1. What is meant by contract of guarantee ?

Section 126 of the Indian Contract Act defines a contract of guarantee as a contract where
one person agrees to fulfill the promise or pay the debt of another person if they fail to do
so. Thus here we can infer that there the 3 parties to the contract.

 Principal Debtor: The person who borrows money or has a debt to pay.

 Creditor: The person who lends money or is owed payment.

 Surety/Guarantor: The person who promises to pay if the principal debtor fails to
do so.

Also, we can understand that a contract of guarantee is a secondary contract that comes
into effect if the principal debtor fails to fulfill their obligations under the primary
contract with the creditor.

Illustration
Ankita advances a loan of INR 70000 to Pallav. Srishti who is the boss of Pallav
promises that in case Pallav fails to repay the loan, then she will repay the same. In this
case of a contract of guarantee, Ankita is the Creditor, Pallav the principal debtor and
Srishti is the Surety."

In P.J. Rajappan v. Associated Industries (1983), the Kerala High Court ruled that even
if a guarantor has not signed the contract, their involvement and promise to sign later can
be enough to hold them liable if there is sufficient evidence of their participation in the
transaction.

 What are its essential features explain with the

help of decided cases .
A contract of guarantee has several essential features, which can be better understood
through decided cases. These features include:

1. Agreement of All Three Parties : All three parties (principal debtor, creditor, and
surety) must agree to the contract.

Bank of Bihar Ltd. v. Damodar Prasad (1969)

In this case, a loan was given by a bank to a borrower, and a third party guaranteed the
repayment. The Supreme Court emphasized the three-party nature of a guarantee contract:
the principal debtor, the creditor, and the surety.
2. Consideration Anything done for the benefit of the principal debtor is sufficient
consideration for the surety. The consideration must be fresh and not past consideration.

State Bank of India v. Premco Saw Mill (1983)

The bank's patience and acceptance, when the debtor's husband became surety, was deemed
valid consideration.

3. Existence of a Debt There must be an existing debt for the surety to secure.

Swan vs. Bank of Scotland (1836)

It was held that without a principal debt, a valid guarantee cannot exist.

4. Writing and Signature: While a contract of guarantee can be oral or written, having it in
writing is often preferred for evidentiary purposes.

P.J. Rajappan v. Associated Industries (1983)

The guarantor did not sign the contract of guarantee but was involved in the transaction. The
Kerala High Court ruled that if there is sufficient evidence of the guarantor's involvement
and intention to guarantee, the absence of a signature does not invalidate the contract.

5. Consent of All Parties: All parties must consent to the contract of guarantee. If the
consent of the surety is obtained through misrepresentation or fraud, the contract is invalid.

Punjab National Bank v. Bikram Cotton Mills (1970)

A guarantee was disputed on the grounds that it was not properly agreed upon. The Supreme
Court stressed that all parties must consent to the contract of guarantee. If the guarantor's
consent is obtained through misrepresentation or fraud, the contract is invalid.

2. What are the effects of misrepresentation and

concealment on contract of guarantee explain?
Under the Indian Contract Act, 1872, misrepresentation and concealment of facts can
significantly affect the validity of a contract of guarantee. Here’s an explanation of these
effects:

1. Voidable Contract
- Misrepresentation : If the creditor misrepresents material facts to the surety, the contract
of guarantee is voidable at the surety's option. This means the surety can choose to cancel the
contract.
 Example of Misrepresentation
- If a creditor tells the surety that the principal debtor has a good credit history, when in
reality they have a history of defaults, the surety can void the contract upon discovering this
false information.

- Concealment : If the creditor conceals important information from the surety, the
contract of guarantee is invalid. The surety is not bound by the contract.

 Example of Concealment
- If the creditor knows the principal debtor is financially unstable but does not inform the
surety, the surety can claim the contract is invalid due to this lack of information.

2. No Liability for the Surety

- When a guarantee is obtained through misrepresentation or concealment, the surety is not
liable for the principal debtor’s obligations. They can refuse to fulfill the guarantee.

3. Right to Rescind the Contract

- The surety has the right to rescind (cancel) the contract if they discover that the guarantee
was obtained by misrepresentation or concealment of material facts.

