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THE INDIAN CONTRACT ACT, 1872 |
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CHAPTER VIII |
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OF INDEMNITY AND GUARANTEE |
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QUESTION |
ANSWER |
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Which provision defines “Contract of indemnity”? |
Sec.124 |
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What does the term “Contract of indemnity” define? |
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 |
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Who are the two main parties in a contract of indemnity? |
the indemnifier and the indemnity holder |
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In a contract of indemnity, the person who gives the indemnity is called? |
Indemnifier |
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In a contract of indemnity, who is the 'indemnity-holder'? |
The person to whom the loss is caused and who is to be indemnified |
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What is true regarding a contract of indemnity? |
It can cover losses from the conduct of third parties It creates a primary liability on the indemnifier It requires at least two parties |
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How does a contract of indemnity arise? |
Either by express promise or by necessary implication from the circumstances |
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What rights does the indemnity-holder have under Indian law once the contract of indemnity is triggered? |
Right to compel indemnifier to discharge liability once it becomes absolute |
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What is the example for a contract of indemnity? |
A promises to indemnify B for any loss suffered due to A's negligence in building a house. |
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‘A’ contracts to indemnify ‘B’ against the consequences of any proceedings which C may take against B in respect of a certain sum of 200 rupees. |
This is a contract of indemnity. |
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Which provision deal with “Rights of indemnity-holder when sued”? |
Sec.125 |
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Under Section 125 of the Indian Contract Act, an indemnity-holder can recover from the indemnifier: |
Damages, costs, and sums paid under a reasonable compromise |
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An indemnity-holder is entitled to recover what if sued? |
Costs incurred in defending the suit with due diligence |
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What are the rights available to an indemnity-holder under Section 125 of ICA? |
Right to recover damages Right to recover costs Right to recover money paid under compromise |
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In which case did the court hold that indemnity-holder can compel indemnifier to place him in a position to meet the liability even before actual loss? |
Gajanan Moreshwar v. Moreshwar Madan |
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When the Indemnity-holder is entitled to recover compromise money paid by him? |
If The compromise was bona fide and prudent |
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What is correct regarding Section 125? |
Indemnity-holder can sue even before the actual loss under equitable principles |
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When the indemnifier’s liability arises in a contract of indemnity? |
When the indemnity-holder’s liability becomes absolute |
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In case of a compromise settlement, the indemnity-holder can recover the amount from the indemnifier if: |
The compromise was reasonable and in good faith |
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Which provision deals with “Contract of guarantee”, “surety”, “principal debtor” and “creditor”? |
Sec.126 |
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What is the term “contract of guarantee” defines? |
a contract to perform the promise, or discharge the liability, of a third person in case of his default |
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Who is called the “surety”? |
The person who gives the guarantee |
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Who is called the “principal debtor”? |
the person in respect of whose default the guarantee is given |
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Who is called the “creditor”? |
the person to whom the guarantee is given |
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In which case it was held that the surety's liability is co-extensive with that of the principal debtor unless otherwise provided in the contract? |
State Bank of India v. Premco Saw Mill |
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Who all are involves in a contract of guarantee? |
There are three parties (surety, principal debtor, creditors) and three contracts (between each pair of them). |
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In a contract of guarantee, consideration can be: |
Anything done or any promise made for the benefit of the principal debtor |
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What are essential for a valid contract of guarantee? |
Free consent Lawful consideration Agreement between parties |
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In which case it was held that the surety’s liability begins when the principal debtor defaults, and not after creditor exhausts remedies? |
Bank of Bihar Ltd. v. Damodar Prasad |
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If the creditor makes a contract with a third party without the surety's knowledge, altering the terms of the original contract, the surety is: |
Discharged from liability |
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What does a contract of guarantee requires? |
may be either oral or written |
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Which provision deal with “Consideration for guarantee”? |
Sec.127 |
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What is considered a valid consideration for a contract of guarantee under Section 127 of the Indian Contract Act, 1872? |
Any benefit to the principal debtor |
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What all is essential for valid consideration in a contract of guarantee? |
Benefit to the principal debtor Consent of all parties Legal enforceability of consideration |
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A contract of guarantee is invalid if? |
The consideration is illegal |
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Consideration for a guarantee must be: |
Either past, present, or future |
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In which case did the court hold that benefit to the principal debtor is sufficient consideration for the surety? |
P.J. Rajappan v. Associated Industries |
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Which Supreme Court case affirmed that benefit to the principal debtor is enough to bind the surety under a contract of guarantee? |
Punjab National Bank Ltd. v. Vikram Cotton Mills Ltd. |
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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 a sufficient consideration for C’s promise. |
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A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the debt for a 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. |
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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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Which provision deal with “Surety’s liability”? |
Sec.128 |
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How can surety’s liability be restricted? |
By terms in the contract of guarantee |
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What is the nature of the surety's liability under Section 128 of the Indian Contract Act? |
co- extensive with that of the principal debtor |
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What is true regarding the surety’s liability under Section 128? |
Surety can be sued without suing the principal debtor |
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Can a surety be sued even if the principal debtor is a minor and hence not liable? |
Yes |
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If the surety’s liability is described as "limited to ₹50,000", can he be asked to pay ₹1,00,000 if principal debtor defaults? |
No (The surety’s liability is co-extensive unless otherwise provided; a limitation in contract is binding.) |
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In which case did the Supreme Court reiterate that the surety’s liability is not secondary but co-extensive and immediate? |
State Bank of India v. Indexport Registered |
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Can a creditor file a suit against the surety alone without suing the principal debtor? |
Yes (Section 128 allows the creditor to proceed against the surety without suing the principal debtor.) |
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The liability of the surety under a continuing guarantee is: |
Can be capped or limited through express agreement. |
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What is a feature of Section 128 of ICA? |
Surety’s liability is co-extensive Surety is a primary obligor Surety can be sued independently |
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What will be the consequences if the creditor releases the principal debtor without consent of the surety? |
Surety is discharged |
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‘A’ guarantees to ‘B’ the payment of a bill of exchange by C, the acceptor. The bill is dishonoured by C. |
A is liable, not only for the amount of the bill, but also for any interest and charges which may have become due on it. |
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Which provision deal with “Continuing guarantee”? |
Sec.129 |
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What is the meaning of the term “Continuing guarantee”? |
A guarantee which extends to a series of transactions |
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In a continuing guarantee, the surety is liable |
For all transactions until the guarantee is revoked |
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A, in consideration that B will employ C in collecting the rent of B’s zamindari, promises B to be responsible, to the amount of 5,000 rupees, for the due collection and payment by C of those rents. |
This is a continuing guarantee. |
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A guarantees payment to B, a tea-dealer, to the amount of £100, for any tea he may from time to time supply to C. B supplies C with tea to above the value of £100, and C pays B for it. Afterwards, B supplies C with tea to the value of £200. C fails to pay. |
The guarantee given by A was a continuing guarantee, and he is accordingly liable to B to the extent of £100. |
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A guarantees payment to B of the price of five sacks of flour to be delivered by B to C and to be paid for in a month. B delivers five sacks to C. C pays for them. Afterwards B delivers four sacks to C, which C does riot pay for? |
The guarantee given by A was not a continuing guarantee, and accordingly he is not liable for the price of the four sacks. |
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Which provision deal with “Revocation of continuing guarantee”? |
Sec.130 |
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When can a continuing guarantee be revoked by the surety? |
At any time be revoked by the surety, as to future transactions, by notice to the creditor. |
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What is the nature of revocation of a continuing guarantee by the surety? |
Is prospective in effect |
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When a surety gives notice of revocation of a continuing guarantee: |
It does not affect liability for transactions before revocation |
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A, in consideration of B’s discounting, at A’s request, bills of exchange for C, guarantees to B, for twelve months, the due payment of all such bills to the extent of 5,000 rupees. B discounts bills for C to the extent of 2,000 rupees. Afterwards, at the end of three months, A revokes the guarantee. |
The revocation discharges A from all liability to B for any subsequent discount. But A is liable to B for the 2,000 rupees, on default of C. |
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‘A’ guarantees to ‘B’, to the extent of 10,000 rupees, that ‘C’ shall pay all the bills that B shall draw upon him. B draws upon C. C accepts the bill. A gives notice of revocation. ‘C’ dishonours the bill at maturity. |
A is liable upon his guarantee. |
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Which provision deal with “Revocation of continuing guarantee by surety’s death”? |
Sec.131 |
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Under Section 131 of the Indian Contract Act, 1872, a continuing guarantee is revoked by the death of the surety? |
only for future transactions, unless there is a contract to the contrary |
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In the absence of a contract to the contrary, the death of the surety? |
Revokes the continuing guarantee only for future transactions |
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Which case laws support the principle under Section 131 that surety's death revokes a continuing guarantee for future transactions? |
Offord v. Davies (1862) |
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The surety’s liability for transactions made after his death? |
Ceases unless there is a contract stating otherwise |
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What will be the consequences if a surety dies, but the contract explicitly states that the guarantee shall continue even after death? |
The guarantee remains in force |
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A surety gives a continuing guarantee to a bank. He dies in 2020. The bank, unaware of his death, gives further loans in 2021. Is his estate liable? |
No, because Section 131 applies regardless of knowledge. (Revocation is automatic by death, even if the creditor is unaware.) |
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A surety executed a continuing guarantee stating that it shall continue until expressly revoked in writing. He dies without revocation. What is the effect? |
Guarantee ends upon death. (Death revokes the guarantee unless there's a specific clause overriding this (e.g., survivorship). |
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Which principles are consistent with Section 131 of the Indian Contract Act? |
Death revokes future liabilities under a continuing guarantee The estate is liable for debts already incurred Death does not revoke if the contract states otherwise |
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Which case reaffirmed that liability prior to death survives against the deceased surety's estate? |
Hirachand Punamchand v. Temple (1911) |
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Which provision deal with “Liability of two persons, primarily liable, not affected by arrangement between them that one shall be surety on other’s default”? |
Sec.132 |
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Under Section 132, what will be the consequence when two persons are primarily liable to a third person, and one agrees with the other to be liable only on default of the other? |
The third party may enforce the contract against either |
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The principle in Section 132 is based on which doctrine? |
Third party's right not to be prejudiced by internal contracts |
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What will happen if A and B sign a contract with C, and A later agrees to be a surety for B’s part, without informing C? |
C can sue both A and B |
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Whether the fact that A, to the knowledge of C, made the note as surety for B, is an answer to a suit by C against A upon the note if in a case where A and B make a joint and several promissory note to C. A makes it, in fact, as surety for B, and C knows this at the time when the note is made? |
No
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In which case it was held that the internal agreement between joint debtors does not affect the rights of the creditor? |
Punjab National Bank v. Bikram Cotton Mills |
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Which provision deal with “Discharge of surety by variance in terms of contract”? |
Sec.133 |
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When under Section 133 of the Indian Contract Act, 1872, a surety is discharged? |
The terms of the contract are varied without the surety's consent |
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Which condition must be fulfilled for a surety to be discharged under Section 133? |
No consent and material alteration in contract terms |
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The rationale behind Section 133 is based on which principle? |
Surety's right to rely on original contract terms |
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What are the consequences of a variation in contract without the surety's consent? |
Discharge of the surety Discharge from future liabilities Continuation of surety’s liability for past acts |
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What is the extent of discharge under Section 133 of ICA? |
Limited to future transactions |
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In which case the Supreme Court held that Consent of surety is mandatory for valid variation? |
M.S. Anirudhan v. Thomco’s Bank Ltd. |
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What will be the consequences if ‘A’ becomes surety to ‘C’ for B’s conduct as a manager in C’s bank. Afterwards, B and C contract, without A’s consent, that B’s salary shall be raised, and that he shall become liable for one-fourth of the losses on overdrafts. B allows a customer to overdraw, and the bank loses a sum of money? |
A is discharged from his suretyship by the variance made without his consent, and is not liable to make good this loss. |
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What will be the consequences if ‘A’ guarantees ‘C’ against the misconduct of B in an office to which B is appointed by C, and of which the duties are defined by an Act of the Legislature. By a subsequent Act, the nature of the office is materially altered. Afterwards, B misconducts himself. |
A is discharged by the change from future liability under his guarantee, though the misconduct of B is in respect of a duty not affected by the later Act. |
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What will be the consequences if ‘C’ agrees to appoint ‘B’ as his clerk to sell goods at a yearly salary, upon A’s becoming surety to C for B’s duly accounting for moneys received by him as such clerk. Afterwards, without A’s knowledge or consent, C and B agree that B should be paid by a commission on the goods sold by him and not by a fixed salary? |
A is not liable for subsequent misconduct of B. |
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What will be the consequences if A gives to C a continuing guarantee to the extent of 3,000 rupees for any oil supplied by C to B on credit. Afterwards B becomes embarrassed, and, without the knowledge of A, B and C contract that C shall continue to supply B with oil for ready money, and that the payments shall be applied to the then, existing debts between B and C? |
A is not liable on his guarantee for any goods supplied after this new arrangement. |
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What will be the consequences if C contracts to lend B 5,000 rupees on the 1st March. A guarantees repayment. But C pays the 5,000 rupees to B on the 1st January? |
A is discharged from his liability, as the contract has been varied, inasmuch as C might sue B for the money before the 1st of March. |
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Which provision deal with “Discharge of surety by release or discharge of principal debtor”? |
