LAW OF CONTRACT-II Related Short Answer

PAPER – I:

LAW OF CONTRACT-II

Unit I:

1. Define Contract of Indemnity.

A contract of indemnity is defined under Section 124 of the Indian Contract Act, 1872. It refers to a contract in which one party promises to save the other from any loss caused by the conduct of the promisor or any third party. There are two parties: the indemnifier (who promises to compensate) and the indemnity-holder (who is protected against loss). For example, insurance contracts are indemnity contracts. The main objective is protection against unforeseen damages or losses.

2. What are the rights of the indemnity-holder?

According to Section 125, the indemnity-holder has the following rights:

Recovery of damages: For all damages he is compelled to pay.
Recovery of costs: For all legal costs incurred during proceedings.
Recovery of sums: For all amounts paid under any compromise made lawfully. These rights are available even before actual loss if liability has become absolute. The indemnity-holder is protected from financial hardship due to the actions of the indemnifier or third parties.

3. What is the liability of the indemnified?

The indemnified person (indemnity-holder) generally has no liability unless:

He has committed fraud.
He violates the terms of the contract.
He contributes to the loss through negligence. His liability is limited to fulfilling the lawful obligations and acting within the scope of the contract. If the indemnifier refuses to indemnify, the indemnity-holder may file a suit.

4. Define Contract of Guarantee.

As per Section 126 of the Indian Contract Act, a contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. It involves three parties:

Principal Debtor – who is liable to pay.
Creditor – to whom the debt is owed.
Surety – who gives the guarantee. Guarantees may be oral or written. This contract helps creditors to lend with greater confidence.

5. What are the essential characteristics of a Contract of Guarantee?

The essential elements are:

Tripartite Agreement: Involves principal debtor, creditor, and surety.
Consent of Surety: Must be given freely.
Liability of Principal Debtor: If no primary liability exists, there can be no guarantee.
Consideration: Must exist; benefit to principal debtor is sufficient.
Legal Purpose and Capacity: Must be lawful and all parties must be competent. A guarantee cannot be created by coercion, misrepresentation, or concealment.

6. Distinguish between Indemnity and Guarantee.

Point	Indemnity	Guarantee
Parties	Two (Indemnifier & Indemnified)	Three (Creditor, Principal Debtor & Surety)
Purpose	To compensate for loss	To assure performance
Liability	Primary	Secondary
Number of Contracts	One	Three
Nature	Contingent upon loss	Arises upon default
Hence, indemnity offers protection from loss; guarantee ensures performance.

7. What are the different kinds of Guarantee?

Guarantees can be of the following types:

Specific Guarantee: For a single transaction, ends once fulfilled.
Continuing Guarantee: For a series of transactions, continues until revoked.
Oral or Written Guarantee: Both are valid under law.
Unilateral/Bilateral Guarantee: Based on parties’ obligations. A continuing guarantee can be revoked by notice or the death of surety.

8. What are the rights of the Surety?

A surety has three primary rights:

Against Principal Debtor:
- Right of subrogation.
- Right to indemnity.
Against Creditor:
- Right to benefit of securities.
- Right to ask for release when conditions are altered.
Against Co-sureties:
- Right to contribution if liability is shared. These rights secure the surety from undue burden in the event of default.

9. What are the liabilities of a Surety?

Co-extensive Liability: As per Section 128, the surety is liable to the same extent as the principal debtor unless agreed otherwise.
Immediate Liability: The creditor can proceed against the surety without first suing the principal debtor.
Conditional Liability: Arises only upon default. The surety’s liability continues until discharged by law, agreement, or act of parties.

10. How is a Surety discharged from liability?

Discharge may occur through:

Revocation by Notice.
Death of Surety.
Variance in Contract Terms.
Release of Principal Debtor.
Creditor’s Act or Omission.
Loss of Security. Once discharged, the surety is not liable for future defaults or debts.

11. Define Bailment.

According to Section 148, bailment is the delivery of goods by one person (bailor) to another (bailee) for a specific purpose, upon a contract that the goods shall be returned or disposed of as per instructions after the purpose is fulfilled. Ownership does not transfer. Example: Giving clothes to a dry cleaner.

12. What are the essential requisites of Bailment?

Delivery of goods.
Purpose of delivery.
Return of goods or disposal as per instructions.
Consent of both parties.
Contract, either express or implied. Bailment is based on trust and good faith between bailor and bailee.

13. What are the kinds of Bailment?

Bailments are of the following types:

Gratuitous Bailment: Without reward or benefit.
Bailment for Hire: For reward or compensation.
Pledge: A special kind of bailment for security. The nature determines the degree of care expected from the bailee.

14. What are the rights and duties of Bailor and Bailee?

Bailor’s Duties:

Disclose faults.
Bear extraordinary expenses. Bailee’s Duties:
Take reasonable care.
Not use goods without permission.
Return goods on time. Rights:
Bailee may retain goods till charges are paid (Lien).
Bailor can claim compensation for unauthorized use or damage.

15. What is Pledge? What are the rights and duties of Pawnor and Pawnee?

Pledge is defined in Section 172 as bailment of goods as security for repayment of debt or performance of a promise. The Pawnor is the pledger, and Pawnee is the pledgee.

Rights of Pawnee:

Retain goods until payment.
Sue for debt and retain goods.
Sell goods after giving notice.

Duties of Pawnee:

Reasonable care of goods.
Return goods after payment.

Rights of Pawnor:

Redeem goods before sale.
Receive any surplus if goods are sold.

16. What is a Continuing Guarantee? How can it be revoked?

A continuing guarantee is a type of guarantee that applies to a series of transactions or a continuous obligation over time. As per Section 129 of the Indian Contract Act, it extends to all transactions entered into until it is revoked. For example, a surety guaranteeing the conduct of an employee for all future acts is a continuing guarantee.

Revocation:

By Notice: A surety may revoke a continuing guarantee for future transactions by giving notice to the creditor.
By Death of Surety: As per Section 131, the death of a surety revokes the guarantee for future transactions unless otherwise agreed.

