Guess Paper

Indian Contract Act- 1872- II

1. What is contract of Indemnity? Explain the right of indemnity

holder. Distinguish between contracts of Indemnity & Contract of
Guarantee.
2. Discuss the nature, rights and liabilities of a Surety.
3. Explain the essential feature of Guarantee. What are the liabilities
& rights of the Surety? Can the surety discharge from his liability?
What is the difference between contract of Guarantee and
Indemnity?
4. Liability of surety is co-extensive with that of Principal debtor.
UNIT-II
1. Explain the standard of care required of a bailee in respect of
goods bailed to him.
2. What can be pledged? Who can make the valid Pledge?
Differentiate between Pledge & Lien.
3. What is bailment? What are the essentials of bailment? What are
the duties & rights of Finder of lost goods as a bailee?
4. What is Pledge? Distinguish between Pledge and Bailment.
UNIT – III
1. What is Agency? What are the various modes of creating Agency
relationship? Also describe the different kinds of Agent.
2. What are the circumstances in which agency is terminated?
3. Discuss fully the extent of Principals liabilities to third parties for
the act of Agent.
4. Define the term sub-Agent. How for is principal bound by the acts
of sub-agent? Distinguish between sub-agent and substituted Agent.
UNIT- IV
1. Sharing of profits in business is not conclusive evidence of the
existence of Partnership. Discuss with the help of relevant case law.
2. How the firm is registered? What is the effect of Registration &
Non registration of firm?
 3. Distinguish between partnership business and joint Hindu family
business.
4. Discuss the essentials of Partnership firm.
5. Define the principal of Holding out.
6. What are the provisions of dissolution of partnership Firm?
UNIT- V
Write short notes on the followings:-
i) Continuing Guarantee.
ii) Co-Sureties.
iii) Feature of Bailment.
iv) Rights of Pawnee to redeem.
v) Kinds of Agent.
vi) Agency by Ratification.
vii) Nature of Partnership.
viii) Registration of Firm.
ix) Termination of Agency.
x) Rights & duties of finder of lost goods.
xi) Modes of discharge of surety.
xii) Doctrine of Holding out.
xiii) Minor admitted to benefit of partnership.
xiv) Dissolution of firm.
xv) General lien & Particular lien.
xvi) Difference between Hypothecation & Pledge.
xvii) Co-ownership & Partnership.
xviii)Partnership at will.
xix) Dormant Partner.
xx) Ostensible authority.
xxi) Sub Agent & Substituted Agent.
xxii) Pledge &Mortgage.
 1. Define the Contract of Indemnity. Distinguish between contract of
Indemnity & contract of guarantee. And explain the rights of
indemnity holder.
Introduction: - A Contract of indemnity is a direct engagement between two
parties whereby one promises to save another from harm. According to section 124
of the Indian Contract Act a contract of indemnity means,” a contract by which one
party promises to save the other from loss caused to him by the conduct of the
promisor himself or by the conduct of any other person.”
This gave a very broad scope to the meaning of indemnity and it
included promise of indemnity due to loss caused by any cause whatsoever. Thus
any type of insurance except life insurance was a contract of indemnity
however Section 124 of Indian Contract Act 1872 makes the life insurance was a
contract of indemnity. However the Contract Act -1872 makes the scope narrower
by defining the contract of indemnity.
DEFINITION: - As provisions made in section 124 of the Indian Contract Act-
1872 says that, “whenever one party promises to save the other from loss caused to
him by the conduct of the promisor himself or by the conduct of other by the
conduct of the any other person is called a Contract of Indemnity.”
New India Assurance Company Ltd. Vs Kusumanchi Kameshwra Rao &
Others, 1997, A Contract of indemnity is a direct engagement between two parties
thereby one promises to save the other harm. It does not deal with those classes of
cases where the indemnity arises from loss caused by events or accidents which do
not or may not depend on the conduct of indemnifier or any other person.
ESSENTIAL ELEMENTS:- The following are the essentials of the Contract of
Indemnity:-
1. There must be a loss.
2. The loss must be caused either by he promisor or by any other person.
3. Indemnifier is liable only for the loss.
Thus it is clear that this contract is contingent in nature and is enforceable only
when the loss occurs.
RIGHTS OF INDEMNITY HOLDER
The promisee in a contract of indemnity acting within the scope of his authority is
entitled to recover from the promisor so under Section 125 of the Act defines the
rights of an indemnity holder which are as under :-
1. Right of recovering Damages: - All the damages that he is compelled to pay in a
suit in respect of any mater to which the promise of indemnity applies.
2. Right of recovering Costs: - All the costs that he is compelled to pay in such suit
if in bringing o defending it he did not contravene the orders of the promisor and
has acted as it would have been prudent for him to act in the absence of the
 contract of indemnity or if the promisor authorised him in bringing or defending
the suit.
3. Right of recovering sums :- All the sums which he may have paid under the terms
of a compromise in any such suite if the compromise was not contrary to the orders
of the promisor and was one which would have been prudent for the promisee to
make in the absence of the contract of indemnity.
In another case of Mohit Kumar saha v/s New India Assurance Co.-1997 It was
held that the indemnifier must pay the full amount of the value of the vehicle lost
to theft as given by the Surveyor. Any settlement at the lesser value is arbitrary and
unfair and violates art.14 of the constitution.
DIFFERENCE BETWEEN INDEMNITY & GUARANTEE
INDEMNITY GUARANTEE
1. In indemnity there are two, one who There are three parties, Principal
is indemnified and the other debtor, surety and the Creditor.
indemnifier.
2. It consists of only one contract There are three contracts between
under which indemnifier promises to surety, principal debtor and creditor.
pay in the event of certain loss.
3. The contract of indemnity is made The object of contract of guarantee is
to protect the promise against some the security of the creditor.
likely loss.
4. The liability of the indemnifier in a In guarantee the liability of surety is
contract of indemnity is a primary one. only a secondary, when principal
debtor default.
CONCLUSTION:- It has been noted above that section 124 recognises only such
contract as contract of indemnity where there is a promise to save another person
from loss which be caused by the conduct of the promisor himself or by conduct of
any other person. It does not cover a promise to compensate for loss not arising
due to human agency. If under a contract of insurance an insurer promises to pay
compensation in the event of loss by fire. Such contracts are valid contracts as
being contingent contracts under sec.31.

2. Discuss the nature, rights and liabilities of a surety.

 INTRODUCTION:- The surety who is entitled to be reimbursed by the principal
debtor for the amount paid by him on his behalf. The liability of the surety is co-
extensive with that of the principal debtor unless it is otherwise provided by the
contract under section 128.
NATURE OF SURETY:- Section 128 surety liability is co-extensive with that of
the principal debtor which means that on a default having been made by the
principal debtor the creditor can recover from surety the all what he could have
recovered from the principal debtor.
Example:- The principal debtor makes a default in the payment of a debt of
Rs.10,000.00, the Creditor may recover from the surety the sum of Rs.10000/- plus
interest becoming due thereon as well as the amount spent by him in recovering
that amount.
LIABILITY OF SURETY:- A bare perusal of section 128 of the Contract Act
would make it clear that the liability of a surety is co-extensive with that of he
principal debtor. The word co-extensive denotes that extent and can relate only to
quantum of the principal debt. Refer a case of Industrial Financial Corporation
of India v/s Kannur Spinning & Weaving Mills Ltd, 2002: However the liability
of the surety does not cease merely because of discharge of the principal debtor
from liability.
Bank of Bihar Ltd. v/s Damodar Prasad, 1969: The Supreme Court held
that the liability of the surety is immediate and cannot be defended until the
creditor has exhausted all his remedies against the principal debtor.Maharashtra
Electricity Board Bombay v/s Official Liquidator and Another, 1982: under a
letter of guarantee the bank undertook to pay any amount not exceeding Rs.50000/-
to the Electricity Board. It was held that the Bank is bound to pay the amount due
under the letter of guarantee given by it to the Board.
RIGHTS OF SURETY:- The surety has certain rights against the principal
debtor, the creditor and the co-sureties. His right against each one of them are
being discussed as under :-
1. Right of Subrogation: Under section 140 when a principal debtor makes a default
in the performance of his duty and on such default the surety makes the necessary
payment or makes performance of all what he is liable. Firstly the surety can claim
indemnity from the principal debtor secondly he is also entitled to the benefits of
every security which the creditor has against the principal debtor. Case of Mukesh
Gupta v/s Sicorn Ltd. Mumbai, 2004.
2. Right of Indemnity against the principal debtor: Similarly as above when a
principal debtor makes a default the surety has to make the payment to the creditor.
After making the payment he can recover the same from him under section 145 of
the act.
3. Right against Creditor to take back the securities deposited by the Principal
debtor:- After making the dues the surety has all the rights which are available to
the creditor against the principal debtor under section 141 of the act. He is entitled
to the benefit of every security which the creditor has against the principal debtor.
4. Surety has no right to goods in hypothecation:- In case there is hypothecation of
the goods the goods remain in the possession of the borrower the surety cannot
invoke the provision of section 141 in such case. Refer a case of Bank of India v/s
Yogeshwar Kant Wahhera, 1987.
CONCLUSION:- Keeping in view the above facts it is revealed that the surety’s
nature, liabilities and rights are of such types once he stands surety for any debt he
will remain bound till the amount is repaid by the principal debtor. Although the
surety has some rights such as right of subrogation, indemnity and to taking back
the securities but even though there are more complications in this regard. So one
should stand surety for a person who have some qualities of good pay master.

