Define contract of Guarantee. Explain the rights of surety.

What are the rights of the surety against the principal debtor,
creditor and co-sureties ?
Rights of the surety.
Right of surety.

A Contract to perform the promise, or discharge the liability, of a third

person in case of his default is called Contract of Guarantee.
A guarantee may be either oral or written.

 The person who gives the guarantee is called the Surety

 The person on whose default the guarantee is given is called
the Principal Debtor
 The person to whom the guarantee is given is called the Creditor

Rights of surety

A surety also has certain rights against the principal debtor, the creditor
and the co-sureties. Each of these is explained below:

Rights of Surety against the Principal Debtor

Right of Subrogation (Sec 140): When a surety makes a payment to a

creditor on behalf of the principal debtor in case of a default, he
acquires the rights of a creditor against the principal debtor. He can
recover the entire amount that he has paid to the creditor. This is
called the right of subrogation.

Sec 140 Rights of surety on payment or performance.—Where a

guaranteed debt has become due, or default of the principal debtor to
perform a guaranteed duty has taken place, the surety, upon payment
or performance of all that he is liable for, is invested with all the rights
which the creditor had against the principal debtor. —Where a
guaranteed debt has become due, or default of the principal debtor to
perform a guaranteed duty has taken place, the surety, upon payment
or performance of all that he is liable for, is invested with all the rights
which the creditor had against the principal debtor."

Illustration

A has to pay Rs. 2,00,000 to B. C is the surety for the debt. B demands
the payment from A on the due date. A fails to pay the amount. C who
is the surety is compelled to make the payment on behalf of A. C has
the right to recover the amount from A with all the benefits promised to
B as he has now acquired the right of a creditor.

Right of Indemnity against the principal debtor ( Sec 145): When a

contract of guarantee is entered into there is an implied promise that
the principal debtor will indemnify the surety for all the payments
rightfully made by him. If he has made any payments wrongfully he will
not be able to recover any amounts.
Sec 145. Implied promise to indemnify surety.—In every contract of
guarantee there is an implied promise by the principal debtor to
indemnify the surety, and the surety is entitled to recover from the
principal debtor whatever sum he has rightfully paid under the
guarantee, but no sums which he has paid wrongfully. —In every
contract of guarantee there is an implied promise by the principal
debtor to indemnify the surety, and the surety is entitled to recover
from the principal debtor whatever sum he has rightfully paid under
the guarantee, but no sums which he has paid wrongfully.

Illustration

(a) B is indebted to C, and A is surety for the debt. C demands

payment from A, and on his refusal sues him for the amount. A
defends the suit, having reasonable grounds for doing so, but he is
compelled to pay the amount of debt with costs. He can recover
from B the amount paid by him for costs, as well as the principal
debt.

Right Against the Creditor

Right to Claim Securities: According to section 141 of the Act, the

surety has the right of subrogation after performing his duty or making
a payment to the creditor. All the rights of the creditor are passed on to
the surety. Accordingly the surety gets the right to the benefit of every
security, which the creditor has against the principal debtor.
141. Surety’s right to benefit of creditor’s securities.—A surety is entitled
to the benefit of every security which the creditor has against the
principal debtor at the time when the contract of suretyship is entered
into, whether the surety knows of the existence of such security or not;
and if the creditor loses, or without the consent of the surety, parts with
such security, the surety is discharged to the extent of the value of the
security.

Illustration

(a) C, advances to B, his tenant, 2,000 rupees on the guarantee of A. C

has also a further security for the 2,000 rupees by a mortgage of B’s
furniture. C, cancels the mortgage. B becomes insolvent and C sues A
on his guarantee. A is discharged from liability to the amount of the
value of the furniture.

Loss of security without creditor’s negligence: Loss of securities results

in discharge of the surety however if the securities are lost w/o any fault
of creditor, the surety is not discharged thereby.

Securities received after the contract of guarantee: As per sec 141

surety is entitled to the benefit of every security which the creditor has
at the time when the contract of suretyship is entered into. It means the
surety has no right to those securities which the creditor obtained from
the principal debtor after making the contract of guarantee.
Surety has no right to goods in hypothecation: In case of hypothecated
goods the possession of the security remains with the borrower itself.

Hence the surety has no rights

Right Against Co-sureties

146. Co-sureties liable to contribute equally.—Where two or more

persons are co-sureties for the same debt or duty, either jointly or
severally, and whether under the same or different contracts, and
whether with or without the knowledge of each other, the co-sureties, in
the absence of any contract to the contrary, are liable, as between
themselves, to pay each an equal share of the whole debt, or of that
part of it which remains unpaid by the principal debtor.

Illustration

(a) A, B and C are sureties to D for the sum of 3,000 rupees lent to E. E
makes default in payment. A, B and C are liable, as between
themselves, to pay 1,000 rupees each.

(b) A, B and C are sureties to D for the sum of 1,000 rupees lent to E,
and there is a contract between A, B and C that A is to be responsible
to the extent of one-quarter, B to the extent of one-quarter, and C to the
extent of one-half. E makes default in payment. As between the sureties,
A is liable to pay 250 rupees, B 250 rupees, and C 500 rupees.
147. Liability of co-sureties bound in different sums.—Co-sureties who
are bound in different sums are liable to pay equally as far as the limits
of their respective obligations permit.

Illustration

(a) A, B and C, as sureties for D, enter into three several bonds, each in
a different penalty, namely, A in the penalty of 10,000 rupees, B in that
of 20,000 rupees, C in that of 40,000 rupees, conditioned for D’s duly
accounting to E. D makes default to the extent of 30,000 rupees. A, B
and C are liable to pay 10,000 rupees.

(b) A, B and C, as sureties for D, enter into three several bonds, each in
a different penalty, namely, A in the penalty of 10,000 rupees, B in that
of 20,000 rupees, C in that of 40,000 rupees, conditioned for D’s duly
accounting to E. D makes default to the extent of 40,000 rupees. A is
liable to pay 10,000 rupees, and B and C 15,000 rupees each.

Explain the circumstances in which a surety can be discharged

from his liability.
What is continuing Guarantee ? Explain the various modes of
discharge of surety from his liability.
Discuss the different modes of discharge of the liability of
surety.
Define contract of guarantee and discuss the modes of discharge
of surety from liability.

Section 126 in The Indian Contract Act, 1872

126. ‘Contract of guarantee’, ‘surety’, ‘principal debtor’ and ‘creditor’—

A ‘contract of guarantee’ is a contract to perform the promise, or
discharge the liability, of a third person in case of his default. The
person who gives the guarantee is called the ‘surety’; the person in
respect of whose default the guarantee is given is called the ‘principal
debtor’, and the person to whom the guarantee is given is called the
‘creditor’. A guarantee may be either oral or written.

Section 129 in The Indian Contract Act, 1872

129. ‘Continuing guarantee’.—A guarantee which extends to a series of

transactions, is called a ‘continuing guarantee’. —A guarantee which
extends to a series of transactions, is called a ‘continuing guarantee’.

Illustrations

(a) A guarantees payment to B, a tea-dealer, to the amount of £ 100, for

any tea he may from time to time supply to C. B supplies C with tea of
above the value of £ 100, and C pays B for it. Afterwards, B supplies C
with tea of the value of £ 200. C fails to pay. The guarantee given by A
was a continuing guarantee, and he is accordingly liable to B to the
extent of £ 100.

(b) A guarantees payment to B of the price of five sacks of flour to be

delivered by B to C and to be paid for in a month. B delivers five sacks
to C. C pays for them. Afterwards B delivers four sacks to C, which C
does not pay for. The guarantee given by A was not a continuing
guarantee, and accordingly he is not liable for the price of the four
sacks.

Discharge of Surety

(1) 130. Revocation of continuing guarantee.—A continuing guarantee

may at any time be revoked by the surety, as to future transactions, by
notice to the creditor

(a) A, in consideration of B’s discounting, at, A’s request, bills of

exchange for C, guarantees to B, for twelve months, the due payment
of all such bills to the extent of 5,000 rupees. B discounts bills for C to
the extent of 2,000 rupees. Afterwards, at the end of three months, A
revokes the guarantee. This revocation discharges A from all liability to
B for any subsequent discount. But A is liable to B for the 2,000
rupees, on default of C.

(b) A guarantees to B, to the extent of 10,000 rupees, that C shall pay

all the bills that B shall draw upon him. B draws upon C, C accepts the
bill. A gives notice of revocation. C dishonours the bill at maturity. A is
liable upon his guarantee.
Sitaram Gupta Vs Punjab national Bank

The appellant having entered into an agreement of guarantee with the

respondent bank revoked by letter written to the manager of the bank,
before the loan was in fact advanced by the Bank.

It was held that the agreement not being unlawful, would override the
statutory provision contained in Sec 130 ICA.

The appellant was thus held not entitled to deny liability to pay the debt
advanced by the Bank.

(2) 131. Revocation of continuing guarantee by surety’s death.—The

death of the surety operates, in the absence of any contract to the
contrary, as a revocation of a continuing guarantee, so far as regards
future transactions.

The effect of the death of the surety is that it results in automatic

revocation of the continuing guarantee as to future transactions.

There may, however, be no revocation if it is stipulated that on the

death of the surety, his legal representatives will be responsible for such
liability.

(3) 133. Discharge of surety by variance in terms of contract.—Any

variance, made without the surety’s consent, in the terms of the
contract between the principal 1[debtor] and the creditor, discharges
the surety as to transactions subsequent to the variance.

Bonar V. Macdonald
(a) A becomes surety to C for B’s conduct as manager in C’s bank.
Afterwards, B and C contract, without A’s consent, that B’s salary shall
be raised, and that he shall become liable for one-fourth of the losses
on overdrafts. B allows a customer to over-draw, and the bank loses a
sum of money." A is discharged from his suretyship by the variance
made without his consent, and is not liable to make good this loss.

(b) A guarantees C against the misconduct of B in an office to which B

is appointed by C, and of which the duties are defined by an Act of the
Legislature. By a subsequent Act, the nature of the office is materially
altered. Afterwards, B misconducts himself. A is discharged by the
change from future liability under his guarantee, though the misconduct
of B is in respect of a duty not affected by the later Act.

Novation of Contract

Novation, i.e., entering into a fresh contract, either between the same
parties or between other parties, constitutes another mode of
discharging a surety from the liability. If the parties to a contract (of
guarantee) agree to substitute it with a new contract, the original
contract need not be performed and so the surety stands discharged
with regard to the old contract.

(4) 134. Discharge of surety by release or discharge of principal

debtor.—The surety is discharged by any contract between the creditor
and the principal debtor, by which the principal debtor is released, or
by any act or omission of the creditor, the legal consequence of which
is the discharge of the principal debtor.

(a) A gives a guarantee to C for goods to be supplied by C to B. C

supplies goods to B, and afterwards B becomes embarrassed and
contracts with his creditors (including C) to assign to them his property
in consideration of their releasing him from their demands. Here B is
released from his debt by the contract with C, and A is discharged from
his suretyship.

(b) A contracts with B for a fixed price to build a house for B within a
stipulated time. B supplying the necessary timber. C guarantees A’s
performance of the contract. B omits to supply the timber. C is
discharged from his suretyship.

(5) 135. Discharge of surety when creditor compounds with, gives time
to, or agrees not to sue, principal debtor.

Creditor compounding with principal debtor : When the creditor

makes compositions with the principal debtor without the consent of
the surety, this means variation in the original contract. Obvious
consequence, discharge of surety from the liability.

Creditor promising to give time to the principal debtor : Promise to

give time to the principal debtor means extending the period of
payment which was not contemplated in the contract of guarantee.

The surety expects that the creditor will take the performance from the
principal debtor without any delay.
Creditor promising not to sue the principal debtor : A contract between
the creditor and the principal debtor whereby the creditor promises not
to sue the principal debtor, also results in the discharge of the surety.

(6)139. Discharge of surety by creditor’s act or omission impairing

surety’s eventual remedy.—If the creditor does any act which is
inconsistent with the rights of the surety, or omits to do any act which
his duty to the surety requires him to do, and the eventual remedy of
the surety himself against the principal debtor is thereby impaired, the
surety is discharged.

(a) B contracts to build a ship for C for a given sum, to be paid by

instalments as the work reaches certain stages. A becomes surety to C
for B’s due performance of the contract. C, without the knowledge of
A, prepays to B the last two instalments. A is discharged by this
prepayment.

(7) 141. Loss of security by the creditor.—A surety is entitled to the

benefit of every security which the creditor has against the principal
debtor at the time when the contract of suretyship is entered into,
whether the surety knows of the existence of such security or not; and if
the creditor loses, or without the consent of the surety, parts with such
security, the surety is discharged to the extent of the value of the
security.

Example: The seller of the goods allows the buyer to take away the
goods without insisting for the payment of the price for the same, the
surety who guarantee’s the payment of the price by the buyer, is
discharged from his liability.

Discharge of principal debtor without creditor’s fault does not

discharge the surety: According to section 141, the surety is discharged
if the principal debtor gets discharged due to the fault of the creditor. If
there is no voluntary act of the creditor in the discharge of the principal
debtor, the surety continues to be liable in spite of discharge of the
principal debtor.

