THE CONTRACT ACT, 1872THE CONTRACT ACT, 1872Session 4 Session 4

LAW OF INDEMNITY AND GUARANTEE, LAW OF INDEMNITY AND GUARANTEE, BAILMENT AND PLEDGE AND BAILMENT AND PLEDGE AND

LAW OF AGENCYLAW OF AGENCY

CS Shashikala Rao

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LAW OF INDEMNITY AND LAW OF INDEMNITY AND GUARANTEEGUARANTEE

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Contract of Indemnity (Sec. 124)Contract of Indemnity (Sec. 124)• A contract by which one party promises to save the other from

loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a contract of indemnity.

A contracts to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of Rs. 20000. This is a contract of indemnity.

• The person who promises to make good the loss is called the ‘indemnifier’ and the person whose loss is to be made good is called the ‘Indemnity – holder’

• Contract of indemnity may be express or impliedEssentials

– Contract of indemnity must contain all the essentials of a valid contract.

– The promisee or the indemnity – holder must have suffered loss.

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1. X asks Y to beat Z and proposes to indemnify Y against the consequences. Y beats Z and is fined Rs. 1000. Y cannot claim this amount from X because the object of the agreement was unlawful. This is not a valid contract. 2. X an auctioneer, sold certain goods at the instruction of Y. Later on, it is discovered that the goods belonged to Z and not Y. Z recovered damages from X for selling his goods. Here, X is entitled to recover the compensation from Y because there was an implied promise to compensate the auctioneer for any loss which he may suffer on the defective title of goods sold by auction. .3. All insurance policies except life insurance are contracts of indemnity. •Duty to indemnify may be by operation of law.Companies Act – issue of duplicate shares Rights of indemnity – holder (Sec. 125)

Damages – entitled to recover all the damages Costs – All costs which he may be compelled to pay in any such suit

in instituting or defending it All sums – all the sums which he may have paid under the terms of

any compromise of any suit. Suit for specific performanceRights of indemnifier – same as rights of surety

Contract of Guarantee (sec. 126)Contract of Guarantee (sec. 126)A contract of Guarantee is a contract to perform the promise, or discharge the liability of a third person in case of his default.A lends money to B and C promises A that in case B fails to pay the money he will pay the money. This is a contract of guarantee. Surety - The person who gives the guarantee , Principal debtor - the person in respect of whose default the guarantee is given Creditor - the person to whom the guarantee is given. A guarantee may be either oral or written.Consideration in a Contract of GuaranteeAnything done, or any promise made, for the benefit of principal debtor may be sufficient consideration to the surety for giving the guarantee. Surety need not be benefited.1.B requests A to sell and deliver to him goods on credit. A agrees to do so provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of A’s promise to deliver the goods. This is sufficient consideration for C’s promise.2.A sells and delivers goods to B. C afterwards, without consideration, agrees to pay for them in default of B. the agreement is void.

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Essentials– Tripartite Agreement – implied is sufficient – Consent of Three parties– Existence of a liability or promise of performance – enforceable by law– Essentials of a Valid Contract – principal debtor need not be competent to contract. – Guarantee not be obtained by Misrepresentation– Guarantee not to be obtained by concealment– There should be some consideration – past consideration is also ok.1. B requests A to sell and deliver to him on credit. A agrees to do so, provided C

guarantees the payment of the price of the goods. C promises to guarantee the payment in consideration of A’s promise to deliver the goods. This is a sufficient consideration for C’s promise.

2. A sells and delivers goods to B. C, afterwards, requests A to forbear to sue B for the debt for the year, and promises that if he does so, C will pay for them in default of payment by B. A agrees to forbear as requested. This is a sufficient consideration for C’s promise.

3. A sells and delivers goods B. C, afterwards, without consideration, agrees to pay for them in default of B. The agreement is void.

4. A guarantees to C payment for iron to be supplied by him to B to the amount of 2000 tons. B and C have privately agreed that B should pay Rs. 500 per ton beyond the market price, such excess to be applied in liquidation of an old debt. This agreement is concealed from A. A is not liable as a surety.

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Contract of Indemnity and Contract of GuaranteeBasis of Distinction

Contract of Indemnity Contract of Guarantee

No. of parties There are two parties – indemnifier and the indemnity - holder

There are three parties – debtor, creditor and surety

No. of contracts There is only one contract between indemnifier and the indemnity - holder

There are three contracts, one between creditor and principal debtor, second between surety and principal debtor and third between surety and the creditor.