3 The liability of the surety is co-extensive with that of Principal debtor.

INTRODUCTION:- Surety’s Liability : The liability of the surety is co-
extensive with that of the principal debtor, unless it otherwise provided by the
contract for example A guarantees to B for the payment of a bill of exchange by C,
the acceptor. The bill is dishonoured by C. A is liable not only for the amount of
the bill but also for any interest and charges which may have become due on it.
DEFINITION OF CO-EXTENSIVE:- Section 128 of the Indian contract Act
provides the following definition in respect of the surety liability:-
 “It says that the liability of the surety is co-extensive with that of the
principal debtor unless it otherwise provided by the Contract.”
A case of law in this regard is of Andhra Bank Soryapeet v/s Anantnath Goel-
1991: It was held by the court that where there were joint promisors and
consideration was paid by only one of them the other piomisors were equally liable
to pay amount. The liability of son was co-extensive with his father who was
principal debtor in view of section 127 and 128 of the Indian contract Act.
The gist of some the leading cases in which the liability of the surety is co-
extensive are given below to strengthening the answer of the question:-
 Kellappan Nambiar v/s Kanhi Raman-1957: In this case that if the principal
debtor happens to be a minor and the agreement made by him is void, the surety
too cannot be made liable in respect of the same because the liability of the surety
is co-extensive with that of principal debtor. It has been held that the guarantee of
the loan or an overdraft to an infant is void because the loan to the infant itself is
void.
 That in case of State Bank of India v/s V.N. Anantha Krishnam-2005: that in
view of the provision of section 128 of Act the Presiding officer was not correct in
giving directions to the Bank to proceed against the property because cash credit
facility and the liability of surety was co-extensive with that of principal debtor.
 In a case of Bank of Bihar Ltd. v/s Dr.Damodar Prasad -1969: The Supreme
Court held that the liability of the surety is immediate and cannot be defended until
the creditor has exhausted all his remedies against the principal debtor.
 A case of Industrial Financial Corporation of India v/s Kannur Spining &
Weaving Mills Ltd.-2002: It was held that the liability of surety does not cease
merely because of discharge of the principal debtor from liability.
 In a case of Harigobind Aggarwal v/s State Bank Of India-1956: It was held
that the principal debtor liability is reduced e.g. after the creditor has recovered a
part of the sum due from him out of his property the liability of the surety is also
reduced accordingly.

CONCLUSION:- On deeply going into depth of provisions laid down in the Act it
is revealed that surety liability is co-extensive with that of principal debtor means
that his liability is exactly the same as that of the principal debtor. Suppose if the
default having made by the principal debtor the creditor can recover the same from
the surety all what he could have recovered from the principal debtor.
 4. What do you understand by contract of guarantee? How does it differ from
contract of Indemnity?
INTRODUCTION: - The contract of guarantee may be an ordinary or some
different type of guarantee which is different from an ordinary guarantee.
Guarantee may be either oral or written. Basically it means that a contract to
perform the promise or discharge the liability of third person in case of his default
and such type of contracts are formed mainly to facilitate borrowing and lending
money which based on the following facts :-
i) Surety is the person by the whom the guarantee is given.
ii) Principal debtor is the person from whom the assurance is given.
iii) Creditor is the person to whom the guarantee is given.
DEFINITION: - “A contract of guarantee is a contract to perform the promise or
to discharge the liabilities of a third person in case of his default. The person who
gives the guarantee is called surety, the person in respect of whose default the
guarantee is given is called Principal Debtor and the person to whom the guarantee
is given is called creditor. A guarantee may be either oral or written.”
ILLUSTRATION: - A promises to a shopkeeper C that A will pay for the items
being bought by B if B does not pay this is a contract of guarantee. In case if B
fails to pay C can sue A to recover the balance the same was held in the case of
Birkmyr v/s Darnell-1704, the court held that when two persons come to shop
one person buys and to give him credit the other person promises, “ if he does not
 pay, I will”, this type of a collateral undertaking o be liable for the default of
another is called a contract of guarantee.
ESSENTIALS: - The following are the essential elements of Guarantee:-
1. Existence of Creditor, Surety, and Principal debtor: - The economic function of
a guarantee is to enable a credit-less person to get a loan or employment or
something else. Thus there must exist a principal debtor for a recoverable debt for
which the surety is liable in case of the default of the principal debtor. In the case
of Swan v/s Bank of Scotland -1836, It was held that a contract of guarantee is a
triplicate agreement between the creditor, the principal debtor and the surety.
2. Distinct Promise of Surety: - There must be distinct promise by the surety to be
answerable for the liability of the Principal debtor.
3. Liability must be legally enforceable: - Only if the liability of the principal
debtor is legally enforceable, the surety can be made liable. For example a surety
cannot be made liable for a debt barred by Statute of Limitation.
4. Consideration: - As with any valid contract the contract of guarantee also must
have a consideration. The consideration in such contract is nothing but anything
done or the promise to do something for the benefit of the principal debtor. The
section 127 of the Act clarify as under :-
“Anything done or any promise made for the benefit of principal debtor is
sufficient consideration to the surety for giving the guarantee.”
Illustrations: - 1. A agrees to sell to B certain goods if C guarantees for payment of
the price of the goods. C promises to guarantee the payment in consideration of
A’s promise to deliver goods to B. This is sufficient consideration for C’s
promise.
2. A sells and delivers goods to B. C afterwards requests A to forbear to sue B for
an year and promise if A does so he will guarantee the payment if B not pay. A
forbears to sue B for one year. This is sufficient consideration for C’s guarantee.
5. It should be without misrepresentation or concealment: - Section 142 of the
Act specifies that a guarantee obtained by misrepresenting facts that are material to
the agreement is invalid, and section 143 specifies that a guarantee obtained by
concealing a material fact is invalid as well.
Illustration :- 1. A appoints B for collecting bills to account for some of the bills.
A asks B to get a guarantor for further employment. C guarantees B’s conduct but
C is not made aware of B previous mis-accounting by A. B afterwards defaults. C
cannot be held liable.
Illustration: 2- A promise to sell Iron to B if C guarantees payment. C guarantees
payment however, C is not made aware of the fact that A and B had contracted that
B will pay Rs.5/- higher that the market price. B defaults. C cannot be held liable
A case of London General Omnibus V/s Holloway- 1912: A person was invited
guarantee an employee, who was previously dismissed for dishonesty by some
employer. This fact was not told to the surety. Later on the employee embezzled
funds but the surety was not held liable.
CONCLUSION
It is noted from the above mentioned facts that the contract of guarantee is a
triplicate agreement between Creditor, Surety and the Principal debtor. A person
who stands for surety known as guarantor for a third person (principal debtor) who
in case of his default to fulfil his promise or to discharge the liabilities. The surety
or guarantor has to make a distinct promise for payment of the liabilities of the
Principal debtor which must be legally enforced.

