LOC-2A – Lawsage

Minor as Partner

Asked 4 Times

A minor cannot become a full partner in a partnership firm because he is not competent to contract under the Indian Contract Act, 1872. However, with the consent of all partners, a minor may be admitted to the benefits of partnership under Section 30 of the Partnership Act, 1932. A minor is entitled to share the profits of the firm and has access to the accounts of the firm. His liability is limited only to his share in the partnership property. On attaining majority, he must decide within six months whether he wishes to become a partner.

Example: A 17-year-old boy may receive a share of profits from a partnership firm but cannot be personally held liable for the firm's debts.

Pledge

Asked 3 Times

A pledge is a special type of bailment in which goods are delivered as security for the payment of a debt or performance of a promise. The person delivering the goods is called the pawnor and the person receiving them is called the pawnee. The ownership of the goods remains with the pawnor, while possession is transferred to the pawnee. If the debt is not repaid, the pawnee has the right to sell the pledged goods after giving reasonable notice. Thus, a pledge provides security for a loan or obligation.

Example: A person may pledge gold jewellery to a bank as security for a loan.

Rights of Indemnity Holder

Asked 3 Times

An indemnity holder is a person who is protected against loss by a contract of indemnity. Under Section 125 of the Indian Contract Act, 1872, the indemnity holder enjoys certain rights. He can recover all damages that he is compelled to pay in a suit relating to the indemnity. He can also recover legal costs incurred in defending such suits. Further, he may recover all sums paid under a compromise made in good faith. These rights ensure complete protection against the loss covered by the indemnity.

Example: If A promises to indemnify B against legal claims and B pays compensation due to such claims, B can recover that amount from A.

Continuing Guarantee

Asked 3 Times

A continuing guarantee is a guarantee that extends to a series of transactions and not merely to a single transaction. It is defined under Section 129 of the Indian Contract Act, 1872. The guarantee remains effective until it is revoked by the surety or terminated according to law. The surety remains liable for all transactions covered by the guarantee before revocation. Thus, a continuing guarantee provides ongoing security for future dealings.

Example: A guarantees payment for all goods supplied by a wholesaler to a shopkeeper during one year. This is a continuing guarantee.

Gratuitous Bailment

Asked 2 Times

Gratuitous bailment is a bailment where neither the bailor nor the bailee receives any reward or consideration. The goods are delivered for a specific purpose and are to be returned after the purpose is fulfilled. Either party may terminate the bailment subject to legal obligations and reasonable notice. Gratuitous bailment is based on trust and mutual benefit rather than payment.

Example: A gives his bicycle to his friend for a week without charging any money. This is a gratuitous bailment.

Co-sureties / Liability of Co-sureties

Asked 2 Times

Co-sureties are two or more sureties who jointly guarantee the same debt or obligation of a principal debtor. According to Section 146 of the Indian Contract Act, co-sureties are liable to contribute equally towards the debt unless there is a contract providing otherwise. If one co-surety pays more than his share, he has the right to recover the excess amount from the other co-sureties. Thus, the liability of co-sureties is generally equal and proportionate.

Example: If A, B, and C jointly guarantee a debt of ₹90,000 and A pays the entire amount, he can recover ₹30,000 each from B and C.

Caveat Emptor

Asked 2 Times

Caveat Emptor means "Let the Buyer Beware." It is a principle of the Sale of Goods Act, 1930. Under this rule, the buyer must examine the goods carefully before purchasing them and ensure that they are suitable for his purpose. The seller is generally not responsible for defects that the buyer could have discovered through reasonable inspection. However, there are certain exceptions where the seller remains liable.

Example: If a person buys a used vehicle without inspecting it properly, he cannot later complain about defects that were obvious at the time of purchase.

Substituted Agent

Asked 2 Times

A substituted agent is a person appointed by an agent, with the authority of the principal, to act for the principal in a particular matter. Once properly appointed, the substituted agent becomes directly responsible to the principal and not to the original agent. The original agent is generally not liable for the acts of the substituted agent if reasonable care was exercised in selecting him. Thus, a substituted agent acts independently on behalf of the principal.

Example: A lawyer authorized by a client appoints another qualified lawyer to handle a case. The second lawyer acts as a substituted agent.

