Practice Questions: The Law of Contract | Legal Reasoning for CLAT PDF Download

Introduction

Contracts are exactly what their common sense meaning implies Basically, they are agreements (like deals/ bargains) between two or more persons, to achieve a particular purpose, specifying the rights and duties between each other.

What is a Contract?

The law does not recognise and protect all possible agreements between parties For an agreement to become a contract that is recognised and enforceable by law, it has to fulfil certain conditions laid down in the Indian Contract Act, 1872. The conditions that an agreement has to fulfil before it can be called a contract and enforced by law are laid down in Section 10 of the Indian Contract Act, and are as follows: 

• The agreement should be by the free consent; 
• Of parties competent to contract; 
• For a lawful consideration; 
• With a lawful object; 
• And should not be declared to be void by the Indian Contract Act. 

Contract

Each of these will be discussed later in detail.

Offer & Acceptance

➢ The term ‘offer’ has been defined in the Indian Contract Act as follows: 

• 'When a person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.' 
• The person making the offer is called Offeror or Promisor and the person to whom offer is made is called Offeree or Promisee

➢ Invitation to offer

• Invitation to offer merely indicates the interest of one party to enter into negotiations and is by no means supposed to form a binding contract. E g. the menu card given at the restaurant is an invitation to offer, and when a person goes there and chooses the food he makes a offer and that is required to be accepted by the restaurant. It comes from the Latin phrase invitation and offerendum (inviting an offer). 
• Tender is an example of Invitation to offer wherein invitation to offer is made and the people who fill the tender make the offer and that is later accepted. Auction is another example of Invitation to Offer where the property owner asks for (invites) offers for a certain amount and then selects one of the offers. A shop owner displaying their goods for sale is generally making an invitation to treat and the person who comes to the shop is required to make an offer.

➢ Counter Offer

• The counter offer is made against the original offer, where the other party changes the original offer and modified offer is made to the original offerer.

➢ Cross Offers

• When two offer are made simultaneously in ignorance of each others offer. 

➢ Communication of offer 

• Offer is the first stage of the contract so there cannot be a contract without the communication of offer. Section 4 of the Indian Contract Act says that. “Communication of a proposal is complete when it comes to the knowledge of the person to whom it is made" Thus, the communication of an offer is complete when it comes to the knowledge of the person from whom the acceptance is required.

Essential Elements of a Contract

➢ Consent as an essential element of a Contract

• Consent is one of the essential elements of a contract and the law states that - “all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void." 
• The Presence of Consent 
• Free Consent 

The second element is the requirement that the consent is given freely. “ Consent is said to be free when it is not caused by:
(i) coercion,
(ii) undue influence,
(iii) fraud,
(iv) misrepresentation,
(v) mistake,
Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake " Unless the parties have agreed to enter into a contract of their own free will, the law does not treat the contract as valid. The effect of these factors on the existence of a contract varies from factor to factor:
(a) If the contract has been entered into because of a mistake, the contract is void
(b) If the factors vitiating consent are fraud, coercion, undue influence or misrepresentation, it renders the contract voidable
(i) Coercion : In Indian law, the term, coercion, means actually committing or threatening to commit any act that is forbidden by law. Thus, when a person’s consent to an agreement is obtained by exercising pressure on that person either by committing or threatening to commit an act that is forbidden by the law, the consent so obtained, is vitiated by coercion.
“Coercion" is the committing, or threatening to commit, any act forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement'. Coercion implies a vitiation of consent, i.e., no free consent; it does not imply absence of consent or absence of consensus ad idem.

(ii) Undue Influence : Undue Influence The term undue influence includes the less direct forms of pressure that can be exerted by a person to achieve a particular end. This type of influence can even exist within a parental relationship, where the relationship existing between the parties is such that one can naturally exert an influence over another. Exerting influence over another becomes "undue’’ only when it is unfairly exerted to achieve a specific result, like the execution of a particular agreement.
The Indian Contract Act defines Undue Influence’ as follows 

• A contract is said to be induced by ‘undue influence’ where the relations existing between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. 
• In particular, and without prejudice to the foregoing principle, a person is said to be able to dominate the will of another
  (a) where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or
  (b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age. illness, or mental or bodily distress
  (c) Where a person who is in a position to dominate the will of another enters into a contract with him, and the transaction appears, on the face of it, or on evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.”