Substitution of surety: In case the surety is replaced by a party without

the written approval of the creditor, the surety is not discharged.

Define ‘Pledge’. Explain the rights and duties of Pledgee.

Define Pledge and explain the rights of Pawnee.
Write short notes on. Pledge.
Define Bailment and Pledge. When is a pledge created by non
owners valid ?
What do you mean by Pledge ? Who can Pledge ? Discuss.
Define pledge. State the circumstances in which a nonowner
can make a valid pledge.
Define pledge. State the circumstances in which a non-owner can
make a valid pledge.
Define Pledge. Explain the Rights and duties of pledgee.
Bailment

Section 148 of Indian Contract Act 1872 defines 'Bailment' as 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 direction of the person
delivering them.

Pledge

When the purpose of the bailment is to secure a loan or a promise, it is

called a pledge. Section 172 of Indian Contract Act 1872 defines
Pledge as follows - Section 172 - The bailment of goods as a security for
the payment of a debt or performance of a promise is called Pledge.

1. Right of Retainer :-

The Pawnee has got a right to retain the goods till the payment of the
debt, or any interest due upon the debt.[vi] The right of retention has
been given to Pawnee in Section 173 of the Contract Act.

S 173. Pawnee’s right of retainer –

The Pawnee may retain the goods pledged, not only for payment of the
debt or the performance of the promise, but for the interests of the
debt, and all necessary expenses incurred by him in respect to the
possession or for the preservation of the goods pledged.

The Pawnee has a right to retain the goods pledged for

 the payment of the debt or the performance of the promise for

which the goods were pledged;
 the interest of the debt; and
 All necessary expenses incurred by him in respect of; the
possession or for the preservation of the goods pledged.

S 174. Pawnee not to retain for debt or promise other than for which
goods pledged – presumption in case of subsequent advances –

The Pawnee shall not, in the absence of a contract to that effect, retain
the goods pledged for any debt or promise of other than the debt or
promise for which they are pledged;

The provisions of S 171, being a specific provision, overrides the

general provisions of S 174. The Banker’s lien under S 171, will
therefore extend to all other pledges with the bank, and the banker
can retain the pledged goods, even if the debtor has not cleared
his amount in connection with another loan.

A lien gives no power of sale or disposition of the goods, whereas

a pawnee has the power to sell in case of default. Lien is not
transferable, but a pledge is assignable.
 In case of Bank of Bihar v. State of Bihar[xi], the goods which
were under the pledge of a bank were seized by the State of Bihar.
It was held that the seizure could not deprive the pledgee of his
right to realise the amount for which the goods were pledged and,
therefore, the State was bound to indemnify him up to the amount
which would have been realised from the goods.

2. Right to Extraordinary Expenses :-

The pawnee is entitled to receive from the pawner extraordinary

expenses incurred by him for the preservation of the goods
pledged. For such expenses, however, he does not have the right
to retain the goods. He can only sue to recover them.[xv] This
right of recovery is provided in Section 175 of the Act as follows:

S 175. Pawnee’s right as to extraordinary expenses incurred –

The pawnee is entitled to receive from the pawnor extraordinary

expenses incurred by him for the preservation of the goods
pledged.

The word used in this section is not ‘retain’, as in two preceding

sections, but ‘receive’. A pawnee has therefore, no right of lien for
‘extraordinary’ expenses, as he has in the case of ‘necessary’
expenses under section 173, but has only a right of action in
respect of them.
 3. Right of Sale:-

On the debtor’s default, the pawnee has the right to sell the goods
pledged for the repayment of the debt or the performance of the
promise. Section 176 which provides for this important right is as
follows:

S 176. Pawnee’s right where pawnor makes default –

If the pawnor makes default in payment of the debt, or performance, at

the stipulated time, or the promise, in respect of which the goods were
pledged, the pawnee may bring as suit against

the pawnor upon the debt or promise, and retain the goods pledged as
a collateral security; or he may sell the thing pledged, on giving the
pawnor reasonable notice of the sale.

If the proceeds of such sale are less than the amount due in respect of
the debt or promise, the pawnor is still liable to pay the balance. If the
proceeds of the sale are greater that the amount so due, the pawnee
shall pay over the surplus to the pawnor.

Upon a default being made by the pawner in the payment of the debt
or performance of the promise, the pledgee gets two distinct rights
under section 176 of the Act. Firstly, the pledgee may sue upon the
debt and retain the goods as a collateral security[xvii]. Secondly, he may
sell the goods after reasonable notice of the intended sale to the
pawner.

In Central Bank of India v. Abdul Mujeeb Khan[xxi], the bank took

over the possession of the hypothecated truck but thereafter neither
sold it according to the agreed terms nor took care of it, leaving it in
open place, the bank was liable for the extraordinary depreciation in
the value of the vehicle.

Requirement of Notice:-

Before making the sale, the pledger is required to give to the pawner, a
reasonable notice of his intention to sell.

Loss of Security due to Pledgee’s Negligence:-

Where goods are lost due to the negligence of the pledgee, the liability
of the pledger is reduced to the extent of the value of such goods which
are lost.

Pawner’s Right to Redeem:-

Section 177 of the Act provides for the most valuable right of the
pawner:

S 177. Defaulting pawnor’s right to redeem-

If a time is stipulated for the payment of the debt, or performance of

the promise,for which the pledged is made, and the pawnor makes
default in payment of the debtor performance of the promise at the
stipulated time, he may redeem the goods pledged at any subsequent
time before the actual sale of them; but he must, in that case, pay, in
addition, any expenses which have arisen from his default.

This provision is supplementary to the earlier section. Even after the

time for payment of the debt or the performance of the promise has
expired, the pawnor is entitled to redeem the goods pledged until they
are actually sold; but he must then also pay any expenses which arise
from his default.

Heritable Right:

Certain gold ornaments were pledged with a bank as a security for a

gold loan. The pawnor died. His wife sought to redeem the pledge by
repaying the loan. She produced a ‘will’ of her husband to show her
right. The court said that she was entitled to redeem.

Premature Redemption:

Where the pawner redeems before expiry of the specified period, he

would remain bound by the terms of the loan, if any, which require that
a premium would be leviable on premature payment.

Statutory Right:

Where the property of an employer was pledged with a bank as

security for repayment of a loan, the court said that it could be attached
and sold for recovery of employee’s Provident Fund dues.
Conclusion

Pledge is a kind of bailment where a thing is delivered as security for

the repayment of a debt or performance of any promise. Delivery of
the possession to the pawnee may be actual delivery or constructive
delivery. Ownership of the pledged article does not pass to the pledgee.
The pawnee has the right to retain goods till the payment, of the debt,
any interest on the debt, and any other necessary expenses incurred for
preservation of the goods.

Who Can Pledge?

Pledge by Non-Owners?

1. Mercantile agent (sec 178)

A mercantile agent, who is in possession of the goods or documents of

title of goods with the consent of the owner, can make a valid pledge of
the goods while acting as a mercantile agent in the ordinary course of
the business. The pledge will be valid even if the agent has no authority
to pledge the goods provided that the pawnee acts in goods faith and
has no notice, at the time of pledge, that the pawnor has no authority to
pledge (Sec. 178).
Illustration
Sudhir was an agent of Yogendra who was a manufacturer of readymade
garments. Yogendra had a shortage of working capital due to bad debts
therefore Sudhir took a loan of rupees fifty thousand from Devendra
and kept as security a hundred suits worth rupees thousand each with
Devendra for a period of six months.
2. A person in possession under voidable contract (Sec 178 A)
According to section 178-A, “if a person obtains possession of goods
under a voidable contract, the pledge created by him / her is valid
provided:
(1) The contract has not been rescinded before the contract of pledge

(2) The Pawnee acts in good faith and has no knowledge about the defective title of
the Pawnor”.

Example- where A purchase a watch from B, under coercion and

pawns it with C before the contract is cancelled by B. the pledge is
valid. C will get a good title to the watch and B can only claim damages
from A

3. Pledge where Pawnor has limited interest: According to section 179

of the Indian Contract Act, “where a person pledges goods in which he
/ she has limited interest, the pledge is valid to the extent of that
interest. A person having a lien over the goods or a finder of goods may
pledge them to the extent of his /her interest”.
Illustration
Margaret found a wristwatch lying on the road and could not find the
owner of the watch. She took the watch home and because it was not
working, she got it repaired for rupees two hundred. After a couple of
days she took some money from a friend on loan and pledged the
watch with her. The pledge was valid to the extent of Margaret’s
interest in the watch, namely rupees two hundred.

4. Pledge by Seller in possession of goods after sale ( sec 30(1) of sale

of goods act)
There are two situations in this. In the first situation the seller is left
with possession of goods after sale has been made

Very often A after purchasing the goods, leaves the goods with the
seller. In such a case, the seller can make a valid pledge provided the
pawnee acts in goods faith and without knowledge of the pawnor's
defect of title
Illustration
Simran bought (paid full money) a television set from a shop but did
not take it with her as she was shifting to a new house and so wanted the
seller to send the set after two days into her new house. Later that day
the seller took money on loan from his friend and pledged the sold
television set to him.

5. Pledge by Seller in possession of goods after sale ( sec 30(1) of sale

of goods act)

In the second situation the buyer obtains possession of goods with

the consent of the seller before the sale has been made.

Sometimes, a buyer may obtain possession of the goods with the

consent of the seller before sale. In such a case also, a valid pledge
can be created by the prospective buyer provided the pawnee acts
in good faith and has no knowledge of the pawnor's defect of title.

Illustration
Simran wanted to buy a television set on easy installments. She took the
televison set home and promised the seller to pay the balance in twenty
monthly installments. The very next day Simran took money on loan
and pledged the television set to the creditor.
Explain the different modes of termination of an agency.
Who is an agent ? Explain the different modes of termination
of agency.
Explain the circumstances in which a contract of agency is terminated.
Define agency. Explain the different modes of termination of agency.
Termination of Agency.
CONTRACT OF AGENCY
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.

Section 201 Termination of agency: An agency is terminated by the

principal revoking his authority, or by the agent renouncing the
business of the agency; or by the business of the agency being
completed; or by either the principal or agent dying or becoming of
unsound mind; or by the principal being adjudicated an insolvent
under the provisions of any Act for the time being in force for the relief
of insolvent debtors.
207. Revocation and renunciation may be expressed or implied.—
Revocation or renunciation may be expressed or may be implied in the
conduct of that principal or agent respectively.

Illustration: A empowers B to let A’s house. Afterwards A lets it

himself. This is an implied revocation of B’s authority.

RD Saxena V. Balaram Prasad Sharma,

The apex court said that the right of the litigant was to be read as the
corresponding counterpart of the professional duty of the advocate.
Therefore, the refusal to return the files to the client when he
demanded the same, amounted to misconduct under Section 45 of the
advocates act.

202. Termination of agency, where agent has an interest in subject-

matter.—Where the agent has himself an interest in the property which
forms the subject-matter of the agency, the agency cannot, in the
absence of an express contract, be terminated to the prejudice of such
interest.

Illustration:

(a) A gives authority to B to sell A’s land, and to pay himself, out of the
proceeds, the debts due to him from A. A cannot revoke this authority,
nor can it be terminated by his insanity or death.

203. When principal may revoke agent’s authority—The pricnipal may,

save as is otherwise provided by the last preceding section, revoke the
authority given to his agent at any time before the authority has been
exercised so as to bind the principal
204. Revocation where authority has been partly exercised.—The
principal cannot revoke the authority given to his agent after the authority
has been partly exercised, so far as regards such acts and obligations as
arise from acts already done in the agency.

(a) A authorizes B to buy 1,000 bales of cotton on account of A and to

pay for it out of A’s money remaining in B’s hands. B buys 1,000 bales
of cotton in his own name, so as to make himself personally liable for
the price. A cannot revoke B’s authority so far as regards payment for
the cotton.

(b) A authorizes B to buy 1,000 bales of cotton on account of A, and to

pay for it out of A’s money remaining in B’s hands. B buys 1,000 bales
of cotton in A’s name, and so as not to render himself personally liable
for the price. A can revoke B’s authority to pay for the cotton.

205. Compensation for revocation by principal, or renunciation by

agent.—Where there is an express or implied contract that the agency
should be continued for any period of time, the principal must make
compensation to the agent, or the agent to the principal, as the case may
be, for any previous revocation or renunciation of the agency without
sufficient cause.

206. Notice of revocation or renunciation.—Reasonable notice must be

given of such revocation or renunciation, otherwise the damage thereby
resulting to the principal or the agent, as the case may be, must be made
good to the one by the other.

Om Prakash Pariwal : The petitioners were appointed the storing agent

of Food Corporation Of India. Pursuant to the contract the storing agent
invested huge sums of money, engaged a number of workmen and
started an infrastructure of business, the contract of agency was
terminated by the FCI w/o giving any reasons or notice. It was held that
termination of agency without giving notice was illegal. Moreover a clause
in the agreement enabling the FCI to terminate the agency like that was
itself unreasonable.

210. Termination of sub-agent’s authority.—The termination of the

authority of an agent causes the termination (subject to the rules herein
contained regarding the termination of an agent’s authority) of the
authority of all sub-agents appointed by him.

209. Agent’s duty on termination of agency by principal’s death or

insanity.— 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.

