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Contract II

Partnership and its kinds

“Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. 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”

Illustrations

  • X and Y purchase 100 bales of cotton that they agree to sell on their shared account. For the sale of such cotton, X and Y are partners. X and Y purchase 100 bales of cotton and agree to share. X and Y are not partners.
  • X agrees with Y, a goldsmith, to purchase and furnish gold to Y, to be processed, sold, and to share the profit or losses that result. X and Y are partners.

ESSENTIAL ELEMENTS TO CONSTITUTE PARTNERSHIP FIRM

  • Atleast 2 parties. Persons must be competent to enter into a contract. Parties may be natural or
    Artificial.
     Agreement between the parties. Agreement may be oral or in writing. It may be express or implied.
     Agreement must be to share the profits of the business;
     Business must be carried on by all or any of them acting for all.

Kinds of Partners

(i) Actual, Active or Ostensible Partner:

These are the ordinary types of partners who invest money into the business of the firm, actively participate in the functioning and management of the business and share its profits or losses. Section 12(a) lays down that “Subject to contract between the partners, every partner is entitled to take part in the conduct of the business of the firm”.Any partner who actively contributes to the operation of the company binds himself and the other partners with all actions taken in the normal course of partnership activity. Such a partner must publicly announce his departure from the company in order to release himself from responsibility for the actions of the other partners after his departure.

(ii) Sleeping or Dormant Partner

These partners contribute capital to the company’s operations and receive a cut of the earnings, but they are not involved in its operation or management. However, even then, they are still completely liable. The Act specifically states that every partner is responsible for any acts that the firm is bound by.
A sleeping partner may leave the company without disclosing their departure to the public. His responsibility for the firm’s actions is over shortly after retirement. Such a partner has no obligations, but he is allowed access to and a copy of the company’s books and financial records.

(iii) Nominal Partner

Some people simply lend their name to the company or business rather than making an investment or taking part in management. Though they are merely nominal partners, they are nevertheless responsible for all business decisions and actions. In contrast to a bed partner, they are perceived by outsiders as partners in the business even though they are not.

(iv) Partner in Profits Only

A partner who is entitled to a portion of a partnership firm’s earnings but is not required to contribute to its losses is referred to as a partner in profits only. Thus, the other partners may decide to admit someone to the partnership who has enough wealth but is unwilling to take risks. Despite his particular status, he is nonetheless accountable to third parties for all company actions, just like other parties.

(v) Sub-Partner

A subpartner is a third party with whom a partner has made a profit-sharing agreement in the business. Such a sub-partner is not liable for the firm’s debts and has no obligations or rights towards the business. He cannot use his actions to obligate the company or the other partners.

(vi) Partner by Estoppel or Holding Out

A person is prevented from later rejecting responsibility for the firm’s actions if their behavior leads others to believe they are partners in the business when they are not. Such a person is liable to all third parties and is referred to as a partner by estoppel.

Holding Out means “to represent”. Strangers, who hold themselves out or represent themselves to be partners in a firm, whereby they induce others to give credit to the partnership are called “Partners by Holding Out”.
In case of “Partnership by Estoppel”, the representation is made by partners about a stranger within his knowledge and hearing and he does not contradict it. He is then held liable as a partner.
Effects of Holding out
The Holding Out partner is now held individually and personally accountable for the firm’s actions. However, he does not join the company as a partner and has no claims or rights against it. He may be held accountable just like a partner in that firm if someone outside the company gave the impression that he was a partner. He could be held accountable for the full sum because the partners’ culpability is joint and several. However, he can collect the sum so paid from the firm’s partners, if they are solvent, under the subrogation doctrine as well as on the basis of a quasi-contract.

Difference Between Sub Agent and Substituted Agent

Meaning

When a person employs another person to do any act for himself or to represent him in dealing with third persons, it is called a ‘Contract of Agency’. The person who is so represented is called the ‘principal’ and the representative so employed is called the ‘agent (Sec. 182). The duty of the agent is to enter into legal relations on behalf of the principal with third parties. But, by doing so he himself does not become a party to the contract to the contract not does he incur any liability under that contract. Principal shall be responsible for all the acts of his agent provided they are not outside the scope of his authority.

Example: A of Calcutta has a shop in Delhi. B, the manager of the shop, has been ordering and purchasing goods from C for the purpose of the shop. The goods purchased were being regularly paid for but of the funds provided by A. B shall be considered to be an agent of A by his conduct.

Sub-Agent

A sub-agent is defined under Section 191 of the Indian Contract Act as an individual who is employed by and acts under the control of the original agent in the agency’s business. The original agent hires the sub-agent to work under their control and authority. The relationship between the original agent and the sub-agent is that of the principal and agent. The regulations governing the agency automatically apply to the relationship between the sub-agent and the agent. The sub-agent can create the same rights and liabilities for the original agent as the agent can create for the principal.

Substituted Agent

A substituted agent, as defined in Section 194 of the Indian Contract Act, 1872, refers to a person appointed by the original agent with the principal’s knowledge and consent to handle a specific part of the agency’s business. Two conditions must be met by the agent before appointing a substituted agent. 

Firstly, the principal must have given the original agent the authority, either explicitly or implicitly, to make such an appointment. Secondly, the original agent must have designated a person to act on behalf of the principal in that particular aspect of the agency’s business.

The appointment of a substituted agent by the original agent does not constitute a delegation of the principal’s duties by the original agent. Instead, it establishes a direct relationship between the principal and the person named by the original agent. In this case, privity is established between the principal and the person named by the original agent. 

Section 195 of the Indian Contract Act, 1872 addresses the agent’s duty in naming a substitute agent. This Section imposes a duty on the agent to exercise the same level of care that an ordinary reasonable person would exercise in a similar situation when selecting a substitute agent. If the agent exercises such care, they will not be held responsible to the principal for any negligence or actions of the substituted agent.

A instructs B, a merchant, to buy a ship for him. B employs a ship surveyor of good reputation to choose a ship for A. The surveyor makes the choice negligently and the ship turns out to be seaworthy and is lost. B is not, but the surveyor is, responsible to A. (a) A instructs B, a merchant, to buy a ship for him, B employs a ship –surveyor of good reputation to choose a ship for A. The surveyor makes the choice a negligently and the ship turns out to be seaworthy and is lost. B is not,
but the surveyor is, responsible to A.