5. What is continuing Guarantee? Under what circumstances it can be

revoked?
INTRODUCTION: - A guarantee which extends to a series of transactions is
called continuing guarantee. A guarantee may be an ordinary guarantee or a
continuing guarantee is almost different from an ordinary guarantee.
EXAMPLE:- A in consideration that B will employ C in collecting of Rent of B’s
Zamidari. B promises that he is responsible to the amount of Rs.5000/- for due
collection and payment by C of those rents. This is a continuing guarantee.
2. A guarantees payment to B, a tea-dealer, for any tea that C may buy from him
from time to time amount of Rs.100/-. Afterwards, B supplies C tea for the
amount of Rs.200/- and C fails to pay. A’s guarantee is a continuing guarantee and
so A is liable for Rs.100/-.
It is clearly noted from the above examples that continuing guarantee is given to
allow multiple transactions without having to create a new guarantee for each
transaction.
DEFINITION:- Section 129 of the Contact Act, continuing guarantee means a
guarantee which extends to a series of transactions without creating a new
guarantee for another transaction is called continuing guarantee.
Illustration:- A guarantees payment to B for 5 sacks of rice to be delivered by B
to C over the period of one month. B delivers sacks to C and C pays for it. Later
on B delivers 4 more sacks but C fails to pay. A’s guarantee is not a continuing
guarantee and so he is not liable to pay for the 4 sacks.
REVOCATION OF CONTINUING GUARANTEE:- Section 130 of the Act a
continuing guarantee can be revoked at any time by the surety by a notice to the
creditor. Once the guarantee is revoked the surety is not liable for any future
transaction however he is liable for all the transactions that happened before the
notice of revocation is given.
1. A promises to pay B for all groceries bought by C for a period of 12 months if he
fails to pay. In the next three months C buys 2000/- worth of groceries. After 3
months, A revokes the guarantee by giving a notice to B. C further purchases 1000
Rs of groceries. C fails to pay. A is not liable for 1000/- rupees of purchase that
was made after the notice but he is liable for 2000/- of purchase made before the
notice
2. Lloyd’s v/s Harper-1880: It was held that employment of a servant is one
transaction. The guarantee for a servant is thus not a continuing guarantee and
cannot be revoked as long as the servant is the same employment. Wingfield v/s
De St Cron-1919: it was held that a person who guaranteed the rent payment for
his servant but revoked it after the servant left his employment was not liable for
the rents after revocation.
3. A guarantees to B to the amount of Rs.10,000/- that C shall pay for the bills that B
may draw upon him. B draws upon C and C accepts the bills. Now A revokes the
guarantee. C fails to pay the bill upon its maturity. A is liable for the amount upto
Rs. 10,000.00.
4. As per provisions laid down in Section 131 of the Act that the death of the surety
acts as a revocation of continuing guarantee with regards to future transactions if
there is no contract to the contrary.
It is pertinent to mention here that there must not be any contract that
keeps the guarantee alive even after the death. In the case ofDurga Priya v/s
Durga Pada -1928 : It was held by the court that in each case the contract of
guarantee between the parties must be looked into to determine whether the
contract has been revoked due to the death of the surety or not. It there is a
provision that says that death does not cause the revocation then the contract of
guarantee must be held to continue even after the death of the surety.
Conclusion:- A guarantee which extends to a series of transactions is called
continuing guarantee. A guarantee may be an ordinary guarantee or a continuing
guarantee is almost different from an ordinary guarantee. In Contract of guarantee
between the parties must be looked into to determine whether the contract has been
revoked due to the death of the surety or not. It there is a provision that says that
death does not cause the revocation then the contract of guarantee must be held to
continue even after the death of the surety.
 UNIT-II
6 EXPLAIN THE STANDARD OF CARE REQUIRED OF A BAILEE IN
RESPECT OF GOODS BAILED TO HIM.
INTROUCTION: - The standard of care is required is that of a reasonable
man. The amount of care to be taken should be such as a man of ordinary
prudence would under similar circumstances take of his own goods of the same
bulk quantity and value as the goods bailed.
DEFINITION OF STANDARD OF CARE:- While going through the contents
of the provisions laid down in Section 151 of the Contract Act it is noticed that “in
all cases of bailment the bailee is bound to take as much as care of the goods bailed
to him as a man of ordinary prudence would under similar circumstances take of
his own goods of the same bulk and quality and value and value as the goods
bailed.”
On perusal of the definition it is revealed uniform duty of maintaining
the standard of care in respect of the goods bailed to him. However the following
steps may also be taken to maintain the standard of care:-
1. The Bialee should act as a prudent man: When the goods are bailed to him then he
should take such standard way of care as a man of ordinary prudence would like to
take of his own goods. If the bailee has not acted like an ordinary prudent man he
cannot be excused. A case of Union Bank of India v/s Udho Ram & sons-1963:
It was held railway did not take proper care and failed to keep an eye on wagons
which resulted theft.
2. In Calcutta Credit Corportation Ltd. v/s Prince Peter of Greece-1964: A car
was received for repairs by a garage which was damaged by fire. The car was
parked in a garage which was a partitioned by wooden walls, it also stored the
paint and thinners. When the fire open the car where it was kept could not opened
for fifteen minutes when the fire was notice. It was held that the bailee had not
taken a standard of care and he is liable.
3. Barbant & Comp. v/s King, 1895: The House of Lords held that the only cases
where the bailee would be immune are laid down expressly in section 152 of the
 contract act, If he has taken the amount of standard of care of it as described in
section 151 of act that the degree of care needed must be maintained. 4. Laxmi
Narayan v/s The Secretary for State for India:1923: that when a carrier of
goods transports jute in a boat which has leaks on its side and the goods get
damaged as a results of un attended and unsafe place and lack of standard of
care.
CONCLUSION:- The facts and factors mentioned above it is observed that the
degree of care needed varies with the kind of engagement and therefore when a
person undertakes such a job the law not only requires that he should possess the
requisite skill but also that he has the requisite plants and appliances and well
acquitted about maintaining the standard of care. and also that his premises are also
reasonable suitable for doing that job.
7. What can be pledged and who can make a valid pledge? Differentiate
Pledge and Lien.
INTRODUCTION: - Section 172 says pledge is a bailment the delivery of the
goods from the pawnor to the pawnee which is essential. There must be delivery of
the goods i.e. the transfer of possession from one person to another. The delivery
however, be either actual or constructive. Mere agreement to transfer of
possession in future is not enough to constitute a Pledge.
Revenue Athority v/s Sunderasanam Pictures, 1968: It was held that an
agreement wherein the producer of a film agrees to deliver final prints of the film
under production when the same are ready to a financier distributor in return for
the finance provided by the latter is not pledge because there is no deliver of
goods.
WHAT CAN BE PLEDGED:- Pledge is a kind of bailment where the goods are
delivered by one person to another as security for payment or performance of a
promise. If the goods are in the possession of a third person there is deemed to be
no delivery of the goods unless and until the third person acknowledges to the
transferee that he holds the goods. The following things can be pledged:-
i) Only the moveable goods can be pledged.
ii) The goods which are in possession of the True Owner should have a clear title and
valid documents.
WHO CAN MAKE A VALID PLEDGE:- Ordinarily he should be the owner of
the goods, or any person authorised by him in that behalf who can pledge the
goods. If a servant has the custody of the goods or a tenant gets the possession of a
furnished house, the servant cannot pledge the goods nor can a tenant pledge the
furnishing materials in his possession.
A person obtaining the goods fraudulently does not have any right to pledge
them as described in a case of Purshotam Das v/s Union of India-1967. In the
following exceptional cases a person who is neither the owner nor having any
 authority from the owner for pledging the goods, but having possession with the
owner’s consent can make a pledge and confer rights on the pledgee. These are as
under:-
1. Pledge by Mercantile Agent: Section 178 of the Act a mercantile Agent having
the possession of the goods with the consent of the owner but having no authority
to pledge them can make a pledge provided the pledgee or pawnee is acting in
good faith. He must pledge the goods while acting in the ordinary course of his
business of a mercantile agent.
2. PLEDGE BY PERSON IN POSSESSION UNDER A VOIDABLE
CONTRACT: The Act recognises another exception to the rule that either the
owner or his duly authorised agent can pledge the goods. According to this a
person who has obtained the possession of the goods under a voidable contract.
Voidable contract is a valid contract until it has been rescinded and
becomes void after the same has been rescinded. If the pawnor has obtained the
possession of the goods under a voidable contract but the contract has not yet been
rescinded, the pledgee is capable of having a good title to such goods. Thus if a
person has obtained the possession of goods by fraud, misrepresentation, coercion
or undue influence, he could make a valid pledge of the goods if the same is done
before the contract has been rescinded. A case of Phillips v/s Brooks Ltd.,
1919: It was in this case that pledge was valid.
3. Pledge by a person with a limited interest: - This Provision have been given in
the section 179 of the act that a person having limited interest in the goods may
make a valid pledge. For example : A pledges the goods to B for Rs.5000/- and B
makes a sub pledge of those goods for Rs.8000/- A gets a right to take back those
goods only by paying Rs.5000/-as held in case of Belgawn Poiner Urban Co-op
Credit Bank v/s Satyaparmoda-1962.
Difference between Pledge & Lien
Pledge Lien

Pledge is a kind of bailment and security. In right of lien it is not so as in Pled

In a pledge pawne acquires a special interest in the Right to lien gives only a right t
property pledged. subject matter of the lien until paym
not transferable to a third person.
 Pledge is deliver of goods to the creditor as security Lien is a right of a creditor to reta
for the debt. until his debt is paid or satisfied

CONCLUSION:- In Pledge which a kind of bailment and also to be considered as

security for the debt of the creditor. It is also essential in the Pledge that there must
be delivery of the moveable goods from pawnor to pawnee and transfer of
possession from one fellow to another. A person who is having the possession of
goods and consent of the true owner and acting in good faith can make a valid
pledge.

8. What is bailment? Explain its essential ingredients of Bailment? What are

the duties & rights of Finder of the goods as a Bailee?
INTRODUCTION:-Means delivery of goods i.e. moveable property by one
person who is generally the owner thereof, to another person for some purpose.
The goods are to be returned to the owner after accomplished the purpose to take
further action as per directions of the owner of the goods.A.T.Trust Ltd., v/s
Trippunhura Devaswomi-1954. In a contract of bailment the person who delivers
the goods called the “Bailor” and to whom the goods are delivered is called as
“Bailee”.
DEFINITION:- Section 148 of the Indian Contract Act, A bailment is the
delivery of goods by one person to another for upon a contract that they shall when
purpose is accomplished be returned or otherwise disposed of according to the
directions of the person delivering them. The person delivering the goods is known
as BAILOR and the person to whom goods are delivered is known as the BAILEE.
ESSENTIAL INGREDIENTS OF BAILMENT:- The following are the
essentials of the bailment under the Contract Act:-
(a) DELEVERY OF GOODS FOR SOME PURPOSE:- Delivery means transfer
of the goods from the possession of one person to another person. Delivery need
not always be actual, sometimes it may be constructive or symbolic as per
instructions laid down in section 149 of the Act, and this section recognises it other
than actual delivery. However section 149 also provides below in this regard:-
The delivery to the bailee may be made by doing anything which has the effect of
putting the goods in the possession of the intended bailee or any other person
authorized to hold them on his
behalf.”
i) Jagdish chand Trikha v/s
Punjab National Bank, 1998 : It was held by the court that the position of the
bank was that of a Bailee and it failed in its duty to take care of the goods and
return them to the Bailor. The Bank was held liable to pay the cost of Rs.
3,72,400/- along-with simple interest @12% from the date of institution of the suit.
ii) Ultzen v/s Ni coles, 1894:- It was held that the defendant was the bailee of the
coat as his servant had assumed the possession of the same and he was therefore
liable for its loss which was occurred due to his negligence.
(b) IF THE OWNER MAINTAINS CONTROL OVER THE GOODS
THERE IS NO BAILMENT: When the person keeps his goods in the premises
of others but himself continues to have the control over them, this is not sufficient
delivery for being considered to be bailment. Kaliaporumal Pillai
v/s Visalakshmi, 1938 : It was held that there was no bailment as she had not
handed over the possession of the jewels to the goldsmith, and therefore the
goldsmith could not be made liable for the loss. Punjab National Bank v/s Sohan
Lal, 1962, It was held that the locker could be operated even without the key with
the consumer. The consumer’s control over the valuable things in the locker had
gone and the same with the bank, therefore the bank was liable being bailee and
thus Bank is liable for the loss of the belonging of the consumer in the locker.
(c) THERE CAN BE BAILMENT WITHOUT CONTRACT:- In some cases
there can be a bailment when the person obtains the possession without a contract
of the bailment as it was done in the case of :Ram Gulam v/s Govt. Of Uttar
Pradesh- 1950, The court expressed that the property of plaintiff was stolen and
the same was recovered by the Police, Police kept the same in the Malkhana.
Property was again stolen from the Maalkhana and could not be traced out. Here
the point of bailment raised since no contract of bailment was made for which
conviction is announced but the law itself recognises the finder of the goods as
bailee under section 71 of contract Act, hence it was held that bailment can be even
there when there is no contract of bailment. L.M. Co-operative Bank v/s
Prabhudass HathiBhai-1966:- It was held that the government stood in the
position of a Bailee to take due care of the goods. Govt., duty to prove that they
had taken proper care as was possible for them and the damage was due to reasons
beyond their control.
RETURN OF GOODS AFTER THE PURPOSE IS ACHIEVED: OR
THEIR DISPOSAL ACCORDING TO THE BAILOR DIRECTIONS:- The
delivery of the goods in a bailment is only for some purpose i.e. for safe custody,
for carriage, for repair etc., when the purpose is accomplished the goods are to be
returned or otherwise disposed of according to the directions of the person
 delivering them. According to Section 148, the goods shall be when purpose is
achieved returned to the bailor or disposed of as per his directions i.e. when the
cloth is given for being stitched in to suit or gold for being converted into
ornaments or wheat for being converted into flour there is a bailment in each case.
When the money is deposited into a Bank, when the agent receives some payment
on behalf of Principal, he is not the bailee thereof because he is only bound to pay
an equivalent of it to the principal rather than the same currency as done in the case
of: - Secretary of State for India Council v/s Sheo Singh-1880: Some notes
were given to Treasury for being cancelled, there is no bailment as the same notes
are not to be returned. Constructive bailment does not confer any right to a
stranger. Bailment regarding hiring of a locker will not create relationship of Land
lord and the tannent, as the Bank can always open the locker with a Master
Key. The hirer of the locker is not in a position to open the locker without the
assistance of the Bank. The Hirer has to operate the locker only within the Bank’s
time but the bank has no such limitation
CONCLUSION:- Keeping in view the above stated facts and the gist of the
decisions of the Courts it is noticed that the goods are to be returned to their
original owner after the purpose is accomplished or they are to be disposed of as
per the directions of the Bailor in same condition as these were bailed.

