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Contract of Indemnity – Section 124 and 125 A) Meaning of Contract of Indemnity – Section 124 Contract of indemnity can be defined as a legal contract between two persons whereby one party commits to indemnify, i.e. to compensate or reimburse, the loss incurred to the other party, by the conduct of the party, who is making the promise or by the conduct of the third party. Person who promises to save the other party from loss is called as indemnifier Person who is promised to be saved against loss is called as indemnity holder. The contract of indemnity is a form of contingent contract The object of contract of Indemnity should not be unlawful. B) Rights of Indemnity Holder – Section 125 Any kind of damages which the indemnity holder is bound to pay in any suit concerned with any issue to which the contract of indemnity applies. Any expenses which the indemnity holder is bound to pay , so as to bring or defend the suit. All the amount which the indemnity holder has paid, in connection to the settlement of the suit. Contract of Guarantee – Section 126 - 147 Meaning of Contract of Guarantee – Section 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 guarantee may be either oral or written.
Indian Contract Act, 1872
Overview of the chapter Section 124 - 238 Contract of Indemnity - Section 124 & 125 Contract of Guarantee - Section 126 - 147 Contract of Bailment - Section 148 - 171 Contract of Pledge - Section 172 - 181 Contract of Agency - Section 182 - 238 Examples –
- Beta Insurance Company entered into a contract with Alpha Ltd., to compensate for loss caused by accidental fire to the company’s stock of goods up to Rs. 50,00,000 for a premium of Rs. 1,00,000. This is an express form of a contract of indemnity.
- Baburao asks Shyam to beat Raju promising to indemnify Shyam against the consequences. Shyam beats Raju and is fined rupees 1 lakh. Now, Shyam cannot claim this amount from Baburao because the object of the agreement is illegal Note – Contract of Fire insurance and Contract of Marine Insurance are examples of contract of Indemnity but Contract of Life Insurance is not a contract of indemnity
Consideration under contract of guarantee – Section 127 Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee. Example – Mari requests Salman to sell and deliver to him goods on credit. Salman agrees to do so, provided Sunil will guarantee the payment of the price of the goods. Sunil promises to guarantee the payment in consideration of Salman 's promise to deliver the goods to Mari. This is a sufficient consideration for Sunil 's promise. Surety’s liability – Section 128
- The liability of the surety is co- extensive with that of the principal debtor, unless it is otherwise provided by the contract.
- In simple words, the surety is liable for what the PD is liable.
- Liability of surety is secondary Types of guarantee – Liability of surety –
- In case of specific guarantee – limited only up to the particular transaction
- In case of continuing guarantee – liability continues till the discharge of all the transactions or withdrawal of all the transactions There are 3 parties to contract of Guarantee – Principal Debtor - The person in respect of whose default the guarantee is given is called the "principal debtor" Surety - The person who gives the guarantee is called the "surety" Creditor - the person to whom the guarantee is given is called the "creditor" There are 3 Contracts in contract of Guarantee – Principal Contract - Between PD and creditor Secondary Contract - Between surety and PD implied - Between Surety and PD There are 2 types of guarantee Specific guarantee - Guarantee which is only for a specific transaction C ontinuing guarantee - Section 129 - Guarantee which continues for series of tansactions Example – Bahubali advances a loan of rupees 10,000 to Bhallal Dev. Kattappa who is the boss of Bhallal Dev promises that in case Bhallal Dev fails to repay the loan, then he will repay the same. In this case of a contract of guarantee, Bahubali is the Creditor, Bhallal Dev the principal debtor and Kattappa is the Surety.
