: The principal can revoke the
authority granted to the agent at any time. However, if the agency is coupled
with an interest, the principal cannot revoke the authority.
5. By renunciation: The agent can renounce the agency
at any time.
6. By operation of law: The agency contract may come to an
end due to death, insanity, bankruptcy, or loss of capacity of either party.
Upon
termination of the agency, the agent is required to return all property
belonging to the principal and provide an account of all transactions that
occurred during the agency period. The principal is also obligated to
compensate the agent for services rendered up until the date of termination.
UNIT – 3
Contract of Sale of Goods
Contract of
Sale of Goods is a legal agreement whereby one party agrees to sell and
transfer the ownership of goods to another party in exchange for consideration,
usually money. The law governing the sale of goods in India is primarily
governed by the Sale of Goods Act, 1930.
The
essential elements of a contract of sale are:
1. Two parties: The buyer and the seller.
2. Goods: The subject matter of the contract
must be goods, which means movable property other than actionable claims,
money, and securities.
3. Price: The contract must include a price
or an agreed manner of determining the price.
4. Transfer of ownership: The ownership of the goods must be
transferred or agreed to be transferred from the seller to the buyer.
5. Delivery: The goods must be delivered or
agreed to be delivered to the buyer.
6. Payment: The buyer must pay or agree to pay
the price for the goods.
The Sale of
Goods Act, 1930 provides detailed provisions on the sale of goods, including
conditions and warranties, transfer of title, delivery, payment, and remedies
in case of breach of contract. It also defines the duties and liabilities of
both the buyer and the seller in a contract of sale.
Under a contract of sale of goods, the seller is bound to transfer the
ownership of the goods to the buyer, while the buyer is bound to accept and pay
for the goods in accordance with the terms of the contract. The seller is also
required to deliver the goods to the buyer, and the buyer is required to pay
the price for the goods.
In case of a breach of contract, either party may seek remedies such as
specific performance, damages, and rescission of the contract. The Sale of
Goods Act, 1930 provides detailed provisions on these remedies.
Formation of contract
The
formation of a contract of sale of goods in India is governed by the Indian
Contract Act, 1872, and the Sale of Goods Act, 1930.
Under the
Indian Contract Act, a contract is formed when there is an offer and acceptance
of that offer. The offer must be made with an intention to create legal
relations, and must be communicated to the offeree. The acceptance must be
unqualified and must be communicated to the offeror.
Under the
Sale of Goods Act, a contract of sale of goods is formed when the seller
transfers or agrees to transfer the property in goods to the buyer for a price.
The agreement may be either expressed or implied, and may be in writing or
oral.
Additionally,
the Sale of Goods Act also provides for certain rules regarding the formation
of contracts, such as the rule that a contract may be made in any manner
sufficient to show agreement, and that an acceptance may be given by conduct as
well as by words.
Subject matter of sale
Subject
matter of sale refers to the goods that are being sold in a contract of sale of
goods. Section 6 of the Sale of Goods Act, 1930 defines goods as every kind of
movable property other than actionable claims and money, and includes stocks
and shares, growing crops, grass, and things attached to or forming part of the
land which are agreed to be severed before sale or under the contract of sale.
The subject
matter of the sale must be goods that are specific and identifiable, and it
must be agreed upon by both parties. The goods must exist at the time of making
the contract, or the contract must be for future goods. If the goods are to be
manufactured or produced, the contract must specify the nature and quantity of
the goods to be manufactured or produced.
If the
goods are perishable, the time of delivery is an essential term of the
contract. If the time of delivery is not specified, it must be within a
reasonable time. If the seller fails to deliver the goods within the agreed
time, the buyer may treat the contract as repudiated, and claim damages for
breach of contract.
Conditions and Warranties
In the
contract of sale of goods, there are certain terms that the parties may agree
upon. These terms can be classified into conditions and warranties.
Conditions
are the fundamental terms of the contract that go to the root of the contract.