4. Material Facts
-These are facts that can affect the surety’s decision to enter into the contract.
Misrepresentation or concealment of such facts invalidates the guarantee.

Maharaja of Benares v. Har Narain Singh (1932)

The surety claimed that he was induced to enter into the contract of guarantee by
misrepresentation of facts regarding the financial position of the principal debtor. The Privy
Council ruled that misrepresentation or concealment of facts by the creditor can make the
contract of guarantee voidable at the option of the surety.
 Distinction between Contract of guarantee and contract of indemnity.

3. What is the legal and moral duty and responsibility of a surety ?

 Legal Duties and Responsibilities of a Surety :

1. Pay if Defaulted: The surety must pay the debt or fulfill the obligation if the principal
debtor fails to do so (Section 128).

2. Follow Terms: The surety must comply with the terms of the guarantee agreement.

3. Inform Changes: The surety must be informed of any changes in the principal
contract that might affect their liability (Section 134).

4. Consent for Alterations: The surety’s liability may end if the principal contract is
altered without their consent (Section 133).
 Moral Duties and Responsibilities of a Surety

1. Act Honestly: The surety should only agree to guarantee if they understand the risks
involved.

2. Check Debtor’s Situation: The surety should ensure the principal debtor can meet
their obligations.

3. Support the Debtor: The surety should help the debtor avoid default if possible.

4. Communicate Clearly: The surety should maintain good communication with the
creditor and the principal debtor.

These duties ensure fairness and clarity in the surety's role and responsibilities.

 Narrate the various circumstances under

which a surety is discharged from his liability.
Under the Indian Contract Act, a surety can be discharged from their liability under the
following circumstances:

1. Alteration of Terms Without Consent (Section 133): If the terms of the principal
contract are changed without the surety’s consent, the surety is discharged from liability.

2. Revocation of Guarantee (Section 130): A surety can revoke their guarantee before
any default occurs, as long as they notify the creditor.

3. Release or Discharge of Principal Debtor (Section 134): If the principal debtor is

released or discharged from the debt by the creditor, the surety is also discharged.

4. Death of Surety: If the surety dies, their liability ceases unless the contract specifies
otherwise.

5. Compromise Without Surety’s Consent: If the creditor makes a compromise or

settlement with the principal debtor without the surety’s consent, the surety’s liability
may end.
 6. Failure to Inform Surety of Default (Section 134): If the creditor does not inform the
surety about changes in the contract or the default of the principal debtor, the surety may
be discharged from liability.

7. Discharge by Impossibility of Performance: If the performance of the principal

debtor's obligations becomes impossible due to unforeseen circumstances, the surety may
be discharged from liability.

These provisions ensure that a surety is not unfairly held liable under changed or
improper conditions.

4. Distinguish between bailment and pledge

 Discuss the right of lien excercised by bailee .

Lien is a legal right or claim that a person or entity has over another person's property,
typically to secure the payment of a debt or the fulfillment of some obligation. A lien gives
the holder the right to retain possession of the property until the debt is paid or the obligation
is fulfilled.
Types of Lien their rights:

 Particular Lien: The right to retain possession of goods until payment for specific
services related to those goods is made (Section 170).

Example: A tailor holds a suit until payment for alterations is received.

 General Lien: The right to retain possession of goods to secure payment for any amount
owed by the bailor, not just for specific services (Section 171).

Example: A warehouse keeper retains stored goods until all storage fees are paid.

Conditions for Exercising Lien

1. Lawful Possession:
o The bailee must lawfully possess the goods to exercise the lien. Without
possession, the lien cannot be exercised.

2. Legal or Contractual Basis:

o The lien must be based on legal provisions or an agreement between the bailee
and bailor.
Limitations

1. Voluntary Surrender:
o The lien is lost if the bailee voluntarily gives up possession of the goods.

2. Sale of Goods:
o The bailee cannot sell the goods to recover charges unless explicitly allowed by
law or the contract.

Legal References

 Particular Lien: Section 170 of the Indian Contract Act

 General Lien: Section 171 of the Indian Contract Act

These rights ensure that bailees can retain possession of goods to secure payment for services
or costs incurred.