- Chunkey contracts to lend Bilal 5,000 rupees on the 1st March. Akshay guarantees repayment. Chunkey pays the 5,000 rupees to Bilal on the 1st January. Akshay is discharged from his liability, as the contract has been varied. Discharge of surety by release or discharge of principal debtor – Section 134 The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor – Section 135 A contract between the creditor and the principal debtor, by which the creditor makes a composition (settlement) with principal debtor, or promises to give time to principal debtor for repayment, or promises not to sue the principal debtor, then the surety will be discharged. However, surety will not be discharged if he assents to such terms. Cases where surety is not discharged – 136 to 138 Case 1 = Surety not discharged when agreement made with third person to give time to principal debtor – Section 136 Where a contract to give time to the principal debtor is made by the creditor with a third person, and not with the principal debtor, the surety is not discharged. Case 2 = Creditor's forbearance (delay) to sue does not discharge surety – Section 137 Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him does not, in the absence of any provision in the guarantee to the contrary, discharge the surety. Case 3 = Release of one co-surety does not discharge others – Section 138 Where there are co-sureties, a release by the creditor of one of them does not discharge the others; neither does it free the surety so released from his responsibility to the other sureties. Discharge of surety of creditor's act or omission impairing surety's eventual remedy – Section 139 – If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged. Loss of security – Section 141 If the creditor parts with or loses any security given to him at the time of the guarantee, without the consent of the surety, the surety is discharged from liability to the extent of the value of the security. 2) Discharge of surety by invalidation of Contract of guarantee Guarantee obtained by misrepresentation – Section 142 When a misrepresentation is made by the creditor or with his knowledge or consent, relating to a material fact in the contract of guarantee, the contract is invalid Guarantee obtained by concealment – Section 143 When a guarantee is obtained by the creditor by means of keeping silence regarding some material part of circumstances relating to the contracts, the contract is invalid Failure of co-surety to join as a surety – Section 144
When a contract of guarantee provides that a creditor shall not act on it until another person has joined in it as a co-surety, the guarantee is not valid if that other person does not join. **Rights of surety – A) Rights against Principal Debtor –
- Rights of subrogation – Section 140** If surety has made the payment to creditor on behalf of PD then surety will have all the rights that creditor had against the PD 2) Right of indemnity – Section 145 In every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety, and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee, **but no sums which he has paid wrongfully. B) Rights Against the creditor –
- Surety's right to benefit of creditor's securities – Section 141 a)** A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not; b) And if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security. 2) Right to set off – if the creditor sues the surety, for the payment of principal debtor’s liability then the surety may have the benefit of the set off, if any, that the PD had against the creditor. 3) Right to share reduction – The surety has to claim the proportionate reduction in his liability if the PD becomes insolvent **C) Rights Against Co-sureties –
- Co-sureties liable to contribute equally – Section 146** Where two or more persons are co-sureties for the same debt or duty, either jointly or severally, and whether under the same or different contracts, and whether with or without the knowledge of each other, the co-sureties, in the absence of any contract to the contrary, are liable, as between themselves, to pay each an equal share of the whole debt, or of that part of it which remains unpaid by the principal debtor Examples –
- Anil, Bilal and Chunkey are sureties to Dinesh for the sum of 3,000 rupees lent to Mukesh. Mukesh makes default in payment. Anil, Bilal and Chunkey are liable, as between themselves, to pay 1,000 rupees each.
