Unit – 2 | unit 2 special contracts

BRF

Unit – 2

Special Contracts

Q1) What is agency? What are the characteristics of agency?

A1) An agency is a comprehensive word which is used to describe the relationship that arises where one person is employed by another in order to bring the latter into legal relations with a third person.

The terms ‘agent’ and ‘principal’ are contained in Section 182 of the Indian Contract Act, 1872. Accordingly, an agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is represented, is called the principal.

Characteristics of Agency

A contract of agency has all the essentials of a contract with some special features of its own. They are as follows:

The essential characteristic of an agency is that the agent can render the principal answerable to the third-party.

The relationship of agency being based on confidence between the principal and agent, no consideration is necessary.

The principal must delegate the power to the agent to act on his behalf.

Principal must be a person capable of entering into a valid contract.

Agent may be a minor also.

The object of appointment must be to establish relationship between principal and third parties.

Q2) What is the difference between agent and servant?

A2) Difference between Agent and Servant:

An agent creates legal relations with third party. But the servant does not create any legal relations between the employer and the third persons.

A principal has a right to direct agent for a particular work. But master of a servant has a right to direct and say how to do the work.

A principal is liable for the wrongs of his agent done within the scope of his authority. A master is liable for the wrongs of the servant which are done during the employment.

An agent is paid commission whereas servants are paid salary.

An agent may work for several principals at the same time, but servant usually services only one master at a time.

Q3) Classify agents.

A3) Classification of agents

A. Classification according to extent of authority:

Specific agent: A special agent is one who is appointed to perform a particular act or to represent his principal in some particular transaction. For example, an Auctioneer.

General agent: A general agent is one who has authority to do all acts conducted with a particular trade, business or employment. For example, the manager of a firm.

Universal agent: - A universal agent is one whose authority is unlimited. He has authority to do all acts which the principal can lawfully do and can delegate.

B. Classification according to nature of work:

Commercial or mercantile agent: A mercantile agent is one who has the authority either to sell or to buy goods or to raise money on the security of goods. The various kinds of mercantile agents are as follows:

Factor: An agent entrusted with the goods for the purpose of selling them is known as factor. He enjoys discretionary power in relation to the sale of goods and also to pledge the goods.

Broker: A broker is an agent who is employed to buy or sell goods on behalf of another. He is not entrusted with the possession of goods in which he deals and cannot act or sue in his own name and also has no right of lien.

Commission agent: He is an agent who buys or sells goods for the principal on the best possible terms in his own name and who receives commission for his labour. He may or may not have possession of the goods.

Auctioneer: - An auctioneer is one who is authorized to sell the goods of his principal by public auction. He keeps goods in his possession. He always auctions goods in his double capacity, i.e., up to the sale, he is an agent of the seller and after the sale, he is the agent of the buyer.

Del credre agent: A del credre agent is one who, in consideration of an extra commission, guarantees his principal that the persons with whom he enters into contract on behalf of the principal shall perform their obligation.

Q4) What are the different Modes of Creation of Agency?

A4) An agency may be created in different ways. It need not be created expressly. It is created from circumstances and conduct of the parties.

1. Agency by express bond: A contract between the principal and agent may be created by an express bond.

2. Agency by implied bond: Implied agency comes from the accomplishment, conditions or bond of parties. Implied agency may be of following types:

(a)Agency by estoppel: In many cases an agency may be implied from the conduct of the party, though no express authority has been given. Where the principal knowingly permits a person to act in a certain business on his behalf, such principal is stopped from denying the authority of the agent.

(b)Agency by holding out: This agency is based on the ‘doctrine of holding out’ which is a part of the law of estoppels. In this case also the alleged principal is bound by the acts of the supposed agent, if he has induced third parties to believe that they are done with his authority. But unlike an ‘agency by estoppel’, this kind of agency requires some positive act or conduct by the principal to establish agency subsequently.

(c)Agency by necessity: In certain urgent circumstances, the law confers an authority on a person to act as an agent for the benefit of another, there being no opportunity of communicating with the other. Such agency is called an ‘agency of necessity’.

3. Agency by Ratification: Ratification means subsequent adoption and acceptance of an act originally done without instruction or authority. Thus, where a principal affirms or adopts the unauthorized act of his agent, he is said to have ratified that act and there comes into existence an agency by ratification.

4. Agency by operation law: Sometimes an agency arises by operation of law. For example, partners of firm, promoters of a company.

Q5) Discuss the Duties of an Agent.