DifferencesSub-AgentSubstituted Agent
Control & DirectionControlled by original agentControlled by principal directly
ResponsibilityResponsible to original agentResponsible directly to principal
Privity of ContractPrivity with original agentPrivity with principal
AppointmentAppointed by original agent based on business needs or trade customsAppointed by original agent with explicit or implied authority from principal
LiabilityLiable to original agent for acts or misconductControlled by the original agent
RemunerationPaid by original agentLiable to the principal for acts or breaches
Responsibility towards Third PartiesNo direct contractual relationship with principalDirect contractual relationship with principal

Nemo Dat Quod Non Habet

The process by which ownership goes from one party to the other is referred to as “Transfer of property as between seller and buyer” and is covered in Sections 16 through 19 of the Sale of Goods Act of 1979. Nemo dat quod non habet, literally meaning “no one can give what they do not have”, is a legal rule, sometimes called the nemo dat rule, that states that the purchase of a possession from someone who has no ownership right to it also . denies the purchaser any ownership title. The term “Transfer of Title” refers to a variety of circumstances in which a seller who lacks ownership or who has a faulty title grants good title to his buyer and so defeats the claim of the genuine owner or the holder of a superior title. This only occurs under unusual situations.

A transfer his property to B, further, A transfer the same property to C, following the rule of Nemo Dat Quod Non Habet, B will get the right from A , thus, currently , B has the rights and A has none, so A cannot transfer property to C. The current owner should be able to trace his rights back in time to prove his legitimate acquisition. In Nitin Gupta vs. State of Meghalaya and others, Supreme Court has set aside the release of the stolen vehicle to the buyer on the principle of Nemo dat quod non-habet.

Exceptions

The above stated general rule contained in section 27, as stated in the opening words of the section itself, is “subject to the provisions of this Act and of any other law for the time being in force.” Various exceptions to this rule have been mentioned in this Act and the Indian Contract Act and in those exceptional situations, the seller of the goods may not be having a good title to the goods, yet the buyer of the goods gets a good title to them. The exceptions are as follows:

  1. Sale under the implied authority of the owner, or transfer of title by estoppel (S. 27)
  2. Sale by a mercantile agent (proviso to S. 27)
  3. Sale by one of joint owners (S. 28)
  4. Sale by a person in possession under a voidable contract (S. 29)
  5. Sale by the seller in possession of goods, the property in which has passed to the buyer (S. 30(1))
  6. Sale by the buyer in possession of the goods before the property in them has passed to him (S. 30(2))
  7. Re-sale of the goods by an unpaid seller after he has exercised the right of lien or stoppage in transit (S. 54(3))
  8. Sale by finder of goods (S. 169, Indian Contract Act)
  9. Sale by a pawnee when the pawner makes a default in payment (S. 176, Indian Contract Act)
  1. Sale under the implied authority of the owner, or transfer of title by estoppel (S. 27)

Estoppel by representation happens when the true owner of the good gives the impression that the seller is the rightful owner of the goods, or at the very least has the authority to sell them, through his words or actions. Owner cannot later claim the item. In estoppel situations, the buyer receives a greater title than the seller. If the owner is present at the sale or helps with the transaction, the estoppel may be established in a number of ways: a)The owner is present during the sale; b) He assists the sale process. c) He allows the transfer of possession goods to another person; or d) He has participated or acted in inducing the buyer

2. Sale by a mercantile agent (proviso to S. 27)

For the application of this provision, the following conditions are to be satisfied.

    a)Seller is mercantile agent

    b) He got possession of goods or documents of title to the goods with the consent of the owner, and in his capacity as a mercantile agent

    c) While selling the goods he must have been acting the ordinary course of his business of a mercantile agent

    D) The buyer of the goods must have acted in good faith without having any notice that such mercantile agent did not have an authority to sell

    3. Sale by one of joint owners (S. 28)

    If one of many joint owners of goods has sole possession of them with the consent of the other joint owners, the property in the goods passes to anybody who purchases them in good faith from that joint owner without being informed of the fact that the seller lacks the right to sell. It should be noted that without this clause, the buyer would simply have received the co-owners’ titles and would have remained merely a co-owner with them. Therefore, the clause is an exception to the maxim that “no one can give what he has not got.” For example, the three brothers A, B, and C. They share ownership of a cow. B and C give A the task of taking care of the cow and depart with the cow. A gives D the cow. D buys honestly and for a fair price. D is given a respectable title.

      4. Sale by a person in possession under a voidable contract (S. 29)

      Sections 19 and 19-A of the Contract Act state that if a party’s assent was obtained through coercion, fraud, deception, or undue influence, that party has the right to dissolve the contract at their discretion. According to Section 29, if a person sells goods that they have obtained possession of as a result of a contract that is voidable under Sections 19 or 19-A of the Contract Act before the contract has been avoided by the party entitled to do so, the buyer of those goods will acquire a good title to them. However, it is important that such a buyer have done so in good faith and without knowledge of the seller’s title deficiency. Through false representation, A persuades B to sell and deliver a cow to him. Before B cancels the contract, A sells the cow to C. C buys the cow in good faith without being aware of the seller’s faulty title. C gains a respectable title.

      5. Sale by the seller in possession of goods, the property in which has passed to the buyer (S. 30(1))

      If a seller has sold the goods and the property in the goods has passed to the buyer, the seller cannot deal with such goods. The buyer may bring a conversion tort claim against him if he is still in possession of the goods and deals with them. However, according to Section 30 (1), if a seller who has sold the goods is still in possession of the goods or of the documents of title to them, the delivery or transfer of the goods or of the documents of title under any sale, pledge, or other disposition thereof by the seller or by a mercantile agent on his behalf will convey a good title to the buyer, provided the buyer has been acting in good faith and he is unaware of the prior sale.