POSITION OF FINDER OF GOODS

A person who finds goods belonging to another and takes them into his custody is
subject to the same responsibility as a bailee as provided in sec.71. Since the
position of the finder of goods is that of a bailee. He is supposed to take the same
amount of care with regard to the goods as is expected of a bailee under section
151. He is also subject to all duties of a bailee including a duty to return the goods
after the true owner is found.
Section 168 and 169 confer certain rights on the finder of goods which are as
under:
1. May sue for specific reward offered: The finder of goods has no right to sue the
owner for compensation or trouble and expenses voluntarily incurred by him to
preserve the goods, but he may retain the goods until he receives such
compensation and a specific reward offered by the owner for return of the goods.
Refer sec. 168 of the Act.
2. If true owner is diligence not found or he refuses to pay the lawful charges of the
finder of the goods, the finder may sell it on the following conditions:-
i) When the thing is in danger of perishing or losing part of its value.
ii) When the lawful charges of the finder, in respect of the found goods amount to
two-third of its value.
iii) Right of Lien: He can retain the Lien on the found goods until his expenses on
find goods are paid.
iv) Right to sell the goods found:- Finder of the goods has the right to sell the goods
found by him under certain circumstances provided in section 169 of the act with a
reasonable notice mentioning the intention to sale the goods found.

9. Define Pledge and distinguish between Pledge and Bailment.

INTRODUCTION:-- Section 172 of the Act: Since pledge is a bailment the
delivery of the goods from the pawnor to the pawnee which is essential. There
must be delivery of the goods i.e. the transfer of possession from one person to
another. The delivery however, be either actual or constructive. Mere agreement to
transfer of possession in future is not enough to constitute a Pledge.
Revenue Athority v/s Sunderasanam Pictures-1968: It was held that an
agreement wherein the producer of a film agrees to deliver final prints of the film
under production when the same are ready to a financier distributor in return for
the finance provided by the latter is not pledge because there is no deliver of
goods.
DEFINITION OF PLEDGE:- Section 172 of the Contract Act, “Pledge is the
bailment of goods as security for the payment of a debt or for the performance of a
promise.” The delivery may be actual or constructive. The possession in a pledge
must be judicial possession. Mere physical possession in not sufficient.
DEFINITION OF BAILMENT:- The delivery of the goods by the bailor to the
bailee is the essence of the bailment. Unless there is actual delivery there is no
contract of bailment.
Section 148 of the contract act defines bailment as under:- “ A bailment is a
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.”

DIFFERENCE BETWEEN PLEDGE & BAILMENT

PLEDGE BAILMENT
Pledge is a species of bailment. Bailment is a genus.

Pledge is bailment of goods as Bailment is a delivery of goods by one

security for the payment of debt or person to another for some purpose
for the performance of a promise. upon a contract.

Moveable property is subject-matter In the contract of bailment after the

of pledge under the contract Act. accomplishing of the purpose the goods
are to be returned or otherwise
disposed of according to the directions
of the Bailor.
CONCLUSION:- In Pledge which a kind of bailment and also to be considered as
security for the debt of the creditor. It is also essential in the Pledge that there must
be delivery of the moveable goods. Whereas in the contract of bailment there is a
delivery of goods by one person to another for some purpose and when the purpose
is accomplished the goods are to be returned or to disposed of as per the directions
of the Bailor.

10. Explain the Rights and the Duties of BAILEE.

INTRODUCTION: - Bailee is one of the most important character of the
Bailment Contract. Bailee is of that to whom the goods are delivered by the Bailor
with some directions and to complete some certain purpose. Bailee receives only
the moveable things and he has to returned the goods which he receives after
accomplishing the purpose or he has to disposed of that things with the directions
of the owner of that goods.
RIGHTS OF BAILEE:- Under the provisions of Indian Contract Act 1872, the
following are the rights to the bailee in Bailment contract:-
1. RIGHT TO RECOVER NECESSARY EXPENSES INCURRED ON
BAILMENT:- According to section 158 of the Act when a contract of bailment is
made some remuneration is to be paid to the bailee for the services he renders in
respect of them. So he has the right to recover the same. In case of gratuitous of
bailment the bailee has no right even not entitled to receive any remuneration for
the services he renders.
Section 158 says that, “Where by the conditions of the bailment the goods
are to be kept or to be carried or the work to be done upon them, the bailee for the
 bailor and the bailee is to receive no remuneration the bailor shall pay the
necessary expenses incurred by the bailee for the purpose of bailment.”
Illustration: - A leaves his horse with the neighbour for safe custody for a week. B
is entitled to recover the expenses incurred by him in feeding the horse.
2. RIGHT TO RECOVER THE COMPENSATION:- According to section 164 of
the act, “The Bailor is responsible to the Bailee for any loss which the bailee may
sustain by reason that the bailor was not entitled to make the bailment or to receive
back the goods or to give directions in respect of them.”
From the definition it is noticed that when the Bailor sometime not entitled
to make the bailment or to receive back the goods which may results a loss to the
bailee, then the bailee is entitled to recover the loss from the Bailor.
3. RIGHT OF LIEN ON THE GOODS BAILED:- According to section 170-
171 of the Act the bailee can retain the lien on the goods of the Bailor and can
refuse to deliver them back to Bailor until his due remuneration for services he
renders or any amount due is paid by the Bailor.
4. Compensation for the loss caused by non-disclosure of faults in goods Bailed:-
The goods so bailed contain a fault which is known to the bailor but he does not
convey it to the bailee and as a result thereof bailee sustains some injury. The
bailee can ask for the compensation.
5. Loss caused by the defects of thing bailed:- When the things bailed for hire or on
rent the bailee can ask for compensations for the loss or injury caused by both
latent or patent defects of the thing bailed irrespective of awareness of bailor about
those defects as provided in sec.150 of the Act.
6. Right to sue: The bailee has the right to sue the wrong-doer who wrongfully
deprives the bailee of the use or possession of the goods bailed or does them any
injury on the basis of instructions in Sec.180 of the Act.
DUTIES OF THE BAILEE:- A bailee has to observe the following duties:-
1. Duty to take reasonable care of the goods bailed: under section 151-152 of the
act bailee is bound to take reasonable care of goods bailed to him as man of
ordinary prudent under similar circumstances as he is taking care of his own goods.
2. Duties not make unauthorised use of the goods bailed: Section 153-154 of the
act bailee is not authorised to make unauthorised use of the goods bailed to him.
3. Duty not to mix bailor’s goods with his own goods: Act says through its
section155 and 157 that bailee may not mix the bailed goods with his own goods
which will create a problem at the time of return of the goods to bailor.
4. Duty to return the goods on fulfilment of the purpose: Section 159-161and
165-167 provides that when the purpose is accomplished the bailee has to return
the goods to bailor or to disposed of as per his directions.
5. Duty to deliver to the bailor increase or profit on the goods bailed:- Under
secion 163 of the Act it is the duty of the bailee to pay to bailor the profits earned
through the goods bailed or any increase thereby.
CONCLUSION:- If the bailee performed his duties with entire of his dedications,
honesty and in good-faith and also to enjoy his rights on the basis of the provisions
laid down in the Contact Act then there will be no creation of any problem and the
agreement will also be fulfilled.

