Reading Material - Partnership and Sale of Goods.docx | Partnership | Private Law

PARTNERSHIP & SALE OF GOODS PARTNERSHIP A 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. However, the 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 partners. Similarly, the 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. Normally, the parties to a partnership will have entered into a partnership deed that governs the inter se relationship between partners. The heads typically covered by this deed are: name of the firm, names and addresses of the partners, nature and scope of business and place of business of the firm, date of commencement and duration of the partnership, amount of capital to be initially contributed by each partner, provision for future capital and loans by partners to the firm, ratio in which profits and losses are to be shared amongst the partners, rules regarding operation of accounts and arrangement for audit and safe custody of funds, interest on partners‟ capital, on partners‟ loans and on drawings made by partners, salaries, commission, and remuneration payable to partners, accounting period and the date on which final accounts are to be prepared, rights, powers, and duties of the partners, rules relating to the admission, retirement, or expulsion of partners, valuation of goodwill on admission, retirement and death of a partner, mode of dissolution of the firm, settlement of accounts on the dissolution of the firm, arbitration clause etc. for the amicable settlement of disputes, and other incidental things. In cases where there is no partnership deed, or any of the above aspects are not covered in the deed, we have to look to the Indian Partnership Act, 1932, for guidance, as this Act contains provisions governing these aspects, which shall prevail to the extent of absence of a specific agreement between the parties on these aspects. Partnership at Will and Particular Partnership Where the partners have made no provision for the duration of the partnership, or its termination, it becomes a „partnership at will.‟ Where this is the case, the firm may be dissolved by any partner by giving notice in writing to all the other partners of his intention to dissolve the firm, and the firm would then stand dissolved from the date mentioned in the notice as the date of dissolution. Where no such date is mentioned, the firm is dissolved from the date of communication of the notice. When a partnership is formed for a specific venture, or for a particular period, it is called particular partnership. Such partnership stands automatically dissolved on the completion of the venture, or on the expiry of the period. However, if the partners want to dissolve the firm before this period, it may be dissolved with the consent of all of them.

. This is a very important distinction between a partnership. and the duration of the firm. with important particulars such as the firm‟s name. no change can be made in the nature of the business or constitution of the partnership without consent of all the partners  Access to. thus incentivising parties to go for registration.  Equal share in the profits. The parties have to file a statement in the prescribed form. However. Rights of Partners: The important rights enjoyed by partners are:  Take part in the conduct of the firm business  To be consulted and heard in all matters affecting the firm business. The latter is a separate legal entity. while the former is nothing but an association of partners which derives its identity and existence from its partners and not in its capacity as a separate legal entity. These are the disabilities:  The partner of an unregistered firm cannot initiate a civil suit against the firm or other co-partners to agitate any dispute based on the rights arising from the partnership agreement or under the Partnership Act. However. whether registered or unregistered. partners of an unregistered firm can sue for dissolution of the firm and settling of accounts. for all acts done to protect the firm from loss as would be done by a person of ordinary prudence under similar circumstances in his own case. Books of Account. whose existence is independent of that of its shareholders.  An unregistered firm cannot institute a case against a third party in a civil court to enforce any right arising out of a contract with the latter. the Partnership Act has made the registration of firms sought-after. and more importantly. by creating certain disabilities for an unregistered firm. are exposed to liability for acts done in the name of the partnership. This factor heavily influences the manner in which partners enjoy their rights. The Partnership Act also prescribes a simple procedure for registration. Only a partner of a registered firm whose name appears on the register of firms as a partner can sue for enforcement of such rights and for settling the disputes. date of joining of each partner along with their names and permanent addresses. and a company. place of business. The fact that a partnership has been registered does not mean that a partnership is a legal entity separate from its partners. and (ii) during an emergency. Records etc.Registration of a Partnership Firm and Consequences of Non-Registration Registration is not compulsory. such as for the recovery of price of goods supplied. and Inspection of. While ordinary matters can be decided by majority vote. in the eyes of the law. irrespective of the amount of capital contribution or business expertise  To be indemnified by the Firm in respect of payments made or liabilities incurred by him (i) in the ordinary and proper conduct of the business.

