MODULE 2

Chapter 13
Special contracts- Contracts of indemnity and guarantee
Special contracts are contracts of indemnity and guarantee Section 124 , bailment and pledge section 148
contract of agency section 182. All these contracts are required to fulfill the general principles of contract, such as
consideration, competence of the parties, free consent, lawful object etc.
CONTRACT OF INDEMNITY
A contract of indemnity is a type of contingent contract. The term indemnity means to compensate or make good the loss.
Thus indemnity is an act to compensate or protect somebody against loss, or to make good the loss suffered.
Definition
Section 124 of the contract act defines “contract of indemnity is a contract by which one party promises to save the other from the
loss caused to him by the conduct of the promisor himself or by the conduct of any other person.”
Parties to the contract of indemnity
Promisor or indemnifier- The person who promises to make good the loss.
Promisee or indemnity holder or indemnified- The person whose loss is to be made good.
Features of the contract of indemnity
1. Express or implied
Indemnity may either be express or implied. Implied contracts are arises from the circumstances of the case or from the conduct
of the parties.
2. Compensation of loss
Contract of indemnity includes the promise made to indemnify loss caused by human agency as well as by the event or accidents
not depending on the conduct of human beings. Therefore all the general insurance contracts are a contract of indemnity except
life insurance contracts. Because in life insurance contract payment is made on the consideration other than the loss suffered
by the insured.
3. Essentials of a valid contract
Contract of indemnity is also required to fulfill all the essential elements of a valid contract.

Rights of indemnifier
The rights of indemnifier are similar to the rights of surety under section 141 of the Indian contract act.
1. Right to subrogation
On payment of the amount of loss or liability to the indemnified, the indemnifier is subrogated to all the rights of indemnified. That is, he
steps into the shoes of the indemnified. Thus he has the right to file a suit against the person who is liable for the loss the right to claim all
sums paid to the indemnified and damages suffered from the person who is liable for the loss.
2. Right to equities
After making payment to the indemnified for the loss, indemnifier is entitled for all equities which indemnified could have
enforced against the third party liable for the loss.
3. Right to refuse indemnity
The indemnifier has the right to refuse indemnity provided the loss caused to the indemnity- holder is beyond the scope of
the contract.
Rights of indemnity holder (sec: 125)
1. Right to recover damages
All damages which he has paid in any suit in respect of any matter to which he promise to indemnify applies.
2. Right to recover cost
He is also entitled to recover all cost in which he has paid in bringing or defending any suit in respect of the contract of
indemnity. This right is available subject to the following conditions;
A). The indemnity holder not have contravened order of the promisor.
B). He must have acted prudently
C). He must have been authorized by the promisor to bring or defend the suit.
3. Right to recover sum paid
He is entitled to recover all the sums which he may have paid under the terms of any compromise of any such a suit. subject
to the following;
A). The compromise must not be contrary to the orders of the promisor.
B). The compromise must be prudent.
C). The promisor must have authorized him to compromise the suit.

CONTRACT OF GUARANTEE
A contract of guarantee is a special type of contract which enables a person to obtain an employment or a loan or some
goods or services in credit. A guarantee may be either oral or written.
 Definition
According to section 126 of the contract act "a contract of guarantee is a contract to perform the promise or discharge the
liability of a third person in case of his default”.

Parties in a contract of guarantee

1. Surety/ guarantor- The person who gives the guarantee.
2. Credictor- The person to whom the guarantee is given.
3. Principal debtor- The person in respect of whose default the guarantee is given.

Features of contract of guarantee

1. Three parties- The creditor, the principal debtor and the surety.
2. Three contracts
A). Between the creditor and the principle debtor which gives rise to the debt guaranteed.
B). Between the surety and the creditor in which the surety guarantees to pay the debt, in case of default in payment by the principal
debtor.
C). Between the surety and the principal debtor (express or implied) by which the principal debtor undertakes to indemnify the
surety in case he defaults in payment of debt.
3. Capacity to contract
To create a valid contract, all the parties must be competent to contract. But in a contract of guarantee the principal
debtor may not be a person competent to contract but his incapacity should be in the knowledge of the surety. In that case the
surety will be the principal debtor and he is personally liable to pay the debt, although the principal debtor is not liable to pay.
4. Concurrence
There should be express or implied concurrence of all the three parties.
5. At the request of the principal debtor
Guarantee is given by the surety at the express or implied request of the principal debtor.
6. Debt or liability
In a contract of guarantee, the surety undertakes to pay a debt or discharge a liability of a third person in case of his default.
It is enforceable by law.
7. Consideration
There must be a consideration for a contract of guarantee. There need not be any direct and separate consideration between
the surety and the creditor. The consideration received by the principal debtor may be a sufficient to the surety for giving guarantee.
8. Free consent
There must be a free consent of all the parties in a contract of guarantee. Any guarantee which is obtained by the creditor
through misrepresentation, concerned with the material part of the transaction, or keeping silence as to a material circumstance is
invalid.
9. Writing is not necessary
Contract of guarantee may either be oral or written.
10. Other essentials of a contract
In order to create a valid contract of guarantee, there must have all other essential elements of a contract.

Types of guarantee

1. On the basis of purpose

A). For payment of debt
Guarantee maybe for the payment of debt or loan. Guarantee for an existing debt is a retrospective guarantee and for a
future debt is a prospective guarantee.
B). For price
Guarantee maybe for the payment of the price of the goods to be sold on credit.
C). For honesty
Guarantee is given for the honesty or good conduct is known as fidelity guarantee.(in case of employment as an agent
servant etc).

2. On the basis of transaction

A). Simple or specific guarantee
It is a guarantee which is given in respect of a single debt or a specific transaction. It will end when the guaranteed debt is
discharged or the promise is duly performed.
B). Continuing guarantee
In this case guarantee extends to a number of transactions over a period of time. Here the surety's liability will continue till
all the transactions are completed or till the guarantee is revoked by him for future transactions.
 Revocation of continuing guarantee
A continuing guarantee as regards future transaction may be revoked under the following circumstances.
1. By notice(sec 130)
A continuing guarantee can be revoked at any time by the surety in relation to future transactions by giving notice to this
effect to the creditor. After revocation, the surety is not liable for any transactions made subsequent to the notice of revocation, but
he is liable for all previous transactions which have already been made.
2. By death of surety (sec131)
In the absence of any contract to the contrary, the death of the surety revokes a continuing guarantee so far as regards future
transactions. It is not necessary that, notice of death should be given to the creditor. The revocation does not affect transactions
which were executed prior to the death of surety, and the surety's legal heirs had been made liable for such transactions.
3. By modes of discharge of surety
It is revoked by the same modes by which a surety is discharged from his liability. These maybe by notice, death, novation,
release of the principal debtor, variance in terms of contract, arrangement by creditors with the principal debtor, imparting surety's
remedy, loss of security and invalidation of contract.

Nature and extent of surety's liability(sec128)

Unless there is a contract to the contrary, the liability of the surety is co-extensive with that of the principle debtor. It
means, the surety will be liable to the same extent as the principle debtor towards the creditor. The liability of the surety can
neither be more nor less than the principal debtor's though by a special agreement, it may be made less than that of the principal
debtor, but never greater.
The liability of surety arises immediately when the principal debtor defaults in making the payment. That is as soon as the time for
payment has come and the principal debtor does not or is unable to pay, the surety becomes liable to pay. Thus the creditor can file a
suit against the surety without suing the principal debtor.
If the principal debtor is discharged by operation of law (insolvency), it does not discharge the surety, he remains liable for the
whole amount of debt. But the surety will not be liable, if the creditor has obtained the guarantee through misrepresentation or
keeping silence to the material fact.

Rights of surety
1. Against the principal debtor
a. Right of subrogation(sec 140)
When a surety pays the principal debtor's debt, they can take the creditor's place and pursue the debt from the principal
debtor. On payment of the guaranteed debt, the surety steps into the shoes of the creditor and can sue the principle debtor for the
recovery.
B. Right to indemnity (sec145)
There is an implied promise by the principal debtor to indemnify the surety, and the surety is entitled to recover from the
principal debtor whatever the amount he has right fully paid under the guarantee.

