Law of Contracts- II Notes

Law of contract-II
History-
Sale of goods act applies to all transactions relating to sale of goods
The contract to sell can be oral or written or in any language.
Registration of document relating to contract of sale is governed by Registration act, 1908.
The unrepealed provision of ICA continues to apply to contract of sale.
No illustration in the act- open to judicial interpretation.
Until 1 july, 1930 the law of sale of goods governed by chapter 7 of ICA which was based on
English common law.
English sale of goods act was enacted in 1893.
Chapter 7 was inadequate to meet the needs of community.
The accretions of English sale of goods were not found in chapter 7
In 1926, Draft bill
 Law of Contracts- II Notes

Section 58 (Specific performance)

o Ingredients:
 Chapter 2 of specific relief act.
 On application.
 Without giving the defendant an option to retain the goods upon
payment of damages.
 Goods must be specific or ascertained.
 Decree maybe unconditional or conditional.
 application can be filed at any stage. Before passing of the decree.
 Sec 2(2) of CPC – to draw decree after judgement.
 The court of equity only exercise their jurisdiction when the chattle in question were
article of peculiar value and such reliefs general article of commerce radially available
which has sufficient remedy in an action for damages.
 Because chapter 2 applies and therefore in cases where remedy provided are limited.
 The court may impose conditions in a decree. Those conditions maybe related to
payment of price, payment of damages, payment for interest etc. and the buyer have
to comply with those conditions to get the goods delivered.
Section 59
 Breach of conditions or warranties are delt from section 14 to 17. For example if there
is a breach as to of goods under section 16, the buyer is
 e ntitled to treat the contract as repudiated and to reject the goods but he may elect
to treat the breach the condition as condition of warranty, he may be entitled remedy
under present section.
 The buyer may claim a deduction from the price, if the loss is less than price, he may
refuse to pay the price all together.
 If the loss equals the price, or he may not only refuse to pay the price but also claim
the excess if the loss exceeds the price and he may pay the price in all these cases and
sue the seller for breach of warranty.
 Section 73 of ICA applies, in case of breach of warranty related to quality such loss is
primarily the difference between the value of goods at the time of delivery to the
buyer and the value they would have had if they answered to the warranty.

Section 60
Section
Section 16(4) and section 62 are complimentary
 Usage of trade –
 Course of trade-
Section 62
 Law of Contracts- II Notes

 This section provides that any right or liability by implication of law maybe negative
or vary by express agreement, therefore conditions and warranties implied from
section 14 to section 17 maybe negative or vary by an express agreement. Similarly,
the rules relating to passing off property under section 20 and 24 maybe vary or
negated in the similar manner.
 Section 16 (4) provides that and express warranty or condition could not negate or
varied unless inconsistent therewith. Therefore, the court under this section must see
as to whether the expressed conditions are expressed or inconsonant with the implied
terms.
 This maybe done by course of trade or usage of trade.
 Under sec 63 reasonable time is question of fact and it depends upon particular
circumstances, nature of goods etc. to determine this question of fact. In some cases
usage of trade has also been taken into consideration.

Section 64
 This section deals with sale by auction sale where the bidder gives proposal by
declaring price and the invitation to such proposal is given by the seller/auctioneer.
 If the auctioneer puts the goods subject to auction of sale in separate lots, each lot
shall be subject to separate contract of sale prima facie.
 So long as there is no acceptance of the proposal given by the bidders, the bidders
may retract their bid. The last proposal which is accepted by fall of hammer or any
other customary manner the sale is deemed to be complete. Such acceptance may be
subjected to condition depending upon the contract.
o The sale can happen then only sale can happen or if not paid the it may revert
back to seller.
 It also lays that the seller may not bid or right to do so once such time is reserved, it
must be notified to the other party, the seller can’t ask the agent/ nominee also to
make bid on his behalf unless such right is reserved. If this provision is violated then
it may render the sale as fraudulent or voidable.
 The auction sale may be subject to reserve price/base price/ upset price and in such a
situation on unless the bid reaches the reserved price the auctioneer postponed or
cancel the auction sale.
 KNOCK OUT AGREEMENTS
o Where the bidders collude within themselves to hamper the fair competition in
the bidding process by agreeing to not to bid against each other are also
unlawful (Competition act 2002) – concept of bid rigging.
o Pretended bidding leads to voidable agreement at the option of the buyer.
o This act is not retrospective in nature (section 65)
 The sale may be of following types:
o Sale with reserved rights
o Sale without reserved rights
o Sale with reservation of right to bid by the seller.
o Conditional sale etc.
 Law of Contracts- II Notes

In guarantee 3 parties are involved but in the indemnity only 2 parties

https://www.toppr.com/guides/business-laws-cs/indian-contract-act-1872/contract-of-
guarantee/#:~:text=Contract%20of%20Indemnity,)%20and%20indemnified%20(promisee).
https://lawtimesjournal.in/contract-of-indeminity/#:~:text=What%20is%20the%20difference
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%20Indian%20Law%20cause%20of,human%20agency%20and%20not%20otherwise.

Drafting the sale of deed

 Description of the deed.
 This deed of contract of sale is executed on---(date) – important to mention date.
 After date – describing the parties- name, son of, age, address, of buyer.
 Recitals- brief bg of relations of parties and history – bg of deed but it may or may not
be the part of deed– STARTS FROM whereas – whereas x is the employee of y
whereas y is the agent of x- to interpret the intentions.
 Testatum - Operative part- terms- ANDTHEREFORE THE PARTIES AGREE TO:
1,2,3,4, …/NOW THE DEED WITNESSES AS FOLLOWS:
 Parcels- entire description of the property involved. Name, where it is situated, plot
no., etc.
 Testimonial- concluding paragraph of the deed- IN WITNESS WHEREOF THE
PARTIES HERETO HAVE SIGNED THIS DEED ON_____.
 Attestation – not necessary that all deeds are attested it depends upon rules and
specific legislation dealing it with that.
Executed consideration must be distinguished from past consideration. In the case of
executed consideration, the promise and the act are integral parts of the same transaction;
where the consideration is past the promise is given subsequent to, and quite independently
of, the act.
INDEMNITY
 The term indemnity means to make good the loss to compensate the loss. Section 124
defines indemnity as a contract in which one party promises to save the other from the
loss caused to him by the conduct of the promiser himself or by the conduct of third
part.
 This section is limited to human conduct.
 Indemnifier – A person who promises to sale, i.e., who gives indemnity.
 Indemnity holder- person who is saved, i.e., to whom the indemnity is given. The
definition excludes the loss arising from the perils of sea or fire etc. (Sec 31)
 Law of Contracts- II Notes

