MODULE 1: Indemnity

Section 124: Indemnity

This defines a contract of indemnity as one in which a party promises another to save him
from loss caused by the promisor himself or any other person.

Eg. ‘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.

• Person who gives indemnity- indemnifier

• Person to whom indemnity’s given- indemnity-holder/indemnified
• The loss mentioned in this section is only limited to loss caused by human agency.
• In this section indemnity can be express or implied
• Yeoman Credit v. Latter has this definition of indemnity
• An indemnity may be express or implied like in the case of Secretary of India v.
Bank of India Ltd where a note with forged endorsement was given to a bank
which received it in good faith and sent it to the public debt office for renewal in
tier name. The true owner of the note got compensation from the state and the
state was allowed to recover from the bank, it’s a contract of implied indemnity.

Section 125: Rights of indemnity holder when sued

This section talks about the rights of the indemnity holder when he’s sued; the promise can
recover from the promisor under the following circumstances -

• All damages arising from suits with which the indemnity is with respect to.
• All sums if he in the suit didn’t define any directions made by the indemnifier and
if he acted as would have been prudent for him to act in the absence of the
indemnity.
• All sums which he may have paid under the terms of any compromise of such suit
if the compromise wasn’t against the orders of the promisor and was prudent for
the promisee to make in the absence of the indemnity.

CASES: Gajanan Moreshwar Parelkar vs Moreshwar Madan

If a suit was filed against him, he had actually to wait till a judgment was pronounced, and it
was only after he had satisfied the judgment that he could sue on his indemnity. It is clear that
this might under certain circumstances throw an intolerable burden upon the indemnity-
holder. He might not be in a position to satisfy the judgment and yet he could not avail
himself of his indemnity till he had done so.

The Court of equity held that if his liability had become absolute then he was entitled either
to get the indemnifier to pay off the claim or to pay into Court sufficient money which would
constitute a fund for paying off the claim whenever it was made.

Indemnity against negligent actions

CASE: Canada Steamship Lines Ltd V R:

If the clause contains language which expressly exempts the person in whose favour it is
made ("the proferens ") from the consequence of the negligence of his own servants, effect
must be given to that provision.

If there is no express reference to negligence, the court must consider whether the words used
are wide enough, in their ordinary meaning, to cover negligence on the part of the servants of
the proferens.

In cases of doubt, the contract is interpreted against him who has stipulated and in "favour of
him who has contracted the obligation.

If the words used are wide enough for the above purpose, the court must then consider
whether the head of damage may "be based on some ground other than that of negligence

CASE: Smith v South Wales Switchgear Co Ltd

Indemnity - Construction of indemnity clause - Indemnity against consequence of own

negligence - Express provision exempting proferens from liability for own or servants'
negligence - Need to include word 'negligence' or some synonym expressly - Clause
indemnifying proferens against 'any liability, loss, claim or proceedings whatsoever' -
Whether words constituting an express provision exempting proferens from liability for own
negligence.

CASE: Colour Quest Limited v Total Downstream UK PLC and Others

There was a huge explosion at the Buncefield Oil Storage Terminal caused by the negligent
overfilling of a fuel storage tank which led to the creation of a hydrocarbon vapour cloud
which ignited. They weren’t indemnified against their own negligence.

CASE: Erect Safe Scaffolding v Sutton

In this case a worker hit his head on a crossbar and hurt it ,this case concluded that indemnity
clauses will not cover independent acts of negligence, here the company who had to take care
of the scaffolding was at fault and not the company supplying the scaffolding.
 MODULE 2: GUARANTEE
Section 126- Contract of guarantee defined

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.

• There can be no guarantee without a principal debt.

• It must have 3 parties
• A guarantee for a void debt may be enforceable as the voidness of a debt is
different from the voidness of guarantee s such in the statue.
• In case of a minor’s loan, guarantee is void in UK but in India if a minors debt is
knowingly guaranteed the surety’s liable.
• A guarantee without consideration is void but no direct consideration between the
creditor and surety’s required.

A liability which is incurred independently of a default is not a guarantee. Example: A

landlord with a tenant with the tenant went to the store. The landlord told the store keeper that
the storekeeper could advance goods to the tenant and that he, the landlord, would “see to it
that the tenant paid the money”. This is not a guarantee.

Section 127- Consideration of guarantee

Consideration for guarantee-Anything done or any promise made for the benefit of the
principal debtor may be sufficient consideration to the surety for giving guarantee.

• When a loan is given or goods are sold on credit on the basis of a guarantee, it is
sufficient consideration.
• When credit has been given and the principal debtor defaults and the creditor
promises not to sue that is sufficient consideration for a guarantee.
• A guarantee for past debt is valid as past consideration is considered as valid
consideration.
• A guarantee for future debt is also valid if some further debt is incurred after the
guarantee.
• A counter guarantee id to protect the original guarantor.
• It is the duty of the party taking the guarantee to disclose to the surety all facts
which may affect his responsibility, he should be made aware of the whole
contract which has been entered into with the debtor and if he fails to do so it is
his peril.
• According to S.142 a guarantee made by misrepresentation is invalid, it is invalid
also if the creditor hides a material fact from the surety or such a fact is hidden
with his knowledge and assent.
CASE: Gulam Hussain v. Faiyyaz Ali.

Guarantee executed after incurring principal debt. Held bond valid. Judgment severely
criticized.

CASE: Sicom v. Padmasri Shah 2005 MHLJ 125

Guarantee was executed after release of financial assistance to the borrower, it was held as
valid as past consideration is valid consideration.

Section 128- Surety’s liability

• The maximum extent of the Surety’s liability is as much as that of the principal
debtor unless otherwise is mentioned in the contract.
• The surety’s liable not only to pay the loan amount but also interests and charges
which may become due on it.
• If the principal debtor’s loan is decreased or time period’s increased, this applies
also to the surety’s liability.
• If there’s a condition precedent to the surety’s liability , he will not have to pay till
that conditions not fulfilled.

CASE: Kashiba v. Sripat Narshiv (1894) I.L.R. 19 Bom. 697.

The rule that a party cannot be liable on a contract of guarantee unless the principal be also
liable, is in some cases true in form or words rather than in substance. Thus, in the case of
guarantee to answer for the price of goods, not necessaries, to be sold to an infant or other
person incompetent to contract, there is no doubt that the party guaranteeing, though
professedly contracting only in the character of a surety, would be responsible: for either he
could not urge the incapacity of the supposed principal, or he might by construction of law be
himself treated as the principal.- Quoting from Chitty on Contract

CASE: Coutts & Co. v. Brown-Lecky L.R. (1947) 1 K.B. 104

Infants- In case of minor being principal debtor, the surety has to pay. Also upheld in Edavan
Kavingal Kelappan Nambiar vs Moolakal Kunhi Raman as the very essence of a contract of
guarantee is that someone should be liable as the principal debtor.

Section 129: Continuing guarantee

A guarantee which extends to a series of transactions is called continuing guarantee.

• A guarantee must be invoked in its validity period, once invoked ay proceedings

with regard to it can take place in the next three years from that date of invoking.

Section 132: Joint and Several liabilities

If principal debtors A and the surety’s B, it is up to the creditor who he goes after as the
arrangement between A and B in of no concern to the creditor and is different from the
arrangement between A and the creditor. This can be avoided if B has a separate agreement
with the creditor that only when A defaults will B pay.

The principal debtor and surety and jointly and separately liable in a guarantee.

CASE: Bank of Bihar v. Damodar Prasad AIR 1969 SC 297

The very object of the guarantee is defeated if the creditor is asked to postpone his remedies
against the surety. In the present case the creditor is a banking company. A guarantee is a
collateral security usually taken by a banker. The security will become useless if his rights
against the surety can be so easily cut down.

CASE: State Bank of India v. Indexport Regd AIR 1992 SC 1740

The decree does not postpone the execution. It is simultaneous and is jointly and severally
against all the defendants-respondents, including the guarantor. It is the right of the decree-
holder to proceed with it in a way he likes. There is nothing in law which provides a
composite decree to be first executed only against the property.

Overruling Union of India V Manku Narayan AIR 1987 1078 which said that 1st the creditor
should go after the debtor and then the surety.

Discharge of surety from liability

1. Section 130- Revocation of continuing guarantee

A continuing guarantee may be revoked anytime by the surety as to future transactions by

notice to the creditor.

2. Section 131- Revocation of continuing guarantee by death of surety

A continuing guarantee is revoked at the death of the surety unless there is an agreement to
the contrary.

3. Section 133- Discharge of surety by variance in terms of the contract

Any variance made in the contract without the surety’s consent discharges the surety of
liability from subsequent transactions.

CASE: Anirudhan v. Thomco’s Bank

Guarantee--Surety--Alteration of terms of letter of guarantee by principal debtor--Discharge

of surety's liability. In this case a guarantee was given for 25000 but without the surety’s
consent it was reduced to 20000,the surety wanted his liability to be discharged but the court
held that it shouldn’t be as 25000 was a limit and the guarantee was decreased and not
increased so it wouldn’t be fair.

4. Section 134: Discharge of surety by release or discharge of principal debtor

If the principal is discharged by anyway of his liability either by the creditor or by any legal
consequence or act or omission by the creditor. Eg. If the surety’s insuring that the rent is
paid and in this case if the landlord terminates the lease, the surety gets discharged) If the
creditor has to, the surety also gets discharged of his liability. Insolvency doesn’t absolve the
surety from his liability.

CASE: Subramania Chettiar v. Narayanswami- In this case it was decided that if the creditor
reduces the amount of the debt then like the debtor the surety is also only liable for the
reduced amount.

CASE: MSEB (Maharashtra State Electricity Board) v. Official Liquidator

A company had made the bank the surety with the electricity board for 50000 which the bank
had to pay as and when demanded by the board, the bank paid this surety as the company was
liquidating, the bank wanted to realise the amount out of the securities kept by the company,
the court allowed the bank to do so as the bank was a secured creditor and had the benefit of
availing securities and the bank had a separate relationship with the company, separate from
the relationship between the bank and the board.

CASE: Florence v. State of Kerala- done under S.144 by Ambika(its related to impossibility
of main contract)

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

A contract between the principal debtor and creditor that the creditor will not sue discharges
the surety also from being sued unless the surety agrees to such a contract or if the creditor
decides to give the debtor time then the surety gets discharged.