- Anil, Bilal and Chunkey are sureties to Dinesh for the sum of 1,000 rupees lent to Mukesh, and there is a contract between Anil, Bilal and Chunkey that Anil is to be responsible to the extent of one-quarter, Bilal to the extent of one- quarter, and Chunkey to the extent of one-half. Mukesh Rights of surety Against the PD Right of subrogation Right of indemnity Against the creditor Right to security Right to set-off Right to share reduction Against the co- sureties - Right to contribution
Duties of bailor – A) To disclose faults in the goods – Section 150 It is the duty of the bailor to disclose to the bailee faults in the goods bailed, of which the bailor is aware The bailor is bound to disclose to the bailee faults which materially interfere with the use of them, or expose the bailee to extraordinary risks And if he does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults If such goods are bailed for hire, the bailor is responsible for such damage, whether he was or was not aware of the existence of such faults in the goods bailed B) To bear extra-ordinary expenses – Section 158 It is the duty of the bailor to pay extra ordinary expenses to bailee if the bailement is non- gratuitous It is the duty of the bailor to pay all the expenses to the bailee in case of gratuitous bailment C) Duty to indemnify bailee for premature termination – Section 159 The bailor should compensate the bailee for the loss or damage suffered by the bailee that is in excess of the benefit received in case where bailor has lent the goods gratuitously and decides to terminate the bailment before the expiry of period of bailment. D) The bailor is responsible to the bailee for any loss which the bailee may sustain - Section 164 Forms of bailment (1)Delivery of goods by one person to another to be held for the bailor's purpose. Gratuitous bailment Hiring of goods (1)Delivering goods to a creditor to serve as security for a loan. Delivering goods for repair with or without remuneration Delivering goods for carriage Finder of Goods. There are two types of contract of bailment – Gratuitous bailment - Free of charge either for the benefit of bailor or for the benefit of the bailee Non- gratuitous bailment - both the parties get some benefit
E) Duty to take the goods back – It is the duty of the bailor to receive the goods back. If he does not receive the goods back, bailor is liable to compensate bailee for all the necessary expenses incurred. Duties of bailee – A) To take proper care of goods – Section 151 According to section 151 , it is the duty of a bailee to take care of goods bailed to him Bailee should take care of these goods as an ordinary man will take care of his goods of the same value, quality, and quantity Thus, if the bailee takes due care of goods then he will not be liable for any loss, deterioration of such goods. Also, the bailee needs to take the same degree of care of goods whether the bailment is for reward or gratuitous. However, the bailee is not liable for any loss due to the happening of any act by God or public enemies though he agrees to take special care of the goods. B) Not to make unauthorize use of goods bailed – As per section 153 , the Bailee shall not make any unauthorized use of goods bailed. In case he makes any unauthorized use, then bailor can terminate the bailment. Bailor can also claim for damages caused to goods bailed due to unauthorized use as per Section 154. C) Keeps goods separate from his own goods –
- The bailee needs to keep the goods separately from his own goods.
- He should not mix the goods under bailment with his own goods.
- In case bailee mixes the goods with his own goods without the consent of the bailor, then: a) Bailor also has an interest in the mixture b) If the goods can be separated or divided, the property in the goods remains with both the parties. c) But, the bailee bears the expenses of separation or any damages arising from the mixture. d) If it is not possible to separate the goods, the bailee shall compensate the bailor for the loss of goods. D) Not to set adverse title – A bailee must not set an adverse title to the goods bailed. E) Return Goods – Section 160 and 161 a) The duty of the bailee is to return the goods without demand on the accomplishment of the purpose or the expiration of the time period. b) In case of his failure to do so, he shall be liable for the loss, destruction, deterioration, damages or destruction of goods even without negligence F) Return increase or profits – Section 163 A bailee shall return the goods along with any increase or profit accruing to the goods to the bailor, in the absence of any contract to the contrary. For example, A leaves a hen in the custody of B. The hen gets a chick. B shall deliver the hen along with the chick to A. **Rights of bailor –
- Right to terminate bailment – Section 153** A contract of bailment is voidable at the option of the bailor, if the bailee does any act with regard to the goods bailed, inconsistent with the conditions of the bailment 2) Return of goods – Section 159 When the goods are bailed for consideration, the bailor has the right to demand their returns as and when he wants even if he lent them for a specific period of time or purpose. 3) Right to sue bailee – The bailor has thee right to sue bailee for enforcing all the liabilities and duties of him and it includes – a) Right to claim compensation for loss caused to the goods because of negligence of bailee.
**Note – If the bailment is for hire, the bailor will be liable to compensate even if he had not knowledge of faults in the goods.