A5) Duties of an Agent

To act according to principal’s directions: It is the duty of the agent to act according to the directions given by his principal. If the agent does not act according to the principal and the principal suffers losses, the agent is liable for such loss. And the agent must account for all profits arising in the general course of the business of the principal.

To act with reasonable skill and diligence: An agent must perform his duties with reasonable care and diligence.

Duty to render accounts: An agent must render all accounts prepared by him supported with vouchers to his principal.

Duty to communicate: An agent must communicate to his principal and obtain necessary instructions whenever he is acting on behalf of the principal. When communication is impossible, the agent must act in the interest of the principal.

Duty not to deal on his own account: The agent cannot deal on his own account without the consent of the principal and if he does so, the principal can terminate the transaction.

Duty not to use any information against the principal: The agent must not use any information obtained in the course of the agency against the interest of the principal.

Not to set up adverse title: Agent has no rights to transfer ownership rights of goods of the principal to anyone, including himself, without the consent of the principal.

Duty not to delegate: An agent cannot employ a sub-agent to get the work done. The contract of agency is based on fiduciary relationship between the principal and the agent and thus the agent cannot further delegate the trust reposed on him by the principal.

Duty to protect interest: If the principal dies, becomes insolvent or lunatic, the agent must act on his behalf and preserve the interests of the principal.

Q6) Discuss Rights of an agent

A6) Rights of an agent

Right to remuneration: An agent working gratuitously (without reward) cannot later demand remuneration for his services. In other cases, the agent has the right to get the agreed remuneration or reasonable remuneration if not agreed.

Right of retainer: The agent may retain all money, property or documents of the principal, which are in his possession, until his claims are satisfied.

Right of lien: The agent may retain possession of goods, property, documents or accounts of principal until all his remuneration, commission or lawful expenses are paid by the principal.

Right to be indemnified for lawful acts: The agent must be indemnified by the principal for the lawful acts done by him, within the scope of his authority, for his principal.

Right to be indemnified for acts done in good faith: When an agent does something in good faith (except criminal acts) for the principal and the act causes injury to the rights of the third person, then the agent is still indemnified for such acts by the principal.

Right to compensation: Where due to the negligence of the principal, the agent suffered any loss, the agent must be compensated for such loss by the principal.

Q7) What are the rights and duties of the principal?

A7) Rights of the Principal

The duties of the agent are the rights of the principal, such as:

To ask for all accounts.

To seek damages for loss suffered due to agent’s neglect.

To demand all money received by agent on his account.

To demand all secret profit from agent, if any.

Right to injunction from court for restraining the agent to use any information against the principal.

Right to be indemnified for setting an adverse title to the goods.

Duties of Principal

The duties of the principal are the rights of the agent, such as:

Duty to pay remuneration to the agent.

Duty to indemnify the agent for lawful acts.

Duty to indemnify the agent for acts done in good faith, except criminal acts.

Duty to compensate the agent for loss suffered by him due to the principal’s negligence.

Q8) What are the Liabilities of the principal and agent towards third parties?

A8) A. When agent is acting for a named principal: When the third party knows the name, identity and existence of the principal and that the agent is working for the principal, that principal is called named principal and his liabilities are as follows:

Agent working within the scope of his authority: The principal is liable for all lawful acts of the agent done within the scope of his authority.

Agent exceeding his authority: If the agent works beyond the limit of his authority and such act can be separated from the authorized act, then the principal is liable only for the authorized act. However, if such act cannot be separated from the authorized act, the principal may repudiate or terminate the whole transaction.

Principal is bound by notice given to the agent: A notice served to the agent in normal course of business conducted by him as authorized by the principal shall be presumed to be served on the principal and shall be binding on him.

B. When agent is acting for unnamed principal: Where the agent does not disclose the name of his principal to the third party, such principal is known as unnamed principal and is liable for all lawful acts of the agent.

C. When agent is acting for an undisclosed principal: Where a third party enters into a contract with the agent without knowing that he is merely an agent of some principal, then the agent will be personally liable to the third party. The principal may intervene any time and demand the third party to perform.

Liability of agent towards third party

An agent working in good faith, on behalf of the principal, and disclosing that he is merely an agent, cannot be held liable towards third parties. However, the agent is liable for any criminal acts done by him.

Q9) Write a note on Termination of agency.

A9) According to Sec. 201, the various modes of termination of agency are as follows:

1. Termination of the agency by an act of the parties:

(a) Agreement: The relation of principal and agent, like any other agreement, may be terminated at any time and at any state by the mutual agreement between the principal and agent.

(b) Revocation by the principal: A principal has an authority to terminate the agency at any time before the agent has exercised his authority, so as to bind the principal unless the agency is irrevocable.