12. ‘A’ lends his horse for riding to ‘B’. ‘A’ knows that the horse is vicious
and unsafe for riding but does not disclose the same to ‘B’. ‘B’ rides the
horse. “B” is thrown and injured ‘B’ files a suit against ‘A’ to recover
damages. Decide.
In this scenario, A lent a horse to B for riding but failed to disclose that the horse was vicious
and unsafe. B was injured as a result of riding the horse. Here's how the situation can be
analyzed:

Scenario Summary
 Knowledge of Defect: A knew that the horse was vicious and unsafe for riding.
 Failure to Disclose: A did not inform B about the horse’s dangerous nature.
 Resulting Injury: B was injured as a result of riding the unsafe horse.

Legal Framework

1. Duty to Disclose Defects (Section 151):

o Under Section 151 of the Indian Contract Act, the bailor (in this case, A) has a
duty to disclose any known defects in the goods being lent, especially if such
defects make the goods dangerous or unsafe.

2. Liability for Non-Disclosure:

o If the bailor fails to disclose known defects and the bailee (in this case, B)
suffers harm as a result, the bailor can be held liable for damages. This is
because the bailor's failure to disclose breaches the duty of care owed to the
bailee.

Decision

 A knew the horse was dangerous but did not tell B.

 B got injured because of the horse’s dangerous behavior.

Conclusion: A is liable to B for the injuries. Since A failed to disclose the horse’s dangerous
nature, B can sue A for damages.

13. ‘A’ entrusted some books to ‘B’ for binding. ‘B’ promised to complete
the work and return the same within ten days. ‘B’ failed to return the books
within the agreed time. Subsequently the books were burnt in an accidental
fire on his premises. Can ‘A’ recover damages from ‘B’ for the loss of his
books?
Under the Indian Contract Act, here's a detailed analysis of whether A can recover damages
from B for the loss of the books:

Situation Overview

 A gave some books to B for binding.

 B promised to return the books within ten days.
 B did not return the books on time.
 The books were accidentally destroyed in a fire at B’s premises.
Legal Analysis

1. Breach of Contract:
o A and B had a contract where B agreed to bind and return the books within ten
days.
o B failed to return the books on time, which constitutes a breach of contract.

2. Liability for Loss:

o B was in breach of the contract by not returning the books within the agreed
timeframe.
o B is responsible for the books from the time they were entrusted until they are
returned. If the books are lost or damaged while in B’s possession, B is liable.

3. Accidental Fire:
o The fact that the books were destroyed in an accidental fire does not absolve B
of liability. B is liable for the loss because the books were not returned as per
the contract.

Legal Provisions
 Section 151 of the Indian Contract Act requires the bailee (here, B) to take reasonable
care of the goods. If the bailee fails to return the goods on time, the bailee is liable for
any loss, regardless of whether it was due to an accident.

Conclusion

Yes, A can recover damages from B for the loss of the books. Despite the accidental fire, B's
failure to return the books on time constitutes a breach of contract. B is liable for the books
while they were in their possession, and A can claim damages for the loss.

16. What is liability of drawer and drawee of dishonored cheque?

Under the Indian Contract Act and the Negotiable Instruments Act, the liabilities of the
drawer and drawee of a dishonored cheque are as follows:

 Drawer: The person who writes a check or creates a payment order. They are asking
someone else (usually a bank) to pay a certain amount of money.

 Drawee: The person or entity, usually a bank, that is asked by the drawer to make the
payment. The drawee is the one who actually gives the money when the check or
payment order is presented.

1. Liability of the Drawer

 Definition: The drawer is the person who writes and signs the cheque.
  Liability Upon Dishonor: If the cheque is dishonored (e.g., due to insufficient funds
or a stop payment), the drawer is primarily liable.

 Payment: The drawer must pay the amount of the cheque to the payee.

 Legal Action: The payee can file a legal suit against the drawer under Section 138 of
the Negotiable Instruments Act for dishonor of cheque.

 Penalties: If the drawer fails to make the payment and does not resolve the issue, they
may face legal consequences, including fines or imprisonment.