2. Against the creditor

A. Right to securities (sec141)
The surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time
when the contract of surety ship is entered into. The surety is entitled to all the securities which the creditor was holding at the time
of guarantee. On the discharge of full ability, the surety can claim the securities from the creditor.
B. Right to claim set off
On being sued by the creditor for payment of principal debtor's liability, the surety is enabled to claim set off, if any, which
the principal debtor had against the creditor.
C. Right of subrogation
After the surety pays the guaranteed debt, he becomes entitled to every remedy which the creditor has against the debtor.
Here surety steps into the shoes of the creditor and exercise all his rights as a creditor. Surety gets this right only on discharge of the
whole of his liability.

C). Right to insist on the creditor sueing

At any time after the guaranteed debts has become due and before being called upon to pay, the surety may insist up on the
creditor sueing the debtor to recover the guaranteed debt.

3. Against co-sureties
When a debt is guaranteed by two or more sureties, they are called co-sureties.
A). Right to claim contribution
When there are several co- sureties, and one of them has been compelled to pay the entire debt of the principal debtor,such a
co-surety will be entitled to contribute equally or in different sums.
B). Release of co-surety
When there are co- sureties, a release by the creditor of one of them does not discharge the others.
C). Right to share benefits of securities
At the time of guarantee, if any security is received by one of the co-sureties from the principal debtor, all the co-sureties are
entitled to share equally the benefits of such securities.

Discharge of surety from liability(sec130-139)

Discharge of surety means termination of surety's liability or his liability comes to an end.
A). Discharge by revocation
( revocation by notice, revocation by death of surety, revocation by novation).
B). Discharge by conduct of the creditor (variation in terms of the contract, release or discharge of the principal debtor,
compounding by creditor with the principal debtor, loss of security).
C). Discharge by invalidation of the contract of guarantee.( lack of essential elements, failure of consideration, misrepresentation
or concealment).

DISTINCTION BETWEEN A CONTRACT OF INDEMNITY AND CONTRACT OF GUARANTEE

Contract of indemnity Contract of guarantee

A contract by which one party promise to save the contract to perform the promise or discharge the
other from loss caused liability of a third person in case of his default.
In a contract of indemnity there are only two parties. In a contract of guarantee, there are three parties

In a contract of indemnity, the liability of the The liability of the surety is secondary and
indemnifier is primary and independent. dependent

There is only one contract in a contract of indemnity In a contract of guarantee, there are three contracts

Consideration is must Consideration is not must

It is not necessary for the indemnifier to act at the It is necessary that the surety should give the
request of the indemnity holder guarantee at the request of the debtor

The indemnifier cannot sue third parties for loss entitled to sue against the principal debtor in his own
name.

The object of a contract of indemnity is to save the The object of a contract of guarantee is to provide an
promisee form loss Assurance

Both the parties must have contractual capacity. Principal debtor need not necessarily be competent
to contract.

Chapter 14
CONTRACT OF BAILMENT AND PLEDGE
Contract of bailment and pledge are special type of contracts contained in section 148 to 181 of contract act 1872.

Bailment
The word bailment is derived from the french word "Bailer" which means "to deliver". So it is a contract from
delivery. Bailment is a voluntary change of possession of goods or chattels from one person to another for some purpose. The
ownership of the goods is with one person and the possession is with another person.
 Definition
According to section 148 " a bailment is the delivery of goods by one person to another for some purpose upon a
contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the direction
of the person delivering them".
Parties to bailment
Bailor- the person delivering the goods
Bailee- the person to whom they are delivered.

Features of bailment
1. Delivery of goods
In a contract of bailment the delivery of goods is must. Only the possession of goods alone is transferred and the ownership
is retained by the bailor.
A). Actual delivery
It is the delivery made by physical handing over the goods to the bailee.
b). Constructive/ symbolic delivery
It is not always be possible to give physical possession due to difficulty or inconvenience or for any other reason. It is called a
constructive delivery.(eg:handing over key of house)
2. Specific purpose
The goods are delivered for some purpose which must be specific and temporary. The purpose of delivery maybe safe
custody, repair, transportation, creation of utility etc. If goods are delivered without any purpose or by mistake, it is not a
bailment.
3. Return of the same goods
Bailee is under a duty to return the goods, when the purpose is accomplished or otherwise disposed of according to the
direction of the bailor. If the goods are not returned, there is no contract of bailment but its value has to be paid.
4. Contract
The relation of bailor and bailee is the creation of contract. It may be express or implied contract.
5. Ownership
In bailment, the ownership of goods remains with the person who delivers the goods. That is, there is no transfer of
ownership and only transfer of possession.

[Link]
Bailment is concerned with only movable goods which is defined in the sale of goods act. Bailment of immovable property
like land and building cannot be made.

Kinds of bailment

1. On the basis of reward

There are two types of bailment on the basis of reward
a). Gratuitous bailment
Here no consideration or remuneration passes between the bailor and bailee. In this case the bailee keeps the goods for the
bailor without any charge or reward (eg:lending scooter to a friend).
b). Non gratuitous bailment
It is one where some considerations pass between the parties. It is known as bailment for reward. (eg:Motor car let out for
hire)

2. On the basis of benefit derived

a). Bailment for the exclusive benefit of the bailor
Here the goods are delivered by the bailor to the bailee only for the benefit of the bailor himself and the bailee does not
derive any benefit from it( eg: safe custody of valuables with a neighbour).
b). Bailment for the exclusive benefit of bailee
Here the goods are delivered by the bailor to the bailee, only for the benefit of the bailee.(eg: lending a car to a relative for
some time without any charge)
c). Bailment for the mutual benefit of both the bailor and bailee
It includes the delivery of the goods by the bailor to the bailee for their mutual benefit. Here the delivery is made with some
consideration. (eg: giving a cloth to a tailor for stitching a shirt)

Duties of Bailor
[Link] to disclose all known defects-( sec 150)
It is the duty of the bailor to disclose the known defects in the goods. If the bailor fails to disclose such defects and as a result,
if the bailee suffers from any loss. The bailor should compensate the bailee for such loss.
2. Duty to bear necessary and extraordinary expenses(Sec 158)
The bailor must repay to the bailee all the necessary expenses which the bailee has already incurred for the purpose of
bailment in the case of gratuitous bailment. But in case of non gratuitous
bailment, the bailor is liable to repay the extra-ordinary expenses incurred by the bailee.
3. Duty to indemnify loss for premature termination of bailment-Sec(159)
If the loss caused to the bailee due to premature termination is more than the benefit obtained by the bailee, it is the duty of
the bailor to compensate the bailee for such an excess loss.
4. Duty to indemnify the bailee against the defective title of the bailor-(Sec164)
If the bailor does not have any title to deliver the goods to the bailee, he would be liable to indemnify to the bailee for any
loss which the bailee has paid to the original owner.
5. Duty to receive back the goods-(Sec 164)
If the bailor wrongfully refuse to receive back the goods, he shall be liable to pay necessary expenses incurred by the bailee
for keeping this goods safely.
6. Duty to bear a loss (Sec162)
It is the duty of bailor to bear the risk of loss, deterioration and destruction, of the things bailed, provided that bailee has
taken reasonable care to protect the goods from loss.

Rights of a bailor

1. Right to claim damages in case of negligence [section 152]

If the bailee has not taken reasonable care(in the absence of any special contract or special care) the bailor has a right to
claim damages for the loss, destruction, or deterioration of the goods bailed.
2. Right to terminate the contract in case of unauthorized use of goods [section 153]
If the bailee uses the goods in an unauthorized manner, the bailor can terminate the contract of bailment before the
completion of the bailment. A contract of bailment is regarded as a voidable contract in such an event the bailee cannot sue
the bailor for a breach of contract.
3. Right of claim compensation in case of unauthorized use of goods [section 154]
If the bailee does not use the goods bailed according to the terms and conditions of the bailment contract, the bailor has
a right to claim compensation from bailee for any damages arising to the goods from or during such use of them.
4. Right to claim the separation of goods in case of unauthorized mixture of goods[section 156]
If the bailee, without the consent of the bailor mixes bailors goods with his own goods and the goods can be separated,
the bailor has a right to claim his goods after separation.
5. Right to claim compensation in case of unauthorized mixture of goods which cannot be separated [section 157]
If the bailee without the consent of the bailor mixes bailors goods with his own goods and the goods cannot be separated, the
bailor has a right to claim compensation from bailee for the loss of the goods.
6. Right to demand return of goods [section160]
The bailor has a right to demand return of goods after the completion of the purpose or after the expiry of period of
bailment.
7. Right to claim compensation in case of unauthorized retention of goods(section 161)
If the bailee does not return or deliver the goods according to the bailor’s directions, after the accomplishment of
purpose or after the expiry of period of bailment, the bailor has a right to claim compensation for any loss, destruction and
deterioration of goods from that time.
8. Right to demand accretion to goods [ section 163]
In the absence of contract to the contrary, the bailor has a right to demand any increase or profit which may have
occurred from the goods bailed. (eg: Mr. A leaves a cow in the custody of Mr. B to be taken care of. The cow has a calf then
Mr. B is bound to deliver the calf as well as the cow to Mr. A.)