A breach of a condition entitles the innocent party to terminate the contract
and claim damages. For example, if a buyer orders a car with an engine capacity
of 2000 cc, but the seller delivers a car with an engine capacity of only 1500
cc, this would be a breach of a condition, and the buyer would be entitled to
terminate the contract and claim damages.
Warranties
are subsidiary terms of the contract that are not of fundamental importance to
the contract. A breach of warranty only entitles the innocent party to claim
damages and does not give the right to terminate the contract. For example, if
a seller sells a TV with a warranty of one year, and the TV breaks down after
six months, the buyer can only claim damages and cannot terminate the contract.
It is
important to note that the distinction between a condition and a warranty
depends on the intention of the parties. The same term may be a condition in
one contract and a warranty in another contract.
Sections
12-15 of the Sale of Goods Act, 1930 provide for conditions and warranties in a
contract of sale of goods.
Express and implied conditions and warranties
Under the
Sale of Goods Act, 1930, conditions and warranties may be express or implied.
Express
conditions and warranties are those that are specifically agreed upon by the
parties at the time of the contract formation. They may be either oral or
written.
Implied
conditions and warranties, on the other hand, are not expressly stated but are
implied by the law itself. The Sale of Goods Act specifies various implied
conditions and warranties that arise in a contract of sale of goods, such as
the condition as to title, the condition as to description, the condition as to
quality or fitness, and the condition as to sample.
For
example, an implied condition as to quality requires that the goods supplied
must be of a quality that is acceptable in the trade and in line with the
description, if any, provided by the seller. Similarly, an implied warranty is
a promise by the seller that the goods will be reasonably fit for their
intended purpose.
It is
important to note that a breach of a condition may give rise to a right to
repudiate the contract, while a breach of a warranty only entitles the buyer to
claim damages.
Pricing
Pricing in
a contract of sale refers to the agreed-upon price that the buyer pays to the
seller for the goods or services being sold. The price may be fixed, or it may
be determined by reference to an external factor, such as a market price or an
agreed-upon formula.
The Indian
Sale of Goods Act, 1930 provides that the price in a contract of sale may be fixed
by the contract, or it may be left to be determined in a manner agreed upon by
the parties, or it may be determined by the course of dealing between the
parties. If the price is not determined in any of these ways, the buyer must
pay a reasonable price.
In addition
to the price of the goods, the contract of sale may also provide for additional
charges, such as taxes, duties, transportation costs, and insurance. The
parties may agree on the allocation of these charges, and whether they are
included in the price or payable separately.
If the
contract of sale provides for payment of the price in installments, the seller
may have the right to retain possession of the goods until all the installments
are paid. However, if the buyer defaults on a payment, the seller may terminate
the contract and resell the goods.
Caveat Emptor
Caveat
Emptor is a Latin term that means "let the buyer beware." It is a
principle in contract law that places the responsibility on the buyer to
perform due diligence before purchasing a product or service. The seller is not
responsible for the quality or fitness of the product unless they provide a
warranty or make fraudulent misrepresentations. In other words, the buyer takes
on the risk of the transaction and must be careful and diligent in their
decision to buy. This principle applies to the sale of goods as well as other
types of contracts.
Hire Purchaser Agreements
Hire
Purchase Agreement is a type of contract under which the seller agrees to sell
goods to the buyer, and the buyer agrees to pay the purchase price in
installments along with interest. The ownership of the goods remains with the
seller until the buyer pays the full purchase price, and the buyer gets the
ownership rights of the goods only when all the installments are paid.
The
essential features of a Hire Purchase Agreement are:
1. A hire purchase agreement is a
contract of bailment in which the seller delivers the goods to the buyer on
hire basis.
2. The buyer has an option to purchase
the goods, but the ownership of the goods remains with the seller until the
payment of the full purchase price.
3. The buyer pays the purchase price in
installments along with interest.
4. The buyer has the right to terminate
the agreement at any time before the payment of the last installment.
5. The seller has the right to
repossess the goods in case of default in payment by the buyer.
6. The seller is responsible for the
maintenance and repair of the goods during the hire period.
7. The buyer is responsible for the
payment of all taxes and other charges relating to the goods.