(c) Revocation by the agent: An agency may also be terminated by the agent after giving a reasonable notice to the principal.

2. Termination of organization by operation of law:

(a) Performance of the contract: The most obvious mode of terminating the agency is to do what the agent has undertaken to do. An agency is terminated when the object of the appointment of agent is accomplished.

(b) Death and insanity: When the agent or the principal dies or become insane, the agency is terminated.

(c) Destruction of subject matter: An agency which is created to deal with a certain subject matter comes to an end by the destruction of the subject matter.

(d) Principal becoming an alien enemy: When the agent and the principal are alien enemies, the contract of agency is void until the countries of the principal and the agent are at peace. If war breaks out between the two countries, the contracts of agency are terminated.

(e) Termination of sub-agents’ authority: The termination of an agent’s authority puts an end to the sub-agent’s authority.

(f) Dissolution of a company: If the principal or agent is an incorporated company, the agency automatically ceases to exist on dissolution of the company.

(g) Termination by subsequent impossibility: When the implication of an agency becomes unlawful due to subsequent change of law, the agency automatically gets terminated.

Q10) What is Bailment?

A10) Meaning of Bailment

The word ‘bailment’ is derived from the French word ‘bailer’ meaning ‘deliver’. A bailment is the delivery of commodities by an individual to another for specific purpose, on the condition that after the purpose is accomplished, the commodities have to be returned. Common examples of bailment are- hiring of commodities, furniture, or cycle etc. delivering of cloth to a tailor for making suit, delivering of car or scooter for maintenance, depositing luggage etc.

According to Section 148 of the Indian Contract Act, a bailment is the delivery of commodities by one individual to another for some purpose, upon a contract, that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the direction of the person delivering them. The person delivering the goods is called the ‘Bailor’ and the one to whom they are delivered is called the ‘Bailee’. The transaction is called ‘bailment’. Bailment involves change of possession & not transfer of ownership.

Q11) What are the Characteristics of Bailment?

A11) Characteristics of Bailment

Contract: A bailment is formed by a contract between the bailor and the bailee. The agreement may be express or implied.

Delivery of commodities/possession: A bailment involves delivery of commodities from one person to another. Delivery includes only change in possession of the commodities and not the ownership. Delivery or possession may be actual or constructive.

For some specific purpose: The delivery of the commodities from the bailor to the bailee must be for some specific purpose. Delivery by mistake to a person is not a bailment.

Return of specific commodities: After completion of the purpose, the commodities are returned or disposed of according to the directions of the bailor. If the commodities are not to be returned, there is no bailment.

Bailment is concerned only with commodities: According to Sec. 2 (1) of the Sale of Commodities Act, 1930, commodity means every kind of moveable property other than money and actionable claims. Bailment is concerned only with commodities.

Ownership: - In bailment, bailor continues to be the owner even if the commodities are in possession of the bailee.

Q12) What are the rights and duties of a bailor?

A12) Rights of Bailor

The rights enjoyed by the bailor are:

Enforcement of bailee’s duties: The duties of the bailee are the rights of the bailor.

Right to terminate bailment: The bailor has the right to terminate the bailment if the bailee does any act which is inconsistent with the terms of the bailment.

Right to demand return of goods: When the goods are lent without reward, the bailor can demand their return whenever he pleases even though he lent them for a specified purpose or time and the bailee is not guilty of wrongful use.

Duties of Bailor

The bailor has the following duties:

Duty to disclose faults in goods bailed: The bailor must disclose all the known faults in the goods and if he fails to do so, he will be liable for any damage resulting directly from facts.

Duty to repay necessary expenses in case of gratuitous bailment: When goods are delivered to any bailee without paying remuneration, it is the duty of the bailor to pay any extraordinary expenses incurred by the bailee in respect of such goods.

Duty to indemnify bailee: The bailor is bound to indemnify the bailee for any cost which the bailee may incur because of the defective title of the bailor for the goods bailed.

Duty to receive back the goods: It is the duty of the bailor to receive back the goods when the bailee returns them after the time of bailment has expired or the purpose of bailment has been accomplished. If the bailor refuses to take delivery, the bailee can claim compensation for all necessary expense of, and incidental to the safe custody.

Q13) What are the rights and duties of a bailee?

A13) Rights of Bailee

The rights enjoyed by a bailee are as follows:

1. Enforcement of bailor’s duties: The duties of the bailor are the rights of the bailee. Thus, the bailee has the right to-

Claim damages for loss arising from the undisclosed facts in the goods bailed.