The section provides three modes of discharging liability-

• Composition-a private arrangement between the debtor and surety without the
surety’s consent, discharges the surety from liability but a court decree doesn’t.
• Promise to give time-Giving time to the principle discharges the surety in all cases
except bank guarantee.
• Promise not to sue the principal debtor

6.

Section 136- Surety not discharged when agreement made with third person to give time
to principal debtor

If the creditor contracts with a third party to give more time to the debtor the surety’s not
discharged. If the creditor promises the debtor not to sue him, the surety’s discharged.

Section 137- Creditor’s forbearance to sue doesn’t discharge the surety

Mere forbearance to sue or forbearance to enforce any other remedy by the creditor doesn’t
discharge the surety in the absence of any provision to the contrary.

B owes to C a debt guaranteed by A. The debt becomes payable. C does not sue B for a year
after the debt has become payable. A is not discharged from his surety.

7. Section 139- Discharge o surety by creditor’s act or omission impairing

surety’s eventual remedy

If the creditor does any act which is inconsistent with the right 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.

Rights of Surety

1. Right of subrogation

Section 140- Rights of surety on payment or performance

Once the surety pays all that he is liable for, he gets all the rights the creditor had. The
creditor had the right to sue the debtor; the surety gets the same right.

CASE: Babu Rao v. Babu Manaklal AIR 1938 Nag 413

‘If the liability of the surety is coextensive with that of the principal debtor, his right is no
less coextensive with that of the creditor after he satisfies the creditor’s debt.’

CASE: Amritlal V State Bank of Travancore AIR 1968 SC 1432

The surety will be entitled to every remedy which the creditor has against the principal
debtor; to enforce every security and all means of payment; to stand in the place of the
creditor; not only through the medium of contract, but even by means of securities entered
into without the knowledge of the surety; having a right to have those securities transferred to
him, though there was no stipulation for that; and to avail himself of all those securities
against the debtor. This right of a surety also stands, not upon contract, but upon a principle
of natural justice.

CASE: Mamata Ghose V United Industrial Bank AIR 1987 Cal 280

In this case the debtor started disposing of his properties after the debt became due so the
surety wanted to get an injunction to stop him so he could seize the property to recover the
debt amount.

The court granted the injunction as the surety has the right to compel the debtor to pay the
debt when it becomes due to relieve the surety of the necessity to pay it out of his pocket.

2. Section 141- Surety’s rights to benefit of creditor’s securities

Surety’s right to benefit of creditors securities

The surety is entitled to all the securities that the creditor has against the debtor even if he’s
not aware of them at the time of entering suretyship and if the creditor loses any of these
securities the surety is discharged of his liability to the extent to the amount of that security.

CASE: Govardhan Das v. Bank of Bengal (1891) 15 Bom 48

A mortgage was given to a bank as security the surety has only paid a part of the debt and he
claimed security for that part but the surety is entitled to the benefit of the securities only
after paying the debt in full, He cannot claim the benefit of a part of the securities merely
because he has paid a part of the debt.

CASE: Bhushayya v. Suryanarayana AIR 1944 Mad 195

A bank advanced 3 different loans to a person with three different sureties; the debtor didn’t
pay his debt. The bank issued a decree for the principal debtor and each of the sureties, 2
sureties paid but 1 didn’t.

In this case the 2 sureties were given their part of the mortgage as they were supposed to pay
for different loans and different amounts and had fulfilled their liability.

3. Rights against co-sureties

Section 138- Release of one co surety doesn’t discharge others.

If the creditor at his will releases a co surety, the other co sureties are still liable but the
creditor releasing doesn’t mean that he is free from his duty to the other co sureties.

Bank guarantee

• A bank guarantee is an absolute undertaking to pay the amount whenever

demanded by the guarantee-holder.
• A bank guarantee is independent of an underlying arrangement.

CASE: Hindustan Steelworks v. Tarapore & Co. & Anr

In case of an unconditional bank guarantee the nature of obligation of the bank is absolute
and not dependent upon any dispute or proceeding between the party at whose instance the
bank guarantee is given and the beneficiary

if there is a stipulation in the bank guarantee that the bank should pay on demand without a
demur and that the beneficiary shall be the sole judge not only on the question of breach of
contract but also with respect to the amount of loss or damages, the obligation of the bank
would remain the same and that obligation has to be discharged in the manner provided in the
bank guarantee.

In order to restrain the operation either of irrevocable letter of credit or of confirmed letter of
credit or of bank guarantee, there should be serious dispute and there should be good prima
facie case of fraud and special equities in the form of preventing irretrievable injustice
between the parties for a bank guarantee not to be encashed.
CASE: UP Coop Fed V Singh Consultants

2 bank guarantees were furnished by a contractor for proper construction and successful
commissioning of a vanaspati plant. The guarantees were supposed to be paid by the bank
whenever the board felt that the terms of the contract weren’t fulfilled by the contractor,
disputes arose between the contractor and the board ,the board asked for the guarantee and it
was allowed also by the court as there was no element of fraud and only if there is an element
of fraud can a bank guarantee be stopped.

CASE: UCM Investments V Royal Bank of Canada

In this case there was misrepresentation of an immaterial fact related to the guarantee hence
the bank had to pay and only if the fraud being with respect to a material fact and not an
immaterial fact which enables the bank guarantee to be discharged.

CASE: Dai-Ichi v. ONGC

ONGC tried to enforce an altered guarantee which was made under undue influence
bordering on fraud and the plaintiff asked for an injunction on the guarantee, his request was
accepted as bank guarantee cannot be claimed through unscrupulous methods.

CASE: Centax v. Vinmar (1986) 4 SCC 136

The buyer, covenanted to purchase and respondent 1, Messrs Vinmar Impex Inc., Singapore,
the sellers, agreed to sell and supply 100 MT of High Density Polythene Powder called
HDPE @ $ 565 per MT CIF, Calcutta on an irrevocable letter of credit being opened by the
appellant in favour of respondent 1, the sellers. The appellant brought a suit in the Original
Side of the Calcutta High Court seeking to recover Rs. 9,25,020.80 p. as damages from
respondent 1, the sellers, alleging that they were in breach in that the goods dispatched by
respondent 1 were of inferior quality and not the goods contracted for i.e. not of grade 5202
but of grade 5502, and also because they had failed to forward the original shipping
documents. The appellant applied for grant of a temporary injunction under Order XXXIX,
Rule 1 of the Code Civil Procedure, 1908 restraining the Allahabad Bank from making any
payment to the shipping company in terms of the letters of indemnity and also restraining
respondent 1, from recovering the amount due there under.

It was decided that except possibly in clear cases of fraud of which the banks have notice, the
courts will have the merchants to settle their disputes under the contracts by litigation or
arbitration as available to them or as stipulated in the contracts

Section 143- Guarantee obtained by concealment, invalid

If a creditor is aware of any conditions or situations which would affect the risk, he should
make the surety aware of such circumstances. Every surety is responsible for undertaking the
risk of default, which might be less or more in cases depending upon the circumstances.

Example: The defendant was made to give a guarantee for the fidelity of a servant. The
employer had earlier dismissed the servant for dishonesty, but this fact wasn’t disclosed to
the surety. The servant committed another fraud. Therefore, the surety wasn’t held liable as
he thought he was making himself accountable for an honest man not a thief.

The creditor should make the surety aware of guarantee of fidelity. He is under no obligation
to tell the surety about the matters affecting the credit of the debtor, or any other
circumstances which might prove to be hazardous in the future.

Section 145- Implied promise to indemnify surety

Under all the contracts of guarantee, an implied promise is there which requires the principal
debtor to indemnify the surety. This right enables the surety to recover the amounts which he
has rightfully paid under the contract of guarantee. But it does not permit to claim the amount
which has been wrongfully paid by him.

In the case of Chekkeva Ponnamma v A.S. Thammayya, the surety had guaranteed the
payment of four motor vehicles delivered on hire-purchase. The surety had asserted that he
had paid Rs 4000 in release of his liability, but he had neglected to give an account of the
price which the motor vehicles might have realised on resale. It was held that the surety
wasn’t allowed to recover his indemnity. This is a case of wrongful payment.

Section 146- Co-suretiesto be liable equally

• If two or more persons have agreed to be co – sureties for the same debt or duty
• either jointly or separately,
• under same or different contracts,
• with or without the knowledge of each other
• even if there is no contract on the other hand
• the co-sureties will be liable
• between themselves, to pay an equal amount of the debt
• Or the amount which has not been paid by the principal debtor to them.

Example: X, Y and Z are sureties to A, for a sum of 6000 lent to B. B makes a default in
payment. X, Y and Z are liable, amongst themselves, to pay 2000 rupees each.

Section 147- Liability of co-surities bound in different sums

If in a case, the co- surety is required to pay more than his share, he has the right to claim the
contribution from his co-sureties, so the loss is equalised between all of them.

Example: If there are three sureties, and a default of Rs. 3000 has taken place, each surety
must contribute Rs 1000. The principal of Section 146 will apply here, even if the liability is
joint or separate, under same or different contracts, with or without the knowledge of each
other.

There are some principles which are to be followed in this area of law-
 • In cases where more than one person guarantee to the creditor for the payment of
the same debt, and if one of them pays more than his due proportion of the debt,
he has the right to recover from the other guarantors or co- guarantors.
• It is immaterial whether the co –guarantors are jointly or separately bound, with
the same or different instruments, with same or different sums, at the same or
different time, if the co-guarantor making the payment knows the existence of the
other guarantors, as the right of the payment does not depend on the agreement.
• An action in the normal circumstances cannot be brought, until the payment has
been made by a co-guarantor of more than his share of the common liability.
• If a guarantor who has not paid anything to the creditor in respect to the
judgement, the creditor can take an action in equity against his co – guarantor and
can obtain an order requiring payment of the co-guarantor’s due share to the
creditor (if a party to the action) or (if the creditor not a party) an order that the co-
guarantor can indemnify the debtor, on payment of his own share, against any
further liability.

The principle of equal contribution by the co- sureties cannot be followed in every case; it is
limited to the maximum limit. This is because Section 147 specifies “co- sureties who are
bound in different sums are liable to pay equally as far as the limits of their respective
obligations limit”.

Example: A, B and C are three sureties for a particular debt. A is liable to pay up to Rs 200,
B is up to Rs 400 and C for Rs 600. The principal debtor makes a default of Rs 600. Each
surety will have to contribute Rs 200. But if the default is up to Rs 900, then according to the
principle of equal contribution, each should be liable for Rs 300. As this being more than
what A can pay, he will be required to pay Rs 200, the remaining Rs 700 will be distributed
between B and C equally.