- Right to Claim extraordinary damages –** If bailee is required to incur any extraordinary expenses then he can hold the bailor liable for such expenses. BASIS FOR COMPARISON
GENERAL LIEN PARTICULAR LIEN
Meaning General lien alludes to the right to keep possession of goods belonging to other against general balance of account. Particular lien implies a right of the bailee to retain specific goods bailed for non-payment of amount. Availability Any goods, in respect of which the amount is due to another person. Only against the goods, in which skill and labor is exercised. Automatic No Yes Right to sale goods No right to sale the goods. In general, there is no right to sell goods, however, the right can be conferred to bailee in special circumstances. Exercised by Bankers, Wharfngers, factors, policy brokers, attorneys etc. Bailee, pledgee, finder of goods, agent, partner, unpaid seller etc. Termination of bailment –
1. When the period or purpose is over: In case the bailment is for a specific period or purpose, it is terminated on the expiry of that period or on the completion of the purpose. 2. When the bailee makes unauthorized use of the goods: In case the bailee makes unauthorized use of the goods bailed, the bailment is voidable at the option of the bailor. 3. When the subject-matter is destroyed or becomes illegal: In case the subject-matter is destroyed or becomes illegal, the bailment is terminated. 4. At the will of the bailor: Where the bailment is gratuitous, it can be terminated merely at the sweet will of the bailor. However, the termination should not cause loss to the bailee in excess of the benefit derived by him. In case the loss exceeds the benefit derived by the bailee, the bailor must compensate the bailee for such a loss. 5. When the bailor or bailee dies: A gratuitous bailment is terminated by the death of the bailor or bailee. Finder of goods – A) The term 'finder of goods' means a person who has found some goods belonging to another. When a person comes across some article he is under no duty to pick them up, but if he picks them up, he becomes a finder of goods and is subject to the same responsibility as a bailee. B) The obligations of a finder of goods:
- He must take reasonable care of the goods:
- He must not use the goods for his own purpose.
- He must not mix them with his own goods.
- He must make appropriate efforts to find the true owner of the goods. C) Rights of finder of goods
- Right to retain goods: The finder can retain the goods against the true owner until he receives compensation for trouble and expenses incurred by him in preserving the goods and finding out the owner. This right is known as the finder's lien on the goods
- Right to sue for reward (Section 168)
- Right to claim expenses incurred
- Right of sale: Section 169 permits the finder to sell the goods in the following cases: a. If the owner cannot be found after reasonable search; or b. If found, the owner refuses to pay the lawful charges to the finder; or c. If the thing is in danger of perishing or losing the greater part of their value; or
d. If the lawful charges of the finder amount to two - thirds of their value.
- A finder of goods has a right to keep the goods with him against the whole world except the true owner. Contract of Pledge – Section 172- 182 Meaning of pledge – Section 172
- Pledge is defined under Section 172 as the bailment of goods as security for a payment of a debt or performance of a promise is called pledge/pawn.
- The person who makes such a bailment is called a pledger or pawnor and the bailee is known as pawnee Essentials elements of pledge –
- Delivery of goods : Delivery of the goods may be actual or constructive or symbolic.
- Goods must be the subject matter of the contract of pledge. The goods pledged must be in existence
- Purpose of pledge is security for payment of debt.