Claim reimbursement for extraordinary expenses incurred in relation to the goods bailed.

Be indemnified for any loss suffered by reason of defective title of the bailor to the goods bailed.

To claim compensation for expenses incurred for the safe custody of the goods if the bailor has wrongfully refused to take delivery of them after the term of bailment is over.

2. Right to deliver goods to one of the several joint bailers: when goods have been bailed by several joint owners, the bailee has a right to deliver the goods to one of the several joint owners without the consent of all, in the absence of any agreement to the contrary.

3. Right to deliver goods, in good faith, to bailor: If the bailor has no title to the goods, and the bailee delivers them back to the bailor in good faith, the bailee is not responsible to the true owner in respect of such delivery.

4. Right of action against third party: if a third party wrongfully deprives bailee of the use or possession of the goods bailed, he has a right of action against such third party in the same manner as the true owner has against the third person.

5. Right of lien: The bailee has a right to claim his lawful charges and if they are not paid, he is given the right to retain the goods until the charges due in respect of them are paid.

Duties of Bailee

The bailee owes the following duties:

Duty to take reasonable care: The bailee must take reasonable care of the goods bailed to him, as if they were his own. If he does so, he will not liable for any loss, destruction or deterioration of the goods bailed.

Duty not to make unauthorized use of the goods: It is the duty of the bailee not to make any unauthorized use of the goods bailed to him.

Duty not to mix bailed goods with his own goods: It is the duty of the bailee not to mix the bailed goods with his own goods, without the consent of the bailor. If he does so, the bailee will have to bear the expenses incurred due to such mixture.

Duty to return the goods: It is the duty of the bailee to return the goods according to the bailor’s directions, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished.

Duty to deliver any accretion to the goods: It is the duty of the bailee to deliver to the bailor any natural increase or profit accruing from the goods bailed, unless there is a contract to the contrary.

Q14) How does termination of Bailment take place?

A14) A contract of bailment terminates under the following circumstances:

If the bailment is for a specific period, it terminates on the expiry of that period.

If the bailment is for a specific purpose, it terminates as soon as that purpose is fulfilled.

If the bailee does not act with regard to the goods bailed which is inconsistent with the terms of the bailment, the bailment may be terminated by the bailor even though the terms of bailment have not expired or the purpose of bailment has not been accomplished.

A gratuitous bailment can be terminated by the bailor at any time, even before the specified time or before the purpose is achieved, subject to the limitation that where such termination causes loss in excess of benefit actually derived by the bailee, the bailor must indemnify the bailee for the amount in which the loss occasioned exceeds the benefit derived.

A gratuitous bailment is terminated by the death of either of the parties.

Q15) Differentiate between sale and agreement to sell?

A15) (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another.

(2) A contract of sale may be absolute or conditional.

(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.

(4) An agreement to, sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

Q16) What are the provisions related to transfer of properties?

A16) Section 19. Property passes when intended to pass.

(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to he transferred.

(2) For the purpose of ascertaining the intention of the parties’ regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.

(3) Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer.

Section 20. Specific goods in a deliverable state.

Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed.

Section 21. Specific goods to be put into a deliverable state.

Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof.

Section 22. Specific goods in a deliverable state, when the seller has to do anything thereto in order to ascertain price.

Where there is a contract for the sale of specific goods in a deliverable state, but the seller is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof.

Section 23. Sale of unascertained goods and appropriation.

(1) Where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be express or implied, and may be given either before or after the appropriation is made.

Delivery to carrier- (2) Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract.

Section 24. Goods sent on approval or “on sale or return”.

When goods are delivered to the buyer on approval or "on sale or return" or other similar terms, the property therein passes to the buyer

(a) when he signifies his approval or acceptance to the seller or does any other act adopting the transaction;

(b) if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time.

Section 26. Risk prima facie passes with property.

Unless otherwise agreed, the goods remain at the seller's risk until the property therein is transferred to the buyer, but when the property therein is transferred to the buyer, the goods are at the buyer's risk whether delivery has been made or not:

Provided that, where delivery has been delayed through the fault of either buyer or seller, the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault:

Provided also that nothing in this section shall affect the duties or liabilities of either seller or buyer as a bailee of the goods of the other party.

Q17) Discuss the provisions relating to performance of contract of sale.

A17) Performance of contract of sale means delivery of goods by seller and acceptance of delivery of goods and payment for the same by buyer.