208. When termination of agent’s authority takes effect as to agent, and

as to third persons.—The termination of the authority of an agent does
not, so far as regards the agent, take effect before it becomes known to
him, or, so far as regards third persons, before it becomes known to them

(a) A directs B to sell goods for him, and agrees to give B five per cent.
commission on the price fetched by the goods. A afterwards by letter,
revokes B’s authority. B after the letter is sent, but before he receives it,
sells the goods for 100 rupees. The sale is binding on A, and B is entitled
to five rupees as his commission.

(b) A, at Madras, by letter directs B to sell for him some cotton lying in
a warehouse in Bombay, and afterwards, by letter revokes his authority
to sell, and directs B to send the cotton to Madras. B after receiving the
second letter, enters into a contract with C, who knows of the first letter,
but not of the second for the sale to him of the cotton. C pays B the
money, with which B absconds. C’s payment is good as against A.

Write a note on ‘Agency by Ratification’.

Write short note on “agency by ratification”.
What is agency by ratification ? Examine the condition of a
valid ratification with illustrations.
What is meant by agency by ratification ? Explain the relevant
rules.
What is agency by ratification ? Explain its essentials.

Agency by Ratification. A situation in which a person or company

inaccurately claims to be an agent for another person or company and
conducts some act in that capacity, but which the principal (who is not
actually a principal) later accepts and recognizes.
Essentials of valid ratification:-

That should be done on behalf of another person - section 196

The principal should be in existence, and Competent to contract when

the act is done

Ratification may be express or implied Section 197

Ratification should be with the full knowledge of facts section 198

Ratification should be off the whole transaction section 199

Ratified that should not be injurious to the third person section 200

Ratification should be made within a reasonable time

Act done on behalf of another section 196

According to Section 196, for that to be ratified it is necessary that the

same has been done on behalf of the person who seeks ratify the same.
Person cannot ratify an act done on behalf of his wife. Similarly, if any
agent acts on his own account, such an act cannot be ratified by another
person.

keighley, maxsted and co. V Durant.

keighley, maxsted and co. Instructed Roberts to buy wheat on joint

account i.e for them and himself, at certain rate.
Wheat was not available to Roberts at that rate, so he purchased wheat
at a slightly higher rate.
It was purchased by Roberts on his own account only.
keighley, maxsted and co. purported to ratify the agreement, but
subsequently when the price fell, refused to take delivery of wheat,
In an action by seller for breach of contract against keighley, maxsted
and co.
It was held that they could not be made liable.

Principal should be existence and Competent to contract

when a principal ratifies an act, the validity of the act village back to the
time of doing of the act by the agent. The act is as valid as if the same
has been done with the prior authority of the principal. So that
ratification is valid, gums necessary that the principal must have been in
existence, and also complete into contract. Thus if a contract is made
on behalf of a company which has not yet been formed, the company
cannot ratify the contract after come into existence

kelner v Baxter

The promoters of a company, which has not yet been formed, entered
into a contract on behalf of the company.
After the company was formed, it ratified the contract.

Then the company went into liquidation. An action was brought against
the promoters to make them liable on the contract.

They tried to avoid their liability by pleading that the contract was
ratified by the company, their liability was over.

It was held that, since the company was not in existence at the time of
doing the act, the purported ratification was a nullity, and therefore the
liability of the promoters continued in spite of ratification.

It is also necessary that that must have been done on behalf of a

principal, making the contract when the Act was done. If an agent
make a contract on behalf of a principal who at the time of making that
contract was incapable, cannot validate the contract by subsequent
ratification. Similarly a minor contract being void ab initio, a minor on
whose behalf a contract is made, cannot subsequently ratify the
contract.

Ratification maybe express or implied section 197

According to Section 197, ratification may be express or be implied.

Illustrations

A without B's authority, buys goods for B. Afterwards B sells them to C

on his own account. B's conduct implies a ratification
Of the purchased made fahim bhai A.

A without B's authority, lends B's money to C. Afterwards, B accepts

interest on the money from C. B's conduct implies a ratification of the
loan.

Ratification with full knowledge of facts section 198

According to Section 198, no valid rectification can be made by a

person who is knowledge of the facts of the case is material a defective.

Savery v. King

A entered into a mortgage agreement on B’s behalf.

The agreement was invalid. Without knowing the fact, B purported to
ratify the transaction. It was held that since B was not knowing about
the invalidity of agreement, the purported ratification of the same by
him, Was of no effect.

Ratification of the whole transaction section 199

According to Section 199, a person ratifying any unauthorised act done

on his behalf ratifies the whole of the transaction of which the act
formed a part. The object of this provision is that no principal may
ratify only those parts of the transaction which are favourable to him. If
he makes a ratification, it is deemed to be the notification of the whole
of that.
Ratified Act should not be injurious to third person section 200

200. Ratification of unauthorized act cannot injure third person—An act

done by one person on behalf of another, without such other person’s
authority, which, if done with authority would have the effect of
subjecting a third person to damages, or of terminating any right or
interest of a third person, cannot, by ratification, be made to have such
effect. —An act done by one person on behalf of another, without such
other person’s authority, which, if done with authority would have the
effect of subjecting a third person to damages, or of terminating any
right or interest of a third person, cannot, by ratification, be made to
have such effect."

A, not being authorised thereto by B, demands on behalf of B, the

delivery of a chattel, the property of B, from C, who is in possession of
it. Demand cannot be ratified by B, so as to make C liable for damage
for his refusal to deliver.

A holds a lease from B, terminable on 3 months, notice. C an

authorised person, what is of termination to A. The notice cannot be
ratified by B, so as to be binding on A.

Ratification within a reasonable time

in order that ratification is valid, it is necessary that the same must be

done within a reasonable time. Delay ratification could prejudice the
interest of third person and therefore undue delay in ratification should
not be there.
Discuss the different methods of dissolution of partnership
firm.
What is meant by dissolution of firm ? Explain the different
grounds on which a firm is dissolved by the order of a court.
What is meant by dissolution of a firm ? What are the different
modes of dissolution ?
When can a court order for dissolution of a firm ?

Meaning of Dissolution. Dissolution of a partnership firm is the

process by which the existence of a partnership firm comes to an end.
This involves the sale or disposal of assets, settlement of liabilities and
closing of books of accounts.

Section 39 of the Indian Partnership Act, provides that

“the dissolution of the partnership between all the partners of a firm is
called the dissolution of a firm.” It implies the complete break down of
the relation of partnership between all the partners.

Different modes in which a firm can be dissolved are as follows:

1. By agreement (Sec. 40)

2. Compulsory dissolution (Sec. 41)
3. On the happening of certain contingencies (Sec. 42)
4. By notice (Sec. 43)
5. Dissolution by the Court (Sec. 44)

By agreement (Sec. 40):

A firm may be dissolved with the consent of all the partners or in
accordance with a contract between the partners. Partnership is created
by contract; it can also be terminated by contract.
Compulsory dissolution (Sec. 41):
A firm is compulsorily dissolved under any of the following
circumstances: (a) When all the partners, or all the partners but one,
are adjudged insolvent; or (b) When some event has happened which
makes it unlawful for the business of the firm to be carried on or for
the partners to carry it on in partnership (e.g., when any partner, who is
a citizen of a foreign country, becomes an alien enemy because of the
declaration of war between his country and India).

Where, however, a firm is carrying on more than one adventures or

undertakings, the illegality of one or more shall not of itself cause the
dissolution of the firm in respect of its lawful adventures or
undertakings.

On the happening of certain contingencies (Sec. 42):

Subject to contract between the partners, a firm is dissolved;

(a) If constituted for a fixed term, by the expiry of that term;

ADVERTISEMENTS:

(b) If constituted to carry out one or more adventures or undertakings,

by the completion thereof;

(c) By the death of a partner; and

(d) By the adjudication of a partner as an insolvent.

The partnership agreement may provide that the firm will not be
dissolved in any of the aforementioned circumstances. Such a provision
is valid.

By notice (Sec. 43).

Where the partnership is at will, the firm may be dissolved by any
partner giving notice in writing to all the other partners of his intention
to dissolve the firm. A notice of dissolution once given cannot be
withdrawn without the consent of other partners (Jones vs. lord).
The firm is dissolved as from the date mentioned in the notice as the
date of dissolution or, if no date is so mentioned, as from the date of
the communication of the notice.
Dissolution by the Court (Sec. 44)

Section 44 enumerates the various grounds on which a petition may be

made to the court for the dissolution of the firm. The Section lays
down that at the suit of a partner, the Court may dissolve a firm on any
of the following grounds:
(a) Insanity:
When a partner becomes insane. In this case the Section permits not
only any of the partners but also the next friend of the insane partner to
file the suit for dissolution of the firm.

(b) Permanent incapacity:

When a partner, other than the partner suing, becomes permanently
incapable of performing his duties as partner.

(c) Misconduct:
When a partner, other than the partner suing, is guilty of misconduct,
which is likely to affect prejudicially the carrying on of the business of
the firm. It is not necessary that the misconduct which is made the
ground of dissolution should be connected with partnership business.

Conviction for travelling without ticket or the adultery by one partner

with another partner’s wife is good grounds for the dissolution of the
firm. Under this clause the suit cannot be brought by the guilty partner
for that would allow him an excuse for getting a firm dissolved at his
will.

(d) Persistent breach of agreement:

When a partner, other than the partner suing, commits frequently
breaches of the partnership agreement or otherwise so conducts
himself in matters relating to the business that other partners find it
impossible to earn1 on the business in partnership with him.
Taking away the books of accounts, using firm’s monies, for his private
debts, continuous quarrelling with other partners are good grounds for
the dissolution.
(e) Transfer of interest:
When a partner, other than the partner suing, has transferred the
whole of his interest in the firm to a third party or has allowed his share
to be sold in execution of a decree.

Transfer or assignment of partner’s interest does not by itself dissolve

the firm. But the other partners may apply to the Court to dissolve the
firm if such a transfer occurs.

(F) Continuous losses:

When the business of the firm cannot be carried on except at a loss.

(g) Just and equitable:

When on any other ground the Court considers it just and equitable
that the firm should be dissolved, for example, if partners are not on
speaking terms.

Provision - 44 (Repeat)

44. At the suit of a partner, the Court may dissolve a firm on any of the
following grounds, namely:-

(a) That a partner has become of unsound mind, in which case the suit
may be brought as well by the next friend of the partner who has
become of unsound mind as by any other partner;

(b) That a partner, other than the partner suing, has become in any way
permanently incapable of performing his duties as partner;

(c) That a partner, other than the partner suing, is guilty of conduct
which is likely to affect prejudicially the carrying on of the business,
regard being had to the nature of the business;
(d) That a partner, other than the partner suing, wilfully or persistently
commits breach of agreements relating to the management of the affairs
of the firm or the conduct of its business, or otherwise so conducts
himself in matters relating to the business that it is not reasonably
practicable for the other partners to carry on the business in
partnership with him;

(e) That a partner, other than the partner suing, has in any way
transferred the whole of his interest in the firm to a third party, or has
allowed his share to be charged under the provisions of rule 49 of
Order XXI of the First Schedule to the Code of Civil Procedure, 1908,
or has allowed it to be sold in the recovery of arrears of land-revenue or
of any dues recoverable as arrears of land-revenue due by the partner;

(f) That the business of the firm cannot be carried on save at a loss; or

(g) On any other ground which renders it just and equitable that the
firm should be dissolved.

Define lien. What are the rights of a bailee in respect of lien ?

Right of lien.
(a) Right of Lien
What do you mean by Lien ? Discuss the different types of Lien
available to a bailee with the help of decided cases ?

Explain the rights of finder of goods.

Explain the Rights of finder of goods and liability towards
the true owner.
Rights of finder of lost goods
Lien is the right of the bailee under which the bailee can retain the
goods of the bailor, and refuse to deliver them to the bailor, until his
due remuneration for services in respect of the goods bailed, or the
amount due is paid

Meaning of Lien: Lien is akin to bailment. It is the right to retain goods

or securities belonging to a debtor until dues are paid fully to the
retainer (creditor)

Right of lien on the goods bailed (Secs. 170 and 171)

Lien is the right of the bailee under which the bailee can retain the
goods of the bailor, and refuse to deliver them to the bailor, until his
due remuneration for services in respect of the goods bailed, or the
amount due is paid.

The Act recognizes two kinds of lien:

1. Particular lien, and

2. General lien.

Particular lien (Sec. 170)

According to Section 170, “Where the bailee has, in accordance with

the purpose of the bailment, rendered any service involving the
exercise of labor or skill in respect of the goods bailed, he has, in the
absence of a contract to the contrary, a right to retain such goods until
he receives due remuneration for the services he has rendered in
respect of them.”

The right of lien is a right to retain possession of the goods. If the

bailee’s right of lien has ended by parting with the possession, it is not
revived if he happens to get the possession again.
In Eduljee v. Café John Bros., the seller sold a second hand
refrigerator. After sometime there was some trouble in it and two parts
of the same were taken out and sent to the seller for repair work. The
seller, to whom the price had not been paid, wanted to exercise the
right of lien. It was held that the seller’s right of lien had came to an
end when he had delivered the refrigerator.