17. Explain the concept of Co-surety and Right of Contribution.

When two or more persons guarantee the same debt or duty, they are called co-sureties. According to Section 146 and 147:

All co-sureties are liable to contribute equally unless agreed otherwise.
If one co-surety pays more than his share, he has a right to recover the excess from the others. This ensures fairness and avoids overburdening one surety.

18. Define Gratuitous Bailment. How is it different from Bailment for reward?

Gratuitous bailment is a bailment made without any consideration. It is usually based on trust and personal relationship. For example, handing your book to a friend to read.

Difference from bailment for reward:

No payment involved.
Bailee must take only reasonable care (less strict).
Can be terminated any time.

In contrast, bailment for reward involves payment or benefit and stricter obligations.

19. Explain the concept of Bailee’s Particular Lien.

As per Section 170, a particular lien allows a bailee to retain only those goods on which he has worked or expended labor until payment is made. This lien applies only to the specific goods related to the services rendered.

Example: A tailor who stitches clothes may retain them until his charges are paid. It cannot be exercised for any other general debt.

20. What is General Lien? How is it different from Particular Lien?

General lien is the right to retain any goods for a general balance of account. It is available to certain professionals like bankers, factors, and attorneys under Section 171.

Difference:

General Lien: For all dues; applies to all goods.
Particular Lien: Only for specific goods and charges.

General lien is broader and more powerful in its scope.

21. What are the duties of a Bailee?

Duties include:

Reasonable care of goods as a prudent man.
Not to use goods without bailor’s consent.
Return goods after the purpose is served.
Avoid mixing goods with his own.
Compensate if goods are lost due to his negligence.

These duties ensure trust and security in a bailment relationship.

22. What are the rights of a Bailee?

Rights include:

Right to compensation for expenses.
Right of lien for unpaid charges.
Right to sue third parties for damages to goods.
Right to refuse return if bailor doesn’t pay lawful charges. These rights protect the interests of the bailee and ensure fair dealings.

23. What are the duties of a Bailor?

Duties include:

Disclosure of defects in goods.
Pay extraordinary expenses in gratuitous bailment.
Indemnify bailee for losses from defective title or instructions.
Accept return of goods after purpose is completed. Failure to perform these duties can result in legal liability.

24. When does Bailment come to an end?

Bailment terminates:

On completion of the purpose.
On expiry of time (if fixed).
By death of either party (in gratuitous bailment).
By act of parties (revocation or repudiation).
By destruction of goods. These ensure legal clarity on when bailee’s responsibility ends.

25. Define Pledge. How is it different from Bailment?

Pledge is defined in Section 172 as a special kind of bailment where goods are delivered as security for payment of a debt or performance of a promise.

Difference from bailment:

Pledge is always for security.
The Pawnee can sell goods on default (after notice).
Bailment may be for safekeeping, use, or repair – not necessarily as security.

26. What are the rights of a Pawnee?

Rights include:

Retain goods till payment.
Sue for debt and retain goods.
Sell goods after reasonable notice upon default. These rights allow the pawnee to recover dues and enforce the contract.

27. What are the duties of a Pawnee?

Duties include:

Take reasonable care of pledged goods.
Not to use goods pledged.
Return goods after debt is paid.
Return increase/profit from goods, if any. Neglecting these duties may make the pawnee liable for damages.

28. What are the rights of a Pawnor?

Rights include:

Right to redeem goods on payment of debt before sale.
Right to receive notice before sale.
Right to receive surplus from the sale proceeds. These protect the ownership and financial interest of the pawnor.

29. What are the duties of a Pawnor?

Duties include:

Repay the debt or perform the promise.
Compensate for expenses incurred by the pawnee.
Avoid causing loss due to negligence or misrepresentation. These ensure fulfillment of obligations toward the pawnee.

30. Explain the validity of Pledge by Non-Owner.

Section 178–179 provides cases where a non-owner can make a valid pledge:

Mercantile agent with possession and consent.
Possession under voidable contract (if not rescinded).
Pledge by co-owner in possession with consent.
Seller or buyer in possession after sale, with consent.

Such pledges are valid if the pawnee acts in good faith and without knowledge of defects in title.

Unit II:

🟦 UNIT-II: CONTRACT OF AGENCY

1. Define an Agent. Who can be an agent?

An Agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done is called the Principal (Section 182).
Anyone who is of sound mind and has attained the age of majority can become an agent. However, a minor can be an agent, though he cannot be held personally liable to the principal.
An agent creates a legal relationship between the principal and third parties through his actions.

2. How is an agency created?

Agency can be created in the following ways:

Express Agreement: Orally or in writing.
Implied Agreement: From the conduct or relationship.
By Ratification: When a person acts without authority and the principal accepts it.
By Necessity: In emergencies (e.g., a carrier protecting perishable goods).
By Estoppel: If a principal represents someone as an agent, he is bound by that act.

Each method is recognized under the law and creates binding obligations.

3. What are the rights of an agent?

Rights include:

Right to Remuneration: As per contract or custom.
Right of Lien: Over goods for unpaid dues.
Right to Indemnity: For lawful acts and expenses.
Right to Retain: Money received until remuneration is paid.

These rights ensure the agent is protected while fulfilling the principal’s work.

4. What are the duties of an agent?

Duties include:

Follow instructions of the principal.
Act with care, skill, and diligence.
Maintain accounts and inform the principal.
Avoid conflict of interest.
Not to delegate authority unless allowed.

These duties are critical to maintaining fiduciary responsibility and legal validity of actions.

5. What is Delegation of Authority? When is it allowed?

General rule: “Delegatus non potest delegare” – A delegate cannot delegate. However, exceptions include:

With principal’s permission.
When customary.
In case of necessity.
When nature of work requires sub-agents (e.g., shipping agents).

If allowed, the agent must ensure proper care in appointing sub-agents.

6. Discuss the personal liability of an agent.

An agent is usually not personally liable, but becomes liable in the following cases:

Acting for a foreign principal.
Acting without authority.
Principal is undisclosed.
Agent exceeds authority.
Where agent signs a negotiable instrument in his name.