(iii) Fraud : Fraud can best be defined by reference to the meaning of misrepresentation. A misrepresentation is usually innocent, in the sense that the person who makes the representation believes it to be true. Another kind of misrepresentation is when a person makes a representation while not believing it to be true, in order to mislead the person to whom the representation is addressed - this is fraud, also called fraudulent misrepresentation. A very important element in fraud is the intention of the person making the representation. Unlike in misrepresentations (where a representation is innocently made), in fraud, the guilty person should not only have made a misrepresentation, but also should have done so with the intention or the state of mind to deceive the person to whom it was addressed.
The Indian Contract Act defines Fraud and its constituents: “Fraud means and includes any of the following acts done with ‘intent to deceive’ or to induce a person to enter into a contract -

• The suggestion that a fact is true when it is not true and the person making the suggestion does not believe it to be true;
• Active concealment of a fact by a person who has knowledge or belief of the fact;
• Promise made without any intention of performing it;
• Any other act fitted to deceive;
• Any such act or omission as the act specially declares to be fraudulent"

(iv) Misrepresentation : Misrepresentation simply means a misstatement, i.e., a statement that is incorrect. Misrepresentation is defined in the Indian Contract Act as: “Misrepresentation means and includes

• The positive assertion, in a manner not warranted by the information of the person making the statement, of that which is not true, though he believes it to be true;
• Any breach of duty which, without any intent to deceive, gains an advantage to the person committing it. or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him;
• Causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement."

(v) Mistake : All mistakes render a contract void, but the reasons behind declining the contract non-existent are different. There are two reasons for which a mistake could render a contract void or non-existent:

• Because it defeats the consent of the parties.
• Because it misleads the parties to enter into a contract with each other under a mistake as to some fact that is essential to the contract. The Indian Contract Act states that: 

“ Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.
Explanation: An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement is not deemed as mistake as to a matter of fact " This logically brings us to the next question of 'what facts are essential to a contract'? The following facts may be termed as being so essential to a contract that a mistake regarding them would render the contract non-existent or void:

• A mistake as to the existence of, or the title to, the subject matter of the contract.
• A mistake as to the quality of the thing contracted for.
• Mistake regarding a fundamental assumption.

➢ Competence of the parties to contract 

• To become a legally enforceable contract, i.e., the requirement of competence. The law, in its wisdom, restricts certain persons from binding themselves with responsibilities and promises. 
• The Indian Contract Act defines the persons who are considered to be competent to contract by the law:
  (i) Who have attained majority under the law that is applicable to them, i.e.. 18 years under Indian law unless the court has appointed a guardian for the minor's person or property, in which case it is 21;
  (ii) Who are of sound mind, i.e., persons who, at the time of making the contract, are capable of understanding it and of making a rational judgement as to its effect upon his interests; and
  (iii) Who are not disqualified from contracting by the law which applies to them.

➢ Consideration as an essential element of a contract 

• Consideration is a universal requisite of contracts. An agreement made without consideration is void.

(i) Definition : The Indian Contract Act defines consideration as follows: “ When, at the desire o f the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.”
The definition of consideration requires, in the first place, that the act or abstinence, which is to be a consideration for the promise, should be done at the desire of the promisor; secondly, that it should be done by the promisee or any other person and. lastly, that the act or abstinence may have been already executed or is in the process of being done or may be still executory, that is to say, to be performed in the future.
(ii) Consideration must be real : Consideration need not be adequate to the promise, but it must be of some value in the eyes of law. Courts will not make bargains for the parties to a suit and. if a person gets what he contracted for. will not inquire whether it was equivalent to the promise that s/he gave in return Though consideration need not be adequate, it must be real.

Contract must involve reciprocal undertaking between parties Gratuitous promises are unenforceable; reciprocity in consideration is required in a contract.

