Watteau v.

Fenwick
Law involved 211,237, apparent authority

FACTS: The defendant brewers owned a beerhouse. They appointed a manager of the business;
the license was always taken out in the name of the manager, whose name also appeared over the
door. By the agreement between the defendants and their manager, the latter was forbidden to
purchase certain articles for the purpose of the business, which were to be supplied by the
defendants; but the manager, in contravention of his instructions, ordered such articles from the
plaintiff for use in the business; the plaintiff supplied the goods and gave credit for them to the
manager only. Subsequently, upon discovering that the defendants were the real owners of the
business, the plaintiff sued them for the value of the goods’.
RATIO: The plaintiff succeeded as the defendants who were the real principals, were liable for all
acts of their agent which were within the authority usually conferred upon as an agent of his
particular character, although he had never been held out by the defendants as their agent, and
although the authority given to him by them had been exceeded.
Wills J. said: ‘once it is established that the defendant was the real principal, the ordinary doctrine as
to principal and agent applies — that the principal is liable for all the acts of the agent which are
within the authority usually confided to an agent of that character, notwithstanding
limitations, as between the principal and the agent, put upon that authority. It is said that it is
only so where there has been a holding out of authority — which cannot be said of a case where the
person supplying the goods knew nothing of the existence of a principal. But I do not think so.
Otherwise, in every case of undisclosed principal, or at least in every case where the fact of there
being a principal was undisclosed, the secret limitation of authority would prevail and defeat the
action of the person dealing with the agent and then discovering that he was an agent and had a
principal.’

Undisclosed principal

DIFF B/W SUB AND SUBSTI AS IN NENSUKHDAS AND MLLA S194

The whole distinction in our law appears to turn upon the original agent naming the person he
appoints to represent the principal for the whole or part of the business, first entrusted to him.
Whether the naming of this naming is to be to the agent or the principal is by no means apparent. I
gather, however, that the naming should be to the principal himself to bring privity of contract
between them. In the case of a sub-agent, no such naming is required and consequently no such
privity of contract is in law held to be established...[W]hereas in cases of daily occurrence the sub-
agent is perfectly well-known; and the principal has assented thereto, if not expressly, tacitly by
agreeing throughout. Nevertheless, observe what a serious difference there is between the legal
consequences attendant upon the appointment of a sub-agent and a substituted agent. In the case of
a sub-agent the principal has no right to obtain any remedy against him except in case of fraud or
willful wrong. In the case of a substituted agent the ordinary relations between principal and agent
immediately came into being, and the principal can, of course, recover from him any loss occasioned
by his failure of duty.

DE BUSSCHE V ALT

LAW: substitute agent 194, 215, 216, dealing on his own account
FACTS: The Plaintiff, in the year 1868, consigned a ship to G. & Co. in China for sale, fixing a minimum
price of $90,000, and requiring cash payment. G. & Co. employed the Defendant in Japan to sell the
ship, with the same instructions. This was done with the knowledge and consent of the Plaintiff. The
Defendant, having vainly attempted to sell the ship on the terms mentioned, took her himself for
$90,000, and about the same time resold her to a Japanese prince for $160,000, payable as to
$75,000 in cash, and the rest on credit. The Plaintiff was not informed that the Defendant had
purchased the vessel himself, or that he had resold it, till June, 1869, after the transaction was
completed. The Defendant paid $90,000 to G. & Co., who remitted it to the Plaintiff, and eventually
obtained the whole amount of $160,000 from the Japanese prince. In 1873 the Plaintiff filed a bill in
Chancery to compel the Defendant to account for the profit made him in the resale of the ship.
Such agency was presumed where a ship owner employed an agent to affect the sale of a ship at any
port where the ship happened to call. The appointment of substitutes at ports other than where the
agent carried on business was a necessity, and must be presumed.
Issue 1 wether de bussche entitled to profit?
Alt is bound to account for the profit. There would have been nothing wrong if he asked for permission
first (as in s 216).
Issue 2 can alt be sued by de bussche as he was sub/substi-agent?
Held first, that the relation of substituted agent and principal was established between the

Defendant and the Plaintiff, and existed at the time of the purchase and resale of the ship by the
Defendant, and that he was therefore liable to account to the Plaintiff for the profit made by him
in the transaction. <why>

Argument by alt: I am sub agent no privity of contract

Argument by de bussche: I am substituted agent.

 MOHINDER DAS V MOHAN LAL
Later

BLOUNT V WAR OFFICE

Issue 1: wether there was a bailment contract?

Issue 2: wether reasonable care was taken?

Both will be answered together

The court held:

There was a voluntary bailment of the goods to the defendant in the way of deposit and
the standard of care required of them was reasonable care with a man would take of his
own property. it is hard to believe that any reasonable man who had valuable property
of his own stored in the circumstances would leave it to tender mercies of 70 80
displaced persons of that type without taking any precaution. the Ministery was
negligent.