The Hire
Purchase Agreement is governed by the Hire Purchase Act, 1972 in India.
UNIT – 4
Property
In legal
terms, property refers to any physical or intangible entity that an individual
or a legal entity has legal rights or interests in. It can include real
property such as land, buildings, and fixtures, as well as personal property
such as cars, jewelry, and furniture. It may also include intellectual
property, such as patents, trademarks, and copyrights. Property can be owned by
individuals, corporations, partnerships, or other entities, and the rights and
obligations associated with property ownership can vary depending on the laws
of the jurisdiction in which the property is located.
Possession and Rules relating to passing of
property
In a
contract for sale of goods, the transfer of property in goods from the seller
to the buyer is an essential element. The Sale of Goods Act, 1930 contains
provisions that govern the transfer of property in goods from the seller to the
buyer.
According
to Section 18 of the Sale of Goods Act, property in the goods is transferred
from the seller to the buyer when the parties intend it to be transferred. The
intention of the parties is determined by the terms of the contract, the
conduct of the parties and the circumstances of the case.
Section 19
of the Sale of Goods Act lays down the rules for ascertaining the intention of
the parties. The rules are as follows:
1. Where there is an unconditional
contract for the sale of specific goods in a deliverable state, the property in
the goods passes to the buyer when the contract is made, irrespective of the
time of payment or delivery of the goods.
2. Where there is a contract for the
sale of specific goods and the seller is bound to do something to the goods for
the purpose of putting them into a deliverable state, the property in the goods
does not pass to the buyer until such thing is done, and the buyer has notice
thereof.
3. Where there is a contract for the
sale of specific goods in a deliverable state, but the seller is bound to
weigh, measure, test, or do some other act or thing with reference to the goods
for the purpose of ascertaining the price, the property does not pass until
such act or thing is done, and the buyer has notice thereof.
4. When goods are delivered to the
buyer on approval or on sale or return or other similar terms, the property in
the goods passes to the buyer:
-
When
the buyer signifies his approval or acceptance to the seller, or does any other
act adopting the transaction.
-
If
he does not signify his approval or acceptance to the seller but retains the
goods without giving notice of rejection, then if a time has been fixed for the
return of the goods, on the expiration of such time, and if no time has been
fixed, on the expiration of a reasonable time.
5. The property in the goods passes to
the buyer when the documents of title to the goods are transferred to him.
It is
important to note that possession of the goods is not necessary for the
transfer of property. However, in certain circumstances, delivery of the goods
may be necessary to transfer the property in the goods.
Sale by non-owner
Sale by a
non-owner is generally not considered a lawful sale, as the seller does not
have the legal right to transfer the ownership of the goods. Therefore, the
buyer will not acquire ownership of the goods even if they pay for it.
However,
there are some exceptions to this general rule. For example, if the buyer
purchases the goods in good faith and without knowledge that the seller does
not have the right to sell, then the buyer may acquire a good title to the
goods. Similarly, if the true owner of the goods is estopped from denying the
seller's authority to sell, then the buyer may acquire a good title to the
goods.
It's
important to note that the sale by a non-owner may also give rise to a claim of
damages against the seller by the true owner of the goods.
Nemodat quad non habet
"Nemo
dat quod non habet" is a legal maxim in Latin, which translates to
"no one gives what he does not have." This principle means that a
person cannot transfer more rights to someone else than they have themselves.
In other words, a person cannot give or sell something that they do not own or
have the legal right to transfer. If they do, the transaction is considered invalid,
and the recipient of the property cannot claim ownership over it.
Delivery of goods
In the
context of the contract of sale of goods, delivery of goods refers to the
transfer of possession of the goods from the seller to the buyer. Delivery can
be made in various ways, such as physical delivery, symbolic delivery, and
constructive delivery.
Physical
delivery refers
to the actual transfer of the goods from the seller to the buyer. Symbolic
delivery occurs when the seller hands over a document or object that represents
the goods being sold, such as a bill of lading or warehouse receipt.