UNIT- III
11. Explain various ways in which an agency relationship is created. Also
describe about the different kinds of Agent?
INTRODUCTION:- An agent is a person employed to do any act for another or to
represent another in dealing with third parties. The person for whom such act is
done or who is so represented is called the principal. Where one person mere gives
advice to another in matter of business agency does not arise because of such
advice only does not create an Agency. Sayed Abdul Khader v/s Rami
Reddy,1979.
The following are the various ways in which a relationship of agency is created:-
WHO MAY EMPLOY AGENT:- No person can employ an agent if he does not
possess capacity to contract. So a minor or person of unsound mind cannot become
the principal under section 183 of the Indian Contract Act.
WHO MAY BE AN AGENT:- According to section 184 of the Act any person
can be appointed as an agent but a person who is not of age of majority and of
sound mind cannot be made personally liable for the act done on behalf of the
principal. Minor can create contractual relation but a minor agent cannot be made
personally liable to the principal for the misconduct like an adult agent.
CONSIDERATION: No consideration is required for the creation of an Agency
under section 185 of the Act. A case of Digvijay Cement Co.Ltd. v/s State
Trading Corpn., 2006.
KINDS OF AGENT:- On the basis of provisions available in the Contract Act the
following are kinds of Agent in the business of Agency:-
1. Del-Credere Agent:- Such type of Agent who for extra remuneration undertakes
the liability of guarantee the due performance of the contract by the other party. He
is also responsible for the solvency and performance of their contracts by the other
parties.
2. COMMISSION AGENT:- A commission agent is person who purchases and sells
goods in the market on behalf of his employer on the best possible terms and who
gets commission for his labor.
3. FACTOR:- He is such type of agent who is given the possession of the goods for
the purpose of selling them. He is entitled to sell the goods in his own name. A
factor has a right to retain the goods for a general balance of accounts.
4. BROKER:- He is also to be known in the name of Mercantile Agent employed for
the purpose of sale and sale of goods. The main duty of a broker is to establish
privity between two parties for a transaction and he gets commission for his labour.
He is not entrusted with the possession of the goods. He merely brings two parties
together and if the deal is materialized he becomes entitled to the commission.
5. CO-AGENT:- Where several persons are expressly authorized with no stipulation
that anyone or more of them shall be authorized to act in name of the whole body.
They have a joint authority and they are called co-Agents.
6. Sub-Agent:- The sub-agents are usually appointed by the original Agent in the
business of Agency. He works under the control of original Agent.
7. PACCA- AARTIA:- He is also known by this name only and he works in the
open market to sell the goods on commission basis. He only sells the goods.
CONCLUSION:- As regards to determine whether relationship is that of Agent
and Principal or that of Master and servant. Agent has to remain faithful to his
principal and has work in good faith in the business of Agency. There must be
relation in between principal and the agent. Merely giving advice to another person
in the matter of business does not arise any business of agency. The main object of
the agency business that the agent makes the principal answerable to third person.

12. What are the circumstances in which Agency is terminated?

INTRODUCTION:- Contract entered into through an Agent and obligations
arising from the acts done by an agent be enforced in the same manner and will
have the same legal consequences as if the contract has been entered into and the
acts done the principal in person as described in section 226 of the Act. Where a
Agent does not work in good faith and is not loyal to his principal and tries to
commit fraud or misrepresent in the business of Agency then principal is bound to
take steps towards termination of the agency.
 The following may the reasons which can be responsible for the termination
of the Agency:-
1. By the principal revoking his authority: Under section 203 of Contract Act-1872
lays down that, the principal may save or otherwise revoke the authority given to
his agent at any time before the authority has been exercised so to bind the
principal.
2. By the Agent renouncing the business of the Agency:- Section 206 of Indian
Contract Act, 1872 provides that, principal can revoke the agent’s authority so also
the agent can renounce the agency by giving a reasonable notice of renunciation
otherwise he will be liable to make the loss good for any damage. Sec. 207 further
mentions that like revocation the renunciation may also be express or implied in
the conduct of agent.
3. By the business of the agency being completed:- In term of contract where the
period of completion of the business is made the agency automatically stands
terminated.
4. By either the principal being adjudicated an insolvent: Section 201 of the Act
clearly indicates that, the agency which may be validy created stands revoked in
the event of different situations including the death or insanity of the principal or
the agent or by insolvency of the principal.
5. Principal should give reasonable notice of revocation:- Provisions says that a
reasonable notice of the revocation when he have the justification to revoke the
authority under sec.206.
6. By either the principal or Agent dying or becoming unsound mind:
Section 201 also describes that, when principal dying or becoming of unsound
mind agent is bound o take on behalf of the representatives of his late principal all
reasonable steps for the protection of interests of agency.
7. By the happening of any event rendering the agency unlawful: - Whenever
there is declaration of war the principal and agent may become alien enemies also
comes in the way of termination of the agency.
8. If a limited period is given:- If the agency is for a fixed term, although with the
possibility of fresh appointment after the expiry of the term it automatically
terminates on expiry of the said term such agency cannot be said to be irrevocable
as in the case of P. sukhdev v/s Commissioner of Endowments-1997. Under
sec.205.
9. MANNER AND CIRCUMSTANCES OF REVOCATION:- The principal may
have where the agent has himself an interest in the property which forms the
subject matter of the agency, revoke the authority given to his agent at any time
before the authority has been exercised so as to bind the principal under section
203 of the Act.
The Principal cannot revoke the authority given to his agent after the agent has
partly exercised his authority so far as regards such acts and obligations as arise
from acts already done in the Agency as laid down in the section 204 of the Act.
The reasonable notice of revocation is essential. Revocation may be express or
implied in the Contract of the business under section 206 of the act.
The revocation and renunciation may be expressed or may be implied in the
conduct of the principal or agent respectively under section 207 of the act.
ILLUSTRATION: - A empowers B to let A’s house. Subsequently A lets it
himself. This implied revocation of B’s authority.
CONCLUSION:- The effect of termination of Agency is on the maximum level to
the Agent about his earnings and also put the principal in financial losses. Agent
must remain faithful in the business of Agency. He should rendered the accounts,
financial matters, appointment of sub-agents and other activities relating to Agency
to the notice of his principal failing which it leads to termination of Agency.

13. Discuss fully the extent of Principals liabilities to third parties for the Act
of the Agent.
INTRODUCTION:- Agent is a person employed to do any act for another or to
represent another in dealing with third persons. There one of the most essential
characteristics of Agency is that the agent makes the principal answerable to third
persons. Principal is held bound by the obligations incurred on his behalf by his
agent. Section 226 to 228 of the Act deals with the law regarding the obligations
of principal for the contract of his Agent.
 We will find from the following provisions and illustrations that how the
Principal’s liabilities and is bound answerable to the third parties for the acts done
by his agent:-
1. Principal’s obligation for acts of Agents:- Section 226 of the Indian Contract
Act provides that contract entered into through an Agent and obligations arising
from acts done by an Agent and will have the same legal consequences as if the
contract has been entered into and the acts done by the principal in person. This
section is based on the principle act as in Maxim which means that the act of an
Agent is the act of the principal.
ILLUSTRATION:- A being B’s Agent with the authority to receive money on his
behalf receives from C a sum of money due to B. C is discharged of his obligation
to pay the sum in question to B.
2. When an agent does more than he is authorized to do and when the part of what he
does, which is within his authority, can be separated from the part which is beyond
his authority the principal is liable only for so much part of what he does as is
within Agent’s authority as provided in Section 227 of the Act.
ILLUSTRATION:- A being the owner of a ship and cargo authorizes B to procure
an insurance for Rs.4000/- on the ship. B procures a policy for Rs.4000/- on the
ship and another for the like sum on the cargo. A is bound to pay the premium for
the policy on the ship but not the premium for the policy on the cargo.
3. An agent does more than he is authorized to do and what he does beyond the scope
of his authority is not separable from what is within it the principal is not liable for
the transaction as provided in the section 228 of the Act.
ILLUSTRATION:- Where A authorizes B to buy 5000 sheep for him and B buys
5000 sheep and 200 lambs for a sum rupees 6000/- . A may repudiate the whole
transaction.
4. OSTENSIBLE AUTHORITY:- Section 237 of the Contract Act embodies the
principle of ostensible authority. The section lays down When an agent has
without authority done acts or incurred obligations to third persons on behalf of his
principal, the principal is bound by such acts or obligations if he has by the words
or conduct induced such third persons to believe that such acts and obligations
were within the scope of the Agent’s authority.”
ILLUSTRATION:- A being B’s agent for the sale of goods induces C to buy
them by misrepresentation which he was not authorized by B to make. The
contract is voidable as between B and C, at the opinion of C. Undersection 238 of
the Act misrepresentation or fraud committed by an Agent may be classified into
two categories:-
i) Under his actual or ostensible authority.
ii) Which is not covered within his authority, the principal is liable for the acts which
fall under actual or ostensible authority.
 5. A leading case on this subject is of Lloyds v/s Grace Smith in which it was held
that a principal is liable for the fraud of his agent within the scope of his authority
whether the fraud is committed for the benefit of the Principal or for the benefit of
Agent.
CONCLUSION:- On the perusal studies of the above provisions and the
illustrations it is seen that the liabilities of the Principal towards third persons are
based on the acts done by his agents. However in some cases it is also seen and
Principal is not liable for any wrongful act or omission of his Agent while acting
without the principal authority outside the ordinary course of employment or while
not acting nor purporting to act on his principal’s behalf.