Sec.134 |
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When can under Section 134 of the Indian Contract Act, a surety is discharged? |
The creditor releases the principal debtor by contract |
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What will be the result if the discharge of principal debtor by operation of law (e.g., insolvency)? |
No discharge of surety |
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If the creditor enters into a valid contract releasing the principal debtor, what happens to the surety? |
Surety is discharged |
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What will happen if the omission of the creditor to sue the principal debtor within the period of limitation? |
Not discharge the surety |
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How the surety is discharged? |
By any contract between the creditor and the principal debtor or by any act or omission of the creditor |
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What will be the consequences if 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. |
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A gives a guarantee to C for goods to be supplied by C to B. C supplies goods to B, and afterwards B becomes embarrassed and contracts with his creditors (including C) to assign to them his property in consideration of their releasing him from their demands. |
B is released from his debt by the contract with C, and A is discharged from his suretyship. |
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A contracts with B to grow a crop of indigo on A’s land and to deliver it to B at a fixed rate, and C guarantees A’s performance of this contract. B diverts a stream of water which is necessary for the irrigation of A’s land and thereby prevents him from raising the indigo. |
C is no longer liable on his guarantee. |
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‘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 suretyship. |
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Which provision deal with “Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor”? |
Sec.135 |
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When can under Section 135 of the Indian Contract Act, 1872, a surety is discharged from liability? |
The creditor compounds with the principal debtor The creditor gives time to the principal debtor The creditor agrees not to sue the principal debtor |
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On what the principle in Section 135 is based? |
Doctrine that the surety should not be prejudiced |
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What does the court held in Punjab National Bank v. Bikram Cotton Mills (1970)? |
Surety is discharged if creditor enters into composition with debtor without consent |
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Which provision deal with “Surety not discharged when agreement made with third person to give time to principal debtor”? |
Sec.136 |
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What will be the consequences 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. |
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What will be the consequences, if the holder of an overdue bill of exchange drawn by A as surety for B, and accepted by B, contracts with M to give time to B. |
A is not discharged. |
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Which case law illustrates the principle under Section 136 of the Indian Contract Act, 1872? |
M.S. Anirudhan v. Thomco’s Bank Ltd. (AIR 1963 SC 746), the Supreme Court held that if the time is given to the principal debtor via a third party, the surety is not discharged under Section 136. |
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Which condition is essential for Section 136 to apply? |
Agreement must be between creditor and third person |
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Section 136 is an exception to which general principle under Indian Contract Law? |
Any time extension discharges the surety. (General principle is that giving time to debtor discharges the surety (Section 135), but Section 136 is an exception when the agreement is with a third party.) |
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Which provision deal with “Creditor’s forbearance to sue does not discharge surety”? |
Sec.137 |
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What will be the consequences if 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 |
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What will happen if B owes to C a debt guaranteed by A. The debt becomes payable. C does not sue B for a year after the debt has become payable? |
A is not discharged from his suretyship. |
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The principle of 'forbearance to sue does not discharge surety' is intended to? |
Protect the rights of the creditor |
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Which provision deal with “Release of one co-surety does not discharge others”? |
Sec.138 |
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What will happen if one co-surety is released by the creditor under Section 138 of the Indian Contract Act, 1872? |
Other co-sureties are not discharged and the released co-surety remains liable to them. |
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Which case law affirms that release of one co-surety does not discharge others under Section 138? |
Lachhman Joharimal v. Bapu Khandu |
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What will happen with the other co-sureties in a situation where three co-sureties exist and the creditor releases one of them by an agreement? |
Continue to remain liable for the full debt. |
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‘A’ and ‘B’ are co-sureties. The creditor releases A by a written agreement. Under Section 138, what is B’s status? |
B is not discharged. |
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True or false: 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? |
True |
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Which provision deal with “Discharge of surety by creditor’s act or omission impairing surety’s eventual remedy”? |
Sec.139 |
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When under Section 139 of the Indian Contract Act, a surety is discharged? |
if the creditor does any act or omits to do anything that legally affects the surety’s remedy against the principal debtor. |
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Which is a landmark case explaining Section 139 of the Indian Contract Act? |
Union Bank of India v. Manku Narayana |
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What does the phrase "impairing the surety’s eventual remedy" in the context of Section 139? |
Surety being deprived of right to recover from principal debtor due to creditor’s actions |
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A surety gave a guarantee for a loan secured by goods. The creditor negligently allowed the goods to perish. Is the surety discharged under Section 139? |
Yes, the surety is discharged |
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Which acts by the creditor will discharge the surety under Section 139? |
Failure to sue the principal debtor on time Allowing security to be lost by negligence Refusing to accept collateral from debtor |
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On which principal Section 139 is based? |
Surety’s rights must be protected from creditor’s prejudice |
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On whom the burden of proving that the surety’s remedy was impaired due to creditor’s act? |
The surety must prove that the creditor’s conduct impaired his eventual remedy. |
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What will happen if ‘B’ contracts to build a ship for ‘C’ for a given sum, to be paid by instalments as the work reaches certain stages. ‘A’ becomes surety to C for B’s due performance of the contract. C, without the knowledge of A, prepays to B the last two instalments. |
A is discharged by this prepayment. |
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C lends money to B on the security of a joint and several promissory note made in C’s favour by B, and by A as surety for B, together with a bill of sale of B’s furniture, which gives power to C to sell the furniture, and apply the proceeds in discharge of the note. Subsequently, C sells the furniture, but, owing to his misconduct and wilful negligence, only a small price is realized. |
A is discharged from liability on the note. |
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A puts M as apprentice to B, and gives a guarantee to B for M’s fidelity. B promises on his part that he will, at least once a month, see M make up the cash. B omits to see this done as promised, and M embezzles. |
A is not liable to B on his guarantee. |
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Which provision deal with “Rights of surety on payment or performance”? |
Sec.140 |
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Upon payment of the guaranteed debt, the surety is entitled to? |
Step into the shoes of the creditor |
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What does the right conferred on a surety under Section 140 is known? |
Right of Subrogation |
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When does Subrogation under Section 140 occur? |
The surety makes payment or performance |
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What is the surety's right under Section 140? |
A statutory right (Subrogation rights are statutory and not dependent on contract alone.) |
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What is true regarding the surety’s right after discharging liability? |
Surety can exercise all remedies which creditor could have exercised |
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Which provision deal with “Surety’s right to benefit of creditor’s securities”? |
Sec.141 |
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Under Section 141, the surety is entitled to the benefit of? |
All securities which the creditor has against the principal debtor at the time of the contract |
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In which case it was held that the surety is entitled to the benefit of every security which the creditor holds, irrespective of the surety’s knowledge of the same? |
State of M.P. v. Kaluram AIR 1967 SC 1105 |
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If the creditor, without the surety’s consent, parts with or loses a security, what is the legal consequence for the surety? |
The surety is discharged to the extent of the value of the lost security |
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What will happen if C, advances to B, his tenant, 2,000 rupees on the guarantee of A. C has also a further security for the 2,000 rupees by a 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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What will happen if C, a creditor, whose advance to B is secured by a decree, receives also a guarantee for that advance from A. C afterwards takes B’s goods in execution under the decree, and then, without the knowledge of A, withdraws the execution. |
A is discharged. |
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What will happen if A, as surety for B, makes a bond jointly with B to C, to secure a loan from C to B. Afterwards, C obtains from B a further security for the same debt. Subsequently, C gives up the further security. |
A is not discharged. |
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Which provision deal with “Guarantee obtained by misrepresentation invalid”? |
Sec.142 |
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According to Section 142 of the Indian Contract Act, 1872, when a contract of guarantee is invalid? |
It is obtained by misrepresentation made by the creditor |
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When does the guarantee be considered invalid under Section 142? |
which has been obtained by means of misrepresentation made by the creditor, or with his knowledge and assent, concerning a material part of the transaction |
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What will be the consequences if Misrepresentation by the debtor without the knowledge or assent of the creditor? |
Does not affect the validity of the guarantee under Section 142 |
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What are the requirements for the invalidation of guarantee under Section 142? |
Misrepresentation must concern a material part of the transaction Misrepresentation must be made by or with assent of the creditor Misrepresentation must induce the surety |
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Which provision deal with “Guarantee obtained by concealment invalid”? |
Sec.143 |
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Under Section 143 of the Indian Contract Act, when a guarantee is invalid? |
It is obtained by the creditor’s silence on material facts |
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What will be the consequences if A guarantee obtained by the creditor by concealing a material fact? |
Invalid and unenforceable |
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What will happen if A surety signed a guarantee for a clerk’s honesty. The employer knew the clerk had committed theft earlier but didn’t tell the surety? |
guarantee is Invalid under Section 143 |
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What will happen if Any guarantee which the creditor has obtained by means of keeping silence as to material circumstances? |
Invalid. |
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What will happen if A engages B as clerk to collect money for him. B fails to account for some of his receipts, and A in consequence calls upon him to furnish security for his duly accounting. C gives his guarantee for B’s duly accounting. A does not acquaint C with B’s previous conduct. B afterwards makes default. |
The guarantee is invalid. |
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‘A’ guarantees to C payment for iron to be supplied by him to B to the amount of 2,000 tons. B and C have privately agreed that B should pay five rupees 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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Which provision deal with “Guarantee on contract that creditor shall not act on it until co-surety joins”? |
Sec.144 |
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When under Section 144 of the Indian Contract Act, 1872, a surety’s liability arises? |
The co-surety, as contemplated, joins the contract. |
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What will be the consequences if Where a person gives a guarantee upon a contract that the creditor shall not act upon it until another person has joined in it as co-surety? |
The guarantee is not valid if that other person does not join. |
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What does Section 144 of ICA aims to protect? |
The surety who gave a conditional guarantee |
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What is the effect of a surety giving a conditional guarantee, and the creditor ignoring the condition? |
The guarantee is void ab initio |
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What does the term “co-surety” refers to in the context of Section 144 of ICA? |
A third party who is also required to furnish guarantee |
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What element is essential to render a conditional guarantee valid under Section 144? |
Co-surety’s joining the guarantee |
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Which provision deal with “Implied promise to indemnify surety”? |
Sec.145 |
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What does the surety is entitled to recover from the principal debtor under Section 145 of the Indian Contract Act? |
Whatever sum he has rightfully paid under the guarantee |
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Which type of the indemnity under Section 145 is provided? |
Implied |
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What are the conditions for the surety to claim indemnity from the principal debtor? |
Surety must have made a rightful payment Surety must have acted under the terms of guarantee Surety must not have paid fraudulently |
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In which case did the Supreme Court hold that the surety has an independent right of indemnity against the principal debtor? |
State of M.P. v. Kaluram |
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What does the term “rightfully paid” in Section 145? |
Paid under a valid and enforceable guarantee |
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A surety pays the debt of the principal debtor under a valid guarantee. What is his remedy against the principal debtor under Section 145? |
Indemnity for the amount paid |
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When does the liability of the principal debtor to indemnify the surety arise? |
As soon as the surety makes rightful payment |
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Which is an implied obligation under a contract of guarantee as per Section 145? |
Debtor will indemnify surety for lawful payments |
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On which principle Section 145 of the Indian Contract Act is based? |
Indemnity |
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What will happen if the surety pays more than what was due under the guarantee due to a mistake? |
he can recover only what was lawfully payable |
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Under Section 145, can the surety recover costs and expenses apart from principal amount paid? |
Yes, if rightfully incurred under the terms of guarantee |
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What will happen if 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 of the debt with costs. |
He can recover from B the amount paid by him for costs, as well as the principal debt. |
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What will happen if C lends B a sum of money, and A, at the request of B, accepts a bill of exchange drawn by B upon A to secure the amount. C, the holder of the bill, demands payment of it from A, and, on A’s refusal to pay, sues him upon the bill. A, not having reasonable grounds for so doing, defends the suit, and has to pay the amount of the bill and costs. |
He can recover from B the amount of the bill, but not the sum paid for costs, as there was no real ground for defending the action. |
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What will happen if ‘A’ guarantees to C, to the extent of 2,000 rupees, payment for rice to be supplied by C to B. C supplies to B rice to a less amount than 2,000 rupees, but obtains from A payment of the sum of 2,000 rupees in respect of the rice supplied. |
A cannot recover from B more than the price of the rice actually supplied. |
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Which provision deal with “Co-sureties liable to contribute equally”? |
Sec.146 |
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Under Section 146 of the Indian Contract Act, 1872, co-sureties are liable to contribute? |
Equally, unless there is a contract to the contrary |
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What are the conditions for equal contribution under Section 146? |
Co-sureties may be bound under different contracts Co-sureties are liable jointly or severally Debt or duty must be the same |
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In which case can co-sureties avoid equal contribution under Section 146? |
When there is a contract to the contrary (A contract that specifies unequal liability will override the general rule of equal contribution) |
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In the absence of a contrary agreement, co-sureties for a debt of ₹90,000 are three in number. One surety pays the entire amount. What is the amount each co-surety must contribute? |
₹30,000 |
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When the liability of co-sureties under Section 146 arises? |
The right of contribution arises when one surety pays more than his share. |