Constructive delivery happens when the goods are already in the possession of
the buyer or a third party, and the seller acknowledges the transfer of
possession to the buyer.
The time
and place of delivery are important factors in a contract of sale of goods. The
delivery must be made at the time and place specified in the contract. If the
contract does not specify a time or place, the delivery must be made within a
reasonable time and at the seller's place of business.
The passing
of property from the seller to the buyer is closely related to the delivery of
goods. Generally, property passes from the seller to the buyer at the same time
as delivery, unless the parties have agreed otherwise. The rules for passing of
property are governed by the Sale of Goods Act, 1930.
Constructive
delivery refers to the transfer of possession of goods without physical
transfer. It occurs when the seller does something with the intention of
putting the buyer in possession of the goods, even though the goods may still
be in the seller's physical control. This is recognized under Section 33 of the
Sale of Goods Act.
Rights and duties of seller and buyer before and
after sale
The rights
and duties of the seller and the buyer before and after the sale of goods are governed
by the terms and conditions of the contract of sale. However, there are certain
general rights and duties that apply to both parties:
Rights
and duties of the seller before the sale:
-
Duty
to disclose material facts about the goods to the buyer
-
Right
to receive the price of the goods
-
Right
to sue the buyer for breach of contract if the buyer fails to pay the price
Rights
and duties of the buyer before the sale:
-
Right
to inspect the goods before buying
-
Duty
to pay the price of the goods
-
Duty
to take delivery of the goods
Rights
and duties of the seller after the sale:
-
Duty
to deliver the goods to the buyer
-
Implied
warranty of title, i.e., the seller warrants that they have the right to sell
the goods
-
Implied
warranty of quiet possession, i.e., the buyer will not be disturbed in their
possession of the goods
-
Implied
warranty of fitness for purpose, i.e., the goods are fit for the purpose for
which they are sold
-
Right
to sue the buyer for the price of the goods if the buyer fails to pay
Rights
and duties of the buyer after the sale:
-
Right
to take delivery of the goods
-
Duty
to pay the price of the goods
-
Right
to reject the goods if they do not conform to the contract of sale
-
Right
to sue the seller for breach of contract if the seller fails to deliver the goods
or the goods do not conform to the contract of sale.
Rights of unpaid seller
An unpaid
seller refers to a seller who has not received the payment for the goods sold
or who has received payment in the form of a bill of exchange or other
negotiable instrument, which has not yet matured. The rights of an unpaid
seller are as follows:
1. Right of lien: An unpaid seller has the right to
retain the goods until the full payment is made by the buyer.
2. Right of stoppage in transit: An unpaid seller has the right to
stop the goods in transit if the buyer becomes insolvent or if the seller comes
to know of any such circumstances that make the payment doubtful.
3. Right to resell: If the buyer fails to make payment
or to take delivery of the goods, the seller can resell the goods after giving
notice to the buyer.
4. Right to sue for damages: An unpaid seller can sue the buyer
for damages if the buyer wrongfully refuses to accept the goods or fails to pay
for the goods.
5. Right to sue for price: An unpaid seller can sue the buyer
for the price of the goods if the ownership of the goods has passed to the
buyer and the buyer fails to pay for the goods.
Remedies for breach.
When a
contract of sale is breached, the party who has suffered the breach has the
following remedies:
1. Specific performance: This remedy requires the party who
breached the contract to fulfill their obligations under the contract. This is
usually only granted when monetary damages would not be sufficient to
compensate the aggrieved party.
2. Rescission of the contract: This remedy allows the aggrieved
party to cancel the contract and be released from any further obligations under
it. Any consideration already paid under the contract would have to be
returned.
3. Damages: This remedy involves the payment of
monetary compensation for any losses suffered as a result of the breach. The
amount of damages will depend on the nature and extent of the breach.
4. Quantum meruit: This remedy allows the aggrieved
party to recover payment for any work done or goods supplied under a contract
that has been breached, on a pro-rata basis.
It is
important to note that these remedies are not mutually exclusive, and the
aggrieved party may be entitled to more than one remedy depending on the
circumstances of the case.
