CONTRACT OF INDEMNITY

 

DEFINITION

Indemnity is defined in section 124 of the Indian Contract Act, 1872- “ 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 contract of indemnity.”

 

In accordance with the Indian Contract Act, compensation is restricted to the loss created either by the promisor's conduct itself or by any other person's conduct, but it does not include inciden ts beyond the promisor's or any other person's control. The person who gives indemnity is called “indemnifier” and the person to whom indemnity is given is called “indemnity holder.”

 

RIGHTS OF INDEMNITY HOLDER

In accordance with section 125, the rights of the indemnity holder are:

 

1. Damages. In a contract of indemnity the indemnity holder is entitled to recover all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnity applies.

 

2. Costs. Any person with indemnity holder and indemnified or promise is entitled to recover from promisor all costs which he may be compelled to pay in any suit in bringing or defending it if he does not go against the order of the promisor and if he has acted in absence of any contract as would have been prudent for him to do.

 

3. Sums. An indemnity holder is entitled to recover from indemnified all sums which he has paid under the term of compromise of any suit and compromise was not against the order of the promisor and the compromiser was not against the order of the promisor and the compromise was such that it was to be done (prudent) in absence of any contract of indemnity.

COMMENCEMENT OF LIABILITY OF INDEMNIFIER 

Whether the liability of indemnifier should begin with the commencement of liability of indemnity-holder or indemnifier should be liable to indemnify only after the indemnity holder has been damnified, has always been a significant issue. In English law, the rule was that the indemnity holder was not entitled to be indemnified until he was damnified. This principle no longer applies. The Courts of Equity have developed the rule that when the liability becomes absolute, the inde mnity holder is entitled to be indemnified by the indemnifier, even though the indemnity holder has not been damnified.

 

CONTRACT OF GUARANTEE

DEFINITION

Section 126 of Indian Contract Act, 1872 defines a contract of guarantee- “A ‘contract of guarantee’ is a contract to perform the promise, or discharge of liability, of a third person in case of default.” As per section 126 of Indian Contract Act, 1872, a contract of guarantee has three parties: –

Surety: A surety is a person giving a guarantee in a contract of guarantee. A person who takes responsibility to pay a sum of money, perform any obligation for another person in event that such work is not performed by that person.

Principal Debtor: A principal debtor is a person for whom the guarantee is given in a contract of guarantee.

Creditor: The person to whom the guarantee is given is known as the creditor.

 

ESSENTIALS OF CONTRACT OF GUARANTEE

There are three essentials of contract of guarantee:

1. Principal Debt

2. Consideration

3. No Misrepresentation 

 

PRINCIPAL DEBT- For a contract of guarantee, the essential requirement is that there must be a principal debt. If there is no principal debt, there cannot be a principal debtor and consequently there can be no contract of guarantee. In Swan v. Bank of Scotland, a customer had taken overdraft from a Bank for the repayment of which the defendants stood as surety. The making of overdraft was prohibited by the law. The law made it void also. On default of the customer to make the repayment, the defendant was held not liable because legally nothing was due from the customer to the bank. It was laid down that the guarantee for a debt which was void will also be void. In Coutts v. Brown Lecky , the guarantee of a loan advanced by a Bank to a minor where the fact of minority was known to all the parties was declared by the court as void as under the statute the minor’s agreement was absolutely void.

 

CONSIDERATION- Consideration is necessary for a contract. In a contract of guarantee, according to section 127, “anything done or any promise made for the benefit of the principaldebtor may be a sufficient consideration to the surety for giving the guarantee.” Example- B requests A to sell and deliver to him goods on credit. A agrees to so provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of A’s promise to deliver the goods. This is a sufficient consideration for C’s promise.

 

NO MISREPRESENTATION- In a contract of guarantee, the surety should not be misled. The contract of surety is avoidable in case there is a silence of such type which is equal to misrepresentation.

 

 

NATURE AND EXTENT OF SURETY’S LIABILITY

• According to section 128 of Indian Contract Act, 1872, the liability of a surety is co-extensive with that of principal debtor’s unless the contract provides. This section makes it clear that the liability 1 (1836) 10 Bligh N.S. 627 2 (1947) of surety is co-extensive with the principal debtor but by a contract a surety can limit his liability to a fixed sum. Thus the liability depends upon the terms of contract. For example, if A is granted a loan by the B, of rupees 20,000/- but C who is a surety can limit his liability by saying that he will be responsible only for 11,000/- rupees. So in the loan of 20,000/-, the surety has limited his liability by giving the guarantee of rupees 11,000/- only, this is another nature and extent of surety’s liability.