Difference between Guarantee and Indemnity

1. The liability under indemnity may or may not arise. Under Guarantee, once it is
acted upon liability of the surety automatically arises, though remains deferred till
the principal commits default.
2. The undertaking in an indemnity is original, as there is no third party involved; the
indemnifier’s liability is in itself. Under Guarantee it is collateral. As the main
purpose of a guarantee is to support the liability of a third person.
3. In a contract of indemnity there are two parties, namely indemnifier and the
indemnity –holder. Under guarantee there are three parties the creditor, the
principal debtor and the surety.
4. In indemnity there is only one contract, which is the contract of indemnity against
loss between the indemnifier and the indemnity holder. But under guarantee there
are three contracts, a contract of loan between the principal debtor and the
creditor, a contract of guarantee between the creditor and surety and lastly an
implied contract of indemnity between the principal debtor and the surety.
 MODULE 3: BAILMENT
Section 148- Bailment.

Under bailment, there is a contract of delivery of goods from one person to another for a
specific purpose. When the purpose is accomplished the goods can be restored back or
disposed according to the directions of the person who delivered it. The person delivering the
goods is called the “Bailor”. The person to whom the goods are delivered is called the
“Bailee”.

The most important characteristic of Bailment is “delivery of possession” which is different

from mere “custody”. Under custody there is no possession. Example: a guest using his host’s
goods. Bailment requires possession of the goods for a specific purpose.

In the case of Ullzen v Nicolls, an old customer went to the restaurant. When he entered the
waiter took his coat, without being asked and hung it. When the customer was leaving his
coat was gone. Here, the waiter has assumed the responsibility of a bailee, as he had taken the
possession of the court and released the plaintiff of its care. It was the waiter who had
selected the place where the court should be. So he was held liable.

In the case of Kaliaperumal Pillai v Vilakshmi, a lady had given her jewels to the goldsmith
for melting and using it for making new jewellery. Whatever jewellery she used to receive
from the goldsmith after he was done with his work, she used to put them in a box in the
goldsmith’s room and keep the key in her possession. The jewels were lost one night. But the
lady’s action against the goldsmith for Bailment failed. As mere leaving of the box with the
jewellery in the defendant’s house and the plaintiff possessing the key cannot amount to a
delivery.

Bank Locker - Hiring a locker in the bank and storing valuable things in it would not
constitute bailment. In the case of Port Swettenham Authority v T.W. Wu & Co., The
customer could not claim damages as the court did not have any evidence of the fact that at
the time the bank was robbed the customer had any jewellery in the locker. To prove
bailment within the provisions of Section 148, it is essential to prove that the actual and
absolute possession of the property was given by the hirer of the locker to the bank. It is only
then the question of reasonable care and damages would arise. As in this case it wasn’t
possible to know the quality, quantity or the value of the jewellery that was there in the
locker.

Section 149- Delivery to bailee how made

Delivery Of possession is of two kinds-

• Actual delivery: When the bailor hands over the bailee the physical possession of
the good.
• Constructive delivery: When there is no physical possession of the goods, the
goods remain where they are but an act is done which puts them in the possession
 of the bailee. Example: Delivery of a railway receipt amounts to the delivery of
goods.

In the case of N.R. Srinivasa Iyer v. New India Insurance Co. the owner of the car involved in
an accident delivered it under the policy on behalf of the insurer to the nearest garage for the
repairs. The delivery of the car was regarded adequate to constitute the insurance company as
a bailee and the garage as a sub-bailee. They were held responsible for the loss of the car in
the garage premises.

1. Delivery should be upon a contract:

If the goods of a person go into the possession of the other without a contract then there is no
bailment within the provisions of Section 148.

In the case of Ram Gulam v. Govt of U.P. the plaintiff’s ornaments were stolen and they were
retrieved by the police. Again they were stolen under the police custody. There was no
contract of bailment here, as the ornaments were not given to the Government by the plaintiff
under any contract. The government never occupied the position of the bailee and was not
held liable to compensate the plaintiff for the loss.

Non – Contractual Bailment

In the case of Lasalgaon Merchants Coop Bank Ltd, v Prabhudas Hathibhai, it was held that
if certain goods belonging to an individual are seized by the Government the latter becomes
the bailee even if there is no contract between the Government and the individual.

Even when the Port Trust is required to store the imported goods, the relationship of a bailor
and a bailee comes into existence. The port trust is considered as the bailee of the goods
coming into its possession.

In the case of State of Gujarat v. Memon Mahomed, it was held that ‘”Bailment is a
relationship sui generis (unique) and unless it is sought to increase or decrease the burden
imposed upon the bailee by the very act of bailment, it is not necessary to incorporate it into
the law of contract and to prove a consideration”

The contract can be express or implied. With the consent of station master some goods were
stored on a railway company’s platform as wagons were not available. There was a fire due
to a spark emitted by an engine and it destroyed the goods. The company was held liable in
this case.

2. Delivery should be upon some purpose

Bailment of goods should take place only when there is a purpose behind it. When the
purpose is accomplished then the goods should be delivered back or disposed of according to
the directions of the bailor. If the goods are not returned by the bailee according to the
directions of the bailor then it will not be a relationship of Bailment.
In the case of Secy of State v Sheo Singh Rai, the plaintiff delivered nine promissory notes to
the treasury office in Meerut and requested for a consolidation of the promissory notes into
one note of Rs 48000. The defendant’s servants embezzled the notes. The plaintiff sued the
state to hold them responsible as bailees. There can’t be a contract of Bailment until there is
delivery of a good and a promise to return the same. The government wasn’t bound to return
the same notes nor was it bound to dispose of the surrendered notes in accordance with the
plaintiff’s directions.

Difference between Bailment and Agency

1. Under the contract of bailment the bailee does not represent the bailor. He merely
acts under the contract signed by him in respect to the property. In Agency the
agent has to represent the principal.
2. Under the contract of Bailment the bailee does not have the right to make
contracts on behalf of the bailor. Nor can he make the bailor liable, simply as
bailee, for any acts done by him. In agency, the agent can be held liable by the
principal for his acts.

Bailment can also be distinguished from sale, exchange or even barter. In such transactions
not only possession is transferred but also ownership and the person is not under any
obligation to return. But hire purchase contract is bailment; an element of sale is also present.

Duty of Bailor

There are two kinds of Bailor-

• Gratuitous bailor
• Bailor for reward

A person, who lends his goods without any charge, is called a “gratuitous bailor”.

When goods are left with the bailee for the purpose of hire, this is called “bailor for reward. “

Section 150- The duty of the Gratuitous bailor is described in this section.

If a person lends his goods to the other then he is under a duty to disclose all the facts. When
a loan is given, the lender is under a duty towards the borrower not to conceal from any fact
known to him which may make the loan risky and unprofitable. The two conditions of his
liability are-

• The lender has knowledge of the defect and bailee should not be aware
• The defect must be of such a nature that it exposes the bailee to extra-ordinary
risks or materially interferes with the goods.

Duty of bailor for reward

The bailor has a duty to see that the goods he is providing to the bailee are of safe and sound
nature. He is not given a defence to say that he wasn’t aware of the defect as Section 150
clearly mentions “if the goods are bailed for hire, the bailor is responsible for such damage
whether he was or was not aware of such faults in the goods bailed”. If he knows the defects
he should remove such defects.

In the case of Reed v Dean, the plaintiff’s hired a motor launch from the defendant for a
holiday on the river Thames. The launch caught fire and the plaintiff’s couldn’t extinguish it
as the fire fighting equipment went out of order. They were injured and also suffered a loss.
The defendant was held liable as there was an implied undertaking that the launch was fit for
the purpose.

If at times the bailor delivers the goods for the purpose of carriage or any other specific
purpose, and the goods are of dangerous nature, the fact should be brought to the notice of the
bailee.

Duty of Bailee- Section 151 and 152 talk about duties of the bailee

1. Duty of Reasonable care

Section 151- Care to be taken by bailee

No excuses of the bailee are considered. If he says that the damage or failure to return was
due to no mistake or error of his. He will be liable in any case.

A Gratuitous bailee is held liable only for loss or damage to goods when he is guilty of gross
negligence. There is a certain degree of negligence to which everyone attaches some blame it
is called gross negligence.

In the case of Blount v The War Office, a house belonging to the plaintiff was going to be
occupied by the War Office. Plaintiff had locked some items in the strong room. The troops
who were stationed there broke into the room as they were not under control, and they stole a
quantity of silver plates. The War Office was held liable, they should have been careful and
taken care as it was their own property.

In the case of Houghland v R.R Low the plaintiff was travelling in the defendant’s coaches
and she had kept her suitcase in the boot of the coach from where it was lost. This is a case of
gratuitous bailment. It was held that the standard of care was of reasonable care.

In the case of Martin v London County Council, the plaintiff was bought to a hospital and the
hospital officials took charge of her jewellery and a gold cigarette case. They were stolen by
a thief later on from the room where they were kept. It was held that the defendants were
bailees of reward, and they were liable for loss as they had failed to exercise reasonable care
which the articles required.

In India, Section 151 requires a uniform standard of care in all cases of bailment. A man
should take good care of the goods as if they were his own goods. If the care taken by the
bailee falls below this standard then he will be liable for loss or damage to the goods.
Section 152- Bailee when not liable for loss, etc., of thing bailed

It is very difficult to lay proper standards for the measure of care due from a bailee. The
nature and amount of care varies from case to case.

• Nature, quality and the amount of goods bailed

• The main purpose of bailment
• Services available for safe custody of the goods

The above mentioned are taken into account for determining whether proper care was taken
or not.

Example: in the case of Rampal v Gourishankar, the plaintiff was staying in the hotel, his
articles were stolen from the room. The hotelier was held liable as he had the knowledge that
the room was in an insecure condition.

Burden of Proof: The burden of proof lies on the bailee. If he can prove in the court that he
had taken reasonable care of the good or the articles in the court he would be absolved from
the liability.

Loss due to act of Bailee’s Servant: If the loss has been caused by the Bailee’s servant, he
would be held liable if he was acting in the course of employment. The Bailee should carry
out his responsibilities in a proper manner with a reasonable standard of care, and if he has
employed a servant to do the task he will be responsible for all the acts done by him.