      6. Sale by the buyer in possession of the goods before the property in them has passed to him (S. 30(2))

      a) The buyer must be in the possession of the goods.

      b) But the ownership is still with the seller

      c) The goods purchased by the second buyer must be done in a good faith.

      these conditions are to be fulfilled then

      7. Re-sale of the goods by an unpaid seller after he has exercised the right of lien or stoppage in transit (S. 54(3))

      Section 54 (2) states that a seller who has not been paid may resale the goods after giving notice to the buyer if he has used his right of lien or halt in transport and the buyer has not paid him. If such a notice is not provided, the seller will not be able to hold the buyer liable for any losses incurred should the products sell for less than the agreed-upon price or benefit from a higher price. However, the new buyer’s title is unaffected by the lack of such a notice. According to section 54 (3), when an unpaid seller has exercised his right of lien or stoppage in transit and resells the goods, the buyer acquires a good title
      thereto as against the original buyer, notwithstanding that no notice of the resale has been given to the original buyer.

      1. Sale by Finder of Goods-

      Indian Contract Act, Section 169 The Indian Contract’s section 71 states that the finder of the items is accountable in the same ways as the bailee. When the things are in his custody, he must take proper care of them and return them when the owner is located. However, in accordance with section 169 of the Indian Contract Act, the finder may sell the items if the owner cannot be located with reasonable diligence or if he refuses to pay the finder’s legal fees upon demand:

      a) When the thing is in danger of perishing or of losing the greater part of its value, or,
      b) When the lawful charges of the finder, in respect of the thing found, amount to two-thirds of its value.
      When the finder of goods sells them under the circumstances stated above, the buyer of such goods gets a good title to them.

      9. Sale by a pawnee when the pawner makes a default in payment (S. 176, Indian Contract Act)

      If the loan guaranteed by the commodities is repaid to the pawnee, he is typically required to return the goods. He may keep those items until the obligation, interest on the debt, and other required costs he spent for custody or preservation of the pledged items are paid to him. According to section 176, the pawnee may sell the goods pledged after giving the pawnor sufficient notice of the sale or sue the pawnor for the debt if the pawnor defaults on making the payment. The buyer of such things obtains a fair title to them upon such a sale being made by the pawnee.

      1. Sale in Market Overt
        English law recognizes an exception to the norm that states that when commodities are sold in an open market in accordance with custom, the buyer receives a good title to the items so long as he purchases them in good faith and without knowledge of any flaws or lack of title on the seller’s part.10 Such a sale refers to a public sale made by a person who frequently deals in such things. In such a deal, the buyer’s title is safeguarded even if the seller could be held accountable for the tort of conversion.

       Del Credere Agency/Agent

       A del credere agent only becomes liable to pay the principal after the buyer defaults on payment. If the principal (seller) is unable to collect for some other reason. A del credere agent is an agent who in consideration of an extra remuneration guarantees to his principal the performance of the contract by th other party. This commission is called del credere commission. He occupies the position of a guarantor as well as of an agent. A Del credere agent is appointed generally when the principal deals with person about whom he knows nothing.

      Example: A company hires a del credere agent to sell their products to retailers. The agent guarantees that the retailers will pay for the products on time, even if they sell them on credit to their customers. If a retailer fails to pay, the del credere agent is responsible for the payment. In return for this guarantee, the agent receives a higher commission for sales.

      Mr. X appoints Y to sell the goods in the market on the terms that Y has to undertake the guarantee of the credit, which is extended to the buyer, i.e., if the buyer makes any default in the payment of the money. The Y would be liable to the extent of that amount to Mr. X. Also, it was decided that Y would not be liable to Mr. X for any other issue apart from any default in making the payment.

      In the present case, there is the principal-agent relationship between Mr. X and Y as Mr. X appoints Y to sell the goods in the market on the condition that if any credit is extended to the buyer, then Y has to take responsibility for the same. If the buyer cannot repay the amount, then Y has to correct the default and pay the amount to Mr. X. Also, it was decided that Y would not be liable to Mr. X for any other issue apart from any default in making the payment. So, this is the case of the Del Credere Agency.

      Advantages of Del Credere Agency

      The different advantages related to the del credere agency are as follows:

      • From the seller’s perspective, the agent would be responsible for the seller up to the amount of the default amount if the buyer were to default in making a payment. Therefore, in the event of a buyer default payment, the seller will receive payment from the agent..
      • In the Del Credere agency, the agent is only responsible for the payment to the principal if the buyer fails to make the required payment; other problems that can develop between the buyer and seller are not covered by this responsibility. Therefore, the agent benefits from this.
      • In exchange for taking on the additional risk, the agent will receive additional compensation from the seller on top of the standard sum he would have received had he not taken on the additional risk. The del credere commission, which is the additional sales commission that makes up this additional payment, is often how it is received..

      Disadvantages of Del Credere Agency

      The disadvantages related to the del credere agency are as follows:

      • According to the seller, a Del Credere agency only makes the agent responsible for the payment to the principal if the buyer fails to make the required payment; any other problems between the buyer and seller are not covered by this responsibility. Therefore, the seller won’t be able to reclaim the money from the agent in the event that a dispute emerges between the buyer and seller.
      • Additionally, the seller must pay the agent an additional sum in addition to the standard fee, which he could have done if the agent hadn’t taken on the additional risk. Therefore, in situations where there hasn’t been a default, the seller is required to give the agent the additional commission

      Case Laws:

      In P. Krishna Bhatta v Mundila Ganpathi Bhatta AIR 1955 Mad 648, J. Ramaswami explained the concept as “where he said that in legal terms and phraseology, any person who acts for another cannot be called an agent. If such a thing happens, a servant rendering his services to his master; or a person tilling anothers field or a person working in somebody elses shop or factory would be considered as their agent.”

      In Syed Abdul Khader v Rami Reddy (1979) 2 SCC 601 the Supreme Court held that “the expression agency is used to connote the relation which exists where one person has an authority or capacity to create legal relations between a person occupying the position of principal and a third party”.

      Important Points about Del Credere Agency

      The different important points related to the del credere agency are as follows:

      In a Del Credere agency, the agent is only held responsible for the principal’s payment if the buyer fails to do so. In the event that any other problems develop between the buyer and the vendor, the same is not liable. Conflicts between the buyer and the seller are among the matters for which the agent will not be held responsible.