• In order to hold the surety liable, it is not necessary that the creditor should exhaust all the remedies against principal debtor. Even if the creditor does not sue the principal-debtor, the surety is liable to the creditor it he can be sued. In Bank of Bihar v. Damodar Prasad,3on a default of payment of a bank-loan, the surety was sued. The trial court and the Patna High Court took the view that the surety could not be proceeded against without exhausting the remedies against the principal-debtor but the Supreme Court overruled the decision of the Patna High Court and observed that the surety could be proceeded against who in turn would be invested with all the rights of the creditor against the principal-debtor. • And the last point in the extent into the surety’s liability is; the surety will be liable if there is a contract between principal debtor and that contract is void. So in case the main contract between the principal debtor and the creditor is void, the surety’s liability will be the primary liability. For example, A who is a minor has taken the loan from the B and B has given the loan to the A of rupees 10,000/- but the contract between both of them is void. In this case the primary liability will be the liability of the fee who has given the guarantee in the contract. So if there is a void contract between the debtor and the creditor the liability of the surety will be the prime liability.

 

DISCHARGE OF SURETY’S LIABILITY

The liability of surety comes to an end in the following situations:

1. Revocation of continuing guarantee3 AIR 1969 SC 297. According to section 130, "By notifying the creditor, a continuous guarantee may be revoked at any time by the security as to future transactions." In Offord v. Davies, 4 Repayment of bills guaranteed by the defendant to the plaintiff that would be discounted for a b usiness upto a maximum of $600 for a period of 12 months. The defendant revoked the guarant ee before any bill was discounted.After that, the plaintiff discounted the bills which the business had not discounted. It was held that the defendant had the right to withdraw the guarantee for f uture transactions at any time and was therefore not liable at all.

 

2. Revocation by death of suretySection 131 states that the death of the security acts as an automatic termination of the security a greement. But if there is a contract to that effect that the surety’s death will not dissolve the contract of guarantee then in that case the heirs of the surety will be liable for the contract.

 

3. Variance in terms of contractAccording to section 133, if the terms of the contract are varied between the creditor and the principal-debtor without taking into confidence the surety, the surety is not liable from the time the terms are varied because surety will not be liable for anything that he has not contracted. In M.S. Anirudham v. Thomcos Bank Ltd,5 the appellant was a surety for a debt by the bank. The relevant paper showed the amount of Rs 25,000 for which appellant stood as a surety but the bank refused to advance the amount of money exceeding Rs 20,000. The debtor altered the amount in papers from Rs 25,000 to Rs 20,000 without consent of the surety and the bank advanced the loan. It was held by majority judgment of the Supreme Court that his liability was not affected by the alteration being not prejudicial to the security.

 

4. Release or discharge of principal-debtor4 (1862) 6 LT 579 5 AIR 1963 SC 746.  According to section 134, 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 surety. Example- 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 for the timber. C is discharged from his suretyship.

 

5. Creditor compounding with, giving time to or agreeing not to sue principal-debtorAccording to section 135, when the creditor enters into an arrangement with the principal debtor for not to sue him or to provide extra time for payment of debt, the surety will be discharged.

 

6. Impairing surety’s eventual remedyAccording to section 139, the surety will be discharged when the creditor does any act which is inconsistent with the rights of surety.

DISTINCTION BETWEEN CONTRACT OF INDEMNITY AND CONTRACT OF GUARANTEE

CONTRACT OF INDEMNITY

1. It includes two parties the indemnifier and the indemnity holder.

2. It is a bilateral agreement between indemnifier and the indemnity holder.

3. A contract of indemnity is made to safeguard promise against some probable losses.

4. The indemnifier’s liability in the contract of indemnity is primary.

 

CONTRACT OF GUARANTEE

1. It contains three parties the creditor, the principal-debtor and the surety.

2. It is a tri-partite agreement between the three parties the creditor, the principal-debtor and the surety.

3. A contract of guarantee is made for the security of the creditor.

4. The surety’s liability in the contract of guarantee is secondary one.

 

 

BAILMENT AND PLEDGE

 

Contract of Bailment

  • Bailment refers to the delivery of goods by one party to another for a particular purpose, and that, after the accomplishment of the purpose;the goods are either disposed of or returned in the manner prescribed by the person who delivers the same.

  • The one who delivers is known as the ‘bailor’ and to whom they are entrusted to or delivered to, is called the ‘bailee’.

  • Chapter IX of the Contract Act, 1872 deal with contracts of bailment. The provisions dealing with the pledge are contained in sections 172 to 179.