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If two sureties are bound under different contracts for the same debt, what will be their liability to each other under Section 146? |
Equal in the absence of contrary contract |
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A, B, and C are co-sureties for a loan of ₹60,000. A pays ₹60,000 on default of principal debtor. He can claim: |
₹20,000 each from B and C |
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If one of the co-sureties is discharged by the creditor without the consent of others, what is the effect under Section 146? |
Remaining co-sureties bear equal contribution unless contract says otherwise |
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What will happen if A, B and C are sureties to D for the sum of 3,000 rupees lent to E. ‘E’ makes default in payment? |
A, B and C are liable, as between themselves, to pay 1,000 rupees each. |
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What will happen if A, B and C are sureties to D for the sum of 1,000 rupees lent to E, and there is a contract between A, B and C that A is to be responsible to the extent of one-quarter, B to the extent of one- quarter, and C to the extent of one-half. ‘E’ makes default in payment. |
As between the sureties, A is liable to pay 250 rupees, B 250 rupees, and C 500 rupees. |
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What will be the consequences 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 |
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Which provision deal with “Liability of co-sureties bound in different sums”? |
Sec.147 |
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According to Section 147, when co-sureties are bound in different sums, they are liable: |
Proportionately to their respective maximum liability |
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What will happen if Co-surety ‘A’ is bound for ₹40,000 and B for ₹60,000. A loss of ₹60,000 occurs. Under Section 147, how much is A liable to pay? |
₹40,000 |
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What is the rule under Section 147? |
Liability is shared equally but subject to individual limits |
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How the Co-sureties bound in unequal sums contribute? |
Equally until one’s limit is exhausted |
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Co-sureties are jointly and severally liable to the creditor, but inter se they? |
Share proportionate to contract terms |
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What will happen if A, B and C, as sureties for D, enter into three several bonds, each in a different penalty, namely, A in the penalty of each 10,000 rupees, B in that of 20,000 rupees, C in that of 40,000 rupees, conditioned for D’s duly accounting to E. D makes default to the extent of 30,000 rupees. |
A, B and C are each liable to pay 10,000 rupees. |
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What will happen if A, B and C, as sureties for D, enter into three several bonds, each in a different penalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees, C in that of 40,000 rupees, conditioned for D’s duly accounting to E. D makes default to the extent of 40,000 rupees. |
A is liable to pay 10,000 rupees, and B and C 15,000 rupees each. |
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What will happen if A, B and C, as sureties for D, enter into three several bonds, each in a different penalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees, C in that of 40,000 rupees, conditioned for D’s duly accounting to E. D makes default to the extent of 70,000 rupees. |
A, B and C have to pay each the full penalty of his bond. |
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CHAPTER IX |
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OF BAILMENT |
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Which provision defines “Bailment” “bailor” and “bailee”? |
Sec.148 |
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What are the essentials for a valid bailment under Section 148? |
Delivery of goods Delivery of goods must be for a specific purpose intent to return or otherwise disposed of them. |
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With whom in a bailment, the ownership of the goods remains? |
Bailor |
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What is known as When possession is delivered without transfer of ownership? |
Bailment |
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Who is the person delivering the goods in a contract of bailment? |
Bailor |
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A delivers his watch to B, a repairer, to get it repaired. This is an example of: |
Bailment |
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What are the types of delivery under Section 148? |
Actual delivery Constructive delivery Symbolic delivery |
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What does the term Bailment involves? |
Delivery of goods for some purpose with re-delivery agreement |
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How the liability of a bailee describes as? |
A reasonable prudent person |
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What does the term ‘gratuitous bailment’ means? |
A bailment without consideration |
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Who is the person to whom goods are delivered called? |
the “bailee” |
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What will be the consequences if a person already in possession of the goods of another contract to hold them as a bailee, although they may not have been delivered by way of bailment? |
he thereby becomes the bailee, and the owner becomes the bailor of such goods |
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Which provision deal with “Delivery to bailee how made”? |
Sec.149 |
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How under Section 149 of the Indian Contract Act, 1872, delivery to a bailee may be made? |
By doing anything which puts the goods in the possession of the bailee or a person authorized by him |
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What is an example of constructive delivery under Section 149? |
Giving the keys of a godown where goods are stored |
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What is the essential requirement under Section 149 to constitute delivery to a bailee? |
Actual or constructive transfer of possession |
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Delivery under Section 149 must results in? |
It results in transfer of possession |
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What does the term "Constructive delivery" means? |
Delivery through agent or symbolic means |
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Mere custody of goods without transfer of possession will it be sufficient to constitute bailment? |
Is not sufficient to constitute bailment |
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Which provision deal with “Bailor’s duty to disclose faults in goods bailed”? |
Sec.150 |
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Section 150 of the Indian Contract Act, 1872, primarily deals with which duties of the bailor? |
Duty to disclose known faults in the goods bailed |
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What is a correct proposition of law as per Section 150? |
Bailor is only responsible for known faults that cause material interference or risk |
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In the case of Hyman v. Nye & Sons (1881), which principle of bailment was reinforced? |
Bailor is bound to disclose latent defects known to him |
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Which case held that a bailor was liable when the bailee was injured due to a known fault in a hired vehicle? |
Hyman v. Nye & Sons |
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If A lends his motorcycle to B, knowing that the brakes are faulty but does not inform B, and B gets injured due to brake failure, A is: |
Liable under Section 150 |
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What will happen if ‘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. |
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What will happen if ‘A’ hires a carriage of B. The carriage is unsafe, though B is not aware of it, and A is injured? |
B is responsible to A for the injury. |
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What will be the consequences if the bailor does not make such disclosure where he is bound to disclose to the bailee faults in the goods bailed, of which the bailor is aware, and which materially interfere with the use of them, or expose the bailee to extraordinary risks? |
He is responsible for damage arising to the bailee directly from such faults. |
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What will be the consequences If the goods are bailed for hire, whether the bailor was or was not aware of the existence of such faults in the goods bailed? |
the bailor is responsible for such damage |
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Which provision deal with “Care to be taken by bailee”? |
Sec.151 |
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Which duty is imposed on bailee under section 151 of the Indian Contract Act, 1872? |
Take reasonable care as a prudent man would take of his own goods |
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When the bailee is not liable for loss or damage to the goods bailed? |
There is a clause exempting him from liability The loss is caused by an act of God or enemy He has taken reasonable care as required under Section 151 |
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A deposited his laptop with B for safekeeping. B kept the laptop locked in a cupboard, but thieves broke in and stole it. B had taken reasonable precautions. Is B liable? |
No, because he took reasonable care |
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In the context of bailment, "ordinary prudence" means? |
Care shown by a person towards his own similar goods |
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Which provision deal with “Bailee when not liable for loss, etc., of thing bailed”? |
Sec.152 |
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When does under Section 152 of the Indian Contract Act, 1872, the bailee is not liable for loss, destruction or deterioration of the goods bailed? |
He has taken the amount of care of goods as a man of ordinary prudence There is a special contract to the contrary |
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In which case is the bailee exempt from liability under Section 152? |
Goods destroyed by fire despite due care Goods deteriorate naturally Goods perish due to an act of God |
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Which case is a leading authority on the liability of a bailee under Section 152? |
State of Gujarat v. Memon Mahomed Haji Hasam (AIR 1967 SC |
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A leaves his watch with B for repairs. B takes reasonable care, but the watch is stolen in a burglary. Is B liable under Section 152? |
No, because B took reasonable care |
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In which case will a bailee be liable even after exercising reasonable care? |
If there is a special contract making him liable If the goods are lost due to his servant’s negligence If the bailment is for reward and he doesn’t deliver goods on time |
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A car is deposited in a valet parking area. If the car is lost due to negligence of the valet, is the management liable under Section 152? |
Yes, due to negligence |
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If goods are bailed gratuitously, is the bailee still protected under Section 152? |
Yes, same standard of care applies |
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Which provision deal with “Termination of bailment by bailee’s act inconsistent with conditions”? |
Sec.153 |
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When does under Section 153 of the Indian Contract Act, a bailor has the right to terminate the bailment if the bailee? |
Uses the goods bailed in a manner inconsistent with the terms of bailment |
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What is an example of a bailee’s act inconsistent with the conditions of bailment under Section 153? |
The bailee sells the goods without bailor’s permission (Unauthorized sale is inconsistent with bailment and gives the bailor the right to terminate.) |
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If a bailee pledges the goods bailed without authority, the bailment |
Can be terminated at bailor’s option |
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A lends his horse to B for riding only. B uses it for carrying loads. What remedy does A have under Section 153? |
Terminate the bailment |
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What is the nature of the contract of bailment once the bailee acts inconsistently with its terms under Section 153? |
It becomes voidable at the option of the bailor |
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A bailee was entrusted with a car for safe custody but used it for personal travel without permission. What remedy does the bailor have under Section 153? |
Can terminate the bailment and recover the vehicle |
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If the bailee mixes the bailed goods with his own, without the bailor's consent, does this constitute an act inconsistent with bailment under Section 153? |
Yes |
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Which provision deal with “Liability of bailee making unauthorized use of goods bailed”? |
Sec.154 |
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Under Section 154 of the Indian Contract Act, when does a bailee become liable for unauthorized use of goods? |
When the bailee uses the goods contrary to the terms of the bailment |
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In which cases would Section 154 apply? |
Bailee lends the goods to a third party without permission Bailee uses the goods for his own benefit, not authorized by contract Bailee alters the goods without consent |
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What is the extent of liability of a bailee making unauthorized use of goods under Section 154? |
Section 154 imposes strict liability for any damage during such unauthorized use. |
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A bailee was given a horse to be used only for personal riding but used it for horse racing. Under Section 154, what is the legal consequence? |
Bailee is liable for any damage from or during the unauthorized use |
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What will happen if ‘A’ lends a horse to B for his own riding only. B allows C, a member of his family, to ride the horse. C rides with care, but the horse accidentally falls and is injured? |
B is liable to make compensation to A for the injury done to the horse. |
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What will happen ‘A’ hires a horse in Calcutta from B expressly to march to Benares. A rides with due care, but marches to Cuttack instead. The horse accidentally falls and is injured? |
A is liable to make compensation to B for the injury to the horse. |
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Which provision deal with “Effect of mixture, with bailor’s consent, of his goods with bailee’s”? |
Sec.155 |
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Under Section 155 of the Indian Contract Act, if the bailee mixes his goods with the bailor’s with the bailor’s consent, what is the consequence? |
Both acquire an interest in the mixture in proportion to their shares |
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When Section 155 applies? |
Goods are mixed with the bailor’s consent |
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In a bailment where mixture occurs with consent, what is the legal nature of the mixture? |
It results in joint ownership in proportion to the contribution |
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If the bailor's and bailee's goods are mixed with the bailor’s consent, and the goods are indistinguishable but of equal value, then: |
The goods are equally divided |
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A delivers 100 kg of rice to B for safekeeping. B, with A’s consent, mixes it with his own 100 kg of rice. The resulting mixture will be: |
Owned by A and B jointly in 1:1 proportion |
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Which provision deal with “Effect of mixture without bailor’s consent, when the goods can be separated”? |
Sec.156 |
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What will be the consequences under Section 156 of the Indian Contract Act, if the bailee mixes the bailor's goods with his own without consent and the goods can be separated, the property in the goods? |
Remains with respective owners |
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According to Section 156, when goods mixed by the bailee without the bailor’s consent can be separated, who is liable for the expense of separation? |
Bailee is bound to bear the expense of separation or division, and any damage arising from the mixture. |
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Under Section 156, which condition must be fulfilled to hold the bailee responsible for expenses? |
Goods were mixed without consent and can be separated |
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What will happen if ‘A’ 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 expense incurred in the separation of the bales, and any other incidental damage. |
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Which provision deal with “Effect of mixture, without bailor’s consent, when the goods cannot be separated”? |
Sec.157 |
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What will be the consequences if a bailee, without the consent of the bailor, mixes the goods of the bailor with his own in such a way that the goods cannot be separated? |
Entitled to be compensated by the bailee for the loss |
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What is the prerequisite condition for liability under Section 157,? |
Absence of the bailor’s consent for mixing |
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In which circumstance does Section 157 of the Indian Contract Act apply? |
When goods are mixed without consent and cannot be separated |
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who will bears the loss if goods of the bailor and bailee are mixed inseparably without bailor’s consent? |
The bailee is liable to compensate the bailor for the loss as per Section 157. |
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What remedy does the bailor have in case of unauthorized mixture resulting in inseparable goods? |
Suit for damages |
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What distinguishes Section 156 from Section 157 of the Indian Contract Act? |
Section 156 deals with separable mixture; Section 157 deals with inseparable mixture |
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What will happen if ‘A’ bails a barrel of Cape flour worth Rs. 45 to ‘B’. ‘B’, without A’s consent, mixes the flour with country flour of his own, worth only Rs. 25 a barrel? |
B must compensate A for the loss of his flour. |
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What will happen if the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, in such a manner that it is impossible to separate the goods bailed from the other goods, and deliver them back? |
the bailor is entitled to be compensated by the bailee for the loss of the goods. |
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Which provision deal with “Repayment, by bailor, of necessary expenses”? |
Sec.158 |
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What is the liability of the bailor under Section 158 of the Indian Contract Act, 1872? |
Repay necessary expenses if the bailment is gratuitous |
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What will be the consequences where, by the conditions of the bailment, the goods are to be kept or to be carried, or to have work done upon them by the bailee for the bailor, and the bailee receive no remuneration? |
the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of the bailment. |