      The seller must pay the agent extra for taking on the extra risk in the form of insurance services; hence, the agent will get both the regular commission for sales and the additional commission for providing the insurance services. This additional payment typically takes the form of the Del Credere commission, which is an additional sales commission.

      The nature of the Del Credere agency is such that it puts the agent in the agency in the situation wherein he has the responsibility in connection with the seller and the buyer and of product or service under consideration.

      Conclusion

      As a result, in the case of the Del Credere Agency, there is a principal-agent relationship between the seller and the agent under the transaction, wherein the agent, in addition to acting as a salesperson on the seller’s behalf, also fulfills the role of an insurance company by taking on an additional risk in the event that the buyer defaults on the payment of the purchase price. To the extent of that sum, the agent would be accountable to the seller.

      The agent, however, is not responsible for any other problems that can emerge between the buyer and the seller and only becomes responsible for the payment to the principal if the buyer misses a payment deadline. Conflicts between the buyer and the seller are among the matters for which the agent will not be held responsible. Additionally, the seller must pay the agent an additional fee known as the Del Credere commission in exchange for the agent taking on the additional risk in the form of insurance services.

      Rights and Duties of an Agent

      In an agency agreement, the principal appoints an agent to carry out a particular duty or conduct business on his behalf. The principle is liable for the actions of his agent toward third parties because he is bound by such actions. Let’s now examine the obligations and rights of agents.

      Rights of Agents

      1. Right to Remuneration

      As per section 219, the associate agent incorporates a right to receive the in agreement remuneration or absence of agreement, an affordable remuneration for rendering the services to the principal that aren’t voluntary or gratuitous. He becomes eligible to receive the remuneration as shortly as he completes the work that he undertook.

      2. Lien on Goods

      Some agents who have the possession of products, securities, or properties of their principal even have a lien on this merchandise, securities, or properties relating to their remuneration and conjointly for any expenses or liabilities that they once associate unpaid merchant, he incorporates a right to prevent the products in transit.

      3. Right to be Indemnified

      An agent represents his principal to third parties. As per sections 222 and 223, the associate agent incorporates a right to be indemnified by his principal for all charges, expenses, and liabilities that he incurs throughout the agency.

      4. Right to Compensation

      In line with section 225 of the aforementioned Act, the associate agent is entitled to say compensation for the injuries suffered as a consequence or wish of the ability of the principal. The principal should create compensation to his agent in respect of injury caused to such agent by the principal’s neglect or wish of ability.

      Duties of Agents

      A principal incorporates a right to sue his agent for damages just in case of breach of duty by the agent. The duties of agents are:

      1. Duty to follow the directions of the Principal [S.211]- Regarding this duty of Agent S. 211 provides: An agent is bound to conduct the business of his principal according to the directions given by the principal, or, in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and if any profit accrues, he must account for it.

      For Example in Pannalal Jankidas v. Mohanlal, AIR [1951] Agent purchased some goods for his principal and stored the goods in a godwon. Agent was also under the instructions to insure the goods. But he failed to insure the goods. The goods were destroyed by fire. It was held that Agent was liable to compensate.

      1. To carry out his work with reasonable care and skills [S.212] – Regarding this duty of agent S.212 provides –An agent is bound to conduct the business of the agency with as much skill as is generally possessed by persons engaged in similar business unless the principal has notice of his want of skill. The agents always bound to act with reasonable diligence, and to use such skill as he possesses; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill, or misconduct.
        In State Bank of Indore v. National Textiles Corporation [2004] certain cheques were presented to Bank by customer Bank sent to the drawee for collection. The cheques were lost in transit. It was held that Bank was liable to the customer for the lost cheques.
      2. To render proper accounts to his principal [S.213]- Regarding this duty of Agent S. 213 provides that an agent is bound to render proper accounts to his principal on demand. In State of Tamilnadu v. S.A Chettiar (1988) the agent filed suit against
        principal for rendition of accounts the Madras High Court observed that u/s 213 of contract Act it is provided that the agent is bound to render proper accounts to his principal on demand but there is no provision in the contract Act which empower the agent to file a suit for accounts against the principal.
      3. To communicate with principal [S. 214]-Regarding this duty of agent S.214 provides that an agent is bound to render proper accounts to his principal on demand It is the duty of an agent, in cases of difficulty to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions.
        Thus agent is bound his principal’s directions when he faces difficulty although agent may at in good faith without communicating the principal in cases of emergency.
        For Example: Principal consigned hundred boxes of grapes to his agent at Allahabad and directed to send grapes immediately to Mrs. Sohan at Mumbai. When agent received the grapes in Mumbai he found that grapes could not bear
        the journey to Mumbai without spoiling. He sold grapes in Allahabad it was held that agent was not liable because he acted in good faith.
      4. Not to deal on his own accounts [S. 215 & S. 216]– Regarding this duty of agent S. 215 provides that an agent is bound to render proper accounts to his principal on demand If an agent deals on his own account in the business of the agency,
        without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows, either that any material fact has been dishonestly concealed from his by the agent, or that the dealings of the agent have been disadvantageous to him.
        Example: A directs B to sell A’s estate for himself in the name of C, A, on discovering that B has bought the estate for himself, may repudiate the sale, if he can show that B has dishonestly concealed any material fact, or that the sale has been
        disadvantageous to him.
      5. Duty to pay sum received for principal [S. 218]– Regarding this duty of agent S. 218 provides that an agent is bound to render proper accounts to his principal on demand.
      6. To protect the interest of principal [S.209]- Regarding this duty of agent S. 209 provides that when an agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take, on behalf of the representatives of his late principal, all reasonable steps for the protection and preservation of the interests entrusted to him.
      7. Not to delegate authority – In respect of this duty of agent an agent S. 190 provides that an agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may, or, from the nature of the agency, a sub-agent must, be employed.