Undertaking The indemnifier undertakes to save the indemnity – holder from any loss

The surety undertakes for the payment of debts of principal debtor.

Nature of liability The liability of indemnifier is primary and unconditional

The liability of surety is secondary and conditional.

Nature of event The liability arises only on the happening of a contingency.

The liability arises only on the non – performance of an existing promise or non – payment of an existing debt by principal debtor.

Right to sue The indemnifier cannot sue third party in his own name because of absence of privacy of contract between him and a third party.

A surety, on discharging the debt of principal debtor, can sue the principal debtor in his own name.

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Extent of Surety’s Liability – Liability of a surety is equal to that of the principal debtor unless otherwise agreed. Liability of principal debtor is primary and that of surety is secondary. In case principal debtor is not liable surety will not be liable.

Kinds of Guarantee•Specific guarantee- A guarantee which extends to a single debt or specific transaction. Surety’s liability comes to an end when the guaranteed debt is duly discharged or the promise is duly performed. X gave his godown to Y on lease for 10 years on a lease rent of Rs. 12000 p.a. Z guaranteed that Y would fulfill his obligations. This is a contract of specific guarantee because the lease for 10 years is entirely an indivisible transaction and cannot be classified as a series of distinct transactions. •Continuing guarantee – A guarantee which extends to a series of transactions. A surety’s liability continues until the revocation of guarantee. On S’s recommendation, C employed P for the collection of rent from his tenants. S promised to make good any default made by P. This is a contract of continuing guarantee. Continuing guarantee may be given for a part of the entire debt or for the entire benefit debt subject to a limit.

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Revocation of continuing guarantee : A continuing guarantee as to future transactions may be revoked in any of the following ways - 1.By notice to creditor– X gives guarantee to the extent of Rs. 60,000 for the loans given from time to time by Y to Z. Y gave a loan of Rs. 20,000 to Z. Afterwards, X gives notice of revocation. X is discharged from all liability to Y for any loan granted after the revocation of guarantee but he is liable to Y for Rs. 20,000 on default of Z. 2.By death of surety - surety’s estates remains liable for past transactions3.By modes of discharging the surety

Novation Variance in terms of contract. C contracts to lend B Rs. 5000 on 1st March. A guarantees payment. C pays Rs.

5000 to B on 1st January. A is discharged from his liability as the contract is varied in as much as C might sue B for the money before 1st March.

Release or discharge of principal debtor.A contracts with B for a fixed price to build a house for B within a stipulated

time, B supplying the necessary timber. C guarantees A’s performance of the contract. B omits to supply the timber. C is discharged from his surety ship.

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When the creditor enters into an arrangement with the principal debtor Creditor’s act or omission impairing surety’s eventual remedy B contracts to build a ship for C for a given sum, to be paid by instalments as the

work reaches certain stage. A becomes surety to C for B’s due performance of the contract. C, without knowledge of A, pre-pays to B the last two instalments . A is discharged by this pre- payment.

Loss of security C advances to B, his tenant Rs. 2000 on guarantee of A. C has also a further security

of Rs. 2000 by mortgage of B’s furniture. C cancels the mortgage. B becomes insolvent and C sues A on his guarantee. A is discharged from liability to the amount of the value of the furniture.

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Rights of surety against the principal debtor –1.Right to subrogation – surety steps into the shoes of creditor.Upon payment of guaranteed debt or performance of all that he is liable for, surety is vested with all the rights which the creditor had against the principal debtor.2. Right to indemnity – surety has right to recover from principal debtor sums rightfully paid.1. B is indebted to C and A is surety for the debt. C demands payment from A and on

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

2. A guarantees to C, to the extent of Rs. 2,000, payment for rice to be supplied by C to B. C supplies to B rice for a lesser amount than Rs. 2000 but obtains from A payment of the sum of Rs. 2000 in respect of the rice supplied. A cannot recover from B more than the price of the rice actually supplied.

Rights of surety against creditor – Right to securities held by creditorA gave a loan to B on the guarantee of C as well as on the mortgage of B’s furniture. Afterwards, A cancels the mortgage, B becomes insolvent and A sues C on this guarantee. C is discharged from liability to the value of furniture.