- Pledge is specie of bailment Pawnee’s rights – A) Right of retain the goods pledged - Section 173 - pawnee has the right to retain the goods pledged till the debt is repaid along with the interest. Example – Sunny pledges his gold jewelry for some loan from a bank. In such a case bank has all the rights to retain the gold jewelry not only for adjustment of loan amount but also for payment of interest accrued on such loan amount. B) Right to retention of pledged goods for subsequent debts - Section 174 – The pawnee shall not, in the absence of a contract to that effect, retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged; but such contract, in the absence of anything to the contrary, shall be presumed in regard to subsequent advances made by the pawnee. Analysis – in simple words, pawnee will have the right to retain only those goods for which debt is outstanding and not to retain the goods which are not subject matter of pledge C) Pawnee's right as to extraordinary expenses Incurred - Section 175 – Pawnee has the right to claim any extraordinary expenses incurred for the preservation of the goods pledged. However, pledgee has no right to retain the goods for such expenses. D) Pawnee's right where pawnor makes default - Section 176 – a) If the pawnor makes default in payment of the debt, or performance, pawnee may retain the goods or sell the goods. b) If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. c) If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor. Pawnor’s Rights –
1. Right to redeem - Section 177 a) If the pawnor makes the repayment of principal as well as interest without any default then in that case, pawnor has the right to redeem the goods which he has pledged. b) Even if the pawnor makes default in repayment of principal or interest then also pawnor has the right to redeem the goods pledged before actual sale but in this case pawnor will have to pay additional expenses, if any. 2. Pledge where pawnor has only a limited interest - Section 179 Where a person pledges goods in which he has only a limited interest, the pledge is valid to the extent of that interest Pledge by non-owner of goods – A) Pledge by mercantile agents - Section 178
Who can employ agent? – Section 183 Any person who is of the age of majority according to the law, and who is of sound mind , may employ an agent. In simple words, a person who is capable to contract can appoint agent. Who may be an agent? – Section 184 Agent may be of sound mind and may be major. **Note – A minor or a person who is of unsound mind may be appointed as an agent but he will not be liable to any parties in the contract of agency because agent is never a party to the contract.
- Express Authority – Section 186** An authority is said to be express when it is given by words, spoken or written. 2) Implied Authority – Section 187 An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case 3) Agency by estoppel – Section 237 a) Agency by estoppel arises when say Mr. A makes a representation to a third party, whether by words or conduct, that B is his agent, and subsequently that third party deals with B as A's agent in reliance on such representation. A will not be permitted (is estopped) to deny the existence of the agency if to do so would cause damage (usually financial loss) to that third party. b) When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent's authority. 4) Agency by Ratification – Section 196- 200 Agency by ratification arises when the principal ratifies (that is, approves and adopts) an act which has already been done in his name and on his behalf by the agent who in fact, had no actual authority (whether express or implied) to act on the principal's behalf when the act was done. Rights of person as to acts done for him without his authority, Effect of ratification – Section 196 Where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such acts. If he ratifies them, the same effects will follow as if they had been performed by his authority. Essentials of a valid Ratification – Ratification may be expressed or Implied [Section 197] Knowledge requisite for valid ratification [Section 198] Modes of creation of Agency Express Agreement
- Section 186 **Implied Agreement
- Section 187 Agency by Ratification
- Section 196 - 200 Agency by estoppel - Section 237 Agency by necessity**
The principal cannot ratify a part of the transaction which is beneficial to him and reject the rest. [Section 199] Ratification of unauthorized act cannot injure third person [Section 200] – E.g. - A holds a lease from B, terminable on three months' notice. C, an unauthorized person, gives notice of termination to A. The notice cannot be ratified by B, so as to be binding on A. Ratification should be done within reasonable time. Ratification must be communicated to the other party. Act to be ratified should not be void or illegal, for e.g. payment of dividend out of capital is void and cannot be ratified Ratification should be done of those act for which principal has authority. 5) Agency by necessity – In certain circumstances, a person who has been entrusted with another’s property may have to incur unauthorized expenses to protect or preserve it. This is called an agency of necessity. Example – A sent a horse by railway. On its arrival at the destination, there was no one to receive it. The railway company, is bound to take reasonable steps to keep the horse alive, was an agent of the necessity of A. Wife as Agent – Where a husband and wife are living together, we presume that the wife has her husband’s authority to pledge his credit for the purchase of necessaries of life suitable to their standard of living. But the husband will not be liable if he shows that:
- he had expressly warned the tradesman not to supply goods on credit to his wife; or
- he had expressly forbidden the wife to use his credit; or
- he already sufficiently supplies his wife with the articles in question; or