      CONTRACT OF AGENCY

      When a person employs another person to do any act for himself or to represent him in dealing with third persons, it is called a ‘Contract of Agency’. The person who is so represented is called the ‘principal’ and the representative so employed is called the ‘agent (Sec. 182). The duty of the agent is to enter into legal relations on behalf of the principal with third parties. But, by doing so he himself does not become a party to the contract to the contract not does he incur any liability under that contract. Principal shall be responsible for all the acts of his agent provided they are not outside the scope of his authority.

      Competence of the parties to enter into a contract of agency

      The person employing the agent must himself have the legal capacity or be competent to do the act for which he employ the agent. A minor or a person with unsound mind cannot appoint an agent so as to be legally represented by him (Sec. 183). But an agent so appointed need not necessarily be competent to contact (Sec: 184) and hence minor or an insane can be appointed as an agent he can bring about legal relations between the principal and the third party but such an incompetent agent cannot personally be held liable to the principal.

      Creation of Agency: Agency may be created by any of the following ways:

      1. Expressly (Sec. 187)
        When an agent is appointed by words spoken or written, his authority is said to be express.
      2. Impliedly (Sec. 187)
        When agency arises from the conduct of the parties or inferred from the circumstances of the case, it is called implied agency.
        Example: A of Calcutta has a shop in Delhi. B, the manager of the shop, has been ordering and purchasing goods from C for the purpose of the shop. The goods purchased were being regularly paid for but of the funds provided by A. B shall be considered to be an agent of A by his conduct.

      CLASSIFICATION OF AGENTS

      A general classification of agents from the point of view of the extent of their authority is as follows
      1) Special agent. A special agent is one who is appointed to perform a particular act or to represent his principal in some particular transaction as, for example, an agent employed to sell a house or an agent employed to bid at an auction. Such an agent has a limited authority and as soon as the act is performed, his authority comes to an end. He cannot bind his principal in any matter other than that for which he is employed. The persons who deal with him are bound to ascertain the extent of his authority.
      2) General agent. A general agent is one who has authority to do all acts connected with a particular trade, business or employment. For example, the manager (general agent) of a firm has an implied authority to bind his principal by doing anything necessary for carrying on the business of the firm or which falls within the ordinary scope of the business. Such authority of the agent is continuous until it is put to an end. If the principal, by secret instructions, limits the authority of the general agent, and the agent exceeds the authority, the principal is bound by the agent’s acts done within the scope of his authority, unless the third parties dealing with the agent have a notice of the curtailment of the authority of the agent.
      3) Universal agent. A universal agent is one whose authority to act for the principal is unlimited. He has authority to bind his principal by any act which he does, provided that act (i) is legal, and (ii) is agreeable to the law of the land.,


      4)Another classification of agents from the point of view of the nature of work performed by them is as follows :

      1. Commercial or mercantile agent. A ‘mercantile agent’, according to Sec. 2 (9) of the Sale of Goods Act, 1930, means “a mercantile agent having in the customary course of business as such agent, authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods, or to raise money on the security of goods.” This definition does not cover all kinds of mercantile agents which are as follows:
        (1) Factor. A factor is a mercantile agent entrusted with the possession of goods for the purpose of selling them. He has ostensible authority to do such things as are usual in the conduct of business [Pickering v. Busk, (1812) 15 East 38). He sells the goods in his own name as an apparent owner upon such terms as he thinks fit. He can sell them on credit as well. He has also the authority to receive the price and give a good discharge to the purchaser.

      Example. P owned a motor car and delivered it to A, a mercantile agent, for sale at not less than £ 575. A sold the car for £ 340 to T, who bought it in good faith and without notice of any fraud. A misappropriated the £ 340 and F sued to recover the car from T. Held. as A was in possession of the car with P’s consent for the purposes of sale, T got a good title [Fakes v. King, (1923) 1 K.B. 2821.

      (2)Auctioneer. An auctioneer is an agent appointed by a seller to sell his goods by auction for a reward generally in the form of a commission. He is primarily the agent of the seller but after the sale has taken place. he becomes the agent of the purchaser also. He resembles factor in all respects except that he has only a particular lien on the goods for his charges. He has authority
      to receive the price of the goods sold. He can also sue for the price in his own name. The principal is liable to the third parties for the acts of the auctioneer if the auctioneer acts within the scope of his apparent authority even though he disobeys instructions privately given to him.
      Example. P instructed A to sell a pony by auction, subject to a reserve price of £ 25, A. at the time of sale inadvertently stated that there was no reserve price and knocked the pony down to T at £ 16. Held, the sale was binding on P [Rainbow v. Hawkins, (1904) 2 K.B. 322)

      (3)Broker. A broker is an agent who is employed to buy or sell goods on behalf of another. He is employed primarily to bring about a contractual relation between the principal and the third parties. He is not entrusted with the possession of the goods in which he deals. He, cannot act or sue in his own name. And as he has no possession, he has no right of lien.

      (4) Commission agent. A commission agent belongs to a somewhat indefinite class of agents. He is employed to buy and sell goods, or transact business generally for other persons receiving for his labour and trouble a money payment, called commission.
      (5) Del credere agent. A del credere agent is one who, in consideration of an extra commission, guarantees his principal that the person with whom he enters into contract on behalf of the principal, shall perform their obligations. He occupies the position of both a guarantor and an agent.
      Banker. The relationship between a banker and his customer is really that of debtor and creditor. But there is a super-added obligation on the part of the banker to pay when called upon to do so by the draft or order (in the form of a cheque) of the customer. To this extent, a banker is the agent of his customer.
      Non-mercantile agents. These include attorneys, solicitors, insurance agents, clearing and forwarding agents and wife, etc.

      SALE and AGREEMENT TO SELL

      Sale

      A contract of sale is a generic term and includes both an actual sale and an agreement to sell. Section 4 provides that if the property in goods is transferred from the seller to the buyer under a contract, the contract is called a sale.

      Agreement to sell

      Where the transfer of the property in the goods will take place at a future time or is subject to some condition that has to be fulfilled, the contract is called an agreement to sell. Such an agreement to sell becomes a sale when the prescribed time lapses or the conditions are fulfilled. An agreement to sell can be described as the transfer of ownership of items that will happen in the future or that may happen if certain requirements are met. Section 4 (3) When the allotted time has passed or the requirements for the transfer are met, an agreement to sell also becomes a sale. The terms and circumstances of the offer of a property by the seller to the buyer are therefore established through an agreement to sell.