Q.1. Principle: A contract involves reciprocal undertakings between the parties. As a result, there cannot be a contractual obligation, when there is no reciprocity between the parties.
Facts: Suresh is an old widower living all alone in Hyderabad He wrote a letter to Radha, his young niece living in Delhi, requesting her to come down to Hyderabad and visit him. He ended the letter by saying that all the jewellery of her late aunt would be hers and she could collect them from him. Accordingly Radha came to Hyderabad and met Suresh When she asked for the jewellery, Suresh refused to part with it Advise Radha whether she can get the jeweller.
Solution. Radha cannot get the jewellery. This is a case of a gratuitous promise from Suresh and not a contractual commitment. No consideration moves from the promisee (Radha) and therefore the contract is void. Only if the parties regard the performance of the stipulation as the price to be paid for the promise, can there be a valid contract. In this case, Suresh requested her to come down to Hyderabad, and then later, quite independently, added that the jewellery would be hers. It was not a stipulation and therefore there is no contract. Remember, the law is trying to protect 'deals'.

Promissory Estoppel - Unilateral Promises

A unilateral promise is a promise from one side only, intended to induce some action by the other party. The promisee is not bound to act, for he gives no promise from his side. But if carries out the act desired by the promisor, he can hold the promisor to his promise. The promisor is now estopped from claiming that there is no consideration. To put it simply, if someone promises to do A if you do a particular act B, then, if you do something towards doing B, then you can hold that person to his promise to do A.

Revocation of Unilateral Promises

A promise given in return for an act is revocable before the promisee begins to alter his position by acting upon the promise.
Q.1. Principle: A promise given in return for an act is revocable before the promisee begins to alter his position by acting upon the promise.
Facts: The owner of a house had mortgaged his house that was in the occupation of his son and daughter-in-law. He told them that the house would become their property if they paid off the mortgage debt in instalments and they commenced payment. Can the promisor revoke this promise?
Solution. No, It would be unjust if the promisor could revoke this promise at his pleasure. It held that he could not revoke it once the couple entered upon the performance of the act.

Lawful Object as an essential element of a contract

The Indian Contract Act also defines the objects and considerations that are unlawful in the eyes of the law: “ The consideration or object o f an agreement is lawful unless

• it is forbidden by law; or
• is of such nature that, if permitted, it would defeat the provisions of any law, or
• is fraudulent; or
• involves injury to the person or property of another; or
• the court regards it as immoral or opposed to public policy.

Q.1. Principle: For a contract to be valid the objects and considerations of the contract should be unlawful in the eyes of the law.
Facts: Miss Sakshi and Miss Kritika entered into a contract for the sale of Brown Sugar. Sakshi agreed to sell 5 grams of Brown Sugar for Rs. 1000. Is the contract valid?
Solution. The contract is not valid as the object of the contract is unlawful in the eyes of the law.

Damages for Breach of Contract 

➢ Definition : A breach of contract occurs when a party fails to perform his obligations under the contract. The party who is injured by the breach of a contract may bring an action

• to restrain the other party from breaching the contract: or
• to force the party to perform its obligations under the contract; or
• to claim damages from the breaching party, for losses suffered as a result of the breach 

The term “Damages" means compensation in terms of money for the loss suffered by the injured party.

➢ Remoteness of Damage 

• In order to establish a right to damages, the first thing the plaintiff must show is that the loss that he has sustained was caused by a breach of the contract by the other party. Once the plaintiff has established that a particular loss is sustained by him because of a breach of the terms of the contract by the other party, the Court will then question whether this loss resulted directly from the breach or whether it is 'remote' (i.e. whether the damage is so remote from the act that the act cannot be held responsible for the damage). 
• “ When a contract has been broken the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach."

Q.1. Facts: The plaintiffs, a firm of sugar merchants, chartered the ship Heron II from the appellant to carry a cargo of sugar from Constanza to Basrah The ship deviated without authority from the agreed voyage, with the result that the cargo was delayed. Owing to a fall in demand in the market for sugar at Basrah, the plaintiffs obtained 3,800 pounds less for the sugar than the price obtainable at the time when it should have been delivered. Is the defendant liable for the loss?
Solution. Yes, First, we have to decide which sub-rule the situation falls under. The defendant did not know if the prices for sugar were going to fall or not. There is no special knowledge in this case. What has to be determined is whether that knowledge can be presumed. The defendant contended that he was not liable for this sum, as he had no special knowledge of the seasonal and other fluctuations of the sugar market. However, the court held that a ship owner must be presumed to know that prices in a commodity market were liable to fluctuate, and judgment was given against him.