Duties of bailee

[Link] to take care of the goods

The bailee should take reasonable care of the goods which are in his possession. The degree of care required by the
bailee is similar to that of a man of ordinary prudence would take of his own goods under the similar circumstances. If he
has taken such care, he is not liable, even if the goods are lost or damaged. He is also not liable for the destruction or the
loss of goods due to an act of god.
2- Duty not to make any unauthorized use of goods [section 154]
The bailee should not use the goods for an unauthorized purpose . He can use the goods as per the terms and
condition of the bailment. If the bailee makes any unauthorized use of goods he shall be liable for any loss on any
unauthorized use of goods. The bailor may terminate the contract of bailment. In other words the contract of bailment
becomes voidable.
3. Duty not mix bailors goods with his own goods [section 155 to 157]
The bailee should not mix his goods with the bailed goods. But in some cases mixing is allowed:
(a) If the bailee, with the consent of the bailor, mixes the goods of the bailor with his own goods, the bailor and the bailee
shall have an interest, in proportion to their respective shares, in the mixture thus produced.
(b) If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, and the goods can be a
separated or divided, the property in the goods remains in the parties respectively; but the bailee is bound to bear the
expense of separation or division, and any damages arising from the mixture .
(c) If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, in such a manner that it
is impossible to separate the goods bailed from the other goods and deliver them back. It was held that the bailor was
entitled to refuse to take delivery and claim compensation for loss or
damage.
4. Duty to return the goods[section 160&161]
The Bailee must return the goods without waiting for demand from bailor:
the time specified in the contract has expired or the purposespecified in the contract is accomplished,
if the goods are not returned, then:
the goods shall be at risk of the bailee,
the bailee shall be liable for any loss or damage, even if such loss is caused without any fault or negligence of the bailee or
due to an act of god or other unavoidable reasons.

5. Duty to return accretions to the goods [section163]

In the absence of any contract to contrary, the bailee is bound to return any extra profit occurred from goods
bailed.
6. Duty not to set up any adverse title
The bailee must not do any act which is inconsistent with the title of the bailor. He must not set up his own title or a
third parties title on the goods bailed to him.

Rights of a bailee:
Right to claim damages [section 150]
Right to claim reimbursement of expenses [section 158]
Right to be indemnified in case of premature termination of gratuitous bailment [section 159]
Right to recover loss in case of bailors defective title [ section 164]
Right to recover loss in case of bailors refusal to take the goods back [section 164]
Right to deliver goods to any of the joint bailors[section 165]
Right to deliver goods to bailor in case of bailors defective title [section 166]
Right to particular lien [section 170]

Lien
Lien is the right of any person to retain the possession of goods belonging to someone else until the claims and
demands of, or charges due to, the person in possession of goods are [Link] means the right to retain or detain the
possession of goods till the promise made by its owner is fulfilled. The lien of goods can be either a particular lien or a
general lien.

Types of lien:
1- Particular lien [section 170]-
Where the bailee has (in accordance with the purpose of the bailment) rendered any services involving the exercise of
labour or skill in respect of the goods bailed, he has the right to retain such goods until he receive the due remuneration for
the services he has rendered in respect of them.
Particular lien is restricted to those goods which are the subject matter of the contract. Persons entitled to a
particular lien are Bailee(sec 170), finder of goods (sec 168), pledgee(sec 173 & 174), agent (sec 221), unpaid seller( sec
47)and partner (sec 52).
Example- X gives a piece of cloth to Y, a tailor to make a coat. Y promises X to deliver the coat as soon as it is finished. Y is
entitled to retain the coat till he is paid for. But is not entitled to retain the coat,if he has allowed one month’s credit for the
payment.
2- General lien[section 171]
A general lien is a right to retain all the goods as security for the general balance of amount until the
full satisfaction of the claims due whether in respect of those goods or other goods. It is the right to retain all the goods or
any property which is in the possession of bailee until all the claims of the holder are satisfied. In the absence of a contract
to the contrary, general lien is available only to bankers, factors, wharfinger, attorneys of a high court and policy
brokers. The general lien is available to other persons only when there is an express contract to that effect.
Example- if two loans have been taken against two securities from a bank and one of the loan is repaid, the banker may
retain both the securities until his claim is satisfied.
 Essentials of a valid lien
1. There must be a possession of goods
2. It must be of a lawful nature
3. It must not be obtained by way of coercion, misrepresentation or fraud.
4. It is available only when there is an unsatisfied demand or claim etc.
Termination of bailment
1. On the expiry of fixed period
2. On fulfillment of the purpose
3. Inconsistent use of goods
4. Destruction of the subject matter of bailment
5. Death of any party
6. Termination by a bailor

Finder of lost goods

The person who finds the goods belonging to some other person and takes them in his possession is known as the
finder of goods. The finder of goods is in a position of the bailee and therefore, all the duties of the bailee are equally applicable to
the finder of goods.

Duties of the finder of goods

1. He must take the reasonable care of goods.
2. The finder of goods must return the goods to the owner.
3. He must not use the goods for his own purpose.
4. The goods must not mix with his own goods.
5. He should return any profit or increase (accretion) in goods along with the goods.
6. The finder of goods must make a reasonable effort to find the owner.

Rights of finder of goods

1. He has the right to retain the goods until he receives the compensation for trouble and expenses.
2. Where the owner has offered a specific reward for the return of goods lost, the finder has a right to sue the owner for such reward
and to retain the goods until he receive it.
3. A finder of goods has a right to sell the goods found under the following circumstances-
If the owner cannot with reasonable diligence be found; or
If the owner when found refuses to pay the lawful charge of the finder; or
If the goods are in danger of perishing or of losing the greater part of their value; or
If the lawful charges of the finder in respect of goods found amount to two third of its value.

PLEDGE OR PAWN
A pledge is a special kind of bailment. Here the goods are delivered as a security for the payment of debt or for the
performance of a promise. According to sec. 172, “The bailment of goods as security for payment of debt or performance of promise is
called pledge or pawn”. Hence every contract by which the possession of goods is transferred as a security is deemed to be a pledge.
The bailor here is the pawner and the bailee is the pawnee.

Parties to the contract of pledge

1. Pledger/pawnor (sec 172): the person who pledges the goods as security for payment of debt or performance of
promise.
2. Pledgee/pawnee (sec 172): the person receiving the goods as security for the payment of debt or performance of
promise.

ESSENTIALS OF PLEDGE
1. Delivery of goods
Delivery is must. It may be actual or constructive.
2. Returning the goods
on payment of money, the goods are to be returned.
3. Movable goods
Only movable goods such as documents of title, share, valuables etc can be pledged. Immovable properties cannot be
pledged.
 4. Existing goods
Only existing goods can be pledged. Future and contingent goods cannot be pledged.
5. Contract
It must have all the essential elements of a valid contract.
6. Transfer of possession
Only the possession is transferred from the pledger to pledgee and not the ownership. Ownership lies with the pawnor.
7. Delivery of goods by way of security
Delivery of goods from pawnor to pawnee by a way of security for securing a loan is must.
8. Security is meant for the payment of debt

RIGHTS OF A PAWNEE/PLEDGEE:
1. Rights of retainer: The pawnee has a right to retain the goods pledged not only for the payment of debt, but also for
its interest.
2. Retainer of subsequent advances: When the pawnee lends money to the same pawner after the date of the pledge, it is
presumed that the right of retainer over the pledged goods extends to subsequent advances also.
3. Right to extra ordinary expenses: - The pawnee has a right to receive extra ordinary expenses and all other incidental
expenses incurred by him for the preservation of the goods pledged.