      The price at which it will be sold and the expected payment date are included in these terms and conditions. It can also incorporate the idea of a contingent contract as defined by Section 31 of the Indian Contract Act of 1872. As a result, a contract to sell is a promise to act or not act in response to the occurrence or non-occurrence of a contingent event.

      Both parties must act together and abide by all the terms and conditions outlined in the sale agreement throughout the whole deal process, up until the creation or completion of the sale deed. As a result, the sale deed is written using an agreement to sell as its foundation. In other words, a sale agreement is a confirmation of a potential future development that could happen if the terms and conditions stipulated in the present are met.

      S.No.BasisSaleAgreement to Sell
      1.DefinitionIt can be defined as the transfer of ownership of the goods by the seller to the buyer in exchange for the monetary consideration paid or promised, or partly paid and partly promised.It can be defined as the transfer of title of ownership on a future date after satisfying certain conditions or contingent clauses.
      2.MeaningIn sale, the goods are transferred from the seller to the buyer immediately.In the agreement to sell, the property in the goods does not transfer immediately but at a future date specified in the agreement.
      3.Executed contract/Executory contractBoth the sale and the agreement to sell are contracts. A contract of sale is an executed contract, which means both parties have fully performed their obligations.An agreement to sell is an executed contract where the parties have not fully performed their obligations.
      4.Liable to sueIn both the sale and the agreement to sell, the seller can sue the buyer. In a contract of sale, the seller can sue the buyer for breaching the contract of sale.The seller can sue the buyer only for the damages, not the price.
      5.Sale taxSales are liable for the sales tax.An agreement to sell is not liable for the sales tax.
      6.Right to resaleIn a contract of sale, the seller has no right to resell the goods.In an agreement to sell, the seller has the right to resale the goods.
      7.Liability for damageIn both the sale and the agreement to sell, there is a liability for damages to goods. If the goods are destroyed, the loss should be borne by the buyer even though the goods are in the possession of the seller.If the goods are destroyed, the loss should be borne by the seller even though the goods are in the possession of the buyer.
      8.Right in rem/Right in personamThe Sale gives the right in rem, i.e. against the whole world.An agreement to sell gives the right in personam i.e., between the parties only.
      9.Right to recover the moneyIf the buyer refuses to pay, the unpaid seller may have the right to recover the money as provided under Section 46 of the Sale of Goods Act of 1930.If the buyer refuses to accept and pay, the seller may claim non-acceptance damages.
      10.ExamplesExample: Ram sold 12 bags of sugar to Ravi for a payment of Rs. 7,000.Example: Ram agrees to sell 12 bags of sugar to Ravi against a payment of Rs. 7,000 after getting the stock.

      Conclusion

      Hence, we conclude that when the seller agrees to sell the goods to the buyer at a future specified date or after the necessary conditions are fulfilled, then it is known as an agreement to sell, whereas when the seller sells goods to the customer for a price and the transfer of goods from the vendor to the customer takes place at the same time, then it is known as a sale. Also, we have seen various points of difference between the sale and the agreement to sell, apart from the period when the goods are delivered.

      Unpaid seller and his rights

      Meaning of an Unpaid Seller [Sec 45(1)(2)]
      The seller of goods is deemed to be an ‘unpaid seller’- When the whole of the price has not been paid or tendered
      When a bill of exchange or other negotiable instrument(such as cheque) has been received as conditional payment,and it has been dishonored[Section 45(1)]. The term ‘seller’includes any person who is in the position of a seller(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)

      Rights of an Unpaid Seller [Section 46-52,54-56,60-61]
      The rights of an unpaid seller can broadly be classified under the following two categories:
      1. Rights against the goods
      2. Rights against the buyer personally
      I Rights against the goods where the property in the goods has passed to the buyer
      a) Right of Lien [Section 47,48 and 49]
      Meaning of Right of Lein:
      The right of lien means the right to retain the possession of the goods until the full price is received.
      Three circumstance under which right of lien can be exercised[Section 47(1)]
      1.Where the goods have been sold without any stipulation to credit;
      2.Where the goods have been sold on credit,but the term of credit has expired;
      3.Where the buyer becomes insolvent.
      Other provisions regarding right of lien[Sections 47(2),48,49(2)]
      1.The seller may exercise his right of lien,even if he possesses the goods as agent or bailee for buyer[Section 47(2)]
      2.Where an unpaid seller has made part delivery of the goods,he may exercise his right of lien on the remainder,unless such part delivery has been made under such circumstances as to show agreement to waive the lien[Section 48].
      3.The seller may exercise his right of lien even though he has obtained a decree for the price of the goods[Section 49(2)].
      Circumstances under which right of lien in the following cases:
      1.When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods[Section 49(1)(a)].
      2.When the buyer or his agent lawfully obtains possession of the goods [Section 49(1)(b)]
      3.When the seller waives his right of lien[Section 49(1)(c)].
      4.When the buyer disposes of the goods by sale or in any other manner with the consent of the seller[Section 53(1)].
      5.Where document of title to goods has been issued or lawfully transferred to any person as buyer or owner of the goods and that person transfers the document by way of sale,to a person who takes the document in good faith and for consideration.[Proviso to Section 53(1)].
      b) Right of Stoppage of Goods in Transit
      The right of stoppage of goods means the right of stopping the goods while they are in transit,to regain possession and to retain them till the full price is paid. Conditions under which right of stoppage in transit can be exercised[Section 50]
      The unpaid seller can exercise the right of stoppage in transit only if the following conditions are fulfilled:
      1.The seller must have parted with the possession of goods,i.e. the goods must not be in the possession of seller.
      2.The goods must be in the course of transit.
      3.The buyer must have become insolvent.
      c)Right of Resale[Section 46(1) and 54]
      An unpaid seller can resell the goods under the following three circumstance:
      1.Where the goods are of a perishable nature 2.Where the seller expressly reserves
      a right of resale if the buyer commits a default in making payment.3.Where the unpaid seller who has exercised his right of lien or stoppage in transit gives a notice to the buyer about his intention to resell an buyer does not pay or tender within a reasonable time.