Q.2. Facts: A British vessel had been chartered from the defendant ship owners in April, 1939, to load a cargo of soya beans in Japan, and the charterers had nominated Karlshamn in Sweden as the port of discharge. Under normal circumstances, the vessel would have reached that port in July, but owing to the defective state of the boilers, the ship was un-seaworthy and did not arrive in the European waters until September By that time, however, war had broken out between Great Britain and Germany, and the vessel was ordered by the British Admiralty to proceed to and discharge at Glasgow The plaintiffs, a Swedish Company who had purchased the cargo, required the beans for their business in Sweden, as there were none available there They consequently incurred expenses in having them forwarded to Karlshamn in neutral ships, and in this action, claimed to recover the amount of these expenses. Are the defendants liable for these expenses?
Solution. Yes, Once again, one has to try and determine what it is reasonable to know given a certain fact situation and what according to the usual course of things it is reasonable to expect to happen. The question is "what reasonable businessmen must be taken to have contemplated as the natural or probable result if the contract were broken '. In the present case, the possibility of war must have been present in the minds of the parties, and experienced businessmen would know that one of the risks that would be consequent upon prolongation of the voyage at that time would be the diversion of the vessel by the order of the Admiralty.

Q.3. Facts: A contract to sell and deliver to B, on the first of January, certain cloth with which B intends to manufacture caps of a particular kind, for which there is no demand, except during that season The cloth is not delivered till after the appointed time, and is therefore, too late to be used that year in making caps. Is B is entitled to the profits that he expected to obtain by making caps?
Solution. If the cloth, which A delivered to B, could have been used for a variety of purposes, and B did not inform A that it was to be used for making caps, then A will not be liable to pay the profits which B expected to make. However, B is entitled to receive from A, by way of compensation, the difference between the contract price of the cloth and its market price at the time of delivery.

Q.4. Facts: The plaintiff, a manufacturer, was in the habit of sending specimens of his goods for exhibition to agricultural shows. After exhibiting in a show at Bedford, he entrusted some of his samples to an agent of the defendant company for carriage to a show-ground at Newcastle. On the consignment note he wrote. 'Must be at Newcastle Monday certain.' Owing to a default on the part of the company, the samples arrived late for the Newcastle show. The plaintiff therefore claimed damages for his loss of profits at the show Is the defendant liable to pay damages for the loss of profits at the show?
Solution. Yes, The way to approach this problem is to try and answer whether the loss actually resulting from the breach was at the time of the contract reasonably foreseeable as liable to result from the breach. In this case, the defendant had knowledge of the special circumstances, that the goods were to be exhibited at the Newcastle show, and so should have contemplated that a delay in delivery might result in this loss.

Q.5. Principle: When a contract is broken, the party who suffers from breach is entitled to receive from the party who has broken the contract, compensation for any loss caused to him thereby, which naturally arose in the usual course of things from such breach.
Facts: Gopi, a cloth merchant from Delhi, sent some woollen consignments to England, through Krishna Navigation Company. The agreement provided that the carrier shall deliver the goods in England by the end of October. But the goods actually reached England only by the middle of January As a result, Gopi was deprived of the benefits of initial winter demand for woollen clothing Gopi filed a suit against Krishna Company for the loss in profits.
Solution. The loss actually resulting from the breach was at the time of the contract reasonably foreseeable as liable to result from the breach. It is reasonable to assume that Krishna Company, which was sending “woollen" consignments to England, knew that these consignments were to be used to make woollen commodities and there is a demand for woollen commodities in winter. Thus, the loss arose in the usual course of things.

Note: In this problem the key word is "woollen". If Krishna Company did not have the knowledge that woollen consignments were being sent, then the loss would not have been reasonably foreseeable as arising in the usual course of things

Special Contracts 

Agency An agent is someone who can represent another person (i.e. the Principal) with third parties. "Agent" and “Principal" are defined in the Indian Contract Act as follows - "An agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the principal”

Creation of Agency : The relationship of principal and agent may be created in any of the following ways:

• By an actual authority to contract given by the principal to the agent:
• By an ostensible authority conferred by the principal on the agent even though no actual authority has been given;
• By an implication of law in cases of necessity.