Example: The defendant had sent his carriage to the plaintiff for repair, and the latter lent his
carriage to the defendant while the repairs were going on. The defendant’s coachman without
defendant’s knowledge took the carriage away for his own purpose and damaged it. The
defendant wasn’t held liable as the coachman wasn’t acting in the course of employment.

Example: The bailee’s driver was carrying some goods which belonged to the plaintiff, he
left the carriage and half of the goods were stolen in his absence. The bailee was held liable.
The goods belonged to the plaintiff and the driver should have taken reasonable care as he
was acting within the course of employment.

Bailee’s own Goods lost with those of Bailor

When the bailee’s own goods are stolen or lost with those of the bailor’s. The deciding factor
can’t be that he was taking as much care of the bailor’s goods as he was his own. Even in
such cases proper inquiry should be done if reasonable care was taken or not.

In the case of Sheills v Blackburne, the merchant was going to consign his parcel for export,
out of voluntary courtesy; he took out his friend’s parcel for the same consignment and
entered the parcel under wrong heading. Thus, both the parcels were lost. He was not held
liable as he had taken equal care of the parcels in good faith.
Misdelivery by Railway

Goods were delivered to an unauthorized person on the production of an indemnity bond

which turned out to be false. Railway administration was not able to show any evidence
regarding the date of arrival goods and also the dissolution of transfer for the purpose of
showing that neither the consignor nor the consignee had claimed the goods within a week of
arrival. Thus, the railway was held liable in this case.

Involuntary Bailee

When a person has come into the possession of an article through no act of his and without
his consent is known as an involuntary bailee. In the case of Haward v. Harris the author of a
play, without being asked had sent his manuscript to a theatre operator, who lost it. The court
held that the theatre operator didn’t have any duty against the manuscript as he didn’t ask for
it.

In the case of Newman v. Bourne & Hollingsworth, the plaintiff went to the defendant’s shop;
she was wearing a coat and a diamond brooch. When she took off the coat she kept the
diamond brooch by the side of it. While leaving she forgot to take the brooch. The assistant
handed over the brooch to the shop manager who kept it in his desk, from where it was lost.
The defendant was held liable as he had not taken reasonable care. The degree of negligence
can be measured by the value of the article.

Contract to the contrary

In the case of Bombay Steam Navigation Co v Vasudev Baburao, it held that it is open to a
bailee to contract himself out of the obligation imposed by Section 151. It’s the bailor’s
independent decision if he does not want to be a part of the contract of Bailment.

Section 151 talks about the minimum standard of care which should be taken by the bailee.
And on the other hand Section 152 talks about until and unless there is a special contract
which talks about the standard of care which the bailee has to take, the bailee will be liable
only when he fails to observe the requirement of Section 151. It is considered unfair and
unreasonable for any person to say that he should not be held liable for negligence. In the
case of Mahendra Kumar Chandulal v C.B.I the bank had negligently lost bales of cloth
which were under its custody. The bank was held liable irrespective of a clause which
released him from the liability. The clause said that the bank will be freed from all the
liability for shortage of goods by way of pilferage, stealth or removal from the godown in any
manner. The bank could not be protected with this clause as it was against the meaning and
intent of the minimum standard prescribed by Section 151.

In the case of Cochin Port Trust v. Associated Cotton Traders Ltd. the goods were destroyed
as a fire broke out in the godown of the Port Trust. The trust is entrusted with the duty to take
reasonable care of the goods. As the Port Trust is in the position of the bailee, the onus of
proof is on it to show that it had taken precaution and care required under the law. The bailee
alone has to explain the cause of the fire.
 2. Duty not to make unauthorised use

Section 154- Liability of bailee making unauthorised use of goods bailed

The Goods which are given by the bailor to the bailee should be used with proper care. Any
unlawful use of the goods can make the bailee absolutely liable for any loss or damage
suffered to the goods. Even an act of God or an unavoidable accident can’t be used as a
defence. The bailor has the right to terminate the contract and insist on returning back the
goods if any damage is caused to the goods by the bailee.

In the case of Atlas v E.M. Patil a vehicle was delivered in the workshop for repair and the
owner allowed a person without license to drive the vehicle. The person caused an accident
which resulted in the death of a person. The bailee was held liable to compensate the
deceased and even the owner of the vehicle, because it was an unauthorised act to use the
vehicle and the liability was also absolute.

Section 153- Termination of bailment by bailee’s act inconsistent with conditions.

This section talks about that a contract of bailment can be avoidable at the choice of bailor, if
the act of the bailee with respect to the goods bailed, is unreliable and irregular with the
conditions of the bailment.

3. Duty Not to Mix - Section 155-157

The bailee should maintain a distinct identity of the bailor’s goods. He should not mix his
own goods with those of the bailor and without his consent. If the goods are mixed then it
should be done in a balanced way. If the goods can be separated the bailee will be bound to
bear all the expenses for the separation and also pay if any damage is caused. But if the goods
can’t be separated the bailee will be held liable to pay the bailor for all the losses.

Section 155- Effect of mixture, with bailor’s consent, of his goods with bailee’s

This section simply says that if the goods owned by both the bailor and bailee are mixed with
the consent of the bailor. The bailor and bailee shall have an interest in the ratio of their
respective shares in the mixture so produced.

Section 156- Effect of mixture, without bailor’s consent, when the goods can be
separated.

This section says that if the bailee mixes the goods with his own goods, without the consent
of the bailor and if by chance the goods can be separated the property in the goods remains in
the parties respectively but the bailee has to bear the cost of separation and also if any
damages arose out of the mixture.

Section 157- Effect of mixture without bailor’s consent, when goods can be separated.
This section talks about if the bailee mixes the goods with his own goods, without any
consent of the bailor in such a way that the goods cannot be separated and cannot be returned
back, the bailee will be held liable to compensate for the loss of the goods.

4. Duty to return- Section 160 and 161

Section 160- Return of goods bailed on expiration of time or accomplishment of purpose

The bailee should return back the goods taken from the bailor according to the directions
given by him, as soon as the time period is over or the purpose for which the goods are bailed
is accomplished.

Section 161- Bailee’s responsibility when goods are not duly returned

If by any default of the bailee the goods are not returned to the bailor, at the right time, then
the bailee will be held responsible for any loss, devastation or depreciation of the goods from
that time.

In the case of Shaw & Co. V Symmons & Sons, a plaintiff gave the defendant a bookbinder
books to be bound. The defendant had promised him to return the books within a reasonable
period of time. The defendant failed to deliver the books within a reasonable time and they
were destroyed in an accidental fire. The defendant was held liable for the loss of the books.

Section 162- Termination of gratuitous bailment by death.

The death of either the bailor or the bailee in a gratuitous bailment is terminates the contract
of bailment.

Section 165- Bailment by several joint owners.

In this instance, the bailee may return the bailed goods to any one of the several joint bailors.
This may take place without the consent of the other bailors. This is unless there is a contract
to the contrary.

5. Duty not to set up jus tertii

Section 166- Bailee not responsible on re-delivery to bailor without title.

This refers to the fact that the bailee does not have the obligation to return goods bailed to
him to a person who claims to have a better title, unless ordered by law. The bailee may
return the goods to the bailor without having to worry that he/she would be sued by the better
title holder for conversion of goods.

 The one claiming true title of the goods may apply to the court to decide on the title of
the goods.

Section 167- Right of third person claiming goods bailed.

The person claiming the better title must apply to the court to decide on the title of the goods.
  If the bailee delivers the goods to the person with the true or the better title of the
goods, and the bailor sues the bailee, then the bailee may prove that the third party
had better title to the goods in hand.
 The bailee is also excused from returning goods which are taken out of his possession
by an authority of law.
 The bailee may return goods to any of the joint owners as under Section 165.

6. Duty to return increase

Section 163- Bailor entitled to increase or profit from goods bailed.

The bailee is to return any natural increases or profits which are accrued during the period of
the bailment. For example, if a cow is bailed to the bailee, and the cow has a calf. The bailee
is bound to return the cow and the calf both to the bailor.

Termination of Gratuitous Bailment

Section 159

When goods are lent in a gratuitous manner, the bailor sometimes may ask for his goods
before the time specified or the purpose for which they were lent. In such cases the bailee’s
loss will be greater than the benefits derived if the bailor compels the return of the goods then
he/she should indemnify the bailee for the amount in which the loss occasions exceeds the
benefits derived.

FINDER

Section 168- Right of finder of goods: May sue for specific reward offered.

The finder of goods is bound to take reasonable care of lost goods, and must make all efforts
to find the owner of such goods. Until the point of finding the finder is in a way the bailee of
the goods. The finder does not have the right to sue the owner for the expenses incurred in
taking care or finding the true owner. However, he may retain the goods until such expenses
are paid.

However, if there is a specific reward offered for a particular good, then, the finder (bailee)
may sue for such reward.

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

The finder of goods may sell goods found if after due diligence the true owner is not found or
if the owner is not willing to pay the amount. However, this is only if the good is a perishing
in its value, or if the cost incurred by the bailee is 2/3rd of the value of the good itself.

Rights of Bailee

1. Right to Compensation

Section 164- Bailor’s responsibility to bailee.

If the bailee faces any loss due to lack of title of the bailor in any regard of the bailed goods,
then the bailee may claim for compensation. Thus the bailor shall be made responsible.

2. Right to expenses or remuneration

Section 158- Repayment, by bailor, of necessary expenses

This section says that if the bailee is required by the terms of the contract of bailment to carry
the goods or to do some work upon them for the benefit of the bailor, and the contract does
not reward , the bailee has the right to ask the bailor to pay for all the important expenses
incurred by him for the purpose of bailment.

3. Right of Lien

Section 170- Bailee’s particular lien

Particular lien is when the bailee has the authority to withhold the goods on which the bailee
has put in skill or work, until the bailor makes payment. This lien cannot be exercised with
respect to any other goods of the bailor which is in possession of the bailee.

There are 4 main elements which should be present for a person to be entitled to particular
lien:

 Exercise of labour or skill

The bailee must have exercised labour and skill to improve the status of the good and not just
maintain the particular good.

 In accordance with contract

The labour and skill must be exercised to further the terms of the contract and not otherwise.

 Goods on which Labour or Skill bestowed

Only goods on which the bailee has exercised skill, can the right of lien be exercised on. This
is the element which distinguishes particular lien and general lien.

 Possessory Right

The right of lien can be exercised only as long as the bailee has possession of the goods.
Once the goods leaves the possession of the bailee the right is also lost.