General lien (Sec. 171)

According to Sec. 171, “General lien of bankers, factors, wharfingers,

attorneys and policy-brokers.—Bankers, factors, wharfingers, attorneys
of a High Court and policy-brokers may, in the absence of a contract to
the contrary, retain as a security for a general balance of account, any
goods bailed to them; but no other persons have a right to retain, as a
security for such balance, goods bailed to them, unless there is an
express contract to that effect.”

The right of the general lien has been conferred on the following
kinds of

bailees:

1. General Lien Of Bankers

2. General Lien Of Factors

3. General Lien Of Wharfingers

4. General Lien Of Attorneys

5. General Lien Of Policy-brokers

General lien of Bankers

According to Section 171, bankers can exercise general lien, i.e., they
can retain as a security, goods bailed to them, for a general balance of
account.

This right is available in the absence of a contract to the contrary.

 In K. Sita v. Corporation Bank, the question for decision in the writ
petition was, whether the respondent bank can exercise general lien
over gold ornaments pledged by the petitioner to raise a particular loan,
even after repayment of the loan, for the purpose of recovery of
another loan subsequently advanced to the petitioner by the
respondent bank.

General lien of Factors

A factor is a mercantile agent within the meaning of sec. 2(9) of the

Sale of Goods Act. A factor is an agent entrusted with the possession of
goods of his principal for selling them. He has a right of general lien
over the goods belonging to his principal, which are in his possession,
for the general balance of account.

In E.H. Parakh v. King Emperor, the applicant was the proprietor of

a firm of Motor Engineers and Coach builders. The firm was entrusted
with the possession of an American car “Moon” for sale. The
management of the respondent’s estate was taken over by the Court of
Wards. It was held that the applicant’s firm had a right of general lien
over the car.

General lien of Wharfingers

Wharf means a loading stage alongside a sea or a river for loading and

unloading vessels. Wharfinger means a person who owns, has the care
of, a wharf.

A wharfinger has a lien over the goods of his customer until his
wharfage, i.e., the charges for the use of the wharf, are paid to him.

His claim of general lien is valid only in respect of those goods which
he received in his capacity as a wharfinger.

General lien of Attorney

 According to section 171, the attorneys of the High Court can retain
the documents belonging to the client, which are with him, until his
fees for the professional services are paid to him.

In Lalchand Ramchand v. Pyare Dasrath Chamar, it was held that if

some document, like a pronote, which is the foundation of the suit, is
given to an Advocate for being filed along with the plaint or at the first
hearing of the suit, the necessary implication in such a case is that the
advocate shall file the document as needed, and his right of general lien
as regards such a document is excluded by an implied contract.

General lien of Policy-brokers

A policy-broker means a person who acts as an insurance agent to

effect marine insurance. He is one of the persons mentioned in section
171, having a right of general lien.

He can exercise until the balance of account due to him from a client
has been paid.

What is Bailment ? Discuss the rights and duties of Bailor.

Write short notes on. Duties of Bailee
Define Bailment. What are the rights and duties of Bailee ?
Define Bailment. What are the rights and duties of Bailor ?
Duties of Bailee.
Define Bailment and what are the rights and duties of bailor and bailee ?

Section 148 of Indian Contract Act 1872 defines 'Bailment' as 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 direction of the
person delivering them.

Rights and duties of Bailor

1. Duty to disclose faults

In case of gratuitous bailment, the bailor is expected to disclose to the

bailee all the defects known to him and which would get in the way with
the use of goods bailed. A non-gratuitous bailment or bailment for
reward, however, carries a greater responsibility on the part of bailor.
He will be liable even if he was not in the know of the defects. The
following instances drive home the points.

Example 1

A lends his horse, which he knows to be frisky, to B. He does not

disclose the fact that the horse is frisky. When B tries to ride it, the
horse throws him off its back, and B is injured. A is responsible to B
for injury sustained.

Example 2

A hires a carriage of B, The carriage is unsafe, though B is not aware of

it, and A is injured. B is still responsible to A for the injury.

2. Duty to repay bailee’s expenses

A bailor is duty bound to repay to the bailee expenses incurred by him

for work done on the goods received under conditions of bailment,
and for which he is not receiving any remuneration or deriving any
benefit. In this regard,

3. Duty to indemnify the bailee

The bailor is bound to make good the loss suffered by the bailee that is
in excess of the benefit actually derived, where he had delivered the
goods gratuitously and compelled the bailee to return them before the
expiry of the period of bailment.

4. Duty to compensate bailee for breach of warranty

Every contract of bailment warrants the bailee about the bailor’s title
being defect free. Thus, if bailee subsequently suffers any loss by the
reason of the bailor’s title being defective, it is the duty of the bailor to
compensate the bailee for breach of warranty.

5. Duty to claim back the goods

The bailor is bound to accept the goods upon being returned by the
bailee in accordance with the terms of bailment. If he refuses or fails to
accept back the goods, if offered at a proper time and at a proper place,
without any reasonable ground, he shall be responsible for any loss or
damage to the goods and not the bailee.

Moreover, the bailee, in such a case, can also claim from the bailor all
necessary and incidental expenses that he might have incurred to keep
and protect the goods.

Rights of the Bailor

A bailor has the following rights.

1. Right to enforce bailee’s performance

Since the bailor delivers goods to the bailee for some specific purpose,
the former, especially in case of non-gratuitous bailment, has an
elemental right to achieve that purpose or obtain the benefit (i.e.,
performance) through the latter.

For example, if X delivers a suit length to Y, his tailor, to stitch a suit

for him, X (bailor) will see that the tailor does the needful in the
desired manner.

3. Right to claim damages

In all cases of bailment, the bailor has the right to claim for damages
against the loss, if any, caused to the goods bailed due to the bailee’s
negligence or misconduct.

4. Right to claim compensation against unauthorized use of goods

A good example for this is this situation, A lets B use his car but with a
condition that only B shall drive. B allows C, a member of his family,
to drive the car. C rides with care, but the car meets with some
accident. Now B is liable to compensate for the damages caused.

5. Right to demand return of goods along with accretion to, if any

The bailor enjoys the exclusive right to have the goods bailed delivered
back to him in safe and sound condition after the time of bailment has
expired or the purpose behind the bailment has been achieved.
Moreover, in the absence of any contrary term in the contract, the
bailor is also entitled to any accretion to the goods bailed if it occurred
while the goods were in the study of bailee.
For example, A leaves his brooding hen in the custody of B to be taken
care of for a week. The hen has hatched the chicks. A is entitled not
only to the hen but also to the chicks.

In addition to the above mentioned right, A bailor has Right to

terminate the contract under certain conditions too.

Duties of the bailee

1. Bailee should take reasonable care on goods(Sec. 151 &

152)
2. Bailee should not use the goods for an unauthorized
purpose (Sec. 153 and 154).
3. Bailee should not mix up the goods with his own goods or
others goods. (Sec. 155 & 156-157).
4. Bailee should return the goods after fulfillment of purpose
(Sec. 160 & 161, 165-167)
5. To return any increase or profit from the goods (Sec. 163).

To take reasonable care (Sec. 151 & 152): Bailee is bound to take as
much care of the goods bailed to him as a man of ordinary prudence
would, under similar circumstances, take of his own goods of the same
bulk, quality and value as the good bailed. It will not make any
difference whether the bailment is gratuitous for reward. If any loss is
caused to the goods, in spite of such reasonable care by the bailee, he
shall not be liable for the loss. Bailee shall be held liable for losses
arising due to his negligence.
Example (i): A delivered to B certain gold ornaments for safe custody.
B kept the ornaments in a locked safe and kept the key in the case box
in the same room. The room was on the ground and was locked from
outside, and therefore, was easily accessible to burglars. The ornaments
were stolen. It was held that the bailee did not take reasonable care,
and therefore, was liable for the loss (Rampal V. Gauri Shanker, 1952).
(ii) A deposited his goods in B’s godown. On account of
unprecedented floods, a part of the goods were damaged. Held, B is
not liable for the loss (Shanti Lal V. Takechand).
A bailee is liable to compensate the bailor for any damages done to the
thing bailed by the negligence of his servants acting in the course of the
employment.

To use goods according the conditions of bailment (Sec. 153 and 154):
Bailee must use the goods according to the conditions of the contract
of bailment or the directions of the bailor. He shall be held liable for
compensation to the bailor if any damage is caused to the goods
because of his unauthorised use. Bailee must not do any act with regard
to the goods bailed which is inconsistent with the terms of the bailment,
otherwise the contract shall become voidable at the option of the bailor
and bailee shall be held liable to compensate and damages caused to
the goods.
Example: A lends his horse to B for his own riding only. B allows C, a
member of his family, to ride the horse. C, rides with care but the
horse accidently falls and is injured. What remedy has A against B ?
A can claim damages from B for the injury caused to the horse from an
unauthorised use. B in this case has failed to use the horse according to
the conditions of bailment, and therefore, he shall be liable to pay
compensation to the bailor for the damages caused to the horse
because of his unauthorised use.
Must not mix up the goods with his own goods: (Sec. 155 & 156-157).
Bailee is not entitled to mix up the goods bailed with his own goods
except with the consent of the bailor. If he, with the consent of the
bailor, mixes the goods bailed with his own goods, both the parties shall
have an interest in proportion to their respective shares in the mixture
thus produced (Sec. 155).
If the bailee, without the consent of the bailor, mixes the goods bailed
with his own goods and the goods can be separated or divided, the
property in the goods remains in the parties respectively bailee is
bound to bear the expenses of separation and division and any damage
arising from the mixture (Sec. 156).
If the bailee, without the consent of the bailor mixes the goods of the
bailor with his own goods in such a manner that it is impossible to
separate the goods bailed from the other goods and to deliver them
back, the bailor is entitled to compensation by the bailee for loss of the
goods (Sec. 157).

To return the goods. Bailee must return or deliver the goods bailed
according to the direction of the bailor, on the expiry of the time of
bailment or on the accomplishment of the purpose of bailment (Sec.
160).

Bailee shall be responsible to the bailor for any loss, destruction or

deterioration of the goods from of the date of the expiry of the contract
of bailment, if he fails to return deliver or tender the goods at the
proper time (Sec. 161).

Rights to interplead (Sec. 165). If a person, other than the bailor,

claims the goods bailed, bailee may apply to the court to stop the
delivery of the goods to the bailor and to decide the title to the goods.

Right to indemnity (Sec. 166). Bailee is entitled to be indemnified by

the bailor for any loss arising to him by reasons that the bailor was not
entitled to make the bailment or to receive back the goods or to give a
directions respecting them. If the bailor has not title to the goods, and
the bailee in good faith, delivers them back to, or according to the
directions of the bailor, the bailee shall not be responsible to the owner
in respect of such delivery. Bailee can also claim all the necessary
expenses incurred by him for the purpose of gratuitous bailment.

To return any increase or profit from the goods (Sec. 163). Bailee is
bound to deliver to the bailor any increase or profit which might have
came from the goods bailed, provided the contract does not provide
otherwise.
Example: A leaves a cow in the custody of B. The cow gives birth a
calf. B is bound to deliver the calf as well as the cow to A.

Rights of the bailee

1. Rights to interplead (Sec. 165). If a person, other than the bailor,

claims the goods bailed, bailee may apply to the court to stop the
delivery of the goods to the bailor and to decide the title to the goods.

2. Rights against third person (Sec. 180). If a third person wrongfully

deprives the bailee of the use or possession of the goods bailed, or
causes them any injury, the bailee is entitled to use such remedies as
the owner might have used in a like case if no bailment has been made.
Bailee can thus bring a suit against a third person for such deprivation
or injury.

3. Right of particular lien for payment for services (Sec. 170). Where
the bailee has (a) in accordance with the purpose of bailment, (b)
rendered any service involving the exercise of labour of skill, (c) in
respect of the goods, he shall have (d) in the absence of a contract to
the contrary, right to retain such goods, until he receives due
remuneration for the services he has rendered in respect of them.
Bailee has, however, only a right to retain the article and not to sell it.
The service must have entirely been formed within the time agreed or a
reasonable time and the remuneration must have become due.
This right of particular lien shall be available only against the property
in respect of which skill and labour has been used.

Examples

(i) A delivers a rough diamond to jeweller, to be cut and polished,

which is accordingly done. B is entitled to retain the stone till he is paid
for the services he has rendered.

(ii) A gives cloth to B, a tailor, to make into a coat. B promises A to

deliver the coat as soon as it is finished, to give A three month’s credit
for the price. B is not entitled to retain the coat until he is paid.

4. Right of general lien (Sec. 171). Bankers, factors, wharfingers,

attorneys of a High Court and policy brokers will be entitled to retain,
as a security for a general balance of amount, any goods bailed to them
in the absence of a contract to the contrary. By agreement other types
of bailees excepting the above given five may also be given five may also
be given this right of general lien.

5. Right to indemnity (Sec. 166). Bailee is entitled to be indemnified

by the bailor for any loss arising to him by reasons that the bailor was
not entitled to make the bailment or to receive back the goods or to
give a directions respecting them. If the bailor has not title to the goods,
and the bailee in good faith, delivers them back to, or according to the
directions of the bailor, the bailee shall not be responsible to the owner
in respect of such delivery. Bailee can also claim all the necessary
expenses incurred by him for the purpose of gratuitous bailment.