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Rights of surety against co-sureties – Right to be contributed equally in case where two or more persons are co-sureties and share security. A, B and C are sureties to D for the sums of Rs. 3000 lent to E. E makes default in payment. A, B and C are liable, as between themselves, to pay Rs. 1000 each. Co – sureties bound in different sums – A, B and C, as sureties for D, enter into three several bonds, each for different value, namely A for Rs. 10,000, B for Rs. 20,000, C for Rs. 40,000, conditioned for D’s duly accounting to E. 1. D makes default to the extent of Rs. 30,000. A, B and C are each liable to pay Rs. 10,000.2. D makes default to the extent of Rs. 40,000. A is liable to pay Rs. 10,000 and B and C Rs. 15,000 each.3. D makes default to the extent of Rs. 70,000. A, B and C will bear the entire amount which they have taken up.

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Discharge of SuretyBy Revocation of Contract of Guarantee –

1. By notice2. By the death of Surety3. By NovationBy Conduct of Creditor- 1.By variance in terms of contract C contracts to lend B Rs. 5000 on 1st March. A guarantees payment. C pays Rs. 5000 to B on 1st January. A is discharged from his liability as the contract is varied in as much as C might sue B for the money before 1st March. 2.By release or discharge of Principal debtorA contracts with B for a fixed price to build a house for B within a stipulated time, B supplying the necessary timber. C guarantees A’s performance of the contract. B omits to supply the timber. C is discharged from his surety ship.–By arrangement - arrangement between creditor and principal debtor for composition or giving further time.

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4. By creditor’s act or omission impairing Surety’ s Eventual RemedyB contracts to build a ship for C for a given sum, to be paid by instalments as the work reaches certain stage. A becomes surety to C for B’s due performance of the contract. C, without knowledge of A, pre-pays to B the last two instalments . A is discharged by this pre- payment. By invalidation of contract – 1.Guarantee obtained by Misrepresentation2.Guarantee obtained by concealment of material circumstances3.Failure of a person to join as co-surety

BAILMENT AND PLEDGEBAILMENT AND PLEDGE

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BAILMENT (Sec.148)Delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the direction of the person delivering them. Bailment means ‘to deliver’ or ‘to hand over’.Bailor – the person delivering the goods Bailee – the person to whom the goods are delivered 1.X who is going out of station gives his pet dog to Y for proper care.2.Y hires a car from X for going on a vacation3.X gives his car for servicing. Essential Elements of Bailment•Agreement: expressed or implied•Delivery of Goods: delivery must be voluntary (Money is not included)1. Delivery of jewellery by owner to thief who shows a revolver, does not create a bailment . 2. Delivery of jewellery by owner to goldsmith for repair or sale .Delivery may be actual or constructive.3. Purpose: for some intended purpose.Wrong delivery of goods to Jaipur Golden Roadways instead of Patel Roadways, does not create bailment. 4. Return of Specific Goods – form may changeDelivery of gold jewellery to banker for safe custody creates a bailment because same old gold jewellery in its original form is to be returned. 16

Basis of Distinction Bailment SaleTransfer of ownership/ possession

There is a transfer of possession of goods from the bailor to the bailee

There is a transfer of possession of goods from the seller to the buyer

Consideration The consideration need not be passed between bailor and bailee

The consideration in terms of price must be passed between seller and buyer

Return of goods The bailee must return the goods to the bailor on the fulfillment of the purpose for which the bailment is made

There is no question of such return of goods in contract of sale.

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Delivery may be actual or constructive. Custody of goods without possession is not bailment, for eg. Servant carrying goods is not a bailee. Constructive delivery – shipping documents, railway receipt, etc

Types of BailmentTypes of Bailment(i) Gratuitous Bailment – A gives his book to B, his friend for reading and to be returned after examination, without any consideration.(ii) Non - Gratuitous Bailment - For charge - giving car for repairs(iii) Pledge Duties and liabilities of Bailor•Put bailee into possession – deliver goods to bailee•To disclose defects – of which he is aware and material faults In case of hire, bailor is responsible for damages even for defects which he is not aware of.1.A lends a horse, which he knows to be vicious, to B. He does not disclose the fact that the horse is vicious. The horse runs away. B is thrown and injured. A is responsible to B for damage sustained. 2.A hires a carriage of B. The carriage is unsafe, though B is not aware of it. A is injured. B is responsible to A for the injury. •To bear expenses incurred by the bailee towards the bailment •To indemnify the bailee in case of premature termination of bailment•To indemnify the bailee against defective title of bailor – stolen car given on hire•To receive back goods•To bear the risk of loss (provided the bailee has taken reasonable steps to protect the subject)