Section 125
 limited to the rights of indemnity holder where he is sued and where he is entitled to
recover the following:
1. All damages which he pays to the third party.
2. Cost incurred during the proceedings
3. Any cost incurred for the compromise.
 Application of section indemnity holder must act in a prudent manner and he must
not violate the directions of indemnifier.
Commencement of liablity of indemnifier: English rule- indemnity holder must suffer actual
loss and then only he can be compensated for the loss.
 This English rule was mad a little flexible in case of Gajanand Moreshwar v.
Moreshwar Madan 1942- Bombay HC case. Justice Chagla expressed his opinion it
is true that in English law no action could be maintained until actual loss is incurred it
was realized that indemnity might be of little worth, if the indemnified is not allowed
to enforce the indemnity till he had actually paid the loss. If the suit is filed against
him he will have to wait till the judgement so that he can sue the indemnifier
therefore by application of equitable principles he rigor of the rule was mitigated and
it was held that once the liability becomes absolute then the indemnity holder may
ask the indemnifier to pay the amount as claimed or to deposit the amount with the
court so that he can pay it whenever the claim is made.
Praful Kuman Mohanty v. Regional Manager of Oriental Insurance Company 1997 Orissa
HC case – Notice
In this case motor vehicle was ensured- it was stolen – acc. To the policy indemnified was
supposed to give immediate notice of the loss- assured made the police report immediately-
gave notice after a month – a company denied the claimed due to delay in giving notice –
indemnity was allowed in the court for the reason that immediate police report showed bona
fide intention on the part of assured- delay of one month was not unreasonable.
Adamson v. Jarvis
Plaintiff (auctioneer) sold cattle on behalf of defendant turned out the defendant was not
owner- auctioneer suffered loss – sued defendant- held that plaintiff acted on request of –
entitled to assume that if he suffered any loss due to wrongful act of the defendant he will be
indemnified. Therefore, the claim was allowed.

Section 126 – Contract of Guarantee

 It is a collateral undertaking to be liable for default of another.
 Tripartite agreement – 3 parties are stipulated – surety, principal debtor and creditor
(defined in section 126.)
 Independent liability incurred by the surety is not covered under section 126.
 No direct consideration for the surety but the contract is valid – see section 127.
 Contract of guarantee is not the contract of utmost good faith – creditor is not under
the obligation to tell all circumstance affecting willingness of the surety but it should
 Law of Contracts- II Notes

not be falling under section 142 (misrepresentation) or section 143 (concealment) if it

is hit by the above-mentioned sections – contract of guarantee.

Extent of surety’s liability

 It is co-extensive with that of principal debtor (sec 128) - it shows maximum extent of
surety’s liability.
 Maharaja of Banaras v. Har Narayan Singh (1909)
o Guarantor – not liable of interest on debt as principal debtor was also not
liable.
 Indian overseas bank v. Ramulu (1999)
o Surety was liable for principal amount and interest – Principal debtor was
also liable.

Section 144

 Deals with joining of co surety , provides guarantee is not valid if other person does
not join.
 Guarantee is generally unconditional.

Bank of Bihar v. Damodar Prasad (AIR 1967 SC 297).

In this case the defendant guaranteed a bank loan- there was a default – defendant was sued.
Trial court – directed that the bank shall enforce the guarantee only after exhausting all
remedies against the principal debtor – HC confirmed the decree – SC overruled it, held: the
basic object of guarantee is defeated if the creditor is asked to postpone his remedies against
the surety. Solvency of principal debtor was not sufficient ground for restraining the
execution of decree against the surety. It is duty of surety to pay the amount decreed and
upon such pay he will be subrogated in case of creditor.

Union of India v. Manku Narayana (1987 SC)

 Held that the creditor must proceed against mortgage property at first place and then
against the surety for balance.

State Bank of India v. Index Port (1992 3 SCC 159)

 SC cited following passage –

o Halsbusy’s law of England – it is not necessary for the creditor before
proceeding against the surety to request the principal debtor to pay or to sue
him although solvent, unless it is expressly stipulated for.
o Chitty on Contracts – “prima facie the surety maybe proceeded against
without demand against him and without first proceeding against the principal
debtor.”
 Law of Contracts- II Notes

 The creditor can be proceeded against the PD alone his suit shall not be rejected on
the ground that he has not joined the surety as defendant. Similarly, surety alone can
be sued.
 Surety can place limits on his liability or put conditions upon it.

Bank Guarantee

 An agreement made by a bank to pay a debt if the person who owes the money can’t
pay.
 Bank guarantee is an absolute undertaking to pay the amount on demand.
 It has nothing to do with the state of relations between the guarantee holder and the
person on whose behalf the guarantee was given.
 Maharashtra State Electricity Board v. Official Liquidator (1982 SC)
o Bank gave guarantee – limited to Rs. 50,000 to be encased within 48 hours of
demand. It was issued on behalf of the supplier and sufficient securities were
deposited with the bank for the sale. The only condition was to pay on
demand – payment demanded – liquidator tried to prevent the encashment. No
such relief was allowed.
o Held- the guarantee holder had right to enforce the payment and the bank had
right to reimburse itself from securities deposited with the bank.
 Barwari Lal v. Punjab State Cooperation Ltd. (1983 Delhi HC)
o Held – the scrutiny if commenced in the case of underlying contract the
autonomy and independence of an absolute guarantee would be lost –
enforcement will depend upon the inquiry – would defeat the very purpose.
 Hindustan Steel works corporation Ltd. V. Tara and company.
o SC laid down the following propositions:
 Bank guarantee are independent and distinct contract between the
bank and the beneficiary and it is not qualified by underlying
transactions and primary contract between the person at whose
instance the bank guarantee is given and the beneficiary.
 In the case of unconditional bank guarantee, the nature of the
obligation of that is absolute and it is not dependent upon any dispute
and proceedings between the party at whose instance the bank
guarantee is given and the beneficiary.
 The commitment by the bank must be honored free from interference
by the court and it is only in exceptional cases, i.e., in case of fraud or
in case irretrievable justice would be done if the bank guarantee is
allowed to be encased.
 UP Cooperative Federation Ltd. V. Singh consultancy (1988 SC)
o Held – the operation of bank guarantee should be stayed in cases of serious
dispute or fraud etc.
 SBI v. Sahakari shakkar Karkhana (2007)
o Held – the court can’t take the recourse from the following circumstances
except the exceptional cases.
 Centax (India Ltd.) v. Vinmar Impex Inc. (1986 SC)
 Law of Contracts- II Notes

o Held – commitments under bank guarantee must be honored otherwise trust in

international commerce would be irreparably damaged.
 U.C.M Investments v. Royal Bank of Canada (1982)
o Lord Diplock, “ commercial purpose for which the system confirmed
irrevocable document credit has been developed in international trade is to
give to the seller and assured the right to be paid before he parts the control of
the goods and that doesn’t permit any dispute with the buyer as to the
performance of contract of sale
o Being used as a ground for non-payment or reduction or deferment of the
payment.