14. Define the term Sub-Agent. How for is principal bound by the acts of Sub-
Agents. Distinguish between Sub-Agent and Substituted Agent.
INTRODUCTION:- A rule which based on the principle that Agency is a contract
based on trust and mutual confidence between the parties. A principal may have
the mutual confidence in his Agent but not in the subsequent sub Agent appointed
by the Agent. There is a provision regarding ‘delegates non-protest delegare’
which means of this maximum is that an agent to whom another has delegated his
own authority cannot delegate that authority to a third person.
PROVISIONS MADE IN THE ACT:- Under section 190 of the Contract Act
which deals with delegation of an authority by the Agent describes as under:-
“An agent cannot lawfully employ another to perform acts which he has
expressly or impliedly undertaken to perform personally unless by the ordinary
custom or trade a sub-agent may or from the nature of the agency a sub-agent must
be employed.”
However the general principle is that the agent cannot delegate his authority to a
third person but there are two exceptions to this general rule. These are:-
i) When the ordinary custom of trade permits employment of a sub-agent.
ii) When the nature of agency demands that employment of a su-agent is necessary by
the Agent.
Although there are two exceptional conditions no agent is authorized to
delegate his authority it the nature of his act is purely managerial and he is
supposed to use his personal skill in discharge of his duty or where he is personally
required to perform his duties.
SUB-AGENT:- Sub agent is a person employed by and acting under the control of
the original Agent in the business of Agency under section 191 of the Act.
LEGAL POSITION OF SUB-AGENT PROPERLY APPOINTED:- Sub Agent
may be either properly appointed or improperly appointed. If he is appointed by
the Agent with the authority of his principal he is called sub-agent properly
appointed. If he is appointed without the authority of principal he is improperly
appointed.
When the sub-agent is appointed properly with the consent of the principal, the
principal is bound by his acts and is responsible for his action as if he was an agent
appointed by the principal.
The sub-agent is not responsible for his acts to principal. He is responsible only for
such acts to the original Agent.
But if the sub-agent is guilty of fraud or willful wrong against the principal he
becomes directly responsible to the principal under section 192 of the Act.
Difference between sub-Agent & substitute Agent
SUB-AGENT SUBSTITUTED AGENT
Sub Agent is a person employed by and Substituted agent can be nominated by
acting under the control of the original the original Agent to act for the
agent in the business of agency. principal for a certain part of the
business of agency.
A sub-agent is not generally responsible A substituted agent by his mere
to the principal but he is responsible to appointment becomes immediately
the agent. responsible to his principal.
There is no privity of contract between A privity of contract is created between
sub-agent and principal. the principal and the substituted Agent.

CONCLUSION:- There is lot of difference in between sub-agent and substituted

agent one is appointed by the original agent is immediate responsible to the
original whereas the substituted agent is directly responsible to the principal. He is
appointed for some part of the business of agency.
 UNIT-IV
15. Sharing of Profits in business is not conclusive evidence of the existence of
partnership.
INTRODUCTION:- The object of every partnership must be to carry on a
business for the sake of profits and share the same. Therefore clubs, societies
which do not aim at making profits are not said to be a partnership. The definition
of term ‘Profits’ in the Partnership Act is that ‘net- gains’ i.e. he excess of the
returns over outlay. At one time it was thought that a person who shared the profits
must incur the liability also as he was deemed to be a Partner as it was held in a
case of Grace v/s Smith, 1775. This principle was again confirmed in a case
of Waugh v/s Carver, 1793, it was held that the person sharing the profits does
not always incur the liability of partners unless the real relation between them is
that of partners.
ESSENTIALS:- Although sharing of profits is one of the essential elements of
every partnership but every person who shares the profits need not always be a
partner.
Example No.1: - I may pay a share of profits to the manager of my business
instead paying him fixed salary so that he may takes more interest in the progress
of the business, such person sharing the profits is simply my servant or agent but
not my partner. Example No. 2:- A share of profits may be paid by a business
man to a money-lender by way of payment towards the return of his loan and
interest thereon, such a money-lender does not thereby become a partner.
a. The principle laid down in Cox v/s Hickman-1860: this principle forms the basis
of the provisions of section 6 of the Partnership Act which gives a caution that the
presence of only some of essentials of partnership does not necessarily result in
partnership. For determining the existence of partnership there must be had to
thereal relation between the parties after taking all the relevant facts into
consideration.
b. In determining whether a group of persons is or not a firm or whether a person is or
is not a partner in a firm. To answer this query an explanation is given below:
(i) Sharing of profits or of gross returns arising from property by persons holding a
joint or common interest in that property does not of itself make such persons as
partners.
(ii) Receipt by a person of a share of the profits of a business or of a payment
contingent upon the earning of profits or varying with the profits earned by a
business does not of itself make him a partner with the persons carrying on the
business and in particulars the receipt of such a share by a servant or agent as
remuneration a case of McLaren v/s Verschoyle-190l, or by a widow or child of a
deceased partner.
 (iii) Mollow March & Co. v/s Courts of Wards-1872: In this case a Hindu Raja
advanced a large amount to a firm. Raja was given extensive powers of control
over the business and he was to get commission on profits until the repayment of
loan with 12% interest. It was held by the Raja could not be made liable for the
debts contracted in the agreement was not to create Partnership but simply to
provide security.
(iv) In a case of Walker v/s Hi4sch-1884: A person was working as clerk. The served
a notice by the defendants terminating his services. Clerk contented that he was a
partner and claimed dissolution of firm. I was held that though he shared the profits
he was having the capacity of a servant only. He was not a partner and could not
see dissolution of the firm.
CONCLUSION:- On nut-shell it could be concluded that just sharing the profits
in the business is not conclusive existence of the partnership till it create some
relationship between the persons who have entered into Partnership.

16. How the firm is registered? What is the effect of Registration & Non-
Registration of firms?
INTRODUCTION: - In the Contract Act it is not necessary that the firm should
be registered at the time of its formation. However a firm may be got registered at
any-time after the creation of Partnership. Act does not lay down any-time limit
within which the firm should be registered provided insection 63 of Partnership
Act. The act does not impose any penalties for non registration of firms.There are
some disabilities are provided in sec.69 of the Act for unregistered firms and their
partners.
HOW THE FIRM IS REGISTERED:- The partnership agreement or any
transaction between the partners and third parties is void on the basis of non-
registration of partnership firm and the partners themselves. In addition to the
above no prudent partner or firm should hesitate to get his or its name registered at
the earliest possible opportunity. The procedure of registration is very simple as
provided in section 58 and 59 of the Act.
A registration of firm may be affected by submitting to the Registrar of Firms a
statement in the prescribed form and accompanied by the prescribed fee. The
application must bear the following information:-
The firm’s name. Place of business and the name of other places where the firm
can carry on business. Date of joining of each partner with their permanent
addresses. The duration of the firm.
When the Registrar is satisfied that the above mentioned requirements have been
complied with and then he shall record an entry of statement in the register. This
amounts to the registration of the firm.
Section 69 of the Act imposes certain claims in the Civil Courts. This section
provides pressure which is to be brought to bear on partners to have the firm and
themselves registered. The pressure consists in denying certain right of litigation to
the firm or partners not registered under this act. A cause of action arose when the
firm was unregistered but was registered at the time of filing the suit. It was held
in the case of State of U.P., v/s Hamid Khan & Bros. and othrs-1986: it was
held that section 69 to be inapplicable in this case.
EFFECTS OF NON-REGISTRATION& REGISTRATION
ON REGISTRATION OF FIRM ON NON-REGISTERED FIRM
Any partner, nominee and authorized No partner, nominee and agent can
agent can bring a suit to enforce a right bring a suit to enforce a right arising
arising from a contract against any past from a contract against any firm or any
or present partner and for the third past or present partner of the firm or
parties too. third parties.
Registered firm can claim of set-off or The disabilities as provided in sec.69 of
other proceedings to enforce a right the act i.e.to claim of set-off or other
arising from a contract u/s 69 of the Act. proceedings to enforce a right arising
from a contract.
Filing of the return every year is It is not required to file the return by the
necessary. un-registered firm.

Loonkaran v/s Ivan E. John, 1977, it was held that sec.69 is mandatory and
unregistered partnership firms cannot bring a suit to enforce a right arising out of a
contract falling within the ambit of sec.69 void.
In M/s Balaji Constructions co., Mumbai v/s Mrs. Lira Siraj Sheikh, 2006 It
was observed that the firm was not registered on the date of filing of suit and
person suing as partners were not shown in register of firm and suit by such firm
hit by section 69(2) of Partnership Act and was liable to be dismissed.
CONCLUSION :- It is very well established that the partnership agreement or
transaction between the partners and third parties is void on the ground of Non-
Registration of the firm as well as of Partners. To enforce any right arising out of a
contract the registration of both firm and partners are necessary for the benefit of
the both.
17. Distinguish between partnership business and Joint Hindu family business.
INTRODUCTION: According to Partnership Act persons who have entered into
partnership are individually called partners and coactively a firm and the name
under which their business is carried on Is called firm name. In the eyes of law a
firm is merely a collective name of individuals who have entered into a
partnership.
Whereas in Joint Hindu family business it is based on status of persons by virtue
of his being born in the particular family. The distinctions between these two can
be made on the basis of following facts:-
DIFFERENCE
ORDINARY PARTERNSHIP JOINT HINDU FAMILY BUSINESS
An agreement between the parties to No such agreement is required. A joint
join the partnership is necessary. family business is created by operation
of law.
The members of ordinary partnership The members of the joint family have
have no interest in the partnership by their interest & become shareholders
birth. and entitled to profits in the business by
birth.

The partnership in ordinary partnership On the death of one or more members

is automatically dissolved in case of the joint family business does not
death of any partner. dissolve.