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What will be the consequences if a person gratuitously bails a dog to another and the bailee incurs vet expenses due to illness of the dog? |
Bailor must repay expenses incurred for preservation or treatment. |
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‘A’ a Bailee gratuitously takes care of B’s horse. A spends ₹1,000 on feeding and veterinary care. Can A recover this amount? |
Yes, under Section 158 |
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If bailee voluntarily does something beyond the scope of bailment, can they claim reimbursement under Section 158? |
No, unless expressly authorized (Expenses must be within scope of agreed bailment.) |
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What does the phrase “necessary expenses” in Section 158 refers? |
Expenses essential for the purpose of bailment |
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Which provision deal with “Restoration of goods lent gratuitously”? |
Sec.159 |
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When under Section 159, a bailor can demand the return of goods lent gratuitously? |
At any time, even before the agreed time |
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What will be the consequences if a bailee suffers a loss due to early return of gratuitously lent goods under Section 159? |
the bailor must Indemnify the bailee for the loss |
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What is a necessary condition for the application of Section 159? |
The goods must be lent without reward (gratuitously) |
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‘A’ gratuitous bailor lends a vehicle to a friend for 10 days. On Day 4, he demands it back. The friend has spent money preparing for a long road trip. What is the legal consequence under Section 159? |
The bailor is liable to compensate for the loss (The bailor must indemnify the bailee for loss incurred due to early return.) |
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What is true regarding gratuitous bailment? |
As per Section 159, bailor can demand return anytime but with possible indemnity i.e., he have to compensate the bailee |
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What will be the result under Section 159, if the bailee refuses to return the goods upon demand? |
Breach of contract |
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What will be the consequences if the lender of a thing for use may at any time require its return, if the loan was gratuitous, even though he lent it for a specified time or purpose. But if, on the faith of such loan made for a specified time or purpose, the borrower has acted in such a manner that the return of the thing lent before the time agreed upon would cause him loss exceeding the benefit actually derived by him from the loan? |
The lender must, if he compels the return, indemnify the borrower for the amount in which the loss so occasioned exceeds the benefit so derived. |
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Which provision deal with “Return of goods bailed, on expiration of time or accomplishment of purpose”? |
Sec.160 |
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When is the bailee bound to return the goods bailed? |
On the expiration of the time or accomplishment of the purpose, even without demand |
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What is the bailee liable for in case of delay in returning the goods? |
Detention charges and compensation for any loss |
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What will be the consequences if a bailee fails to return goods after the purpose is accomplished? |
Retaining goods after the expiry of bailment makes the bailee liable for wrongful detention. |
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Under Section 160, the return of goods by the bailee must be? |
According to the bailor’s directions |
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What a valid excuse for not returning the bailed goods under Section 160? |
Goods were lost in natural calamity without negligence Purpose of bailment is not yet fulfilled The time period for bailment has expired |
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In case of delay in returning the bailed goods beyond the agreed time or purpose, what kind of damages can be claimed? |
Reasonable compensation for loss caused by delay |
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In the absence of a specific clause, the goods must be returned: |
Immediately after the purpose is over or time is up |
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Which principle is laid down under Section 160 is based? |
Law of obligations in contract |
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Which provision deal with “Bailee’s responsibility when goods are not duly returned”? |
Sec.161 |
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Under Section 161 of the Indian Contract Act, when does the liability of the bailee for loss or damage to the goods begin? |
From the time of expiry of the agreed period or demand for return |
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Section 161 imposes liability on the bailee when he fails to? |
Return or tender the goods at the proper time |
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In what situations will the bailee be liable under Section 161? |
Goods are stolen due to bailee’s negligence Goods are not returned even after bailor’s request Goods are returned damaged after due time |
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In which case did the Supreme Court hold that the bailee is liable for the loss caused after the bailment period due to non-return of goods? |
Union of India v. Sita Ram Jaiswal, AIR 1977 SC |
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On whom the burden of proof lies to show that the goods were lost or damaged despite reasonable care? |
Bailee |
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Under Section 161, when bailee does not return goods on time and loss occurs thereafter, the bailee is: |
Strictly liable |
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What are the defenses is available to the bailee under Section 161? |
Goods were lost due to inevitable accident Bailor did not demand return of goods Goods were lost before expiry of bailment |
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The principle in Section 161 is based on? |
Strict liability post default |
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A bailee returns the goods 10 days after the agreed period, during which the goods are damaged by rats. Who is liable? |
Bailee (Damage occurred after due return date due to bailee’s delay) |
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Bailee shall be responsible for loss after the due date unless: |
He proves due care and diligence |
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Which section of the Indian Contract Act complements Section 161 regarding bailee's duty of care? |
Section 152 deals with liability for loss despite reasonable care. |
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When the Bailee's obligation under Section 161 arises? |
He fails to return goods at proper time |
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Which provision deal with “Termination of gratuitous bailment by death”? |
Sec.162 |
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How under section 162 of the Indian Contract Act, 1872, a gratuitous bailment is terminated? |
By Death of the bailor or the bailee |
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Which provision deal with “Bailor entitled to increase or profit from goods bailed”? |
Sec.163 |
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Under Section 163 of the Indian Contract Act, 1872, who is entitled to any increase or profit from the goods bailed in the absence of a contract to the contrary? |
The bailor |
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In the absence of a contrary agreement, what is the duty of the bailee regarding the profit earned from the goods bailed? |
He must deliver it to the bailor |
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A delivers his cow to B for safe custody. During the bailment, the cow gives birth to a calf. Who is entitled to the calf? |
Bailor |
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On which situations section 163 will apply? |
When the bailee makes profit by misusing the goods When goods naturally yield profit during bailment When goods are returned with natural increase |
What is not an "increase or profit" under Section 163?
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Rent paid by bailee to the bailor (Rent is not a “profit from goods” but a contractual consideration.) |
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What are "increase or profit" under Section 163? |
Interest accrued on bailed money Dividends on shares held in bailment Fruits from a tree given in bailment |
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Which provision deal with “Bailor’s responsibility to bailee”? |
Sec.164 |
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When under Section 164 of the Indian Contract Act, a bailor is liable to compensate the bailee? |
The bailee is unaware that the bailor is not entitled to bail the goods |
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In what situations is the bailor responsible under Section 164? |
The bailor had no title to the goods The bailee suffers loss due to bailor’s lack of authority The bailor delivers goods under a voidable contract without disclosure |
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What will be the consequences if a person bails goods to a bailee but is not the owner and has no authority, and the real owner sues the bailee? |
Bailee can recover damages from the bailor under Section 164 |
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What is the extent of liability of a bailor under Section 164? |
Liability for any loss due to lack of authority |
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What will be the consequences if a person bails goods under mistaken ownership? |
The bailor is liable for losses to bailee |
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What are the conditions for the application of Section 164? |
Loss to bailee Bailor has no right to bail goods Bailee acted in good faith |
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When does under Section 164, the liability of the bailor arises? |
In all kinds of bailments where bailee suffers due to lack of bailor’s authority |
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Which provision deal with “Bailment by several joint owners”? |
Sec.165 |
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To whom Under Section 165 of the Indian Contract Act, 1872, in the absence of an agreement to the contrary, a bailee may deliver the goods? |
To one of the joint owners or according to their directions |
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When the principle under Section 165 applies? |
The goods are jointly owned and jointly bailed |
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Will the bailee be liable if he returns goods to one joint owner in the absence of any contrary agreement? |
Not liable |
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What are the requirements under Section 165 of the Indian Contract Act, 1872? |
Several joint owners of goods must bail the goods There must be an agreement against individual delivery Bailee can return to one joint owner if no contrary agreement exists |
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What type of delivery is considered in case of bailment by joint owners and in the absence of contrary agreement, delivery of goods by bailee to one of the joint owners? |
Valid delivery |
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On what presumption the rule in Section 165 is based? |
Agency between joint owners |
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What will be the consequences if there is a written agreement between joint owners that goods shall only be returned upon mutual consent, and the bailee returns it to one of them? |
The bailee is liable for breach of agreement |
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In a situation where goods are bailed by A, B, and C jointly, and there is no agreement to the contrary, bailee returns the goods to B. A and C later sue the bailee. What is the outcome? |
Bailee is protected under Section 165 |
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Which provision deal with “Bailee not responsible on re-delivery to bailor without title”? |
Sec.166 |
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What is true regarding Section 166 of the Indian Contract Act, 1872? |
Bailee is not responsible to the true owner if he, in good faith, delivers the goods back to the bailor. |
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Which principle underlies Section 166 of the Indian Contract Act, 1872? |
Good faith of the bailee |
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To whom the statutory protection is granted under section 166 of the Indian Contract Act? |
Bailee |
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Which provision deal with “Right of third person claiming goods bailed”? |
Sec.167 |
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Who can approach the Court under Section 167 of the Indian Contract Act, 1872? |
Any third person claiming title to the goods |
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What is the legal obligation of the bailee if a third person claims goods in possession? |
Wait for the third party to seek court orders under Section 167 |
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What is the primary object of Section 167? |
Protect the bailee from double liability |
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Bailee receives goods from ‘A’. ‘B’ claims ownership of the goods. What should B do under Section 167? |
Apply to the Court to stop delivery and decide the title |
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What type of remedy does Section 167 provide to a third party? |
Injunction to prevent delivery of goods to bailor |
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What is the role of the Court under Section 167 of the Indian Contract Act? |
Decide title to the bailed goods |
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Which provision deal with “Right of finder of goods, may sue for specific reward offered”? |
Sec.168 |
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Under Section 168 of the Indian Contract Act, a finder of goods can sue for? |
Specific reward offered by the owner |
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A finder of goods becomes a bailee under which section of the Indian Contract Act, 1872? |
Section 71 treats the finder of goods as a bailee, imposing similar responsibilities. |
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What is the right of the finder to retain goods until paid the reward? |
Lawful possession and lien (Section 168 read with Section 171 allows the finder to retain goods under a particular lien.) |
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When a finder of goods can sue for a reward? |
The owner of the goods makes a general or specific offer of reward |
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What best describes the nature of the right under Section 168? |
Quasi-contractual obligations imposed by law. |
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Can a finder retain the goods if the owner refuses to pay the declared reward? |
Yes, the finder has a right of lien |
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Which provision deals with “When finder of thing commonly on sale may sell it”? |
Sec.169 |
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Under Section 169 of the Indian Contract Act, the finder of goods may sell the goods in what circumstances? |
If the owner cannot be found with reasonable diligence If the owner refuses to pay lawful charges If the goods are in danger of perishing or losing the greater part of their value |
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The finder of a thing commonly sold is not entitled to sell it unless? |
The goods are in danger of perishing or the lawful charges exceed two-thirds of the value |
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Section 169 corresponds to which principle of bailment in the Indian Contract Act? |
Section 168 (Right of finder of goods to retain them) |
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What are the conditions under Section 169 for a finder to sell the goods? |
Goods must be commonly sold Goods must be perishable or risk significant loss in value Lawful charges must amount to two-thirds of the value |
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If a person finds a watch and incurs Rs. 10,000 in keeping it safe, and the watch is worth Rs. 15,000, under Section 169, can he sell it? |
Yes, because Rs. 10,000 is more than two-thirds |
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Which principles from common law is reflected in Section 169? |
Finder’s possessory title |
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Which provision deal with “Bailee’s particular lien”? |
Sec.170 |
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When does under Section 170 of the Indian Contract Act, 1872, a bailee has a right to retain goods? |
Until remuneration for services involving labour or skill upon the goods is paid. |
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What the right under Section 170 is known as? |
Specific lien (It is a particular lien, i.e., the bailee can retain only those goods on which he has performed services) |
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What are essentials to claim a particular lien under Section 170? |
Goods must be bailed Labour or skill must be exercised Payment must be due for such work |
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What is the right of lien under Section 170? |
The lien is a possessory right—it exists only while the bailee is in possession of the goods. |
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If a bailee loses possession of goods, what happens to the particular lien? |
It is lost (Possession is a precondition for exercising lien.) |
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What are the examples qualify for a lien under Section 170? |
Jeweller polishing ornaments for a charge Mechanic fixing a car for money Tailor stitching clothes for payment |
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How can the bailee’s right of particular lien be excluded? |
Mutual agreement (Section 170 is subject to contract to the contrary) |
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What is the remedy available to the bailee under Section 170 if payment is not made? |
Bailee can retain the goods but not sell them unless authorized. |
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When does a bailee lose his right of particular lien? |
On delivery of goods back (Once bailee gives up possession, lien is extinguished) |
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What is an example of a valid exercise of particular lien? |
Goldsmith retaining necklace he repaired until paid |
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What are not the examples of a valid exercise of particular lien? |
Banker retaining client’s old account papers Warehouse retaining unsold goods Lawyer withholding case files |
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What happen if ‘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. |
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What happen if ‘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. |
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Which provision deal with “General lien of bankers, factors, wharfingers, attorneys and policy-brokers”? |
Sec.171 |
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What is the essential condition for the exercise of general lien under Section 171? |
There should be no contract to the contrary |
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What type of lien does Section 171 confer upon certain persons like bankers? |
General Lien |