Q.1. Facts: The defendants had forbidden the manager of their hotel from buying cigars on credit. The plaintiff gave cigars (for hotel use) to the manager on credit. The manager's name appeared over the board, the plaintiff trusted him and had never heard of the defendants. Being unable to recover the price from the manager, the plaintiff sued the defendants. Can the plaintiff recover the price from the hotel?
Solution. Yes, The court found that "cigars were.. such as would naturally be supplied to and dealt in such an establishment". Once it is established that the defendant is the real principal, the ordinary doctrine as to principal and agent applies, and the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority. In other words, the principal is liable for acts of the agent as long as the acts are within the authority as it appears to others.

Q.2. Facts: In pursuance of an agreement, the plaintiff dispatched a wagonload of potatoes to the defendant. The latter refused to take delivery. The plaintiff then sent his agent to take delivery and to sell them at the available price The defendant offered to the agent a lesser sum of money in full payment, which the agent accepted. The plaintiff received the money but brought an action for the balance. Will the plaintiff succeed?
Solution. No, The defendant can presume that the agent, who was sent to sell at the available price, had the authority to settle with the defendant at a less price. Thus, since the act of the agent was within his ostensible authority, the principal cannot maintain that there was no authority.

Q.3. Facts: A quantity of butter was consigned with the defendant railway company. It was delayed in transit owing to a strike The good being perishable, the company sold them. Is the sale binding on the owner?
Solution. Yes, Ordinarily, the agent railway company would not have the authority to sell the goods. However, the company’s action is justified by the necessities of the case and therefore the sale is binding on the owner (the principal).

Relations between Principal and Age 

“Contracts entered into through an agent, and obligations arising from an act done by an agent, may be enforced in the same manner, and will have the same legal consequences as if the contracts had been entered into and the acts done by the principal in person” In any event if a third party is injured these duties don't save a principal from the liability towards the third party - they just enable him to take action against the agent.
(a) Duty to follow instructions or customs
Q.1. Facts: An agent was instructed to warehouse his principal's goods at a particular place. He placed a part of them at a different warehouse, which was equally safe But the goods were destroyed without negligence. Is the agent liable for the loss?
Solution. Yes. Any disobedience of, or departure from, the instructions makes the agent liable for the loss.

Note : If the warehouse where the agent was supposed to place the goods was unsafe, then the situation would be different. Then, if the agent took the goods to a different warehouse, which was safe, then he would not be liable if the goods were destroyed because there would be an agency of necessity. In the absence of instructions, business customs must be followed Where, for example, the customs of a particular trade require that goods should not be sold on credit or in return for a negotiable instrument, the agent should not do so. If he does, he would be liable to the principal for any loss resulting from the transaction

(b) Duty of reasonable care and skill 
Q.1. Facts: A, a merchant in England, directs B, his agent at Bombay, who accepts the agency, to send him 100 bales of cotton by a certain ship. B, having it in his power to send the cotton, omits to do so. The ship arrives safely in England. Soon after her arrival, the price of cotton rises. Is B liable?
Solution. Yes, B is bound to make good to A the profit which might have made by the 100 bales of cotton at the time the ship arrived, but not any profit he might have made by the subsequent.
(c) Duty not to make secret profit from agency' 
Q.1. Facts: The plaintiff employed the defendants, the auctioneers, to sell certain property for him, and undertook to pay them a commission on the sale and their out-of-pocket expenses, including those of printing and advertising The defendants received discounts from printers and advertisers, but charged the plaintiff with the full amount in the honest belief that they were entitled to keep the discounts for themselves. Do the defendants have to return the discount money?
Solution. Yes, Though the defendants may have acted honestly, an agent has a duty not to make a secret profit from the transaction. Therefore, the court held that the defendants were bound to account to the plaintiff for the money.
(d) Duty to avoid conflict of interest 
Q.1. Facts: A directs B to sell A's estate. B, while looking around the estate before selling it, finds a mine on the estate which is unknown to A. B informs A that he wishes to buy the estate for himself, but conceals the discovery of the mine. A allows B to buy in ignorance of the existence of the mine. A, on discovering that B knew of the mine at the time he bought the estate, wants to repudiate the sale. Can A repudiate the sale?
Solution. Yes, B, being A’s agent, has a duty not to put himself in a position where his duty and interest conflict. In this case, no real consent has been obtained, as B has concealed a material fact Therefore A can repudiate the sale.