In case of ordinary partnership each In case of joint family business there is

partner has to render accounts to his co- no accounting between the member and
partners. neither any of them can ask for the
account regarding profits and losses of
the business.
In ordinary partnership each partner is In joint family business the manager or
the agent of the firm for the purpose of managers has as implied authority to
business of the firm. contract, debts and pledge the property
and credit of the family for the ordinary
purposes of family business.
In case of ordinary partnership the In joint family business the coparceners
relationship between partners arises out are the joint owners of the family
of a contract. property and their mutual rights are the
result of a status and not a contract.
 CONCLUSION:- After going through the facts mentioned above it are clear that
there are lot and lot of difference in between an ordinary Partnership and Joint
Hindu family business. Ordinary partnership is a result of agreement between the
parties to join partnership to share the profits earned by the business being carried
out from partnership whereas in joint family business there is no need of an
agreement it is created by operation of law. In ordinary partnership each of the
partners has to render the account and to work as an agent. In joint business there
is no need to render account of profit and loss.
18. Discuss the essentials of Partnership Firm.
INTRODUCTION: - Indian partnership Act was enacted in 1932 and it came into
force on Ist day of October, 1932. A partnership arises from a contract and
therefore such a contract is governed not only by the provisions of the Partnership
Act but also by general law of contract.
DEFINITION OF PARTNERSHIP:- Kent’s view “Partnership as a contract of
two or more competent persons to place their money, efforts, labour and skill or
some of them in lawful commerce or business and to share the profit and bear the
loss in certain proportions. “Dixon defines partnership as, “Group of Persons”.
According of Pollock, “Partnership is a relation which subsists between persons
who have agreed to share the profits of a business carried on by all or any of them
on behalf of all of them.”
Definition:- Section 4 of the Indian Partnership Act defines the ‘Partnership’ as
under:-Partnership is the relation between persons who have agreed to share the
profits of a business carried on by all or any of them acting for all.”
NATURE OF PARTNERSHIP:- Partnership is a form of business organization,
where two or more persons join together for jointly carrying on some business. It is
an improvement over the ‘Sole-trade’ business, where one single individual with
his own resources, skill and effort carries on his own business. Any two or more
persons can join together for creating Partnership.
In certain respects a partnership is a more suitable form of business organization
than a Company. For the creation of partnership just an agreement between various
persons is required. Whereas in the case of company there are a lot of procedural
formalities which have to be gone through to create a Company. In the case of
company the control over regarding distribution of profits, holding of meetings,
maintaining of accounts runs through a statutory control. Whereas in partnership
firm the partners are the master of their affairs.
ESSENTIALS OF PARTNERSHIP: THE FOLLOWING ARE THE
ESSENTIALS OF THE PARTNERSHIP:-
1. PERSONS WHO HAVE AGREED:- A question is arises at the preliminary stage
is that, “ who are the persons and who can agree for partnership:
(i) MINORS: - A minor is incompetent to contract case of Mohori Bibi v/s
Damodardass Ghosh-1903: Minor may not become partner but he can be
admitted to benefit of partnership and can share the profits. He cannot be liable for
the losses.
(ii) CORPORATION: - A corporation is a legal person therefore corporation may
enter into a partnership with the condition only if the constitution of the
corporation must empowers it to form a partnership and not otherwise.
(iii) FIRM: - Firm is also recognized as a legal person in India and it cannot enter into
a partnership. A firm which is proprietorship firm or a company registered under
the Company’s Act can very well enter into a partnership but here is mentioned
that partnership firm is not a legal person therefore it is not competent to enter into
a partnership. Duli chand v/s CIT, 1956.
(iv) ALIEN: - A national of other country may be a friendly alien or an enemy alien. A
friendly Alien can enter into Partnership but latter Cannot except when he is under
the protection of that country.
2. TO SHARE THE PROFITS OF A BUSINESS:- This line consists the two parts:
1. To share the profit and 2. Of a business. However the explanation of these two
terms are as under :-
(i) Business:-This definition is not exhaustive. The existence of business is essential
unless there is no intention to carry on business and to share the profits, there can
be no partnership. Therefore the objects of the partnership and business must be
lawful. Case of R.R.Sharma v/s Ruben, 1946.
(ii) Sharing of Profits:- A case of Cox v/s Hickman, 1860:though sharing of the
profits of business is essential. The definition leave it opens as to how and when
these profits are to be shared. In order to continue the partnership the actual
existence of a business carried on by partners with an agreement to share profits of
such business is essential.
(iii) Sharing of losses Grace V/s Smith-1775, Mutual Agency and Acting for all and
to carry on the business are the essential terms of the partnership.
CONCLUSION:- In order to constitute partnership there must not only be sharing
of profits but there must be also the relationship and the principle of agency.
Section 4 of the act that there must be actual existence of a business carried on by
the partners with an agreement to share the profits of such business is essential.

19. Principle/Doctrine of Holding Out.

INTRODUCTION:-Every partner is liable for all acts of the firm done while he is
a partner. Therefore generally a person who is not a partner in the firm cannot be
made liable for an act of the firm. In certain cases however a person who is not a
partner in the firm may be deemed to be a partner or held out to be a partner for the
purpose of his liability towards a third party.
The basis of liability of such a person is not that he was himself a partner or was
sharing the profits o4 was taking part in the management of the business but the
basis is the application of the law of estoppels because of which he is held out to be
a partner or deemed to be a partner by “holding out”
DEFINITION OF HOLDING OUT Section 28 of the Partnership Act makes the
following provision under this doctrine:-
(1)Anyone who by words spoken or written or by conduct represents himself or
knowingly permits himself to be represented to be a partner in a firm is liable as a
partner in that firm to anyone who has on the faith of any such representation given
credit to the firm, whether the person representing himself or represented to be a
partner does or does not know that the representation has reached the person so
giving credit.
(2) Where after a death of the partner the business is continued in the old firm
name the continued use of that name or of the deceased partner’s as a part thereof
shall not itself make his legal representative or his estate liable for any act of the
firm done after his death.
ESSENTIAL INGREDIENTS: 1. Representation: - The representation may
be in any of the three ways:-
i) By words written or spoken: - In case of Bevanv/s The National Bank Ltd.,
a person permitted his name to be used in the title of the firm. Therefore he was
held liable under this principle.
ii) By conduct:- In the case of Parter v/s Lincell: a person by his conduct
represented as a partner and was held liable. Martyn v/s Gray-1863: It was held
that by knowingly permitting himself or suffering himself to be represented as a
partner.
iii) Alleged Representation relied:- In the case of Munton v/s Rutherford: it
was held that Mrs.Ruherford was not liable as a partner by estoppels or holding
out.
iv)Credit to Firm on Representation:- In the case of Oriental bank of
Commerce v/s S.R.Kishore & Co.-1992: It was held he was liable for the acts of
the firm on the basis of the principle of “holding out”. Section 28 of the Act is
based upon the principle of estoppels by conduct. Where a man holds himself out
as a partner or allows others to do it, he is then properly stopped from denying the
character he has assumed, and upon the faith of which creditors may be presumed
to have acted. A man doing so may be rightly held liable as a partner by estoppels
as held in a case of Mollwo March & Co. v/s Court of Wards-1872.
The representation on which a case of “Holding Out” is sought to be established
may be express or implied it may consist of verbal or written statements or even
may be by conduct. Form of representation is not material in such case.
EXCEPTIONS TO THE DOCRINE OF HOLDING OUT:-
1. Tort: The principle of holding a person liable for act of a firm on the ground of
holding out cannot be extended to include liability arising out of tort.
2. Liability of Retired Partner: - The rule of holding-out provided in this section
is also applicable to the retired partner who retires from the firm without giving
proper public notice of his retirement. In such case person who even subsequent to
the retirement give credit to the firm on the belief that he was a partner will be
entitled to hold him liable as held in a case ofScrarf v/s Jardine-1882.
3. Insolvency of Partner: - Insolvency of the partner extinguished as the liability
of a partner and he cannot be held liable even upon this doctrine.
4. Dormant Partner: His retirement does not require a public notice for bringing
end to his liability. According to proviso to section 45(1) of the partnership Act a
dormant partner is not liable for the acts done after the date on which he ceases to
be a partner.
CONCLUSION: Anyone who by words spoken or written or by conduct
represents himself or knowingly permits himself to be represented to be a partner
in firm is liable as a partner in that firm to anyone who has on the faith of any such
representation given credit to the firm, he must bear the consequences u/s28.

REGISTRATION OF PARTNERSHIP FIRM

In the Act of Partnership there are provisions of registration of the
partnership firm but there is no where mention about the penalties for non-
registration of firm. It is therefore quite optional for a firm to get itself registered
or not. It is also obvious that registration of the partnership firm will not less than
a boon when there arisen of the legal consequences at the later stage.
Section 69 of the Partnership Act imposes certain claims in the Civil
Courts, this section also provides the pressure which is to be brought to bear on the
partners to have the firm and themselves registered. The pressure consists denying
of certain rights of litigation to the firm or partners not registered under this Act. A
case of State of U.P v/s Hamid Khan & Bros and others-1986.
In a case of Vatyapuri v/s M. Sundaresan-2002: It was held by the Court that
the suit is not maintainable as one of two remaining partners of an un-registered
firm retired resulting in dissolution of the firm and surviving sole partner filed suit
for recovery of dues to dissolved partnership.
 In another case of CIT v/s Jayalakshmi Rice and Oil Mills-1971: It was held by
the Court that the unregistered firm can bring a suit after getting the firm
registered.
It was held by the Court that in the case where the suit is brought by the un-
registered firm subsequent registration of firm while suit is pending would cure
this defect in the case of M/s Samy Uktha Cotton Trading Co. v/s
B.V.Suhhaiah-2005.
CONCLUSION:- Registration of the firm as well as of the partners is quite
essential part of the business of partnership. It also held the firm and the partners
to avoid un-necessary hurdles for smooth running of the business. The registration
of the firm as well as of the partners is optional in the Partnership Act.