In these cases, the third party may sue the agent directly.

7. What is the legal relationship between principal, agent, and third parties?

When an agent acts within authority, the principal is bound by his acts.
If the agent acts without authority and the principal does not ratify, the agent is personally liable.
If the agent commits fraud or misrepresentation during the course of agency, the principal is held liable (Section 238).

This tripartite relationship is governed by trust, authority, and legal responsibility.

8. How is agency terminated?

Termination occurs:

By revocation by the principal.
By renunciation by the agent.
By completion of the business.
By death/insolvency of either party.
By expiration of time.
By mutual agreement.

Notice should be given for revocation/renunciation. Termination ends the agent’s authority.

🟦 UNIT-III: CONTRACT OF SALE OF GOODS

9. What is a Contract of Sale of Goods?

Under Section 4 of the Sale of Goods Act, 1930, a contract of sale is one where the seller transfers or agrees to transfer the ownership of goods to the buyer for a price.
It may be:

Sale: Immediate transfer of ownership.
Agreement to Sell: Transfer takes place in the future.

It involves movable goods and is based on offer, acceptance, consideration, and intention to create legal relations.

10. Explain the essential elements of a Contract of Sale.

Elements include:

Two parties: Buyer and seller.
Goods: Must be movable property.
Price: Must be monetary.
Transfer of ownership: Present or future.
Legal capacity of parties.
Mutual consent and lawful consideration.

All these elements must exist for a valid sale.

11. What is the subject matter in a contract of sale?

The subject matter is ‘goods’, which means every kind of movable property, except money and actionable claims. Goods are of three types:

Existing Goods: Already owned by seller.
Future Goods: Yet to be acquired or manufactured.
Contingent Goods: Sale depends on a future event.

The goods must be identifiable and deliverable.

12. Differentiate between Conditions and Warranties.

Basis	Condition	Warranty
Importance	Essential to contract	Collateral to contract
Breach	Buyer can reject goods	Buyer can claim damages
Example	Fitness for purpose	Minor packaging defect

Conditions form the foundation; warranties are secondary terms.

13. What are implied conditions in a contract of sale?

Implied conditions include:

Title: Seller has the right to sell.
Description: Goods match the description.
Sample: Goods must correspond with sample.
Quality & Fitness: Goods fit the purpose (if buyer relies on seller’s skill).
Merchantable Quality: Suitable for sale.

These arise automatically unless expressly excluded.

14. What is the doctrine of Caveat Emptor? What are its exceptions?

Caveat Emptor means “Let the buyer beware.” It places the responsibility on the buyer to check the quality and suitability of goods.
Exceptions:

Where the buyer relies on seller’s skill.
Sale by description.
Sale by sample.
Fraud or misrepresentation by seller.

This doctrine balances buyer’s responsibility with seller’s honesty.

15. How is the price determined in a contract of sale?

Price may be:

Fixed by contract.
Agreed to be fixed later.
Determined by course of dealing.
Determined by third party.

If price is not fixed and cannot be determined, the buyer must pay a reasonable price (Section 9). Payment may be immediate, deferred, or in installments.

16. What is an Express and Implied Agency?

Express Agency is created by express words—either orally or in writing—where the principal explicitly appoints someone as his agent.
Implied Agency, on the other hand, arises from circumstances or conduct, not from direct words. For example, a wife buying household necessities on credit from a store creates an implied agency.

The law recognizes both forms if they fulfill basic requirements like consent and legal capacity. Implied agency often arises in business through regular conduct and course of dealings.

17. What is Agency by Ratification?

Agency by ratification occurs when a person, without authority, acts on behalf of another, and the latter accepts or confirms the act. According to Section 196–200 of the Indian Contract Act, ratification has the same legal effect as if the agent was originally authorized.

Example: A buys goods in B’s name without authority. If B later accepts the purchase, he has ratified it.

Conditions:

Principal must have been in existence at the time.
Full knowledge of facts is necessary.
Ratification must be timely and complete.

18. What is Agency by Estoppel?

Agency by estoppel arises when a person by his conduct or words leads a third party to believe someone is his agent, and the third party relies on it. The principal is then estopped (prevented) from denying the agency relationship.

Example: If A lets B act as his agent and C deals with B in good faith, then A is bound.

This doctrine is important in protecting third parties who act honestly based on representations.

19. What is Agency by Necessity?

Agency by necessity arises in emergency situations where a person must act for another without prior authority to protect their interests. For example, a carrier of perishable goods may sell them to prevent loss.

Conditions:

Real necessity must exist.
Impossible to communicate with the principal.
Action taken in good faith and for principal’s benefit.

It is an exception to the general rule that consent is required to create agency.

20. Who is a Sub-Agent? When can he be appointed?

A Sub-agent is appointed by the original agent to perform tasks on behalf of the principal. As per Section 190–193:

A sub-agent may be appointed with express or implied permission.
Must act under the control of the agent.
If properly appointed, the principal is bound by the sub-agent’s acts.

Improper appointment makes the agent solely responsible. Sub-agency is common in complex commercial tasks.

21. What are the effects of ratification of an unauthorized act?

Once ratified:

The act is treated as if it were done with prior authority.
It binds both the principal and third parties.
The principal gains rights and obligations from the act.

However, partial or delayed ratification, or ratifying an illegal act, is not valid.

22. Differentiate between Agent and Servant.

Basis	Agent	Servant
Authority	Acts on behalf of principal	Works under employer’s control
Degree of control	Less	Full supervision
Legal effect	Binds the principal	May not create legal obligations

An agent has wider discretion and can represent the principal in dealings.

23. Explain the difference between Sale and Agreement to Sell.

Basis	Sale	Agreement to Sell
Ownership	Immediately transfers	Future or conditional transfer
Risk	Passes to buyer	Remains with seller
Nature	Executed contract	Executory contract

A sale is complete; an agreement to sell becomes a sale upon fulfillment of conditions.