      Rights against the goods where the property in the goods has not passed to the buyer
      Right of withholding delivery[Section 46(2)]
      Where the property in the goods has not been passed to the buyer, the unpaid seller, cannot exercise right of lien, but get a right of withholding the delivery of goods, similar to and co-extensive with lien and stoppage in transit where the property has passed to the buyer.


      Rights of Unpaid Seller against the Buyer Personally
      The unpaid seller, in addition to his rights against the goods as discussed above, has the following three rights of action against the buyer personally:

      1. Suit for price (Sec. 55). Where property in goods has passed to the buyer; or where the sale price is payable ‘on a day certain’, although the property in goods has not passed; and the buyer wrongfully neglects or refuses to pay the price
        according to the terms of the contract, the seller is entitled to sue the buyer for price, irrespective of the delivery of goods. Where the goods have not been delivered, the seller would file a suit for price normally when the goods have been
        manufactured to some special order and thus are unsaleable otherwise.
      2. Suit for damages for non-acceptance (Sec. 56). Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance. The seller’s remedy in this case is a suit for damages
        rather than an action for the full price of the goods.
      3. Suit for Interest[Section 61(2)]
        In case of breach of the contract on the part of seller,the buyer may sue the seller for interest from the date on which the payment was made.

      Transfer of property in goods

      Meaning of Passing of Property/Transfer of Property.

      Passing of property implies transfer of ownership and not the physical possession of goods.For example,where a principal sends goods to his agent,he merely transfers the physical possession and not the ownership of goods.Here,the principal is the owner of the goods but is not having possession of goods and the agent is having possession of goods but us not the owner.
      Significance of Transfer of Property
      The time of transfer of ownership of goods decides various rights and liabilities of the seller and the buyer.Thus,it becomes very important to know the exact time of transfer of ownership of goods from seller to buyer to answer the following questions:

      1. Who shall bear the risk?
        It is the owner who has to bear the risk and not the person who merely has the possession.
      2. Who can take action against third party?
        It is the owner who can take action and not the person who merely has the possession.
      3. Whether a seller can sue for price?
        The seller can sue for the price only if the ownership of goods has been transferred to the buyer.
      4. In case of insolvency of a buyer whether the official receiver or assignee can take the possession of goods from seller?
        The Official Receiver or Assignee can take the possession of of goods from seller only if the ownership of goods has been transferred to the buyer.
      5. In case of insolvency of a seller whether the official receiver or assignee can take the possession of goods from buyer?
        The official receiver or assignee can take the possession of goods from buyer only if the ownership of goods has not been transferred to the buyer.
        Rules relating to Passing of Property/Transfer of Ownership from seller to buyer
        For the purposes of ascertaining the time at which the ownership is transferred from seller to the buyer,the goods have been classified into the following three categories:
        a) Specific or ascertained goods
        Specific goods mean goods identified and agreed upon at the time when a contract of sale is made.[Section 2(14)]
        b) Unascertained goods
        c) Goods sent ‘on approval’ or ‘on sale on return’ basis.
        Performance of the Contract
        It is the duty of the seller and buyer that the contract is performed. The duty of the seller is to deliver the goods and that of the buyer to accept the goods and pay for them in accordance with the contract of sale. Unless otherwise agreed, payment of the price and the delivery of the goods and concurrent conditions, i.e., they both take place at the same time as in a cash sale over a shop counter.
        Delivery (Sections 33-39) Delivery is the voluntary transfer of possession from one person to another. Delivery may be actual, constructive or symbolic. Actual or physical delivery takes place where the goods are handed over by the seller to the
        buyer or his agent authorized to take possession of the goods.
        1.Constructive delivery takes place when the person in possession of the goods acknowledges that he holds the goods on behalf of and at the disposal of the buyer.
        For example, where the seller, after having sold the goods, may hold them as bailee the buyer, there is constructive delivery.
        2.Symbolic delivery is made by indicating or giving a symbol. Here the goods themselves are not delivered, but the “means of obtaining possession” of goods is delivered, e.g, by delivering the key of the warehouse where the goods are stored,
        bill of lading which will entitle the holder to receive the goods on the arrival of the ship.
        Rules as to delivery
        The following rules apply regarding delivery of goods:
        (a) Delivery should have the effect of putting the buyer in possession.
        (b) The seller must deliver the goods according to the contract.
        (c) The seller is to deliver the goods when the buyer applies for delivery; it is the duty of the buyer to claim delivery.
        (d) Where the goods at the time of the sale are in the possession of a third person, there will be delivery only when that person acknowledges to the buyer that he holds the goods on his behalf.
        (e) The seller should tender delivery so that the buyer can take the goods. It is no duty of the seller to send or carry the goods to the buyer unless the contract so provides. But the goods must be in a deliverable state at the time of delivery or
        tender of delivery. If by the contract the seller is bound to send the goods to the buyer, but no time is fixed, the seller is bound to send them within a reasonable time.
        (f) The place of delivery is usually stated in the contract. Where it is so stated, the goods must be delivered at the specified place during working hours on a working day. Where no place is mentioned, the goods are to be delivered at a place at which they happen to be at the time of the contract of sale and if not then in existence they are to be delivered at the place at which they are manufactured or produced.
        (g) The seller has to bear the cost of delivery unless the contract otherwise provides. While the cost of obtaining delivery is said to be of the buyer, the cost of the putting the goods into deliverable state must be borne by the seller. In other words, in the absence of an agreement to the contrary, the expenses of and incidental to making delivery of the goods must be borne by the seller, the expenses of and incidental to receiving delivery must be borne by the buyer.
        (h) If the goods are to be delivered at a place other than where they are, the risk of deterioration in transit will, unless otherwise agreed, be borne by the buyer.
        (i) Unless otherwise agreed, the buyer is not bound to accept delivery in installments.
        Acceptance of Goods by the Buyer
        Acceptance of the goods by the buyer takes place when the buyer:
        (a) intimates to the seller that he has accepted the goods; or
        (b) retains the goods, after the lapse of a reasonable time without intimating to the seller that he has rejected them; or
        (c) does any act on the goods which is inconsistent with the ownership of the seller, e.g., pledges or resells.
        If the seller sends the buyer a larger or smaller quantity of goods than ordered, the buyer may:
        (a) reject the whole; or
        (b) accept the whole; or
        (c) accept the quantity be ordered and reject the rest. If the seller delivers with the goods ordered, goods of a wrong description, the buyer may accept the goods ordered and reject the rest, or reject the whole. Where the buyer rightly rejects the goods, he is not bound to return the rejected goods to the seller. It is sufficient if he intimates the seller that he refuses to accept them. In that case, the seller has to remove them.
        Installment Deliveries
        When there is a contract for the sale of goods to be delivered by stated installments which are to be separately paid for, and either the buyer or the seller commits a breach of contract, it depends on the terms of the contract whether the breach is a
        repudiation of the whole contract or a severable breach merely giving right to claim for damages.
        Suits for Breach of Contract
        Where the property in the goods has passed to the buyer, the seller may sue him for the price. Where the price is payable on a certain day regardless of delivery, the seller may sue for the price, if it is not paid on that day, although the property in the goods has not passed.
        Where the buyer wrongfully neglects or refuses to accept the goods and pay for them, the seller may sue the buyer for damages for non-acceptance. Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue him for damages for non-delivery.
        Where there is a breach of warranty or where the buyer elects or is compelled to treat the breach of condition as a breach of warranty, the buyer cannot reject the goods. He can set breach of warranty in extinction or diminution of the price
        payable by him and if loss suffered by him is more than the price he may sue for the damages.
        If the buyer has paid the price and the goods are not delivered, the buyer can sue the seller for the recovery of the amount paid. In appropriate cases the buyer can also get an order from the court that the specific goods ought to be delivered.
        Anticipatory Breach
        Where either party to a contract of sale repudiates the contract before the date of delivery, the other party may either treat the contract as still subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach.
        In case the contract is treated as still subsisting it would be for the benefit of both the parties and the party who had originally repudiated will not be deprived of:
        (a) his right of performance on the due date in spite of his prior repudiation; or
        (b) his rights to set up any defense for non-performance which might have actually arisen after the date of the prior repudiation.
        Measure of Damages
        The Act does not specifically provide for rules as regards the measure of damages except by stating that nothing in the Act shall affect the right of the seller or the buyer to recover interest or special damages in any case were by law they are
        entitled to the same. The inference is that the rules laid down in Section 73 of the Indian Contract Act will apply.