CONTINUING GUARANTEE:- A guarantee may be an ordinary guarantee or a

continuing guarantee. A continuing guarantee is different from an ordinary
guarantee, as described in a case of Syndicate Bank v/s Channaveerappa Beari-
2006: in this case in ordinary guarantee the surety is liable only in respect of a
single transaction whereas in case of continuing guarantee the liability of the surety
extends to any successive transactions which come within its scope.
DEFININATION:- Section 129 of the Contract Act which provides that, “A
guarantee which extends to a series of transactions is called a “continuing
guarantee.”
 Such guarantee may be in respect of a series transactions during a fixed period e.g.
for one year. It has been done in the case of Eastern Bank Ltd., v/s Parts
Services of India Limited-1986:
 A in consideration that B will employ C in collecting the rent of B’s zamidari
promises B to be responsible, to the amount of Rs.5000/- for due collection and
payment by C of those rents. This is a continuing guarantee.
 A guarantees payment to B, a tea-dealer, to the amount of 100 pounds for any tea
he may from time to time supply to C. B supplies C with tea to the above value of
l00 pounds and C pays B for it. Afterwards B supplies C with a tea to the value of
200 pounds. C fails to pay. The guarantee given by A was a continuing guarantee
and he accordingly liable to pay extent of l00 pounds.
 A guarantees payment to B of the price of five sacks of flour to be delivered by B
to C and to be paid for in a month. B delivers five sack to C. C pays for
them. Afterwards B delivers four sacks to C which C did not pay for it. The
guarantee given by A was not a continuing guarantee, and accordingly he is not
liable for the price of the four sacks.
CONCLUSION
No doubts the continuing guarantee is a different from the from an ordinary
guarantee. In continuing guarantee the liability of surety extends to a series of
transactions. In continuing guarantee the surety has been empowered to revoke a
continuing guarantee for future transactions by giving a notice to the creditor as it
has been provided in section 130 of the Act. However his liability in respect of the
transactions which have already been made continues to exists. Whereas his
liabilities for the future transactions comes to an end.

CO-SURITIES
Sometimes there may be conditions in a contract of guarantee that there shall be
a co-surety also. Where a person gives a guarantee upon a contract that the
creditor shall not act upon it until another person has joined in it as co-surety, the
guarantee is not valid if the other person does not join. (It has also been provided in
section 144 of the act.) It means that in such a contract liability of the surety is
dependent on the condition precedent that a co-surety will join. The surety can be
made liable under such a contract only if the co-surety joins, otherwise not. On the
basis of provision under section 128.
LIABILITY OF CO-SURETY
From the above statement it has been noticed that the liability of sureties isco-
extensive with that of the principal debtor. It implies that the creditorcan proceed
against the principal debtor or the surety at his discretion unless it is otherwise
provided in the contract.
The same principle is applicable with regard to the rights and liabilities of the co-
sureties. Since the liability of the co-surety is joint and several a co-surety cannot
insist that the creditor should proceed either against the principal debtor or against
any other surety before proceeding against him.
A case in this regard is of State Bank of India v/s G.J.Herman-1998: It was held
that neither the court nor a co-surety can insist that the creditor should first
proceed against another surety before proceeding against him. Such direction
would go against the co-extensiveness.
 In the case of Bank of Bihar Ltd. v/s Dr. Damodar Prasad-1969: It was held that
the liability of the surety is immediate and cannot be defended until the creditor
has exhausted all his remedies against the principal debtor.
CONCLUSION
It has already been noted that section 128 declares that the liability of the surety is
co-extensive with that of principal debtor. The word co-extensive denotes that
extent and can relate only to the quantum of the principal debt. However the
liability of the surety does not cease merely because of discharge principal debtor
from liability. Refer a case of Industrial Financial Corp. of India v/s Kannur
Spinning & Weaving Mills Ltd.-2002.

FEATURE OF BAIMENT:- Bailment consists in delivery of goods i.e. movable

property by one person who is generally the owner thereof to another person for
some purpose. The goods are to be returned to their owner after the purpose is
accomplished or they are to dispose of according to the directions of person
delivering the goods.
For example :- When you take a fan on hire or give your suit for dry cleaning or
you give your wrist watch for repairs or give a parcel to a carrier for being
transported to some place there is bailment in each of above
cases.DEFINITION:Section 148 of the Indian Contract Act defines the bailment
as under:-
The bailment is a delivery of goods by one person to another for some
purpose upon a contract that they shall return the goods bailed to him when the
purpose of contract is accomplished or to disposed of the goods as per the
directions of the bailor.
FEATURE OF BAILMENT:-The following are the feature of the bailment:-
1. Delivery of the goods for some purpose:- The delivery to the bailee may be made
by doing anything which has the effect of putting the goods in the possession of the
intended bailee or of any person authorised to hold them on his behalf. Refer a case
of Jagdish Chandra Trikha v/s Punjab National Bank:1998: the plaintiff
deposited the jewellery worth Rs 3,72,000/- the bank as a bailee failed to take due
care of the goods hence bank was held liable to pay a sum of Rs.3,72,000.00 plus
interest @ 12% p.a.
2. There can be bailment without a contract:- In a case of Ram gulam v/s Govt. Of
UP-1950: The property of the plaintiff was stolen and recovered by the bank and
kept in Maalkhana. It was again stolen and could not be traced out. The court in
point of decision in the case that bailment contract cannot arise without a
contract. The law itself recognises the finder of goods as bailee in some
subsequent cases so it was held that the bailment can be there even without a
contract.
3. Return of goods after the work is achieved: Section 148 says that the bailee
has to return the goods as and when the purpose is accomplished or to disposed of
them as per the directions of the bailor. Case of Secy. Of State for India in
Council v/s Sheo Singh-1880.
It is very easy to make sure that in the bailment of contract there is a
delivery of the goods by one person to another for some purpose. When the work
or the purpose is accomplished it is the duty of the Bailee to return back the goods
so bailed to the Bailor.

KINDS OF AGENT:- ‘Agent’ is a person employed to do any act for another or

to represent another in dealing with third person. The person for whom such act is
done or who is so represented is called the ‘Principal’. The agent acts on behalf of
the principal depending upon on the authority he has been given. The agent is of
following kinds:-
1. Auctioneers: - Auctioneer is an agent whose business is to sell goods or other
property by auction i.e. by open sale. The authority vested in him is to sell the
goods only and not to give warranties on behalf of the seller.
2. Del credere Agent: - Such type of agent who works for extra remuneration. He
takes the liability to guarantee the due performance of the contract. He is
responsible for the solvency and performance of their contracts by the other parties
and thus indemnifies employer against loss.
3. Commission Agent: Such type of agent who purchases and sells goods in the
market on behalf of his employer on the best possible terms and who paid
commission for the labour of this agent.
4. Factor :- A Factor is an agent who is given the possession of goods for the purpose
of selling them. He entitled to sell the goods in his own name. He has the right to
retain the goods for a general balance of accouts.
5. Broker :- Broker is a mercantile agent employed for the purpose of sale and sale of
goods. The main duty of a broker is to establish privity between two parties for a
transaction and he gets commission for his labour.
 6. Co-Agent: Where several persons are expressly authorised with no stipulation that
anyone or more of them shall be authorised to act in the name of whole body. They
have a joint authority and they are called co-agents.
7. Sub-Agent: such type of a person who employed and acting under the control of
original agent in the business of agency.
8. Pacca Artia: He also works on commission basis. He gets the goods from his
principal and sells them in the market.
Keeping in view the above facts we can conclude that an agent is a person
employed to do any act for another or represent another in dealing with third
persons. Where one person mere gives an advice to another in matter of business of
agency does not arise because of such advice agency does not create.

NATURE OF PARTNERSHIP:- Section 4 of Indian Partnership Act

1932, That partnership is the relations which subsist between
persons who have agreed to combine their property, labour and skill in some
business and to share the profits thereof between them. The Present definition is
wider than one contained in the Partnership Act.
DEFINITION:- According to Partnership Act 1932 the definition of the
Partnership is as under: “Partnership is the relation between persons who have
agreed to share the profits of business carried on by all or any of them acting
for all.”
NATURE OF PARTNERSHIP
On the basis of provisions laid down in the act of partnership the nature of the
partnership is of the following aspects :-
i) There should be an agreement between the persons who wants to be partners.
ii) The purpose of creating partnership should be carrying on of business.
iii) The motive of creating of partnership should be earning and sharing of the profits.
iv) The business of the firm should be carried on by all of them or any of them acting
for all.
The partnership Act is very much clear about it concept and it gives the
directions regarding creation of a partnership by having an agreement for sharing
of their property, labour and skill in some business which aimed to share the
earning and profits.
 TERMINATION OF AGENCY
INTRODUCTION:- The agency which may be validly created stands terminated
in the event of different situations as the principal revoked his authority, or by the
agent renunciation of business of the agency or the death or unsound mind any of
the i.e. principal or of the agent. Even when the principal being adjudicated in
insolvent.
DEFINATION OF TERMINATION OF AGENCY
On the basis of provisions laid down in the Act under section 20, “That the agency
is terminated by the principal revoking his authority or by the Agent renouncing
the business of the agency being completed or either the principal or agent dying or
becoming of unsound mind or by the principal being adjudicated an insolvent
under the provisions of any act for the time being in force in the relief of insolvent
debtors.”
DIFFERENT MODES OF TERMINATION OF AGENCY
The following are the modes under which an Agency can be terminated:-
1. By Revocation of Agent’s Authority:- The revocation of agent’s authority can be
made by the principal subject to the condition:-
i) Revocation may be express or implied as provided in section 207 of the Act.
2. By the Principal revoking his authority: Provisions have been made in the
section 203 of the Act that Principal may revoke his authority given to his agent.
3. By the Agent renouncing the business of the Agency:- Under section 207 of the
Act, It is mentioned that theAgent should give a reasonable notice to his Principal,
otherwise Agent can be made liable to make good any damage caused to Principal.
4. By the completion of Business of Agency:- When the agency is created for the
fixed time by an express or implied contract and after expiry of the term it
automatically terminates on the expiry of the said term u/s 205 of Act.
5. By either death or Unsound mind of Principal or of Agent:- Section 201 of the
Act laid down that the agency is stands terminated on the death of the Principal or
of the Agent.
6. By the Principal being adjudicated an Insolvent:- Section 201 also says that the
agency can be terminated if principal being adjudicated as an insolvent.
In addition to above as provided in section 210 that all the sub-agencies shall
remain terminated on the termination of original agency.
CONCLUSION:- Agency can be terminated on the above mentioned reasons.