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A test of three Acts -- II

Akshey Kumar

SECTIONS 59 to 61 of the Indian Contract Act lay down the rules for the appropriation of payments. Section 59 provides that if the debtor owes several debts to a creditor, he has a right to request the creditor to apply the payment to the discharge of so me particular debt. If there is no express instruction as to appropriation, there may be circumstances, which imply that the debtor intended appropriation to a particular debt.

Section 60 provides that if the debtor makes payment without indication and there are no other circumstances indicating appropriation, the creditor has a right to appropriate it at his discretion to any lawful debt actually due and payable to him from th e debtor. Section 61 provides that where neither party makes appropriation, law gets the right to appropriate the payment, wiping out the debts in the order of time in which they were incurred.

Surety's liability

SECTION 128 of the Indian Contract Act provides that the liability of a surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. The expression `co-extensive' shows the maximum extent of the surety's liabi lity. He is liable for the whole of the amount for which the principal debtor is liable and no more.

In case the principal debtor is not liable on the principal debt, the surety too is not liable. The liability of the surety arises immediately on the default of the principal debtor.

Delivery of goods

STATE the rules of the Sale of Goods Act relating to the delivery of goods: i) when it is given in instalments; and ii) when it is in excess of contracted quantity.

Delivery means voluntary transfer of possession from one person to another. Section 33 provides that delivery of goods sold may be made by doing anything which the parties agree shall be treated as delivery or which has the effect of putting the goods in the possession of the buyer or of any person authorised to hold them on his behalf.

When it is given in instalments: Section 38(1) declares that unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by instalments. Where the contract for the sale of goods provides for instalment deliveries, which have to be separately paid for, the seller may fail to deliver an instalment or may deliver defective goods or the buyer may refuse or neglect to take delivery or pay for one or more instalments. In such cases, it will depend upon the terms of the contract and the circumstances of the case. That is:

i) whether the breach of contract is a repudiation of the whole contract; or

ii) whether it is a severable breach giving rise to a claim for compensation, but not to a right to treat the whole contract as repudiated (Section 38(2)).

Unless otherwise agreed, mere failure to make one of a series of payments, or one or more deliveries, will not generally, in the absence of a prospective refusal, discharge the other party from proceeding with the contract.

Where it is in excess of contracted quantity: Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole. If the bu yer accepts the whole of the goods so delivered, he shall pay for them at the contract rate (Section 37(2)). So if the seller delivers a quantity of goods larger than the agreed quantity, the buyer can accept the whole, reject the whole or accept the qua ntity he ordered and reject the rest.

One vs the other

WAGERING agreement: i) consists of reciprocal promises, each of which is conditional on the happening or non-happening of a certain event; ii) neither party intends to perform the contract. The interest is to deal in differences; iii) the parties have no other interest in the subject matter, except the winning or losing of the amount of the wager; iv) the future event is the only determining factor; v) it is void; and vi) all wagering agreements are of contingent nature, as they are dependent on uncerta in events.

Contingent contract: i) may not consist of mutual promises; ii) the parties intend to perform the contract; iii) the parties do have interest in the subject matter; iv) the future event is collateral to the contract; v) it is valid; and vi) every conting ent contract is not a wagering agreement.

Pledge vs bailment: Pledge is the bailment of goods for the performance of a specific promise or repayment of debt; ii) in case of default by the partner to repay the debt, the partner after giving a notice to partner, can sell the goods pledged to him; iii) the pledgee has no right to use the pledged goods; iv) the pledgee is not bound to return the goods delivered unless the debt is repaid or promise performed; and v) all pledge is bailment (that is, pledge is a specie).

Bailment: i) It is for a purpose of any kind -- safe-custody, repair, carriage, security of debt, conversion of form, and so on; ii) the bailee can either retain the goods or sue for his charges. But he cannot sell the goods; iii) the bailee may use the goods if the contract of bailment so provides; iv) in case of gratuitous bailment, the bailee is bound to return the goods on demand by the bailor; v) all bailment may or may not be pledge (bailment is a genus).

Short notes

CAPACITY to contract is one of the essentials of a valid contract. Section 11 provides that every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject. Thus, minors, persons of unsound mind and persons disqualified by law to which they are subject are disqualified from contracting. Minor's contracts are void ab initio. Unsoundness may arise from insan ity, lunacy, idiocy, and so on.

Contracts with their enemy are void on the ground of public policy. A convict cannot enter into a contract while he is undergoing imprisonment. An insolvent cannot enter into contracts relating to his property and sue on his behalf. A company cannot ente r into any contact which is ultra vires the memorandum of association. A married woman cannot enter into contracts with respect to her husband's property.

Exemplary damages: Damages imply the monetary compensation for the loss suffered by the aggrieved party as a result of breach by the other party. Exemplary damages are intended to demonstrate the court's strong disapproval of the conduct of the guilty pa rty in committing the wrong. These are punitive and need not be in proportion to the loss caused to the plaintiff. They are usually given:

i) In the case of breach of promise to marry: The damages will include compensation for the loss to the feelings and reputation of the aggrieved party.

ii) Where a banker refuses to honour the cheque in spite of having enough funds with him belonging to the customer: The damages are awarded taking into account the loss of prestige and goodwill of the customer.

Substituted agent: Section 194 provides that where an agent holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent but an agent of the principal for such part of the business of the agency as is entrusted to him. Thus, the substituted agent may be appointed by the principal or agent. He is liable to the principal for all his acts. There is a privity of contract between him and the principal. The agent is not liable for the acts of the substituted agent provided he has taken due care in selecting him.

Effect of sub-sale or pledge by the buyer on the rights of an unpaid seller: Section 53 of the Sale of Goods Act contains the provisions regarding the effect of sub-sale or pledge by buyer on unpaid seller's right of lien or stoppage in transit.

The unpaid seller's right of lien or stoppage in transit is not affected by sale or other disposition of the goods by the buyer. However, in the following circumstances, the unpaid seller's right of lien and stoppage in transit are defeated:

i) Where the buyer sells or makes other disposition of goods, with the consent of the seller, the seller is bound by it.

ii) When the seller has issued to the buyer documents of title to the goods and the buyer has sold or pledged the goods by transferring the documents of title, then in case of sale, the seller's right of lien and stoppage in transit are defeated.

Mode of effecting registration of a partnership firm: A partnership firm may be registered anytime by filing an application with the Registrar of the area in which any place of business of the firm is situated. The application is to be made in the prescr ibed form (Section 58) along with particulars -- name of the firm, place or principal places where the firm carries on business, names of other places where the firm carriers on business, date when each partner joined the firm, and names and other addresses of the partners and the duration of the firm.

The application form should be signed and verified by each partner or his duly authorised agent. The Registrar, if satisfied regarding due compliance of the provisions of the Act, shall record an entry in the Register of Firms and issue a certificate of registration.

(Concluded)

(Suggested answers for the November 2000 CA (Foundation) paper on mercantile law.)