LIMITATION

 A guarantee has to be enforced within the period of limitation from the date on
which it was executed (limitation act 1963).

Discharge of Surety form liability

 Section 133 –
o Surety is discharged without his consent the creditor can make any change
in nature or terms of the contract (see Illustration A and C pg. 42 of bare
act.)
o Raju Shetty v. Bank of Baroda (1992 Karnataka HC)
1. A variance with the consent either given in advance or at the time of variance would
maintain the liability of surety intact.
 Section 134
o This section provides 2 modes of discharge
1. Creditor makes any contract with principal debtor by which the PD is discharged. Eg.
Creditor releases the PD.
2. When creditor does any act or omission the legal of consequence of which is the
discharge of the PD. Eg. The contract of construction – creditor was bound to supply the
material – omitted to supply – PD is discharged – surety discharged.
 Section 135
o It provides following modes of discharge :
1. By composition.
2. Promise of giving time.
3. Promise not to sue.
 Section 137
o Provides that mere forbearance to sue the PD doesn’t discharge the surety.
o Promise not to sue discharges the surety.
 Section 138
o In a situation where there are co-surety realease of one of them will not
discharge the others and neither does it free the surety so released from his
responsibility towards the others (joint and several liability).
 Section 136
 Law of Contracts- II Notes

o The surety is not discharged when there is an agreement with a third person
to give time to the PD.
 Section 139
o If the creditor does any act which is inconsistent with the rights of surety or
omits to do which he is required to do which eventually impairs the remedy
of the surety, then the surety will be discharged.
o A surety is entitled for reimbursement from the PD. If the creditor impairs
the benefit of this remedy the surety is discharged. EG. Creditor is supposed
to reserve the security but he fails – surety discharged. (read illustrations b
and c )

 RIGHTS OF SURETY
o Right of subrogation – section 140.
1. It provides that upon payment or performance of promise by surety on behalf of PD he is
invested with all the rights which the creditor has against the PD – he steps into the shoes
of creditor.
2. Amrit Lal Goverdhan v. State Bank of Travancore (1968 SC).
 Held – the surety will be entitled to every remedy which the
creditor has against the PD, to enforce every security and all
means of payment, to stand in the place of creditor and to have
the securities transferred even though there was no stipulation
to that affect. This right of surety stands not only upon the
contract but also upon natural justice. The word investing
means all the rights which the creditor has against the PD – the
law vests those rights in surety.
 Mamta Ghosh v. United Industrial Bank (1997 Calcutta HC)
o Held – if any suit it is proved that the PD is about to
remove or dispose off his property with the intention to
defraud the creditors the court may grant the temporary
injunction to restrain him.
 Right of indemnity section 145
o In every contract of guarantee there is an implied consent to indemnify the
surety. this right enables the surety to recover form PD whatever sum he has
rightfully paid (Illustration c of section 145 is an e.g., of continuing
guarantee

o Right to against creditor under section 141.

1. That the surety is entitled to benefited from every security which creditor as against the
PD at the time when the contract of suretyship was entered. The knowledge of this fact is
immaterial and if the creditor loses or parts with such security without the consent of
surety, consent is discharged to the extent of value of security. (illustatr. A and c)
o Industrial Finance corporation of India v. Canno Mills Ltd (20
 Law of Contracts- II Notes

1. Surety is entitled to every remedy which the creditor has and therefore he can even ask
for the enforcement of the securities.
o State of MP v. Kalu Ram (1967 SC)
1. Here the court explained the meaning of the word security – it was held that security
includes all rights which creditor has the property of the PD.
 Facts : state sold timbers to a person for a fixed price payable in
4 installments. The payment was guaranteed by the defendant.
The contract provided that if there is a default in payment of
price, the state would prevent the further removal of the was
of the timber and the state should prevent the further removal
of the timber and shall sale the remaining timber for realization
of the price. The buyer default allowing him to pay timber. The
surety was held not liable when he was sued by the creditor.
 Right of set off
o If the creditor sues the surety, the surety may have the benefit of set up, if
any, that the PD has against the creditor. For ex, if the creditor has in his
hand something belonging to PD for which the debtor could have counter
claimed, the surety could also have counter claimed. He can claim such right
of only against the creditor but also against the persons who derives title for
the creditor.
o Right of surety against the

 Right against Co Surety.

o This covers the situation where the debt has been guaranteed by more than one
person.
o The released co surety remains liable to the others for contribution (section
138).
o The co sureties are liable to make equal contribution to the extent of default
(sec 146). The principal of equal contribution is subject to the maximum limit
if any fix by the surety to his liability.
o A continuing guarantee is a type of guarantee which applies to a series of
transaction (sec 129). A continuous guarantee can be revoked at any time by
the surety by giving notice to the creditor.

 Section 148 – Contract of Bailment

o This section defines bailment, bailor, bailee.
 Law of Contracts- II Notes

o The bailment is delivery of goods by one person to another upon some

purpose and upon a condition that once the purpose is accomplished the goods
shall be returned to the bailor or to any person to whom he directs or dispose
off the goods in pursuance of his direction.
o The explanation clarifies that if a person is already in possession of goods and
contracts to hold them as a bailee, he becomes bailee although the goods may
not have been delivered in reality.
o Bailor –
o Bailee – to whom they are delivered.
o Essentials.
 Delivery and transfer of possession.
 For application of this section possession must be transferred
and not mere custody.
 Eg. Women delivered ornaments to jeweler for melting and
making new ornaments, on the day time he used to work on
jeweler and in the evening, she used to lock them and keep the
keys. Goods were lost during evening – jeweler was not held
labile.
 Delivery should be made upon a contract.
 Goods are delivered for some purpose and upon a contract and
after the purpose is accomplished the goods shall be returned or
deposed off.
 Contract may be expressed or implied.
 Cheshire – this ingredient is usual but not essential. (CASE)
 State of Gujarat v. Memon Mohammed (1967 SC)
o Facts: vehicle belonging to the plaintiff were ceased by
the customs while in custody, the goods were damaged
– they remain totally uncared. It was contented that the
sate was not bailee – no obligation to take care.
o Held: state was bailed – held liable.
 Conditional delivery
 Under contract of bailment the delivery is always conditional
that the goods shall be returned after the purpose is
accomplished.
 If the person is not bound to return the goods it will not
constitute a bailment.
 Deposit of money is not bailment in the bank – bank is not
bound to return same coin, same currency.
 Union of India v. KV N Gopalan (1990 Kerala HC)
o Bank was not allowed to exercise the right of lien on
money deposit under fixed deposit scheme. Agency
and bailment, bailee does not represent bailor, however
in agency, agent represents the principal.
o Difference between sale, bailment and exchange.
 Law of Contracts- II Notes