HALBURN V BRINGHTON CORP

Facts The Corporation during the summer months allowed campers to park their caravans on its
caravan site, charging them 25/- a week for use of the site and its facilities. Each camper
remained in control of his own caravan and vehicles and visitors passed in and out of the gates
day and night without let or hindrance. During the winter months the camp was closed and the
road gates were locked, all caravans left by customers were kept on a hard tarmac ; no one,
including such customers, was permitted to enter the camp, and a 'storage charge' of 12/6 a week
was levied in respect of these caravans.

JUDGEMNT: The Court held that there was bailment to the Corporation in the winter but not
in the summer. In winter the Corporation had the liability of a bailee safe keeping for
reward, having to exercise the care of an ordinarily prudent man in safeguarding the
caravans ; in summer, when the users of the site would be mere licensees toward whom the
Corporation assumed no duty to safeguard property, the Corporation would have no liability
for theft, loss or damage save in so far as these resulted from "negligence within its sphere of
operations."

Holding: The Court therefore held that the plaintiff could not recover for theft of a caravan
stored in winter but stolen during the summer, since she was aware that the winter arrangements
had come to an end and had failed to move the caravan from the hard tarmac for her own
convenience.

ASHBY V TOLHERST

Facts: The plaintiff left his car at the defendant’s car park for a payment of 1s. he got a ticket
from the attendant. On the ticket was printed ‘the proprietors do not take any responsibility for
the safe custody of cars or articles therein nor for any damage to the cars or articles however
caused… all cars being left in all respects entirely at their owner’s risk.
When he returned, the car was gone. The attendant said that he had given the car to the plaintiff’s
friend. The car was never found. Defendants admitted negligence but denied liability.

HELD The court held that it was impossible to infer any contract of bailment as there was no
evidence pointing to any delivery of possession the suggestion that position was delivered for
safe custody was refued by the terms of conditions the contract made in title the plaintiff to leave
his car on the defendants premises it amounted to no more than mere licence. In view of their
being no delivery of possession it was impossible to infer a term that the defendants were to
redeliver the car only on production of the ticket.
 COX V. HICKMAN

Facts

Benjamin Smith and Josiah Timmis Smith carried on business as iron workers and corn
merchants under the name of B Smith & Son.  They owed a lot of money to the
creditors and a meeting took place, amongst whom were Cox and Wheatcroft. A deed
of arrangement was executed by more than six-sevenths in number and value of the
creditors.  The trusts were enumerated and the lease was fixed at 21 years. They were
to carry on business under the name of “The Stanton Iron Company”.  The deed also
contained a clause which prevented them from suing the Smiths for existing debts. Cox
never acted as trustee, and Wheatcroft resigned after six weeks after which no trustee
was appointed.

The goods for the business were provided by Hickman who drew 3 bills of exchange,
which the business accepted but did not honour.

The suit was first tried in front of Lord Jervis who ruled in favour of the defendants. The
action was then taken to the Exchequer Chamber wherein three judges wanted to
uphold the judgement and the other three were for reversing it.

Issues

Whether there is a partnership between the traders who were in essence the creditors
of the firm.

Contentions

The counsel for Wheatcroft contended that:

1. There was no action against the appellant, as if Hickman had heard that Cox and
Wheatcroft were the trustees, he would have realized that Cox had never been a
trustee and Wheatcroft had resigned.
2. The ownership of the partnership never changed and was still owned by the
Smiths.
3. A qualified benefit derived from a trade does not make a person a partner in it.
Here, unless the profits are taken, there exists no partnership.

The counsel for Cox contended that:

 1. The defendant can be held liable only if:

1.1  He put his name on the bill

1.2  Authorised someone else to put their name on the bill

1.3  Held himself to have given the authority

1. As to the first and third points he is not liable. As far as the second is concerned,
the defendant cannot be held liable unless an agency is proved.
2. It is up to the defendant to show that the plaintiff is a partner.

The counsel for Hickman contended that:

1. There was a contract of partnership under which business was to be carried out
for the benefit of creditors
2. The scheduled creditors are allowed to participate in the profits of the firm thereby
making them partners
3. Any one of the partners may bind all the others by the acceptance of the bills in
the regular course of business

Judgement

The deed gave special powers to the creditors. They were given the choice by majority
regarding whether or not the trade should be continued and making rules and
regulations as to the carrying out of that trade, which are the powers that partners
have.

The creditors, however, did not carry out the business of the trade when they could
have but let the trustees do the same. By this act f theirs, they did not make
themselves partners of the trade. If they had carried out they business they could have
made sure none of the trustees accepted the bill of exchange as they would be the
principals.

The deed in this case is merely an arrangement between the creditors and the Smiths,
to repay the creditors out of existing and future profits. This relationship between the
creditors and debtors is not enough to constitute a relationship between a principal and
agent. Trustees are liable as they are the agent by the contract but the creditors are
not the principals of the trustees.