6. Right to claim compensation in case of faulty goods (Sec. 150): A

bailee is entitled to receive compensation from the bailor or any loss
caused to him due to the failure of the bailor to disclose any faults in
the goods known to him. If the bailment is for hire, the bailor will be
liable to compensate even though he was not aware of the existence of
such faults.

7. Right to claim extraordinary expenses (Sec. 158): A bailee is

expected to take reasonable care of the gods bailed. In case he is
required to incur any extraordinary expenses, he can hold the bailor
liable for such expenses.

8. Right of delivery of goods to any one of the several joint bailor of

goods: Delivery of goods to any one of the several joint bailors of goods
will amount to delivery of goods to all of them in the absence of any
contract to the contrary.

Define ‘Agent’. Explain the different kinds of Agents.

What is a contract of agency ? What are the different modes
of creation of agency ?
How to create agency and discuss regarding the kinds of
Agents.
Define Agency. Explain the modes of creation of Agency.
Different types of agents

Section 182 in The Indian Contract Act, 1872

182. ‘Agent’ and ‘principal’ defined.—An ‘agent’ is a person employed
to do any act for another, or to represent another in dealings with third
person. The person for whom such act is done, or who is so
represented, is called the ‘principal’. —An ‘agent’ is a person employed
to do any act for another, or to represent another in dealings with third
person. The person for whom such act is done, or who is so
represented, is called the ‘principal’."
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.
Some features of contract of agency
Sec 183. Who may employ agent.—Any person who is of the age of
majority according to the law to which he is subject, and who is of
sound mind, may employ an agent.
Sec 184. Who may be an agent.—As between the principal and third
person any person may become an agent, but no person who is not of
the age of majority and of sound mind can become an agent, so as to
be responsible to his principle according to the provisions in that behalf
herein contained.
185. Consideration not necessary.—No consideration is necessary to
create an agency. —No consideration is necessary to create an agency."

Modes of Creation of Agency

(1) By actual authority being conferred on the agent to act on behalf of
the principal. Such authority may be either express of implied.
(2) By agent's authority to act on behalf of the principal in a situation of
'emergency'.
(3) By the conduct of principal, which creates an agency on the basis of
the law of Estoppel.
(4) By ratification of the agent's act by the principal, even though the
same has been done without the principal's prior authority.
(5) By presumption of agency in Husband-Wife relationship.
(1) Act done with principal's Actual Authority
A principal I bound by the acts done by his agent with his authority.
The authority of an agent may be 'express of implied'

Sec 187. Definitions of express and implied authority.—An authority is

said to be express when it is given by words spoken or written. An
authority is said to be implied when it is to be inferred from the
circumstances of the case; and things spoken or written, or the ordinary
course of dealing, may be accounted circumstances of the case.
Illustration A owns a shop in Serampor, living himself in Calcutta, and
visiting the shop occasionally. The shop is managed by B, and he is in
the habit of ordering goods from C in the name of A for the purposes
of the shop, and of paying for them out of A’s funds with A’s
knowledge. B has an implied authority from A to order goods from C
in the name of A for the purposes of the shop.

Sec 188. Extent of agent’s authority.—An agent having an authority to

do an act has authority to do every lawful thing which is necessary in
order to do such act
An agent having an authority to carry on a business, has authority to do
every lawful thing necessary for the purpose, or usually done in the
course, of conducting such business.
Illustrations
(a) A is employed by B, residing in London, to recover at Bombay a
debt due to B. A may adopt any legal process necessary for the
purpose of recovering the debt, and may give a valid discharge for the
same.
(b) A constitutes B his agent to carry on his business of a ship-builder.
B may purchase timber and other materials, and hire workmen, for the
purpose of carrying on the business.
Case: Ishaq V. Madanlal,
Plaintiff, a wholesale dealer of potatoes in U.P., sold and dispatched
wagon of potatoes to the defendant, a dealer of potatoes in M.P.
The defendant refused to take the delivery of the goods.
The plaintiff then sent, his agent to MP authorizing him to take delivery
of the potatoes and sell them there "at any price he chooses".

The agent contacted the defendant and other dealers in the trade,
The offer made by the defendant was the highest but this amount of Rs
700 less than what the defendant had originally agreed to pay.
The question which had arisen in this case was,
Did the agent in this case had implied authority to accept smaller
amount in cash from the defendant?
It was held that the agents has an implied authority under Section 188
to accept smaller amount.

(2) Agent’s authority in an emergency

Sec 189. Agent’s authority in an emergency.—An agent has authority, in

an emergency, to do all such acts for the purpose of protecting his
principal from loss as would be done by a person of ordinary
prudence, in his own case under similar circumstances.
Illustrations
(a) An agent for sale may have goods repaired if it be necessary.
(b) A consigns provisions to B at Calcutta, with directions to send them
immediately to C, at Cuttack. B may sell the provisions at Calcutta, if
they will not bear the journey to Cuttack without spoiling

(3) Principal bound by Estoppel

Sec 237. Liability of principal inducing belief that agent’s unauthorized
acts were authorized.—When an agent has, without authority, done acts
or incurred obligations to third persons on behalf of his principal, the
principal is bound by such acts or obligations, if he has by his words or
conduct induced such third persons to believe that such acts and
obligations were within the scope of the agent’s authority.
(a) A consigns goods to B for sale, and gives him instructions not to sell
under a fixed price. C, being ignorant of B’s instructions, enters into a
contract with B to buy the goods at a price lower than the reserved
price. A is bound by the contract.
Illustrations
(a) A consigns goods to B for sale, and gives him instructions not to sell
under a fixed price. C, being ignorant of B’s instructions, enters into a
contract with B to buy the goods at a price lower than the reserved
price. A is bound by the contract.
(b) A entrusts B with negotiable instruments endorsed in blank. B sells
them to C in violation of private orders from A. The sale is good.

Case Armagas Ltd v Mundogas

Apparent authority: refers to a situation where a reasonable third party

would understand that an agent had authority to act. This means a
principal is bound by the agent's actions, even if the agent had no actual
authority, whether express or implied.
Apparent authority as agent can arise where a principal by words or
conduct has represented that his agent, who has purported to act on
behalf of the principal, is authorised to do what he is purporting to do.

At the end of the day the question is whether the circumstance under
which an agent has made the fraudulent misrepresentation which has
caused loss to an innocent party contracting with him as to make it just
for the principal to bear the loss
Such circumstances exist where the principal by words or conduct has
induced the injured party to believe that the agent was acting in the
lawful course of the principal’s business.

The Principal is not liable,

When the Agent is not authorised to do what he is purporting to do,
when what he is purporting to do is not within the class of acts that an
Agent in his position is usually authorised to do and when the Principal
has done nothing to represent that he is authorised to do it.

(4) Principal bound by Ratification (Sections 196-200) - Covered

(5) Agency in Husband-Wife relationship

Agency by Co-habitaion
A cohabitation agreement is a form of legal agreement reached
between a couple who have chosen to live together (whether they are
heterosexual or homosexual). In some ways, such a couple may be
treated like a married couple, such as when applying for a mortgage or
working out child support.
A wife is considered to be the agent of her husband
A husband is bound to supply necessaries of life to his wife and if he
makes no adequate provision for her maintenance, she is entitled to
pledge his credit for necessaries
The husband can escape liability if he can prove the following:
(1) He has expressly forbidden his wife to pledge his credit.
(2) The goods purchased by his wife are not necessary goods.
(3) He has expressly told the salesman not to give credit to his wife.

Agency Of Necessity
If a woman’s husband has deserted her and they are both living
separately she still has the authority to pledge her husband’s credit for
necessaries. The wife enjoys this right only if her husband does not
provide for maintenance. If the wife is living separately out of her own
will and without any valid justification then she cannot be treated as the
agent of her husband and the husband is not liable for her necessaries.

Kinds of Agent:

Following are the kind of agent.

(I) Del-credere agent:

In business law, a del credere agency is a type of principal-agent

relationship wherein the agent acts not only as a salesperson or broker
for the principal, but also as a guarantor of credit extended to the
buyer.

Generally, The function of an agent is over after a contract is

established between his principal and third person.

He is not answerable to his principal for the failure of the third person
to perform the contract.

A del credere agent constitutes an exception to this rule. He is a

mercantile agent, who, on the payment of some extra commission,
known as del credere commission, guarantees the performance of the
contract by the third person.

If in such case the third person, for instance, fails to pay for the goods
supplied to him,

The principal can bring an action against the del credere agent.
The liability of the agent in such cases is subject to the terms of
contract.

(II) Factor:

A factor is an agent to whom goods are entrusted for sale.

He has also the power to sell goods on credit and also to receive the
price from the buyer.

(III) Mercantile agent:

A mercantile agent is the person who has authority to sell the goods or
to buy goods or to raise money on the security of goods.

(IV) Banker:

The relationship between banker and his customer is that of debtor

and creditor.

(V) Auctioneer:

An auctioneer is an agent who is authorized to sell goods to the highest

bidder at a public sale for commission.

The authorities vested in him is to sell the good only, and not to give
warranties on behalf of the seller, unless expressly authorized.

(VI) Sub-agent:

A sub-agent is a person employed by and acting under the control of

the original agent in the business of agency.

(VII) Broker:

A broker is an agent employed for buying or selling the goods or other

property. He simply acts between the two parties.
He merely makes the two parties enter into a contract.

He gets his commission whenever any transaction materializes

(happen) through his efforts.

(VIII) Indenter:

He is an agent who, busy or sells on behalf of his principal.

(IX) Advocate:

An advocate also acts an agent. He appears on behalf of principal in

the court.

(X) Co-agent:

Who acts jointly is called co-agent.

Types of Agents

General Agent

The general agent possesses the authority to carry out a broad range of
transactions in the name and on behalf of the principal. The general
agent may be the manager of a business or may have a more limited
but nevertheless ongoing role—for example, as a purchasing agent or as
a life insurance agent authorized to sign up customers for the home
office.

Special Agent

The special agent is one who has authority to act only in a specifically
designated instance or in a specifically designated set of transactions.
For example, a real estate broker is usually a special agent hired to find
a buyer for the principal’s land.

Agency Coupled with an Interest

An agent whose reimbursement depends on his continuing to have the

authority to act as an agent is said to have an agency coupled with an
interest if he has a property interest in the business.

Agency coupled with interest can be defined as:

- A agency relationship in which the agent is given a estate or interest in

the property

An agency Coupled with interest may also be referred to as:

- A power coupled with interest

- A power given as security

In a agency Coupled by interest, the licensee holds some:

- Legal right to the property that is covered by the agency agreement

A principal cannot terminate a agency Coupled with interest:

- Before it's expiration

- Death, incapacity, or bankruptcy of the principal will not end a agency

Coupled with interest

A literary or author’s agent, for example, customarily agrees to sell a

literary work to a publisher in return for a percentage of all monies the
author earns from the sale of the work. The literary agent also acts as a
collection agent to ensure that his commission will be paid. By agreeing
with the principal that the agency is coupled with an interest.
Define ‘Hire-Purchase Agreement’ and discuss its salient
features.
Explain the rights and obligations of the owner in an
Hire-Purchase Agreement.
Distinguish Hire-Purchase Agreement from a contract of sale
of Goods.
Write a note on ‘Assignment and Transmission of Hirer’s
Rights’.
Discuss the rights and obligations of hirer under the Hire
purchase agreement.
Define Hire purchase agreement. State the distinctions between
sale and hire purchase agreement.
Write a short note on contents of hire-purchase agreement.

Definition:

In this Act, unless the context otherwise requires. -

(a) "contract of guarantee" in relation to any hire-purchase agreement,

means a contract whereby a person ( in this Act referred to as the
surety) guarantees the performance of all or any of the hirer’s
obligations under the hire-purchase agreement.

(b) "hire" means the sum payable periodically by the hirer under a hire-
purchase agreement.

(c) "hire-purchase agreement" means an agreement under which goods

are let on hire and under which the hirer has an option to purchase
them in accordance with the terms of the agreement and includes an
agreement under which-

(i) possession of goods is delivered by the owner thereof to a person on

condition that such persons pays the agreed amount in periodical
installments, and
(ii) the property in the goods is to pass to such person on the payment
of the last of such installments, and

(iii) such person has a right to terminate the agreement at any time
before the property so passes.

(d) "hire-purchase price" means the total sum payable by the hirer
under a hire-purchase agreement in order to complete the purchase of,
or the acquisition of property in, the goods to which the agreement
relates and includes any sum so payable by the hirer under hire-
purchase agreement by way of a deposit other initial payment, or
credited or to be credited to him under such agreement on account of
any such deposit or payment, whether that sum is to be a or has been
paid to the owner or to any other person or is to be or has been
discharged by payment or money or by transfer or delivery of goods or
by any other means but does not include any sum payable as a penalty
or as compensation or damages for a breach of the agreement.

(e) "hirer" means the person who obtains or has obtained possession of
goods from an owner under a hire-purchase agreement, and includes a
person to whom the hirer’s rights or liabilities under the agreement
have passed by assignment or by operation of law.

(f) "owner" means the person who lets or has let, delivers or has
delivered possession of goods, to a hirer under a hire-purchase
agreement and includes a person to whom the owner’s property in the
goods or any of the owner’s rights or liabilities under the agreement has
passed by assignment or by operation of law.

