Indian Contract Act 1872 - Overview of Contract of Indemnity and Guarantee

INDIAN CONTRACT ACT 1872 SHIKHA JOSHI ASSISTANT PROFESSOR DURGA MAHAVIDHYALYA RAIPUR

IndianContractAct,1872 Overviewof thechapter Section124-238 Contractof Indemnity- Section124&125 Contractof Guarantee- Section126-147 Contractof Bailment- Section148-171 Contractof Pledge- Section172-181 Contractof Agency- Section182-238 ContractofIndemnity Section124and125 A) MeaningofContractofIndemnity Section124 Contractofindemnitycanbedefinedasalegalcontractbetweentwopersonswhereby onepartycommitstoindemnify,i.e.tocompensateorreimburse,thelossincurredto theotherparty,bytheconductoftheparty,whoismakingthepromiseorbythe conductofthethirdparty. Personwhopromisestosavetheotherpartyfrom lossiscalledasindemnifier Personwhoispromisedtobesavedagainstlossis calledasindemnityholder. Thecontractofindemnityisaformofcontingent contract TheobjectofcontractofIndemnityshouldnotbe unlawful. Examples 1) BetaInsuranceCompanyenteredintoacontractwithAlphaLtd.,tocompensatefor loss caused by accidental fire to the company s stock of goods up to Rs. 50,00,000 for apremiumofRs.1,00,000.Thisisanexpressformofacontractofindemnity. 2) BaburaoasksShyamtobeatRajupromisingtoindemnifyShyamagainstthe consequences.ShyambeatsRajuandisfinedrupees1lakh.Now,Shyamcannot claimthisamountfromBaburaobecausetheobjectoftheagreementisillegal Note ContractofFireinsuranceandContractofMarineInsuranceareexamplesofcontract ofIndemnitybutContractofLifeInsuranceisnotacontractofindemnity B) RightsofIndemnityHolder Section125 Anykindofdamageswhichtheindemnityholderisboundtopayinanysuitconcernedwith anyissuetowhichthecontractofindemnityapplies. Anyexpenseswhichtheindemnityholderisboundtopay,soastobringordefendthesuit. Alltheamountwhichtheindemnityholderhaspaid,inconnectiontothesettlementofthe suit. ContractofGuarantee Section126-147 MeaningofContractofGuarantee Section126 - A"contractofguarantee"isacontracttoperformthepromise,ordischargetheliability,ofa thirdpersonincaseofhisdefault. - Aguaranteemaybeeitheroralorwritten.

Thereare3partiestocontractof Guarantee PrincipalDebtor- Thepersoninrespectof whosedefaultthe guaranteeisgiveniscalled the"principaldebtor" Surety- Creditor- Thepersonwhogivesthe guaranteeiscalledthe "surety" thepersontowhomthe guaranteeisgiveniscalled the"creditor" PrincipalContract- BetweenPDand creditor Example Bahubaliadvancesaloanofrupees10,000to BhallalDev.KattappawhoisthebossofBhallal DevpromisesthatincaseBhallalDevfailsto repaytheloan,thenhewillrepaythesame.In thiscaseofacontractofguarantee,Bahubaliis theCreditor,BhallalDevtheprincipaldebtorand KattappaistheSurety. Thereare3Contracts incontractof Guarantee SecondaryContract- BetweensuretyandPD implied- BetweenSuretyandPD Considerationundercontractofguarantee Section127 Anythingdone,oranypromisemade,forthebenefitoftheprincipaldebtor,maybeasufficient considerationtothesuretyforgivingtheguarantee. Example MarirequestsSalmantosellanddelivertohimgoodsoncredit.Salmanagreestodoso,providedSunil willguaranteethepaymentofthepriceofthegoods.Sunilpromisestoguaranteethepaymentin considerationofSalman'spromisetodeliverthegoodstoMari. ThisisasufficientconsiderationforSunil'spromise. Surety s liability Section128 - Theliabilityofthesuretyisco-extensivewiththatoftheprincipaldebtor,unlessitisotherwise providedbythecontract. - Insimplewords,thesuretyisliableforwhatthePDisliable. - Liabilityofsuretyissecondary Typesofguarantee Thereare2typesofguarantee Continuingguarantee- Section129- Guaranteewhichcontinuesfor seriesoftansactions Specificguarantee- Guaranteewhichisonlyforaspecifictransaction Liabilityofsurety 1) Incaseofspecificguarantee limitedonlyuptotheparticulartransaction 2) Incaseofcontinuingguarantee liabilitycontinuestillthedischargeofallthetransactionsor withdrawalofallthetransactions

Dischargeofsurety Modesofdischarge ByinvalidationofContractof guarantee Byrevocation Byconductofcreditor Revocationofcontinuingguaranteeby surety s death Section131 Thedeathofthesuretyresultsinto revocationofacontinuingguaranteewith respecttofuturetransactions.However, surety s estate remains liable for past transactionswhichhavealreadytakenplace Revocationofcontinuingguarantee Section130 Acontinuingguaranteemayatany timeberevokedbythesurety,asto futuretransactions,bynoticetothe creditor. Liabilityoftwopersons,primarilyliable,notaffectedbyarrangementbetweenthemthatoneshallbe suretyonothersdefault Section132 Wheretwopersonscontractwithathirdpersontoundertakeacertainliability,andalsocontractwith eachotherthatoneofthemshallbeliableonlyonthedefaultoftheother,thethirdpersonnotbeinga partytosuchcontract,theliabilityofeachofsuchtwopersonstothethirdpersonunderthefirst contractisnotaffectedbytheexistenceofthesecondcontract,althoughsuchthirdpersonmayhave beenawareofitsexistence. Example a) SalmanandShahrukhmakeajointandseveralpromissorynotetoAmir. b) Salmanmakesit,infact,assuretyforShahrukh,andAmirknowsthisatthetimewhenthenoteis made. c) ThefactthatSalman,totheknowledgeofAmir,madethenoteassuretyforShahrukh,isnoanswer toasuitbyAmiragainstSalmanuponthenote.Insimplewords,Amircanrecoveramountfrom SalmanaswellasShahrukh. 1) Dischargeofsuretybytheconductofthecreditor Dischargeofsuretybyvarianceintermsofcontract. Section133 Anychangesmadeinthetermsofthecontractbetweentheprincipaldebtorandthe creditor without the surety s consent, discharges the surety as totransactionssubsequent tothechange. Examples 1) AkshaybecomessuretytoChunkeyforBilalconductasamanagerinChunkey'sbank. Afterwards, Bilal and Chunkey contract, without Akshay's consent, that Bilal s salary shall beraised,andthatheshallbecomeliableforone-fourthofthelossesonoverdrafts.Bilal allowsacustomertooverdraw,andthebanklosesasumofmoney.Akshayisdischarged fromhissuretyshipbythevariancemadewithouthisconsentandisnotliabletomake goodthisloss. 2) ChunkeyagreestoappointBilalashisclerktosellgoodsatayearlysalary,uponAkshay's becomingsuretytoChunkeyforBilal'sdulyaccountingformoneysreceivedbyhimas suchclerk.Afterwards,withoutAkshay s knowledge or consent, Chunkey and Bilalagree thatBilalshouldbepaidbyacommissiononthegoodssoldbyhimandnotbyafixed salary.AkshayisnotliableforsubsequentmisconductofBilal.