Q.2. Facts: The plaintiff consigned a ship to G. & Co. in China for sale for a minimum price of S90.000. G & Co. employed the defendant in Japan to sell the ship, and this sub-agency was consented to by the plaintiff. The defendant having tried in vain to sell the ship at this price, bought her himself for S90.000. Shortly afterwards he resold her to a Japanese prince for $160,000 The $90,000 was remitted through G. & Co to the plaintiff, but he filed a bill to compel the defendant to account for the profit made by the resale. Will the plaintiff succeed?
Solution. Yes, The court held that since the defendant was the plaintiff s agent, he was in breach of duty by changing his position without the consent of his principal. Thus, he was bound to account for the profit that he had made

Note: In this particular case, the agent may have been honest There would have been nothing wrong if the agent had bought the ship after disclosing the fact to his principal. But his failure to do so, makes him responsible to the principal for any profit made.

Bailment

A bailment, in simple terms, is a contract where the property of one person is in the possession of another for a temporary period. An example of this would be a person leaving his music system with a repair shop, or his car a a garage.
The Indian Contract Act defines Bailment as 
"A bailment' is the delivery of goods by one person to another for some purpose, upon a contract that they shall when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them ”
The Bailor is the person delivering the goods and the Bailee is the person to whom the goods are delivered and who keeps the goods in her/his possession.
‘In all cases of bailment the bailee is bound to take a lot of care of the goods bailed to him as a man of ordinary) prudence would, under similar circumstances, take off his own goods of the same bulk, quality and value of the goods bailed.'
A bailee kept the bailor's ornaments in a locked safe kept the key in the cash-box in the same room, which though locked, was on the ground floor and easily accessible to burglars by removing the latch. It was held that the bailee would be liable for not taking reasonable care of the goods in his possession.
The law imposes certain other duties on the bailee as regards the goods or articles in her/his possession

• duty not to use the goods or articles in an unauthorised manner.
• duty to ensure that the goods delivered to her/him by different parties do not get mixed
• duty to return the goods immediately after the completion or accomplishment of the purpose for which the goods were delivered

Q.1. Facts: Maya is the owner of a white Mercedes Benz. One day. Lekha. her neighbour, takes it without Maya’s knowledge and gives it to a garage, requesting that it be repainted grey. The garage owner, Manu, duly repaints the car and wants to return it to Lekha. By then Maya finds out about the transaction and tells Manu not to return the car Does Manu have the option to retain the car and return it to Maya instead of Lekha?
Solution. No, Manu has a duty to return the goods to the person who has bailed them to him, and he does not have right to retain the car by saying that the bailor does not have the right to receive the goods back. In such a situation, he cannot be held responsible for the fact that she is not the rightful owner of the car and that she stole it from Maya.

Q.2. Facts: Consider another situation: unaware that the car does not belong to Lekha, Manu returns it to her and later finds out that it belongs to Maya. Maya finds out about this arid threatens to sue Manu because he has given the car to someone who is not the rightful owner. Is Manu liable in such a situation?
Solution. No, This is because Manu has, in good faith, returned the goods to Lekha, thinking her to be the rightful owner. There are certain situations where the goods may increase or they may earn profit when they are in the possession of the bailee. In such cases, unless the contract between the bailor and the bailee states otherwise, the bailee is required to deliver these profits back to the bailor, (e g. if a cow that has been left with Ramesh by Sudhir gives birth to a calf, then Ramesh is duty bound to give the calf to Sudhir along with the cow).
As regards the rights of the bailee

• He is entitled to compensation as per the terms of the bailment contract.
• He is entitled to the expenses (as in a gratuitous bailment) incurred for the purpose of bailment. In all situations, when the bailee's lawful charges have not been paid, the bailee has a right of lien on the goods, i.e. the bailee will be entitled to retain the goods till such time as the charges due in respect of the goods have been paid.