24. What are Unpaid Seller’s Rights under the Sale of Goods Act?

An unpaid seller is one who hasn’t received full payment. His rights include:

Against Goods:
- Right of lien.
- Right of stoppage in transit.
- Right of resale.
Against Buyer:
- Sue for price.
- Sue for damages.

These protect the seller’s interest in credit sales.

25. What is Sale by Sample and Sale by Description?

In sale by sample, goods must correspond with the sample shown (Section 17).
In sale by description, goods must match the description (Section 15).

If a sale is by both sample and description, the goods must comply with both. Any discrepancy gives the buyer the right to reject goods.

26. What are the implied warranties in a contract of sale?

Implied warranties include:

Quiet possession: Buyer won’t be disturbed.
Freedom from encumbrance: No third-party claims.
Disclosing dangerous nature (if any).

These arise automatically unless excluded by agreement.

27. Explain ‘Passing of Property’ in a contract of sale.

“Passing of property” refers to the transfer of ownership from seller to buyer. It is crucial for deciding:

Risk of loss.
Buyer’s rights.
Seller’s remedies.

Under Sections 18–25, property passes when the parties intend, depending on the nature of goods and the contract.

28. What is a Condition Precedent and Condition Subsequent?

Condition Precedent: Must be fulfilled before contract becomes binding. Example: Approval by authorities before sale.
Condition Subsequent: If fulfilled, can terminate the contract. Example: If war breaks out, the contract ends.

Both affect the enforcement and continuation of contracts.

29. What is Anticipatory Breach of Contract under Sale of Goods?

An anticipatory breach occurs when one party refuses to perform the contract before the due date. The other party may:

Treat the contract as immediately breached and sue for damages.
Wait until the due date.

It allows early legal remedy and risk minimization.

30. What are the rules regarding delivery of goods?

Rules include:

Actual or constructive delivery.
Delivery must be as per contract terms.
Buyer should accept goods within reasonable time.
Expenses of delivery: Generally borne by the seller.

Proper delivery is essential for transferring possession and completing the sale.

Unit-III

1. What is a contract of sale of goods?

A contract of sale of goods is defined under Section 4 of the Sale of Goods Act, 1930. It is a contract where the seller transfers or agrees to transfer the ownership of goods to the buyer for a price. It can be:

Sale: Ownership is transferred immediately.
Agreement to Sell: Ownership will be transferred at a future time or upon the fulfillment of conditions.
Essential elements include two parties (buyer and seller), movable goods, a price, and mutual consent.

2. What are the essential elements of a contract of sale?

Essential elements are:

Two parties: Buyer and seller.
Goods: Only movable goods.
Price: Consideration must be money.
Transfer of property: Ownership must be transferred or agreed to be transferred.
Capacity and consent: Both parties must be competent and give free consent.
All these elements together make a valid and enforceable contract of sale.

3. What are goods? How are they classified?

According to Section 2(7), “goods” mean every kind of movable property other than actionable claims and money. Goods are classified as:

Existing Goods: Already owned or possessed by the seller.
Future Goods: To be acquired or manufactured in the future.
Contingent Goods: Depends on uncertain events. Goods are the subject matter of the sale contract.

4. What is the difference between sale and agreement to sell?

Sale	Agreement to Sell
Immediate transfer of ownership	Future transfer of ownership
Buyer bears the risk	Seller bears the risk
Executed contract	Executory contract

In a sale, the contract is complete; in an agreement to sell, ownership passes later.

5. What are the different types of goods in a contract of sale?

Goods in a contract of sale are:

Specific Goods: Clearly identified and agreed upon at the time of contract.
Ascertained Goods: Selected from a larger set after the contract is made.
Unascertained Goods: Not specifically identified during contract. These classifications affect the passing of property and delivery obligations.

6. What are conditions in a contract of sale?

A condition is a fundamental term, the breach of which allows the buyer to repudiate the contract. Conditions are essential to the main purpose of the contract.

Examples:

Right to sell the goods.
Goods shall match the description or sample.
Goods shall be fit for a particular purpose.

Conditions are either express or implied under the Sale of Goods Act.

7. What are warranties in a contract of sale?

A warranty is a collateral term. The breach of warranty gives the right to claim damages but not to reject goods or repudiate the contract.

Examples:

Free from encumbrance.
Quiet possession of goods.

It protects the buyer from minor losses or defects in goods without terminating the contract.

8. Differentiate between condition and warranty.

Basis	Condition	Warranty
Importance	Fundamental	Collateral
Breach	Contract may be repudiated	Only damages can be claimed
Example	Right to sell	Free from encumbrance

Thus, breach of condition affects the contract’s core; breach of warranty does not.

9. What are express conditions and warranties?

Express conditions and warranties are those explicitly stated in the contract of sale. These are mutually agreed by the parties and written into the agreement.

Examples:

Goods will be delivered by a specific date.
Warranty that goods will function for 1 year.

If breached, the remedies depend on whether it is a condition or a warranty.

10. What are implied conditions under the Sale of Goods Act?

Implied conditions include:

Seller has right to sell.
Goods match the description.
Goods are of merchantable quality.
Goods are fit for buyer’s purpose.
Goods match the sample.

These arise by operation of law and protect the buyer even if not expressly stated.

11. What are implied warranties in the contract of sale?

Implied warranties include:

Peaceful possession of goods.
Goods free from encumbrances.
Disclosure of dangerous goods if any.

These warranties are presumed by law to protect the buyer and ensure fair dealings in commercial transactions.

12. What do you understand by the doctrine of caveat emptor?

Caveat Emptor means “Let the buyer beware.” It implies the buyer must inspect the goods and ensure they are suitable for his purpose.

Exceptions:

Seller knows the buyer’s purpose.
Sale by description.
Sale by sample.

The doctrine encourages buyers to be vigilant, but also holds sellers accountable under exceptions.

13. What are the exceptions to caveat emptor?

Exceptions include:

Buyer relies on seller’s skill.
Goods are bought by description from a seller who deals in such goods.
Sale by sample.
Fraud or misrepresentation.
Goods not merchantable.

In such cases, seller cannot escape liability even under caveat emptor.