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Duties and liabilities of Bailee•To take prudent care of goods bailed whether gratuitous or not •Not to make unauthorised use of goodsA gives his car to B for his personal use only for 5 days. B allows C, his son to drive the car. C drives the car with care, but meets with an accident which damages the car . B is liable to make compensation to A for the damage to the car. •Not to mix his own or other’s goods with bailor’s goodsA bails 100 bales of cotton marked with a particular mark to B. B without A’s consent mixes the 100 bales with other bales of his own, bearing a different mark. A is entitled to have his 100 bales returned, and B is bound to bear all the expenses incurred in the separation of the bales, and any other incidental damages.•To return goods on expiration of time or accomplishment of purpose A gave his car to B for five days for personal use. B did not return the car after 5 days. On the 6th day the windshield of the car is broken because of a foreign object crashing into it while the car was parked in B’s garage. B is liable to reimburse to A for repair. •To return accretion to the goodsA leaves his pet dog in the custody of B to be taken care of. The dog delivers 2 puppies . B is bound to return the dog along with the puppies to A. •To pay damages

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Rights of BailorRights of Bailor•Claim damages in case of negligence by bailee •Terminate the contract in case of unauthorised use 1.Vehicle used to transport goods instead of people2.A lets to B for hire a car for his own use. B allows his son C to use the car. A can terminate the bailment.•Claim compensation in case of unauthorised useA gives his car to B for his personal use only for 5 days. B allows C, his son to drive the car. C drives the car with care, but meets with an accident which damages the car . B is liable to make compensation to A for the damage to the car. •Claim separation of goods in case of unauthorised mixture where separation is possible•Claim separation of goods in case of unauthorised mixture where separation is not possibleA bails a barrel of imported flour worth Rs. 45 to B. B, without A’s consent mixes the flour with Punjabi flour of his own, worth only Rs. 25 a barrel. B must compensate A for the loss of his flour.

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• Demand return of goods on expiration of time or accomplishment of purpose • Claim compensation in case of unauthorised retention of goods• Demand accretion to goods

Rights of BaileeRights of Bailee

• To claim damages in case bailee suffers loss due to undisclosed defects • To claim reimbursement of expenses• To be indemnified in case of premature termination• Recover loss in case of defective title: stolen car taken on hire • Recover loss in case of bailor’s refusal to take the goods back• Right to deliver goods to any one of the joint bailors• Right to deliver the goods to bailor in case of bailor’s defective title

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Rights of Bailor and Bailee against Wrongdoers (Sec. 180)Rights of Bailor and Bailee against Wrongdoers (Sec. 180)

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

X delivered a car to Y for repairs. Z forcefully takes possession of car from Y. In this case, either X or Y may sue Z. If Y files the suit, he shall handover the amount received after deducting his repair charges.

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What is Lien??What is Lien??Right of a person having possession of goods belonging to another to retain goods until satisfaction of sum claimed by the person in possession of goods. Kinds of Lien – Kinds of Lien – Particular Lien (Sec. 170)Particular Lien (Sec. 170)Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed he has in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them. 1.A delivers a rough diamond to B, a jeweller, to be cut and polished which is accordingly done. B is entitled to retain the stone till he is paid for the services he has rendered. 2.A gives cloth to B, a tailor, to make into a coat. B promises A to deliver the coat as soon as it is finished, and to give A three months credit for the price. B is not entitled to retain the coat until he is paid. General Lien (Sec. 171)General Lien (Sec. 171)A general lien is a right to retain all the goods as a security for the general balance of account until the full satisfaction of the claims due whether in respect of those goods or other goods. In the absence of a contract to the contrary, a general lien is available only to bankers, factor, wharfingers, attorneys of a High Court and policy brokers. General lien is available to other persons only when there is an express contract to that effect.X deposited shares of Tata Steel Ltd and Reliance Industries Ltd as security with Axis Bank and took a loan against these shares. Bank may retain both the securities until its claims are fully satisfied. 23

Particular lien vs General lienParticular lien vs General lien

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Particular Particular GeneralGeneral

Available against those goods in respect of which some charges are due.