3)ChunkeycontractstolendBilal5,000rupeesonthe1stMarch.Akshayguarantees3)ChunkeycontractstolendBilal5,000rupeesonthe1stMarch.Akshayguarantees repayment.Chunkeypaysthe5,000rupeestoBilalonthe1stJanuary.Akshayis dischargedfromhisliability,asthecontracthasbeenvaried. Dischargeofsuretybyreleaseordischargeofprincipaldebtor Section134 Thesuretyisdischargedbyanycontractbetweenthecreditorandtheprincipaldebtor,by whichtheprincipaldebtorisreleased,orbyanyactoromissionofthecreditor,thelegal consequenceofwhichisthedischargeoftheprincipaldebtor. Dischargeofsuretywhencreditorcompoundswith,givestimeto,oragreesnottosue, principaldebtor Section135 Acontractbetweenthecreditorandtheprincipaldebtor,bywhichthecreditormakesa composition(settlement)withprincipaldebtor,orpromisestogivetimetoprincipal debtorforrepayment,orpromisesnottosuetheprincipaldebtor,thenthesuretywillbe discharged.However,suretywillnotbedischargedifheassentstosuchterms. Caseswheresuretyisnotdischarged 136to138 Case1=Suretynotdischargedwhenagreementmadewiththirdpersontogivetimetoprincipal debtor Section136 Whereacontracttogivetimetotheprincipaldebtorismadebythecreditorwithathirdperson,and notwiththeprincipaldebtor,thesuretyisnotdischarged. Case2=Creditor'sforbearance(delay)tosuedoesnotdischargesurety Section137 Mereforbearanceonthepartofthecreditortosuetheprincipaldebtorortoenforceanyotherremedy againsthimdoesnot,intheabsenceofanyprovisionintheguaranteetothecontrary,dischargethe surety. Case3=Releaseofoneco-suretydoesnotdischargeothers Section138 Wherethereareco-sureties,areleasebythecreditorofoneofthemdoesnotdischargetheothers; neitherdoesitfreethesuretysoreleasedfromhisresponsibilitytotheothersureties. Dischargeofsuretyofcreditor'sactoromissionimpairingsurety'seventualremedy Section139 Ifthecreditordoesanyactwhichisinconsistentwiththerightsofthesurety,oromitstodo anyactwhichhisdutytothesuretyrequireshimtodo,andtheeventualremedyofthe suretyhimselfagainsttheprincipaldebtoristherebyimpaired,thesuretyisdischarged. Lossofsecurity Section141 Ifthecreditorpartswithorlosesanysecuritygiventohimatthetimeoftheguarantee, withouttheconsentofthesurety,thesuretyisdischargedfromliabilitytotheextentofthe valueofthesecurity. 2) DischargeofsuretybyinvalidationofContractofguarantee Guaranteeobtainedbymisrepresentation Section142 Whenamisrepresentationismadebythecreditororwithhisknowledgeorconsent, relatingtoamaterialfactinthecontractofguarantee,thecontractisinvalid Guaranteeobtainedbyconcealment Section143 Whenaguaranteeisobtainedbythecreditorbymeansofkeepingsilenceregardingsome materialpartofcircumstancesrelatingtothecontracts,thecontractisinvalid Failureofco-suretytojoinasasurety Section144

WhenacontractofguaranteeprovidesthatacreditorshallnotactonituntilanotherWhenacontractofguaranteeprovidesthatacreditorshallnotactonituntilanother personhasjoinedinitasaco-surety,theguaranteeisnotvalidifthatotherpersondoesnot join. Rightsofsurety Rightsofsurety Againsttheco- sureties-Right tocontribution Againstthe creditor AgainstthePD Rightof subrogation Rightof indemnity Righttoshare reduction Righttosecurity Righttoset-off A) RightsagainstPrincipalDebtor 1) Rightsofsubrogation Section140 IfsuretyhasmadethepaymenttocreditoronbehalfofPDthensuretywillhaveallthe rightsthatcreditorhadagainstthePD 2) Rightofindemnity Section145 Ineverycontractofguaranteethereisanimpliedpromisebytheprincipaldebtorto indemnifythesurety,andthesuretyisentitledtorecoverfromtheprincipaldebtor whateversumhehasrightfullypaidundertheguarantee,butnosumswhichhehaspaid wrongfully. B) RightsAgainstthecreditor 1) Surety'srighttobenefitofcreditor'ssecurities Section141 a) Asuretyisentitledtothebenefitofeverysecuritywhichthecreditorhasagainstthe principaldebtoratthetimewhenthecontractofsuretyshipisenteredinto,whether thesuretyknowsoftheexistenceofsuchsecurityornot; b) Andifthecreditorloses,or,withouttheconsentofthesurety,partswithsuchsecurity, thesuretyisdischargedtotheextentofthevalueofthesecurity. 2) Righttosetoff if the creditor sues the surety, for the payment of principal debtor s liability then the surety mayhavethebenefitofthesetoff,ifany,thatthePDhadagainstthecreditor. 3) Righttosharereduction ThesuretyhastoclaimtheproportionatereductioninhisliabilityifthePDbecomes insolvent C) RightsAgainstCo-sureties 1) Co-suretiesliabletocontributeequally Section146 Wheretwoormorepersonsareco-suretiesforthesamedebtorduty,eitherjointlyor severally,andwhetherunderthesameordifferentcontracts,andwhetherwithorwithout theknowledgeofeachother,theco-sureties,intheabsenceofanycontracttothecontrary, areliable,asbetweenthemselves,topayeachanequalshareofthewholedebt,orofthat partofitwhichremainsunpaidbytheprincipaldebtor Examples 1) Anil,BilalandChunkeyaresuretiestoDineshforthesumof3,000rupeeslenttoMukesh. Mukeshmakesdefaultinpayment.Anil,BilalandChunkeyareliable,asbetweenthemselves,to pay1,000rupeeseach. 2) Anil,BilalandChunkeyaresuretiestoDineshforthesumof1,000rupeeslenttoMukesh,and thereisacontractbetweenAnil,BilalandChunkeythatAnilistoberesponsibletotheextentof one-quarter,Bilaltotheextentofone-quarter,andChunkeytotheextentofone-half.Mukesh