Case Law: In K.K. Verma v. Union of India (1996), the court held that the drawer is
liable for the cheque amount if it is dishonored, and legal action can be taken for
dishonor due to insufficient funds.

2. Liability of the Drawee

 Definition: The drawee is the bank or financial institution where the drawer has an
account.

 Role in Dishonor: The drawee is responsible for processing the cheque. If the cheque
is dishonored the drawee must provide a reason for dishonor to the drawer, such as
insufficient funds or a closed account.

 Liability: The drawee is not directly liable to the payee for the dishonor. However, the
drawee's failure to honor a valid cheque can lead to the drawer being liable to the
payee.

 Legal Action: The drawee may face regulatory or legal consequences if it is found
that the dishonor was due to a fault or negligence on their part.

Case Law: In H.S. Raju v. K.K. Venkataswamy (1994), the court confirmed that the
drawee bank is only responsible for informing the drawer about the dishonor reasons
and is not liable to the payee for the dishonored cheque.

The primary focus of liability for a dishonored cheque is on the drawer, who must fulfill the
payment obligation and may face legal penalties if they fail to do so.

11. Define agent and principal.

 Agent : An agent is a person employed to do any act for another or to represent another
in dealings with third persons. Essentially, an agent is someone who has been given
authority to act on behalf of another person.
 Principal : The principal is the person who employs the agent and for whom the agent
acts. The principal is the person who delegates authority to the agent to act on their
behalf.

 Essentials of a Contract of Agency

1. Agreement : There must be an agreement between the principal and the agent. This
agreement can be express or implied.

2. Intention to Act on Behalf of Principal : The agent must intend to act on behalf of the
principal and not for themselves.

3. Competency of Principal : The principal must be competent to contract, meaning they

should be of legal age and sound mind.

4. Consideration : Although a contract of agency does not always require consideration, in

practice, it is often present. Consideration refers to the payment or compensation the agent
receives for their services.

5. Legal Purpose : The purpose of the agency must be lawful. Any illegal acts cannot form
the basis of a valid agency.

6. Control of Principal : The principal must have the right to control the actions of the
agent. This control can vary in degree depending on the nature of the agency relationship.

7. Consent of Both Parties : Both the principal and the agent must consent to the agency
relationship. The agent must agree to act on behalf of the principal, and the principal must
agree to have the agent act for them.

8. Good Faith : The agent must act in good faith and in the best interest of the principal,
avoiding conflicts of interest and disclosing any relevant information.

These essentials ensure that the agency relationship is clear, consensual, and legally
enforceable under the Indian Contract Act, 1872.

15. Explain the term "Holder in Due course".

The term "Holder in Due Course" is defined under the Negotiable Instruments Act, 1881. A
holder in due course is a person who has obtained a negotiable instrument (such as a cheque,
bill of exchange, or promissory note) in good faith and for value, and thus holds the
instrument free of any defects of title of prior parties. This person has certain rights and
privileges under the law.

 Essentials of a Holder in Due Course

1. Possession : The person must be in possession of the negotiable instrument.

2. Consideration : The holder must have given something valuable in exchange for the
instrument.

3. Good Faith : The instrument must be obtained in good faith and without any knowledge
of defects in the title of the person from whom it was obtained.

4. Maturity : The instrument must be complete and regular on its face and must not be
overdue.

5. Before Dishonor : The instrument must be acquired before it is overdue and without
notice of previous dishonor if any.

 Rights and powers of a “Holder in Due Course”.

The rights and powers of a "Holder in Due Course" (HDC) under the Negotiable
Instruments Act are significant, providing them with strong legal protections. Here are the
main rights and powers:

1. Right to Sue : The HDC can sue on the insstrument in their own name.
2. Free from Defects : The HDC holds the instrument free from any defects of title of
prior parties. This means they are not affected by any issues or problems that previous
holders might have had with the instrument.

3. Better Title : The HDC has a better title to the instrument than the person from whom
they obtained it.

4. Free from Defenses : The HDC is not affected by certain defenses that could be used by
previous parties. For example, if the instrument was originally obtained by fraud, this
defense cannot be used against an HDC.