Available against all goods in respect of which claims are due or not.

Available only for non-payment of remuneration of the services

Available for a general balance of account

Available to every bailee to whom goods have been bailed

Available to specific bailee like bankers, factors, etc.

Available only when some service involving exercise of labour or skill has been rendered

Available even when no such services have been rendered

Purpose of delivery of goods is to confer an additional value to goods by exercise of labour or skill

Purpose of delivery of goods is to deposit the goods as security

Rights of a Finder of goods :Rights of a Finder of goods :FINDER is a person who finds goods which do not belong to him1.Right to Lien: towards expenses to preserve and find out owner2.Right to Sue for reward: where owner has offered a specific reward3.Right to Sell: owner not found; owner refuses to pay expenses; perishable goods; lawful charges of finder exceeds 2/3rd of its value

Duties of Finder of goods :Duties of Finder of goods :•Take reasonable care•Not to use for personal purpose•Not to mix with his own goods•To find the owner

Termination of Bailment:Termination of Bailment:1.On expiry of fixed period2.On fulfilment of purpose3.Inconsistent use of goods4.Destruction of subject matter (or incapable of being use) 5.Gratuitous Bailment – Before the expiry of a fixed period and on death of Bailor/Bailee. 25

Pledge or PawnPledge or PawnThe bailment of goods as security for payment of a debt or performance of a promise is called pledge or pawn.X borrows Rs.5 lacs from State Bank and gives his shares as security for payment of debt. Pawnor (or Pledgor) : The person who delivers the goods as security for paymentPawnee (or Pledgee) : The person to whom the goods are delivered as security

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Basis of Distinction Pledge BailmentPurpose Pledge is bailment of goods for

a specific purpose i.e. repayment of a debt or performance of duty.

Bailment is for a purpose of any kind.

Right to use Pawnee cannot use the goods pledged

Bailee can use the goods as per terms of bailment.

Right to sell Pawnee can sell the goods pledged after giving notice to the pawnor in case of default by the pawnor

Bailee can either retain the goods or sue the bailor for his dues.

Rights of a PawneeRights of a Pawnee1.Right of retainer – for payment of debt or performance of promise, interest or other expenses incurred. 2.Right to claim reimbursement of extraordinary expenses3.Right to sue pawnor4.Right to sell5.Right against true owner

Duties of a Pawnee Duties of a Pawnee 1.Duty to take reasonable care of goods pledged2.Duty not to make unauthorized use of goods.3.Duty not to mix goods pledged with his own goods.4.Duty to return goods5.Duty to return accretions to the goods.

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Rights of a pawnor1.Right to get Pawnee’s duties duly enforced 2.Right to redeem the goods pledged – to get the goods back by making payment or performance of promise.Duties of a Pawnor1.Duty to comply with terms of pledge – repaid debt, etc2.Duty to compensate the pawnee for extraordinary expenses. Pledge by Non- owners –1.Pledge by a Mercantile agent (trader) in an ordinary course of business 2.Pledge by person in possession under voidable contract (undue influence, coercion, fraud, etc.)( for 1 and 2 - good title to pawnee who acts in good faith)3. Pledge where pawnor has a limited interest – valid to the extent of interest – finder of goods4. Pledge by a co-owner in possession1.Pledge by seller or buyer in possessionX sold goods to Y who left the goods with X who then pledged those goods with Z who acted in good faith and has no notice of prior sale. Such pledge is valid.

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LAW OF AGENCYLAW OF AGENCY

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Who is an agent and a principal ?? (Sec. 182)Who is an agent and a principal ?? (Sec. 182)An agent is a person employed to do an act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called ‘the principal’. The relationship between them is called ‘agency’. An agent therefore brings together his principal and the third person.A appoints B to purchase a house for him. A is the principal, B an agent the relationship between the two is that of agency.

Who can be appointed an agent?Who can be appointed an agent?Any person (whether he has contractual capacity or not) may become an agent as between principal and third person. Thus, a minor or a person of unsound mind can also become an agent, but he will not responsible to his principal.

Who can employ an agent?Who can employ an agent?A person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent.No consideration is necessary to create an agency.

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Test of agency Test of agency –is whether a person has the capacity to bind the principal by acts done on his behalf. When the agent can establish privity of contract between third party and his principal, an agency exists.