makesdefaultinpayment.Asbetweenthesureties,Anilisliabletopay250rupees,Bilal250makesdefaultinpayment.Asbetweenthesureties,Anilisliabletopay250rupees,Bilal250 rupees,andChunkey500rupees. D)Liabilityofco-suretiesboundindifferentsums Section147 Co-suretieswhoareboundindifferentsumsareliabletopayequallyasfarasthelimitsoftheir respectiveobligationspermit. Examples A,BandC,assuretiesforD,enterintothreeseveralbonds,eachinadifferentpenalty,namely, Ainthepenaltyofeach10,000rupees,Binthatof20,000rupees,Cinthatof40,000rupees, conditionedforD'sdulyaccountingtoE.Dmakesdefaulttotheextentof30,000rupees.A,Band Careeachliabletopay10,000rupees. A,BandC,assuretiesforD,enterintothreeseveralbonds,eachinadifferentpenalty,namely, Ainthepenaltyof10,000rupees,Binthatof20,000rupees,Cinthatof40,000rupees, conditionedforD'sdulyaccountingtoE.Dmakesdefaulttotheextentof40,000rupees.Ais liabletopay10,000rupees,andBandC15,000rupeeseach. A,BandC,assuretiesforD,enterintothreeseveralbonds,eachinadifferentpenalty,namely, Ainthepenaltyof10,000rupees,Binthatof20,000rupees,Cinthatof40,000rupees, conditionedforD'sdulyaccountingtoE.Dmakesdefaulttotheextentof70,000rupees.A,Band Chavetopayeachthefullpenaltyofhisbond. ContractofBailment Section148-171 MeaningofBailment Section148 1) Abailmentisatransactionwherebyonepersondeliversgoodstoanotherpersonforsome purpose,uponacontractthattheyare,whenthepurposeisaccomplishedtobereturnedor otherwisedisposedofaccordingtothedirectionsofthepersondeliveringthem 2) Bailmentisanactofdeliveringgoodstoabaileeforaparticularpurpose,withouttransferof ownership. 3) Bailmentisderivedfrom French word ballier which means todeliver 4) Thepersonwhodeliversthegoodsiscalledthebailorandthepersontowhomtheyare deliverediscalledthebailee. 5) Theownershipofthegoodsremainswiththebailor,thebaileegettingonlythepossession Essentialelementsofcontractofbailment Contract Deliveryofgoodsanddeliverycanbe a) Actualdelivery b) Symbolicdelivery c) Constructivedelivery 3. Thereshouldbepurpose 4. Possession 5. Returnofgoods 1. 2. Formsofbailment

(1)Deliveryofgoods byonepersonto anothertobeheldfor thebailor'spurpose. Finderof Goods. Gratuitous bailment Formsof bailment Delivering goodsfor carriage Hiringof goods Deliveringgoods forrepairwithor without remuneration (1)Deliveringgoods toacreditortoserve assecurityforaloan. Therearetwotypesofcontractofbailment Gratuitousbailment- Non-gratuitousbailment- boththepartiesgetsomebenefit Freeofchargeeitherforthebenefitofbailoror forthebenefitofthebailee Dutiesofbailor A) Todisclosefaultsinthegoods Section150 Itisthedutyofthebailortodisclosetothebaileefaultsinthegoodsbailed,ofwhichthe bailorisaware Thebailorisboundtodisclosetothebaileefaultswhichmateriallyinterferewiththeuse ofthem,orexposethebaileetoextraordinaryrisks Andifhedoesnotmakesuchdisclosure,heisresponsiblefordamagearisingtothebailee directlyfromsuchfaults Ifsuchgoodsarebailedforhire,thebailorisresponsibleforsuchdamage,whetherhewas orwasnotawareoftheexistenceofsuchfaultsinthegoodsbailed B) Tobearextra-ordinaryexpenses Section158 Itisthedutyofthebailortopayextraordinaryexpensestobaileeifthebailementisnon- gratuitous Itisthedutyofthebailortopayalltheexpensestothebaileeincaseofgratuitous bailment C) Dutytoindemnifybaileeforprematuretermination Section159 Thebailorshouldcompensatethebaileeforthelossordamagesufferedbythebaileethatisin excessofthebenefitreceivedincasewherebailorhaslentthegoodsgratuitouslyanddecides toterminatethebailmentbeforetheexpiryofperiodofbailment. D) Thebailorisresponsibletothebaileeforanylosswhichthebaileemaysustain-Section164

E) Dutytotakethegoodsback Itisthedutyofthebailortoreceivethegoodsback. Ifhedoesnotreceivethegoodsback,bailorisliabletocompensatebaileeforallthe necessaryexpensesincurred. Dutiesofbailee A) Totakepropercareofgoods Section151 Accordingtosection151,itisthedutyofabaileetotakecareofgoodsbailedtohim Baileeshouldtakecareofthesegoodsasanordinarymanwilltakecareofhisgoodsofthe samevalue,quality,andquantity Thus,ifthebaileetakesduecareofgoodsthenhewillnotbeliableforanyloss,deterioration ofsuchgoods. Also,thebaileeneedstotakethesamedegreeofcareofgoodswhetherthebailmentisfor rewardorgratuitous. However,thebaileeisnotliableforanylossduetothehappeningofanyactbyGodorpublic enemiesthoughheagreestotakespecialcareofthegoods. B) Nottomakeunauthorizeuseofgoodsbailed Aspersection153,theBaileeshallnotmakeanyunauthorizeduseofgoodsbailed. Incasehemakesanyunauthorizeduse,thenbailorcanterminatethebailment. Bailorcanalsoclaimfordamagescausedtogoodsbailedduetounauthorizeduseasper Section154. C) Keepsgoodsseparatefromhisowngoods 1) Thebaileeneedstokeepthegoodsseparatelyfromhisowngoods. 2) Heshouldnotmixthegoodsunderbailmentwithhisowngoods. 3) Incasebaileemixesthegoodswithhisowngoodswithouttheconsentofthebailor,then: a) Bailoralsohasaninterestinthemixture b) Ifthegoodscanbeseparatedordivided,thepropertyinthegoodsremainswithboth theparties. c) But,thebaileebearstheexpensesofseparationoranydamagesarisingfromthe mixture. d) Ifitisnotpossibletoseparatethegoods,thebaileeshallcompensatethebailorforthe lossofgoods. D) Nottosetadversetitle Abaileemustnotsetanadversetitletothegoodsbailed. E) ReturnGoods Section160and161 a) Thedutyofthebaileeistoreturnthegoodswithoutdemandontheaccomplishmentofthe purposeortheexpirationofthetimeperiod. b) Incaseofhisfailuretodoso,heshallbeliablefortheloss,destruction,deterioration,damages ordestructionofgoodsevenwithoutnegligence F) Returnincreaseorprofits Section163 Abaileeshallreturnthegoodsalongwithanyincreaseorprofitaccruingtothegoodstothebailor, intheabsenceofanycontracttothecontrary.Forexample,AleavesaheninthecustodyofB.The hengetsachick.BshalldeliverthehenalongwiththechicktoA. Rightsofbailor 1) Righttoterminatebailment Section153 Acontractofbailmentisvoidableattheoptionofthebailor,ifthebaileedoesanyactwith regardtothegoodsbailed,inconsistentwiththeconditionsofthebailment 2) Returnofgoods Section159 Whenthegoodsarebailedforconsideration,thebailorhastherighttodemandtheirreturnsas andwhenhewantsevenifhelentthemforaspecificperiodoftimeorpurpose. 3) Righttosuebailee Thebailorhastheerighttosuebaileeforenforcingalltheliabilitiesanddutiesofhimandit includes a) Righttoclaimcompensationforlosscausedtothegoodsbecauseofnegligenceofbailee.