14. How is price determined in a contract of sale?

Price may be:

Fixed by agreement.
Left to be fixed in a future manner.
Determined by course of dealings.
Reasonable price if not fixed.

Section 9 of the Sale of Goods Act provides flexibility in determining price, but it must be in money terms.

15. What happens if price is not determined in a contract?

If the contract is silent on price, Section 9(2) states the buyer must pay a reasonable price. Reasonableness depends on:

Market rate.
Nature of goods.
Circumstances of sale.

A contract does not fail merely due to absence of price if a reasonable price can be determined.

16. What is the effect of breach of condition in a sale contract?

When a condition is breached, the buyer may:

Repudiate the contract and reject the goods.
Treat it as a breach of warranty and claim damages.

However, if the buyer has accepted the goods or if the condition is treated as a warranty under Section 13 of the Act, the buyer cannot reject the goods but can claim compensation.

17. What is the effect of breach of warranty in a sale contract?

When a warranty is breached, the buyer cannot repudiate the contract or reject the goods. The only remedy is to claim damages for the loss suffered.
This ensures that minor breaches do not disrupt the entire transaction. It keeps the sale contract intact while offering legal remedy to the buyer.

18. What do you mean by merchantable quality?

Goods are of merchantable quality when they are:

Saleable under their description.
Fit for general use.

As per Section 16(2), if the buyer purchases goods from a seller who deals in such goods, there is an implied condition that they are of merchantable quality. Exceptions apply when defects are visible or buyer examines the goods.

19. What is meant by fitness for a particular purpose?

When a buyer informs the seller of a specific purpose, and the seller supplies goods, there is an implied condition that the goods shall be fit for that purpose.
This applies only when:

The buyer relies on the seller’s skill or judgment.
The seller regularly deals in such goods.

If the goods are unfit, the buyer can reject them or claim damages.

20. What is sale by sample?

Under Section 17, a sale is by sample when the contract mentions it, and goods are supplied as per that sample.

Conditions:

Goods must correspond with the sample.
Buyer must have reasonable opportunity to compare.
Goods must be free from hidden defects.

If the bulk does not match the sample, the buyer can reject the goods.

21. What is sale by description?

Under Section 15, in a sale by description, goods must correspond with the description provided. If they don’t, the buyer can reject them.

Example: Buying a “cotton shirt” and receiving a synthetic one gives the buyer the right to cancel the contract.

It applies when the buyer hasn’t seen the goods and relies on the seller’s description.

22. What is the effect of mixing goods of different quality?

If the seller delivers mixed-quality goods:

The buyer can accept correct goods and reject the rest, or
Reject the whole lot, or
Accept all and claim damages for the inferior part.

This protects the buyer from losses due to improper fulfillment of the contract.

23. What is delivery of goods? What are its types?

Delivery means the voluntary transfer of possession from the seller to the buyer. Types include:

Actual Delivery – Physical handover.
Constructive Delivery – Transfer without physical movement (e.g., by instruction).
Symbolic Delivery – Delivery of documents or keys symbolizing the goods.

Proper delivery completes the seller’s part and transfers risk.

24. What are the rules related to the delivery of goods?

Key rules are:

Delivery must be as per contract terms.
Delivery must be made within reasonable time.
Buyer must accept delivery and take steps to receive goods.
Expenses of delivery are usually borne by the seller. These ensure smooth performance and protect buyer’s rights.

25. What is part delivery and its legal effect?

When only a part of the goods is delivered, it is part delivery. If it is done in progress of whole delivery, it is considered delivery of the whole. Otherwise, it’s not.

Example: If a seller delivers 20 out of 100 bags and intends to send more, it may be full delivery. But if the rest is not sent, the buyer can sue for breach.

26. When is the property in goods transferred from seller to buyer?

As per Sections 18–25, ownership passes when the parties intend it to pass. For specific goods, it passes when:

Goods are in deliverable state.
Price is determined.
Seller does everything required.

Transfer of property determines who bears the risk of loss.

27. What is the significance of transfer of property in sale of goods?

Transfer of property affects:

Risk: Once property passes, buyer bears risk.
Rights: Buyer can sue third parties and resell goods.
Obligations: Buyer must pay for the goods.

It is central to the sale contract and defines when legal ownership changes.

28. What is the unpaid seller’s right of lien?

Under Section 47–49, if the buyer doesn’t pay, the unpaid seller has a right of lien on goods in his possession. He can retain the goods until full payment is made. This right applies:

When goods are sold without credit.
When credit has expired.
Buyer becomes insolvent.

29. What is the unpaid seller’s right of stoppage in transit?

If the buyer becomes insolvent after the goods are dispatched but before delivery, the unpaid seller can stop the goods in transit. This protects the seller from financial loss.
Section 50–52 allows this right as long as the goods are still in the hands of a carrier.

30. What is the unpaid seller’s right of resale?

If the buyer refuses to pay, the unpaid seller can resell the goods:

With notice: Seller can recover the loss or retain profit.
Without notice: Seller cannot claim loss but must return any profit.

This right helps the seller minimize loss due to non-payment.

Unit-IV

1. What is meant by ‘property in goods’?

“Property in goods” means ownership or legal title of goods. It is the point at which the seller transfers ownership to the buyer.
According to Sections 18–25, the property in goods may pass at the time of the contract or later depending on the agreement.
It is important because once property is transferred:

The buyer bears the risk of loss.
The buyer gains ownership rights. The intention of parties and type of goods (specific, unascertained, future) decide when property passes.

2. What is the difference between property and possession?

Property	Possession
Legal ownership	Physical control
Can exist without possession	Cannot exist without physical access
Gives right to dispose goods	Only gives custody

A person may have possession without being the owner (e.g., bailee), or have ownership but no possession (e.g., seller after sale).

3. What are the rules relating to passing of property in sale of goods?

The Sale of Goods Act outlines the following rules:

Specific Goods in Deliverable State: Property passes when the contract is made.
Goods Requiring Action: Property passes after action is completed.
Unascertained Goods: Property passes after goods are ascertained.
Goods on Approval: Property passes when the buyer accepts.