How is agency constituted ?How is agency constituted ?1.Agency by agreement - express or implied

(i) X who owns a shop, appoints Y to manage his shop by executing a power of attorney in Y’s favour. Here, the relationship of principal and agent has been created between X and Y by an express authority.

(ii) A owns a shop in Shimla, living himself in Calcutta, and visiting the shop occasionally. The shop is managed by B, and he is in the habit of ordering goods from C in the name of A for the purposes of the shop and of paying for them out of A’s funds with A’s knowledge. B has an implied authority from A.

2.Agency by necessity – due to necessity, communication with principal not possible, in the best interest of the principal,

(i) X consigned some vegetables from Delhi to Bombay by truck. The truck met with an accident . The vegetables being perishable were sold by the transporter. This sale is binding on X. In this case, the transporter became an agent by necessity.

(ii) X stored some furniture in Y’s house free of charge. After three years, Y needed the space occupied by the furniture. He obtained X’s address from his

bank and wrote two letters to him but he received no reply. Y then sold the furniture. It was held that the sale was not binding on the owner because there was no emergency which required the sale of furniture.

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3. Agency by estoppel – by words or conduct inducing third person to believe X tells Y in the presence and within the hearing of Z that he (X) is Z’s agent. Z does not contradict this statement. Later on Y enters into a contract with X believing that X is Z’s agent. In such a case Z is bound by this contract and in a suit between Z and Y, Z cannot be permitted to say that X was not his agent, even though X was not actually his agent. 4. Agency by holding out – due to past conduct X allows Y, his servant to purchase goods for him on credit from Z and later on pays for them. One day X pays cash to Y to purchase goods. Y misappropriate the money and purchases goods on credit from Z. Z can recover the price of his goods from X because X had held out Y as his agent on earlier occasions. 4. Agency by operation of lawOn formation of partnership, every partner becomes the agent of others. 5. Agency by ratification – may be expressed or implied – tantamounts to prior authority•A, without authority, buys goods for B. Afterwards B sells them to C on his own account; B’s conduct implies a ratification of the purchases made for him by A. •X holds a flat on a lease from Y. The lease is terminated on 3 months’ notice. Z, without Y’s authority gives notice of termination of lease to X. Y cannot ratify the notice given by Z so as to binding on X.•Act of a director ultra vires the company cannot be ratified. 33

Essentials of valid ratificationEssentials of valid ratification1.Full knowledge2.Whole transaction3.No damage to third party4.Act on behalf of another person5.Acts within principal’s power6.Existence of principal7.Contractual capacity8.Lawful acts9.Within reasonable time10.Communication

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Classification of agentsClassification of agents1.General agent2.Special agent3.Universal agent – global agent4.Mercantile or commercial agent5.Broker6.Factor - has a general lien on goods7.Auctioneer8.Commission agent9.Del – credere agent – guarantor 10.Sub – agent

Can an agent delegate his authority?Can an agent delegate his authority?‘Delegatus non potest delegare’ means an agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally. Exception sub - agent properly appointed - Agent is responsible to the principal for the acts of the sub – agent. Sub – agent is responsible for his acts to the agent and not to the principal except in case of fraud or wilful wrong.

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11. Substituted agent - direct privity between principal and substitute agent 1.A directs B, his solicitor, to sell his estate by auction, and to employ an auctioneer for the purpose. B names C, an auctioneer, to conduct the sale. C is not a sub –agent, but is A’s agent for the conduct of the sale. 2.A consigns goods to B, a merchant for sale. B in due course, employs an auctioneer in good credit to sell the goods of A and allows the auctioneer to receive the proceeds of sale. The auctioneer afterwards becomes insolvent without having accounted for the proceeds. B is not responsible to A for the proceeds. Extent of agents’ authority – capacity of agent to bind principal To do every lawful thing which is necessary to do such actA is employed by B, residing in London, to recover at Bombay a debt due to B. A may adopt any legal process necessary for the purpose of recovering the debt, and may give a valid discharge for the same. In case of emergency – to do all such acts to protect the principal from lossButter was being transported by railways. Because of delay in transit there was a possibility of butter becoming stale. The railway sold the butter at the best possible price. The principal was bound.