(g) each of the words and expressions used and not defined in this Act
but defined in the Indian Contract Act, 1872 ( 9 of 1872) or the Sale of
Goods Act, 1930 (3 of 1930) shall have the meaning assigned to it in
that Act.

Distinctions between sale and hire purchase agreement

Distinguish Hire-Purchase Agreement from a contract of sale of Goods

S.No. Points of Sale Hire Purchase Agreement
Difference

1. Governing Law Sale of Goods Act, 1930 Hire Purchase Act, 1972

2. Type of contract It is a contract of sale. It is an agreement to sell.

3. Possession of goods Possession of goods need Possession of goods is

not be transferred transferred immediately.
immediately.

4. Status of ownership Ownership of goods is Ownership of goods is

of goods transferred immediately. transferred on the payment
of the last installment.

5. Right to end the The buyer has no right to The hirer can end the
contract end the contract of sale. agreement at any time
before the ownership is
transferred.

6. Right to repossess The seller has no right to The seller has a right to
the goods repossess the goods. He repossess the goods if the
can sue for the price. hire-purchaser defaults.

7. Transfer of goods The buyer can transfer the The hirer purchaser cannot
title to third party title to goods to third party transfer the title to goods to
because ownership of goods third party because
has been transferred. ownership of goods has not
been transferred.

8. Written or otherwise A contract of sale need not The Hire Purchase

necessarily be in writing. Agreement should be in
writing.

9. Benefits The benefits of implied The benefits of implied

conditions and warranties conditions and warranties
are available. are not available.

10. Levy of Sales tax In case of sale of taxable In case of hire of even
goods, sales tax is levied. taxable goods, sales tax is
not levied.

11. Payment Vs Hire The payment made by the The payment made by the
Charges buyer is treated as payment hire purchases is treated as
toward the price of goods hire charges for the use of
goods till the option to
purchase the goods is
exercised.

Helby v. Malthews[1]
A let a piano to B on hire, on the following terms:

If B regularly pays 36 monthly installments, the piano shall become his

property

B can terminate the hire at any time and return the piano to A, and
need not pay any more.

After paying a few installments, B pledged the piano with C. A brought

a legal action against C to recover the piano. It was held that A could
recover the piano from C. The court observed that B had no right to
pledge the piano because he was not its owner. He had the possession
only under a hire purchase agreement. In this case, B had the option to
buy the piano by paying all the 36 installments. However, he was not
under any legal obligation to purchase the piano.

Contents of hire purchase agreement.-

(1) Every hire-purchase agreement shall state-

(a) The hire-purchase price of the goods to which the agreement

relates,

(b) The cash price of the goods, that is to say, the price at which the
goods may be purchased by the hirer for cash,

(c) The date on which the agreement shall be deemed to have

commenced.

(d) the number of installments by which the hire-purchase price is to be

paid, the amount of each of those installments, and the date, or the
mode of determining the date, upon which it is payable, and the person
to whom and the place where it is payable and

(e) the goods to which the agreement relates, in a manner sufficient to

identity them.
(2) Where any part of the hire-purchase price is, or is to be, paid
otherwise than in cash or by cheque, the hire-purchase agreement shall
contain a description of the part of the hire-purchase price.

(3) Where any of the requirements specified in sub-section (1) or sub-

section 92) has not been complied with, the hirer may institute a suit
for getting the hire-purchase agreement rescinded, and the court may, if
it is satisfied that the failure to comply with any such requirement has
prejudiced the hirer, rescind the agreement on such term as it thinks
just, or pas such other order as it thinks fit in the circumstances of the
case.

Rights and Obligations of the Hirer

9. Right of hirer to purchase at any time with rebate.-

(1) The hirer may, at any time during the continuance of the hire-
purchase agreement and after giving the owner not less than fourteen
days notice in writing of his intention so to do, complete the purchase
of the goods by paying or tendering to the owner of the hire-purchase
price or the balance thereof as reduced by the rebate calculated in the
manner provided in sub-section (2).

The rebate for the purposes of sub-section (1) shall be equal to two-
thirds of an amount which bears to the hire-purchase charges the same
proportion as the balance of the hire-purchase price not yet due bears
to the hire-purchase price.

Explanation.- In the sub-section "hire-purchase" means the difference

between the hire-purchase price and the cash price as stated in the hire-
purchase agreement.
The provisions of this section shall have effect notwithstanding anything
to the contrary contained in the hire-purchase agreement, but where
the terms of the agreement entitled to hirer to a rebate higher than that
allowed by this section, the hirer shall be entitled to the rebate provided
by the agreement.

10. Right to hirer to terminate agreement at any time.-

(1) The hirer may, at any time before the final payment under the
hirer-purchase agreement falls due, and after giving the owner not less
than fourteen days, notice in writing of his intentions so to do and re-
delivering or tendering the goods to the owner, terminate the hire-
purchase agreement by payment or tender to the owner of the amounts
which have accrued due towards the hire-purchase price and not been
paid by him, including the sum, if any, which he is liable to pay under
sub-section (2).

Where the hirer terminates the agreement under sub-section (1), and
the agreement provides for the payment of a sum named on account of
such termination, the liability of the hirer to pay that sum shall be
subject to the following conditions, namely:-

Where the sum total of the amounts paid and the amounts due in
respect of the hire-purchase price immediately before the termination
exceeds one-half of the hire-purchase price, the hirer shall be liable to
pay the difference between the said sum total and the said one-half, or
the sum named in the agreement whichever, is less.

Nothing in sub-section (2) shall relieve the hirer from any liability for
any hire which might have accrued due before the termination.

Any provision in any agreement, whereby the right conferred on a hirer

by this section to terminate the hire-purchase agreement by him under
this section, shall be void.

Nothing in the section shall prejudice any right of a hirer to terminate a

hire-purchase agreement otherwise than by virtue of this section.

11. Right to hirer to appropriate payments in respect of two or more

agreements.-
A hirer who is liable to make payments in respect of two or more hire-
purchase agreements to the same owners hall, notwithstanding any
agreement to the contrary, be entitled , on making any payment in
respect of the agreements to appropriate the sum so paid by him in or
towards the satisfaction of the sum due under any two or more the
agreements, or in or towards the satisfaction of the sums due under any
two or more of the agreements in such proportions as he thinks fit,
and, if he fails to make any such appropriation as aforesaid, the sum so
paid shall, by virtue of this section stand appropriated towards the
satisfaction of the sums due under the respective hire-purchase
agreements in the order in which the agreements were entered into.

12. Assignment and transmission of hirer’s right or interest under hire-

purchase agreement.-

(1) The hirer may assign his right, title and interest under the hire-
purchase agreement with the consent of the owner, or if his consent is
unreasonably withheld, without his consent.

Except as otherwise provided in this section, no payment or other

consideration shall be required by an owner for his consent to an
assignment under sub-section (1), and where an owner requires any
such payment or other consideration for his consent, that consent shall
be deemed to be unreasonably withheld.

Where on a request being made by a hirer in this behalf the owner fails
or refuses to give his consent to an assignment under sub-section (1) the
hirer may apply to the court for an order declaring that the consent of
the owner to the assignment has been unreasonably withheld, and
where such an order is made the consent shall be deemed to be
unreasonably withheld.
Explanation.- In this sub-section, "court" means a court which would
have jurisdiction to entertain a suit for the relief claimed in the
application.

(4) As a condition of granting such consent, the owner may stipulate

that all defaults under the hire-purchase agreement shall be made good
and may require the hirer and the assignee to execute and deliver to the
owner an assignment agreement, in a form approved by the owner,
whereby, without affecting the continuing personal liability of the hirer
in such respects, the assignee agrees with the owner to be personally
liable to pay the installments of hire remaining unpaid and to perform
and observe all other stipulations and conditions of the hire-purchase
agreement during the residue of the term thereof and whereby the
assignee indemnifies the hirer in respect of such liabilities.

(5)The right, title and interest of a hirer under a hire-purchase

agreement shall be capable of passing by operation of law to the legal
representative of he hirer but nothing in this sub-section shall relieve

the legal representative from compliance with the provisions of the

hire-purchase agreement.

Explanation.- In this sub-section, the expression, "legal representative"

has the same meaning as in clause (11) of section 2 of the Code of Civil
Procedure, 1908 (5 of 1908).

The provision of this section shall apply notwithstanding anything to

the contrary contained in the hire-purchase agreement.

13. Obligations of hirer to comply with agreement.-

Subject to the provisions of this Act, a hirer shall be bound.- to pay the
hirer in accordance with the agreement, and otherwise to comply with
the terms of the agreement.

14. Obligation of hirer in respect of care to be taken of goods.-

(1) A hirer in the absence of a contract to the contrary.-

shall be bound to take as much care of the goods to which the hire-
purchase agreement relates as a man of ordinary prudence would,
under similar circumstances, take of his own goods of the same bulk,
quality and value

shall not be responsible for the loss, destruction or deterioration of the

goods, if he has taken the amount of care thereof described in clause
(a).

(2) The hirer shall be liable to make compensation to the owner for
any damage caused by failure to take care of the goods in accordance
with the provisions of sub-section (1).

15. Obligation of hirer in respect of use of goods.-

If the hirer makes any use of the goods to which the hire-purchase
agreement relates which is not according to the conditions of the
agreement, the hirer shall be liable to make compensation to the owner
for any damage arising to the goods from or during such use.

16. Obligation of the hirer to give information as to whereabouts of

goods.-

(1) Where by virtue of a hire-purchase agreement a hirer is under a

duty to keep in his possession or control the goods to which the
agreement relates, the hirer shall, on receipt of a request in writing
from the owner, inform the owner where the goods are at the time of a
request in writing from the owner, inform the owner where the goods
are at the time when the information is given or, if it is sent by post, at
the time of posting.

If the hirer fails without reasonable cause to give said information

within fourteen days of the receipt of the notice, he shall be punishable
with fine which may extend to two hundred rupees.

17. Rights of hirer in case of seizure of goods by owner.-

(1) Where the owner seizes under clause (c) of section 19 the goods let
under a hire-purchase agreement, the hirer may recover from the
owner the amount, if any, by which the hirer-purchase price falls short
of the aggregate of the following amount, namely :- the amounts paid in
respect of the hire-purchase price up to the date of seizure.

The value of the goods on the date of seizure.

For purposes of this section, the value of any goods on the date of
seizure is the best price that can be reasonably contained for the goods
by the owner on that date less the aggregate of the following amounts,
namely :- The reasonable expenses incurred by the owner for seizing
the goods, any amount reasonably expended by the owner on the
storage, repairs or maintenance of the goods.

(whether or not the goods have subsequently been sold or otherwise

disposed of by the owner) the reasonable expenses of selling or
otherwise disposing of the goods, and the amounts spent by the owner
for payment of arrears of taxes and other dues which are payable in
relation to the goods under any law for the time being in force and
which the hirer was liable to pay.

If the owner fails to pay the amount due form him under the provisions
of this section or any portion of such amount, to the hirer within a
period of thirty days form the date of notice for the payment of the said
amounts is served on him by the hirer the owner shall be liable to pay
interest on such amount at the rate of twelve per cent, per annum from
the date of expiry of the said period of thirty days.

Where the owner has sold the goods seized by him the onus of proving
that the price obtaining by him for the goods was the best price that
could be reasonably obtained by him on the date of seizure shall lie
upon him.

Rights and Obligations of the Owner

18. Rights of owner to terminate hire-purchase agreement for default in

payment of hire or unauthorized act or breach of express conditions.-

(1) Where a hirer makes more than one default in the payment of hire
as provided in the hire-purchase agreement then, subject to the
provisions of section 21 and after giving the hirer notice in writing of
not less than - one week, in a case where the hire is payable at weekly
or lesser intervals, and two weeks, in any other case, the owner shall be
entitled to terminate the agreement by giving the hirer notice of
termination in writing.

Provided that if the hirer pays or tenders to the owner the hire in
arrears together with such interest thereon as may be payable under the
terms of the agreement before the expiry of the said period of one
week or, as the case may be, two weeks, the owner shall not be entitled
to terminate the agreement.

The owner shall subject to the provisions of sections 22, be entitled to

terminate the agreement by giving the hirer notice of termination in
writing.

19. Rights of owner of termination.-

Where a hire-purchase agreement is terminated under this Act, then

the owner shall be entitled to.- to retain the hire which has already been
paid and to recover the arrears of hire due.

Provided that when such goods are seized by the owner, the retention
of hire and recovery of the arrears of hire due shall be subject to the
provisions of section 17.

Subject to the conditions specified in clauses (a) and (b) of sub-section

(2) of section 10, to forfeit the initial deposit, if so provided in the
agreements.

Subject to the provisions of section 17 and section 20 and subject to

any contract the contrary, to enter the premises of the hirer and seize
the goods.

Subject to the provisions of section 21 and section 22, to recover

possession of the goods by application under section 20 or by suit.
Without prejudice to the provisions of sub-section (2) of section 14 and
of section 15, to damages for non-delivery of the goods, from the date
on which termination is effective, to the date on which the goods are
delivered to or seized by the owner.