- he supplies his wife with a sufficient allowance An agent having an authority to do an act, has all the authority to do every lawful thing which is necessary in order to do such act. Thus an agent having an authority to carry on a business has authority to do every lawful thing necessary and which is usually done in the course of conducting such business. Duties of Agent – A) Duty in conducting principal's business - Section 211
1. An agent is bound to conduct the business of his principal according to the directions given
by the principal. Extent of Agent’s authority Normal circumstances : Section 188 In case of emergency : Section 189 He has an authority in an emergency to do all such acts for the purpose of protecting his principal from loss as would be done by a prudent person, in his own case under similar circumstances. To constitute a valid agency in an emergency, following conditions must be satisfied. (a) Agent should not be a in a position or have any opportunity to communicate with his principal within the time available. (b) There should have been actual and definite commercial necessity for the agent to act promptly. (c) The agent should have acted bonafide and for the benefit of the principal. (d) The agent should have adopted the most reasonable and practicable course under the circumstances, and (e) The agent must have been in possession of the goods belonging to his principal and which are the subject of contract
a) Some agents who have the possession of goods, securities or properties of their principal also have a lien on these goods, securities or properties regarding their remuneration and also for any expenses or liabilities that they incur. b) When he is an unpaid seller, he has a right to stop the goods in transit E) Right to be Indemnified – Section 222 and 223 An agent represents his principal to the third parties. As per sections 222 and 223, an agent has a right to be indemnified by his principal for all charges, expenses, and liabilities that he incurs during the course of the agency. A) Non-liability of employer of agent to do a criminal act – Section 224 Where one person employs another to do an act which is criminal, the employer is not liable to the agent, either upon an express or an implied promise, to indemnify him against the consequences of that Act. Example – A employs B to beat C, and agrees to indemnify him against all consequences of the act. B thereupon beats C, and has to pay damages to C for so doing. A is not liable to indemnify B for those damages. B, the proprietor of a newspaper, publishes, at As request, a libel upon C in the paper, and A agrees to indemnify B against the consequences of the publication, and all costs and damages of any action in respect thereof. B is sued by C and has to pay damages, and also incurs expenses. A is not liable to B upon the indemnity. B) Compensation to agent for injury caused by principal's neglect – Section 225 The principal must make compensation to his agent in respect of injury^1 caused to such agent by the principal's neglect or want of skill. **Liability of Principal and Agents to third parties – Cases where principal is liable for agent’s act –
- When agent exceeds his authority and principal ratifies it – Section 227** When an agent does more than he is authorized 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 is within his authority is binding as between him and his principal. In simple words, principal will only be liable for those acts which are authorized by him. 2) Principal is bound by the notice given to agent – Section 229 Any notice given to or information obtained by the agent, provided it be given or obtained in the course of the business transacted by him for the principal, shall, as between the principal and third parties, have the same legal consequences as if it had been given to or obtained by the principal. 3) Liability of pretended agent - Section 235 A pretended agent is a person who represents himself to be an agent of another, when in fact he has no authority from him, whatsoever if the principal ratifies his acts as agent, he has no liability. Liability of Principal and Agents to third parties Principal is liable ( principal is liable for agent’s act ) Agent is personally liable (agent is personally liable for his act)
But if the principal refuses to ratify his acts, he becomes personally liable to third party 4) Liability for Misrepresentation or fraud by an agent when agent is acting within his authority – Section 238 Misrepresentation made, or frauds committed, by agents acting in the course of their business for their principals, have the same effect on agreements made by such agents as if such misrepresentations or frauds had been made or committed by the principals; but misrepresentations made, or frauds committed, by agents, in matters which do not fall within their authority, do not affect their principals. 5) Liability of principal inducing belief that agent's unauthorized acts were authorized Section 237 – When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent's authority. Illustration – A consigns goods to B for sale, and gives him instructions not to sell under a fixed price. C, being ignorant of Bs instructions, enters into a contract with B to buy the goods at a price lower than the reserved price. A is bound by the contract.
- Where the Principal is unnamed – When the agent discloses the existence of principal but does not disclose, the name of principal, in such a case the principal is liable for the acts of the agent. **7) When agent acts in emergency and good faith
- When agent is incompetent to contract. Cases where agent is personally liable for his act –**
- When he represents that he has authority to act an behalf of a principal, but who does not actually possess such authority or who has exceeded the authority and the alleged employer does not ratify his acts - Section 235.