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Duties and liabilities of agent to principal Duties and liabilities of agent to principal 1.To conduct business as per directions or custom of trade2.Conduct the business with skill and diligence3.To render proper accounts4.To pay sums received for principal5.On principal's death or insanity 6.To communicate with principal7.Not to deal on his own account8.To disclose material information9.Not to make secret profits10.Not to create adverse title 11.Not to delegate without authority12.Naming an agent for principal13.Liable for acts of sub-agents14.For misrepresentation or fraud15.To bear damages for misconduct

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

2. A directs B to sell A’s estate. B, on looking over the estate before selling it, finds a mine on the estate which is unknown to A. B informs A that he wishes to buy the estate for himself, but conceals the discovery of the mine. A allows B to buy in ignorance of the existence of the mine. A on discovery that B knew of the mine at the time he bought the estate, may either repudiate or adopt the sale at his option (Disclosure of material circumstances)

3. A directs B, his agent to buy a certain house for him. B tells A it cannot be bought and buys the house for himself. A may, on discovering that B has bought the house, compel him to sell it to A at a price he gave for it. (Disclosure of material circumstances)

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Rights of agent Rights of agent 1.Right of retainer out of sums received 2.Right to claim/ receive remuneration3.No right to remuneration for business not conducted properly 4.Right of lien on principal’s property lawfully acquired by the agent5.Right to be indemnified – not in case of criminal acts 6.Compensation7.To do lawful things8.In emergency9.To appoint substitute agent10.To renounce agency11.Compensation for premature revocation

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1. Right to receive remuneration X, an agent introduced a customer to purchase the principal’s property. The sale was

settled and earnest money was paid. The sale could not complete because of customer’s inability to pay. State whether the agent was entitled to remuneration if (a) he was appointed to sell a property on the terms that he would be paid commission on the completion of sale, (b) he was appointed to introduce a customer to purchase the principal's property

=>(a) the agent was not entitled to remuneration because the sale has not been completed.

(b) The agent was entitled to remuneration because he did what he was required to do, ie, to introduce a customer to buy the principal’s property.

2. Agent not entitled to remuneration for misconduct(i) A employs B to recover Rs. 1,00,000 from C, and to invest it in good security. B

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

(ii) A employs B to recover Rs.1,000 from C. through B’s misconduct the money is not recovered. B is entitled to no remuneration for his services, and must make good the loss. 40

3.Right to be indemnified against consequences of lawful acts(i)B, at Singapore, under instructions from A of Calcutta, contracts with C to deliver certain goods to him. A does not send the goods to B and C sues B for breach of contract. B informs A of the suit, and A authorises him to defend the suit. B defends the suit , and is compelled to pay damages and costs and incurs expenses. A is liable to B for such damages, costs and expenses.(ii)B, a broker at Calcutta, by the orders of A, a merchant there contracts with C for the purchase of 10 casks of oil for A. Afterwards, A refuses to receive the oil, and C sues B. B informs A, who repudiates the contract altogether. B defends, but unsuccessfully, and has to pay damages and costs and incurs expenses. A is liable to B for such damages, costs and expenses.4. Right to be indemnified against consequences of Acts done in good faithB, at the request of A sells goods in possession of A, but which A had no right to dispose of. B does not know this, and hands over the proceeds of the sale to A. Afterwards C, the true owner of the goods, sues B and recovers the value of the goods and costs. A is liable to indemnify B for what he has been compelled to pay to C and for B’s own expense.

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Duties and liabilities of principal to agent Duties and liabilities of principal to agent 1.To indemnify the agent against consequences of lawful act.2.To indemnify the agent against consequences of the acts done in good faith3.Compensate the agent for injury caused due to principal’s neglect 4.To pay remuneration and dues5.Misrepresentation or fraud by agent within the agent’s authority 6.On notice given to agent – same as given to principal 7.Where principal induces third person to believe that agent’s un-authorised acts were authorised

Rights of principal Rights of principal 1.To repudiate contract2.To claim benefit3.To ratify or disown agent’s acts4.To revoke agent’s authority5.To claim loss or profit6.To demand accounts7.To refuse remuneration when agent is guilty of misconduct. 42