UNIT – 5
Contract of Partnership
A
partnership is a type of business organization where two or more individuals
join together to carry on a business with a view to earning a profit. The
essential features of a partnership are as follows:
1. Agreement: There must be a partnership
agreement, which can be oral or written. It should specify the nature of the
business, the rights and duties of each partner, and the profit-sharing ratio.
2. Number of partners: There must be at least two partners
in a partnership. There is no upper limit on the number of partners.
3. Profit sharing: The partners must agree on how
profits will be shared among them.
4. Mutual agency: Each partner is an agent of the
other partners and can bind the partnership to contracts with third parties.
5. Unlimited liability: Partners are personally liable for
the debts and obligations of the partnership.
6. Joint and several liability: Each partner is jointly and
severally liable for the debts and obligations of the partnership.
7. Continuity: The partnership can continue as
long as the partner’s desire.
8. Common ownership of property: The partnership property is owned jointly
by all the partners.
The Indian
Partnership Act, 1932 governs the formation, operation, and dissolution of
partnerships in India. The act defines a partnership as "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."
Definition and nature of partnership
A
partnership is a type of business organization where two or more people come
together to carry on a business with a view to making a profit. It is based on
the principle of mutual agency, which means that each partner acts as an agent
for the other partners in the business. The partnership is formed by an
agreement between the partners, either written or oral, which outlines the
terms and conditions of their partnership, including their respective rights,
duties, and obligations.
Partnerships
are usually based on a personal relationship of trust and confidence between
the partners, and they can be formed in any sector or industry. The partners
may contribute capital, property, or labor to the partnership, and they share
in the profits and losses of the business in proportion to their respective
shares. The partnership is a separate legal entity from the partners
themselves, and it can sue or be sued in its own name. However, the partners
are personally liable for the debts and obligations of the partnership, and
their personal assets may be used to satisfy the partnership's creditors in the
event of a shortfall in the partnership's assets.
Formation of partnership
A
partnership can be formed either by an express agreement or by implication from
the conduct of the parties. In the case of an express agreement, the partners
must come to an agreement on the terms of the partnership, such as the capital
contributions, the sharing of profits and losses, the management of the
partnership, and the duration of the partnership. In the absence of an express
agreement, a partnership can be formed by implication if the parties have been
carrying on a business together with a view to making a profit, and there is
evidence of a mutual intent to form a partnership.
Test of partnership
The test of
partnership is the existence of a partnership agreement, which may be express
or implied, between two or more persons who carry on a business together with a
view to making a profit. The partnership agreement can be oral or written, and
it sets out the terms and conditions of the partnership, such as the rights and
obligations of the partners, the sharing of profits and losses, and the duration
of the partnership. The agreement may also specify the contributions of each
partner, the management of the partnership, and the method of resolving
disputes among the partners.
Partnership and other associations
A
partnership is a specific form of association in which two or more persons join
together to carry on a business with the goal of making a profit. Other types
of associations include joint ventures, co-ownership, and corporations.
A
joint venture
is a specific type of business association in which two or more persons or
entities join together to carry out a specific business project or venture.
Unlike a partnership, a joint venture is usually created for a limited
period of time or for a specific purpose.
Co-ownership refers to the situation in which
two or more persons jointly own a property or asset, such as a piece of real
estate. Each co-owner has an undivided interest in the property, and they
share in the benefits and obligations of ownership.
A
corporation is
a legal entity that is separate and distinct from its owners. It is formed by
filing articles of incorporation with the state government, and its ownership
is represented by shares of stock. Shareholders elect a board of directors to
manage the corporation, which has the power to make decisions and enter into
contracts on behalf of the corporation.
Registration of firm
Registration
of a partnership firm is not mandatory under Indian law. However, it is
advisable to get the firm registered as a registered partnership firm enjoys
several benefits such as the right to sue third parties, the right to file a
case against another partner, and more importantly, the partners can sue one
another in a court of law.