5. Right to Payment : The HDC has the right to receive payment of the instrument when it
is due.

6. Holder in Due Course’s Rights in Case of Incomplete or Irregular Instruments :

Even if the instrument was incomplete or irregular when originally issued, an HDC can
enforce it as if it had been completed or issued properly.

These rights and powers ensure that an HDC can confidently use and enforce the
negotiable instrument, providing stability and trust in commercial transactions.

14.What do you understand by term Negotiable

Instruments?
Negotiable Instruments are written documents that guarantee the payment of a specific
amount of money, either on demand or at a set time, with the name of the payee specified.
These instruments are transferable by endorsement or delivery, meaning they can be passed
from one person to another, and the person who receives it gets the right to the payment.

Types of Negotiable Instruments

1. Promissory Notes: A written promise by one person to pay another a definite sum of
money either on demand or at a future date.

2. Bills of Exchange: A written order from one person to another to pay a certain sum to
a third person on demand or at a future date.

3. Cheques: A written order directing a bank to pay a specific amount of money from the
drawer's account to the person named on the cheque.

 What are it's special Characteristics?

Negotiable instruments have several special characteristics that make them unique and useful
in financial transactions:

1. Transferability: They can be easily transferred from one person to another, often just
by signing them or delivering them.

2. Unconditional Promise or Order: They contain an unconditional promise or order to

pay a specific amount of money.

3. Payable on Demand or at a Future Date: They specify when the payment is to be

made, either immediately (on demand) or at a later date.

4. Holder's Rights: The person who holds the instrument (the holder) has the right to
receive the payment specified in the document.

5. Negotiability: They can be transferred to others, and the new holder usually has the
same rights as the original holder, even if there were issues with the original
transaction.

6. Simplicity: They are straightforward and easy to use for transferring money, as they
don't require complicated procedures or legal formalities.

These characteristics make negotiable instruments a convenient and secure way to conduct
financial transactions and manage payments.
10. What is the meaning of the registration of a firm?
Persons who have entered into a partnership with one another are called individually
‘Partners’ and collectively ‘A firm’ and the name under which their business is carried on is
called the firm name.Under the Indian Partnership Act, 1932, the registration of a firm refers
to the formal process of recording the firm with the Registrar of Firms. This registration
process provides the firm with legal recognition and confers certain rights and benefits.

Key Aspects of Firm Registration Under the Indian Partnership Act

1. Legal Status : Registration gives the firm a legal identity, allowing it to operate as a legal
entity.

2. Contractual Rights : A registered firm can enter into and enforce contracts in its own
name. It can sue or be sued in its own name, which is not possible for an unregistered firm.

3. Public Record : The registration creates a public record of the firm’s existence, which
provides transparency and helps in verifying the firm's authenticity.

4. Legal Benefits : Registered firms enjoy certain legal benefits, such as the ability to file
suits in court to enforce contractual rights, and eligibility to claim certain benefits and
incentives provided by the government.

5. Partnership Act Compliance : Registration is not mandatory but highly recommended.

Unregistered firms face limitations, such as being unable to enforce legal claims against third
parties in court and facing restrictions in claiming legal remedies.

In summary, while registration under the Indian Partnership Act is not compulsory, it
provides significant legal advantages and protections for the firm and its partners.

Is it compulsory in the State of Maharashtra?

In Maharashtra, as per the Indian Partnership Act, 1932, registration of a firm is not
compulsory. Firms can choose to register or not.

 What are the legal consequences of non-registration of a firm?

The non-registration of a firm under the Indian Partnership Act, 1932, has several legal
consequences:

1. Inability to Sue : An unregistered firm cannot file a suit to enforce any rights arising out
of a contract or to claim a legal remedy against third parties in court. This limitation makes it
challenging to resolve disputes through legal means.

2. Limited Legal Protection : The firm cannot use the legal system to address grievances or
enforce contracts against other parties.
3. No Legal Recognition : The firm does not have a formal legal status, which can affect its
ability to enter into contracts and engage in business activities that require legal recognition.

4. Restriction on Legal Remedies : Partners of an unregistered firm cannot file a suit

against each other for disputes related to the partnership agreement.