b) Righttoclaimdamagesforunauthorizeduseofgoods. c) Righttodemandbackthegoods. d) Righttoanyaccretiontothegoodsbailed. e) Righttoclaimcompensationforunauthorizedmixingofgoods. 4)Righttofilesuitagainstwrongdoer Section180&181 Apportionmentofrelieforcompensation obtainedbysuchsuits Section181 Whateverisobtainedbywayofreliefor compensationinanysuchsuitshallbedistributed betweenbailorandbaileeaspertheirrespective interest. Suitbyabailorandbaileeagainstwrongdoers Section180 a) Ifathirdpersonwrongfullydeprivesthe baileeoftheuseorpossessionofthe goodsbailed,ordoesthemanyinjury thenthebaileeisentitledtousesuch remediesastheownermighthaveused inthesituationifnobailmentwasmade. b) Baileeorbailorcanfilesuitagainstathird personforanydamagessufferedorinjury caused. Rightsofbailee 1) Righttodeliverthegoodstoanyoneofthejointbailors Section165 Ifseveraljointownersbailedthegoods,thebaileehasarighttodeliverthemtoanyoneofthe jointownersunlesstherewasacontracttothecontrary. Example:A,BandCarethejointownersofaharvestingcombine.Theydelivereditonhireto D for one month. After the expiry of one month, D may return the combine to any one of thejointownersnamely,A,BorC. 2) Righttodeliverthegoodstobailorwithouttitle Ifthebailorhasnotitletothegoods,andthebaileeingoodfaithdeliversthembacktoor accordingtodirectionsofthebailor,thebaileeisnotresponsibletotheownerinrespectof suchdelivery. 3) Righttoapplytocourttodecidethetitletothegoods section167 Ifthegoodsbailedareclaimedbythepersonotherthanthebailor,thebaileemayapplytothe courttostopitsdeliveryandtodecidethetitletothegoods. Example:Deepika,adealerinT.V.deliveredaT.V.toRheaforusinginsummervacation. Subsequently,ShraddhaclaimedthattheT.V.belongedtoherasitwasdeliveredonlyfor repairs,toDeepikaandthus,Rheashoulddeliverittoher.Inthiscase,Rheamayapplytothe CourttodecidethequestionofownershipoftheT.V.sothatshemaydeliverittotheright owner. 4) RightofLien Thebaileehasarighttoexerciselieni.e.,torefusetoreturnthegoodstothebailoruntilhis lawfulchargesarepaidtohim. a) Particularlien-Wherethebaileehas,inaccordancewiththepurposeofthebailment, renderedanyserviceinvolvingtheexerciseoflabourorskillinrespectofthegoodsbailed, hehas,intheabsenceofacontracttothecontrary,arighttoretainsuchgoodsuntilhe receivesdueremunerationfortheserviceshehasrenderedinrespectofthem. b) Generallien-Agenerallienisatypeoflienusedbythelien-holdertoretainanyofthe debtor sgoodsinthepossessionofthelien-holderuntilanydebtduefromthedebtorhas beenpaid.Insurancebrokers,packers,stockbrokersandbankershaveagenerallienover thepropertyoftheirclientsorcustomers 5) Righttoindemnity Section166 a) Baileeshouldbeindemnifiedbythebailorforanylossincurredtohimbyreasonsthatthe bailorwasnotentitledtomakethebailmentortoreceivebackthegoodsortogive directionsinrespecttothem. b) Ifthebailorhasnotitletothegoods,andthebailee,ingoodfaith,deliversthembackto,or accordingtothedirectionsof,thebailor,thebaileeisnotresponsibletotheownerin respectofsuchdelivery 6) Righttoclaimcompensationincaseoffaultygoods Section150 Baileeisentitledtoclaimcompensationfromthebailororanylosscausedtohimduetofailure ofthebailortodiscloseanyfaultsinthegoodsknowntohim

Note Ifthebailmentisforhire,thebailorwillbeliabletocompensateevenifhehadnotknowledge offaultsinthegoods. 7)RighttoClaimextraordinarydamages Ifbaileeisrequiredtoincuranyextraordinaryexpensesthenhecanholdthebailorliablefor suchexpenses. BASISFOR COMPARISON Meaning GENERALLIEN PARTICULARLIEN Generallienalludestotherighttokeep possessionofgoodsbelongingtoother againstgeneralbalanceofaccount. Anygoods,inrespectofwhichthe amountisduetoanotherperson. No Norighttosalethegoods. Particularlienimpliesarightofthe baileetoretainspecificgoodsbailedfor non-paymentofamount. Onlyagainstthegoods,inwhichskill andlaborisexercised. Yes Ingeneral,thereisnorighttosellgoods, however,therightcanbeconferredto baileeinspecialcircumstances. Bailee,pledgee,finderofgoods,agent, partner,unpaidselleretc. Availability Automatic Righttosalegoods Exercisedby Bankers,Wharfngers,factors,policy brokers,attorneysetc. Terminationofbailment 1. Whentheperiodorpurposeisover: Incasethebailmentisforaspecificperiodorpurpose,itisterminatedontheexpiryofthat periodoronthecompletionofthepurpose. 2. Whenthebaileemakesunauthorizeduseofthegoods: Incasethebaileemakesunauthorizeduseofthegoodsbailed,thebailmentisvoidableatthe optionofthebailor. 3. Whenthesubject-matterisdestroyedorbecomesillegal: Incasethesubject-matterisdestroyedorbecomesillegal,thebailmentisterminated. 4. Atthewillofthebailor: Wherethebailmentisgratuitous,itcanbeterminatedmerelyatthesweetwillofthebailor. However,theterminationshouldnotcauselosstothebaileeinexcessofthebenefitderivedby him.Incasethelossexceedsthebenefitderivedbythebailee,thebailormustcompensatethe baileeforsuchaloss. 5. Whenthebailororbaileedies: Agratuitousbailmentisterminatedbythedeathofthebailororbailee. Finderofgoods A) Theterm'finderofgoods'meansapersonwhohasfoundsomegoodsbelongingtoanother.Whena personcomesacrosssomearticleheisundernodutytopickthemup,butifhepicksthemup,he becomesafinderofgoodsandissubjecttothesameresponsibilityasabailee. B) Theobligationsofafinderofgoods: 1) Hemusttakereasonablecareofthegoods: 2) Hemustnotusethegoodsforhisownpurpose. 3) Hemustnotmixthemwithhisowngoods. 4) Hemustmakeappropriateeffortstofindthetrueownerofthegoods. C) Rightsoffinderofgoods 1) Righttoretaingoods:Thefindercanretainthegoodsagainstthetrueowneruntilhereceives compensationfortroubleandexpensesincurredbyhiminpreservingthegoodsandfindingoutthe owner.Thisrightisknownasthefinder'slienonthegoods 2) Righttosueforreward(Section168) 3) Righttoclaimexpensesincurred 4) Rightofsale: Section169permitsthefindertosellthegoodsinthefollowingcases: a. Iftheownercannotbefoundafterreasonablesearch;or b. Iffound,theownerrefusestopaythelawfulchargestothefinder;or c. Ifthethingisindangerofperishingorlosingthegreaterpartoftheirvalue;or