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A banker can exercise a general lien over? |
Goods deposited generally without specific purpose |
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A general lien gives the right to? |
Retain goods until the debt is cleared |
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When the right of general lien arises? |
Goods are bailed with the intent of creating a security |
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In which case did the court observe that the banker’s lien is more than an ordinary lien and is akin to an implied pledge? |
Canara Bank v. P.R.N. Upadhyaya, AIR 1992 SC 1601 |
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Policy brokers enjoy general lien over: |
Policies deposited for securing a balance |
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General lien can be exercised even without possession of goods. True or False? |
False |
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Which legal principle is emphasized in State Bank of India v. Deepak Malhotra regarding general lien? |
Bank’s general lien can be excluded by contract |
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BAILMENTS OF PLEDGES |
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Which provision defined “Pledge” “pawnor”, and “pawnee”? |
Sec.172 |
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What is known as the bailment of goods as security for repayment of a loan or performance of a promise? |
Pledge |
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The person who delivers goods as security is called? |
Pawnor |
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The person to whom goods are delivered as security is called? |
Pawnee |
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What is essential for a valid pledge? |
Possession of goods must be delivered |
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How a pledge differs from a bailment? |
Bailment is for safekeeping; pledge is for security |
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Can future goods be pledged under Section 172? |
No |
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Under Section 172, what can be the subject matter of a pledge? |
Movable goods |
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How can a pledge be created? |
By Delivery of goods as security |
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Can documents of title to goods be pledged? |
Yes |
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What will be the consequences if the pawnee sells the pledged goods without notice? |
Illegal |
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What is the primary obligation of the pawnee? |
Return the goods after debt is repaid |
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In which case it was held that “in case of default, the pawnee must give reasonable notice before selling the goods”? |
Bank of Bihar v. Damodar Prasad |
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What does the Supreme Court held In Lallan Prasad v. Rahmat Ali? |
Pawnee can retain goods till payment |
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Which provision deal with “Pawnee’s right of retainer”? |
Sec.173 |
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Under Section 173 of the Indian Contract Act, the pawnee has the right to retain the goods pledged for? |
Debt, interest, and necessary expenses incurred |
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What expenses is covered under the right of retainer in Section 173? |
Necessary preservation expenses Interest on the debt Principal debt amount |
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In case of default by the pawnor, what is the first right of the pawnee? |
Right of retainer |
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In which case it was held that the pawnee’s right of retainer is limited to necessary expenses? |
Bank of Bihar v. State of Bihar, AIR 1971 SC |
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When the right of retainer under Section 173 arises? |
Automatically upon pledge (It is a statutory right conferred on the pawnee.) |
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The pawnee’s right of retainer can be enforced even if the contract is silent about it. This was upheld in which case? |
Lallan Prasad v. Rahmat Ali |
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Can a pawnee retain goods for future advances not mentioned at the time of pledge? |
Only if there is an express agreement (there must be a contractual provision.) |
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If the pawnor fails to repay the debt, and the pawnee retains the goods beyond a reasonable time without selling, what can the pawnor claim? |
The pawnor can claim damages if the pawnee unjustly retains goods without sale. |
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The interest for which the pawnee can retain the goods must be? |
As agreed between parties |
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What is the nature of the pawnee's right to retain goods under Section 173? |
The right is akin to a possessory lien until payment is made. |
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What does the phrase “necessary expenses incurred by him in respect of the possession or for the preservation” includes? |
Cost of repairs due to natural wear and tear |
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When does the pawnee lose the right of retainer? |
When goods are returned When sale is made When debt is waived |
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Which provision deal with “Pawnee not to retain for debt or promise other than that for which goods pledged. Presumption in case of subsequent advances”? |
Sec.174 |
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Under Section 174, the pawnee can retain the goods only for? |
Only the debt for which the goods were pledged |
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If the pawnee makes further advances on the same account, what is presumed under Section 174? |
The pawnee may retain goods for such further advances |
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On whom the burden of proof lies that pledged goods can be retained for a debt other than the original? |
The pawnee |
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What best explains the term “presumption in case of subsequent advances” under Section 174? |
A contract to retain goods is presumed if more loans are given |
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When the presumption in favour of pawnee retaining goods for subsequent advances under Section 174 arises? |
There is a course of dealing or understanding between the parties |
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When section 174 permits the pawnee to retain pledged goods for subsequent advances? |
If there is an implied contract to that effect |
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Which provision deal with “Pawnee’s right as to extraordinary expenses incurred”? |
Sec.175 |
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Under Section 175 of the Indian Contract Act, 1872, the pawnee is entitled to recover what from the pawnor? |
Extraordinary expenses incurred for preservation of goods |
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What best defines "extraordinary expenses" under Section 175? |
Expenses necessary to preserve the pledged goods in special circumstances |
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In which case it was held that the pawnee is entitled to recover extraordinary expenses but not ordinary expenses under Section 175? |
Lallan Prasad v. Rahmat Ali, AIR 1967 SC 1322 |
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How the right of a pawnee to recover extraordinary expenses under Section 175 arises? |
Automatically by operation of law |
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What are covered under "extraordinary expenses" in the context of Section 175? |
Expense for refrigeration of perishable pledged items Cost of transporting the pledged goods to a safer location during a flood Expenses to prevent pledged goods from damage due to fire |
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The principle underlying Section 175 is based on which broader legal doctrine? |
Doctrine of pledge |
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Can a pawnee recover extraordinary expenses if the goods were damaged due to the pawnee's own negligence? |
No |
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What must the pawnee prove to claim expenses under Section 175? |
That he incurred expenses necessarily to preserve the goods |
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In what situations can a pawnee claim extraordinary expenses? |
Expenses were incurred due to natural disaster Expenses were incurred to protect goods during a strike Expenses were incurred to save perishable goods |
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Which provision deal with “Pawnee’s right where pawnor makes default”? |
Sec.176 |
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What right does pawnee have if the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged under Section 176 of the Indian Contract Act? |
Either sue for the debt and retain goods, or sell them after reasonable notice |
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In the case of Lallan Prasad v. Rahmat Ali, the Supreme Court emphasized which key condition before a pawnee can sell the pledged goods? |
Reasonable notice to the pawnor |
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What will be the consequences if a pawnee sells the goods without giving reasonable notice to the pawnor? |
the sale is Voidable at the option of the pawnor |
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In what case is the pawnee not liable for deficiency after selling the pledged goods? |
When sale was after notice and in good faith |
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After sale of goods under Section 176, if the sale proceeds are more than the debt, the surplus? |
Must be returned to the pawnor |
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After sale of goods under Section 176, if the sale proceeds are less than the debt, the surplus? |
the pawnor is still liable to pay the balance |
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When the Pawnee’s right to sell the goods under Section 176 arises? |
Only upon default and after reasonable notice |
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Which provision deal with “Defaulting pawner’s right to redeem”? |
Sec.177 |
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When under Section 177 of the Indian Contract Act, 1872, a defaulting pawner has the right to redeem the pledged goods? |
Before actual sale of goods by the pawnee |
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A pawnor can redeem the pledged goods after the time fixed for repayment, provided? |
He pays the debt along with any expenses due to default |
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What is true with regard to Section 177 of the Indian Contract Act, 1872? |
The pawner’s right to redeem exists until actual sale by the pawnee. |
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When can a pawnee lawfully refuse redemption of pledged goods? |
After actual sale of pledged goods |
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When can section 177 applies? |
Time for repayment or performance is stipulated |
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How can the pawner redeem if the pawner defaults but the pawnee has not sold the goods? |
Paying the debt plus expenses due to default |
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What best reflects the legal principle in Section 177? |
Redemption before alienation |
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Can the pawner file a suit for redemption under Section 177 even after default? |
Yes, before the actual sale |
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What does expenses payable by the defaulting pawnor before redeeming goods include? |
All reasonable expenses arising from default |
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Which provision deal with “Pledge by mercantile agent”? |
Sec.178 |
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When under Section 178 of the Indian Contract Act, a pledge by a mercantile agent is valid? |
He is in possession with the owner's consent and acts in the ordinary course of business |
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When a pledge by a mercantile agent is invalid? |
It is made without the owner's consent to possession |
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What are the requirements for a valid pledge under Section 178? |
Mercantile agent must be in possession with consent Pledge must be in ordinary course of business pawnee must act in good faith pawnee has not at the time of the pledge notice that the pawnor has not authority to pledge. |
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In which case did the court uphold a pledge made by a mercantile agent acting in ordinary course of business and in good faith? |
Folkes v. King |
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Under Section 178, "mercantile agent" is defined as per? |
As per Section 2(9) of the Sale of Goods Act, 1930. |
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What is the effect of knowledge of lack of authority of mercantile agent on pledgee under Section 178? |
It invalidates the pledge |
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Which provision deal with “Pledge by person in possession under voidable contract”? |
Sec.178A |
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What are the essential conditions under Section 178A? |
The contract under which possession was obtained must be voidable The contract must not have been rescinded at the time of the pledge The pawnee must act in good faith and without notice of defect |
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What will be the consequences if "A obtains a diamond ring from B by fraud and pledges it to C, who acts in good faith and without knowledge of the fraud."? |
C’s pledge is valid under Section 178A |
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To which Contracts section 178A applies? |
Voidable under Section 19 or 19A of the Contract Act |
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If the original owner rescinds the voidable contract after the pledge is made by the fraudster to a bona fide pawnee, what is the legal status of the pledge? |
It is valid and enforceable |
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What will be the consequences if the pawnor obtains goods by Misrepresentation. Before the owner rescinds the contract, he pledges the goods to a pawnee who has no knowledge of the misrepresentation? |
The pledge is valid under Section 178A |
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Which provision deal with “Pledge where pawnor has only a limited interest”? |
Sec.179 |
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Under Section 179 of the Indian Contract Act, 1872, what can a person do who has only a limited interest in the goods? |
Pledge the goods only to the extent of his limited interest |
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In which case the court held that a person having a limited interest (such as a lien or particular interest) can make a valid pledge to the extent of that interest? |
Morvi Mercantile Bank Ltd. v. Union of India, AIR 1965 SC 1954 |
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A warehouse keeper having a lien for storage charges pledges the goods to a third party. Is this pledge valid? |
Yes, but only to the extent of lien |
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What best defines “limited interest” under Section 179? |
A specific legal or equitable interest falling short of full ownership |
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A person has a lien over certain goods for Rs. 10,000 and pledges those goods for Rs. 20,000. What is the legal effect under Section 179? |
The pledge is valid only up to Rs. 10,000 |
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SUITS BY BAILEES OR BAILORS AGAINTS WRONG-DOERS |
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Which provision deal with “Suit by bailor or bailee against wrong-doer”? |
Sec 180 |
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Under Section 180 of the Indian Contract Act, who is entitled to sue a wrong-doer who deprives or injures the goods bailed? |
Either the bailor or bailee |
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When a bailee has the right to sue a third party under Section 180? |
The bailee is in lawful possession |
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Whether a bailee may bring a suit against a wrong-doer even without ownership or title? |
Yes
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What kind of remedies can a bailee seek under Section 180? |
Same remedies as the owner |
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What are the requirements for suing under Section 180? |
Lawful possession of goods Wrongful deprivation by a third party Injury to the goods |
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Whether in case of loss or damage to the goods by a third party, a bailee can sue Independently under Section 180? |
Yes
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Which case law supports the principle under Section 180 that a bailee can sue a wrong-doer? |
Armory v. Delamirie (1722) |
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In which case it was held that even a finder of goods has a better title than a wrong-doer? |
Armory v. Delamirie (1722) |
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On which principle section 180 is based? |
Possession confers a right against third-party wrong-doers |
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For what the bailee can file a suit against a third party wrong-doer? |
Injury or deprivation of goods bailed |
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A watch is given to a watch repairer (bailee). A third party snatches it from his hand. Who can sue? |
Both bailor (owner) and bailee (repairer) can sue |
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Which provision deal with “Apportionment of relief or compensation obtained by such suits”? |
Sec.181 |
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As per Section 181, if compensation is obtained in a suit concerning the goods bailed, how should it be apportioned? |
According to respective interests of bailor and bailee |
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What does "respective interests" refer to in the context of Section 181? |
Possessory and ownership rights both |
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Suppose a bailee sues a third party for damaging the bailed goods and receives compensation. How should this compensation be shared? |
Shared between bailor and bailee according to their interest in the goods |
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What does the term "any such suit" in Section 181 refers? |
Suit regarding bailed goods |
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CHAPTER X |
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AGENCY |
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APPOINTMENT AND AUTHORITY OF AGENTS |
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Which provision deal with the terms “Agent” and “principal” defined? |
Sec.182 |
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Under Section 182 of the Indian Contract Act, who is defined as an “Agent”? |
A person employed to do any act for another or to represent another in dealings with third persons |
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Who is considered a “Principal” under Section 182? |
The person for whom the act is done or who is represented |
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In which case it was held that the test of agency is whether the person is authorized to bind the principal? |
Syed Abdul Khader v. Rami Reddy, (1979) 2 SCC |
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Which provision deal with “Who may employ agent”? |