5. Difficulty in Raising Capital : Without registration, it might be harder to obtain loans or

financial support from banks and financial institutions, as registration often enhances
credibility.

6. Challenges in Changing Structure : If the firm wishes to convert to a different legal

structure, such as an LLP or company, registration helps facilitate the process.

8. What is meant by delivery of goods?

In a legal context, "delivery of goods" refers to the act of transferring possession of goods
from the seller to the buyer. It can involve physically handing over the goods, shipping them,
or otherwise making them available to the buyer as specified in a contract. The specific terms
of delivery, like the time and place, are usually outlined in the contract between the parties
involved.

Modes of Delivery of Goods

"Modes of Delivery of goods Delivery of goods may be made in any of the following
three ways:

1. Actual Delivery: Also known as physical delivery, actual delivery takes place when
the goods are physically handed over by the seller or his/her authorized agent to the buyer
or his/her agent authorized to take possession of the goods.

For example, A, the seller of a car hands it over to B, the buyer; it is a case of actual
delivery of the goods.

2. Symbolic Delivery: Where the goods are bulky and heavy and it is not possible to
physically hand them over to the buyer, delivery thereof may be made by indicating or
giving a symbol. Here the goods itself are not delivered, but the means of obtaining
possession of goods is delivered.

For example, delivering the keys of the warehouse where the goods are stored, or the
keys of a purchased car to its buyer, bill of lading which will entitle the holder to receive
the goods on arrival of the ship."

3. Constructive Delivery: In this case neither physical nor symbolic delivery is made. In
constructive delivery the individual possessing the products recognizes that he holds the
 merchandise for the benefit of, and at the disposal of the purchaser. Constructive delivery
is also called attornment."

For example: A person holding goods on behalf of the buyer.

Delivery of Goods
|
-----------------------------------------------------------------------------------------
| | |

Actual Delivery Symbolic Delivery Constructive Delivery

| | |
Physically handed over Symbol representing Holder recognizes goods
to the buyer the goods (e.g., keys) are for the buyer's benefit

 Rules Governing Delivery.

The delivery of goods is governed by several key rules and principles, typically outlined
in commercial law and contracts. Here are the main rules:

1. Conformity with Contract :The delivery must conform to the contract's terms regarding
quantity, quality, and description.

2. Timeliness : Delivery should be made within the agreed timeframe or, if not specified,
within a reasonable time.

3. Place of Delivery :The delivery must be made to the location agreed upon in the contract.
If not specified, it is generally made at the seller’s place of business or residence.

4. Mode of Delivery : The method of delivery should align with the contract terms or be
reasonable under the circumstances.

5. Risk Transfer : Risk of loss or damage typically transfers from the seller to the buyer
upon delivery, unless otherwise specified.

6. Notification : The seller must notify the buyer when the goods are available for delivery
or have been shipped, particularly if further action is required from the buyer.

7. Acceptance : Delivery is considered complete when the buyer accepts the goods, either
explicitly or implicitly by their actions.
7.Distinguish between condition and warranty?

 What are the implied conditions and implied warranties?

Implied conditions and implied warranties are terms not explicitly stated in a contract
but are assumed to be part of the agreement based on law or custom.

Implied Conditions

1. Condition of Title: The seller must actually own the goods and have the right to sell
them.

2. Condition of Description: The goods must match the description given by the seller.

3. Condition of Quality or Fitness: The goods should be of good quality and suitable
for the purpose you told the seller about.

4. Condition of Merchantability: The goods should be of average quality and fit for
regular use.

Implied Warranties

1. Warranty of Fitness for Purpose: If you tell the seller what you need the goods for,
they should work for that purpose.

2. Warranty of Merchantability: The goods should be of a reasonable standard and

work as expected.