d.Ifthelawfulchargesofthefinderamounttotwo-thirdsoftheirvalue.d.Ifthelawfulchargesofthefinderamounttotwo-thirdsoftheirvalue. 5)Afinderofgoodshasarighttokeepthegoodswithhimagainstthewholeworldexceptthetrue owner. ContractofPledge Section172-182 Meaningofpledge Section172 1) PledgeisdefinedunderSection172asthebailmentofgoodsassecurityforapaymentofadebt orperformanceofapromiseiscalledpledge/pawn. 2) Thepersonwhomakessuchabailmentiscalledapledgerorpawnorandthebaileeisknownas pawnee Essentialselementsofpledge 1) Deliveryofgoods:Deliveryofthegoodsmaybeactualorconstructiveorsymbolic. 2) Goodsmustbethesubjectmatterofthecontractofpledge.Thegoodspledgedmustbein existence 3) Purposeofpledgeissecurityforpaymentofdebt. 4) Pledgeisspecieofbailment Pawnee s rights A) Rightofretainthegoodspledged-Section173- pawneehastherighttoretainthegoodspledgedtillthedebtisrepaidalongwiththeinterest. Example Sunnypledgeshisgoldjewelryforsomeloanfromabank.Insuchacasebankhasalltherights toretainthegoldjewelrynotonlyforadjustmentofloanamountbutalsoforpaymentof interestaccruedonsuchloanamount. B) Righttoretentionofpledgedgoodsforsubsequentdebts-Section174 Thepawneeshallnot,intheabsenceofacontracttothateffect,retainthegoodspledgedfor anydebtorpromiseotherthanthedebtorpromiseforwhichtheyarepledged;butsuch contract,intheabsenceofanythingtothecontrary,shallbepresumedinregardtosubsequent advancesmadebythepawnee. Analysis insimplewords,pawneewillhavetherighttoretainonlythosegoodsforwhichdebtis outstandingandnottoretainthegoodswhicharenotsubjectmatterofpledge C) Pawnee'srightastoextraordinaryexpensesIncurred-Section175 Pawneehastherighttoclaimanyextraordinaryexpensesincurredforthepreservationofthe goodspledged. However,pledgeehasnorighttoretainthegoodsforsuchexpenses. D) Pawnee'srightwherepawnormakesdefault-Section176 a) Ifthepawnormakesdefaultinpaymentofthedebt,orperformance,pawneemayretain thegoodsorsellthegoods. b) Iftheproceedsofsuchsalearelessthantheamountdueinrespectofthedebtorpromise, thepawnorisstillliabletopaythebalance. c) Iftheproceedsofthesalearegreaterthantheamountsodue,thepawneeshallpayover thesurplustothepawnor. Pawnor s Rights 1. Righttoredeem-Section177 a) Ifthepawnormakestherepaymentofprincipalaswellasinterestwithoutanydefaultthen inthatcase,pawnorhastherighttoredeemthegoodswhichhehaspledged. b) Evenifthepawnormakesdefaultinrepaymentofprincipalorinterestthenalsopawnorhas therighttoredeemthegoodspledgedbeforeactualsalebutinthiscasepawnorwillhave topayadditionalexpenses,ifany. 2. Pledgewherepawnorhasonlyalimitedinterest-Section179 Whereapersonpledgesgoodsinwhichhehasonlyalimitedinterest,thepledgeisvalidtothe extentofthatinterest Pledgebynon-ownerofgoods A)Pledgebymercantileagents-Section178

a) Whereamercantileagentisinpossessionofgoodsorthedocumentsoftitletogoodswith theconsentoftheownerthenanypledgemadebyhim,whenactingintheordinarycourse ofbusinessofamercantileagent,shallbeasvalidprovidedthatthepawneeactsingood faithandhasnotatthetimeofthepledgenoticethatthePawnorhasnoauthorityto pledge. b) Pledgeinthiscasecanbeeffectedthroughpledgeofdocumentslikeabillofladingora railwayreceiptetc. A) PledgebypersoninpossessionundervoidablecontractSection178A Whenthepawnorhasobtainedpossessionofthegoodspledgedbyhimunderacontract voidableundersection19orsection19A,butthecontracthasnotbeenrescinded(Cancelled)at thetimeofthepledge,thepawneeacquiresagoodtitletothegoods,providedheactsingood faithandwithoutnoticeofthepawnor'sdefectoftitle. C) Pledgebyaco-ownerinpossession Wherethegoodsareownedbymanypersonsthenanyoftheco-ownercanpledgethegoods withtheconsentofothers. D) Pledgebysellerorbuyerinpossession Asellerwhohasthepossessionofgoodsaftergoodshavebeensoldorabuyerwhohasthe possessionofgoodswiththeconsentofsellerbeforesalecanmakeavalidpledge. Provided,pawneeactsinagoodfaithandhavenoknowledgeofdefectinthetitleofpawnor. BASISFORCOMPARISON BAILMENT PLEDGE Whenthegoodsaretemporarilyhanded overfromonepersontoanotherperson foraspecificpurpose,itisknownas bailment. Whenthegoodsaredeliveredtoactas securityagainstthedebtowedbyone persontoanotherperson,itisknownas thepledge. Meaning Definedin Section148oftheIndianContractAct, 1872. Section172oftheIndianContractAct, 1872. Thepersonwhodeliversthegoodsis knownastheBailorwhilethepersonto whomthegoodsaredeliveredisknown asBailee. Thepersonwhodeliversthegoodsis knownasPawnorwhilethepersonto whomthegoodsaredeliveredisknownas Pawnee. Parties Mayormaynotbepresent. Alwayspresent. Consideration Righttosellthegoods Thepartywhomgoodsarebeing deliveredhasnorighttosellthegoods. Thepartywhomgoodsarebeingdelivered assecurityhastherighttosellthegoodsif thepartywhodeliversthegoodsfailsto paythedebt. UseofGoods Thepartywhomgoodsarebeing deliveredcanusethegoodsonly,forthe specifiedpurpose. Thepartywhomgoodsarebeingdelivered hasnorighttousethegoods. Safekeepingorrepairs,etc. Assecurityagainstpaymentofdebt. Purpose ContractofAgency Section182-238 MeaningofPrincipalandagent Section182 Agent-An"agent"isapersonemployedtodoanyactforanother,ortorepresentanotherindealings withthirdpersons. Principal-Thepersonforwhomsuchactisdone,orwhoissorepresented,iscalledthe"principal". TheRuleofAgencyisbasedonthemaxim"Quitfacitperalium,facitperse"i.e.,hewhoactsthroughan agentishimselfacting.