Section 171- General lien of bankers, factors, wharfingers, attorneys and policy brokers

General lien refers to the right wherein the bailee may exercise lien on not only the goods for
which payment has not been made, but also any other good of the bailor which is in his
possession.

There are five kinds of bailees who have the right to general lien. They are:
  Bankers
 Factors
 Wharfingers
 Attorneys of the High Court
 Policy brokers

 Bankers

The banker has an implied right to exercise the right of general lien over securities in his
possession for the debt due by his customer unless the right has been expressly excluded. The
right is available provided the following conditions are satisfied:

i) The property has come into the possession of the banker in his capacity as banker.
ii) The property has not been entrusted for a specific purpose which is inconsistent
with the lien.
iii) The banker should have awfully obtained the possession of the property

The banker does not have the authority to exercise lien if the following conditions are
prevalent:

i) Trust accounts are not included unless it is the property of the customer. This was
held in the case of Lloyds Bank v. Administrator General of Burma.

ii) Money paid to a current account. The reason being that money in such an instance
does not have its own identity and is the same as someone else’s money in terms
of physical appearance. Thus it is not distinguishable.

CASE: Merchantile Bank of India v. Rochaldar Gidumal & Co.

Facts: A customer gave his banker a sum of money for transmission by telegraphic transfer to
his own firm at another place. The bank purported to hold the money for their balance of
account against the firm.

Issue: Whether money could be covered as ‘goods bailed’?

Decision: Yes, money, because it was not defined in the Indian Contract Act, “is a species of
goods which may be the subject matter of bailment and over which lien may be exercised.”

iii) Deposited money in an account is also not included. The reason being that the
bank is owner of such money, and lien cannot be claimed on goods which it owns.
iv) Goods deposited for safe custody or some other special purpose.

CASE: Brandao v. Barnett:

 There is no lien where there is no claim.

  Where goods are delieverd t them for a special purpose inconsistent with the existence
of the lien claimed, a banker may not exercise the right of lien

Lien may be exercised with respect to joint accounts of spouses and that of fixed deposits.

CASE: Syndicate Bank v. Vijay Kumar:

Facts: Vijay Kumar furnished bank guarantee in favour of High Court, and furnished two
fixed deposit receipts duly discharged to the bank and authorized the bank the custody of the
receipts and renewals thereof.

Held: Bank can set off liability of the party against the receipts. If the fixed deposits are
attached to bank garnishee has to go to court. The balance after adjustments of bank’s claim
shall be available to satisfy the decree.

 Factors

Factors are agents who are entrusted with the possession of goods for the purpose of selling
them for the principal. The right of lien is allowed for the factor is the lien is exercised over
goods for the purpose of business, and in capacity of him being a factor.

 Wharfingers

Wharfinger is a person who overlooks the management of goods and its loading and
unloading.

 Attorneys of the High Court

An attorney has the rights over funds which are deposited with the court. If the client
discharges the attorney from his duties, then the attorney may exercise this right. However, if
an attorney decides to not continue the case any further, then he may not have the right to
lien.

An advocate does not have the right to lien.

CASE: R. D. Saxena v. Balram Prasad Sharma

Facts: R. D. Saxena was an advocate in the Madhya Pradesh High Court. He refused to return
certain documents of the client as the client was not paying the remuneration.

Issue: Whether the advocate could exercise lien?

Held: An advocate cannot exercise the right of lien. The advocate has other remedies to
recover his remuneration. The reason given was that documents do not come under the
meaning of goods.

 Policy brokers

An insurance agent who is employed to affect a policy of marine insurance s called a policy
broker.
A chit fund company can exercise lien over the chit amounts.

4. Right to Sue

Section 180- Suit by Bailor or Bailee against the wrongdoer

If any third person other than the bailor and the bailee deprives the baliee from the use or
possession of the goods balied to the bailee or cause any harm to the goods then the bailee is
entitled to use remedies which the bailor must have use if the goods had gone out of his
possession and as if the bailment had not been made and either of them (bailee or the bailor)
can file a suit against the third person who has caused the damage.

Section 181- apportionment of relief or compensation obtained by such suits

Section 180 allows a bailee to hold any person liable who has wrongfully or unlawfully
denied him of the use and possession of the goods bailed or has caused any injury to them.

The bailee’s rights and duties are just like that of the owner of the goods. A bailor or a bailee
can bring an action. In the case of Morris v. C.W. Martin and Sons Ltd the plaintiff had
delivered her mink stole to the furrier for cleaning. The furrier had sub-bailed the stole to a
reputed cleaner with the plaintiff’s consent. One of the conditions of this sub- bailment was to
exclude any liability for loss or damage of goods. The cleaner’s employee had stolen the
stole. The plaintiff sued him. The furrier could have sued the cleaner himself as he had
entrusted the responsibility to clean the fur to him. But the plaintiff’s action was allowed in
this case as the sub-bailee owed a duty of care.

An exception clause in the contract of sub- bailment can be made against the owner only if he
had expressly or impliedly consented to the bailee making a sub-bailment containing those
conditions.

If the original bailor decides to sue the sub-bailee himself, he is not bound by the terms of the
contract, which has been signed between the bailor and sub-bailee, whether there was
consent, or not. In the case of Johnson Mathey and Co Ltd Constantine Terminals Ltd. the
silver bullion was taken by a carrier for a part of the way and then handed over to another
carrier for completing the last leg of the journey. This latter carrier’s contract with the
original carrier had this clause that he should not be held liable for any loss or damage unless
it was due to his wilful neglect or default. The bullion was stolen from the end carrier’s
possession. Therefore, the clause was used against the owner.

In some cases, the owner can maintain an action without any reference to the contract of sub-
bailment. It is sometimes sufficient that the claim is founded on the bailment itself.
 MODULE 4: PLEDGE
Section 172- “Pledge”, “pawnor” and “pawnee” defined-

A pledge is a kind of bailment which is delivered for the payment of a debt or for the
performance of an obligation.

The essential elements for a pledge to be one are as follows:

i) Delivery of possession

The property of the pledge must be given possession of to the pawnee. This may either be
actual or constructive (a key would signify constructive delivery). It may also be delivery to a
third party who has been agreed upon.

In pursuance of contract

Pledge must be transferred in pursuance of the contract. Delivery may be made before, after
or at the time of exchange.

Rights of Pawnee

1. Right of Retainer

Section 173- Pawnee’s right of retainer

The pawnee has the right to retain goods of the pawnor until the amount is paid. This amount
may include that of the performance, interest of debt or expenses incurred to the pawnor.

Section 174- Pawnee not to retain for debt or promise other than that for which goods
pledged- Presumption in case of subsequent advances

The right of retainer is thus in the nature of a particular lien. The pawnee must however still
take due care in ensuring the caretaking of goods which are in his possession. This is the
exercise of duty of care by the pawnee.

2. Right to Extraordinary Expenses

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

Any extraordinary expenses which are incurred may be claimed for by the pawnee as against
the pawnor.

3. Right to sell

Section 176- Pawnee’s right where pawnor makes default

The pawnee has two rights incase of default.

(i) He may retain goods as security

The goods of the pawnor maybe retained by the pawnee unless the pawnor repays the
amount. However if the pawnee is unable to return the goods, he cannot have judgment for
the debt. This was laid down by the Supreme Court in the below case.

CASE: Lallan Prasad v. Rahmat Ali.

The defendant borrowed Rs. 20000 from the plaintiff on a promissory note and gave him aero
scrapes worth about Rs. 35000 as security for the loan. The plaintiff sued for repayment of
the loan, but was unable to produce the security, having sold it, and therefore, his action for
the loan was rejected.

(ii) He may sell goods which are in his possession

The pawnee may also sell the goods, but this is only to be done after a reasonable notice is
given to the pawnor for the redemption of such goods. This reasonable notice is measured in
terms of time so as to give the pawnor enough time to redeem the goods if he can. If after the
sale the value of the good is lesser than that owed to the pawnee, the pawnor shall still be
responsible for such amount. If the amount is more than the amount owed to the pawnee, then
the pawnee has the duty to return the surplus amount to the pawnor.

The above was given in the case of Haridas Mundra v. National and Grindlays Bank.

4. Pawner’s right to redeem

Section 177- Defaulting pawnor’s right to redeem

The pawnor has absolute right over the property. The pawnor has the authority to redeem his
goods after the payment of the debt at any point to time. The pawnor may also redeem the
good after the date of expiry for payment. But this has to be before the sale of the goods. The
pawnor has the right to take back the goods with any increase or profit which has arisen out
of the goods.
 MODULE 5: AGENCY
Section 182- Agent and Principal defined

An agent is a person who has been legally appointed by the principal to do his work. He
represents the principal in his work with the third party. Principal is the person for whom the
act is done, whom the agent represents.

Difference between the a normal servant and the agent

• Agent has the power to affect the legal relations of the principal with the third
parties while, as the normal servant does not.
• Principal appoints the agent to represent him with the third party for contractual
relation while as the servant just does the work.

In the case Krishna v. ganapati it was held that the one who acts, as a representative for the
principal in the negotiations of the business, in the creation and termination of the contractual
obligations is the agent as is distinguished by the others.

Test for determining the existence of agency

The agency truly depends on the nature of relationship. Nature of relationship differs from
case to case court must examine the facts of the case and then decide upon the responsibilities
and functions being followed by the agent and the nature of the relationship. A person by
merely giving an advice to a person does not become his agent there need to be contractual
relations.

A cheque was sent by the UTI by the post. The payee did not receive the cheque. The payee
had no knowledge that was being send by the post. The court held that the post office acted as
the agent of the UTI and therefore the liability of non-delivery was of UTI and the post as in
this case UTI is the principal and the post is the agent and principal is responsible for the acts
of the agent.

Agency in hire-purchase transaction

In case of a hire-purchase relationship and the transaction between them the law look at the
nature of the transaction and not the parties terminology. In a hire-purchase transactions there
are usually there parties the dealer (who provides the good) the fancier(who provided money
to the dealer) and the hirer(who takes goods and pays instalments to the financer). Usually
the dealer is not regarded as the agent. In some cases the dealer is an agent of the financer, in
a case when he represents the financer to promote the sale of the product.

Thought the court has given tow views for the agent and the financier, in one view he is the
dealer is regarded as an agent to the financier. In other view he is not regarded as the agent
and is the independent party and has his own rights and obligations.
Co-agents and co-principals

Co-agents- there is one principal and the more than one agent, the agents have the joint
responsibility and they have to act for the principal jointly and both have the authority to
perform their work.