Sec.183 |
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Who can legally appoint an agent under Section 183 of the Indian Contract Act, 1872? |
Any person who is competent to contract |
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What are the requirements under Section 183 for appointing an agent? |
Age of majority Sound mind Competency to contract |
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What will be the consequences in the case of a person of unsound mind appointing an agent? |
The agency would be void |
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Which provision deal with “Who may be an agent”? |
Sec.184 |
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Under Section 184 of the Indian Contract Act, 1872, who is not competent to act as an agent so as to be responsible to the principal? |
A person of unsound mind A person of sound mind but a minor |
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A person below the age of majority is appointed as an agent. What is the legal effect of such appointment? |
The appointment is valid, but the agent is not liable to the principal |
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Which persons cannot be held responsible to the principal under Section 184? |
who is not of the age of majority and of sound mind |
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What will be the consequences if a 17-year-old boy is appointed as an agent to buy good. He contracts with a third party? |
Binding on the principal and third party, but the agent is not liable |
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Which case held that a minor could be an agent but is not liable to the principal for acts done as agent? |
Shaikh Ibrahim v. Shaikh Suleman |
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What will happen if a person of unsound mind enters into a contract as an agent? |
Not enforceable as the agent is not competent to be responsible |
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Which provision deal with “Consideration not necessary”? |
Sec.185 |
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Under Section 185 of the Indian Contract Act, 1872, an agency can be created? |
Without any consideration |
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In which case the consideration is not necessary to create? |
An agency |
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In which cases the consideration is necessary to create? |
A guarantee A pledge A bailment |
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Whether it is valid if A requests B to act as agent and B agrees without any remuneration under Section 185 of the Indian Contract Act? |
Yes
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In which case the Supreme Court emphasized that Consideration is not necessary to create an agency? |
Syed Abdul Khader v. Rami Reddy (1979) |
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A gratuitous agency is Permissible as per Section 185? |
Yes |
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Which provision deal with “Agent’s authority may be expressed or implied”? |
Sec.186 |
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What is the type of authority of an agent under Section 186 of the Indian Contract Act, 1872? |
Express or implied |
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Which authority is created when a principal stands by and allows someone to act as his agent and accepts the benefits? |
Implied agency |
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How can the authority of an agent under Section 186 arise? |
From both communication and implication through behavior |
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Which type of scenarios will most likely create implied agency under Section 186? |
A regularly acts on behalf of B and B accepts the results X is allowed by Y to manage his shop without objection A is employed to sell goods and accepts payments in routine |
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Which provision deal with “Definitions of express and implied authority”? |
Sec.187 |
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Under Section 187, what is known as an authority given in words spoken or written? |
Express authority |
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How an implied authority be inferred under Section 187? |
From the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case. |
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What is an example of implied authority? |
Agent signing documents in regular course of business with third parties |
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Which are the circumstances from which implied authority can be inferred? |
Ordinary course of dealing Trade custom Written instructions contradicting authority |
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What will be the consequences if an agent does an act within the apparent scope of authority, but without actual authority? |
Principal may still be liable due to implied authority |
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By which authority a manager of a shop orders goods from a supplier without instruction but in the ordinary course of business? |
Implied authority |
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What is the authority of B in a case where A owns a shop in Seram pore, 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 to order goods from C in the name of A for the purposes of the shop. |
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Which provision deal with “Extent of agent’s authority”? |
Sec.188 |
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Under Section 188 of the Indian Contract Act, 1872, an agent authorized to do an act also has the authority to? |
Do every lawful thing necessary to do such act |
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Under Section 188, when can an agent act beyond his usual authority? |
If the circumstances warrant and the act is necessary and lawful |
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If a person is appointed as an agent to manage a store, what actions were presumed under Section 188? |
Hiring employees for daily operations Procuring inventory on credit Maintaining business records |
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If a person is appointed as an agent to manage a store, which of the following actions is not presumed under Section 188? |
Selling personal property of the principal without consent |
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Can A adopt any legal process necessary for the purpose of recovering the debt, and may give a valid discharge for the same. If A is employed by B, residing in London, to recover at Bombay a debt due to B? |
Yes
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Can B purchase timber and other materials, and hire workmen, for the purpose of carrying on the business. If A constitutes B his agent to carry on his business of a ship-builder? |
Yes
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Which provision deal with “Agent’s authority in an emergency”? |
Sec.189 |
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Under Section 189, Can an agent act in an emergency? |
Yes, to protect the principal from loss |
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What is the standard applied to judge the actions of an agent under Section 189? |
Ordinary prudent person |
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In which was the scope of Section 189 discussed, particularly with respect to an agent selling perishable goods to avoid loss? |
Great Northern Railway Co. v. Swaffield |
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When the agent’s authority in an emergency under Section 189 arises? |
It arises only in unforeseen circumstances The agent can act only to the extent necessary The agent must act in good faith |
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A consigns provisions to B at Calcutta, with directions to send them immediately to C, at Cuttack. Can B sell the provisions at Calcutta, if there is a chance that they will not bear the journey to Cuttack without spoiling? |
Yes
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SUB-AGENTS |
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Which provision deal with “When agent cannot delegate”? |
Sec.190 |
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Under Section 190 of the Indian Contract Act, an agent can delegate his authority only? |
When expressly or impliedly permitted by principal When custom of trade permits When nature of agency requires |
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Which maxim is associated with Section 190? |
Delegatus non potest delegare (A delegate cannot delegate his powers unless expressly or impliedly authorized) |
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In which case it was held that an agent must not delegate unless necessary or customary? |
De Bussche v. Alt (1878) |
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Which provision defines the term “Sub-agent”? |
Sec.191 |
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Who is a "sub-agent" under Section 191 of the Indian Contract Act, 1872? |
A person employed by the original agent under his control in the business of the agency |
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What are the conditions for a valid sub-agent under Section 191? |
Employment by the original agent Acting under the control of the original agent Employed in the business of the agency |
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Which provision deal with “Representation of principal by sub-agent properly appointed”? |
Sec.192 |
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What is true regarding a sub-agent properly appointed under Section 192 of the Indian Contract Act, 1872? |
The principal is represented by the sub-agent and bound by his acts. |
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A properly appointed sub-agent causes loss to a third party. Who is primarily liable? |
The principal |
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Who is responsible to the principal for the acts of the sub-agent? |
The agent |
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Who is responsible for his acts to the agent, but not to the principal, except in cases of fraud or willful wrong? |
The sub-agent |
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Which provision deal with “Agent’s responsibility for sub-agent appointed without authority”? |
Sec.193 |
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Under Section 193, if an agent appoints a sub-agent without authority then what is the relationship between the agent and sub-agent? |
Principal and agent |
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If an agent appoints a sub-agent without the authority of the principal, who is responsible for the acts of the sub-agent? |
Agent only |
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If an agent appoints a sub-agent without authority, who becomes liable for the sub-agent’s acts? |
The agent who appointed the sub-agent |
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Under Section 193, what is the legal relationship between the principal and an unauthorized sub-agent? |
No legal relationship |
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Which provision deal with “Relation between principal and person duly appointed by agent to act in business of agency”? |
Sec.194 |
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Under Section 194 of the Indian Contract Act, a person appointed by an agent to act in the business of the agency is deemed to be? |
An agent of the principal |
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When can an agent appoint another person to act for the principal under Section 194? |
Only when he has express or implied authority to do so |
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What are the conditions for a person appointed under Section 194 to be treated as an agent of the principal? |
The agent must have express or implied authority to appoint The appointment must be for the business of agency The person must act in the interest of the principal |
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What is the legal status of ‘C’ if 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. |
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What is the legal status of ‘D’ if A authorizes B, a merchant in Calcutta, to recover the moneys due to A from C & Co. B instructs D, a solicitor, to take legal proceedings against C & Co. for the recovery of the money? |
D is not a sub-agent, but is solicitor for A. |
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Which provision deal with “Agent’s duty in naming such person”? |
Sec.195 |
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Section 195 of the Indian Contract Act, 1872, deals with which duties of an agent? |
Duty of agent in naming a sub-agent |
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Under Section 195, when an agent has the authority to name another person, what is the primary requirement placed upon the agent? |
Must exercise ordinary prudence in selecting the person |
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In case the agent does not act with due prudence in naming another person under Section 195, who is liable for the acts of that person? |
the agent alone is responsible |
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Will B be responsible in case if A instructs B, a merchant, to buy a ship for him. B employs a ship-surveyor of good reputation to choose a ship for A. The surveyor makes the choice negligently and the ship turns out to be unseaworthy and is lost? |
B is not, but the surveyor is, responsible to A. |
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Will B be responsible in case if 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 the sale. The auctioneer afterwards becomes insolvent without having accounted for the proceeds? |
B is not responsible to A for the proceeds. |
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Which provision deal with “Right of person as to acts done for him without his authority. Effect of ratification”? |
Sec.196 |
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Under Section 196, what is the effect if a person ratifies an act done on his behalf without authority? |
The act is treated as if it had been done with authority |
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Under Section 196, if a person does an act on behalf of another without authority, the latter? |
May ratify or disown the act |
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Which provision deal with “Ratification may be expressed or implied”? |
Sec.197 |
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Under Section 197 of the Indian Contract Act, 1872, ratification by the principal can be? |
Either express or implied |
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Whether B’s conduct implies a ratification of the purchase made for him by A in a case where A, without authority, buys goods for B. Afterwards B sells them to C on his own account? |
Yes
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Whether B’s conduct implies a ratification of the loan in a case where A, without B’s authority, lends B’s money to C. Afterwards B accepts interest on the money from C? |
Yes
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Which provision deal with “Knowledge requisite for valid ratification”? |
Sec.198 |
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According to Section 198 of the Indian Contract Act, 1872, when can the ratification of an act be valid? |
The principal has knowledge of the material facts of the act. |
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Can a valid ratification be made by a person whose knowledge of the facts of the case is materially defective? |
No
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Which provision deal with “Effect of ratifying unauthorized act forming part of a transaction”? |
Sec.199 |
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What is the effect of ratifying an unauthorized act done on behalf of a person under Section 199 of the Indian Contract Act? |
The ratifier is deemed to have ratified the whole transaction |
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Section 199 applies to? |
Unauthorized acts forming part of a transaction |
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Which provision deal with “Ratification of unauthorized act cannot injure third person”? |
Sec.200 |
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Under Section 200, when an unauthorized act done on behalf of another cannot be ratified? |
If it injures or terminates a right of a third party. |
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A, without B’s authority, demands C to vacate land claiming it belongs to B. Later, B ratifies A's act. Can the ratification adversely affect C’s rights? |
No, because ratification cannot injure a third party. |
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Ratification under Section 200 of the Indian Contract Act? |
Subject to the rights of third parties |
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Can notice be ratified by B in case if 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. |
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REVOCATION OF AUTHORITYE |
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Which provision deal with “Termination of agency”? |
Sec.201 |
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Under Section 201, an agency is terminated in which circumstances? |
On revocation by the principal On renunciation by the agent On completion of business of agency |
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According to Section 201, On who’s death an agency is terminated? |
Either principal or agent |
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Insolvency of the principal results in? |
Terminate the agency under Section 201 |
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In which case did the court hold that termination of agency by death becomes effective only after knowledge of death is received by the agent or third party? |
Syed Abdul Khader v. Rami Reddy |
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Under Section 201, an agency is terminated in which circumstances? |
By dying or becoming of unsound mind principal being adjudicated an insolvent |
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Which provision deal with “Termination of agency, where agent has an interest in subject-matter”? |
Sec.202 |
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Can an agency be terminated where the agent has himself an interest in the property which forms the subject-matter of the agency in the absence of an express contract? |
No
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Can A terminate or revoke the agency where he gives authority to B to sell A’s land, and to pay himself, out of the proceeds, the debts due to him from A? |
A cannot revoke this authority, nor can it be terminated by his insanity or death. |
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Can A terminate or revoke the agency where he consigns 1,000 bales of cotton to B, who has made advances to him on such cotton, and desires B to sell the cotton, and to repay himself out of the price, the amount of his own advances? |
A cannot revoke this authority, nor is it terminated by his insanity or death. |
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Which provision deal with “When principal may revoke agent’s authority”? |
Sec.203 |
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When can the principal revoke the authority given to his agent? |
at any time before the authority has been exercised |
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As per Section 203, When a principal may revoke an agent’s authority? |
Before the authority has been exercised to bind the principal |
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Which provision deal with “Revocation where authority has been partly exercised”? |
Sec.204 |
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Under Section 204, when a principal cannot revoke the authority of an agent? |
After the authority is partly exercised |
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Section 204 prevents revocation of authority? |