Difference between bailment and pledge

Bailment Pledge

Any kind of purpose such as safe custody, repair,use Purpose is to secure the repayment of debt.
etc
Discharged when purpose is accomplished. Discharged with the payment of debt.

Bailee has no right to sell the goods Pledgee has the right to sell the
goods
Lien can be exercised only for the labour and skill Can be exercised even for non payment of debt
spent.
Consideration Consideration always exist
may or may not exist
The bailee is liable to return the goods on demand Pawnee is not liable to return the goods
by the bailor. delivered unless until the debt is repaid.

RIGHTS OF PAWNER OR PLEDGER:

1. Right to get back goods: -
The pawner in entitled to get back the goods pledged by paying the debt.
2. Right to redeem debt: -
The pawner should repay the loan and take back the delivery of the goods from the pawnee within the stipulated time.
3. Rights of an ordinary debtor: -
The pawner as a debtor has various rights given to him by statute for the protection of debtors(eg: Money Lenders Act)
[Link] and maintenance
Pledger can enforce the preservation and proper maintenance of the goods pledged if the pawnee is careless in it.
[Link] to receive any increase of profit
 Differences between pledge and lien

pledge lien :
It is the result of an agreement It arises out of law

Purpose is to secure the repayment Retain the goods to recover the

of debt due amount or remuneration
Goods are bailed as a promise and Only a right to retain without a
it gives a right to sell the goods right to sell
When the goods are returned, Right of lien is lost when the
contract of pledge is terminated possession of goods is lost

PLEDGE BY NON OWNERS:-

In the following cases,even one who is not an owner can make a valid pledge
1. A mercantile agent, -A mercantile agent is a person, who is authorized to sell or buy goods belonging to others. So he can
with the consent of the owner in possession of the goods or of the documents of title to goods, can make a valid pledge of the
goods while acting in the ordinary course of business of a mercantile agent.
2. A person having a possession of goods under a voidable contract can make a valid pledge of the goods before such
contract is rescinded.
3. Where the person pledges goods in which he has only a limited interest - the pledge is valid to the extent of that
interest.
4. If one of several co-owners - is in sole possession of the goods with the consent of the owners, he can make a valid
pledge.

CONTRACT OF AGENCY
CONTRACT OF AGENCY
It is a contract which creates the relationship of agent with principal is known as agency. According to sec.182 of
the Contract Act, “an agent is a person employed to do or to represent another in dealings with third person. The person for
whom such act is done or who so represented, is called the principal.
An agency is the relation between an agent and his principal created by an express or implied agreement whereby
an agent is authorized by his principal to act or represent him in dealing with third parties and to establish principals
contractual relations with them.

ESSENTIAL FEATURES OF AGENCY:

1. Competency of principal: Any person who is major and of sound mind can employ an agent. A lunatic or a drunken
person cannot employ an agent.
2. An agreement: Agency should be created by an agreement between the principal and the agent. Such agreement may be
either express or implied.
3. Intention of the agent: Intention of the agent to act on behalf of the Principal is also an essential feature of the contract
of agency.
4. Consideration is not necessary : According sec.185, No consideration is necessary to create an agency. Generally an
agent is remunerated by way of commission for service rendered.
5. Free consent: An agreement of agency depends up on free consent of the principal and agent.
6. Name of relation: agency is the name of a relation that exist between an agent and his principal.
7. Other essentials: a valid agency must have all other essentials of a valid contract.
Who may be an agent?
According to section 184”as between the principal and third person any person may become an agent”.
Even a minor or a person of unsound mind can be appointed as an agent. It a person who is not competent to
contract is appointed as agent, the principal is liable to the third parties for the acts of agent. But such an
incompetent agent shall not be liable to the principal.
CREATION OF AN AGENCY:
An agency may be created in any of the following ways:-
1. Agency by express agreement: - When an agent is appointed by words, spoken or written is called agency by
express agreement
2. Agency by implied agreement:-It includes

a) Agency by estoppels: agency may be created by estoppel. Where a person by his conduct or statements induced
others to believes that certain person is his agent.
b). Agency by holding out:-It is a branch of the agency by estoppels. In this case some affirmative conduct by the
principal is necessary. Where a person permits another by a long course of conduct to pledge his credit for certain purposes,
he is bound by the act of such person in pledging his credit for similar purposes, though in some cases without the previous
permission of his master.
c). Agency by necessity: In some extra ordinary circumstances, a person who is not really an agent should act as an agent
of another. Such an agency is called agency by necessity.
3. Agency by ratification (Ex-post facto agency):Ratification means subsequent acceptance by the principal in all
respect of an act done by the agent without authority. Sometimes the agent may act without the authority of the principal. If
the principal accepts or ratify subsequently the act of the agent, he is said to have ratified the act.
4. Agency by operation of law –agency may also be created by operation of law. In such a case, law presumes a person
as an agent of another.

DUTIES AND RIGHTS OF AN AGENT:

DUTIES OF AN AGENT TO PRINCIPAL:

1. Duty to follow directions given: An agent must conduct the business of the principal according to the directions given
by the principal. In the absence of any direction, should conduct according to the custom.
2. Duty to act with skill and diligence: - An agent is bound to conduct business of the agency with as much skill as is
generally possessed by persons engaged in similar business unless the principal has notice of his want of skill.
3. Duty to render accounts: It is the duty of an agent to keep the money and property of the Principal separate and to keep
true and correct accounts.
4. Duty to communicate in case of difficulty: In cases of difficulty it is the duty of the agent to communicate with his
principal and get his instruction.
5. Duty to pay the amounts received for the principal: It is the duty of the agent to pay overall money received on behalf
of the principal subject to any lawful deductions for remunerations or expenses properly incurred.
6. Duty not to delegate his authority: An agent cannot delegate his authority to another person unless authorized or
warranted by the usage of trade or nature of the agency.
Duty on termination of agency by principal’s death or insanity:- When an agency is terminated by the principal’s death
or becoming of unsound mind, the agent is bound to take on behalf of the representatives of his late principal, all reasonable
steps for the protection and preservation of the interest entrusted to him.
8. Duty not to disclose confidential information: It is very important not to disclose the confidential information relating
to the business of agency.
9. Duty not to deal on his own account: An agent should not deal on his own account in the business of agency. If an agent,
without the knowledge of his principal, deals in the business of the agency on his own account, the principal may either
repudiate the transaction or claim from the agent any benefit which may have resulted to him from the transactions.

RIGHTS OF AN AGENT:
1. Rights to remuneration: Where services rendered by agent are gratuitous, he is entitled to receive the agreed
remuneration or if nothing has been agreed, a reasonable remuneration.
2. Right of retainer: The agent has a right to retain his principal’s money until his claim in respect of his remuneration or
advances made or expenses properly incurred in conducting the business of agency are paid.
3. Right of lien: An agent has a right to retain goods, papers and other movable or immovable property of the principal
received by him until the amount due to him had been paid or accounted for.
4. Right of indemnification: An agent had a right to be indemnified by the principal against the consequences of lawful
acts done in exercise of his authority.
5. Rights of compensation:- An agent is entitled to claim compensation from the principal in respect of any injury caused
to the agent by the negligence of the principal or want of skill.

RIGHTS AND DUTIES OF A PRINCIPAL

RIGHTS OF A PRINCIPAL:
1. The principal is entitled to compensation for any breach of duty by the agent.
2. The principal has a right to give proper directions to the agent for the conduct of the business.
3. The principal is entitled to receive proper accounts from his agent
4. He is entitled to get profit, the agent makes by dealing with the principal’s goods on the agent’s own account.
5. He has the right to receive any secret profit made by the agent out of the agency.
6. He can revoke the authority of the agent under certain circumstances.
7. The principal has a right to receive all sums received on his account by the agent, after deducting the lawful
remuneration and expenses incurred thereon.

DUTIES OF THE PRINCIPAL:

1. Duty to pay remuneration
2. Duty to indemnify-the agent against the consequences of all lawful acts done in exercise of his duty.
3. Duty to give compensation- to the agent in respect of any injury caused to such agent by the principal’s neglect.
Liabilities of principal to third parties:-
1. All acts of agent done within his authority:-The principal is liable for the acts of the agent if they are done within the
scope of his authority and in the course of his employment as an agent.
2. Misrepresentation or fraud of the agent: - The principal is responsible for and is bound by misrepresentation or frauds
committed by the agent in respect of matters falling within his authority.
3. Information obtained by the agent: Where an agent receives any information the presumption is that the agent
communicates the same to his principal and it is construed that
the principal has taken notice of it even though the agent did not in fact, communicate the information. It is called doctrine of
‘constructive notice’.
Where the agent acts for an unnamed or undisclosed principal:-Undisclosed principal means principal whose existence
and name both have not been disclosed by the agent. In this case, third parties have a right to discover the principal and to
proceed against him and hold him responsible for the contract entered into by the agent.