Partnership 

(i) Nature and Types of Partnership: A partnership is the relation between persons (called partners’) who have agreed to share the profits of a business carried on by all of them or by any of them acting for all. Collectively, all the partners are a partnership firm. The partnership is the relationship that binds the partners, whereas the firm is the collective name for all the partners.
(ii) Relationship between Partners: The relationship between partners is governed by the deed or the Agreement entered into by them in order to establish the partnership firm.
(iii) Authority of a Partner: This is the critical issue because very often the rights of third parties as against the firm or other partners, depends on whether the act which may give rise to such rights, was within the authority of the partner in question. partner in question.
(iv) Rights of a Partner : The rights incident on every partner of a firm are listed be the Act as follows:

• Right to take part in the conduct of the firm’s business
• Right to have access to the books of the firm- either personally or through an agent (accountant etc.)
• Right to share equally in profits earned by the firm this right brings with it the duty to contribute equally) to the losses of the firm
• Right to vote for deciding all matters. And the right to have ordinary matters decided by a majority ant fundamental matters decided by unanimity
• Right to interest (out of profits of the firm) on the none; advanced or lent to the firm (over and above the capita contribution of the partner)
• Right to be indemnified in respect of all payment made and liabilities incurred in the ordinary course of business as well as in doing certain acts during emergencies to protect the firm emergencies to protect the firm 

Every partner can, by virtue of being an agent of the firm bind the firm with any act. However, a partner has the authority to bind the other partners through an act only if
(i) the act has been done in the firm's name OR
(ii) in any other manner expressing or implying an intentior to bind the other partners Implied Authority
Please note that in certain situations, if the partner 
(i) is carrying on the business of the kind usually carried out by the firm
(ii) in the usual way (as is usual in the partnership business)
(iii) the act is in the firm’s name or in any other manner expressing or implying an intention to bind the other partners
then, the partner will be deemed by law to have the ‘Implied Authority' (also ostensible or apparent authority) to bind the firm with such acts It is also important to mention here that as with every other aspect of partnership, the implied authority of a partner may also be restricted or expanded by the deed.
Thus, the implied authority of the partner always depend: on the kind of work / business earned on by the partnership firm, e.g.

Q.1. Facts: Shama and Rajiv are carrying on a partnership business as pawnbrokers. One day Sudha pawns a bangle to Shama in the partnership shop and Shama, without showing it in the partnership records, appropriates it. Sudha then comes to the shop with the required amount of money, asking for the bangle to be returned. The firm denies any knowledge of or liability for Shama’s actions.
Solution. As per the principle of implied authority, Shama's act of taking the bangle is something that is part of the ordinary course of this partnership s business, and therefore, the firm will be bound by Shama's act and will have to compensate Sudha for the loss of her bangle. In the same situation, if Sudha had conspired with Shama to carry out this fraud, then the firm will not be responsible for the loss of the bangle In order to further clarify this concept, the Act also specifies certain acts that will not be construed to fall within the implied authority of a partner, like acquisition and transfer of immovable property, admitting liability in any legal proceedings, etc.

Duties of a Partner

The Act lays down the following duties of every partner:

• Duty of good faith and common advantage the duty to carry on the firm's business to the greatest common advantage and to be just and faithful to one another
• Duty to render true accounts and full information of all things affecting the firm
• Duty to indemnify for fraud or for wilful neglect the duty to indemnify the firm for any loss caused to it by her/his fraud in the conduct of the firm's business or by her/his wilful neglect in the conduct of her/his business
• Duty to act and discharge responsibilities with due diligence
• Duty to contribute equally to the firm’s losses
• Duty to account for profit derived from the use of the firm’s properties or the firm's business connections or the firm's name, and to pay the same to the firm.
• Duty not to compete with the firm; to account for and pay to the firm all the profits derived from any business that s/he carries on in the same nature as that of the firm's business.

Liability of a Partner by Holding Out / Estoppel

It is obvious that a partner is liable for every act that s/he does t in the course of the partnership business.
Any person who, by words or by conduct, represents r himself or knowingly permits himself to be represented as r a partner in a firm, is liable as a partner in that firm to anyone who has, on the faith of that representation, given credit to the firm, whether the person representing himself  or represented to be a partner in the firm does or does not know that the representation has reached the person so diving credit.