 Duties of bailor (sec 150)

o Bailor – 2 types – Gratuitous bailor and bailor for reward.
o Duty of gratuitous bailor is less than the bailor for reward.
o Conditions of liability of gratuitous bailor are:
 He should have knowledge of the defect.
 The defect must pose risk to the bailee or materially interfere with the
use of goods.
o Duty of bailor for reward is much greater, it is no answer for him to say that he
was not aware of defect, he will be liable in anyway.
o Reed v. Dean
 Facts: plaintiff hired motor launch (boat) for holiday- the launch got
fired- plaintiffs were not able to extinguish it they suffered injuries- it
was held that there was an implied undertaking on the part of
defendants that the launch shall be fit for the purpose.
 Duties of bailee
o Reasonable care (section 151)
 This section prescribes the standard of care in cases of bailment which
is a degree of care which a man of ordinary prudence would take of his
own goods if the care is below his standard and if there is a loss to the
goods then he will have to compensate the bailor.
 Gopal Singh v. PNB (1976 Delhi HC) – Held: “No cast ion can be laid
down for standard measure of care due from the bailee and the nature
and amount of care must vary with the posture of each case.
 Burden of proof will be on bailee to show that he has performed
reasonable care and if he places sufficient evidences before the court
that he took all precautions and all care then he will not be liable of
loss.
 UoI v. New India Insurance Company Ltd. (1983 SC)
 The plaintiff’s car was lost in a fire at garage of bailee and the
bailee didn’t lead any evidence to show as to how the incident
took place. SC held the bailee liable.
 There is no justification on the past of bailee that his own goods was
also lost along with the bailor’s goods.
 If the loss to the goods is due to any act by the agent of bailee within
the course of employment than he shall be liable.
o Bailee must not make an unauthorized use of the goods bailed. He will be
absolutely liable for the loss or damage of goods – inevitable accident, act of
god etc. will be no defense. (Section 154)
 Alias v. E. M. Paul (2004 Kerala HC)
 Car was for repairs – bailee allowed unlicensed driver to use it
– accident- 1 person died – bailee was held liable – bailee has
to compensate the family of the deceased as well as bailor.
o Bailee should not mix the goods with his own goods.
 If not possible to separate – must compensate bailor for the loss of
goods.
 Law of Contracts- II Notes

 After accomplishment of the purpose bailee is bound to return the

goods to bailor without demand.
 Gratuitous bailor may at any time require the amount of goods even
though he lent them/ delivered them for some purpose or for specific
time but if the bailee acted on the faith of the bailor and the goods are
demanded back before time. The situation is that the bailee could
suffer the loss which will be greater than the benefits received. The
bailor must indemnify him for the loss.
o A bailee is not entitled to set up against the bailor that the goods belong to the
third person. (Set up – jus tertii)
 Even if the third person is the owner the bailee should return the goods,
the bailor has agreed. However, the person claiming right over the
goods may apply to the court to prevent the delivery of the goods to the
bailor.
 Duty in absence of any agreement to contrary the bailee is bound to
return to the bailor natural increase or profit accruing to the property
 FINDER OF GOODS
o A finder of goods is a bailee who is bound to take the reasonable care of
goods.
o Interest of the finder of good is protected in the following ways:
 Retain the goods against the owner for the trouble and expenses he has
incurred
 where the owner has offered the specific award for the return of goods
the finder may sue for such reward and he may retain the goods as well
until he receives the reward.
 Finder of goods may sell the goods in certain circumstances as follows:
 When the goods are in danger of perishing or of loosing greater
part of its value.
 When the lawful charges of the finder in respect of the goods
found amounts the 2/3rd of its value.
 Agent – only when authorized but factors – wider and in general as well.’’
 Law of Contracts- II Notes

Indemnity Agreement

This Indemnity Agreement (the “Agreement”) is entered into 04/04/2022 (the “Effective
Date”), by and between Zia Mody, with an address of 39-A Prayagraj (the “Indemnitee”)
and AZB & Partners , with an address of AZB House Peninsula Corporate Park Ganpatrao
Kadam Marg Lower Parel Mumbai ,(the “Indemnifier”), individually referred to as “Party”
and collectively “the Parties.”

BACKGROUND

Where, the Indemnitee seeks protection against any personal liability, claim, suit, action, loss,
or damage that may result from the Indemnitee’s participation in the Authorized activity.
Where, Indemnifier seeks to minimize any hardship the Indemnitee might suffer as the result
of any personal liability, claim, suit, action, loss, or damage that may result from the
Indemnitee’s participation in the Authorized activity.

IN CONSIDERATION and as a condition of the Indemnifier and the Indemnitee entering

into this Agreement and other valuable consideration, the receipt and sufficiency of which
consideration is acknowledged, the Indemnifier and the Indemnitee agree as follows:

1. Indemnified Activity. The Indemnitee seeks to be protected from the following

Indemnified Activity (the “Activity”):

any and all expenses, including amounts paid upon judgments, counsel fees,
environmental penalties and fines, and amounts paid in settlement (before or after suit
is commenced), incurred by the employer in connection with his/her defense or
settlement of any claim, action, suit or proceeding in which he/she is made a party or
which may be asserted against his/her by reason of his/her employment or the
performance of duties in this Agreement. Such indemnification shall be in addition to
any other rights to which those indemnified may be entitled under any law, by-law,
agreement, or otherwise.
 Law of Contracts- II Notes

2. Indemnity. Indemnifier agrees to indemnify and hold harmless the Indemnitee, its
respective affiliates, officers, agents, employees, and permitted successors and assigns
against any and all claims, losses, damages, liabilities, penalties, punitive damages,
expenses, reasonable legal fees and costs of any kind or amount whatsoever, which
result from the Activity.

3. Exceptions to Indemnification. The Indemnifier shall not be obligated to indemnify

Indemnitee for any expenses, judgments, fines, settlements and other obligations
incurred as the result of the Indemnitee’s participation in the Activity:

a. In the case of a criminal proceeding;

b. In the case of a civil claim where the Indemnitee did not act in good faith
and/or in a reasonable manner;

c. The Indemnitee will or has received payment under a valid and collectible
insurance policy or under a valid and enforcement indemnity clause, bylaw or
agreement, except where payment under the insurance policy, clause, bylaw,
or agreement is not sufficient to fully indemnify the Indemnitee in which case
the Indemnifier will be responsible for any shortfall in payment received; or

d. An action or proceeding was initiated in whole in or in part by the Indemnitee

whether alone or along with one or more other claimants unless the action or
proceeding has the written consent of Indemnifier.