Liabilities of agent to third Parties:-

1. Where the agent acts for foreign principal: - Where the contract is made by an agent for the sale or purchase of goods
for a merchant residing abroad, in such cases the agent would be personally liable.
2. Where the agent acts for an undisclosed principal: - Where the agent acts for an undisclosed principal, he is
personally liable.
3. When acting for a principal who cannot be sued: Where the principal, though disclosed, cannot be sued, the agent is
personally liable.
4. Where money is paid by mistake or fraud: - Where third party pays money to the agent by mistake or fraud, they can
sue the agent personally.
5. Where the agent exceeds his authority: When the agent acts without or beyond his authority and in this way commits
a breach of warranty of authority, he can be held personally liable.
6. Where the agents’ authority is coupled with interest: -Where the agent has himself interest in the subject matter of
agency, he shall be personally liable to that extend.
7. When the agent signs the negotiable instrument in his own name: - When an agent signs a negotiable instrument in
his own name without making it clear that he is signing as an agent, he is personally liable for the instrument.
8. When the contract expressly provides: Where the contract with the parties especially stipulates that the agent should
be personally liable, in such cases the agent would be personally liable.
 Where misrepresentation committed outside the scope of his authority
Where an agent act for a non existent principal

Kinds of Agent:
1. On the basis of extend of their authority:
a. General agent – who is employed to transact generally for all the business of the principal
b. Special agent – is to do some particular act or represent his principal.
c. Universal agent – authorized to transact all the business of his principal of every kind and to do all the acts which the
principal can lawfully do and can delegate.

2. On the basis of nature of work performed:-

a. Commercial agent/mercantile agent – he is a person having the authority to sell goods on behalf of principal
(i)Auctioneers – employed for the owner to sell his property publically by calling on the public to bid for it.
(ii)Broker–who brings buyer and seller into contract with one another.
(iii)Commission agent – do a certain act for his principal in return for a commission.
(iv) Delcredere agent – who work for extra remuneration guarantees the performance of the contract
(v)Factor – mercantile agent with whom goods are kept for sale.
b. Non mercantile agent
i. Estate agents – who are employed to negotiate the sale and purchase or lease of immovable property
ii. house agents- who are similarly engaged with respect to house
iii. law agent-who look after the legal affairs of their principal
iv. wife, counsel, attorney

Sub Agent: An agent appointed by an agent is called sub agent. A sub agent is a person employed by, and acting under
the control of the original agent in the business of the agency. The agent is responsible to the principal for the acts of the
subagent.
An agent cannot delegate his authority to a sub-agent. The legal relation between the principal and sub agent depends
upon whether the appointment is proper or improper.
Substituted agent (Co-agent)
According to section 194 of the Contract Act, “When an agent has an express or implied authority of his principal to name
another person to act for the principal and the agent names another person accordingly, such person is known as
substituted agent. Such a person is an agent of the Principal and is responsible to him. The principal can sue the substituted
agent for accounts or damages.
DIFFERENCE BETWEEN SUB AGENT AND SUBSTITUTED AGENT
SUB AGENT SUB AGENT

A sub agent is appointed by the agent Named by the agent and appointed by the principal

Under the control of agent Under the directions of principal

Agent is liable for the act of sub agent An agent is not liable for the act of a substituted agent.

There is no contract between sub agent and There is a contract between substituted agent and
principal principal
Sub agent has no right to demand for the Substituted agent has the right to demand for the
remuneration from the principal remuneration from the principal
In case of appointment of sub agent, the In case of appointment of substituted agent, the
original agent delegates his own authority. original agent delegates the principal authority.
Sub agent is accountable to the principal A co- agent is fully accountable to the principal for his
only for his wrongful acts or fraud each and every act.

TERMINATION OF AGENCY:-
Termination of agency means cancellation of authority of the agent. A contract of agency may be terminated either by the act
of parties or by the operation of law.
1. Termination by the act of parties: - An agency may be terminated either by the principal or by the agent or both in the
following ways.
a. By Agreement: - An agency contract can be terminated at any time and at any stage by the mutual agreement between
the principal and the agent.
b. Revocation by the principal: - Principal may either expressly or impliedly after giving reasonable notice; revokes the
authority of the agent before it has been exercised by the latter so as to bind the former.
c. By renunciation of agency: - The agent himself may renounce the agency after giving a reasonable notice to the
principal. If the contract of agency is for a fixed period, the agent cannot renounce it before that period without any sufficient
cause for the same.

2. Termination by operation of law:-An agency may terminated by operation of law in any of the following ways.
A. By expiry of time: - Where the agent is appointed for a fixed period, it terminates on the expiry of that time.
B. By destruction of the subject matter: - If the subject matter of the agency is destroyed, the agency comes to an end.
c. Insolvency of the principal: - If the principal is adjudicated as insolvent, the agency terminates, but insolvency of the
agent does not terminate the agency.
d. Principal becoming an alien enemy:The principal and the agent belong to different countries and war breaks out
between those two countries, contract of agency is terminated
e. Death or insanity of the Principal or agent: - According to sec. 201, death or insanity of principal or agent automatically
terminate the agency.
f. performance of contract
h. Dissolution of the company: - When a company is dissolved, the contract of agency automatically comes to an end.

REVOCATION OF AGENCY:
The principal may revoke his agent’s authority and that puts an end to the agency. Revocation of agency takes effect not from
the moment of revocation, but when it becomes known to the agent and with regard to third persons when it becomes
known to him.
IRREVOCABLE AGENCY:
Agency cannot be revoked in the following cases:-
1. When the agency is coupled with interest: - When the agent is personally interested in the subject matter of agency, it
is said to be agency coupled with interest. Agency is irrevocable during the existence of such interest.
2. When the agent has incurred liability: - Where the agent has incurred a personal liability in the contract of agency, the
agency becomes irrevocable and the principal will not be permitted to revoke the agency leaving the agent exposed to risk.
3. When the agent has partly exercised his authority: - The principal cannot revoke the authority given to his agent after
the authority has been partly exercised by the agent.

MODULE III
SALE OF GOODS ACT 1930
The Sale of goods Act contains certain law relating to sale of movable properties. The Act covers topics such as the
concept of sale of goods, warranties and conditions arising out of sale, delivery of goods and passing of property and other
obligations of the buyer and the seller, the documents to title to goods and the transfer of ownership on the basis of such
documents. This act came into force on1st July 1930, and it extends to the whole of India, except the state of Jammu and
Kashmir. A contract of sale has some special features which are not common to all contracts.
GOODS:
The goods include every kind of movable property other than actionable claim or money. Actionable claims are
claims which
can be enforced only by taking action in a court of law. Goods also include stocks, shares, growing crops etc.
CONTRACT OF SALE:
According to section 4 of the sale of Goods Act, “A contract of sale of goods is a contract whereby the seller’s
transfers or agrees to transfer the property in goods to the buyer for a price.”
A Contract of sale may be absolute of conditional. In absolute sale the property in the goods passes from the seller to the
buyer immediately and nothing remains to be done by the seller. In conditional contract of sale, the property in the goods
does not pass to the buyer absolutely until a certain conditions fulfilled.
ESSENTIAL FEATURES OF A CONTRACT OF SALE:
1. Contract: - A contract of sale is a contract and must fulfill all the requirements of a valid contract.
2. Two parties: - The sale requires existence of two parties, the seller and the buyer. The seller is a person who sells or
agrees to sell goods. The buyer is a person who buys or agrees to buy goods. It is necessary that the same person cannot be
both a seller and a purchaser.
 3. Movable goods: - The subject matter of the contract of sale must be in the form of movable goods. Sale and purchase of
immovable property are covered under the Transfer of Property Act 1882.
4. Transfer of ownership: It is the element which distinguishes a sale from several other classes of contract like bailment,
lease etc. Hence, in a sale, ownership must be transferred from the seller to the buyer.
5. Price: - Price means money consideration for sale of goods. In a contract of sale money must be paid or promised. If there
is no money consideration, the transaction is not a contract of sale.
6. Form – may be in writing or by word of mouth (expressed) or may be implied from the conduct of parties.