20. Restriction on owner’s right to recover possession of goods

otherwise than through court.-

(1) Where goods have been let under a hire-purchase agreement and
the statutory proportion of the hire-purchase price has been paid,
whether in pursuance of the judgment of court or otherwise, or
tendered by or on behalf of the hirer or any surety, the owner shall not
enforce any right to recover possession of the goods from the hirer
otherwise than in accordance with sub-section (3) or by suit.

Explanation.- In this section, "statutory proportion" means.- one-half,

where the hire-purchase price is less than fifteen thousand rupees and,
three-fourths, where the hire-purchase price is not less than fifteen
thousand rupees.

Provided that in the case of motor vehicles as defined in the Motor

Vehicles Act, 1939 (4 of 193(0, ":statutory proportion" shall mean.- one-
half where the hire-purchase price is less than five thousand rupees.

Three-fourths, where the hire-purchase price is not less than five

thousand rupees but less than fifteen thousand rupees.

Three-fourths or such higher proportion not exceeding nine-tenths as

the Central Government may, by notification in the Official Gazette,
specify, where the hire-purchase price is not less than fifteen thousand
rupees.

If the owner recovers possession of goods in contravention of the

provisions of sub-section (1), the hire-purchase agreement, if not
previously terminated, shall terminate, and - the hirer shall be released
from all liability under the agreement and shall be entitled to recover
from the owner all sums paid by the hirer under the agreement or
under any security given by him in respect thereof, and
The surety shall be entitled to recover from the owner all sums paid by
him under the contract of guarantee or under any security given by him
in respect thereof.

Where, by virtue of the provisions of sub-section (1), the owner is

precluded from enforcing a right to recover possession of goods, he
may make an application for recovery of possession of the goods to any
court having jurisdiction to entertain a suit for the same relief.

The provisions of this section shall not apply in any case in which the
hirer has terminated the agreement by virtue of any right vested in him.

21. Relief against termination for non-payment of hire.-

Where the owner, after he has terminated the hire-purchase agreement

in accordance with the provisions of sub-section (1) of section 18,
institutes a suit or makes an application against the hirer for the
recovery of the goods, and at the hearing of the suit or application, the
hirer pays or tenders to the owner the hire in arrears, together with
such interest thereon as may be payable under the terms of the
agreement and the costs of the suit or application incurred by the

owner and complies with such other conditions, if any, as the court may
think fit to impose, the court may, in lieu of making a decree or order
for specific delivery, pass an order relieving the hirer against the
termination, and thereupon the hirer shall continue in possession of
the goods as if the agreement has not been terminated.

22. Relief against termination for unauthorized act or breach of express

condition.-

Where a hire-purchase of clause (a) pr clause (b) of sub-section (2) of

section 18, no suit or application by the owner against the hirer for the
recovery of the goods shall lie unless and until the owner has served on
the hirer a notice in writing.-specifying the particular breach or act
complained of, and

If the breach or act is capable of remedy, requiring the hirer to remedy

it, and the hirer fails, within a period of thirty days from the date of the
service of the notice, to remedy the breach or act if it is capable of
remedy.

23. Obligation of owner to supply copies and information.-

(1) It shall be the duty of the owner to supply, free of cost, a true copy
of the hire-purchase agreement, signed by owner.-

To the hirer, immediately after execution of the agreement, and where

there is a contact of guarantee to the surety, on demand made at any
time before the final payment has been made under the agreement.

it shall also be the duty of the owner, at any time before the final
payment has been made under the hire-purchase agreement, to supply
to the hirer, within fourteen days after the owner receives a request in
writing from the hirer in this behalf and the hirer tenders to the owner
the sum of one rupees of expenses, statement signed by the owner or
his agent showing.- the amount paid by or on behalf of the hirer, the
amount which has become due under the agreement but remains
unpaid, and the date upon which each unpaid installment became due
and the amount of each such installment, and the amount which is to
become payable under the agreement, and the date or the mode of

determining the date upon which each future installment is to become

payable, and the amount of each such installment.

Where there is failure without reasonable cause to carry out the duties
imposed by sub-section (1), or sub-section (2), then , while the default
continues,- The owner shall not be entitled to enforce the agreement
against the hirer or to enforce any contract of guarantee relating to the
agreement, or to enforce any right to recover the goods from the hirer,
and no security given by the hirer in respect of money payable under
the agreement or given by a surety in respect of money payable under
such a contract of guarantee as aforesaid shall be enforceable against
the hirer or the surety by the holder thereof.

And, if the default continues for a period of two months, the owner
shall be punishable with fine which may extend to two hundred rupees.
Nothing in sub-section (3) shall be construed as affecting the right of a
third party to enforce against the owner or hirer or against both the
owner and the hirer any charge or encumbrance to which the goods
covered by the hire-purchase agreement are subject.

Explain the duties of an agent.

Write short note on ‘Sub-agent’.
Discuss the rights and duties of Agents.
Discuss the rule "Himself a delegate an agent shall not
delegate his authority"
What are the duties of an agent ?
Explain the rights and duties of agent.
Personal liability of agent.

Personal liability of agent.

Generally an agent is not personally responsible for the contracts made

by him on behalf of his principal. But he incurs personal liability in the
following cases:

1. Foreign principal: When the contract is made by the sale or

purchase of goods for a merchant resident abroad, in case of breach of
contract the third party can make the agent personally liable.

2. Undisclosed principal: When the agent does not disclose the name
of the principal the third party can make the agent personally liabily if
he has relied upon the responsibility of the agent.

3. Principal cannot be sued: Wherer the principal though disclosed

cannot be sued, e.g. foreign sovereign, ambassador, etc., or the
principal is disqualified from contracting though otherwise competent
to contrast and this inability of the principal was not communicated to
the third party at the time of contracting, he can hold the agent
personally liable.
4. Personal liability by agreement: When the agent expressly by
agreement or impliedly by conduct undertakes personal liability of the
contract.

5. Agent’s liability for breach of warranty: When the agent acts

without or beyond his authority and in this was commits a breach of
warranty of authority, he can be hold personally liable.

6. Agent signs the contract in his own name: An agent who signs a
Negotiable Instrument e.g. Bills of Exchange, Promissory Notes etc.,
his own name without making it clear that he is signing as an agent, will
be held, personally liable.

7. Agency coupled with interest: Where the contract of agency relates

to a subject matter in which the agent has a special interest, agent shall
be personally liable to the extent of his interest since he shall be a
principal for that interest.

8. Non-existent principal: If an agent acts for a non-existent principal,

he shall be held personally liable as if he had contracted on his own
account, e.g., promoters entering into contracts on behalf of a company
yet to come into existence.

Write short note on ‘Sub-agent’.

Discuss the rule "Himself a delegate an agent shall not

delegate his authority"

Delegation of agent’s authority (Secs. 191 to 195)

The general principal is “A delegate cannot further delegate”.

(Delegatus non-protest delegate). An agent, himself being the delegate
of his principal, cannot further delegate his powers. However, under
certain circumstances the agent may delegate some or all of his powers
to another person. Such person may be either a sub-agent or a
substituted agent.

Sub-agent
A ‘sub-agent” is a person employed by and acting under the control of
the original agent in the business of agency (Sec. 191). In the following
cases an agent can appoint a sub-agent unless he is expressly forbidden
to do so:-

(i) When the ordinary custom of trade permits the appointment of a

sub-agent.

(ii) When the nature of the agency business requires the appointment
to a sub-agent.

(iii) When the act to be done is purely ministerial and involves no

exercise of discretion or confidence, e.g. routine clerks and assistants.

(iv) When the principal agrees to the appointment of such a sub-agent

expressly or implidly. (v) When some unforeseen emergency has
arisen.

The relations of the sub-agent to the principal depend on the question

whether the agent had an authority to appoint the sub-agent and
whether sub-agent is properly appointed.

Where the sub-agent is properly employed the principal is, so far as

regard third persons, represented by the sub-agent and is bound by and
is responsible for his acts as if he was an agent originally appointed by
the principal, therefore, will be responsible for the acts of a properly
appointed sub-agent.

Where an agent, without having authority to do so, has appointed a

person to act as a sub-agent, i.c., a sub-agent is improperly appointed,
the principal is not represented by or responsible for the acts of the
sub-agent as between himself and the third parties. The sub-agent is
also not responsible to the principal for anything. The agent is
responsible for the acts of the sub-agent both to the principal and to the
third persons (Sec. 193).

Substituted agent

Where an agent holding an express or implied authority to name

another person to act in the business of the agency, has accordignly,
named another person such person is not a sub-agent but a substituted
agent. The substituted agent shall be taken as the agent of principal for
such part of the work as is entrusted to him (Sec. 194).

Example: A directs B, his solititor, to sell his estate by auction, and to

employ an auctioneer for the purpose. B names C, an auctioneer to
conduct the sale. C is not a sub-agent, but is A’s agent for the conduct
of the sale.

In selecting substituted agent for his principal an agent is bound to

exercise the same amount of discretion as a man of ordinary prudence
would exercise in his own case, and if he does this, he is not
responsible to the principal for acts or negligence of the substituted
agent.

Example: A instructs B, a merchant, to buy a ship for him. B employed

a ship surveyor of good reputation to choose a ship for A. The
surveyor makes the choice negligency and the ship turns to be
unseaworthy and is lost. B is not, but the surveyor is responsible to A.

Rights 0f Agent

217. Agent’s right of retainer out of sums received on principal’s

account.—An agent may retain, out of any sums received on account of
the principal in the business of the agency, all moneys due to himself in
respect of advances made or expenses properly incurred by him in
conducting such business, and also such remuneration as may be
payable to him for acting as agent.

218. Agent’s duty to pay sums received for principal.—Subject to such

deductions, the agent is bound to pay to his principal all sums received
on his account.

219. When agent’s remuneration becomes due.—In the absence of any

special contract, payment for the performance of any act is not due to
the agent until the completion of such act; but an agent may detain
moneys received by him on account of goods sold, although the whole
of the goods consigned to him for sale may not have been sold, or
although the sale may not be actually complete.

Sraswati Devi V. Motilal

Motilal, The plaintiff, who was an estate agent, had been engaged by
the defendant, Smt. Saraswati Devi and her husband, to find a
purchaser for certain property. The plaintiff found a customer who was
willing to pay Rs. 1,27,000 for the property and who also paid an
advance of 30,000. Subsequently, the defendants refused to sell the
property to that customer.

The plaintiff brought an action against the defendants to recover Rs

2500 as remuneration for finding the customer. It was held that
according to the nature of this agreement, the remuneration was
payable to the plaintiff when he found a purchaser who was ready,
willing and able to purchase the property and since he had done that,
he was entitled to his commission.

Agent's effort should be effective cause for the transaction.

If the agent's efforts are not the effective cause of the materialization of
the transaction, he will not be entitled to any commission.

GT Hodges and Sons V. HP Residential Hotel Ltd.,

A firm of estate agents, in an effort to find a purchaser for their client's

property, negotiated for the sale of property at 12,500 with a colonel,
who was acting for the war office, but the transaction did not
materialize. Subsequently, there was compulsory purchase order of that
property by the war office at less than 8000.

The agents were held not entitled to any commission as their efforts
were considered to be not an effective cause of the sale of property.

220. Agent not entitled to remuneration for business misconducted.—

An agent who is guilty of misconduct in the business of the agency, is
not entitled to any remuneration in respect of that part of the business
which he has misconducted. —An agent who is guilty of misconduct in
the business of the agency, is not entitled to any remuneration in
respect of that part of the business which he has misconducted.

Illustrations

(a) A employs B to recover 1,00,000 rupees from C, and to lay it out

on good security, B recovers the 1,00,000 rupees and lays out 90,000
rupees on good security, but lays out 10,000 rupees on security which
he ought to have known to be bad, whereby A loses 2,000 rupees. B is
entitled to remuneration for recovering the 1,00,000 rupees and for
investing the 90,000 rupees. He is not entitled to any remuneration for
investing the 10,000 rupees, and he must make good the 2,000 rupees
to B.

(b) A employs B to recover 1,000 rupees from C. Through B’s

misconduct the money is not recovered. B is entitled to no
remuneration for his services, and must make good the loss. (b) A
employs B to recover 1,000 rupees from C. Through B’s misconduct
the money is not recovered. B is entitled to no remuneration for his
services, and must make good the loss."

221. Agent’s lien on principal’s property.—In the absence of any

contract to the contrary, an agent is entitled to retain goods, papers, and
other property, whether movable or immovable of the principal
received by him, until the amount due to himself for commission,
disbursements and services in respect of the same has been paid or
accounted for to him.

222. Agent to be indemnified against consequences of lawful acts.—The

employer of an agent is bound to indemnify him against the
consequences of all lawful acts done by such agent in exercise of the
authority conferred upon him. —The employer of an agent is bound to
indemnify him against the consequences of all lawful acts done by such
agent in exercise of the authority conferred upon him."

Illustrations
(a) B, at Singapure, under instructions from A of Calcutta, contracts
with C to deliver certain goods to him. A does not send the goods to B,
and C sues B for breach of contract. B informs A of the suit, and A
authorises him to defend the suit. B defends the suit, and is compelled
to pay damages and costs, and incurs expenses. A is liable to B for such
damages, costs and expenses.