  • Bailment is necessarily dealt with by the Contract Act only so far as it is a kind of contract, but there can be a bailment and relationship of a bailor and a bailee in respect of specific property without anenforceable contract.[1]

 

The essentials of bailment:

  1. There should be some specific movable property.

  2. There is a change of possession. A person having custody but no possession is not a bailee.

  3. The bailee has an obligation to either return the goods or deal with the goods in the manner as agreed.

 

Bailment can either be voluntary or involuntary. When the bailee dies, and the goods bailed passed into the hands of a person representing him, the latter becomes an involuntary bailee.[2] The question whether a transaction amounts to a bailment or a sale is a mixed question of law and fact, and not a pure question of law,[3] and has to be determined in the precise terms of the transaction between the parties to the transaction.[4] Storage of human tissue for enabling later use is a bailment.[5] As to the second point mentioned above, there must be a transfer of the exclusive right of possession.[6] A person like a servant or a guest using his master’s or host’s goods has mere custody, and not possession, and cannot, therefore, be called a bailee.[7]

The bailee’s duty to deal with the goods; according to the bailor’s orders is incidental to the contract of bailment, and arises on the delivery of the goods, although those orders may have already been given and accepted in such a manner as to constitute a prior special contract.[8] Even where the terms of the bailment are silent about return, there is an implied contract in bailment to return the articles in a reasonable time after the purpose is served.[9]

  • Kinds of Bailment:

In,[10] bailments were divided into six classes, which Sir William Jones rearranged into five classes, as follows:

(i) The gratuitous deposit of a chattel with the bailee, who is simply to keep it for the bailor;

(ii) The delivery of a chattel to the bailee, who is to do something without reward for the bailee toor with the chattel;

(iii) The gratuitous loan of a chattel by the bailor to the bailee for the bailee to use;

(iv) The pawn or pledge of a chattel by the bailor to the bailee, who is to hold it as a security for aloan or debt or the fulfilment of an obligation; and

(v) The hire of a chattel or services by the bailor to the bailee for reward.[11]

The first three types discussed above are called gratuitous bailments without compensation. The rest are for reward or some other sort of consideration.

The bailment for hire can be of the following kinds:

(i) hiring the use of goods;

(ii) hiring of labour or work on or with regard to the goods;

(iii) hiring of custody, i.e., of services in keeping the goods; or

(iv) hiring of carriage of the goods.

 

Gratuitous Bailment- This kind of contract arises where deposition is gratuitous. The good is delivered to the bailee and to be returned on demand by the bailor. 

Bailment for consideration- It is not necessary the consideration ought to flow from the bailor. Thus, if a member of a tenant’s family deposits baggage with the landlord in the baggage room of the building containing the tenant’s flat, the bailment is not gratuitous.[12]

Sub Bailment- A sub-bailee is a person to whom the actual possession of goods is transferred by someone who is not himself the owner of goods, but has a present right to possession of them as the bailee of the owner.[13]

 

  • Rights of Bailor:

 

The bailer, under Section 153 (Termination of bailment by bailee’s act inconsistent with conditions), has a right to terminate the bailment if the bailee actsin contravention to the conditions of bailment prescribed by the bailor.

A lets to B, for hire, a horse for his own riding. B drives the horse in his carriage. This is, at the option of A, a termination of the bailment.[14]Merely irregular exercise of a right, such as a sub-pledge to a third person by a pledgee, or a premature sale by a pledgee with power of sale, has not the same effect.[15]

  1. Section 159 (Restoration of goods lent gratuitously): Even if the bailer lends some good for a particular consideration, the bailor can demand its return anytime.

  2. Section 180 [16]: Suits by bailor or bailee against wrong-doer.

Either the bailor or bailee of goods may maintain an action in respect of it against a wrong-doer, the latter, by virtue of possession, the former, by virtue of his property.[17]The bailee could and can always sue a wrong-doer; and this right does not as once supposed by some authorities, depend on his being answerable over to the bailor.[18]

The bailee may also claim specific delivery of the goods.[19]

 

  • Rights of bailee:

 

  1. Section 165- Bailment by several joint owners.

The bailee can deliver the bailment goods as per the instructions of any one of the joint owners. This can be done away with if there is an agreement to the contrary.

Even if there is an agreement to the contrary, one of several joint owners cannot, after having accepted redelivery from the bailee, sue him jointly with the owners; for ‘one party to a contract cannot maintain an action for a breach occasioned by his own act, and neither can three parties maintain an action unless each party separately could’.[20]

   

   2. Section 166- Bailee not responsible on redelivery to bailor without title.

When a bailee, in good faith, delivers back the good to the bailor and comes to know that the bailor did not actually have any title to the goods, the bailee is not responsible to the true owner.

When a bailee delivered goods bailed to him to the original bailor when he had notice of the sale by the original bailor to another person, and also the knowledge that he was going to sell it to a third party, the bailee was liable for conversion.[21]

   3. Section 180- Suit by bailor or bailee against wrong-doer

If any third person deprives the bailor or bailee of either of use of the bailed goods or their possession, or causes any injury in this respect, the bailor or the bailee may proceed against that person.

 

   4. Section 170- Bailee’s particular lien

When the bailee has undertaken any service with respect to the bailed item, which employs labour or skill, the bailee will have the right to retain (lien) such good until she receives the remuneration of her services. This cannot be exercised if there is a contract to the contrary.