Whocanemployagent? Section183 Anypersonwhoisoftheageofmajorityaccordingtothelaw,andwhoisofsoundmind,mayemploy anagent.Insimplewords,apersonwhoiscapabletocontractcanappointagent. Whomaybeanagent? Section184 Agentmaybeofsoundmindandmaybemajor. Note Aminororapersonwhoisofunsoundmindmaybeappointedasanagentbuthewillnotbe liabletoanypartiesinthecontractofagencybecauseagentisneverapartytothecontract. Express Agreement -Section 186 Implied Agreement -Section 187 Agencyby necessity Modesof creation of Agency Agencyby Ratification -Section 196-200 Agencyby estoppel- Section 237 1) ExpressAuthority Section186 Anauthorityissaidtobeexpresswhenitisgivenbywords,spokenorwritten. 2) ImpliedAuthority Section187 Anauthorityissaidtobeimpliedwhenitistobeinferredfromthecircumstancesofthecase; andthingsspokenorwritten,ortheordinarycourseofdealing,maybeaccounted circumstancesofthecase 3) Agencybyestoppel Section237 a) AgencybyestoppelariseswhensayMr.Amakesarepresentationtoathirdparty,whether bywordsorconduct,thatBishisagent,andsubsequentlythatthirdpartydealswithBas A'sagentinrelianceonsuchrepresentation.Awillnotbepermitted(isestopped)todeny theexistenceoftheagencyiftodosowouldcausedamage(usuallyfinancialloss)tothat thirdparty. b) Whenanagenthas,withoutauthority,doneactsorincurredobligationstothirdpersonson behalfofhisprincipal,theprincipalisboundbysuchactsorobligations,ifhehasbyhis wordsorconductinducedsuchthirdpersonstobelievethatsuchactsandobligationswere withinthescopeoftheagent'sauthority. 4) AgencybyRatification Section196-200 Agencybyratificationariseswhentheprincipalratifies(thatis,approvesandadopts)anact whichhasalreadybeendoneinhisnameandonhisbehalfbytheagentwhoinfact,hadno actualauthority(whetherexpressorimplied)toactontheprincipal'sbehalfwhentheactwas done. Rightsofpersonastoactsdoneforhimwithouthisauthority,Effectofratification Section196 Whereactsaredonebyonepersononbehalfofanother,butwithouthisknowledgeorauthority,he mayelecttoratifyortodisownsuchacts.Ifheratifiesthem,thesameeffectswillfollowasifthey hadbeenperformedbyhisauthority. EssentialsofavalidRatification RatificationmaybeexpressedorImplied[Section197] Knowledgerequisiteforvalidratification[Section198]

Theprincipalcannotratifyapartofthetransactionwhichisbeneficialtohimandrejecttherest. [Section199] Ratificationofunauthorizedactcannotinjurethirdperson[Section200] E.g.-AholdsaleasefromB,terminableonthreemonths'notice.C,anunauthorizedperson, givesnoticeofterminationtoA.ThenoticecannotberatifiedbyB,soastobebindingonA. Ratificationshouldbedonewithinreasonabletime. Ratificationmustbecommunicatedtotheotherparty. Acttoberatifiedshouldnotbevoidorillegal,fore.g.paymentofdividendoutofcapitalisvoid andcannotberatified Ratificationshouldbedoneofthoseactforwhichprincipalhasauthority. 5) Agencybynecessity In certain circumstances, a person who has been entrusted with another s property may have to incurunauthorizedexpensestoprotectorpreserveit.Thisiscalledanagencyofnecessity. Example Asentahorsebyrailway.Onitsarrivalatthedestination,therewasnoonetoreceive it.Therailwaycompany,isboundtotakereasonablestepstokeepthehorsealive,wasanagent ofthenecessityofA. WifeasAgent Where a husband and wife are living together, we presume that the wife has her husband s authority to pledgehiscreditforthepurchaseofnecessariesoflifesuitabletotheirstandardofliving. Butthehusbandwillnotbeliableifheshowsthat: - hehadexpresslywarnedthetradesmannottosupplygoodsoncredittohiswife;or - hehadexpresslyforbiddenthewifetousehiscredit;or - healreadysufficientlysupplieshiswifewiththearticlesinquestion;or - hesupplieshiswifewithasufficientallowance ExtentofAgent sauthority Incaseofemergency:Section189 Normalcircumstances:Section188 Hehasanauthorityinanemergencytodoallsuchactsfor thepurposeofprotectinghisprincipalfromlossaswould bedonebyaprudentperson,inhisowncaseundersimilar circumstances. Toconstituteavalidagencyinanemergency,following conditionsmustbesatisfied. (a) Agentshouldnotbeainapositionorhaveany opportunitytocommunicatewithhisprincipal withinthetimeavailable. (b) Thereshouldhavebeenactualanddefinite commercialnecessityfortheagenttoactpromptly. (c) Theagentshouldhaveactedbonafideandforthe benefitoftheprincipal. (d) Theagentshouldhaveadoptedthemost reasonableandpracticablecourseunderthe circumstances,and (e) Theagentmusthavebeeninpossessionofthe goodsbelongingtohisprincipalandwhicharethe subjectofcontract Anagenthavinganauthoritytodoanact,has alltheauthoritytodoeverylawfulthingwhich isnecessaryinordertodosuchact.Thusan agenthavinganauthoritytocarryona businesshasauthoritytodoeverylawfulthing necessaryandwhichisusuallydoneinthe courseofconductingsuchbusiness. DutiesofAgent A)Dutyinconductingprincipal'sbusiness-Section211 1.Anagentisboundtoconductthebusinessofhisprincipalaccordingtothedirectionsgiven bytheprincipal.

2. Intheabsenceofanysuchdirectionsaccordingtothecustomwhichprevailsindoing businessofthesamekindattheplacewheretheagentconductssuchbusiness. 3. Whentheagentactsotherwise,ifanylossbesustained,hemustmakeitgoodtohis principal,andifanyprofitaccrues,hemustaccountforit. B) Skillanddiligencerequiredfromagent Section212 Agentmustactalwaysasapersonwithdiligenceandskillnormallyexercisedinthetrade.He wouldotherwiseberesponsibletocompensatetheprincipalforanylosssufferedbythe principal for want of his skill Example-A,anagentforthesaleofgoods,havingauthoritytoselloncredit,sellstoBon credit,withoutmakingtheproperandusualenquiriesastothesolvencyofB.Batthetimeof suchsaleisinsolvent.Amustmakecompensationtohisprincipalinrespectofanylossthereby sustained. C) Agent s accounts Section213 Anagentisboundtorenderproperaccountstohisprincipalondemand. D) Agent s duty to communicate with principal Section214 Itisthedutyofanagent,incasesofdifficulty,touseallreasonablediligenceincommunicating withhisprincipal,andinseekingtoobtainhisinstructions. E) Ifanagentdealsonhisownaccountinthebusinessoftheagency,withoutfirstobtainingthe consentofhisprincipalandinforminghimwithallmaterialcircumstances,theprincipalmay repudiatethetransaction Section215 F) Nottodealonhisownaccount-Section216 Ifanagent,withouttheknowledgeofhisprincipal,dealsinthebusinessoftheagencyonhis ownaccountinsteadofonaccountofhisprincipal,theprincipalisentitledtoclaimfromthe agentanybenefitwhichmayhaveresultedtohimfromthetransaction.Insimplewordsagent cannotmakesecretprofits. G) Agent s duty to pay sums received for principal Section218 Subjecttosuchdeductions,theagentisboundtopaytohisprincipalallsumsreceivedonhis account. RightsofAgent A) Rightofretainoutofsumsreceivedonprincipal'saccount-Section217: Theagentcanretain,outofanysumsreceivedonaccountoftheprincipalinthebusinessof theagencyforthefollowingpayments: Allmoneysduetohiminrespectofadvancesmade Inrespectofexpensesproperlyincurredbyhiminconductingsuchbusiness Suchremunerationasmaybepayabletohimforactingasagent. B) Righttoremuneration-Section219 a) Anagenthasarighttoreceivetheagreedremunerationorinabsenceofagreement,a reasonableremunerationforrenderingtheservicestotheprincipalthatarenotvoluntaryor gratuitous. b) Hebecomeseligibletoreceivetheremunerationassoonashecompletestheworkthathe undertook. C) Agentnotentitledtoremunerationforbusinessmisconducted Section220 Anagentwhoisguiltyofmisconductinthebusinessoftheagency,isnotentitledtoany remunerationinrespectofthatpartofthebusinesswhichhehasmisconducted. D) LienonGoods Section221