Co-principal-when there are more than one principal in a same transaction and one agent
represents them all then the principals are called the co-principals and the agent should
account for all of them jointly. He need to give account to all, giving account to one will not
excuse him with the liability for others.

Essentials of agency

Section 183- who may employ agent

Any person may employ an agent but the person should be in the age of majority and of
sound mind. A minor cannot appoint an agent, as the minor cannot enter into a contract.

If an infant has appointed an agent then the appointment is void. Even the acts done by the
agent are void and are also incapable of ratification. This is because he does not have
sufficient discretion to choose for him an appropriate agent and is incapable of doing so.

But in some cases it was held that if the minor is capable (like through a guardian) of binding
himself by the contract he may appoint an agent to contract of his behalf where the
circumstances are such that he need an agent and do not have another option than appointing
an agent. There is nothing in the act that prohibits the guardian from appointing an agent for
minor.

If the person is of unsound mind and is incapable of making decisions he cannot appoint an
agent.

A person cannot appoint a person where the act to be performed is personal or when it is
annexed to a public officer or to an office involving any fiduciary obligation.

Section 184- who may be an agent

The requirements are as same as who can appoint an agent; agent should be of the age of
majority and of sound mind so that he can be responsible enough to work for his principal
according to the terms and conditions of the principal.

But since the section 184 lays down clearly that anyone may become any agent between the
principal and the third parties therefore the minor can be an agent and contract through a
major but then the minor will not be responsible to his principal.

Section 185- consideration not necessary

For a creation of agency consideration is not required. Though the agent is paid commission
for his work, but there is no consideration necessary at the time of creation of agency.
Agent and servant

There is a difference an agent appointed and a servant employed.

1. The agent has the authority to enter into contractual rations with the third party on
behalf of the principal while the servant does not.
2. A principal has the right to direct his agent to work to do, but the master of the
servant also have the right to direct the servant what to do and how to do the
work. Though agent is bound to do all the work and follow the instructions of his
principal in accordance to law.
3. A servant is paid by salary, while the agent gets commission for his work. The
way of remuneration is different.
4. The principal is liable for his agent within the scope of the authority, while the
master is liable for his servant in the course of the employed if he has anything
wrong.
5. An agent may work for several principals at the same time while the servant
usually works for one master at a time.

Agent and Bailee

1. The relationship of a bailee and the bailor exists only till the bailee holds the
goods of the bailor, but in case of the agent he might be in the possession of the
property of the principal and be liable for it. Sometimes an ordinary bailee may
become an agent when is authorized to dispose of the goods of the bailor.
2. The agent has the power to represent the principal while the bailee does not have
the power.

Agent and buyer

In the case Gordon woodroffe & co v. Sk M.A Majid the court held that at time the agent may
become a buyer when he purchases the good and discloses the fact to the princiapal.

Kinds of agent

There are different kinds of agent such as secret agent, cleansing agent, private agent, dress
agent and so. The following are the common ones.

• Factor- agent entrusted with the possession of the goods and has the possession of the
goods.
• Broker- discussed further
• Del credere agent

they are a type of mercantile agent. He is appointed to contract between the principal and the
third party. He can neither sue on the contract nor he will be held liable for the non-
performance of the third. He is out of the picture after binding the principal and the third
party. They charge extra commission to be held liable for the acts of the third party or the
principal. The extra commission for the guarantee is known as the del credere commission.
The agent generally has the secondary liability to the principal. He is not responsible for the
profit and loss that the parties did not make in the market. He is only responsible for any
default by reason of insolvency. His liability is contingent pecuniary liability and not the
liability to perform the contract. He is not liable for the dispute between the principal and the
third parties.

Creation of agency

The relation between the agent and the principal can be created in four ways

1. Express appointment

The consent of both the agent and the principal to get onto a relationship of agency is very
important; there can be no relationship even without the consent of one. Both in Indian and
English law consent are very important. Consent can be either implied or express.

Express appointment means the appointment should be in written. When the appointment is
made by a deed it is called a power of attorney.

2. Implied agencies

Implied agencies arise by the relationship, conduct and the situation of the parties.

For example- when the woman allows the driver to drive, she becomes the principal and the
driver becomes the agent and agent has the liability to drive safely. If the drives injures
anyone while driving, he injured as the right to sue the principal i.e the woman.

Estoppel: It is a kind of implied authority. If the principal is able to convince the third party
in the situation that the person is his agent and has the authority to work on his behalf and for
him then there is a creation of agency and the principal is responsible for the agent.

For example- a landlord had appointed an agent to look after the land, to manage the
agricultural lands the agent let out the land to some tenants. The court held that with the
charge of the land, the principal give the authority to the agent to give the land to the tenants
and there is apparent authority. The principal cannot sue and say that the agent does not have
the authority to let the land.

Husband and wife

A wife has the implied authority of the husband to buy the articles of the household that are
of necessity. As long as husband and wife are living together there is bondage of principal
and agent relationship. Though there are following limitations-

1) The husband and the wife should be living together, if the wife is living apart
from the husband and does not work then she can become the agent of the
husband and he needs to give her maintenance for the necessities of her.
2) They must be living in a domestic establishment i.e. the husband works and the
wife looks after the household.
 3) The wife can run her husband in debt only for necessities. If the wife looks after
the family arrangement the she has all the right to make decisions for the family
with fall within her department.
4) Husband will not be liable if he makes reasonable allowance to his wife for
needs. Husband is not the implied agent of the wife. He can become an agent if
the wife appoints him as her agent to act on her behalf. A husband does not have
implied authority to sell the property of the wife.
3. Agencies of necessity

There are situations where the agent has to use his powers and act on behalf of the principal
without his authority and without his consent; if the act is justifiable the principal is liable for
his acts

Originated with marine adventures

Marine engineers may arise in such situation where they need to exercise their power without
the authority of the principal.

The reason for the wide rule of the agency necessity was given in the case Prager v. Blastpiel
stamp & Headcock ltd that the object of common law is to solve difficulties and adjust the
relations.

Pre-existing agency not necessary

There are situation where the relation of agency is subside and the agent uses his authority at
the time of necessity, which may e not expressed in the contract of agency.

1. Relief of injured persons

If the person is injured and there is a necessity and another person acts on his behalf and calls
the doctor in emergency, then the benefited person is liable to pay charges to that person for
his services.

Conditions for applicable of the principal

1) Inability to communicate with principal- if the agent is not bale to communicate

with the principal and there is an emergency then the agent can act on behalf of
him.
2) Act should be reasonable necessary- if there is necessity then the reason to act be
reasonable enough. In the case sachs v. milkos the defendant had kept his
furniture in the plaintiff’s house, there was no contact between them. After three
years the plaintiff needed the space occupied by the furniture. They tried to
contact the defendant, wrote letter there was no reply, they sold the furniture.
They came to claim for furniture after six years. The court held that the reason to
sell the furniture was not reasonable enough that they would dell it and now they
will be compensated for their furniture to be sold.
 3) Bona fide in the interest of party concerned- an agent to justify himself and make
the court belief that he was acting bona died in the interest of the parties and there
was a necessity.

Section 188- extent of agent’s authority

An agent who has the authority can perform any act lawfully which is necessary for the
principal’s act to be performed.

An agent who has the authority to carry on the business even has the authority to take
decisions and do anything, which is necessary for the conduction of the business.

In the case Dingle v. Hare the agent was authorized to sell the artificial manure. He sold the
artificial manure and gave warranty to the customer for a specific time. The warranty failed
and came out to be false. The principal was sued for the same. The principal dint not give the
authority for the warranty to the agent, but it was usual in the case of artificial manure to give
warranty so the court held the principal liable. Ratio of the case is that the gent can act on
behalf of the principal and use is authority for something, which is usual and is of a custom of
a trade of business. The agent also has the implied authority.

But if the agent uses the custom to adjust his personal account and gain personal profit then if
is unreasonable and not valid.

For example- the agent of the insurance company is allowed to insure an ordinary man, but
not allowed to gain personal profit from that insurance in the name of the custom.

Authority of special agents

1) Factor- he is an agent who is given the possession of the goods to sell the good, to
warrant them in his own name and to receive the payment of the goods for the
principal.
2) Broker – a broker is an agent who does not have the possession of the goods, but is
appointed by the principal to sell the goods and receive the payment of the goods, but
if he discloses the name of the principal then he cannot take the payment in his name.
He may sell the goods on reasonable credit but not unlawfully and in custom of the
business that is unreasonable.
3) Estate or house agent- he is an agent who is appointed by the principal to sell the
house or the property for him and do all the work. He is an agent who is willing to
find the purchaser and negotiate the sale. He has the right for the commission on the
basis of the value of the money and on the profit that the original purchaser is making.

For example- the one who wants to sell the house appoints a house agent and he is asked to
find a appropriate purchaser and to negotiate on the sale ad the payment of the house cost.
Therefore, he has the right to have the commission for the work he has accordingly.

4) Auctioneer- he is appointed for a sale of goods at a public auction. He acts on behalf

of both the seller and the buyers and can enter into the contract for both. He has the
 authority to sell them, but he has to take the payment in cash at that money he cannot
give the goods on credit or warrant the goods.

Ostensible or apparent authority

Apparent authority is authority that appears to be. For example in a company there are many
board of director, one of them is given the authority to manage the company and hence it
appears to all that is the main authority and makes all the decisions, but since he is one of the
board of directors, he Is restricted to deal with the business up to $400 and if the business is
more than that then he would have to consult the other board of directors, but to other she is
the only authority and hence he appears to be and he is not.

In a decision by the Allahabad court it was held that the ostensible authority of the agent
could be presumed and that he has an authority to do act. As in the situation when the agent
was asked to deliver the goods and he sold the goods at a lower price which he was suppose
to without consulting the principal, and then the principal sued the agent, but the court held
that he was presumed to have the apparent authority.

Apparent authority is real authority

In some cases the apparent authority is the real authority. Though appearance differs from
facts of cases. For example- an agent had the authority to underwrite the insurance policies of
the insurance company. The principal underwrote the guarantee policy and he was held liable
as he did not have the authority to do so because underwriting the guarantee polices was
within the ordinary course of business of the underwriter i.e. the agent.