4. Notice of Claim. In the event of any claim or action, the Indemnitee must promptly
provide the Indemnifier with written notice of the claim or action and will notify the
Indemnifier of any legal proceedings relating to the claim or action within five (5)
days of the Indemnitee’s receipt of notice of such proceedings. The Indemnitee must
provide the Indemnifier with all known information available to the Indemnitee
relating to the claim or action.

5. Cooperation. The Indemnitee agrees to wholly cooperate with the Indemnifier in the
defence of any claim or action against it that the Indemnitee seeks to be Indemnified
for, including but not limited to, providing the Indemnifier with all available
information related to the claim or action, responding to reasonable requests from the
Indemnifier for information, documentation, and the like, etc. the Indemnifier agrees
to act in good faith and use best efforts to ensure the Indemnitee is indemnified and
 Law of Contracts- II Notes

reimbursed for any and all expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with the defence of any claim or action
resulting from the Indemnitee’s participation in the Activity.

6. Term. This Agreement shall commence upon the Effective Date i.e. 04/04/2022, as
stated above, and will continue until 04/04/2030.

7. Consent to Settlement. The Indemnifier shall not settle any claim or action without
the prior written consent of the Indemnitee.

8. Confidentiality. During the course of this Agreement, it may be necessary for the
Indemnitee to share proprietary information, including trade secrets, industry
knowledge, and other confidential information, with the Indemnifier in order for the
Indemnifier to indemnify the Indemnitee. The Indemnifier will not share any of this
proprietary information at any time. The Indemnifier also will not use any of this
proprietary information for the Indemnifier’s personal benefit at any time. This
section remains in full force and effect even after termination of the Agreement by its
natural termination or early termination by either party.

9. Termination. This Agreement may be terminated at any time by either Party upon
written notice to the other Party.

10. Representations and Warranties. Both Parties represent that they are fully
authorized to enter into this Agreement. The performance and obligations of either
Party will not violate or infringe upon the rights of any third-party or violate any other
agreement between the Parties, individually, and any other person, organization, or
business or any law or governmental regulation.

11. Severability. In the event any provision of this Agreement is deemed invalid or
unenforceable, in whole or in part, that part shall be severed from the remainder of the
Agreement and all other provisions shall continue in full force and effect as valid and
enforceable.

12. Waiver. The failure by either Party to exercise any right, power, or privilege under
the terms of this Agreement will not be construed as a waiver of any subsequent or
future exercise of that right, power, or privilege or the exercise of any other right,
power, or privilege.
 Law of Contracts- II Notes

13. Legal Fees. In the event of a dispute resulting in legal action, the successful party will
be entitled to its legal fees, including, but not limited to its attorneys’ fees.

14. Legal and Binding Agreement. This Agreement is legal and binding between the
Parties as stated above. This Agreement may be entered into and is legal and binding
both in the United States and throughout Europe. The Parties each represent that they
have the authority to enter into this Agreement.

15. Governing Law and Jurisdiction. The Parties agree that this Agreement shall be
governed by the State and/or Country in which both Parties do business. In the event
that the Parties do business in different States and/or Countries, this Agreement shall
be governed by Indian law.

16. Entire Agreement. The Parties acknowledge and agree that this Agreement
represents the entire agreement between the Parties. In the event that the Parties desire
to change, add, or otherwise modify any terms, they shall do so in writing to be signed
by both parties.

The Parties agree to the terms and conditions set forth above as demonstrated by their
signatures as follows:

Indemnitee

Signed Zia Mody

Name: Zia Mody

Date: 04/04/2022

Indemnifier

Signed: AZB & Partners

Name: AZB & Partners

 Law of Contracts- II Notes

Date: 04/04/2022

Eduljee v. John Brothers

Plaintiff purchased a refrigerator – seller agreed to repair – repairs were done – delivered to
plaintiff- part of repairs unpaid – refrigerators stopped working again and the seller took
some faulty parts for further repairs – claimed lien for these parts for the outstanding charge
of previous reopairs

HELD: delivery of possession after repairs puts an end to lien and can’t be revivied due to
reason that the seller undertook further repairs.

“lein is possessory right and continues until possessor holds the goods within.”

The right of general lien means the right to hold the goods as security for general balance of
accounts. (Sec 171) it entitles the bailee to retain any goods bailed to him for any amount due
to him whether in respect of those gooods or any other goods. Eg – 2 securities given to a
banker the loan taken only against one of them. The banker was allowed to retain both
securities until the dues were paid.

Jowitt and sons v. Union cold storage

Meat was stored in cold storage who by general terms of the storage was allowed to take the
goods for general balance of accounts. It was held that he could retain the meat for his
charges due in respect of other goods.

Under section 171 : following bailees can exercise the general lien:

Bankers

Wharfinger (custodian of goods)

Attorney of High Court only

Policy Brokers (LIC Agents etc.)

No other persons except above mention have right to retain above mentioned.

Right to sue (Sec. 180,181) - Enables bailee to sue any person who has wrongfully deprived
him of use of the goods bailed or damaged goods.

Pledge (Section 172)-

Pledge is a specific type of bailment for securing a loan.

 Law of Contracts- II Notes

Essential Elements (In addition to bailment) –

1. Delivery of goods- transfer of possession.

Mercantile bank limited v UOI- Railway receipt constituted delivery- valid pledge.

2. In pursuance of contract – it is not necessary that delivery and loan should be

contemporaneous- but there has to be a contract upon which the goods are delivered.

Rights of Pawnee

1. Rights of retainer (173,174) - The pawnee can retain goods for the loan interest
and necessary expenses in respect of possession or preservation of rights or in
default of performance of promise
2. Particular Lien
3. Right to extra-ordinary expenses (Sec. 175) - Can only sue.
4. Right to sell (Sec. 176) – Notice is statutory obligation.
5. Pawnee will have to return surplus and claim for deficit.
Lallan Prasad v. Rahmat Ali (1967 SC) - Loan advanced was for 20k – securities given
were worth 35k- plaintiff sued repayment- not allowed- he could not produce securities

Pawnor’s Right to redeem (Sec. 177)

1. Once the debt is repayed the pawnor has right to take possession of the goods back. If the
pawnor makes default in payment and receives a notice to sell, he has right to redeem the
goods during the period of notice.

Pledge by Mercantile Agent

Necessary Conditions-

1. Person has to be Mercantile agent- defined in SGA- he/she in customary course of

business has authority to sell/consign/buy/raise money on security of goods.
2. Possession must be with consent.
3. Agent should act in ordinary course of business.
4. Pawnee should act in good faith.