A
partnership firm can be registered by filing an application with the Registrar
of Firms. The application should contain the following details:
1. Name of the firm
2. Location of the firm
3. Names of partners and their
addresses
4. Date of commencement of the
partnership
5. Duration of the partnership (if it
is for a fixed period)
6. Capital contribution by each partner
The
application should be accompanied by a prescribed fee and a partnership deed,
which is a written agreement that sets out the terms and conditions of the
partnership. Once the application is approved and the firm is registered, the
Registrar of Firms issues a Certificate of Registration.
Effect of non-registration
Under the
Indian Partnership Act, 1932, registration of a partnership firm is optional,
not mandatory. However, there are certain legal consequences of not registering
a partnership firm, which are as follows:
1. No suit in a civil court: An unregistered firm cannot file a
suit in a civil court against any other party for the enforcement of its
contractual or legal rights arising from the partnership.
2. No claim for set-off: An unregistered firm cannot claim
set-off in a legal proceeding initiated against it.
3. No right to sue third parties: An unregistered firm cannot sue
third parties, including partners, for the enforcement of its rights under the
Partnership Act.
4. No right to recover compensation: An unregistered firm cannot recover
any compensation for the services rendered by its partners.
5. No admissibility of evidence: Any statement, admission, or
representation made by or on behalf of an unregistered firm is not admissible
as evidence in any legal proceeding initiated by the firm.
It is
important to note that the partners of an unregistered firm can still file a
suit for the dissolution of the partnership or for the settlement of accounts.
However, they cannot claim any other rights or benefits that are available to
registered firms.
Relations of partners
The
relations of partners in a partnership are determined by the partnership
agreement. In the absence of a partnership agreement, the relations of partners
are governed by the provisions of the Partnership Act, 1932.
Some of the
key aspects of the relations of partners are:
1. Mutual rights and duties: All partners have mutual rights and
duties to carry on the business of the partnership.
2. Fiduciary relationship: Partners owe a fiduciary duty to
each other, which includes a duty of loyalty, good faith, and full disclosure.
3. Sharing of profits and losses: Partners share profits and losses
of the partnership in the manner agreed upon.
4. Management of partnership: Unless otherwise agreed, all
partners have an equal right to participate in the management of the
partnership.
5. Authority of partners: Each partner is an agent of the
firm and has the authority to bind the partnership to any contract made in the
course of the partnership business.
6. Indemnification: Partners are entitled to be
indemnified by the partnership for any expenses or liabilities incurred by them
in the ordinary course of the partnership business.
7. Dissolution: The partnership dissolves on the
happening of certain events specified in the partnership agreement or under the
provisions of the Partnership Act, 1932.
Rights and duties of partners
Partners in
a partnership have a variety of rights and duties towards each other. Some of
the most important rights and duties are:
1. Right to participate in management: Each partner has a right to
participate in the management of the partnership unless otherwise agreed.
2. Duty of good faith and loyalty: Each partner has a duty to act in
good faith and loyalty towards the partnership and towards other partners.
3. Right to share in profits: Each partner is entitled to share
in the profits of the partnership according to the terms of the partnership
agreement.
4. Duty to contribute capital: Each partner has a duty to
contribute capital to the partnership as agreed.
5. Right to indemnification: Each partner has a right to be
indemnified by the partnership for any expenses incurred on behalf of the
partnership.
6. Duty to account: Each partner has a duty to account
to the partnership for any profits derived from any transaction relating to the
partnership.
7. Right to information: Each partner has a right to access
information about the partnership's business and finances.
8. Duty of care: Each partner has a duty to exercise
reasonable care and skill in carrying out partnership activities.
9. Right to compensation: Each partner is entitled to be
compensated for services rendered to the partnership, unless otherwise agreed.
10. Duty of confidentiality: Each partner has a duty to keep
confidential any information relating to the partnership's business.
These are
some of the main rights and duties of partners in a partnership, but they may
vary depending on the terms of the partnership agreement and the relevant law.