These rules help determine the point of risk transfer from seller to buyer.

4. When does property in unascertained goods pass?

Under Section 23, property in unascertained goods passes only when:

The goods are ascertained (identified and set apart), and
They are appropriated to the contract with mutual consent.

Until then, ownership and risk remain with the seller.

5. What is the rule of ‘nemo dat quod non habet’?

This Latin maxim means “no one can give what he does not have.”
Under Section 27, a person who is not the owner or doesn’t have the authority of the owner cannot transfer valid title.
Example: A thief selling stolen goods – the buyer gets no title.

6. What are the exceptions to ‘nemo dat quod non habet’?

Exceptions include:

Sale by mercantile agent.
Sale by co-owner in possession.
Sale by seller or buyer in possession after sale.
Sale under a voidable contract.
Estoppel – Owner’s conduct prevents him from denying authority.

These protect innocent buyers in good faith.

7. What is sale by a non-owner?

Generally, a non-owner cannot sell goods. But under certain conditions (as in exceptions to ‘nemo dat’), a non-owner can pass good title.
For example, a mercantile agent selling with the owner’s consent, or a buyer in possession reselling the goods before paying.
The buyer must act in good faith without knowledge of the defect in title.

8. What are the rules regarding delivery of goods?

Delivery must be:

Voluntary and lawful.
As per contract terms (place, time, quantity). Types:
Actual Delivery
Symbolic Delivery
Constructive Delivery Delivery must be made within reasonable time, and the buyer must accept and take delivery.

9. What are the duties of the seller before sale?

Seller’s duties include:

Deliver goods as per contract.
Maintain quality and condition until delivery.
Provide documents of title.
Not mix goods with others unless agreed. These duties ensure the buyer receives what was promised under the contract.

10. What are the duties of the buyer before sale?

Buyer’s duties before sale:

Pay the price as agreed.
Accept the delivery of goods.
Inspect goods if required.
Give proper instructions for delivery. Failure to perform these duties may lead to breach of contract.

11. What are the rights of the seller after sale?

After sale, the seller has:

Right to sue for price if ownership is transferred.
Right to lien if goods remain unpaid and in possession.
Right to stop goods in transit if buyer becomes insolvent.
Right to resell goods under certain conditions.

These rights protect the seller from financial loss.

12. What are the rights of the buyer after sale?

Buyer’s rights include:

Right to receive delivery as per contract.
Right to reject defective or non-conforming goods.
Right to claim damages for breach.
Right to sue for specific performance or cancellation if conditions are not met.

These ensure buyer’s interests are protected.

13. Who is an unpaid seller?

An unpaid seller is one who:

Has not received the full price.
Has received a bill of exchange or cheque which is dishonoured.

As per Section 45, an unpaid seller has several statutory rights against goods and the buyer.

14. What are the rights of an unpaid seller against the goods?

Rights include:

Right of lien: Retain goods till payment.
Right of stoppage in transit: Stop delivery if buyer becomes insolvent.
Right of resale: Sell goods if buyer fails to pay.

These rights safeguard the seller’s interest in case of default.

15. What are the remedies available for breach of contract of sale?

Both the seller and buyer have remedies under the Sale of Goods Act: For Seller:

Suit for Price – If the property has passed and buyer refuses to pay.
Suit for Damages – For non-acceptance of goods.
Resale – If buyer defaults. For Buyer:
Suit for Damages – For non-delivery or breach of warranty.
Specific Performance – If goods are unique or rare.
Repudiation of Contract – In case of breach of condition. These remedies ensure justice and financial compensation.

16. What is right of resale by an unpaid seller?

An unpaid seller can resell goods:

With Notice – He may recover loss or retain profit.
Without Notice – He cannot claim loss but must return profit to buyer. Resale is permitted:

When goods are perishable.
When the right is reserved in contract.
After exercising lien or stoppage. (Section 54).
It protects the seller from losses due to buyer’s default.

17. What is right of lien and when does it arise?

Right of lien allows the unpaid seller to retain goods in his possession until the price is paid.
It arises:

When goods are sold without credit.
When credit period expires.
Buyer becomes insolvent. (Sections 47–49).
Lien is lost if:
Seller delivers goods to carrier without reserving right.
Buyer or his agent obtains delivery.

18. What is the right of stoppage in transit?

This right allows the unpaid seller to regain possession of goods in transit if the buyer becomes insolvent.
Requirements:

Buyer must be insolvent.
Goods must be in transit (not yet delivered).
Seller must give notice to carrier. (Sections 50–52).
This secures the seller from delivering goods without payment.

19. What is the effect of sub-sale or pledge by buyer?

If the buyer resells or pledges goods before paying the seller:

Seller’s rights like lien or stoppage continue, unless:
1. Seller has consented.
2. A document of title has been transferred in good faith to third party. (Section 53).
  Thus, innocent third-party rights may override seller’s remedies in certain cases.

20. What are the duties of buyer after delivery of goods?

Buyer’s duties include:

Accept the goods delivered.
Make payment as per terms.
Examine goods upon delivery.
Take delivery within reasonable time.
Pay damages if goods are not accepted. These duties ensure fair performance of buyer’s obligations and avoid disputes.

21. What is constructive delivery?

Constructive delivery occurs when physical transfer doesn’t happen, but the delivery is understood legally.
Examples:

Seller tells warehouseman to hold goods for buyer.
Delivery of key or document symbolizing the goods. This is valid delivery under the Act and transfers possession without physical handover.

22. What is symbolic delivery?

Symbolic delivery means transfer of something that represents the goods rather than the goods themselves.
Examples:

Delivery of keys of a warehouse.
Transfer of document of title like bill of lading. It is usually used for bulky goods where actual delivery is impractical.

23. What is actual delivery?

Actual delivery means physical handover of goods by the seller to the buyer.
It is the most direct form of delivery and occurs when:

Goods are placed in buyer’s hands or at his place.
Buyer acknowledges possession. This marks completion of seller’s obligation to deliver.