Held The decision of the Court of Common Pleas was reversed and the defendant’s
were not held liable.
 BANK GUARANTEE
The Bank Guarantees are given by bank on behalf of its customers in favour of a third party to
compensate a person, who has suffered loss due to the non-performance of an obligation. In case
the party on whose behalf guarantee is given, commits default, the bank is called upon to make
good the monetary loss arising out of default.

the banks do not guarantee performance of the act, but they (banks) guarantee to compensate the
person, in whose favour guarantee has been given, by paying a specified sum mentioned in the
guarantee.

The terms of the bank guarantee should be clear so as to affix a liability on the bank on a demand
being made by the person to whom the bank guarantee is given irrespective of the fact that there
may be dispute between him and the bank’s customer, on whose behalf the bank guarantee is
given.

In U.P. Co-operative Federation Ltd. v. Singh Consultants and Engineers (P.) Ltd ., the Supreme
Court has held that an irrevocable commitment either in the form of a confirmed Bank Guarantee
or an irrevocable Letter of Credit cannot be interfered with except in the case of fraud or where a
case of apprehension of irretrievable injustice has been made out. In order to restrain the
operation of an irrevocable or confirmed Bank Guarantee or Letter of Credit, there should be a
serious dispute and there should be a good prima facie case of fraud, and special equities in the
form of preventing irretrievable injustice between the parties.

A bank issuing a Bank Guarantee (B/G) or Letter of Credit (L/C) is not concerned with the
underlying contract between the buyer and the seller. The duties of a bank in a Bank Guarantee
or Letter of Credit are actually created by the document itself. But the court shall refrain from
granting any injunction to restrain the performance of the contractual obligations under a Bank
Guarantee or Letter of Credit. A Bank Guarantee contained an undertaking to pay the amount
without any demur on mere demand of the principal amount on the ground for nonperformance
or breach of the contract. This demand is to be treated as conclusive for the amount due. In such
a case, the court will not be justified in issuing an order of injunction restraining the beneficiary
from encashing the Bank Guarantee amount or restraining the bank from making payment
against the Guarantee. 7=Svenska Handelsbanken v. Indian Charge Chrome, AIR 1994 SC 626.
A bank which gives a performance guarantee must honour that guarantee according to its terms.
It is not concerned in the least with the relations between the supplier and the customer, nor with
the question whether the supplier has performed his contracted obligation or not, nor with the
question whether the supplier is in default or not. The bank must pay, according to its guarantee,
on demand, if so stipulated, without proof or conditions. The only exception is when there is a
clear fraud of which the bank has notice

The Supreme Court has laid down the following principles to be noted in the matter of injunction
to restrain the encashment of a bank guarantee or a letter of credit:

(i)While dealing with an application for injunction in the course of commercial dealings, and
when an unconditional bank guarantee or letter of credit is given or accepted, the beneficiary is
entitled to realize such a bank guarantee or a letter of credit in terms thereof irrespective of any
pending disputes relating to the terms of the contract.

(ii)The bank giving such guarantee is bound to honour it as per its terms irrespective of any
dispute raised by its customer.

(iii)The courts should be slow in granting an order of injunction to restrain the realization of a
bank guarantee or a letter of credit.

(iv)Since a bank guarantee or a letter of credit is an independent and a separate contract and is
absolute in nature, the existence of any dispute between the parties to the contract is not a ground
for issuing an order of injunction to restrain enforcement of bank guarantees or letters of credit.

(v)Fraud of an egregious nature which would vitiate the very foundation of such a bank
guarantee or letter of credit and the beneficiary seeks to take advantage of the situation.

(vi)Allowing encashment of an unconditional bank guarantee or a letter of credit would result in

irretrievable harm or injustice to one of the parties concerned.

SEVENSKA V INDIA CHARGE

Facts and procedural history
Respondent (Plaintiff) borrower sought declaration that guarantees executed by Bank (guarantor)
in favour of Defendant and Lenders to be declared void and order of injunction restraining
guarantor from making payment under guarantees to lenders be passed on ground of fraud by
Defendant—Trial Court vacated ad interim order holding no material to establish fraud by
Defendant-however HC overruled the trial court judgement—appeals filed in SC

judgement by SC

Contracts between lenders and borrower not vitiated by any fraud much less established fraud—
In law relating to bank guarantees, party seeking injunction from encashing of bank guarantee by
suppliers has to established fraud and an irretrievable injury—No question of irretrievable injury
—High Court not right in working on mere suspicion of fraud or merely going by
allegations in plaint without prima facie case of fraud made out from material on record—
Contracts between lenders and borrower not vitiated by fraud—High Court also in error in
considering question of balance of convenience—High Court ignored irretrievable injury to be
caused to Defendant guarantor in not honouring bank guarantee in international market