Appearance of authority arising from course of dealing

If the principal has one authorized the servant to act on his behalf then the servant get the
authorization for the same, in future as well, and the principal is liable for it. For example- if
the principal has authorized the servant to give the goods on credit and he later on paid for it,
then if the servant give the good on credit for the next time, the principal is liable to pay.

Representation of authority by conduct

A representation of apparent authority has to emanate from some conduct of the principal.
There should be some conduct on the part of the principal that gives authority to the agent to
attain a position of apparent authority.

For example- the principal always goes and sell the goods in the market, though an agent is
appointed, after two-three times the agent was dismissed from that specific work, the
principal use to go to sell the good. The agent on principal’s name went and sold the goods in
the market, the principal ratified it by mistake by ignorance of goods. The principal is not
liable for the principal in this because he there was no conduct by the principal that gave his
agent the apparent authority or the main authority to do so.
Continuance of apparent authority till termination

An apparent authority cannot be terminated privately between the principal and agent, notice
terminates it and the third party is also informed of the termination.

Agent’s possession

The possession depends on the principal; the principal’s possession is the agent’s possession.
He cannot claim the claim on his own.

Employer’s undertaking to pay insurance premia

Section 189- agent’s authority in an emergency

The agent who has been appointed by the principal has all the authority to act on behalf of the
principal to save him from any loss or harm in case of an emergency. He could perform act,
which he would have done in his own situation to protect himself.

In the case Dayton price & co v. Rohomootallah & co it was held that if the agent is not able
to communicate to the principal and if the act done by the agent is done in good faith and in
the interest of the parties concerned, the agent has the authority to do so in case of an
emergency. The act should be reasonable.

Section 190- when agent cannot delegate

Delegatus non- potest delegare is a Latin word which means one to who power is delegated
cannot himself further delegate that power. The person who appoints the agent that is the
principal has entrusted the person and has confidence in him, integrity and competence that
he will do his work therefore the one who has been appointed and has got the power or do a
work cannot further delegate another person to do so.

It was held in the case john McCain and Co. v. Pow that the agent does not have any right to
appoint any person as a sub-agent and instruct him or give him any responsibility or power
which require skill and care, which has been given to him.

This principal of law has some exception to it-

I. Nature of work- when the nature of work is such that the agent has to appoint a
sub-agent to do the work. For example, a agent of a company can appoint a
lawyer to file a suit on behalf the company.
II. Trade custom- for example- the architects appoint the surveyors as their sub-
agents to do the work which is custom of that trade.
III. Ministerial action- it is very obvious that a person cannot delegate the work to
some one else if he has personally and specially taken it but if the work is purely
ministerial in nature then one can. For example the VC of our college he does
not sign personally for everything. He may appoint to sign for him small things
or put the stamp of his name.
 IV. Principal’s consent- if the principal has consented then the agent can appoint a
sub-agent, which leads to another section 191.

Section 191- sub-agent defined

The agent appoints the sub-agent and he is under the control of the original agent and is
employed by him.

In the case union of India v. Mohd Nazim it was held that if two sovereign powers enter into a
treaty then neither of them are agent for each other nor can be said to be employed or be
under the control of another, or be appointed as the sub-agent. Facts of the case were a
person from India had sent parcels to Pakistan; they were delivered to the one there were
suppose to and the value of the parcels was collected. Due to some problem between pak and
India, pak did not forward the amount to India, so the Indian post office could not pay to the
sender. The sender filed a case against the government. It was held that that two sovereigns
powers cannot enter into a relationship of agency.

Proper delegation

Section 192- representation of principal by sub-agent properly appointed

The sub-agent is responsible to the agent and the agent is responsible to the principal, if the
sub-agent is properly appointed then he is also responsible to the principal but not directly.
He directly responsible to the agent and the agent to the principal but in the case of fraud and
willful wrong the sub-agent is directly responsible to the principal for his acts done.

In the case Calico Printer’s Asso v. Barclay’s Bank it was held that even if the subagent is
properly appointed the principal is not responsibly directly and they do not hold a direct
relationship except for in cases of fraud and willful wrong. Agent is responsible for the sub-
agent. If there is negligence or breach of duty by the subagent then the agent is liable for it to
the principal.

I. Principal represented by sub-agent-though principal is represented as by a sub-

agent as if he is original agent if the sub-agent is properly appointed he is not
directly responsible.
II. Agents responsibility for sub-agent- the agent is responsible for the sub-agent for
his acts done even if the sub-agent has done any act negligently the agent is
responsible. The principal is only responsible for the act of the sub-agent in the
case of fraud or willful-wrong, in this case as well the principal has the choice to
the agent or the sub-agent. The agent cannot be sued if he has exempted himself
from it earlier.
III. Sub-agents liability to principal- not responsible, a sub-agent has all the duties
that of an agent. Rights of the sub-agent have to be exercised through the agent
and cannot go beyond that of an agent. Though the sub-agent can do some acts on
his own where direct action is required for the efficiency of the business.
Improper delegation

Section 193- agent’s responsibility for sub-agent appointed without authority

When agent does not have the authority to do appoint an sub-agent and he appointed a sun-
agent and delegate him work then in this case the agent becomes the principal to the sub-
agent and is responsible for his acts both to his principal and the third party. The sub-agent
does not have any relationship to the original principal.

Unauthorized appointment is improper delegation.

Substituted agency

Section 194- relation between principal and person duly appointed by agent to act in
business of agency

When a person is engaged by the agent having the authority to do so to act for the principal is
called the substituted agent and not the sub-agent. It can be express or implied. The agent
should have entrusted that person.

Illustration- avaantika authorizes niharika a merchant to recover the moneys due to avaantika
from Deepa. Niharika instructs Nisha to take legal proceedings against deepa for the recovery
of the money. Nisha is not a sub-agent, but another person to work for avaantika.

Section 195- Agent’s duty in naming such person

When a substituted agent is appointed then in that case the agent is not responsible for the
work done by the other person who has been asked to do so. The person selected is
responsible for his act of negligence. While selecting the substitute agent the agent should
exercise the same amount of discretion as that of an ordinary man, and select as if he would
select for himself.

For example- if A has instructed B who is merchant to buy a ship for him and B selects C to
find a suitable ship and if C fails to do so then C himself is responsible and not B.

• When a substituted agent is selected then agent is responsible for him, his duty is only
to select a suitable person to do with reasonable care.

Remedies of principal for breach of duty

A principal has rights some rights against an agent who fails in his duty.

• He can ask for an account and the payment, which the agent has made secretly, and
the secret profits.
• He can resist the claim of the agent for commission and indemnify himself for the acts
which the act has performed acting as a principal.
• To seek damages for disregard of the terms of agency as also for want of skill and
care. (paraphrase this line as I did not understand it, only this point, it was from the
book)
Ratification

Section 196- Right of person as to acts done for him without his authority: effect of
ratification

When a person perform an act on behalf of another without the knowledge of that the person
and if he has affirmed it that mean he has ratified it. The person has the choice to either
disown the act or accept it. If he has ratified the act then the same effects will follow like it
would do in accordance to law.

For example- a person insures the car of a person without his consent but that person ratifies
it and goes ahead with the insurance then that insurance will be valid if he does not ratify it
then it would be invalid.

Section 197- ratification may be expressed or implied

For example – Priya without Ram’s authority lends money to Rajat, later on Ram accepts the
interest on that money this implies that Ram has ratified Priya’s act. (Implied ratification)

• Implied ratification is even valid when there is intention to adopt the transaction, even
silence or mere acquaintance. Held in the case Allard v. Bourne.
• Once the act is ratified then it has to be adopted throughout.
• Ratification of a contract of deed must be in writing.

Requirements of ratification

I. On behalf of another- it is important that the act that is in question must have been
done on behalf of the person who wants to ratify the act. The name may m=not be
disclosed but, but there should be some resignation which amount to a reasonable
designation of the person and is valid.
II. Competence of principal- the principal should be competent to ratify since the
ratification relates back to the date when the act was performed.

Section 198- knowledge requisite for valid ratification

If the person is not clear of the material facts of the transaction and do not have clear
knowledge then that ratification is not a valid ratification.

The following condition must be satisfied for a valid ratification

1) The acts must be performed for and in the name of the principal.
2) There should be full knowledge of the facts.

Section 199: Effect of ratifying unauthorised act forming part of a transaction

• A person cannot ratify a part of the transaction which is beneficial to him and
repudiate the rest.
• If there is a ratification of a part of the transaction, it results to ratification of the
whole of the transaction.
This ratification of the contract must take place within a reasonable amount of time. This is if
there is no contract to the contrary.

Ratification has the following effects:

1) It establishes the relationship of principal and agent insofar as the act ratified is
concerned between the persons ratifying and the person doing the act.
2) Ratification establishes the relationship of contract between the principal and the third
party.

Section 200: Ratification of unauthorised act cannot injure third person

• It is an act done by one person on behalf of another, without such other person’s
authority.
• If such act is done with authority, it would have the effect of subjecting a third person
to damages or of terminating any right or interest of a third person, even with
ratification cannot be made binding

Only lawful acts can be ratified. In addition to this acts done on behalf of the government are
ratifiable in the same way as a normal ratification.

Acts which would injure others cannot be ratified.

(We don’t have to cover Section 201 to 210)

Section 211: Agent’s duty in conducting principal’s business. (To follow instructions or
customs)

• An agent must conduct the business of his principal according to the instructions
given to him by the principal
• In the absence of instructions, business customs must be followed.
• If the agent acts otherwise he must make it up to his principal for any loss sustained
• And must give account to the principal if any profit accrues
Example: an estate agent cannot make a binding contract on behalf of his principle
with the third party.