Agreement to sell

Under contract of sale,the ownership of the goods

DISTINCTION BETWEEN SALE AND AGREEMENT TO SELL:

Sale Agreement to sell

Where the ownership of goods is transferred just If the seller promises to transfer it at some future date, it
at the time of making a contract it is known as is known as ‘agreement to sell
‘sale’
Sale is an executed contract an agreement to sell is an
executory contract
gives right to the buyer to enjoy the goods as gives a right to the buyer against the seller to sue for
against the world at large. damage.

Buyer becomes the owner and he has to suffer the Risk of loss is not transferred to the buyer
loss if the goods are damaged or destroyed.

Existing and specific goods Future and contingent goods

in case of breach by the buyer, the seller can sue The seller may sue for damages only and not for
for price of the goods the price

if the seller makes breach of contract, The buyer the buyer can only claim for damages
can file suit against seller for damages and can also
use the rights to follow property

if the seller become insolvent, the buyer is entitles If seller becomes insolvent the buyer can claim only a
to recover the goods form the assignee or official ratable dividend and not the goods.
receiver

if the buyer become insolvent the seller is entitled If the buyer becomes insolvent before he pays for the
to a ratable dividend for the price of the goods goods, the seller may refuses to
sell the goods
SALE AND BAILMENT
Bailment is a contract to deliver the goods by one person to another for some purpose on the conditions that when the
purpose is over, the goods will be returned to the person delivering them. The bailment contract differs with ‘sale’ on the
following grounds.
1. Transfer of property: - In a sale, the general property in goods is transferred to buyer at the time of making a contract.
But in bailment specific property in goods passes to baileefor a temporary period.
2. Transfer of possession: - In a sale, possession of goods may or may not be transferred immediately at the time of
making a contract. While in bailment goods are immediately handed over to the bailee.
3. Return of goods: - In a sale goods are not returned to the seller. But in bailment, when the purpose is over the goods are
returned to the bailor according to his instruction.
4. Consideration: - In a sale, consideration given to the seller in the form of money. But in bailment, consideration may or
may not be present in the form of money.

Use of goods: - In a sale, the buyer is entitled to possess and use the goods at his own. But in bailment goods will be used
according to instructions and terms and conditions of bailment.
SUBJECT MATTER OF CONTRACT OF
SALE:
Goods may be divided into three types,
1. Existing goods: - Goods owned and possessed by the seller at the time of making of the contract of sale are called existing
goods.. Existing goods may be either specific, ascertained or unascertained:
a. Specific goods: - ‘Specific goods’ means goods identified and agreed upon at the time a contract of sale is made
b. Ascertained goods: - It means goods identified in accordance with the agreement after the contract of sale is made
c. Unascertained goods: - these are the goods which are not specifically identified and agreed at the time when the
contract of sale is made.
2. Future goods: - Sec. 2(6) of sale of goods act defines future goods as ,”Future goods means goods to be manufactured or
produced or acquired by the seller after making of the contract of sale.” Future goods are not in existence at the time of
contract of sale.
3. Contingent goods: - It is a type of future goods, the acquisition of which by the seller seller depends upon a contingency
which may or may not happen.

DIFFERENCE BETWEEN SALE & HIREPURCHASE

Sale Hire purchase

Under sales ownership is transferred at the time of purchase Under hire purchase
ownership is transferred only after paying last installment
In the case of sale, payment of price is generally paid in lump In case of hire purchase payment of price is always made by
sum installments

The buyer can hire out and sell the goods before paying the The buyer cannot hire out or sell the goods until the full
full amount due. amount is paid
In the case of sale on credit the seller can sue the buyer for If the buyer fails to pay any installment, the seller can
the payment of price due repossess the goods

In sales position is like owner In hire purchase position is like bailee

In case of cash sale, price does not include interest But under H.P system the installment includes interest

Agreement to sell

In a contract of a sale, the property ( ownership) in the goods is transferred from the seller to the buyer. That means the
transfer of Property in goods takes place immediately. But under agreement to sell, the transfer of the property in the
goods is to take place at a future time or subjects some conditions. That means the Transfer of Property in goods does
not take place immediately but at future date.

Formalities of a contract of sale( Section 5)

1. Offer to buy or sell: it is made by a seller offering to sell goods and a buyer offering to buy the good

2. Parties: two parties one makes the offer and the other accepts it.

3. Payment of price: the consideration should be the price, maybe paid immediately or future installments.

4. Delivery of goods: It may be delivered immediately or at a future date ( in installment)

5. form: contract may be made in writing or by word of mouth. may be made partly in writing and partly by word of mouth.

Price of the goods

According to section 2(10), Price means the money consideration for a sale of goods. Where The price is not determined
in accordance with the forgoing provisions, the buyer shall pay the seller a reasonable price. What is reasonable is
dependent on the circumstances of each case.

According to section 9 the price can be ascertained as:

1. In the contract 2. in an agreement

3. course of dealing between the parties 4. reasonable price 5. Fixed by the government

Document of title to goods (sec2 (4))

Document of title to goods is a proof of ownership of the goods. It enables the holder to receive the goods mentioned there
in or to further transfer such right to another person by proper endorsement or delivery.

According to section 2(4), any document which is used in the ordinary course of business has proof of the
possession or control of goods, or authorizing or purporting to authorize, either by endorsement or by delivery, the posessor
of the document to transfer or receive goods there by represented is a document of the title to [Link]: bill of lading,
delivery order, Railway receipt.

Earnest Money

Money deposited with the seller by the buyer as security for the due fulfilment of the contract is called earnest money or
deposit.

Conditions and warranties

Condition

In a contract of sale, all the stipulation s cannot be treated in the same way. Some stipulations are very important
and form the basic element of a contract. These situations are known as conditions.

According to Section 12(2), condition is a stipulation essential to the main purpose of the contract, the breach of which
gives rise to a right to treat the contract as repudiated. If a condition is broken, the buyer has the right to terminate the
contract and to refuse the goods. If he has already paid the price of the goods he can recover the price.

Warranty

Warranty is a stipulation Collateral to the main purpose of the contract, the breach of which gives rise to a claim for
damages but not a right to reject the goods and treat the contract as repudiated ( sec 12(3).

Consequences of breach of condition

1. Repudiation of contract: if a condition is broken, the affected party may repudiate the contract and reject the goods.

2. claim damages: ie; monetary compensation

3. Treat condition as warranty and claim damages: the affected party may treat the breach of condition as breach of
warranty. In this case he cannot avoid the contracted, but he is entitled to recover damages onlyonly.

4. No Remedy when the seller is excused by law: no remedy is available when the fullfilment of condition is excused by law
by a reason of impossibility or otherwise.

Consequences of breach of warranty

1. not a right to reject the goods

2. claim for damages: the buyer may sue the seller for damages
3. No remedy due to law: no remedy is available if the fulfillment of warranty becomes impossible by any law or otherwise.

When condition to be treated as warranty (sec 13)

1. Voluntary waiver: a contract of Sale may be subject to a condition to be full filled by the seller. The buyers may waive the
condition voluntarily. It May be express or implied waiver. Once the buyer waives any condition, he is not entitled to insist
on its fulfillment.

2. Option: The buyer has an option to treat the breach of condition as a breach of warranty. In this case, he losses the right of
repudiation of the contract and can claim damages only.

3) Contract not severable : Where a contract of sale is not severable and the buyer has accepted the goods or part thereof,
the breach of any condition to be fulfilled by the seller can only be treated as breach of warranty and not as a ground for
rejecting the goods and treating the contract as repudiated.

Doctrine of Caveat Emptor

The term Caveat Emptor means "let the buyer beware", According to this doctrine, it is the duty of the buyer to be
careful while purchasing the goods, and he should satisfy himself that, the article which he buys is one which he wants. The
buyer, therefore, had every opportunity to satisfy himself as to the quality of the goods or their fitness for a particular
purpose (lf the goods turn out to be defective or do not suit his purpose, the buyer cannot hold the seller liable for the same).