A bailee’s right of lien is lost with the loss of possession.[22]The lien is lost if the bailee has sold the goods.[23]There is no right of lien if the bailee has kept the thing bailed beyond the agreed time, or a reasonable time, for the completion of the work and has failed to complete it.If the bailor desires to exclude the bailee’s authority, it must be done expressly.[24]

  1. Section 171 talks about general lien of bankers, factors, wharfingers, attorneys and policy brokers.

  2. Section 150- Bailor’s duty to disclose faults in goods bailed

 

The bailee can receive compensation in cases where the faulty nature of the goods was not disclosed by the bailor. In the case of goods bailed for hire, the liability is on the bailor for paying the damages, whether or not the bailor was aware of the faults in the bailed goods.

A person who delivers to a carrier goods which he knows to be of a dangerous character, such as explosives, and to require extraordinary care in handling, and omits to give warning of it, is himself liable for any resulting damage.[25]

Bailment for Hire, in the section can be interpreted in the following ways-

  1. The bailor is under a duty to take reasonable care to make the goods reasonably safe for the purpose for which he knows they have been hired[26]

  2. The bailor is under a duty to supply goods that are reasonably safe, the only defense being that the defect is a latent one that could not be discovered by any care or skill;[27]

  3. There is an absolute guarantee of fitness.[28]

  4. Section 158- Repayment, by bailor, of necessary expense

A bailee’s right of lien arises out of its possession and is lost with the loss of possession.

  • Termination of Bailment:

The circumstances in which contract of bailment can be terminated:

  1. Expiration of the period of bailment- The bailment ends when the contracted period has come to an end. Section 160[29] provides for the same. There is an implied contract in a bailment to return the articles in a reasonable time after the purpose is served even if no time is stipulated for its return.[30]

  2. Purpose fulfilled- When the purpose of the bailment is accomplished, the contract of bailment expires.In the very nature of the contract of bailment, the duty is normally on the bailee to deliver back the goods bailed even if the purpose of bailment is not accomplished.[31]

  3. By Notice- If the bailor finds that the bailee has engaged in a manner which is contrary to the terms of the bailment, she can terminate the bailment contract by giving notice. S.153 talks about termination of bailment by bailee’s act inconsistent with conditions.The bailee is to use the goods for the specified purpose, and according to prescribed conditions of the bailment. If bailee fails to do so, the contractof bailment becomes voidable at the option of the bailor.In the case of gratuitous bailment, the contract can be terminated at any time by the bailor by providing the notice.

  4. Death- In gratuitous bailment, the death of the bailor or bailee will lead to the termination of the contract. Section 162[32] provides for this.

 

  • Finder of goods:

 

1. Section 71[33] talks about the responsibility of finder of goods.

2. A person becomes the bailee of goods when she finds goods belonging to another and takes them into her custody. Once a finder accepts the responsibility for the goods, his liability is that of gratuitous bailee. The same duties and rights arise in this case as that of a bailee, i.e, as per sections 151.

3. The Contract Act, in sections 168 and 169 talks about finder’s rights.

4. Section 168- Right of finder of goods; may sue for specific reward offered.

 

The finder cannot sue the owner for compensation for the troubles she undertakes for the maintenance of the good but she has the rights toretain the goods until receiving compensation or where a reward existed, the owner can be sued for compensation.

Under the Common Law, a person who finds lost goods and holds them with the intention of saving them for the true owner is certainly not a trespasser, and has no higher duties than a bailee;[34] but, he is not entitled to remuneration for service without request from the owner,[35] unless a specific reward has been offered for the return of the goods, and the offer has come to his knowledge; and if he cannot claim compensation there is no ground on which he can retain the goods.

 

5. Section 169- When finder of a thing commonly on sale may sell it.

When the finder is unable to find the owner of the goods recovered by her or when the owner refuses to pay the lawful amount of the good, the finder is entitled to sell that item. Another circumstance where the finder may do so:

When the good is in danger of perishing its value; or when the lawful charges of the founder in respect of the thing found amount to two-third of its value.[36]

 

Contract of Pledge

 

Section 172- ‘Pledge’, ‘Pawnor’, ‘Pawnee’ defined

  • The ingredients of a pawn are:

(i) The property pledged should be actually or constructively delivered to the pawnee; and

(ii) A pawnee has only a special property in the pledge, the general property remains in the pawnorand wholly reverts to him on discharge of the debt.[37]

  • The three essential conditions of a pledge are:

  1. Bailment of goods pledged;

  2. Bailment by way of security; and

  3. Security for payment of a debt.

 

Pledge, being essentially a bailment, the pawnee is bound to take 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 goods bailed.[38] The subject matter of a contract of pledge is goods, capable of actual or constructive delivery. The goods must be identified at the time of contract.[39]

  • Rights and duties of the Pawner:

  1. The pawner has the right to receive goods till sold under Section 177.[40]The right to redeem can be exercised right up to the time when the “actual sale” of goods pledged takes place. This sale must be a sale in conformity with the provisions of section 176, which gives the pledgee the right of sale, and if the sale is not in conformity with these provisions, the equity of redemption in the pawnor is not extinguished.[41]The liability of the pawnor to pay interest on the debt secured by pledge, ceases after he has exercised the right of redemption.[42]

  • Rights and duties of the Pawnee:

Section 173- Pawnee’s right of retainer

The pawnee has right to receive payment of the debt or to obtain the performance of promise with interest and expense(Sec. 173). Pawnee has the right to hold ownership-

  1. On the products promised till she acquires the payment of the condition upon which the contract of pledge was made

  2. The interests in relation to the debt

  3. All the expenses that accrue because of the possession or the preservation of the goods by the pawnee.

Section 174 (Pawnee not to retain for debt or promise other than that for which goods pledged)-

A pawnee cannot retain the good for any other purpose than what was stipulated by the parties, unless there is a contract to the contrary. A pledge and subsequent advance raise a presumption that there is a contract to hold the pledge for such advances; but the presumption does not apply if the later advance is separately secured and made on a new and different security.[43]

Section 175- Pawnee’s right as to extraordinary expenses incurred.

A pawnee under this section does not possess the right to lien but a right of action, that is, to receive the costs that she entailed in consequence of preservation of the pledged goods.

Section 176- Pawnee’s right where pawnor makes default

A pawnee has three rights in case of default by the pawnor-

  1. he may bring a suit upon the debts; and

  2. he may retain the pawn as a collateral security; or

  3. he may sell it giving the pawnor reasonable notice of sale.[44]

Pawnee is also under the duty of not using the pledged goods unless the nature of the goods is such that using would not lead to wear and tear of the good.

Section 178A- Pledge by person in possession under voidable contract

There is in such case, a de facto contract, though voidable on the ground of fraud and the like. It is, however, different if there is no real consent, as where goods have been obtained by theft. A thief has no title, and can give none.[45]Where goods have been obtained by fraud, the person who has so obtained, may either have no title at all, or a voidable title, according to the nature of the transaction.[46]

Further, all the rights and duties pertaining to bailor and bailee apply to pawnor and pawnee.

  • Pledge by persons not owners:

One of several joint owners of goods in sole possession thereof with the consent of the rest may make a valid pledge of the goods.[47] Other cases, in which a person who is not the owner of goods may make a valid pledge thereof, are:

(i) A seller left in possession after sale; and

(ii) A buyer to whom possession has been delivered before payment of the price.[48]

Thus, where B buys goods from A, pays for them, but leaves the goods in the possession of A, and later A then pledges the goods with C who has no notice of the sale to B, the pledge is valid. Similarly, X sells 100 cases of cutlery to Y under an agreement made in July 1927, that payment should be made within the five months from the date of the agreement and delivery should be taken within that time, the goods remaining in the meanwhile in X's godown free of rent. In August 1927, X pledges the goods with Z who has no notice of the sale to Y. The pledge to Z is valid.[49]

 

Distinction between Bailment and Pledge:

  1. A ‘bailment’ is a delivery of a thing entrusted for some special object or purpose upon a contract, express or implied, to conform to the object or purpose of the trust.[50] A pledge is a type of bailment made as security for either performing a promise or any debt payment.

  2. Chapter IX of the Indian Contract contain contracts of bailment from section 148 to 179. Pledge is discussed under this chapter under sections 172 to 179.

  3. Bailment is defined under Section 148[51] and pledge in section 172[52].

  4. The purpose of bailment can relate to anything. In the case of pledge, particular purpose is involved.

  5. The bailee does not hold only the possession of the goods but is entitled to the use of the goods only for the purpose stipulated. The pledgee does not hold any such right.

  6. The bailee is not allowed to sell off the item bailed. The pledge can sell the item that is pledged. (Section 176- Pawnee’s right where pawnor makes default).

  7. When the bailee employs labour and service for the safekeeping, then she gets the right to exercise lien on the same. Such a right is available in the cases of pledge also if the interest in not paid.

                                               CONTRACT OF AGENCY

Agency: Agency is a type of business or organization which provides service on the behalf of other business, organization, person, or group. Agency system is very popular is present business scenario. There are two parties involved in an agency. One is called as ‘principal’ and another one is called as ‘agent’.

  1. Agent: An “agent” is a person employed to do any act for another, or to represent another in dealings with third persons.

  2. Principal: The person for whom such act is done, or who is so represented, is called the “principal”.

 

General rules of Agency:

  1. There should be an agreement between the principal and the agent.

  2. The authority of an agent may be expressed or implied.[53]

  3. The agent must act in the representative capacity and principal must act as competent to contract.

  4. The agent need not be competent to contract.

  5. Consideration is not necessary.

  6. Whatever a person can lawfully do himself, the same can be done through an agent. The one who acts through another, does by himself.