As regards acts already done under the authority |
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What will happen if A authorizes B to buy 1,000 bales of cotton on account of A, and to pay for it out of A’s moneys remaining in B’s hands. B buys 1,000 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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Section 204 is an exception to which section? |
Section 203 |
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A authorizes B to buy 1,000 bales of cotton on account of A, and to pay for it out of A’s moneys remaining in B’s hands. B buys 1,000 bales of cotton in A’s name, and so as not to render himself personally liable for the price? |
A can revoke B’s authority to pay for the cotton. |
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Which provision deal with “Compensation for revocation by principal, or renunciation by agent”? |
Sec.205 |
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Section 205 deals with? |
Compensation for premature revocation or renunciation |
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When Compensation under Section 205 is allowed? |
Agency is revoked without sufficient cause |
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Under Section 205, which of the following is a necessary condition for claiming compensation? |
There is a contract for a fixed duration |
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Why the principal must make compensation to the agent, or the agent to the principal where there is an express or implied contract that the agency should be continued for any period of time? |
For any previous revocation or renunciation of the agency without sufficient cause. |
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Which provision deal with “Notice of revocation or renunciation”? |
Sec.206 |
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According to Section 206, revocation of an agency is effective against the agent: |
When it becomes known to the agent |
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Against third parties, when revocation or renunciation of agency is effective? |
It becomes known to them |
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What is true under Section 206? |
Knowledge of revocation is essential for its effectiveness |
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What is the purpose of Section 206? |
To protect third-party rights dealing in good faith |
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If the agent acts without knowing that the agency was revoked: |
His acts are valid with respect to third parties |
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Which of the following case laws supports the principle of knowledge-based effectiveness of revocation? |
Darius v. Thakur Raghunathji |
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Revocation takes effect against third parties only when: |
The third party comes to know of it |
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In the absence of knowledge of revocation, the third party dealing with agent? |
Is protected under Section 206 |
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In case of immediate revocation of a power of attorney, when does it become effective? |
When notified to the attorney |
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In Darius v. Thakur Raghunathji, the court held? |
Third parties must be notified for revocation to be effective |
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If principal revokes agency but fails to inform the third party, and agent continues to act? |
Principal may still be bound |
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Under Section 206, when renunciation by the agent becomes effective? |
When it becomes known to the principal |
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Which provision deal with “Revocation and renunciation may be expressed or implied”? |
Sec.207 |
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Section 207 of the Indian Contract Act, 1872 deals with? |
Modes of revocation and renunciation |
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According to Section 207, revocation of agency can be? |
Express or implied |
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Which of the following best describes “implied revocation” under Section 207? |
Conduct inconsistent with the continuation of agency |
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A empowers B to let A’s house. Afterwards A lets it himself. |
This is an implied revocation of B’s authority. |
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Which provision deal with “When termination of agent’s authority takes effect as to agent, and as to third persons”? |
Sec.208 |
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Under Section 208, when the termination of an agent’s authority is effective as to the agent? |
The agent gets knowledge of the termination |
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Under Section 208, when termination of an agent’s authority is effective as to third persons? |
The third persons come to know of the termination |
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A third party makes a contract with an agent on 10th June. Principal had terminated the agent on 7th June, but third party was unaware. The contract is? |
Binding on principal |
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What is the legal consequence if the agent is unaware of the termination? |
The contract is valid and binds the principal |
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Under Section 208, third parties must have what kind of notice of termination? |
Constructive or actual |
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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 letter, revoke B’s authority. B, after the letter is sent, but before he receives it, sells the goods for 100 rupees. |
The sale is binding on A, and B is entitled to five rupees as his commission. |
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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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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. |
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Which provision deal with “Agent’s duty on termination of agency by principal’s death or insanity”? |
Sec.209 |
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According to Section 209, after the death or insanity of the principal, the agent must? |
Take reasonable steps to protect the interests of the principal’s estate |
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What best describes the agent’s obligation under Section 209? |
Protect and preserve entrusted interests |
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In case of principal’s death, the agent must act for? |
The legal representatives of the principal |
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The primary aim of Section 209 is to? |
Ensure protection of principal’s interest post-termination |
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What is the time limit under which the agent must act after knowing about the principal’s death or insanity? |
Immediately, taking reasonable steps |
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Which provision deal with “Termination of sub-agent’s authority”? |
Sec.210 |
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According to Section 210 of the Indian Contract Act, 1872, the termination of the authority of an agent leads to? |
Termination of sub-agent’s authority |
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When the authority of a sub-agent comes to an end? |
Agent’s authority is terminated |
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Section 210 is based on which principle? |
Principle of derivative authority |
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The sub-agent’s authority is said to be? |
Derived from the agent's authority |
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AGENT’S DUTY TO PRINCIPAL |
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Which provision deal with “Agent’s duty in conducting principal’s business”? |
Sec .211 |
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Under Section 211 of the Indian Contract Act, How the agent must act? |
According to the principal’s directions or custom of trade |
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What must the agent follow if no specific directions are given by the principal? |
Follow prevailing custom of the trade at the place of business |
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What is the responsibility of the agent in case of Breach of duty under Section 211? |
Personally liable to compensate the principal for any loss caused |
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When Section 211 applies? |
The agent disobeys the principal's lawful instructions |
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In which case, the Supreme Court held that an agent must act with reasonable care and skill? |
Pannalal Jankidas v. Mohanlal |
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Will B be liable if A, principal instructed B, his agent, to sell 100 bags of rice at ₹2000 per bag. B sold them at ₹1800 per bag without consent. Under Section 211? |
B is liable for breach of duty |
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A, an agent, is asked to purchase goods only from X supplier. He purchases from Y due to better rates. No loss is caused. Is A liable? |
Yes, for disobeying specific instructions |
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What will be the consequences if A, an agent engaged in carrying on for B a business, in which it is the custom to invest from time to time, at interest, the moneys which may be in hand, omits to make such investment? |
A must make good to B the interest usually obtained by such investments |
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What will be the liability of B in a case where he is a broker, in whose business it is not the custom to sell on credit, sells goods of A on credit to C, whose credit at the time was very high. C, before payment, becomes insolvent? |
B must make good the loss to A. |
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Principle: Section 211 requires an agent to follow instructions of the principal or prevailing trade custom. |
Yes, for disobeying specific instructions |
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Principle: An agent must follow trade customs in absence of directions. market. Bags are defective. |
No, as he followed trade custom |
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Which provision deal with “Skill and diligence required from agent”? |
Sec.212 |
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How an agent is expected to work with? |
Reasonable skill and diligence |
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The standard of skill required from an agent depends on? |
Ordinary standards of that business |
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If an agent lacks skill but the principal is aware of it, then? |
The agent is not liable for lack of skill |
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A, a goods agent, fails to insure the goods though it is a general practice. The goods are destroyed by fire. Under Section 212: |
A is liable for not acting diligently |
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P appoints Q, who he knows has no accounting experience, as his agent for bookkeeping. Q makes accounting errors. Under Section 212, will there be any liability of Q? |
Q is not liable since P was aware of lack of skill |
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An agent in a commodity trade fails to follow basic market procedure, resulting in loss. Under Section 212 will there be any liability of an agent? |
Agent is liable for negligence |
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Principle: An agent must act with ordinary skill unless the principal knows otherwise. |
No, since principal knew he lacked skill |
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A, a merchant in Calcutta, has an agent, B, in London, to whom a sum of money is paid on A’s account, with orders to remit. B retains the money for a considerable time. A, in consequence of not receiving the money, becomes insolvent. |
B is liable for the money and interest from the day on which it ought to have been paid, according to the usual rate, and for any further direct loss-as, e.g., by variation of rate of exchange-but not further. |
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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 loss thereby sustained. |
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A, an insurance-broker employed by B to effect an insurance on a ship, omits to see that the usual clauses are inserted in the policy. The ship is after wards lost. In consequence of the omission of the clauses nothing can be recovered from the underwriters. |
A is bound to make good the loss to B. |
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A, a merchant in England, directs B, his agent at Bombay, who accepts the agency, to send him 100 bales of cotton by a certain ship. B, having it in his power to send the cotton, omits to do so. The ship arrives safely in England. Soon after her arrival the price of cotton rises. |
B is bound to make good to A the profit which he might have made by the 100 bales of cotton at the time the ship arrived, but not any profit he might have made by the subsequent rise. |
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Which provision deal with “Agent’s accounts”? |
Sec.213 |
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When an agent is bound to produce accounts? |
When demanded by the principal |
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Which provision deal with “Agent’s duty to communicate with principal”? |
Sec.214 |
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Under Section 214, when does an agent must communicate with the principal? |
In cases of difficulty |
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What does the “Reasonable diligence” under Section 214 means? |
Timely and sincere attempt to reach the principal |
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Which provision deal with “Right of principal when agent deals, on his own account, in business of agency without principal’s consent”? |
Sec.215 |
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Under Section 215, when can the principal repudiate the transaction entered into by the agent? |
When the agent dishonestly conceals material facts or causes disadvantage |
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The agent must obtain the principal’s consent before? |
Dealing on his own account |
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Principle: An agent must not deal on his own account in the business of agency without principal’s consent. Fact: A is an agent of B to buy property. A secretly buys the property for himself at a low price and later sells it at a profit. Can B repudiate the transaction? |
Yes, under Section 215 |
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Principle: If the agent does not inform the principal and deals on his own account, the principal can cancel the deal. Fact: Agent sells his own goods to the principal at market price, without informing that he is the seller. |
Principal can cancel under Section 215 |
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In which case did the court uphold the principal’s right to repudiate the transaction when agent acted on his own account? |
Regal (Hastings) Ltd. v. Gulliver |
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What was the key issue in Regal (Hastings) Ltd. v. Gulliver? |
Conflict of interest and secret profit |
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B, an agent, without informing A, the principal, enters into a contract where B is both buyer and seller. A suffers no financial loss. What remedy is available? |
Remedy exists under Section 215 despite no loss |
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Can A repudiate the contract if in a case A directs B to sell his estate But B buys the estate for himself in the name of C? |
A, on discovering that B has bought the estate for himself, may repudiate the sale, if he can show that B has dishonestly concealed any material fact, or that the sale has been disadvantageous to him. |
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Which provision deal with “Principal’s right to benefit gained by agent dealing on his own account in business of agency”? |
Sec.216 |
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Under Section 216, if an agent deals on his own account without the principal’s knowledge, the principal? |
Can claim profit earned by the agent |
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Principle: If an agent secretly deals for himself instead of for the principal, the principal can claim the profits. Fact: A, an agent, was instructed to purchase a property for his principal. He bought it for himself and later sold it at a profit. Can the principal claim profit? |
Yes, under Section 216 |
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Principle: A fiduciary relationship exists between principal and agent. What will be the consequences of agents act? |
Agent must surrender benefit to the principal |
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A was asked to buy 100 shares for B. A bought them in his own name and sold them later for a higher price. B came to know later. What remedy does B have under Section 216? |
B can claim profit made by A |
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What will be the consequences if 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 the price he gave for it. |
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Which provision deal with “Agent’s right of retainer out of sums received on principal’s account”? |
Sec.217 |
|
As per Section 217, what can an agent retain? |
Amount due for lawful advances, expenses, and remuneration |
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Principle: Agent can retain expenses properly incurred and remuneration due out of principal’s funds. Fact: Agent A collects ₹1,00,000 for P and keeps ₹10,000 for commission and ₹5,000 for travel expenses. Is A liable? |
No, as per Section 217 |
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Principle: Section 217 provides an agent with the right to deduct his dues. |
X has validly exercised his right under Section 217 |
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Which case held that an agent is entitled to retain reasonable expenses and commission out of amounts collected for principal? |
Lilly v. Wasbrough |
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Which provision deal with “Agent’s duty to pay sums received for principal”? |
Sec.218 |
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Under Section 218 of the Indian Contract Act, what does the agent bound to pay to the principal? |
All sums received on his account |
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An agent receives ₹1,00,000 on behalf of the principal. He deducts ₹10,000 for commission and ₹5,000 for expenses. How much must he pay to the principal under Section 218? |
₹85,000 |
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Which provision deal with “When agent’s remuneration becomes due”? |
Sec.219 |
|
Under Section 219, When an agent is entitled to remuneration? |
Only after the complete performance of the act |
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If there is no special contract, when does an agent’s remuneration become due under Section 219? |
On completion of the act |
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The right of an agent to retain money under Section 219 arises in: |
Sale of goods |
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When does Section 219 not apply? |
When there is a special contract |
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An agent receives ₹1,00,000 on account of goods sold, though all goods are not sold. Can he retain his commission under Section 219? |
Yes, as he is allowed to retain on account of what is sold |