• Seller’s main duty:

Is to deliver the goods to the buyer

• Buyer’s main duty:

To accept the goods and pay the price to the seller as per the terms of the contract

The parties are free to provide any terms in their contract regarding time, place, delivery, payment of goods and so on. But if the parties are silent and no terms are mentioned in the contract then rules contained in the sale of goods act will be applicable.

Meaning of Delivery

Voluntary transfer of possession from one person to another

Types of Delivery:

1. Actual Delivery

It means actual physical delivery of the goods to the buyer or his authorized agent by the seller or his authorized agent.

2. Symbolic Delivery

When goods are not physically delivered but the means of obtaining possession of goods is delivered to buyer. Symbol is used for delivery.

Example: Handing over of keys of godown where goods are safely kept etc.

3. Constructive Delivery

Third party is involved in delivery. Seller don’t deliver the goods directly.

Example: Seller Warehouseman/ warehouse keeper Buyer

Rules relating to delivery of Goods:

1. Payment and delivery are concurrent (performed at the same time)

Payment and delivery are concurrent, which means both should be performed at the same time unless otherwise agreed.

Example: Cash sale (this is not applicable for credit sale)

2. Delivery may be actual, symbolic or constructive

3. Effect of part delivery

If the order placed is so big and delivery of goods takes place in parts so when buyer accepts the part delivery then that means, buyer is giving the acceptance to the whole delivery.

4. Buyer to apply for delivery

Buyer should ask the seller to deliver the goods.

5. Place of delivery

Place of delivery should be specified by the parties, in case when no agreement is there/ parties are silent about it then place of contract will be considered as place of delivery.

Example: If place of contract is factory, then place of delivery will also be considered as

factory.

6. Time for delivery of goods

Delivery should be done within specified time. If no time is specified then delivery should be completed within a reasonable time.

7. Goods in possession of third party

If goods are in possession of third party like warehouseman/ warehouse keeper then seller needs to acknowledge the sale to third person like warehouseman who will then deliver the goods to buyer.

8. Expenses of delivery

Seller will borne all the expenses to bring the product to deliverable state and for obtaining the delivery, buyer will borne all the expenses.

9. Delivery of wrong quantity- either short/ excess/ mixed delivery

a) Short Delivery

Received amount is less than the ordered quantity.

Example: Ordered 100 quantity from seller Received 90 quantity

In this case, buyer has below mentioned options:

i) Reject the goods

ii) Accept the goods- But if he accepts the goods so delivered then he is bound to pay for them at the contract price.

b) Excess Delivery

Received amount is more than the ordered quantity.

Example: Ordered 100 quantity from seller Received 110 quantity

In this case, buyer has below mentioned options:

i) Reject the whole goods

ii) Accept the whole goods

iii) Accept the contracted quantity of goods i.e., 100 and reject the rest i.e., 10

c) Mixed Delivery

It means goods delivered have the goods of different description as well then contracted for.

Example: Ordered 100 quantity from seller Received 50 quantity matches to the specified description during the contract and 50 quantity does not match with the description

In this case, buyer has below mentioned options:

i) Reject the whole goods

ii) Accept the contracted goods and reject the rest- If the buyer accepts the whole goods, then he can’t sue the seller for delivering the mixed goods

10. Instalment Deliveries

If parties agree to get the goods in instalments, then buyer is bound to accept the delivery thereof by instalments.

Parties are not bound to deliver the goods in instalments unless agreed.

11. Delivery to the carrier/ courier company

If seller gives the goods to carrier/ courier company to deliver the same to the buyer then that does not mean that goods are delivered to buyer, it will be considered in transit unless delivered to the buyer actually.

12. Buyer has the right to examine the goods

After examining, if buyer is satisfied then buyer can keep the goods.

After examining, if buyer is not satisfied then buyer can reject the goods.

Q18) Who is an unpaid seller and what are his rights?

A18) “Unpaid seller” defined.

(1) The seller of goods is deemed to be an "unpaid seller" within the meaning of this Act—

(a) when the whole of the price has not been paid or tendered;

(b) when a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise.

(2) In this Chapter, the term "seller" includes any person who is in the position of a seller, as, for instance, an agent of the seller to whom the bill of lading has been endorsed, or a consignor or agent who has himself paid, or is directly responsible for, the price.

Unpaid seller’s rights.

(1) Subject to the provisions of this Act and of any law for the time being in force, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law—

(a) a lien on the goods for the price while he is in possession of them;

(b) in case of the insolvency of the buyer a right of stopping the goods in transit after he has parted with the possession of them;

(2) Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of withholding delivery similar to and co-extensive with his rights of lien and stoppage in transit where the property has passed to the buyer.

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