24. When is delivery complete under the Sale of Goods Act?

Delivery is complete when:

Goods are voluntarily delivered by the seller.
Delivery matches contract terms.
Buyer accepts goods physically or constructively. Sections 33–38 lay down conditions for valid delivery.
A complete delivery transfers risk and possession to the buyer.

25. What is buyer’s right to examine the goods?

As per Section 41, the buyer has the right to:

Inspect the goods before acceptance.
Ensure they conform to contract, sample, or description.
Reject goods if they fail inspection. Seller must provide reasonable opportunity for this.
This protects the buyer against defective or wrong goods.

26. What are the modes of acceptance of goods by the buyer?

A buyer accepts goods when:

He intimates acceptance to seller.
He acts inconsistently (e.g., resells or uses the goods).
He fails to reject after a reasonable time. Once accepted, buyer can no longer reject the goods unless there’s a hidden defect.

27. What is repudiation of contract before due date?

Known as anticipatory breach, it happens when a party refuses to perform before the due date.
The aggrieved party can:

Treat contract as breached and sue immediately, or
Wait until the due date.
(Section 60 of Indian Contract Act applies).
This helps avoid loss and prepare for alternate arrangements.

28. What happens when goods are destroyed before sale?

If goods are specific and perish before sale:

Without fault of either party, the contract becomes void (Section 7). If goods perish after agreement to sell, but before risk passes to buyer:
Contract is avoided (Section 8). This ensures fairness in risk allocation.

29. Who bears the risk of loss after property has passed?

Once property (ownership) passes to the buyer:

The buyer bears the risk, even if possession hasn’t been transferred. This is called “risk follows ownership.” However, if delivery is delayed by seller’s fault, he may bear the risk.

30. Can the buyer sue the seller for non-delivery of goods?

Yes, under Section 57, if the seller refuses or fails to deliver:

The buyer may sue for damages.
If the goods are unique or rare, he may seek specific performance. He may also recover advance payment if applicable.
This protects buyer’s interest when seller breaches the contract.

Unit-V

1. What is a Partnership?

Partnership is defined under Section 4 of the Indian Partnership Act, 1932 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.”
Essential features:

Two or more persons.
Agreement to share profits.
Business must be lawful.
Mutual agency: one partner can bind the firm. A partnership is based on mutual trust and personal relationship, making it different from companies or co-operative societies.

2. What is the nature of a partnership?

The nature of a partnership is contractual and based on mutual agreement. It is a voluntary association formed to carry out business with the intention of sharing profits.
Its key nature includes:

Mutual agency: Each partner is both an agent and principal.
Unlimited liability: Except in LLPs, partners are personally liable.
No separate legal entity: A firm is not distinct from its partners. Trust and cooperation form the basis of this relationship.

3. How is a partnership formed?

A partnership is formed through an agreement (oral or written) among persons who agree to share profits and manage the business jointly.
Requirements:

At least two competent persons.
A lawful business.
Mutual consent.
Sharing of profits and losses. It is advisable to form a Partnership Deed which outlines rights, duties, and responsibilities of each partner. Though registration is optional, it is recommended.

4. What is the test of partnership?

The true test of partnership is mutual agency. That is, whether a partner can bind the firm and act on behalf of other partners.
Section 6 emphasizes:

Joint business.
Profit-sharing is not the sole test.
Existence of mutual agency is conclusive. Thus, a person who only shares profits (e.g., lender or employee with profit share) may not be a partner unless mutual agency exists.

5. How does a partnership differ from other associations?

Basis	Partnership	Company	Co-operative
Formation	Contractual	Statutory	Statutory
Legal Status	No separate entity	Separate legal entity	Separate legal entity
Liability	Unlimited	Limited	Limited
Management	Partners	Board of directors	Democratic

Partnership is more personal, flexible, and informal than other business entities.

6. What is registration of a partnership firm?

Registration of a firm means recording it with the Registrar of Firms under Section 58. It involves:

Submitting prescribed form.
Paying the required fee.
Recording firm name, address, and partner details. Though not mandatory, it is highly beneficial as it enables the firm to sue third parties.

7. What is the effect of non-registration of a partnership firm?

An unregistered firm cannot:

File a suit against a third party.
Enforce contractual rights in court.
Claim set-off in a suit. However, third parties can still sue the firm.
Non-registration restricts legal rights, making it advisable to register the firm under the Act.

8. What are the rights and duties of partners?

Rights:

Participate in management.
Share profits.
Access books and records.
Be indemnified for expenses. Duties:
Act in good faith.
Render true accounts.
Be diligent.
Not make secret profits. These rights and duties can be modified through a partnership agreement.

9. What is the property of the firm?

Firm property includes:

Capital contributed by partners.
Property acquired in the firm’s name.
Assets bought using firm’s money.
Goodwill of the business. All such property is held jointly and used for the business purpose. Individual partners cannot claim separate rights over firm property.

10. What is the relation of partners to third parties?

Partners act as agents of the firm. Any act done by a partner in the ordinary course of business binds the firm (Section 18 & 19).
If done beyond authority but with third-party consent or belief, the firm is still liable. This principle of mutual agency is key to partnership law.

11. What is implied authority of partners?

Each partner has implied authority to bind the firm for acts done in the usual course of business.
Examples:

Buying goods.
Hiring employees.
Issuing receipts. But authority does not cover:
Submitting disputes to arbitration.
Opening a bank account in own name. Implied authority can be restricted by agreement or public notice.

12. What are the different kinds of partners?

Active Partner – Actively involved in business.
Sleeping Partner – Invests capital but doesn’t manage.
Nominal Partner – Lends name but no real role.
Partner in Profits Only – Shares profits, not losses.
Minor Partner – Admitted only to benefits of partnership.

Each has different liabilities and roles depending on their participation.

13. Can a minor be a partner?

Under Section 30, a minor cannot be a full partner but can be admitted to the benefits of a firm.
He:

Has right to share profits.
Can access accounts.
Isn’t liable for losses. On attaining majority, he must choose within 6 months to become a full partner or not, else he is deemed to be one.