a) Someagentswhohavethepossessionofgoods,securitiesorpropertiesoftheirprincipalalso havealienonthesegoods,securitiesorpropertiesregardingtheirremunerationandalsofor anyexpensesorliabilitiesthattheyincur. b) Whenheisanunpaidseller,hehasarighttostopthegoodsintransit E)RighttobeIndemnified Section222and223 Anagentrepresentshisprincipaltothethirdparties.Aspersections222and223,anagenthasa righttobeindemnifiedbyhisprincipalforallcharges,expenses,andliabilitiesthatheincursduring thecourseoftheagency. A) Non-liabilityofemployerofagenttodoacriminalact Section224 Whereonepersonemploysanothertodoanactwhichiscriminal,theemployerisnotliabletothe agent,eitheruponanexpressoranimpliedpromise,toindemnifyhimagainsttheconsequencesofthat Act. Example AemploysBtobeatC,andagreestoindemnifyhimagainstallconsequencesoftheact.B thereuponbeatsC,andhastopaydamagestoCforsodoing.AisnotliabletoindemnifyBfor thosedamages. B,theproprietorofanewspaper,publishes,atAsrequest,alibeluponCinthepaper,andA agreestoindemnifyBagainsttheconsequencesofthepublication,andallcostsanddamages ofanyactioninrespectthereof.BissuedbyCandhastopaydamages,andalsoincurs expenses.AisnotliabletoBupontheindemnity. B) Compensationtoagentforinjurycausedbyprincipal'sneglect Section225 Theprincipalmustmakecompensationtohisagentinrespectofinjury1causedtosuchagentbythe principal'sneglectorwantofskill. LiabilityofPrincipalandAgentstothirdparties LiabilityofPrincipalandAgentstothird parties Principalisliable(principalisliablefor agent sact) Agentispersonallyliable(agentis personallyliableforhisact) Cases where principal is liable for agent s act 1) Whenagentexceedshisauthorityandprincipalratifiesit Section227 Whenanagentdoesmorethanheisauthorizedtodo,andwhenthepartofwhathedoes, whichiswithinhisauthority,canbeseparatedfromthepartwhichisbeyondhisauthority,so muchonlyofwhathedoesasiswithinhisauthorityisbindingasbetweenhimandhisprincipal. Insimplewords,principalwillonlybeliableforthoseactswhichareauthorizedbyhim. 2) Principalisboundbythenoticegiventoagent Section229 Anynoticegiventoorinformationobtainedbytheagent,provideditbegivenorobtainedinthe courseofthebusinesstransactedbyhimfortheprincipal,shall,asbetweentheprincipaland thirdparties,havethesamelegalconsequencesasifithadbeengiventoorobtainedbythe principal. 3) Liabilityofpretendedagent-Section235 Apretendedagentisapersonwhorepresentshimselftobeanagentofanother,wheninfact hehasnoauthorityfromhim,whatsoeveriftheprincipalratifieshisactsasagent,hehasno liability.

Butiftheprincipalrefusestoratifyhisacts,hebecomespersonallyliabletothirdpartyButiftheprincipalrefusestoratifyhisacts,hebecomespersonallyliabletothirdparty 4) LiabilityforMisrepresentationorfraudbyanagentwhenagentisactingwithinhisauthority Section238 Misrepresentationmade,orfraudscommitted,byagentsactinginthecourseoftheirbusiness fortheirprincipals,havethesameeffectonagreementsmadebysuchagentsasifsuch misrepresentationsorfraudshadbeenmadeorcommittedbytheprincipals;but misrepresentationsmade,orfraudscommitted,byagents,inmatterswhichdonotfallwithin theirauthority,donotaffecttheirprincipals. 5) Liabilityofprincipalinducingbeliefthatagent'sunauthorizedactswereauthorizedSection 237 Whenanagenthas,withoutauthority,doneactsorincurredobligationstothirdpersonson behalfofhisprincipal,theprincipalisboundbysuchactsorobligations,ifhehasbyhiswordsor conductinducedsuchthirdpersonstobelievethatsuchactsandobligationswerewithinthe scopeoftheagent'sauthority. Illustration AconsignsgoodstoBforsale,andgiveshiminstructionsnottosellunderafixedprice.C, beingignorantofBsinstructions,entersintoacontractwithBtobuythegoodsataprice lowerthanthereservedprice.Aisboundbythecontract. 6) WherethePrincipalisunnamed Whentheagentdisclosestheexistenceofprincipalbutdoesnotdisclose,thenameofprincipal, insuchacasetheprincipalisliablefortheactsoftheagent. 7) Whenagentactsinemergencyandgoodfaith 8) Whenagentisincompetenttocontract. Caseswhereagentispersonallyliableforhisact 1) Whenherepresentsthathehasauthoritytoactanbehalfofaprincipal,butwhodoesnot actuallypossesssuchauthorityorwhohasexceededtheauthorityandtheallegedemployer doesnotratifyhisacts-Section235. 2) Undisclosedagent-Section236 Whereacontractisenteredintobyapersonapparentlyinthecharacterofagent,butinreality inhisownaccount. 3) Whenhesignsanegotiableinstrumentinhisownnamewithoutmakingitclearthatheis signingasanagent. 4) Whenheisworkingforaforeignprincipal. 5) Whereheisactingforaprincipalwhocannotbesuedonaccountofhisbeingaforeign sovereign,ambassadoretc. 6) Wheretrade,usageorcustomholdshimliableincertainkindsofbusiness. Wheretheagencyiscoupledwithinterestinthesubjectmatteroftheagency. 7) 8) Principalnotboundwhenexcessofagent'sauthorityisnotseparable[Section228]:Where anagentdoesmorethanheisauthorisedtodo,andwhathedoesbeyondthescopeofhis authoritycannotbeseparatedfromwhatiswithinit,theprincipalisnotboundtorecognisethe transaction Example-AauthorizesBtobuy500sheepforhim.Bbuys500sheepand200lambsforone sumof6,000rupees.Amayrepudiatethewholetransaction Miscellaneous A)Consequenceofinducingagentorprincipaltoactonbeliefthatprincipaloragentwillbe heldexclusivelyliable Section234