In simple words, it is not the seller’s duty to disclose all defects of the goods; if it is possible to identify by simple
inspection the buyer is wanted to identify it. Thus, the seller may be held responsible only in cases which involve fraud,
misrepresentation or guarantee by the seller.

Exception

The following are the exceptions to the rule of Caveat Emptor

1. Fitness for buyers purpose: When the buyer, expressly or by implication, make known to the seller the particular
purpose for which he requires the goods and relies on the sellers skill or judegement the goods must be suitable for buyers
purpose. In such cases, the doctrine of Caveat Emptor does not apply. 2. Sale under a patent or trade name: In this case a sale
by a specified article under its patent or other trade name, there is an implied condition that the goods shall be reasonably fit
for any particular Purpose.

3. Merchantable quality: Where the goods are purchased by description from a seller who deals in goods of such
description, there is an implied condition that the goods shall be of merchantable quality. 4. Usage of trade :Where trade
usage attaches an implied condition or warranty regarding the quality of fitness of goods, the doctrine of Caveat Emptor
does not apply.

5. Consent by fraud: Where the consent of the buyer is obtained by the seller by fraud or where the seller conceals the
defect, which could not be discovered on a reasonable examination.

6. Sale by sample: Where the goods are bought by sample the doctrine does not apply if the bulk does not corresponds with
the same sample

7. Misrepresentation: cases where the seller makes a misrepresentation and the buyer relies on it.

TRANSFER OF PROPERTY IN GOODS

The most important feature of a contract of sale is transfer of property or ownership. When the goods are sold, it is the
property in the goods that is transferred to the buyer.

Property in goods means the ownership of goods whereas possession of goods refer to custody or contro] of
goods. The transfer of possession is not the same thing as the transfer of ownership. The ownership of goods may pass with
or without the transfer of possession,
 Importance of Transfer of Property

1. Risk follows ownership: Unless otherwise agreed, risk follows ownership whether delivery has been made or not and
whether price has been paid or not. Therefore, if property has passed to the buyer, he becomes the owner of the goods and
then the risk of destruction, deterioration, damages or loss of goods is that of buyer.

In other words, risk passes with the property or title in the goods. In a contract of sale, the goods remain sellers risk, until
and unless the property in goods is transferred to the buyer.

2. Action against third parties : When the goods are in any way damaged or destroyed by the action of third parties, it is
only the owner of goods who can take action against [Link] right means a right to own and control like a
proprietor or owner of some property.

3. Suit for price : The seller become entitled to recover price of the goods from the buyer only when the property in the
goods has passed to the buyer.

4. Insolvency of the buyer or seller :If the ownership has passed to the buyer and the buyer is declared insolvent then
buyer's Official Receiver shall have a right to take possession of the goods even though the goods are lying with the seller. On
the other hand if the goods are in the possession of the seller and he is declared as insolvent, then the buyer has a right to
take possession of the goods from seller's official receiver.

Transfer of title by non-owners(section 27 to 30)

A general rule relating to the transfer of title is that "no one can give that which he has not got". This is from the Latin
maxim "Nemo dat quod non habet". That is no one can give to another person a title better than what he himself has.
Section 27 also provides that where the goods are sold by a person who is not owner thereof and who does not sell them
under the authority or with the consent of the owner, then the buyer does not acquire better title to the goods than what the
seller had, If the seller is a thief then the buyer will also be treated as a thief in connection of the goods purchased. But there
are certain exception to this, that is the buyer gets a valid title.

Exceptions to the General Rule

Under the following circumstances, the buyer gets a valid title i.e., absolute ownership even if the seller is not the absolute or
full owner

1. Sale under the implied authority of owner or title by estoppel :

When the owner by his conduct , or by an act, leads the buyer to believe that the seller has the authority to sell, then
subsequently he may be estopped from denying the seller's authority to sell.

2. Sale by mercantile agent (Section 27)

Sale of goods by a mercantile agent gives a better title to the purchaser even in cases where the agent acts beyond his
authority, provided the following conditions are fulfilled.

i) The agent is in possession of the goods or documents of title to goods with the consent of the owner.

(ii) The agent sells the goods in the ordinary course of business of a mercantile agent

(iii) The purchaser acts in good faith and has no notice that the agent has mercantile agen has no authority to sell.

3. Sale by one of the joint owners (Section 28)

if one of the several joint owners of goods has the sole possession of the goods by permission of the co-owners, the
property in the goods is transferred to any person who buys them from such joint owner provided the buyers acts in good
faith and without notice that the seller had no authority to sell.

4. Sale of goods obtained under a voidable agreement (Section 29)

When the buyer of goods has obtained possession thereof under a voidable agreement but the agreement has not been
rescinded at the time of sale, the buyer obtains a good title to the goods, provided he buys them in good faith buyer obtains
and without notice of the seller's defect of title.
5. Sale by the seller in possession of goods after sale (Section 30(1):

Where a seller, having sold goods, continuous to be in possession of the goods or of documents of title to the goods and
sells them either himself or through a mercantile agent to a person who purchase them in good faith and without notice of
the previous sale, the buyer gets a good title.

6. Sale by buyer in possession after sale (Section 30(2):

Where a person having bought or agreed to buy goods obtains with the consent of the seller, possession of the goods or
documents of title to the goods and sells them either himself or through an agent, the buyer who acts in good faith and
without notice of any lien or other right of the original seller in respects of the goods, gets a good tile.

7. Re sale by an unpaid seller (Section 54(3) :

An unpaid seller of goods who has exercised his right of lien or stoppage in transit resells the goods, the buyer acquires a
good title to the goods as against the original buyer.

8. Sale under provisions of other Acts :

a) Sale by a finder of lost goods under certain circumstances(Section 169) .

b) Sale by a pawnee or pledgee under certain circumstances (Section 176)

C) Sale by an Official Assignee or Liquidator of Companies.

PERFORMANCE OF CONTRACT OF SALE

According to Section 32 of the Act, if there is no special agreement between the parties contrary to it, then delivery
of the goods and the payment of their price are concurrent conditions, That is the seller shall be willing to give That
possession of the goods to the buyer in exchange for the price and the buyer shall be ready and willing to pay the price in
exchange for possession of the goods.

Delivery of the Goods

Section 2(2)of the Sale of Goods Act defines delivery as a voluntary transfer of possession from one person to another.
The delivery of goods may be of possession from actual, symbolic or constructive

1. Actual delivery : When the goods are handed over by the seller to the buyer or his duly authorised agent, the delivery is
said to be actual.

2. Symbolic delivery : Where the goods are bulky and heavy or when the goods are not in the personal custody of the seller
it is not possible to give actual delivery of the goods. In such a case, the control .over the goods is transferred by delivery of a
symbol. Example: Handing over of the key of the warehouse

3. Constructive delivery (delivery by attornment) : When a person who is in possession of the goods accepts or
acknowledges to hold them on behalf of the buyer, it is called constructive delivery.

Rules Regarding Delivery of Goods (Section 33 to 39)

Following are the provisions relating to the delivery ofgoods.

1. Possession of goods(sec33): Delivery should have the effect of putting the buyer in possession of the goods. So
delivery to anyone other than the buyer or his agent is insufficient.

2 .Delivery and payment are concurrent conditions(sec32) : the seller should be ready to give the possession and Buyer
should be ready to pay the price.

3. Effect of part delivery (Sec 34) : A delivery of part of the goods has the same effect as a delivery of the whole, for the
purpose of passing the property in the goods, provided such part delivery is made in progress of the delivery of the whole

4. Buyer to apply for delivery (sec 35) : The seller is to deliver the goods when the buyer applies for delivery.
 5. Time of delivery (sec36 (2)&(4):the delivery of goods should be made within a reasonable time unless a time is fixed in
the contract.

6. Place of delivery(Sec36 (2)): Where the place of delivery is stated in the contract, the goods must be delivered at the
specified place during working hours on a working day.

7. Goods in possession of third person(sec36(3)) : Where the goods at the time of the sale are in the possession of a third
person, there is no delivery by seller to buyer unless and until such third person acknowledged to the buyer that he holds
the goods on his behalf.

8. Expenses of delivery sec(36(5)): The seller should bear the expenses of putting the goods into a deliverable state and
also the incidental expenses unless otherwise agreed .

9. Installment delivery (sec38(1)) : In the absence of an agreement to the contrary, the buyer is not bound to accept
delivery by installment.