      Price Of Goods/Ascertainment of Price

      Ascertainment of Price is critical while formulating a contract. The Ascertainment of Price is a very crucial step in the and can sometimes even determine the nature of the contract. But what does the law say about the price? How is the price defined in The Sale of Goods Act, 1930?

      Meaning[Section 2(10)]
      Price means the money consideration for a sale of goods.
      Modes of determining Price [Section 9(1)]
      There are three modes of determining the price as under:
       It may be fixed by the contract or
       It may be left to be fixed in an agreed manner
       It may be determined by the course of dealing between the parties.
       Thus,the price need not necessarily be fixed at the time of sale.

      Price of a Contract

      Also, from the Section 9 (1), we can see that the price in the contract of sale may be determined or stated by:

      1. the contract, i.e. the price is explicitly mentioned or decided within the contract of sale itself or
      2. the contract has some clause(s) that has the or defines the authority  that will eventually ascertain the price. For example, the contract asks for a valuer to be commissioned for the purpose of the ascertainment of price.
      3. the price may also be determined by the course of dealings. For example, if the two parties have a long history of dealing with each other, then the price if not specified clearly can be ascertained from the previous history of dealings and prices. Clearly, this portion of the section is only applicable if the parties have a tradition or history of similar deals.

      Similarly, Sec 9 (2) says that if the price is not determined through either of the methods discussed in sec 9 (1) then the buyer will have to pay the seller a reasonable price. This price will be decided in accordance with the market value.

      For example, if the Government of your State has been purchasing its electricity from a neighboring state at a given price. If they enter into a new contract, then the price will either be:

      1. explicitly mentioned in the contract.
      2. fixed by the two parties after due consideration with each other.
      3. or the price will be the same as was traditionally accepted by the two parties.

      Consequences of not determining the Price in any of the Mode [Section 9(2)]
      Where the price is not determined in accordance with Section 9(1),the buyer must pay seller a reasonable price.What is a reasonable price is a question of fact dependent on the circumstances of each particular case.It may be noted that a
      reasonable price need not be market price.

      Agreement to sell at Valuation (Section 10)

      Since now the sec 9 of the Act discussed what we can call the direct modes of ascertaining the price. However, there are other modes of price determination that we will define in the sec (10).

      • Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party and such third party cannot or does not make such valuation, the agreement is thereby avoided; PROVIDED that, if the goods or any part thereof have been delivered to and appropriated by, the buyer, he shall pay a reasonable price, therefore.
      • Where such third party is prevented from making the valuation by the fault of the seller or buyer, the party not in fault may maintain a suit for damages against the party in fault.”

      The method of determination or mode of ascertaining the price here is by a third party. This comes into effect when both the parties have decided to the clause that the price will be decided by the third party. However in case the third party is not capable or refuses to make a proper valuation of the goods to be purchased, then the agreement will be void.

      In some cases, the third party may be obstructed by the default of one of the parties. In such case, the party at fault will be responsible to pay proper compensation in terms of damages to the other party, provided that the other party is not at fault. Once the goods have been appropriated and received, the buyer is liable to pay the price thereof.

      Consequence of not Fixing Price by third party[Section 10(1)]
      The agreement to sell goods becomes void if the following two conditions are fulfilled.
       If such agreement provided that the price is to be fixed by the valuation of a third party,
       If such third party cannot or does not make such valuation.


      Duty of buyer
      A buyer who has received and appropriated the goods,must pay a reasonable price therefor.
      Right of party not at fault to sue Where such a third party is prevented from making the valuation by fault of the
      seller or buyer,the party not at fault may maintain a suit for damages against the party in fault.