  7. Who may employ an 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.

  8. Who may be an agent: As between the principal and third persons, 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 principal according to the provisions in that behalf herein contained.

 

Test of Agency:

Test of agency is done to check a particular person is an agent or not can be verified by finding out of his acts bind the principal or not.

 

Kinds of Agent:

 

A. Extent of their authority:

  1. General Agent: The general agent is the one employed to do all the acts connected with a particular business or employment. For example: Manager of a Firm.

  2. Special Agent: This type of agent is employed to do some particular act or represent his principal in some particular transaction. For example: Agent employment to sell a motor car.

  3. Universal Agent: This type of agent has unlimited authority. This agent enjoys extensive powers to transact every kind of business on behalf of principal.

B. Nature of work performed by them:

  1. Mercantile agent: An agent who deals in the buying and selling of goods. He has the authority either to sell the goods, or to consign the goods for the purpose of sale, or to buy the goods or to raise the money on the security of goods on behalf of his principal.

  2. Non-Mercantile agents: This type of agents does not usually deal in the buying or selling of the goods. They include insurance agents, counsels or advocates, wife, etc.

Difference between Agent and Servant:

  1. Agent has the authority to create commercial relationship between the principal & the third party whereas Servant has no such authority.

  2. Agent may work for several principal at a time whereas servant ordinarily works for one master at a time.

  3. Agent usually gets commission for his work whereas Servant normally gets their salary only.

 

Independent Contractor: An independent contractor is engaged under contract for the services they offer. In case of wrong committed by independent contractor, they themselves are liable for the same. The employer can only direct the independent contractor about the work which needs to be done but he cannot instruct or control them in the manner of doing work.

Creation of Agency:

  1. Agency by express agreement: This means appointment in writing or by verbal communication. Usual form is of a written agreement: Power of attorney-General power of attorney or Special PA.

  2. Agency by implied agreement: It arises due to the conduct of the parties or in the course of dealing between the parties or the situation of a particular case. It includes:

  • Agency by estoppels

  • Agency by holding out

  • Agency by necessity

Termination of Agency:

The end of the relationship between a principal and his agent comes under:

A. Termination of agency by act of the parties:

  1. Agreement is between the principal and agent.

  2. Revocation by the principal may be express or implied on the basis of condition given below:

  • In case of continuous agency.

  • Where an agency has been created for a fixed period of time.

  3. Revocation of agency by the agent.

B. Termination of agency by operation of Law:

  1. Completion of business agency.

  2. On the expiry of time limit.

  3. Death of the agent or the principal.

  4. Insanity in between the principal or agent.

  5. Insolvency of the principal.

  6. Destruction or disagreement in the subject matter of the agency.

  7. At the time of dissolution of a company.

  8. When the principal or the agent becomes alien enemy.

Duties of Agent:

  • To follow instructions given by principal.

  • To carry out the work with care and using skills.

  • To render accounts to the principal.

  • To communicate with principal.

  • Not to deal on his own account.

  • Not to make secret profits from agency.

  • To pay the amount received for the principal.

  • Not to go against principal, with the help of information received in course of agency.

  • To protect interest of principal.

  • Not to delegate authority.

Rights of an Agent:

  • To retain money due from the principal.

  • To receive remuneration.

  • To retain goods, papers and other property.

  • To be indemnified against the consequences of lawful acts and acts done in good faith.

  • Right to get compensation in case of any problem.

  • Right of stoppage of goods in transit in which Principal becomes insolvent and Agent have bought goods out of his own money.

 

Rights of Principal:

  • Can recover the damages from agent if he disregards directions of Principal.

  • Have the right to obtain accounts from Agent.

  • Has the right to recover moneys collected by Agent on the behalf of Principal.

  • Details of secret profit made by agent and recover it from him.

  • Forfeit remuneration of Agent if he misconducts the business.

 

Duties of Principal:

  • Pay remuneration to agent as agreed.

  • Indemnify agent for lawful acts done by him as agent.

  • Indemnify agent for all acts done by him in good faith.

  • Indemnify agent if he suffers loss because of him.

 

Delegation of Agents authority:

General rule says that “Delegatus non-protest delegare” i.e. a delegate cannot further delegate. But there are exceptional cases too in which sub agent can also be appointed. These types of cases are:

  1. Express authority from the principal.

  2. In situation, where principal has impliedly, by his conduct allowed such delegation of authority.

  3. Ordinary Custom of a particular trade.

  4. Nature of the work.

  5. Acts which do not require personal or professional skill.

  6. Due to unforeseen emergencies.

 

Agent’s authority: There are two types of authorities, namely, actual or real authority and ostensible or apparent authority.