[Link] to a carrier by wharfinger (sec39(1)) : Delivery of goods to a carrier for the purpose of transmission to the
buyer or the delivery of the goods to a wharfinger for safe custody, is prima facie deemed to be delivery of the goods to the
buyer.

11. Buyer's right of examining the goods (sec41): Where the goods are delivered to the buyer which he has not
previously examined, he is entitled to examine them for his satisfaction, He is not deemed to have accepted them unless and
until he has had a reasonable opportunity for such examination.

Rights of the Buyer

1. Right to have delivery of the goods as per contract. (He is not bound to take delivery of the goods if they are not in
accordance with the contract)

2. Right to examine the goods which he has not previously examined before he accepts them

3. Right not to accept delivery thereof by installments, unless otherwise agreed the buyer.

4. Right to reject the goods, if the goods delivered are defective either in quantity or in quality

5. Right against the seller for breach of contract(suit the seller for non-delivery, Suit for specific performance, Suit for breach
of warranty, Repudiation of the contract before due date).

Duties of the Buyer

1. duty to accept the goods and pay for them.

2. If the buyer wrongfully refuses to accept delivery, he must pay compensation to the seller.

3. Unless otherwise agreed, the buyer has to take the risk of deterioration of the goods incidental to the course of transit.

4. It is the duty of the buyer to demand delivery at a reasonable hour.

5. duty to intimate the seller in case he refuses to accept the O goods.

6. In the absence of any contract to the contrary, the buyer is liable to pay the amount paid or payable in respect of such tax
or increase in tax.

Rights of the Seller

1. Right to claim compensation for the loss caused due to buyers neglect or refusal to take delivery of the goods.

2. If the buyer refuses to pay the price of goods, the seller has a right to sue for the price.

3. right to sue for the price against contract i.e., where under a contract of sale the price is payable on a certain day
irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price
although the property in the goods has not passed and the goods have not been appropriated to the contract
Duties of the Seller

1. Duty to deliver the goods in accordance with the terms of the contract of sale.

2. As delivery and payment are concurrent conditions, the seller shall be ready and willing to give possession of the goods to
the buyer in exchange of the price of the goods.

3. If an agent is authorized to take delivery, then the delivery should be made to the agent.

4. Duty to deliver the goods with in a reasonable time.

5. The quality and quantity of the goods should be according to the contract.

6. duty to deliver the goods at the specific place, if the place of delivery is stated.

7. he should bear the expenses of putting the goods into a deliverable state and also the incidental expenses, unless
otherwise agreed.

8. Give a chance to the buyer to examine the goods.

UNPAID SELLER

According to Section 45 of Sale of Goods Act unpaid seller means:

(a) seller of the goods who has not been paid or tendered the whole of the price ; or

(b) A seller who had received the price through a bill exchange or any other negotiable instruments, like cheque etc., but
which is subsequently dishonored.

Thus an unpaid seller is a seller who has not been paid the whole of the price or one who has received any negotiable
instruments which is subsequently dishonored.

Rights of an Unpaid Seller (Section 46(1))

1. Rights against the goods (Section 46(1)) 2. Against the buyer personally.

A) When the property in the

goods has passed from seller to the buyer B) When the property in goods

has not passed from seller to the buyer

a) Right of lien

b)Right of stoppage in transit

c)Right of resale
Right of lien (Section 47 to 49)

A lien is a right to retain possession of goods until payment of the price, This right can be exercised in the following cases
(i) Where the goods have not been sold on credit;

(ii) Where the goods have been sold on credit, but the time of the credit period has expired;

(iii) Where the buyer becomes insolvent.

Further, the right of lien can also be exercised when he is in possession of goods as an agent or bailee for the buyer (Section
47(2)).

The right of lien can be exercised only subject to the following conditions.

1. The goods sold are in the possession of the seller and it must be the actual possession

2. In the case of credit sale, the term of credit must have expired.

3. The right of lien can be exercised when he is in possession of goods as an agent or bailee for the buyer.

4. Part delivery does not affect the right of lien. The seller can exercise the lien on remaining goods.

5. The right of lien can be exercised only when the seller has not waived his right either expressly or impliedly.

6. Obtaining a decree for the price of goods does not affect the right of lien.

The right of stoppage in transit

It is the stopping of the goods while they are on the way to the buyer's place. This is only an extension of the right
of lien and intended to regain possession of the goods till the price is paid.

The right of stoppage in transit can be exercised in the following cases.

(i)The seller must have parted with the possession of goods;

(ii) The buyer has become insolvent;

(iii) The goods are in transit.

Termination of right of stoppage in transit

The right of stoppage in transit comes to an end in the following circumstances

(i) When the buyer or his agent obtains delivery of the goods before their arrival at the appointed desination, the transit
comes to an end.

(ii) When the goods reach the specified destination and the carrier or bailee acknowledges to the buyer or his agent that he
holds the goods on his behalf.

(iii) When the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent.

(iv) Where a part of the delivery has been made to the buyer or his agent and the circumstances of such delivery show that
the whole of the goods is deemed to have ceased in transit.
Right of resale (Section 54)

An unpaid seller can re-sell the goods. (i) Where the goods are of a perishable nature (quickly deteriorate with passage of
time). goods the unpaid seller can resell the goods without any notice to the buyer.

(ii) When the unpaid seller gives notice of his intention to sell : An unpaid seller who has exercised the right of lien or
stoppage in transit can resell the goods only after giving a notice to the buyer of his intention to sell. The seller can in such a
case, resale the goods if the buyer does not with in a reasonable time pay the price.

(iii) Where the seller expressly reserves a right of resale in case the buyer makes a default : Where the seller expressly
reserves a right of resale in case the buyer makes a default, the seller can resale_ the goods. When goods are resold, the
original contract of sale stands rescinded, and the seller will ‘have a right to claim damages.

B).When the property in goods has not passed from seller to the buyer.

In this case, the unpaid seller has a right to

(i) With hold the delivery of goods and (i) stoppage of goods transit.

II). Rights of an unpaid seller against the buyer personally;

An unpaid seller has certain remedies against the buyer personally.

1. Suit for price

2. Suit for damages for non-acceptance of delivery

3. Suit for damages for repudiation of the contract

4. Suit for interest or special damages.

Auction sale
An auction sale is a public sale to any person bidding the highest price upon terms and conditions previously
announced. The auction is made public by advertising and being open to the public. In auction sale, the property is available
for viewing. Auctions are good ways for buying that are far below current market value.

Generally, auction sales are held in person. The announcers of the auction, called the auctioneer, presents each item
available for sale to the interested parties, then conducts a verbal promotion of the item to obtain the highest bid from the
crowd of bidders. The offer of the price is known as bid and the person making the bid is known as bidder.

The auctioneer, who sells goods by auction,is the agent of the seller only. The relationship between the owner of the
goods and the auctioneer is that of the principal and agent. The goods are uitimately sold to a highest bidder in public
competition. The auctioneer holds the goods as a bailee.

Rules of Auction Sale (Section 64)

1. Subject matter of sale : Where goods are put for sale in lots, each lot is prima facie

deemed to be the subject of a separate, contract of sale.

2. Completion of sale : In auction, the sale is complete when the auctioneer announces its completion by the fall of the
hammer or in some other customnary manner, such as one, two, three.

3. Retracting the bid : A bidder has the right to take back his bid, until the announcement of completion in the above
manner is made by the auctioneer.
4. Right of seller to bid: A right to bid may be reserved expressly by or on beahlf of the seller. Where such right is expressly
reserved (but not other wise) the seller of any one person on his behalf may bid at the auction.

[Link] sale: where the sellers right to bid is not notified, it shall be unlawful for the seller to bid himself or employ
any person to bid at such sale.

6. Sale with reserve or upset price : The sale may be notified to be subject to a reserve or upset price. Reserve' or 'upset
price may be defined as the minimum price below which the auctioneer will not sell the goods put up for auction sale.

7. Use of pretended bidding : If the seller make use of pretended bidding to raise the price, the sale is voidable at the option
of the buyer.

8. 'Knockout' or 'agreement not to bid against each other : Where a group of persons form a combination to prevent
competition between themselves at an auction and arrange that only one of them will bid and that they will dispose of
anything so obtained privately among themselves, such a combination is called a 'knock out and is not illegal. But if the
intention of the parties to knock out is to defraud a third party, the knock out is illegal.