Property of firm
The
property of the partnership firm includes all the assets acquired by the firm
through contributions made by the partners or through profits earned in the
course of business. The property of the firm is held in the name of the firm
and not in the individual names of the partners. It includes both movable and
immovable property, such as land, building, machinery, stock-in-trade, cash,
and goodwill.
Each
partner has an equal right to use and possess the property of the firm for the
purpose of the business. However, no partner can use the property for his
personal benefit or transfer the property to any third party without the
consent of all the partners. If a partner uses the property of the firm for his
personal benefit, he will be liable to account for the profits earned through
such use and compensate the firm for any loss suffered as a result.
In case of
dissolution of the partnership firm, the property of the firm is sold and the
proceeds are used to pay off the debts and liabilities of the firm. Any surplus
left after the payment of debts and liabilities is distributed among the
partners according to their rights and interests in the partnership.
Relation of partners to third parties
Partners
have the authority to act on behalf of the partnership firm and bind it with
third parties in the ordinary course of business. Thus, the firm is liable for
the acts of its partners when such acts are carried out in the course of the
partnership business. Partners are also jointly and severally liable for the
debts and obligations of the firm.
Third
parties dealing with the firm can hold all the partners jointly and severally
liable for any wrong or breach of contract committed by one or more of the
partners. However, partners who are not involved in the wrongful or illegal act
can seek indemnity from the partner who committed the wrongful act.
Additionally,
partners are also agents of each other and owe each other fiduciary duties,
such as the duty of loyalty and duty of care. They are bound to act in the best
interest of the firm and not to engage in any conduct that may harm the
partnership.
Implied authority of partners
In a
partnership, every partner is an agent of the firm and has the implied
authority to act on behalf of the firm in the ordinary course of business.
Implied authority is not expressly conferred on the partner but is inferred
from the partner's position as a member of the partnership. This authority
includes the power to enter into contracts, make purchases, and hire employees,
among other things.
However,
there are limits to the implied authority of a partner. The partner's actions
must be within the scope of the partnership's business and must not go beyond
the powers conferred on the partnership by its partnership agreement. If a
partner acts outside of the scope of the partnership's business or exceeds the
powers conferred by the partnership agreement, the partnership may not be bound
by those actions.
Kinds of partners
There are
several kinds of partners in a partnership firm. The most common types of
partners are:
1. Active partner: An active partner is one who takes
an active part in the management of the firm and has unlimited liability for
the debts of the firm.
2. Sleeping partner: A sleeping partner is one who does
not take an active part in the management of the firm but has invested capital
in the business and shares the profits.
3. Nominal partner: A nominal partner is one who lends
his name to the firm but does not contribute any capital or take any active
part in the management of the firm.
4. Partner in profits only: A partner in profits only is one
who shares the profits of the firm but does not contribute any capital or take
any active part in the management of the firm.
5. Partner by estoppel: A partner by estoppel is one who is
not really a partner in the firm but is held out to be a partner by the actions
or conduct of the other partners, and is therefore liable to third parties as
if he were a partner.
6. Minor partner: A minor partner is one who has not
yet attained the age of majority (18 years) and is admitted to the benefits of
partnership.
7. Limited partner: A limited partner is one who has
limited liability for the debts of the firm and does not take an active part in
the management of the firm. Limited partners are only liable up to the amount
of their investment in the firm.
Minor as partner
According
to the Indian Partnership Act, 1932, a minor cannot be a partner in a
partnership firm. However, with the consent of all the partners, a minor can be
admitted to the benefits of the partnership, i.e. the minor can share the
profits of the partnership firm but he/she will not be liable for the losses
incurred by the firm.
This means
that a minor cannot be held responsible for the liabilities of the partnership
firm, but at the same time, he/she cannot take part in the management of the
firm or exercise any control over its affairs.
It should
be noted that the share of the minor in the profits of the firm will be
determined as per the terms of the partnership agreement. If the partnership
deed does not mention anything about the share of the minor, then the share
will be decided as per the rules laid down in the Indian Partnership Act, 1932.
Further, it
is important to note that the minor has the right to inspect and take copies of
the accounts of the partnership firm, but he/she cannot ask for the dissolution
of the firm or enforce any other right against the firm.