This is known as the implied authority of the partner.  No partner can assign or transfer his rights and partnership interests to an outsider so as to make such outsider a partner in the firm. or in any other manner expressing or implying an intention to bind the firm. if a partner derives any profit for himself from any transaction of the firm or from the use of the property or business connection of the firm or the firm name. the firm shall account for and pay to the firm all profits made by him in that business. the outsider transferee is bound to accept the account of profits agreed to by the partners. and that the act of a partner which is done to carry on. (ii) open a banking account on behalf of the firm in his own name.  Similarly. and in this regard. (iv) withdraw a suit or proceeding filed on behalf of the firm. this implied authority does not permit the partner to do the following. unless the person with whom he is dealing knows of the restriction on such implied authority or does not know or . unless the deed of partnership permits. in order to bind a firm. a partner who carries on any business of the same nature as. shall bind the firm. These are:  Firm business to be carried on in good faith for mutual benefit keeping the greatest common advantage in mind. Moreover. business of the kind carried on by the firm. Rights of Third Parties: The Partnership Act provides that a partner is an agent of the firm for the purposes of business of the firm. being imposed by law. Use partnership property for the purposes of the partnership business and hold it as a joint owner  Prevent admission of a new partner  Share profits even post retirement if the other partners continue business of the firm without final settlement of accounts with the outgoing partner Duties of Partners: There are certain duties that are mandatory in nature and which. (vii) transfer immovable property belonging to the firm. (v) admit any liability in a suit or proceeding against the firm. and (viii) enter into partnership on behalf of the firm.  As far as personal profits made by the partner are concerned. an act or instrument done or executed by a partner or other person on behalf of the firm has to be done or executed in the firm name. The above discussion is important as any act done by a partner on behalf of the firm which falls within his implied authority binds the firm. However. However the outsider transferee is entitled to receive the share of profits of the transferring partner. and not for solely personal gain  Good faith obligation brings with it the duty to disclose all facts material to the business of the firm  Every partner is bound to make good or compensate the loss suffered by the firm due to his fraud in the conduct of the business of the firm. cannot be varied by agreement between partners. in the usual way. (iii) compromise or relinquish any claim or portion of a claim by the firm. (vi) acquire immovable property on behalf of the firm. namely (i) submit a dispute relating to the business of the firm to arbitration. and competing with that of. unless the deed of partnership permits. he shall account for that profit and pay it to the firm.

. for all acts of the firm done while he is a partner. Again. commits a wrongful act or omission and loss or injury is caused as a consequence to any third party. knowledge of the restriction is important even in situations where the partners have restricted the implied authority of any partner. the firm is liable to make good the loss. in his own case. the Partnership Act provides that every partner is liable. a partner has authority. and such acts bind the firm. the errant partner has the duty to indemnify the firm in cases where there is a fraud committed by such partner. the firm is liable therefor to the same extent as the partner. where (a) a partner acting within his apparent authority receives money or property from a third party and misapplies it. to do all such acts for the purpose of protecting the firm from loss as would be done by a person of ordinary prudence. However. jointly with all the other partners and also severally. or (b) a firm in the course of its business receives money or property from a third party and the money or property is misapplied by any of the partners while it is in the custody of the firm. while acting in the ordinary course of the business of a firm or with the authority of his partners. Similarly. Thus.believe that partner to be a partner. In order to protect third parties. if a partner. in an emergency. Also. or any penalty is incurred. acting under similar circumstances.

Some of the key concepts involved in a sale of goods transaction are: Sale & Goods A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. 1930.SALE OF GOODS – SPECIAL PROVISIONS Sale of Goods is a contract. but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled. Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract. unless there is a term of the contract. The Sale of Goods Act provides for certain things to be implied as conditions into the contract of sale even if not expressly provided. The Act also makes clear that such implied conditions are not negated by an express warranty or condition except where they are inconsistent with the latter. Conditions and Warranties There are different kinds of stipulations permissible in a contract of sale. the contract is called an agreement to sell. These implied conditions are:  In the case of a sale. express or implied. but there are special provisions governing this contract present in the Sale of Goods Act. A stipulation may be a condition. the seller has a right to sell the goods and in the case of an agreement to sell. and includes stock and shares. These are known as warranties. The other stipulations are only collateral to the main purpose of the contract. the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated. though called a warranty in the contract. while a stipulation may start off as a condition. "Goods" means every kind of movable property other than actionable claims and money. Again. Moreover. grass. it is always an option left to the buyer to either waive such condition or treat it as a warranty and claim damages without repudiating the contract. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. he will have a right to sell the goods at the time when the property is to pass . the contract is called a sale. to that effect. growing crops. These are known as conditions. and their breach can only give rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. Where under a contract of sale the property in the goods is transferred from the seller to the buyer. where a contract of sale is not severable and the buyer has accepted the goods or part thereof. Some of these are so essential to the main purpose of the contract such that their breach can give rise to a right to treat the contract as repudiated. and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.