3. Warranty of Title: The seller guarantees they own the goods and there are no hidden
claims against them.

Implied conditions are important terms that let you cancel the contract if not met. Implied
warranties are extra protections that let you claim damages if the goods aren’t up to standard
but don’t usually let you cancel the contract.
When can breach of a condition be treated as breach of
warranty?
A breach of a condition can be treated as a breach of a warranty when:

1. Agreed Waiver: If the seller and buyer agree to treat a condition as a warranty.

2. Contractual Provisions: If the contract specifically states that certain conditions are
actually warranties.

3. Minor Impact: If the breach of the condition doesn’t seriously affect the contract's
main purpose.

4. Acceptance: If the buyer accepts the goods despite the breach and continues with the
contract.
6. What is the meaning of contract of agency?
A “contract of agency” is an agreement where one person (the agent) is authorized to
act on behalf of another person (the principal) in business or legal matters. The agent
makes decisions and handles tasks for the principal, who is bound by the agent's actions
as long as they are within the agreed authority.

For example, if you hire someone to buy a house for you, that person is acting as your
agent.

 Discuss in details the various modes of creation

of an agency.
Primarily, there are 4 methods, by which an agency can be created:

1. Agency by Express agreement,

2. Agency by Implied authority,

3. Agency by Operation of law, and

4. Agency by Ratification.

The various modes of creating an agency:

1. Agency by Express Agreement (Direct Agency): Created when the principal clearly
appoints the agent through words or writing, and the agent agrees.

Example: A tells B to act on his behalf for a specific task, and B agrees.

2. Agency by Implied Authority: Arises from the situation or regular practices, even if
not directly stated.
 Example: B manages A's shop and regularly orders supplies; B has implied authority to
do so.

3. Agency by Necessity: Created in urgent situations where it’s impossible to contact the
principal and action is needed.

Example: A’s truck with perishable goods crashes; A’s agent sells the goods to prevent
loss.

4. Agency by Estoppel: Arises when someone’s actions or statements lead others to

believe someone is their agent, and the principal doesn’t correct it.

Example: A tells T that B is A’s agent; if T deals with B, A must honor the deal even if
B wasn’t actually authorized.
5. Agency by Operation of Law: Created by law without a formal agreement. For
example, partners in a business automatically act as agents for each other.

Example: In a partnership, all partners act as agents for the firm.

6. Agency by Ratification: Occurs when the principal approves actions taken by

someone who acted without authority. The principal then treats those actions as
authorized.

Example: A buys goods for B without permission; B later approves the purchase,
making it binding.

These methods cover how an agency relationship can be established in different scenarios.

5. Who is the finder of goods?

A “finder of goods” is someone who comes across and takes possession of lost property or
goods that belong to someone else. The finder’s role is to hold onto the goods and make
reasonable efforts to return them to the rightful owner.

Key Points About a Finder of Goods:

1. Possession : The finder must physically take possession of the lost goods.

2. Reasonable Care : The finder is expected to take reasonable care of the goods while they
are in their possession.

3. Duty to Return : The finder should make efforts to locate and return the goods to the
original owner. This often involves reporting the find to the authorities or posting notices in
relevant places.

4. Legal Framework : The rights and duties of a finder of goods are often governed by local
laws and regulations, which vary by jurisdiction.
 State briefly his rights and obligations?
Rights of a Finder of Goods under the Indian Contract Act

1. Right of Lien (Section 168): The finder cannot claim extra money for the trouble or
expenses incurred while taking care of the goods.

Example: If a finder spends money on storing the items, they can't sue the owner for those
costs.

2. Right to Sue for Specific Reward : The finder cannot sue the owner for trouble or
expenses related to preserving the goods unless there was a specific reward promised.

Example : If the owner didn’t promise a reward, the finder can’t demand payment for their
efforts.

3. Right to Sell the Goods (Section 169) : If the lost item is something commonly sold and
the owner can’t be found or doesn’t pay the finder’s reasonable charges, the finder can sell it.

Duties of the Finder of Goods

1. Duty to Take Care: According to Section 151 of the Indian Contract Act, 1872, must
look after the goods as carefully as if they were their own.

2. Duty Not to Misuse: According to Section 154 of Indian Contract Act,1872, he cannot
use the goods in an unauthorized way. If they do, they must compensate the owner.

3. Duty Not to Mix: According to Sections 155, 156, and 157 states that the finder of goods
should not mix the found goods with their own. If mixed, they must share the combined
goods proportionally.

4. Duty to Return the Goods: According to Section 160 of the Act, he must return the
goods to the rightful owner.

5. Duty to Return Profits: According to Section 163 of Indian Contract Act, 1872, if the
finder makes a profit from the goods, they must return that profit to the owner.