Reconstitution of firm
A
reconstitution of a firm refers to any change that may occur in the composition
of a partnership. This may happen due to various reasons, such as the
retirement or death of a partner, the admission of a new partner, or the
expulsion of an existing partner. In such cases, the partnership deed needs to
be revised to reflect the new terms and conditions of the partnership.
There are two
types of reconstitution of a firm:
1. Change in the existing partnership: This occurs when there is a change
in the relationship between the existing partners, such as a change in profit
sharing ratio or a change in the nature of the business.
2. Admission or retirement of a
partner: This
occurs when a new partner is admitted to the partnership or an existing partner
retires from the partnership. In such cases, the partnership deed needs to be
revised to reflect the new terms and conditions of the partnership.
Dissolution of firm
Dissolution
of a partnership firm refers to the process of bringing the partnership to an
end. This can happen in several ways:
1. Dissolution by agreement: The partnership may be dissolved by
mutual agreement between all the partners. This can be done at any time,
regardless of the duration specified in the partnership deed.
2. Compulsory dissolution: A partnership may be compulsorily
dissolved by the court if:
-
A
partner becomes insolvent.
-
The
partnership becomes unlawful.
-
The
business of the partnership becomes impractical or impossible to carry out.
-
A
partner is found to be of unsound mind.
-
A
partner is guilty of misconduct that is detrimental to the partnership.
3. Dissolution on the happening of
certain contingencies: The partnership may be dissolved automatically upon the occurrence of
certain events, such as the expiry of the term specified in the partnership
deed, the death or insolvency of a partner, or the occurrence of any event that
makes it illegal or impossible to continue the business of the partnership.
4. Dissolution by notice: A partner may give notice to the
other partners of his intention to dissolve the partnership. This will result
in the dissolution of the partnership on the expiry of the notice period, as
specified in the partnership deed or by agreement among the partners.
Upon
dissolution of the partnership, the assets of the partnership are liquidated,
the debts are paid off, and the remaining funds are distributed among the
partners according to their shares in the partnership.
Limited Liability Partnership (LLP)
A Limited
Liability Partnership (LLP) is a type of partnership in which each partner's
liability is limited to the amount of their investment in the business. This
means that if the LLP is sued or goes bankrupt, the personal assets of the
partners are protected, and they will not be held liable for any debts beyond
their initial investment.
LLPs are
typically used by professional services firms, such as lawyers, accountants,
and architects, who want to retain the flexibility and tax benefits of a
partnership while limiting their personal liability. In an LLP, each partner
has the right to manage the business, and they are not personally liable for
the negligence or misconduct of other partners.
LLPs are governed
by the Limited Liability Partnership Act, 2008, which sets out the rules and
regulations for their formation and operation. In order to form an LLP, the
partners must file an application with the Registrar of Companies, and they
must also prepare a partnership agreement that outlines the rights and
responsibilities of each partner, the management structure of the LLP, and the
procedures for adding or removing partners.
------------------------------ XXX-----------------------------------
DOWNLOAD LINK FOR SYLLABUS SHORT NOTES :
DOWNLOAD - Contract law 2 syllabus short notes (revised on 16-08-2023)
DOWNLOAD - Contract law 2 Imp Q & A (revised on 09-08-2023)
:DOWNLOAD - LLB (3YDC) 2nd SEM - Ext. Imp Questions of All Subjects
----------------------------------------------------------------------
GOTO OTHER SUBJECTS SHORT NOTES
|||||||| 1st SEMESTER ||||||||||
||||||||| 2nd SEMESTER |||||||||
|||||||||| 3rd SEMESTER ||||||||||||||||
|||||||||| 4th SEMESTER ||||||||||||||||
P-II: Public International Law
P-III: Interpretation of Statutes
P-V: Intellectual Property Law
-----------------------------------------------------------------------
Note: Some of the short notes are intended for a basic understanding of the subject topics. For a more in-depth understanding, please refer to the textbooks.
Comments
Post a Comment