(i) the bulk shall correspond with the sample in quality. there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale. However. the goods are at the buyer' s risk whether delivery has been made or not. the duties or liabilities of either seller or buyer as a bailee of the goods of the other party still remains intact even after the passing of the risk to the other party. expressly or by implication. it becomes relevant to ascertain when the property has passed to the buyer from the seller. the goods shall correspond with the sample as well as the description  Where the buyer. in the case of a contract for the sale of a specified article under its patent or other trade name. a contract of sale is a contract for sale by sample where there is a term in the contract. there is no implied condition as to its fitness for any particular purpose. The following are the implied warranties provided for by the Sale of Goods Act:  The buyer shall have and enjoy quiet possession of the goods  The goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time when the contract is made Passing of Property and Risk As a general rule. (iii) the goods shall be free from any defect. ie.  Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not). In this connection. However. which would not be apparent on reasonable examination of the sample. Where there is a contract for the sale of goods by description. generally speaking. so as to show that the buyer relies on the seller' s skill or judgment. where delivery has been delayed through the fault of either buyer or seller. express or implied. However. the goods shall be of merchantable quality. the buyer beware principle. Moreover. as the risk also generally moves along with the property. the goods shall be reasonably fit for such purpose. to that effect. So. the goods remain at the seller' s risk until the property therein is transferred to the buyer. This and the previous condition are exceptions to the principle of caveat emptor. Thus. (ii) the buyer shall have a reasonable opportunity of comparing the bulk with the sample. and the goods are of a description which it is in the course of the seller' s business to supply (whether he is the manufacturer or producer or not). but when the property therein is transferred to the buyer. if the buyer has examined the goods.  Where there is a contract for the sale of goods by sample and description. rendering them unmerchantable. the goods shall correspond with the description  In the case of a contract for sale by sample:. the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault. makes known to the seller the particular purpose for which the goods are required. The Sale of Goods . there shall be no implied condition as regards defects which such examination ought to have revealed.

(b) seizure of the goods by creditors – creditors of the buyer may wrongfully seize the goods assuming that property has passed on to the buyer. notwithstanding the delivery of the goods to a buyer or to a carrier or other bailee for the purpose of transmission to the buyer. where the seller must pay the costs and freight to bring the goods to the port of destination. when goods are delivered to the buyer on approval or “on sale or return” or other similar terms. The kinds of problems that can crop up are: (a) damage to goods – in such an event. when it is still with the seller. the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. Broadly. and it is immaterial whether the time of payment of the price or the time of delivery of the goods. In such case alone. and the risk has been assumed by. also procures insurance in the name of the buyer but pays for the premium from his own pocket. In the light of the above discussion. and does not reserve the right of disposal. the question that arises is should the seller bear the loss and supply new goods to the buyer. The Act provides that where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract. So. the property in the goods thereupon passes to the buyer. either by the seller with the assent of the buyer or by the buyer with the assent of the seller. when the goods are not yet in deliverable state and the seller has to do something to make them deliverable. (ii) CFR or Cost and Freight. there are 3 kinds. the property therein passes to the buyer either (a) when he signifies his approval or acceptance to the seller or does any other act adopting the transaction. However. but insurance premium for the goods is NOT included. (c) insurance – the question that arises is who has the insurable interest in the goods to get them insured. or vice versa. in pursuance of the contract. let us examine the different kinds of international shipping contracts. Insurance and Freight. or is the buyer to bear the loss resulting in payment of the purchase price even where the goods are damaged or destroyed. in addition to the costs and freight. or both. if no such time has been fixed. It goes on to say that where. Again. the only point to be seen is whether the seller has reserved the right of disposal to himself until certain conditions are fulfilled. where the seller loads the goods on board the vessel nominated by the buyer and the freight charges are borne by the buyer. the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer. namely (i) FOB or Free on Board. is postponed. and continues to do so after the time fixed for the return of the goods. or. Shipment Contracts and the Significance of Passing of Title or Property. the buyer assumes a lot of significance in high value shipping transactions. where the seller. the property does not pass till such act is done by the seller and the buyer is also given notice of such doing. In . he is deemed to have unconditionally appropriated the goods to the contract. and of Risk The correct determination as to when the title has passed to. or (b) if he retains the goods without giving notice of rejection. the property in the goods passes to the buyer when the contract is made. and (iii) CIF or Cost.Act provides that where there is an unconditional contract for the sale of specific goods in a deliverable state. on the expiry of a reasonable time.

However. in situations where goods are sent by the seller to the buyer by a route involving sea transit. the buyer may decline to treat the delivery to the carrier or wharfinger as a delivery to himself. in all these situations. and in circumstances in which it is usual to insure. or may hold the seller responsible in damages. the goods shall be deemed to be at his risk during such sea transit. and if the seller fails to give such notice.all three cases. If the seller omits so to do. Firstly. the property in the goods and the risk pass on to the buyer at the point where the goods are handed over to the carrier and cross the railing of the ship. and the goods are lost or damaged in course of transit or whilst in the custody of the wharfinger. the seller can retain the right of disposal of the goods and thus ensure that property in the goods does not pass to the buyer till the conditions required to be fulfilled are actually satisfied by the buyer. since most such contracts involve unascertained goods taken from a bigger lot. the seller still has to comply with a few legal obligations while delivering the goods to the carrier. the seller shall make such contract with the carrier on behalf of the buyer as may be reasonable having regard to the nature of the goods and the other circumstances of the case. give such notice to the buyer as may enable the buyer to insure them during their sea transit. Even though the risk passes to the buyer in normal situations. The seller shall also. .

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