Pledge by Non-owner

Asked 2 Times

Generally, only the owner of goods can create a valid pledge. However, in certain situations, a non-owner may also make a valid pledge under the Indian Contract Act. Examples include pledges made by a mercantile agent, a person in possession under a voidable contract, or a co-owner in possession of goods. The pledge is valid if the pawnee acts in good faith and has no notice of the defect in title. Thus, the law protects innocent parties dealing honestly in commercial transactions.

Example: A mercantile agent in possession of goods with the owner's consent may validly pledge those goods to obtain a loan.

Agency of Necessity

Asked 1 Time

Agency of Necessity arises when a person acts on behalf of another without prior authority in order to protect that person's interests during an emergency. The law recognizes such actions as valid when immediate action is necessary and communication with the principal is impossible. The person acting must act honestly and in good faith for the benefit of the principal. Thus, an agency of necessity is created by circumstances rather than agreement.

Example: A carrier may arrange emergency repairs or storage for perishable goods when the owner cannot be contacted.

Right of Lien

Asked 1 Time

The Right of Lien means the right to keep possession of another person's goods until a lawful payment is made. A person who has spent labour, skill, or money on the goods can keep them until his charges are paid. The right exists only while the goods remain in his possession. Thus, lien protects a person from loss when payment is not made.

Example: A mechanic repairs a motorcycle and keeps it until the repair charges are paid.

General Lien

Asked 1 Time

General Lien is the right to keep a person's goods until all outstanding dues are paid. This right is available to certain persons such as bankers, lawyers, and factors. They may keep the goods not only for one debt but for the entire amount owed by the customer. Thus, general lien provides wider protection than ordinary lien.

Example: A bank may keep a customer's securities until all loans taken from the bank are repaid.

Sale by Non-owner

Asked 1 Time

Normally, only the owner of goods can sell them. However, in some situations, a non-owner can also make a valid sale under the law. This is allowed to protect buyers who purchase goods honestly and in good faith. Examples include sales by a mercantile agent, co-owner, or a person having possession under a voidable contract. Thus, the law creates certain exceptions to the general rule.

Example: A mercantile agent who has possession of goods with the owner's permission may validly sell those goods.

Limited Liability Partnership (LLP)

Asked 1 Time

A Limited Liability Partnership (LLP) is a business organization that combines the features of a partnership and a company. It has a separate legal identity from its partners. The liability of each partner is limited to the amount he has agreed to contribute. Therefore, the personal property of partners is generally protected from business debts.

Example: If an LLP suffers a business loss, partners usually lose only their agreed contribution and not their personal assets.

Property of the Firm

Asked 1 Time

Property of the firm means all assets and property belonging to the partnership business. It includes assets brought by partners and assets purchased using partnership funds. The property is used for the benefit of the partnership business. No partner can claim exclusive ownership over any specific property of the firm.

Example: A computer purchased with partnership money becomes the property of the firm and not of any individual partner.

Partnership at Will

Asked 1 Time

A Partnership at Will is a partnership where no fixed period is specified for its duration and no provision is made regarding its termination. The partners are free to continue the business as long as they desire. Any partner may dissolve the partnership by giving notice to the other partners. The partnership comes to an end from the date mentioned in the notice or from the date the notice is communicated. This type of partnership provides flexibility to the partners in conducting business.

Example: A and B start a business without fixing any duration. Either partner can end the partnership by giving notice.

Termination of Agency

Asked 1 Time

Termination of Agency means the ending of the relationship between the principal and the agent. An agency may be terminated by mutual agreement, revocation by the principal, renunciation by the agent, completion of the work, expiry of time, death, insanity, or insolvency of either party. After termination, the agent loses authority to act on behalf of the principal. Notice of termination should be given to third parties who regularly deal with the agent.

Example: If a person appoints an agent to sell a house, the agency ends once the house is sold.

Different Types of Goods

Asked 1 Time

According to the Sale of Goods Act, goods are classified into different types. They include existing goods, future goods, and contingent goods. Existing goods may further be specific, ascertained, or unascertained goods. Future goods are goods to be manufactured or acquired later, while contingent goods depend on the happening of a future uncertain event. This classification helps determine the rights and obligations of buyers and sellers.

Example: Rice stored in a warehouse is existing goods, while next season's crop is future goods.