(b) B, a broker at Calcutta, by the orders of A, a merchant there,

contracts with C for the purchase of 10 casks of oil for A. Afterwards A
refuses to receive the oil, and C sues B. B informs A, who repudiates
the contract altogether. B defends, but unsuccessfully, and has to pay
damages and costs and incurs expenses. A is liable to B for such
damages, costs and expenses.

223. Agent to be indemnified against consequences of acts done in

good faith.—Where one person employs another to do an act, and the
agent does the act in good faith, the employer is liable to indemnify the
agent against the consequences of that act, though it may cause an
injury to the rights of third persons. —Where one person employs
another to do an act, and the agent does the act in good faith, the
employer is liable to indemnify the agent against the consequences of
that act, though it may cause an injury to the rights of third persons."
Illustrations

(a) A, a decree-holder and entitled to execution of B’s goods requires

the officer of the Court to seize certain goods, representing them to be
the goods of B. The officer seizes the goods, and is sued by C, the true
owner of the goods. A is liable to indemnify the officer for the sum
which he is compelled to pay to C, in consequence of obeying A’s
directions.

(b) B, at the request of A, sells goods in the possession of A, but which

A had no right to dispose of. B does not know this, and hands over the
proceeds of the sale to A. Afterwards C, the true owner of the goods,
sues B and recovers the value of the goods and costs. A is liable to
indemnify B for what he has been compelled to pay to C, and for B’s
own expenses.
224. Non-liability of employer of agent to do a criminal act.—Where
one person employs another to do an act which is criminal, the
employer is not liable to the agent, either upon an express or an
implied promise to indemnify him against the consequences of that
Act.1 —Where one person employs another to do an act which is
criminal, the employer is not liable to the agent, either upon an express
or an implied promise to indemnify him against the consequences of
that Act.1" Illustrations

(a) A employs B to beat C, and agrees to indemnify him against all

consequences of the act. B thereupon beats C, and has to pay damages
to C for so doing. A is not liable to indemnify B for those damages.

(b) B, the proprietor of a newspaper, publishes, at A’s request, a libel

upon C in the paper, and A agrees to indemnify B against the
consequences of the publication, and all costs and damages of any
action in respect thereof. B is sued by C and has to pay damages, and
also incurs expenses. A is not liable to B upon the indemnity.

225. Compensation to agent for injury caused by principal’s neglect.—

The principal must make compensation to his agent in respect of
injury1 caused to such agent by the principal’s neglect or want of skill.

Illustration

A employs B as a bricklayer in building a house, and puts up the

scaffolding himself. The scaffolding is unskilfully put up, and B is in
consequence hurt. A must make compensation to B.

Duties OF Agent

190. When agent cannot delegate.—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

211. Agent’s duty in conducting principal’s business.—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.

Illustrations

(a) A, an agent engaged in carrying on for B a business, in which it is

the custom to invest from time to time, at interest, the moneys which
may be in hand, on its to make such investments. A must make good to
B the interest usually obtained by such investments.

(b) B, a broker in whose business it is not the custom to sell on credit,

sells goods of A on credit to C, whose credit at the time was very high.
C, before payment, becomes insolvent. B must make good the loss to
A.

212. Skill and diligence required from agent.—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 this want of skill. The agent is 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.

Illustrations

(a) A, a merchant in Calcutta, has an agent, B, in London, to whom a

sum of money is paid on A’s account, with orders to remit. B retains
the money for a considerable time. A, in consequence of not receiving
the money, becomes insolvent. B is liable for the money and interest,
from the day on which it ought to have been paid, according to the
usual rate, and for any further direct loss—as, e.g., by variation of rate of
exchange—but not further.

(b) A, an agent for the sale of goods, having authority to sell on credit,
sells to B on credit, without making the proper and usual enquiries as
to the solvency of B. B at the time of such sale is insolvent. A must
make compensation to his principal in respect of any loss thereby
sustained.

213. Agent’s accounts.—An agent is bound to render proper accounts

to his principal on demand. —An agent is bound to render proper
accounts to his principal on demand."

Saroj Kapur V. Nitin Casting Ltd.,

Plaintiff was appointed by Defendant Company as its agent to secure

order for supply of its goods to parties.

The plaintiff was to be paid 5% commission on the orders received by

the company.

Such commission was to be paid after the orders were executed and the
amounts recovered by the defendant.

The defendant company was keeping all the accounts relating to the
receipt of orders, their execution and the amounts recovered.

It was held that the suit by the plaintiff against his principal ( the
defendant company) for rendition of accounts about the commission to
which he was entitled to was maintainable.

214. Agent’s duty to communicate with principal.—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.

215. Right of principal when agent deals, on his own account, in

business of agency without principal’s consent.—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 him by the
agent, or that the dealings of the agent have been disadvantageous to
him.

Illustrations

(a) A directs B to sell A’s estate. B buys the 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.

(b) A directs B to sell A’s estate. B, on looking over 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, may either repudiate or adopt the sale at his option.

216. Principal’s right to benefit gained by agent dealing on his own

account in business of agency.—If an agent, without the knowledge of
his principal, deals in the business of the agency on his own account
instead of on account of his principal, the principal is entitled to claim
from the agent any benefit which may have resulted to him from the
transaction.

Illustration

A directs B, his agent, to buy a certain house for him. B tells A it

cannot be bought, and buys the house for himself. A may, on
discovering that B has bought the house, compel him to sell it to A at
the price he gave for it.

217 & 218 Duty to pay sums received for principal - Another duty of
the agent is to pay his principal all sums received by him on principal's
account.
Before making such payments to his principal, the agent is, however,
entitled to make such deductions out of the same as or lawfully due to
him.

Define contract of guarantee. State the distinctions between

contract of guarantee and contract of indemnity.
Distinction between Indemnity and Guarantee.
Define contracts of indemnity and guarantee and discuss
their differences.
Define contract of guarantee and discuss the distinctions between
contract of guarantee and indemnity.

126. ‘Contract of guarantee’, ‘surety’, ‘principal debtor’ and ‘creditor’—

A ‘contract of guarantee’ is a contract to perform the promise, or
discharge the liability, of a third person in case of his default. The
person who gives the guarantee is called the ‘surety’; the person in
respect of whose default the guarantee is given is called the ‘principal
debtor’, and the person to whom the guarantee is given is called the
‘creditor’. A guarantee may be either oral or written.

Definition of Guarantee

When one person signifies to perform the contract or discharge the

liability incurred by the third party, on behalf of the second party, in
case he fails, then there is a contract of guarantee. In this type of
contract, there are three parties, i.e. The person to whom the guarantee
is given is Creditor, Principal Debtor is the person on whose default the
guarantee is given, and the person who gives a guarantee is Surety.

Three contracts will be there, first between the principal debtor and
creditor, second between principal debtor and surety, third between the
surety and the creditor. The contract can be oral or written. There is an
implied promise in the contract that the principal debtor will indemnify
the surety for the sums paid by him as an obligation of the contract
provided they are rightfully paid. The surety is not entitled to recover
the amount paid by him wrongfully.
124. “Contract of indemnity” defined.—A contract by which one party
promises to save the other from loss caused to him by the conduct of
the promisor himself, or by the conduct of any other person, is called a
“contract of indemnity.”

Illustration

A contracts to indemnify B against the consequences of any

proceedings which C may take against B in respect of a certain sum of
200 rupees. This is a contract of indemnity.

Definition of Indemnity

A form of contingent contract, whereby one party promises to the other

party that he will compensate the loss or damages occurred to him by
the conduct of the first party or any other person, it is known as the
contract of indemnity. The number of parties in the contract is two,
one who promises to indemnify the other party is indemnifier while the
other one whose loss is compensated is known as indemnified.

The indemnity holder has the right to reimburse the following sums
from the indemnifier:

Damages caused, for which he was compelled.

The amount paid for defending the suit.

The amount paid for compromising the suit.

One more common example of indemnity is the insurance contract

where the insurance company promises to pay for the damages
suffered by the policyholder, against the premiums.
Comparison Chart
BASIS FOR
INDEMNITY GUARANTEE
COMPARISON

Meaning A contract in which one A contract in which a party

party promises to promises to another party
another that he will that he will perform the
compensate him for any contract or compensate the
loss suffered by him by loss, in case of the default
the act of the promisor of a their person, it is the
or the third party. contract of guarantee.

Defined in Section 124 of Indian Section 126 of Indian

Contract Act, 1872 Contract Act, 1872

Parties Two, i.e. indemnifier Three, i.e. creditor,

and indemnified principal debtor and surety

Number of One Three

Contracts

Degree of liability Primary Secondary

of the promisor

Purpose To compensate for the To give assurance to the

loss promisee

Maturity of When the contingency Liability already exists.

Liability occurs.
Key Differences Between Indemnity and Guarantee

The following are the major differences between indemnity and

guarantee:

1. In the contract of indemnity, one party makes a promise to the

other that he will compensate for any loss occurred to the other
party because of the act of the promisor or any other person. In
the contract of guarantee, one party makes a promise to the other
party that he will perform the obligation or pay for the liability, in
the case of default by a third party.
2. Indemnity is defined in Section 124 of Indian Contract Act,
1872, while in Section 126, Guarantee is defined.
3. In indemnity, there are two parties, indemnifier and indemnified
but in the contract of guarantee, there are three parties i.e.
debtor, creditor, and surety.
4. The liability of the indemnifier in the contract of indemnity is
primary whereas if we talk about guarantee the liability of the
surety is secondary because the primary liability is of the debtor.
5. The purpose of the contract of indemnity is to save the other
party from suffering loss. However, in the case of a contract of
guarantee, the aim is to assure the creditor that either the contract
will be performed, or liability will be discharged.
6. In the contract of indemnity, the liability arises when the
contingency occurs while in the contract of guarantee, the liability
already exists.

Example

Indemnity

Mr. Joe is a shareholder of Alpha Ltd. lost his share certificate. Joe
applies for a duplicate one. The company agrees, but on the condition
that Joe compensates for the loss or damage to the company if a third
person brings the original certificate.

Guarantee

Mr. Harry takes a loan from the bank for which Mr. Joesph has given
the guarantee that if Harry default in the payment of the said amount
he will discharge the liability. Here Joseph plays the role of surety,
Harry is the principal debtor and Bank is the creditor.

Conclusion

After having a deep discussion on the two, now we can say that these
two types of contract are different in many respects. In indemnity, the
promisor cannot sue the third party, but in the case of guarantee, the
promisor can do so because after discharging the creditor’s debts he
gets the position of the creditor.

What is meant by continuing guarantee ? When and how it is

revoked or terminated ?
What is contract of guarantee ? How it differ from continuing
guarantee ?
Continuing guarantee.
(b) Continuing guarantee.

Section 129 “Continuing guarantee”

A guarantee which extends to a series of transaction, is called, a

“continuing guarantee”.

Illustrations

(a) A, in consideration that B will employ C in collecting the rents of

B’s zamindari, promises B to be responsible, to the amount of 5,000
rupees, for the due collection and payment by C of those rent. This is a
continuing guarantee.

(b) A guarantees payment to B, a tea-dealer, to the amount of £ 100,

for any tea he may from time to time supply to C. B supplies C with tea
to above the value of £ 100, and C pays B for it. Afterwards, B supplies
C with tea to the value of £ 200. C fails to pay. The guarantee given by
A was a continuing guarantee, and he is accordingly liable to B to the
extent of £ 100.

(c) A guarantees payment to B of the price of five sacks of flour to be

delivered by B to C and to be paid for in a month. B delivers five sacks
to C. C pays for them. Afterwards B delivers four sacks to C, which C
does not pay for. The guarantee given by A was not a continuing
guarantee, and accordingly he is not liable for the price of the four
sacks.

130. Revocation of continuing guarantee

A continuing guarantee may at any time be revoked by the surety, as to

future transactions, by notice to the creditor.

Illustrations

(a) A, in consideration of B’s discounting, at, A’s request, bills of

exchange for C, guarantees to B, for twelve months, the due payment
of all such bills to the extent of 5,000 rupees. B discounts bills for C to
the extent of 2,000 rupees. Afterwards, at the end of three months, A
revokes the guarantee. This revocation discharges A from all liability to
B for any subsequent discount. But A is liable to B for the 2, 000
rupees, on default of C.

(b) A guarantees to B, to the extend of 10,000 rupees, that C shall pay

all the bills that B shall draw upon him. B draws upon C, C accepts the
bill. A gives notice of revocation. C dishonors the bill at maturity, A is
liable upon his guarantee.

Difference between continuing guarantee and simple guarantee

A continuing guarantee can be revoked by the surety any time either by

the notice to the creditor or until the surety’s death. Whereas, simple
guarantee can not be revoked in any circumstances.
In continuing guarantee, the transaction can go for long period of time
therefore the surety will be held liable for long time as well whereas in
simple guarantee the surety liability is over when the debt is paid or the
performance is done.

To understand the nature of a guarantee, you must look at :

The intention of the parties as expressed by the language in the

contract.

surrounding circumstances to see what was the subject matter which the
parties examine.

Example of a continuing guarantee: A in consideration that B will

employ C in collecting the rents of B’s zamindari, promises B to be
responsible to the amount of Rs 5000 for the due collection and
payment by C of those rents. This is a continuing guarantee.