The Big Picture of Contract II

While Contract I was about the general birth of a contract, Contract II focuses on specific commercial relationships:

  • Protection (Indemnity/Guarantee)
  • Possession (Bailment/Pledge)
  • Representation (Agency)
  • Commerce (Sale of Goods & Partnership)
  • Payment (Negotiable Instruments)

Unit 1: Security & Possession (Indemnity, Guarantee, Bailment, Pledge)

  • Indemnity (Sec. 124): A “Two-party” safety net. The goal is to save the other from loss. Case: Gajanan Moreshwar v. Moreshwar Madan.
  • Guarantee (Sec. 126): A “Triangular” relationship.
    • Surety’s Liability (Sec. 128): It is “Co-extensive” with the Principal Debtor. If the debtor owes ₹100, you owe ₹100.
  • Bailment (Sec. 148): Delivery for a purpose.
    • The Finder of Goods (Sec. 71/168): Has the same duties as a Bailee (must take reasonable care).
  • Pledge (Sec. 172): A specific type of bailment where goods are security for a debt.
    • Essential: A Pawnee must give “Reasonable Notice” before selling the pledged goods.

Unit 2: Representation (Law of Agency)

  • The Test: Can the person bind the Principal to a third party?
  • The Rule: Qui facit per alium facit per se (He who acts through another acts himself).
  • Delegation: Delegatus non potest delegare. An agent cannot delegate unless it’s standard practice or allowed.
  • Ratification (Sec. 196): When a Principal approves an act done by someone who wasn’t an agent at the time. “Ex post facto” (after the fact) approval.

Unit 3: Moveable Property (Sale of Goods Act)

  • Passing of Property (Ownership): The most important concept. Risk follows ownership. If you own it, and it breaks, it’s your loss.
  • Conditions vs. Warranties (Sec. 12): * Condition: The heart of the contract (Breach = Cancel).
    • Warranty: A side promise (Breach = Damages only).
  • Unpaid Seller:
    • Lien: Keep the goods.
    • Stoppage in Transit: Stop the delivery truck.
    • Resale: Sell to someone else.

Unit 4: Collective Business (Partnership)

  • The Real Test (Sec. 6): Profit sharing is evidence, but Mutual Agency is the conclusive proof.
  • Minor (Sec. 30): Only admitted to “benefits,” never as a full partner with liability.
  • Registration (Sec. 69): Not mandatory, but an unregistered firm is “legally paralyzed”—it cannot sue anyone.
  • Dissolution: The firm dies, but the partners’ liability continues for acts done until “Public Notice” is given.

Unit 5: Paper Money (Negotiable Instruments)

  • Types: Promissory Note (Promise), Bill of Exchange (Order), Cheque (Order to a Bank).
  • Holder in Due Course (HDC) (Sec. 9): The “Gold Standard” of holders. They take the instrument clean, even if the previous person stole it (so long as they didn’t know).
  • Negotiation: Done by “Delivery” (if it’s a bearer check) or “Endorsement + Delivery” (if it’s an order check).

Unit 6: Financial Policing (Cheque Bouncing)

  • Crossing:
    • General: Two lines (Pay through bank).
    • Special: Bank name written (Pay only through that bank).
  • Section 138 (Cheque Bounce):
    • It is a Criminal Offense.
    • The Timeline: Bounce → Notice within 30 days → Wait 15 days for payment → File case within 30 days.
  • Noting & Protest: Formal certification of dishonor by a Notary Public.

Exam Final Polish

  1. Indemnity vs. Guarantee: Mention the number of parties (2 vs 3).
  2. Sale vs. Agreement to Sell: Mention “Executed” vs “Executory”.
  3. Section 138: Mention the “Presumption of Debt” (The court assumes you owe the money unless you prove otherwise).

Final Exam Latin Maxim: Nemo dat quod non habet

(No one can give what they don’t have). Remember that Negotiable Instruments and Sale of Goods (Market Overt/Estoppel) are the two main places where this rule is broken to protect honest buyers!

 

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