WhenapersonwhohasmadeacontractwithanagentinducestheagenttoactupontheWhenapersonwhohasmadeacontractwithanagentinducestheagenttoactuponthe beliefthattheprincipalonlywillbeheldliable,orinducestheprincipaltoactuponthebelief thattheagentonlywillbeheldliable,hecannotafterwardsholdliabletheagentorprincipal respectively. B)Rightofpersondealingwithagentpersonallyliable Section233 Incaseswheretheagentispersonallyliable,apersondealingwithhimmayholdeitherhim orhisprincipal,orbothofthem,liable. Terminationofcontractofagency Terminationofcontractofagency Bytheoperationoflaw Bytheactoftheparties a) Performanceofcontract: b) Expiryoftime c) Death/Insanity(Section209) d) Insolvency e) Destructionofsubjectmatter f) Partiesbecomingalienenemies. a) Mutualagreement b) RevocationbyPrincipal(Section203to207) c) RenunciationbyAgent A) Mutualagreement Anagencymayberevokedatanytimebytheprincipalandagentthroughmutualagreement. B) Revocationbyprincipal Section203-207 1) Revocationwhereauthorityhasnotbeenexercised Section203 The principal may revoke agent s authority anytimebeforeagenthasexercisedthe authoritygivenbytheprincipal 2) Revocationwhereauthorityhasbeenpartlyexercised Section204 Theprincipalcannotrevoketheauthoritygiventohisagentaftertheauthorityhasbeen partlyexercised Example-AauthorizesBtobuy1,000balesofcottononaccountofA,andtopayforitout of A's moneys remaining in B s hands. B buys 1,000 bales of cotton in his own name, so as to makehimselfpersonallyliablefortheprice.AcannotrevokeB'sauthoritysofarasregards paymentforthecotton. 3) Compensationforrevocationbyprincipal,orrenunciationbyagent Section205 Wherethereisanexpressorimpliedcontractthattheagencyshouldbecontinuedforany periodoftime,theprincipalmustmakecompensationtotheagent,ortheagenttothe principal,asthecasemaybe,foranypreviousrevocationorrenunciationoftheagency withoutsufficientcause. Noticeofrevocationorrenunciation Section206 Reasonablenoticemustbegivenofsuchrevocationorrenunciation,otherwisethedamage therebyresultingtotheprincipalortheagent,asthecasemaybe,mustbemadegoodto theonebytheother. 4) 5) Revocationandrenunciationmaybeexpressedorimplied Section207 Revocationandrenunciationmaybeexpressedormaybeimpliedintheconductofthe principaloragentrespectively. Whenterminationofagent'sauthoritytakeseffectastoagent,andastothirdpersons Section208 Theterminationoftheauthorityofanagentdoesnot,sofarasregardstheagent,takeeffectbeforeitbecomes knowntohim,or,sofarasregardsthirdpersons,beforeitbecomesknowntothem. Examples AdirectsBtosellgoodsforhim,andagreestogiveBfivepercent.commissiononthepricefetched bythegoods.Aafterwards,byletter,revokeB'sauthority.B,aftertheletterissent,butbeforehe

receivesit,sellsthegoodsfor100rupees.ThesaleisbindingonA,andBisentitledtofiverupeesasreceivesit,sellsthegoodsfor100rupees.ThesaleisbindingonA,andBisentitledtofiverupeesas hiscommission. A,atMadras,byletter,directsBtosellforhimsomecottonlyinginawarehouseinBombay,and afterwards,byletter,revokeshisauthoritytosell,anddirectsBtosendthecottontoMadras.B,after receivingthesecondletter,entersintoacontractwithC,whoknowsofthefirstletter,butnotofthe second,forthesaletohimofthecotton.CpaysBthemoney,withwhichBabsconds.C'spaymentis goodasagainstA. Inthefollowing2cases,agencyisirrevocable 1) Wheretheagenthasincurredpersonalliability 2) Wheretheagencyiscouplewithinterest. Sub-AgentandSubstitutedAgent A) Sub-Agent a) Thetermsub-agentisdefinedinSection191as,"asub-agentisapersonemployedbyand actingunderthecontroloftheoriginalagentinthebusinessofagency." b) Thusasub-agentisanagentappointedbytheagent. c) Therelationofthesub-agenttotheoriginalagentisthatoftheagentandtheprincipal. d) Thegeneralruleoflawisthatanagentcannotdelegatehispowerstoanotherwithoutthe consentoftheprincipal. e) ThisgeneralprincipalisbasedupontheLatinMaxim"delegatusnonProtestdelegate" whichmeansadelegateecannotfurtherdelegate. f) Inthefollowingcases,however,theagentmayappointasub-agent: Wheretheprincipalhasexpresslyallowedtheappointmentofasub-agent. Wheretheprincipalknowsthattheagentintendstoappointasub-agentbuthedoes notobjecttoit. Wherethecustomoftradepermitstheappointmentofasub-agent. Wheretheacttobedoneispurelyministerialanddoesnotinvolveexerciseof discretionoranyskill. Whereunforeseenemergenciesarisewhichmakestheappointmentofsubagent necessary. g) Whereasub-agentisproperlyappointed(asmentionedinabovecases),theprincipalis boundandisliabletothirdpartiesforhisact,asifhewereanagentoriginallyappointedby theprincipal.Theagentisresponsibletotheprincipalfortheactsofthesub-agents.The sub-agentisresponsibleforhisactstotheagentandnottheprincipal. B) SubstitutedAgent a) Substitutedagentsarenotsubagents. b) Theyareagentsoftheprincipal. c) Wheretheprincipalappointsanagentandifthatagentidentifiesanotherpersontocarry outtheactsorderedbyprincipal,thenthesecondpersonisnottobetreatedasasubagent butonlyasanagentoftheoriginalprincipal. Example A'directs'B'hissolicitortosellhispropertybyauctionand'B'appoints'Canauctioneer.In thisregard,'Cisanagentof'A'andnotasubagent.While,selectinga"substitutedagent"the agentisboundtoexercisesameamountofdiligenceasamanofordinaryprudenceandifhe doessohewillnotberesponsibleforactsornegligenceofthesubstitutedagent Subagent Substitutedagent

AccordingtoSection191oftheIndianContractAct, 1872-A sub-agent is a person employed by, and actingunduethecontrolof,theoriginalagentinthe businessoftheagency Asub-agentworksunder,thecontrolanddirections oftheagent Theagentdelegatestothesub-agentapartofhis ownduties. Thesub-agentisresponsibletotheagentalone. Theagentisresponsibletotheprincipalfortheacts ofthesub-agent Thesub-agenthasnorightofactionagainstthe principalforremunerationduetohim. . ASubstitutedagentisapersonwhoisnamedbythe Agentforperformingsuchpartofthebusinessofthe agencyasisentrustedtohim . . Asubstitutedagentworksunderthecontroland directionsoftheprincipal. Theagentdoesnotdelegateanypartofhisdutiesto thesubstitutedagent Thesubstitutedagentisresponsibletotheprincipal Theagentisnotresponsibletotheprincipalfortheacts ofthesubstitutedagent. Thesubstitutedagentcansuetheprincipalfor remunerationduetohim Theagentremainsliablefortheactsofthesub- agentaslongasthesubagencycontinues. Thereisnoprivityofcontractbetweentheprincipal andthesub-agent. Theagent'sdutyendsoncehehasnamedthe substitutedagent Thereisprivityofcontractbetweenprincipaland substitutedagent.