- Undisclosed agent - Section 236 Where a contract is entered into by a person apparently in the character of agent, but in reality in his own account.
- When he signs a negotiable instrument in his own name without making it clear that he is signing as an agent.
- When he is working for a foreign principal.
- Where he is acting for a principal who cannot be sued on account of his being a foreign sovereign, ambassador etc.
- Where trade, usage or custom holds him liable in certain kinds of business.
- Where the agency is coupled with interest in the subject matter of the agency.
- Principal not bound when excess of agent's authority is not separable [Section 228] : Where an agent does more than he is authorised to do, and what he does beyond the scope of his authority cannot be separated from what is within it, the principal is not bound to recognise the transaction Example - A authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for one sum of 6,000 rupees. A may repudiate the whole transaction Miscellaneous A) Consequence of inducing agent or principal to act on belief that principal or agent will be held exclusively liable – Section 234
receives it, sells the goods for 100 rupees. The sale is binding on A, and B is entitled to five rupees as his commission. 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. In the following 2 cases, agency is irrevocable –
- Where the agent has incurred personal liability
- Where the agency is couple with interest. Sub-Agent and Substituted Agent A) Sub-Agent – a) The term sub-agent is defined in Section 191 as, "a sub-agent is a person employed by and acting under the control of the original agent in the business of agency." b) Thus a sub-agent is an agent appointed by the agent. c) The relation of the sub-agent to the original agent is that of the agent and the principal. d) The general rule of law is that an agent cannot delegate his powers to another without the consent of the principal. e) This general principal is based upon the Latin Maxim "delegatus non Protest delegate" which means a delegatee cannot further delegate. f) In the following cases, however, the agent may appoint a sub-agent: Where the principal has expressly allowed the appointment of a sub-agent. Where the principal knows that the agent intends to appoint a sub-agent but he does not object to it. Where the custom of trade permits the appointment of a sub-agent. Where the act to be done is purely ministerial and does not involve exercise of discretion or any skill. Where unforeseen emergencies arise which makes the appointment of subagent necessary. g) Where a sub-agent is properly appointed (as mentioned in above cases), the principal is bound and is liable to third parties for his act, as if he were an agent originally appointed by the principal. The agent is responsible to the principal for the acts of the sub-agents. The sub-agent is responsible for his acts to the agent and not the principal. B) Substituted Agent – a) Substituted agents are not sub agents. b) They are agents of the principal. c) Where the principal appoints an agent and if that agent identifies another person to carry out the acts ordered by principal, then the second person is not to be treated as a sub agent but only as an agent of the original principal. Example – A' directs 'B' his solicitor to sell his property by auction and 'B' appoints 'C an auctioneer. In this regard, 'C is an agent of 'A' and not a sub agent. While, selecting a "substituted agent" the agent is bound to exercise same amount of diligence as a man of ordinary prudence and if he does so he will not be responsible for acts or negligence of the substituted agent
Sub agent Substituted agent
According to Section 191 of the Indian Contract Act, 1872 - A “sub-agent” is a person employed by, and acting undue the control of, the original agent in the business of the agency. A Substituted agent is a person who is named by the Agent for performing such part of the business of the agency as is entrusted to him. A sub-agent works under, the control and directions of the agent A substituted agent works under the control and directions of the principal. The agent delegates to the sub-agent a part of his own duties. The agent does not delegate any part of his duties to the substituted agent The sub-agent is responsible to the agent alone. The substituted agent is responsible to the principal The agent is responsible to the principal for the acts of the sub-agent The agent is not responsible to the principal for the acts of the substituted agent. The sub-agent has no right of action against the principal for remuneration due to him. . The substituted agent can sue the principal for remuneration due to him The agent remains liable for the acts of the sub- agent as long as the sub agency continues. The agent's duty ends once he has named the substituted agent There is no privity of contract between the principal and the sub-agent. There is privity of contract between principal and substituted agent.