If he pledges document of title, then pledge is valid subject to the other conditions complied.

Person in possession under the voidable contract( 178 –A)- where the goods are pledged by a
person who has obtained the possession under a voidable contract which has not been
rescinded at the time of pledge and the pledgee acted in good faith and without notice of
defect in title. The pledge is then valid.

Phillips v. Brooks
 Law of Contracts- II Notes

Fraudulent person received possession of ring before contract could be rescinded the ring was
pledged with the defendant, the pledge was valid.

08/04/2022 – Missing

Generally, an agent is remunerated by the way of commission and no immediate

consideration is necessary at the time of appointment.

Lakshmi Narayan Ram Gopal and Sons v. Govt. of Hyderabad

The agent has Authority to act on behalf of his principal and to create contractual relations
between the principals and third party. This power is generally not extended to servant

This kind of power is not generally given to the servant

A principal has right to direct as to what the agent has to do but the master has not only that
right but also the right to say how it is to be done.

A servant acts in direct control and supervision of his master. However, the same is not the
case with agent.

Mode of remuneration is different. Agent receives commission, servant reccieves

wages/salary.

Master is liable for the wrong of this servant if it happens in the course of employment. A
principle is liable for his agent’s wrong which has been done in the scope of authority.

A servant usually serves only one master however, the agent may work for several principal
at the same time.

Agent and Bailee (Difference)

1. The Bailee must have possession of goods in agency it is not necessary that the
possession must be given to the agent.
2. Sometimes the bailee may act as an agent
3. Agent is representative however bailee is not a representative of the bailor.
4. Agent generally have power to deal with the goods according to the directions of the
principal. However bailee does not have any authority or power to deal with the goods
during the currency of bailment.

Kinds of Agents

1. Factor- He is interested with the possession of the goods for the purpose of selling
them they are mercantile agents.
2. Broker- He is appointed to negotiate and make contract on behalf of his principal with
the third party but is not given possession.
 Law of Contracts- II Notes

3. Del credere Agent- where an agent undertakes to be liable to the principal for the
failure to perform the promise and receives some extra commissions for that is call del
credere agent and the commission is called del credere commission.

Creation of Agency

1. By express appointment
2. By conduct, situation or relation
3. By necessity
4. By ratification

Express appointment oral or written

Implied agencies- arises from conduct relationships or the situations.

Relationships-

Husband and Wife – Wife is deemed to have implied authority to buy articles or to enter
into a contract for household necessities in following conditions-

1. Domestic Establishment
2. Only Necessaries
3. Low reasonable allowance

Husband can rebut it by proving that he –

1. Communicated to the person with whom se contracted that he should h=not supply
goods./services to his wife
2. She has sufficient supply
3. Reasonable allowance was already provided

Husband is not an implied agent of wife.

Implication of necessity in Agency

1. Agent assumes excess authority and acts due to necessity – it justified him doing so -
principal shall be bound.
Example- Necessity due to urgent medical condition-the person to whom such service
is provided shall be bound to pay for that irrespective of the fact that third person
contracted on his behalf
Goods during sea transit exposed to perils there is a threat of losing them if the
master of ship sells the goods in such a situation he is justified in doing so and the
principal shall be bound

Sims and co. v Midland Railway  [1913] 1 K. B. 103, 112.

Perishable goods were consigned- company sold them- justified- binding upon consigner.
 Law of Contracts- II Notes

Conditions –

1. Inability to connect with the principal. Ex- drunk servant allowed bystander to return
the vehicle to the principal’s place which was at a very less distance, it was possible
to communicate- no necessity.
2. Act done should be reasonably necessary. Ex- Fur skins sold – agent could not prove
that selling was reasonably necessary and the goods were under possibility of
immediate loss or damage.
3. The agent must act in bona fide manner

Ratification

1. Applies when a person has done an act on behalf of another

2. It give an option to the person on whose behalf the act is done to adopt it or to disown
it (which is not the case in necessity)

Conditions for ratifications

1. Act must be done on someone’s behalf

2. It relates back to the date ,, on which the act was done
3. Only lawful acts can be ratified.
Example- State of UP v Murarilal (1971 SC) - An agreement in contravention pf 299
(1) could not be ratified.
4. A person cannot ratify part of transaction which is beneficial and repudiate the rest

Effect of ratification

1. Creation of agency- Creation of relation between principal and agent

2. Establishment of relationship between principal and third party on the date of
executions of the contract/act

Duty not to delegate (Not given in Reading Material)

Relations of principle and agent

Duties of Agent

1. Follow instruction of Principle (Sec. 211) – If there are no instructions then follow
customs.-if the principle suffers loss the agent shall compensate and if there is a profit
the agent shall account for it. Lilley v. Double Day- principle to keep the goods at
specific warehouse – instructions were not followed – goods were kept in a different
warehouse – loss due to fire –agent still held liable for the loss
2. Duty of reasonable care (Sec. 212)- Depends on nature of Agency ex. The goods are
exposed to perils agent must ensure that. Goods sold on credit- must ensure solvency
of buyer.
3. Duty to avoid Conflict of Interest- Fiduciary Relationship- Agent did not bring his
personal interest and his duty in conflict with each other example – Company
appointed X to sell their ship, X attempted to sell- failed- bought it for himself- sold it
at a later point of time at a higher price- company allowed to recover profit.
 Law of Contracts- II Notes

4. Duty to not to make secret profits – any Advantage/Benefit/Profit over his

remuneration which he would not have been able to make but for his position as agent
ex- Trade secret, Confidential Information that he misused.
5. Duty to maintain Accounts ( Sec. 213)
6. Duty not to delegate Authority- Agent cannot delegate except in the following
cicumstances- (i) Principle has expressly permitted such delegation (ii) that the
principle impliedly by his conduct allowed (iii) by custom of trade (stock brokers) (iv)
nature of agency demands ( Auctioneer)

Improper delegation – when not authorized or do not fall in the circumstances

Proper Delegation- effects –

1. Principle is represented
2. Agent is responsible to the principle for the acts of sub-agents
3. Sub-agent is not directly liable to the acts of principle except for fraud and lawful
wrong

Person appointed by or acting under the control of regional agent in the business of agency.

Rights of the Agents

1. Remuneration (sec 219) –

(i) a. Agreed b. Reasonable
(ii) If there is misconduct on the part of the agent with respect of
agency the principal can – refuse to give agency- recover
compensation from him for the loss offered due to his misconduct
(iii) Green v. Bartlett- Agent appointed to sell a house – he failed to
find a purchaser via auction - one person who attended the auction
obtained the address of the principle and purchased the house from
him without interjection of the agent – the agent was entitled of the
commission as if the result was of his efforts
2. Right of retainer- (Sec.217)- It is available on principle’s money until his case in respect
of remuneration are not satisfied
3. Right of Lien-
(i).Agent can retain goods, papers, immovable/movable property until the amount due to
himself is not paid.
(ii) Agent must get the property in a lawful manner and in the authority

When right to lien is lost - Loss, Waiver and Contract to the contrary.