Section 212: Skill and diligence required from agent. (Responsible care and skills)

• To conduct the business of the agency an agent must have the skills that is generally
possessed by persons engaged in similar business
• As far as the principle has notice of his requirement of skills.
• The agent is always bound to act with reasonable diligence to use the possessed skills
• Compensation is made by the agent in respect of the direct consequences and not
indirect consequences of his own neglect or misconduct
• The agent is bound to carry on the business of agency with responsible skill and care
• Principal of the case: Pannalal Jankidas v. Jairamdas Panduranga
Every person who acts as a skilled agent is duty-bound to exercise responsible skill and
knowledge in performance of his duty

(Please read the illustrations given under this section)

Section 213: Agent’s accounts (to maintain accounts)

• An agent is bound to give proper accounts to his principle when demanded by him
• Maintenance of accounts is necessary for proper performance of the agent’s other
duties ex- remitting sums to the principal

Section 214: Agent’s duty to communicate with principal (responsible care)

• In case of difficulty the agent has the duty to use all the responsible diligence in
communicating with his principal
• He must carry out all the actions possible to seek or to obtain his principal’s
instructions

Section 215: Right of principal when agent deals, on his own account, in business of
agency without principal’s consent. (To avoid conflict of interest)

The Principal can repudiate the transaction when,

1. If the agent deals on his own account without consenting the principal and inform
him with all the material circumstances which have come to his own knowledge
on the subject
2. if the material facts are dishonestly concealed from the principal
3. or if the dealings of the agent has been disadvantageous to the principal
4. he would be held bound in account for the profit

CASE: Kelly v Cooper [1993] AC 205

Mr. Kelly instructed the Defendant estate agents to sell his house and agreed to pay them
commission. The owner of the adjacent house also instructed the Defendants to sell his house
on commission. A prospective purchaser agreed to purchase the adjacent house through the
Defendants and then offered (and agreed) to purchase Mr. Kelly’s house. When accepting the
purchaser’s offer Mr. Kelly did not know of the agreement in relation to the adjacent house or
the role of the Defendants. Mr. Kelly brought proceedings against the Defendants claiming
damages for breach of duty in failing to disclose material information to him and placing
themselves in a position where their duties and interests conflicted. Mr. Kelly succeeded at
first instance, but lost on appeal and in the Privy Council. It was held that under the contract
of agency the Defendants were entitled to act for other vendors and earn commission from
them. Nothing in the contract required disclosure of the information in question, and the
contract therefore permitted the Defendants to place themselves in a competitive position.
Accordingly, no duty of exclusive loyalty was owed by the agent to Mr. Kelly and thus no
fiduciary relationship arose.
Section 216: Principal’s right to benefit gained by agent dealing on his own account in
business of agency

• The principal can claim the benefits arising out of transaction when,
1. If the agent conducts the business on his own account without the knowledge of
his principal instead of on account of his principal

Section 217: Agent’s right of retainer out of sums received on principal’s account

• Out of sums received on the account of the principal in the business of the agency, the
agent can retain, all money due to him in conduction such business
1. In respect of advantages made
2. Or in respect of expenses properly incurred by him
3. In either kind: expressed or implied remuneration.

Section 218- Agent’s duty to pay sums received for principal.

• It is an agent’s duty to remit sums.

• The agent is supposed to give all the sums to his principal which he gets from the
principal’s business.
• The agent can deduct his lawful share from the total sum.
• The agent must give the money to his principal which he has received after carrying
out a transaction under a void or an illegal contract. The agent cannot use the excuse
of illegality of the contract for not giving the principal the money he got.

Section 219- When Agent’s remuneration becomes due.

• It comes under the right of an agent.

• Every agent is entitled to get the amount (remuneration) as decided during the
formation of the agency.
• If the amount was not decided, the agent must get a reasonable amount as his
remuneration if the agent has performed his work diligently.
• When is the remuneration due? The remuneration is due when the act by the agent is
completed. But still the question remains when it is the act said to be completed. This
would depend on the terms of the contract and would vary from facts to facts. For
example- Saraswati Devi v. Motilal (case not there in the course manual but used as
an example)- the agent had a duty to introduce his principal to a capable buyer of a
property. The agent did introduce his principal to a buyer but the buyer was not able
to find money. Therefore, in this case it was held that agent was not entitled to
remuneration.
Another example, Case of Green v. Barlett, the agent was appointed to sell a certain
property. He held an auction but was unable to sell. A person, from the auction, took
the principal’s number from the agent and directly negotiated from the principal. In
this case, the agent was entitled to his remuneration because it was because of his that
the sale of the property could take place.
 The agent is entitled to remuneration only for that part of the act which was conducted
by him on behalf of the principal.
• In case of a dispute, the place where the commission is given to the agent is the place
which would have jurisdiction to solve the dispute. This is because that is the place
where a part of the cause of action had arisen there.

Section 221- Agent’s lien on the principal’s property.

• The agent has the right to retain his principal’s goods, papers and other movable or
immovable property until the agent’s has received the amount which was due to him.
• Conditions for this right:
1. The agent should be legally entitled to receive an amount from the principal as
commission or amount due for the services rendered in the execution of the
business of the agency.
2. The property on which the agent has a lien on should be that of the principal and
the agent must have received that property during an ordinary course of the duties
of an agent. When the property is acquired by the agent through fraud or
misrepresentation or by principal’s consent then there is no lien.
3. This lien is a particular line, which means that the lien is over only the property
with respect to the charges due and not any other property.
• This lien does not give agent the right to sell or dispose the property without the
consent of the owner. The agent can only retain the property till his dues are not paid.
– Case: Gopaldas v. Thakurdas. (only the principle rising from this case.)
• If, depending on the agreement with the principal, the agent becomes the pledgee,
then the agent can sell the property only after giving a reasonable notice to the
principal about the same.
• Agent’s lien is lost in these cases:
1. Since lien is a possessory right, it is lost as soon as the possession is lost. The
possession can be lost if the agent himself delivers the goods to his principal. But
if the agent has delivered for a special purpose like safe custody then the lien is
not lost.
2. The lien is lost when the agent waives off his right, either by expressed or implied
agreement or may be inferred from the conduct of the agent.
3. The right to lien is subjected to a contract to the contrary and therefore, does not
exist when this right is excluded from the contract with an agreement between the
agent and the principal.

Section 222- Agent to be indemnified against consequences of lawful acts.

• This right covers all the expenses and the losses incurred by the agent during the
course of the business.
• In case of a wagering agreement, the agreement is not illegal it void. An agent can
recover indemnity for losses incurred by him in wagering transactions entered into on
instructions of his principal.
 • If the principal makes his agent do some work which is apparently lawful but it
appears to be unlawful to a third person then the agent is entitled to the indemnity
against the consequences of the actions.

Section 223- Agent to be indemnified against consequences of acts done in good faith.

If the act done is unlawful or criminal, then the agent would not be liable to fulfil his
expressed or implied promise to indemnify the agent against consequences of the acts.

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

Every principal owes to his agent the duty of care and if in any case his agent gets hurt or
injury during the course of the task given to the agent by him, then he must pay a certain
amount of compensation to his agent.

Section 226- Enforcement and consequences of agent’s contracts.

• It part under agent’s authority.

• The agent must have done the act within the scope of his authority. [The authority of
agent is confusing here because it does not depend on any one particular source. It
depends on the purpose of the agency, surrounding circumstances and a desire to
protect bona fide (good faith without fraud or misrepresentation) commercial
transactions.].
• The authority is basically the agent’s capacity to bind himself to the principal.
• “The sum total of the act it has been agreed between principal and agent that the agent
should do on behalf of the principal”- ACTUAL AUTHORITY.
• The actual authority can be of two types Expressed or Implied.

Section 186- Agent’s Authority may be expressed or implied.

Section 187- Definitions of express and implied authority

• Authority when conferred by words, spoken or written, the authority is said to be an

expressed authority. Example- power of attorney.
• An agent cannot borrow anything on behalf of his principal unless he has the authority
to do so. The power to draw or endorse bills or notes does not mean that the agent has
the right to borrow.
• If the agent has the right to borrow then the third party can hold the principal liable
for any damage.
• Authority when inferred from the facts of the case, written or spoken during ordinary
course of business then the authority is said to be an implied authority.
• The main difference between implied and expressed authority can be seen by looking
whether the authority is delimited by words or the conduct.
 • For example- P tells Q to be his manager. Then in this case Q has an expressed
authority. But if in case Q starts doing the work what other person at the same
position does then there will be an implied authority.

Case (Example) Ryan v. Pilkington, in this case an estate agent was appointed to find a
purchaser. He took a certain amount from a perspective customer and misappropriated it.
The principal was held liable because the agent had an implied authority to collect the
deposit.

• Extent of Agent’s authority depends on:

1. The nature of the act or business the agent is supposed to do.
2. Things which are usually done in carrying out the business.
3. The usual customs and usages of the trade.

(Page 778-787- Aditi’s part)

Section 227- Principal how far bound, when agent exceeds authority-

when an agent does more than he is authorised to do, and when the part of what he does,
which is within his authority, can be separated from the part which is beyond his authority, so
much only of what he does as in within his authority is binding as between him and the
principal.

Acts done within the scope of an agent’s employment and acts done outside the scope can be
separated.

Section 228- Principal not bound when excess of agent’s authority is not separable.

When the agent exceeds his authority then the principal is not bound by excess work the
agent has done. But where the two acts can be separated (like in section 227), then the
principal is bound to the full extent. Example- An agent was supposed to insure the ship but
he insures the goods in the ship too but under different policies. The principal is only bound
to the policy of this ship. If the agent took out only one policy for the ship and the goods then
the principal would not have been bound.

Where the authorised work is inseparable from the work which is unauthorised then the
principal can repudiate the whole transaction. Example- Agent was authorised to buy 500
sheep. The agent bought 500 sheep and 200 lambs. The principal repudiated the whole
transaction.

Section 229- Consequences of notice given to agent.

 • The notice or information given to the agent on behalf of the principal during the
course of the business, as between the principal and the third party have the same
legal consequences as if it had been given to or obtained by the principal.
• Knowledge of Broker- when a broker has a power to bind the insurer (binder), he
will be an agent to the insurer and his knowledge will be supposed to be the
knowledge of the insurer.
• In a case broker orally assured that new car purchased by the assured would be
substituted under the same policy for the old. The insurer was held liable though
he was not in a position to give such substitution. (case: Stockton v. Mason)

Section 237- Liability of principal inducing belief that agent’s unauthorised acts were
authorised.

• This provision is used to fix the principal with the liability for unauthorised acts of
his agent.

Example- Case Jacobs v. Morris, in this case the agent was authorised to power of
attorney but not the power to borrow. The agent produced the power of attorney to a
lender whom he asked for a loan, but the lender did not read it and gave a loan. In this
case it was held that the principal was not liable to pay back the loan amount because he
had not given the power to borrow to his agent.

• Once ostensible authority is created, the principal becomes bound by agent’s acts
within the scope of this authority.

Example- Case- Harshad v. LIC, rule 8of the LIC (agents) framed under section 48 (2)
(cc) of the LIC act prohibits the agents from collecting premium on behalf of LIC. The
fact that LIC accepted the premium from the agent (which he had obtained it from the
client) does not mean that there is an apparent authority in favour of the agent.