  1. Actual authority: Authority conferred upon the agent by his principal. These are further divided into two kinds, namely, express authority and implied authority which is conferred upon the agent by the conduct of the principal.

  2. Apparent authority: The acts are in excess of the actual authority. Authority due to the appearance created by the principal.

 

Sub Agent and Substituted Agent: Both maybe seems to have a bit common name, but have difference in the roles which are given below:

  1. Control: A sub-agent is the agent of the original agent whereas a substituted agent is the agent of the principal because he works under the control of the principal.

  2. Responsibility: A sub-agent is responsible for all the acts to original agent and for acts wrongfully committed like fraud. A substituted agent, on the other hand, is responsible to the principle alone.

  3. Contract: There is no direct contact between the sub-agent and the principal whereas there is direct contract between the substituted agent and the principal.

  4. Appointment: An agent appoints sub agent whereas a substituted agent is appointed by the agent.

  5. Liability: Sub agent is liable to the agent but substituted agent is liable to the principal.

  6. Responsibility towards third party: A principal is not responsible to third parties for the acts committed by the sub agent. This applies only on the condition that he has not been appointed by the consent of the principal. The principal in this case is bound to acts of substituted agent in the same way and even is liable to acts of his agent.

 

Cases:

  • In the case of Jagannath Patnaik vs. Sri Pitambar Bhupati Harichandan[54], defendant was the heir of the property of the deceased. The deceased before his death employed plaintiff as ‘dewan’ of the said property for the period of 7 years. The present suit is brought by the plaintiff when defendant terminated the services of plaintiff. And even claiming salary for rest of the period of 7 years for which he contracted to serve.

 

It was held that Section 37, the promises bind the representatives of promisor in respect of contract terms, in this circumstances when the promisor dies before performing his part of contract, unless a contrary intention appears from the contract. Neither of them had anticipated that the other would die during the 7 year period as stipulated by the contract, since both, despite being old, did not suffer from any ailment to warrant such an anticipation. Furthermore, considering the previous relationship it is evident that the contractual obligations created in this case were personal in nature.

  • In the case of Chairman L.I.C v. Rajiv Kumar Bhaska[55], L.I.C salary saving scheme says that the employer was to deduct the premium from the salary of employee and further deposit with L.I.C. All procedures were the responsibility of the employer.  Upon death of the concerned employee, the heirs found the employer had defaulted in payment causing policy to lapse. L.I.C relied on a clause in the acceptance letter by the employer which said he would act not as the agent of L.I.C but as an agent of his employees.

 

It was held that the existence of an agency relationship would help to decide an individual problem and the fact permits a court to conclude that such a relationship existed at a material time, then whether or not any express or implied consent to the creation of an agency may have been given by one party to another, the court is entitled to conclude that such relationship was in existence at that time for the purpose in question.

 

  • In the case of Kuchwar Lime & Stone Co. V. Dehri Rohtas Light Railway Co. Ltd. & Anr.[56], a quantity of coal was booked by a Colliery to the appellant Company carriage to Banjari station on the respondent Railway’s line and the freight on the consignment was to be paid by the appellant Company. The Company declined to take delivery of a part of the consignment which reached Banjari on November 12, 1954 on account of inferior quality of coal.  After some correspondence between the parties as well as with the Coal Controller, the Railway sold the coal by public auction on June 2, 1955, after serving a notice on the appellant. It thereafter filed a suit against the Company claiming outstanding amount of freight and demurrage charges for 202 days during which six wagons in which the coal was loaded were detained and ‘sought a decree for Rs. 17,625/14/- after giving credit for the amount realized from the sale of the coal.

 

It was held by trial court which granted a decree for about Rs. 1,620/- with interest, but in appeal the High Court decreed the Railway’s claim in full. On the same High Court held modified the decree passed by the Trail Court and decreed the claim of the Railway against the Company in full.

 

[1]The Trustees of The Port of Bombay v. The Premier Automobiles Ltd.AIR 1981 SC 1982.

[2]Promoth Nath Mullick v. Prodymno Kumar Mullick, AIR 1921 Cal 416(2).

[3]State of Maharashtra v. Britannia Biscuits Co. Ltd., (1995) 2 Supp SCC 72.

[4]Raj Steel v. State of Andhra Pradesh, (1989) 3 SCR 305.

[5]Yearworth v. North Bristol, (2009) 2 All ER 986.

[6]Scruttons Ltd. v. Midland Silicones Ltd., (1962) AC 446.

[7]Annamalai Timber Trust Ltd. v. TrippunithuraDevaswom, AIR 1954 TC 305.

[8]Streeter v. Horlock, (1822) 1 Bing 34, 25 RR 579.

[9]Chaturgun v. Shahzady, AIR 1930 Oudh 395.

[10]Coggs v Bernard [1558-1774] All ER Rep 1.

[11] Jones on Bailment, 1781, first edn, pp 35-36.