Right of Stoppage in Transit

Asked 1 Time

The Right of Stoppage in Transit is a right available to an unpaid seller. When the buyer becomes insolvent, the seller may stop the goods while they are still in transit and regain possession of them. This right can be exercised only after the seller has parted with possession but before the buyer receives the goods. It protects the seller from financial loss caused by the buyer's insolvency.

Example: A seller sends goods by transport, but learns that the buyer has become bankrupt before delivery. The seller may stop the delivery.

Characteristics of Partnership

Asked 1 Time

Partnership is the relation between persons who agree to share the profits of a business carried on by all or any of them acting for all. The main characteristics of partnership are agreement, profit-sharing, mutual agency, lawful business, and the existence of two or more persons. Each partner acts as both a principal and an agent of the firm. Partnership is based on mutual trust and confidence among partners.

Example: If three friends start a business and agree to share profits, they form a partnership.

Rule in Garner v. Murray

Asked 1 Time

The Rule in Garner v. Murray applies when a partnership firm is dissolved and one partner becomes insolvent. The loss caused by the insolvent partner's inability to contribute is borne by the solvent partners. The solvent partners share the loss according to their capital ratio unless there is an agreement stating otherwise. This rule ensures a fair distribution of losses among the remaining partners.

Example: If one partner cannot pay his share of losses due to insolvency, the remaining partners must bear that loss.

Kinds of Guarantee

Asked 1 Time

A guarantee is a promise to perform the obligation or discharge the liability of another person in case of default. The two main kinds of guarantee are specific guarantee and continuing guarantee. A specific guarantee applies to a single transaction, while a continuing guarantee covers a series of transactions. Guarantees provide security to creditors and encourage commercial transactions.

Example: A guarantee for one loan is a specific guarantee, whereas a guarantee for all future supplies during a year is a continuing guarantee.

Future Goods

Asked 1 Time

Future Goods are goods that do not exist at the time the contract of sale is made. They may be manufactured, produced, or acquired by the seller after the contract is entered into. A person cannot sell future goods immediately because they are not yet in existence. The contract relating to future goods operates as an agreement to sell.

Example: A farmer agrees to sell next year's crop before it is harvested. These are future goods.

Particular Lien

Asked 1 Time

Particular Lien is the right to retain specific goods until charges relating to those goods are paid. It is available when a person has improved, repaired, or worked on the goods using labour or skill. The right exists only in respect of the particular goods on which the work was done. Once payment is made, the goods must be returned to the owner.

Example: A tailor may keep a stitched suit until the stitching charges are paid.

Agreement to Sell

Asked 1 Time

An Agreement to Sell is a contract in which the transfer of ownership of goods is to take place at a future date or subject to certain conditions. Unlike a sale, ownership does not pass immediately to the buyer. When the specified time arrives or the conditions are fulfilled, the agreement becomes a sale. It creates future rights and obligations for both parties.

Example: A agrees to sell a car to B next month after receiving full payment. This is an agreement to sell.

Hire-Purchase Agreement

Asked 1 Time

A Hire-Purchase Agreement is an agreement under which a person takes goods on hire and pays the price in installments. The ownership of the goods does not pass immediately to the hirer. It passes only after all installments are paid and the purchase option is exercised. The hirer has the right to use the goods during the agreement period and may terminate the agreement before the final payment. This system helps people acquire expensive goods without making full payment at once.

Example: A person buys a motorcycle by paying monthly installments. The ownership passes to him only after the last installment is paid.

Nemo Dat Quod Non Habet

Asked 1 Time

"Nemo Dat Quod Non Habet" is a Latin maxim which means "No one can give what he does not have." According to this rule, a person who is not the owner of goods cannot transfer a better title than he himself possesses. The rule protects the true owner of the goods and prevents unauthorized sales. However, the Sale of Goods Act provides certain exceptions where a non-owner can transfer a valid title.

Example: If a thief sells a stolen laptop, the buyer does not become its lawful owner because the thief had no valid title to transfer.

Dissolution of Partnership Firm

Asked 1 Time

Dissolution of a Partnership Firm means the complete closure of the partnership business and termination of the relationship among all partners. A firm may be dissolved by agreement among partners, expiry of the partnership period, completion of business, insolvency of partners, or by order of the court. After dissolution, the assets of the firm are realized and liabilities are paid off. The remaining balance, if any, is distributed among the partners according to their rights.

Example: If all partners decide to permanently close their business and distribute its assets, the partnership firm is dissolved.

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