Agents when personally liable?Agents when personally liable?1.Where the principal is a foreigner – residing abroad2.Where principal is undisclosed3.Where principal is incompetent – lunatic, minor, etc.4.Where principal is non- existent – promoters before company is incorporated5.In case where acts not ratified 6.In case of acts where in agent’s own name7.In case of express agreement8.Agency coupled with interest9.Personal liability of an agent by usage or custom10.Where an agent acts beyond his authority11.Pretending agent12.Where agents misrepresents or commits fraudA enters into a contract with B to sell him 100 bales of cotton, afterwards discovers that B was acting as agent for C. A may sue either B or C, or both, for the price of the cotton. 13. Where the agent appoints sub-agent without authority

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Termination or determination of agency (sec. 201-210)Termination or determination of agency (sec. 201-210)1.1.By act of partiesBy act of parties

1. By agreement2. By revocation and renunciation3. By renouncing2.2. By operation of lawBy operation of law3. By death or insanity4. By insolvency of the principal5. By completion of performance3. Other modes of termination of agency3. Other modes of termination of agency1. By efflux of time2. By destruction of the subject – matter3. By incapacity of principal or agent4. Principal or agent becoming an alien enemy1. By object of agency becoming unlawful

When termination takes effect (sec 208)When termination takes effect (sec 208)The termination of the authority of an agent, does not as far as regards the agent, take effect before it becomes known to him, or, so far as regards third persons, before it becomes known to them. 1.A directs B to sell goods for him, and agrees to give B 5% commission on the price fetched by the goods. A afterwards, by letter, revokes B’s authority. B, after the letter is sent, but before he receives it, sells the goods for Rs. 10000. The sale is binding on A, and B is entitled to Rs. 500 as his commission. 2.A, at Madras, by letter directs B to sell for him some cotton lying in a warehouse in Bombay, and afterwards, by letter, revokes his authority to sell, and directs B to send the cotton to Madras. B, after receiving the second letter, enters into a contract with C, who knows of the first letter, but not of the second, for the sale to him of the cotton. C pays B the money, with which B absconds. C’s payment is good as against A.

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Revocation by principal Revocation by principal The principal may revoke the authority given to his agent at any time before the authority has been exercised so as to bind the principal. 1. A empowers B to let A’s house. Afterwards, A lets it to himself. This is an implied revocation of B’s authority. 2. A directs B to sell goods for him and agrees to give B five per cent commission on the price fetched by the goods. A, afterwards, by a letter , revokes B’s authority. B, after the letter is sent but before he receives it, sells the goods for Rs. 10, 000. The sale is binding on A and B is entitled to Rs. 500 as his commission.

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When agency cannot be revoked/terminated?When agency cannot be revoked/terminated?1.Agent has exercised authority partly: The principal cannot revoke the authority given to his agent after the authority has been partly exercised so far as regards such acts and obligations as arise from acts already done in the agency. A authorizes B to buy 1,000 bales of cotton on account of A, and to pay for it out of A’s money remaining in B’s hands. B buys 1000 bales of cotton in his own name, so as to make himself personally liable for the price. A cannot revoke B’s authority so far as regards payment for the cotton. 2.Agency coupled with interest: Where the agent has himself an interest in the property which forms the subject matter of the agency, the principal cannot revoke agent’s authority to the prejudice of such interest. X consigned 100 bags of wheat to Y who has advanced Rs.10,000 to X. X authorised Y to sell the wheat and to pay himself Rs.10,000 out of the proceeds of wheat. Later on, X directed Y not to sell the wheat. Ignoring X`s direction, Y sold the wheat to recover Rs.10,000. X could not revoke his authority because the agency was coupled with interest. Hence Y could sell the wheat.1.When agent incurs personal liability - agency cannot be revokedA authorizes B to buy 1,000 bales of cotton on account of A, and to pay for it out of A’s money remaining in B’s hands. B buys 1000 bales of cotton in his own name, so as to make himself personally liable for the price. A cannot revoke B’s authority so far as regards payment for the cotton.

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When revocation takes effect? (Sec. 208)When revocation takes effect? (Sec. 208)Revocation of authority terminates the agent’s authority. The termination of the authority takes effect as regards the agent, after it becomes known to him. As regards third persons, termination of authority takes effect after it becomes known to them.A directs B, his agent, to pay certain money to C. A dies; and D takes out probate to his will. B, after A’s death, but before hearing of it, pays the money to C. The payment is good as against D, the executor.

Renunciation by AgentRenunciation by Agent: An agent may also renounce his agency by giving a reasonable notice of such renunciation to the principal; otherwise the damage thereby resulting to the principal must be made good by the agent to the principal.

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THANK YOU

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