[12]Indra Kumar v. State, AIR 1963 All 70.

[13]Halsbury’s Laws of England, Vol. 4, 5thedn., (2011) para 110.

[14]Section 153, The Indian Contract Act, 1872.

[15]Donald v Suckling, [1866] LR 1 QB 585.

[16]Section 180:If a third person wrongfully deprives the bailee of the use or possession of the goods bailed, or does them any injury, the bailee is entitled to use such remediesas the owner might have used in the like case if no bailment had been made; and either the bailor, or the bailee may bring a suit against a third person for such deprivation or injury.

[17]Ramnath Gagoi v. Pitambar Deb Goswami, (1918) 43 Cal 733.

[18]The Winkfield, (1900–03) All ER Rep 346 (CA).

[19] Sections 7,8, Specific Relief Act, 1963.

[20]Brandon v. Scott, (1857) 7 E&B 234, 110 RR 574.

[21]K.J. Patel v. T.K.V.R.V. Chettyar, AIR 1940 Rang 249.

[22]Surya Investment Co v State Trading Corpn of India, AIR 1987 Cal 46.

[23]Scindia Steam Navigation Co Ltd v Trustees of the Port of Karachi, AIR 1930 Sind 36.

[24]E.J. Judah v King-Emperor, (1925) 53 Cal 174.

[25]Lyell v. Ganga Dai, (1875) ILR 1 All 60.

[26]Jones v Page, (1867) 15 LT 619 per Pigott B. at 621.

[27]Hyman v Nye, (1881) 6 QBD 685.

[28]Chew v Jones, (1847) 10 LT (OS) 231.

[29]S. 160: Return of goods bailed, on expiration of time or accomplishment of purpose.—It is the duty of the bailee to return, or deliver according to the bailor’s directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished.

[30]Chaturgun v Shahzady, AIR 1930 Oudh 395.

[31] Raman Ezhuthassan v V. Devassi, (1957) Ker 542.

[32] S. 162. Termination of gratuitous bailment by death.

A gratuitous bailment is terminated by the death either of the bailor or of the bailee.

[33]Section 71- Responsibility of finder of goods.

A person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee.

[34]Parker v British Airways Board, [1982] QB 1004.

[35]Binstead v Buck, (1777) 2 WMB l 1117.

[36] Section 169, The Indian Contract Act, 1872.

[37]Section 172, The Indian Contract Act, 1872.

[38] Gopal Singh Hira Singh v. Punjab National Bank, AIR 1976 Del 115.

[39] Appa Rao v. Salem Motors & Salem Radios & Electricals. AIR 1955 Mad 505.

[40]Section 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 pledge is made, and the pawnor makes default in payment of the debt, or performance of the promise, for which the pledge is made, and the pawnor makes default in payment of the debt or 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.

[41]Official Assignee v Madholal Sindhu, AIR 1947 Bom 217.

[42]Aratibala Mohanty v State Bank of India, AIR 1991 Ori. 260.

[43]CowasjiBanaji v. Official Assignee of Bombay, AIR 1928 Bom 507.

[44]State Bank of India v. N Sathiah, AIR 1989 Mad 279.

[45]This section is the counterpart of section 29 of the Sale of Goods Act, 1930.

[46]Purshottam Das Banarsi Das v UOI, (1967) 1 All 398.

[47]Shadi Ram v. Mahtab Chand, (1895) Pun Rec No. 1.

[48]Section 30 of the Sale of Goods Act, 1930 provides:

Seller or buyer in possession after sale. —

(1) Where a person, having sold goods, continues or is in possession of the goods or of the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him of the goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the delivery or transfer were expressly authorised by the owner of the goods to make the same.

(2) Where a person, having bought or agreed to buy goods, obtains with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods shall have effect as if such lien or right did not exist.

This section validates a pledge not only by the person who has bought goods, but also one who has agreed to buy them.

[49]RahimbuxAshan Karim v. Central Bank of India Ltd., (1928) 56 Cal 367.

[50]Emperor v. Ghanshamdas, AIR 1928 Sind 106.

[51] Section 148. ‘Bailment’, ‘bailor’ and ‘bailee’ defined.—A ‘bailment’ is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the ‘bailor’. The person to whom they are delivered is called the ‘bailee’.

[52]Section 172. ‘Pledge’, ‘pawnor’ and ‘pawnee’ defined.—The bailment of goods as security for payment of a debt or performance of a promise is called ‘pledge’. The bailor is in this case called the ‘pawnor’. The bailee is called ‘pawnee’.

[53] The Registration Act, 1908 (16 of 1908), s. 33; see also the Code of Civil Procedure, 1908 (5 of 1908), Sch. I, Order III, rule 4.

[54] AIR 1954 Ori 241

[55] 2003 ACJ 86

[56] 1969 AIR 193

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THE INDIAN CONTRACT

ACT 1872

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