What is the nature of lien the finder has over the goods?

Under the Indian Contract Act, 1872, the lien of a finder of goods has specific
characteristics:

1. Right to Retain the Goods:

 According to section 168 of the Indian Contract Act,1872, the finder has the right to
keep the goods until they are compensated for the reasonable expenses incurred in
taking care of them.

2. No Right to Claim Extra Compensation:

According to section 168 of the Indian Contract Act,1872, the finder cannot claim
additional compensation beyond the reasonable expenses for maintaining the goods.

3. No Right to Sell the Goods:

According to section 169 of the Indian Contract Act,1872, the lien does not
automatically grant the right to sell the goods. However, if the goods are perishable or
if the storage charges amount to two-thirds of the original value, the finder may sell
them under specific conditions.

4. Limited to Expenses:

According to section 168 of the Indian Contract Act,1872, the lien is strictly for
covering the expenses related to the care of the goods, not for personal inconvenience
or other costs.

The lien of a finder of goods under the Indian Contract Act allows them to keep the goods
until compensated for reasonable expenses but does not provide rights to additional
compensation or to sell the goods unless certain conditions are met.

9. Explain the provisions regarding admission of a

new partner and expulsion of a partner.
Admission of a New Partner
1. Agreement : To admit a new partner, all existing partners must agree. This usually
requires a formal decision or amendment to the partnership agreement.

Example : If three people are running a business and want to bring in a fourth person, all
three must agree to this change.

2. Changes in the Partnership Deed : The partnership deed (agreement) may need to be
updated to include the new partner’s share of profits, responsibilities, and other terms.

Example : The new partner’s role and profit share should be clearly defined in the updated
deed.

3. Registration : In some cases, the partnership needs to be registered with relevant

authorities to reflect the new partner officially.

Example : Updating the partnership’s registration with the business registry.

Expulsion of a Partner
1. Grounds for Expulsion : A partner can be expelled based on the terms set in the
partnership agreement. Common reasons include misconduct, inability to perform duties, or
financial problems.

Example: If a partner consistently fails to contribute their share of work or money, they
might be expelled.

2. Agreement or Resolution : The expulsion usually requires a majority decision by the

other partners, as specified in the partnership deed or agreement.

Example : If the partnership agreement says that a majority vote is needed for expulsion,
then more than half of the partners must agree to expel someone.

3. Legal Procedures : After expulsion, the partner’s share of the business must be settled,
including any financial compensation or adjustments.

Example : The expelled partner should be paid for their share of the business according to
the terms agreed upon.

In summary, admitting a new partner requires agreement from all current partners and
updating the partnership deed, while expelling a partner usually involves following the terms
of the partnership agreement and may require a majority vote.

Also briefly narrate the liability of an out-going partner

towards other partners, the firm and third persons, after
ceasing to be a partner of that firm?
Liability of an Outgoing Partner (Under Indian Partnership Act)

1. Liability to the Firm : An outgoing partner remains liable for any obligations or debts
incurred by the firm before they left. They are also responsible for any liabilities that arise
during the time they were a partner, even if the partner has left the firm.

Example : If a partner leaves the firm and a debt from before their departure becomes
due, the outgoing partner may still be responsible for it.

2. Liability to Other Partners : The outgoing partner must settle their accounts with the
other partners. This includes paying any amounts owed to the firm or receiving their share
of the firm's assets.

Example : If the outgoing partner has outstanding dues to the firm or needs to receive a
share of the profits or assets, this must be resolved.
3. Liability to Third Persons : The outgoing partner is generally not liable for new
obligations or debts incurred by the firm after their departure. However, they may still be
held liable for obligations that arose while they were still a partner, especially if the third
parties were not notified of their departure.

Example : If a supplier was not informed that the partner had left, the outgoing partner
might still be held responsible for any debts or issues related to transactions that occurred
before their departure.

So, an outgoing partner remains liable for debts and obligations from their time in the
firm, must settle accounts with remaining partners, and may be liable to third parties for
issues related to their period of partnership if not properly notified of their departure.