14. What is reconstitution of a firm?

Reconstitution means change in the structure of the firm without dissolution. It occurs when:

A partner retires.
A new partner is admitted.
A partner dies.
Change in profit-sharing ratio. The business continues, but the firm legally becomes a new firm. A new agreement should be made.

15. What is dissolution of a partnership firm?

Dissolution is the end of partnership business, either by agreement, court order, insolvency, or death.
Types:

Dissolution of partnership: Change in partnership but business continues.
Dissolution of firm: Complete closure of business and settlement of accounts. It involves winding up affairs, distributing assets, and discharging liabilities.

16. What is limited liability partnership (LLP)?

A Limited Liability Partnership (LLP) is a hybrid form of business entity that combines the features of a partnership and a company.
Key features of LLP:

Limited liability: Partners are not personally liable for the firm’s debts.
Separate legal entity: An LLP is distinct from its partners.
Flexibility: Partners can manage business while enjoying limited liability.
Perpetual succession: Continuation of the business even if partners change. LLP provides protection to personal assets while allowing flexibility in management, making it ideal for professionals and small businesses.

17. What are the salient features of a partnership?

Salient features of a partnership are:

Mutual Agency: Each partner is both an agent and principal.
Profit Sharing: Partners share profits (and sometimes losses).
Unlimited Liability: Partners are personally liable for the firm’s debts.
No Separate Legal Entity: A partnership is not distinct from its partners.
Voluntary Formation: Formed by mutual consent and without government intervention.
Business Objective: The business must be lawful. These features distinguish partnerships from other forms of business organizations like companies.

18. What is the difference between a partnership and a company?

Basis	Partnership	Company
Formation	Agreement between individuals	Registration under Companies Act
Liability	Unlimited personal liability	Limited liability of shareholders
Legal Status	No separate entity	Separate legal entity
Management	Managed by partners	Managed by directors
Profit Sharing	Shared among partners	Distributed as dividends to shareholders

A company offers limited liability and a distinct legal personality, unlike a partnership where partners are personally liable.

19. How is partnership liability different from company liability?

In a partnership, partners have unlimited personal liability for the firm’s debts, meaning they are personally liable for any business losses.
In contrast, in a company, shareholders have limited liability, meaning their liability is restricted to the unpaid amount of their shares.
Thus, the financial risk in a partnership is higher than in a company.

20. What are the types of partnerships?

General Partnership: All partners are equally responsible for management and liability.
Limited Partnership: Includes at least one general partner with unlimited liability and one or more limited partners with liability restricted to their capital contribution.
Partnership at Will: Continues as long as the partners agree, without a fixed duration.
Fixed-Term Partnership: Ends after a certain period or upon the completion of a project.

Each type has varying degrees of partner involvement and liability.

21. What are the duties of a partner towards the firm?

Partners owe the firm several duties, including:

Duty to act in good faith and in the best interest of the firm.
Duty of disclosure: Partners must disclose all relevant information to the firm.
Duty to contribute to capital and share profits and losses as agreed.
Duty to account for any profits made from the firm’s business.
Duty to not compete with the firm’s business without consent. These duties ensure the smooth functioning and ethical operation of the partnership.

22. What are the rights of a partner in a partnership?

Rights of partners include:

Right to participate in management and decision-making.
Right to share profits and losses as per the agreement.
Right to inspect and access firm’s books.
Right to indemnification: A partner is entitled to reimbursement for expenses incurred on behalf of the firm.
Right to transfer interest (with consent of others). These rights ensure fair treatment and transparency in the partnership.

23. What is a partnership deed?

A partnership deed is a formal agreement outlining the terms and conditions of the partnership. It covers:

Capital contributions of partners.
Profit and loss sharing ratio.
Duties and obligations of each partner.
Term of partnership (fixed or indefinite).
Procedure for dissolution or reconstitution. While not mandatory, it provides clarity and reduces disputes among partners.

24. What is reconstitution of a partnership?

Reconstitution refers to the change in the structure of a partnership, such as:

Admission of a new partner.
Retirement of an existing partner.
Change in profit-sharing ratio.
Death of a partner. In reconstitution, the business continues, but the partnership agreement is modified to reflect the changes. It requires a new partnership deed.

25. What is dissolution of a partnership?

Dissolution is the termination of the partnership business. It can occur:

By mutual agreement between partners.
By court order if the partnership is unable to continue due to disputes, insolvency, or death.
On the expiry of the term or completion of the project. Dissolution involves the settlement of accounts, liquidation of assets, and distribution of remaining funds among partners.

26. What is the difference between dissolution of partnership and dissolution of firm?

Dissolution of partnership: Occurs when the relation between the partners is dissolved, but the business continues.
Dissolution of firm: The complete closure of the business, ending the partnership and winding up all affairs. Dissolution of the firm requires settling debts and distributing assets, while dissolution of the partnership may not end the business if others continue operating.

27. What is the effect of the dissolution of a firm?

Upon dissolution of a firm:

The firm’s business operations cease.
Assets are liquidated, and liabilities are paid.
Partners are entitled to the distribution of the firm’s property based on the agreement.
Any partner who continues the business without following due process could be liable to the remaining partners or third parties.

28. What is the procedure for dissolution of a firm?

The procedure for dissolution includes:

Notice to all partners of the intent to dissolve.
Settling debts and liabilities of the firm.
Selling off firm’s assets.
Distributing the remaining property among partners. A formal agreement or legal process may be required if partners cannot settle the matter by mutual consent.

29. What is the role of a partner in the event of firm dissolution?

In the event of dissolution, the role of partners includes:

Winding up the firm’s affairs.
Liquidating assets and settling debts.
Dividing any surplus according to the agreement or the partnership deed.
Ensuring that no new liabilities are created after dissolution.

Partners remain liable for the firm’s debts even after dissolution until all liabilities are cleared.

30. What is limited liability in a partnership?

Limited liability partnership (LLP) provides partners with liability protection, meaning their personal assets are not at risk in case of firm debts, unlike in general partnerships where partners have unlimited liability.
In LLP, partners are only liable to the extent of their capital contributions. This model is popular for professionals and small businesses looking to limit personal liability.