Loss of Lien-
a. When the possession is given to the principle or the carrier, the lien is lost-
agent cannot stop the property in transit.
b. It is subject to the contract to the contrary
 Law of Contracts- II Notes

c. By waiver- express or implied ( example- When the agent is not willing to

exercise lien, he may show it to the principle and w+
d. aive his right)

3. Right to Indemnity –
a. Principle is bound to indemnify the agent against the
consequences of lawful acts done by him in exercise of
its authority ex- Adamson v. Jarvis ( Previously
discussed )
4. Right to Compensation (Sec. 225) –
a. Principle must make compensation to his agent in
respect of the injury caused to him due to principle’s
neglect or want of skill.
Personal Liability of Agent
Section 203 – Agent cannot be made personally liable, he cannot personally sue, enforce or
be bound by the contracts which are made on behalf of the principle, this rule is subject to a
contract which may be contrary
Such contract is presumed in the following situations
1. When the principle is resident abroad.
2. When the principle is unnamed/undisclosed.
3. When the principle is incompetent or nonexistent- cannot be sued.
4. When the agent is a pretended agent- he shall be personally liable for the act
until the alleged principle ratifies the act.
5. When the agent exceeds its authority and the third party enters into a contract on
that false note.
Determination of Agency- Effect- relationship of principle and agent comes to an end
1. By Revocation – a. Principle may revoke the authority of the agent and may end the
agency (Sec. 203).
2. Express and implied revocation example (implied) When agent is appointed to sell
goods or to rent house but the principle did it on his own after appointment ( See
Illustrations )
Revocation operates prospectively i.e. for future transactions and the previous ones are
irrevocable (Sec. 205).
If the agent is appointed for a fixed period of time a reasonable notice will be necessary
before the termination of agency. (Sec. 206)
By renunciation by the agent
1. Agent may renounce business of agency the same manner in which the principle ha
right to revoke.
2. If there is a renunciation without , the agent must compensate the principal.
3. Reasonable notice is necessary for renunciation also.
 Law of Contracts- II Notes

Completion of business of agency (Sec. 201) - Agency is automatically terminated by

operation of law on completion of business for which it has been created example- Agency
created for sale of good. The agent sold all the goods-agency automatically terminated.
Death or Insanity (Sec. 201) – Agency is determined automatically on the death or insanity of
principal or agent.
Agency also ends on principle’s insolvency.
If the agency is created for a fixed time, expiration of that time puts end to the agency,
whether the purpose has been accomplished or not.
Even when agency is terminated by death or insanity, determination is effected only when it
comes to the knowledge of the other person
When agency is terminated sub-agency related to it also is terminated.
Hugh Stevenson v Fur Industries- Agency was deemed to have ended automatically by
operation of law. When war broke out between the two countries to which the principal and
agent respectively belonged.

Relations of principal with third party (authorities of agent)

A. Actual Authority (Sec. 186,187)
B. Implied Authority – Inferred from circumstances from words written, oral, or ordinary
course of dealings, which is also usual authority, which is reasonable or necessary.
Dingle v. Hare-
Agent was appointed to sell artificial manure. No authority was given to him to give
warranties to the third party but there was a custom to give such warranties. Agent gave
some warranty and the principal was bound.

C. Ostensible Authority (Sec. 237) (Apparent Authority)-

1. This exists where principle’s action could result in a third party believing that the
agent has authority to do certain act even where it might not be express or implied.
(Read Illustrations). For ex- The manager of a company was allowed to buy goods,
there was a limit of 10k but he bought it for 20k. The principal was bound for 20k
because a reasonable man would believe that the manager must be authorized to do
the same.
If the person contracting with the agent has notice of the restrictions, he is bound by
such restrictions.
If the agent exceeds his authority, which is not actual or apparent the principle is not bound
by the excess and if it is separable, the principle shall be bound to the extent of agent’s
authority (Sec. 227, 228).

Important Sections to remember-

 Law of Contracts- II Notes

Definition- Section 182

Consideration – Section 185
Personal liability- 230
Determination of Agency – All (specially 201)
Section 208 and 237

Definition of Partnership (Sec. 04)-

Essentials –
1. Agreement may be formal or by conduct.Fee
2. KT Abdullah v. Century Goods – two brothers inherited property- didn’t divide- sold
it and invested money in a business-no formal agreement-but they intended to share
profits – thus partners.
3. Business-
a) Sec. 2 clarifies business includes every trade, occupation and profession.
b) Smith v. Anderson- Business is a regular activity, which if successful will
result in profit.
c) Society for religious and charity is not business as there is no profit.
4. Sharing of Profits –
Cox v. Hickman- No man is a partner unless he has right to share profit in a business.
5. Mutual Agency- Sec. 4-
That the partner’s act for each other, Therefore, mutual agency. They stand in position
of principle and agent to each other.
Cox v. Hickman- Iron merchants were in financial problem. They agreed with their
creditor to give their business until their claim were satisfied, after that business were
returned and creditors were made trustees. Cox was one of the trustees who never
acted. The other trustees bought cake from Hickman who remains unpaid. Therefore,
he brought an action against all the trustees and against cox. It was held that they were
not partners. The intentions was only to satisfy claims not to create partner. Therefore,
cox was not held liable.

Important Sections: Partnership Act

12C, 4, 6, 19, 25, 12 and 64

Sec.6 embodies principles laid down in Cox v. Hickman (read)

1. Real relation of the parties is supreme, which is dependent on intention
2. Second explanation to sec 6 provides the list who might be interested in the profit
but not partners.

Joint ownership is not business

 Law of Contracts- II Notes

Govind Nair v. Maga – A & d purchased a tea shop, bought additional items
contributed in expenses and then leased it out- court said parties are neutralizing
common property to obtain return- it is not partnership.

Lender of money agreed to receive profit from a firm engaged in business- is not
partner- by this reason only example-
Badley v. Consolidated Bank- A lender advanced money to a contractor to enable him
to contract with the third party and he was allowed to receive 10 percent profit – there
was no inytention of partnership. Therefore, he was not a partner.

Servant agent allowed for profit- not partners.

On the death of the partnetr if there is sharing of profit by the survinig partner with the
widow or child of deceased doesn’t itself make tghem partner

Seller of good-will who receives profit does not become partner by itself. ( Good will
is the reputation attached to a business)

Rights and duties of the partners-

1. Duty of good faith (sec. 9) –
a) Fiduciary relation between the partners.
b) They must try to secure maximum profit and not secure secret personal profits.
c) Bentley v. Craven- One partner was allowed to buy sugar- he supplied it from
his own stock, which he has bought at a very low price, he charged prevailing
market price to the firm and made profits- co-partner’s action for profit was
allowed
2. Duty not to compete-
a) Partners should not carry similar business in competition with the firm
b) this is subject to the agreement between the partners
c) Not compete clause in partnership agreement is not restraint of trade
3. Duty to indemnify (Sec. 10) – Everyone shall indemnify the firm for any loss
caused to it by hi fraud in conduct of business.
4. Duty to make full disclosure and render accounts ( Sec. 9) – Read the section
5. Due diligence (sec. 12 (b) )-
a. Partner is bound to act diligently in conduct of business and shall indemnify
the firm for any loss caused to it by his willful neglect.
b. Willful neglect is different is from mere error of judgement
c. – Defendant was managing partner and was allowed to conduct dissolution-
plaintiff advise him to sell the goods immediately but the defendant decided
to sell at the end of the dissolution- goods when sold – prices went down –
question was whether this is a willful neglect by the defendant- held it was
not- mere error of judgement.
6. Duty to make use of the goods of the firm exclusively for the benefit of the firm
(sec. 20) - Example of Printing machine.
7. Duty to account for personal profit (Sec. 16)- discussed
 Law of Contracts- II Notes

1. Right to take part in a business –

a. This is right is subject to the agreement.
b. Suresh Kumar v. Amrit Delhi HC- act done which was harming the reputation
of the firm was not allowed- injunction granted.
2. Right to inspect the account books and other papers ralting to the firm (Sec. 12 D)
3. Right to express opinion upon any difference arising in ordinary matters – majority
opinion prevails but if the matter which may have fundamental impact on the business
or on the firm then consent of all partners must be taken. (Sec. 12(C) )
4. Rights to profit ( Sec. 13B)
5. Right of remuneration (Sec. 13 (A))
Relation of partner with third party (Sec. 35)
1. Partner can be jointly or individually sued by the third parties
2. Act done after the person ceases to be partner- not liable for that at except in holding
out.

Implied authority (s. 18, 19*):

Read Sec. 18
Section 19- provides scope of implied authority.
Act of a partner will be binding on the firm if it is done by the partner carrying business in
usual way that is to be determined by the nature of the business. Example: firm is engaged in
buying and selling of goods. It is usual to take goods on credits.
Firm is engaged in advancing loan in the market- Partners are allowed to draw cheque.

Restrictions on implied authority:

1. Statutory restrictions S. 19(2)
2. By partnership deed

Statutory restrictions are binding upon every person contracting with firm. Irrespective of
knowledge, however if the restriction are imposed on partnership deed, they are not effective
against the third party until and unless 3rd party knows about it.
Holding out: section 28
A person is liable as partner by holding out when he represents itself or allows the other
partners to represent him as partner without objection.
A.R. border v. W. Incell:
 Law of Contracts- II Notes

Defendant gave loan to a person to establish business, he used his personal influence to
obtain lease. Plaintiff supplied building material on a belief that he is a partner. Defendant
held liable as a partner.
When a partner retire and public notice of such retirement is not given. He is liable by
holding out. Notice is not given in the following cases
1. Deceased
2. Insolvent
3. Dormant

Minors position in a partnership firm section 30

1. Minor is incompetent to contract and cannot be a partner however he may be admitted to
the benefits of firm with consent of all partners.
2. Minor has right to recite agreed share.
3. He may inspect the accounts
4.(imp) He cannot sue the partners as long he remains in the firm once he severed his
connection, he may sue.

If the firm is dissolved, valuation of minor shares shall be done according to section 48.

Minor share in the property and the profit is liable for the acts of the firm but he is not
personally liable.

On being Major within 6 months form the date of his majority or from the date when he
comes to know that he has been admitted into the firm. He has to decide whether he wants to
remain in the firm or want to leave. He should give public notice of election; If he fails he
will automatically become partner after 6 months.
If he becomes partner he is responsible as full-fledged partner and if not his right and
liabilities should be continued to be of minor up to the date of coming notice.
Dissolution of Partnership firm
Modes-
1. Firms may be dissolved by consent of all parties by

---------------------------------------------28/04/2022-----------------------------------------------------
 Law of Contracts- II Notes

Company is created by law.

LLPs are governed by both llp act and agreement.
Holding out applies in llp too

Difference between partnership forma and company

1. Company is creation of law and is governed by company act, Partnership is created by
contract
2. Company is a distinct legal personality (Solomon v. Solomon) Partnership firm has no
individual existence.
3. Company owns the property in its name and it does not belong to the members
however, property of the partnership firm belongs to the partner.
4. Members of the company can contract with the company which is not possible in the
case of partnership
5. Members of the community can easily transfer their interest (share), not possible in
Partnership
6. Company has perpetual succession which is not available with the partnership firm
7. Winding up of the company is done according to the law however; the partnership
firm can easily dissolve at the will of the partner.

LLP 2008
1. LLP is a form of partnership where the liability of the partner is limited and any
partner will not be held liable for the acts of other partner.
2. Reg is mandatory
3. Min. 2 partners no upper limit
4. Partners can define their rights and liability under agreement.
5. No partner will be liable for independent or unauthorized acts if the other partners.
6. The liability of the firm and that of the partners who have acted with the intent to de
fraud the creditors or for any fraudulent purpose shall be unlimited. (Sec. 30 LLP act)
At least one partner should be resident of India. A firm or pvt. ltd. Co. or unlisted co. is
allowed to convert into llp .
It has the status of body corporate being incorporated under llp act it is a legal entity
separate from its partners, it has perpetual succession (It continues to exist even on death,
insolvency or change in membership etc.)
All partners are agents of llp but they are not agent of the other partners.
Designated Partners (Sec. 8)-
 Law of Contracts- II Notes

Incorporation (Sec, 12) - When the documents are complete under Sec. 11 and submitted
to registrar. Then the registrar issues scertificate of registration within 14 days.
Effect of registration- LLP becomes capable of-
1. Suing or being.
2. Acquiring, holding, owning, developing and disposing property.
3. Any other act which the body corporate law fully does is entitled to
4. Common seal.
Sec. 64 – Winding up – LLP may be dissolved in the following cases
1. When the partners decides
2. When for the period of more than 6 months the no. of partner is below 2
3. Unable to pay debts
4. LLP acted against the security of state or public order or interest of the integrity and
sovereignty.
5. LLP has made defaults in filing statements of account and solvency or annual returns
to the registrar
6. If the tribunal is of the opinion that it is just