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If an agent abandons the work midway without any reason, under Section 219? |
He is not entitled to any remuneration unless the principal chooses to pay |
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Under Section 219, if an agent is authorized to sell goods but only manages to sell part of it and receives some payment, he may? |
Retain the amount corresponding to the goods sold |
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Which provision deal with “Agent not entitled to remuneration for business misconducted”? |
Sec.220 |
|
Under Section 220, when an agent loses his right to remuneration? |
He commits misconduct in any part of the agency work |
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The disqualification from remuneration under Section 220 applies to? |
Only the part of business where misconduct occurred |
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What the term "misconduct" in Section 220 includes? |
Gross negligence or intentional wrongdoing |
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An agent acted negligently while carrying out a part of his duties but performed the rest honestly. What is his entitlement under Section 220? |
Entitled only for the properly executed part |
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What will happen if A employs B to recover, 1,00,000 rupees from C, and to lay it out on good security. B recovers the 1,00,000 rupees; and lays out 90,000 rupees on good security, but lays out 10,000 rupees on security which he ought to have known to be bad, whereby A loses 2,000 rupees? |
B is entitled to remuneration for recovering the 1,00,000 rupees and for investing the 90,000 rupees. He is not entitled to any remuneration for investing the 10,000 rupees, and he must make good the 2,000 rupees to B. |
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What will happen if A employs B to recover 1,000 rupees 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. |
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Which provision deal with “Agent’s lien on principal’s property”? |
Sec.221 |
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What right is granted to an agent under Section 221 of the Indian Contract Act, 1872? |
Right of lien over principal’s property |
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On what Agent’s lien under Section 221 is exercisable over? |
Goods, papers and other property of the principal |
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In which case it was held that an agent has a right of lien over documents and goods of the principal in his possession for remuneration due? |
Prabhat Bank Ltd. v. Babu Ram |
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An agent can claim lien under Section 221 for which dues? |
commission, disbursements and services in respect of the same goods |
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A principal demanded return of his papers from an agent, who retained them due to unpaid commission. Is this valid under Section 221? |
Yes, lien applies to papers as well |
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If the principal sells the goods to a third party while they are with the agent, can the agent still exercise lien? |
Yes, lien is possessory |
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What is the nature of the agent’s lien under Section 221? |
Statutory and dependent on possession |
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When the lien under Section 221 ends? |
The agent gives up possession |
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PRINCIPAL’S DUTY TO AGENT |
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Which provision deal with “Agent to be indemnified against consequences of lawful acts”? |
Sec.222 |
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Section 222 provides that an agent is entitled to indemnity for? |
All lawful acts done within the scope of authority |
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Who is liable to indemnify the agent for lawful acts under Section 222? |
The principal |
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In which case did the court hold that indemnity does not extend to criminal or wrongful acts? |
Adamson v. Jarvis |
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In which case it was affirmed that "an agent acting in good faith under the principal’s directions is entitled to be protected"? |
Adamson v. Jarvis |
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Whether an agent who has acted illegally under principal's instructions can claim indemnity under Section 222? |
Cannot claim indemnity |
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What will be the consequences if B, at Singapur, 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 authorizes 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. |
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What will be the consequences if 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. |
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Which provision deal with “Agent to be indemnified against consequences of acts done in good faith”? |
Sec.223 |
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Section 223 protects an agent for acts done? |
In good faith, even if it violates third-party rights |
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Under Section 223, who bears the liability for consequences of good faith acts of an agent? |
The principal |
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When does Section 223 will not apply? |
Agent acts with dishonest intention |
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In which case did the court uphold that indemnity is available for acts done in good faith even if rights of third parties are infringed? |
National Bank of Lahore Ltd. v. Sohan Lal |
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A bank clerk, under instructions of the bank manager, wrongfully dishonors a cheque believing it to be fake. He is sued. Under Section 223? |
Bank must indemnify the clerk |
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What will be the consequences if A, a decree-holder entitled to execution of B’s goods, requires the officer of the Court to seize certain goods, representing them to be the goods of B. but the officer seizes the goods, and is sued by C, the true owner of the goods? |
A is liable to indemnify the officer for the sum which he is compelled to pay to C, in consequence of obeying A’s directions. |
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What will be the consequences if B, at the request of A, sells goods in the 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 expenses. |
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Which provision deal with “non-liability of employer of agent to do a criminal act”? |
Sec.224 |
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Will the principal be liable to indemnify If an agent is imprisoned for an act he did on the instructions of his principal, which turned out to be a crime? |
Not liable to indemnify |
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What is the legal status of a contract to do a criminal act? |
Void |
|
The doctrine of public policy under Section 224 is intended to? |
Avoid giving legal protection to criminal acts |
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What happen if A employs B to beat C, and agrees to indemnify him against all consequences of the act. B thereupon beats C? |
A is not liable to indemnify B for those damages. |
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What happen if B, the proprietor of a newspaper, publishes, at A’s 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. |
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Which provision deal with “Compensation to agent for injury caused by principal’s neglect”? |
Sec.225 |
|
When under Section 225, the agent is entitled to compensation from the principal? |
Principal's negligence causes injury |
|
Which case support agent’s right to compensation for employer’s negligence? |
Lilly White v. Manas Purom |
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FACT: A principal assigns a task involving chemical handling to his agent but fails to warn about necessary protective gear. Agent suffers burns. |
Principal is liable to compensate |
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FACT: X, a principal, hires Y to fix a high electric board. He does not turn off the mains. Y gets electrocuted. PRINCIPLE: Section 225 applies where neglect causes injury. |
X is liable under Section 225 |
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FACT: Agent undertakes delivery on a motorbike with no rear brakes, given by the principal. Agent meets with an accident. PRINCIPLE: Principal’s failure to ensure safety can lead to liability. |
Principal is liable |
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FACT: Agent suffers a slip and fall in the office because of wet floors without a warning sign. PRINCIPLE: Reasonable care must be taken by principal. |
Principal is liable |
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FACT: A hires B to deliver documents. B is attacked by thieves during delivery. |
Principal not liable |
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What type of liability arises under Section 225? |
Contractual liability based on negligence |
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What will be the consequences if A employs B as a bricklayer in building a house, and puts up the scaffolding himself. The scaffolding is unskillfully put up, and B is in consequence hurt? |
A must make compensation to B. |
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EFFECT OF AGENCY ON CONTRACTS WITH THIRD PERSONS |
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Which provision deal with “Enforcement and consequences of agent’s contracts”? |
Sec.226 |
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What is the legal effect of an agent entering into a contract on behalf of the principal? |
It is enforceable as if the principal made it himself |
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Section 226 applies to contracts entered into by? |
Agents acting within authority |
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FACT: X, an agent, enters into a contract with Y on behalf of P, the principal. X acts within his authority. PRINCIPLE: Under Section 226, such contracts are enforceable as if entered by the principal himself. |
P is bound by X’s act |
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FACT: A, without authority, enters into a contract with B in his own name intending to bind C as principal. PRINCIPLE: A contract entered without authority cannot bind the principal. |
C is not bound unless ratified |
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FACT: A, an agent of B, contracts with C. C knows A is acting for B. Later, B refuses to perform. PRINCIPLE: If agent acts within authority, contract is binding on principal. |
C can sue B |
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FACT: Agent enters into a contract outside the scope of his authority and the principal later ratifies it. PRINCIPLE: Ratification relates back to the original act. |
Contract is valid as if authorized originally |
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FACT: A, acting without authority, signs a purchase agreement on behalf of B. B refuses to ratify. PRINCIPLE: Only authorized contracts bind the principal. |
A is personally liable |
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What is the nature of contract under Section 226? |
As if made by principal directly |
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Can A set off the claim in a case where A buys goods from B, knowing that he is an agent for their sale, but not knowing who is the principal? |
A cannot, in a suit by the principal, set-off against that claim a debt due to himself from B. |
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Will C be liable in a case where A, being B’s agent, with authority to receive money on his behalf, receives from C a sum of money due to B? |
C is discharged of his obligation to pay the sum in question to B. |
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Which provision deal with “Principal how far bound, when agent exceeds authority”? |
Sec.227 |
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What will happen under Section 227, if an agent exceeds his authority and the authorized part is separable from the unauthorized part? |
The principal is bound only by the authorized part |
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When Section 227 of the Indian Contract Act applies? |
Agent exceeds authority but the authorized and unauthorized acts are separable |
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What will happen If the excess act of the agent cannot be separated from the authorized act? |
The principal is not bound at all |
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FACT: A authorizes B to buy 100 bags of wheat. B buys 100 bags of wheat and 100 bags of rice in one transaction. PRINCIPLE: If the authorized and unauthorized acts are inseparable, principal is not bound. What is the legal consequence? |
Principal is not bound at all |
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FACT: A authorizes B to sell 10 chairs. B sells 10 chairs and 5 tables in two separate contracts. PRINCIPLE: When acts are separable, principal is bound only by authorized act. |
Principal is bound only by chair transaction |
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FACT: A authorizes B to lease out land for agriculture. B leases it for mining in the same agreement. PRINCIPLE: When authorized and unauthorized acts are inseparable, Section 227 says principal is not bound. |
A is not bound |
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FACT: A empowers B to purchase goods worth ₹50,000. B buys goods worth ₹50,000 and additional goods worth ₹20,000 in separate invoice. |
Principal is bound for ₹50,000 only |
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What will be the consequences if A, being owner of a ship and cargo, authorizes B to procure an insurance for 4,000 rupees on the ship. B procures a policy for 4,000 rupees on the ship, and another for the like sum on the cargo? |
A is bound to pay the premium for the policy on the ship, but not the premium for the policy on the cargo. |
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FACT: Agent is authorized to mortgage land only for ₹5 lakhs. He mortgages it for ₹15 lakhs in one document. PRINCIPLE: Entire transaction inseparable and beyond authority. |
Principal not bound at all |
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Which provision deal with “Principal not bound when excess of agent’s authority is not separable”? |
Sec.228 |
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What happen according to Section 228, if an agent exceeds his authority and the unauthorized part cannot be separated from the authorized part? |
Principal is not bound at all |
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When section 228 is applicable? |
Acts of the agent are partially authorized and inseparable |
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FACT: A authorizes B to buy 10 bags of sugar. B purchases 10 bags of sugar and 5 bags of wheat in one inseparable invoice. PRINCIPLE: When authorized and unauthorized parts are inseparable, the principal is not bound. What is the legal outcome? |
A is not bound at all |
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FACT: A instructs B to sell his old car. B sells the car and gives away A’s bike as a “combo deal” without separate billing. PRINCIPLE: Inseparable unauthorized acts by an agent do not bind the principal. |
A is not bound at all |
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FACT: Agent is instructed to mortgage house for ₹5 lakhs. He mortgages it for ₹10 lakhs in one document. PRINCIPLE: If transaction is not divisible, the principal is not liable. |
Principal is not bound at all |
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FACT: A permits B to negotiate only insurance policies. B negotiates insurance plus mutual fund schemes in one transaction. PRINCIPLE: Section 228 applies where excess acts are inseparable. |
Nil |
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When Section 228 would not apply? |
Acts are separable |
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Which provision deal with “Consequences of notice given to agent”? |
Sec.229 |
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Under Section 229, notice to the agent is deemed to be? |
Notice to the principal |
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For Section 229 to apply, the notice or knowledge must be? |
Obtained in the course of business transacted for the principal |
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What best explains the doctrine in Section 229? |
Constructive notice to principal |
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FACT: A, an agent, receives notice about defective goods while taking delivery for B. PRINCIPLE: Notice to agent in the course of business is notice to principal. Can B claim ignorance of notice? |
B cannot claim ignorance |
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FACT: A real estate agent is informed of litigation on a property while negotiating its sale for X. PRINCIPLE: Agent’s knowledge is imputed to the principal. DECISION? |
X is deemed to know about litigation |
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FACT: A seller notifies the agent of a buyer about defects in goods. The agent fails to inform the buyer. PRINCIPLE: Notice to agent is deemed notice to principal. DECISION? |
Buyer is deemed to have received notice |
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FACT: A lawyer, while acting as an agent for a client, learns of a third party’s fraud. PRINCIPLE: Knowledge acquired during agency binds the principal. DECISION? |
Client is presumed to know of the fraud |
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When will Section 229 not apply? |
Notice was given before agency began |
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Will Information acquired by an agent outside the scope of his employment treated as notice? |
Is not treated as notice to principal |
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What happen if A is employed by B to buy from C certain goods, of which C is the apparent owner, and buys them accordingly. In the course of the treaty for the sale, A learns that the goods really belonged to D, but B is ignorant of that fact? |
B is not entitled to set-off a debt owing to him from C against the price of the goods. |
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A is employed by B to buy from C goods of which C is the apparent owner. A was, before he was so employed, a servant of C, and then learnt that the goods really belonged to D, but B is ignorant of that fact. |
In spite of the knowledge of his agent, B may set-off against the price of the goods a debt owing to him from C. |
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Which provision deal with “Agent cannot personally enforce, nor be bound by, contracts on behalf of principal”? |
Sec.230 |
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According to Section 230, in the absence of a contract to the contrary, what is the liability of an agent? |
Neither personally liable nor entitled |
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When is an agent personally liable under Section 230? |
If principal is undisclosed or cannot be sued |
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If an agent does not disclose the name of his principal, then? |
He is personally liable |
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Will the agent be liable in case of a foreign principal who cannot be sued in India? |
Personally liable |
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PRINCIPLE: An agent is not personally liable unless the contract provides otherwise or principal is undisclosed. FACT: X contracts on behalf of Y (foreign principal) with Z in India, but does not disclose Y's name. DECISION? |
X is personally liable |
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PRINCIPLE: If an agent contracts in his own name without disclosing principal, he is liable. FACT: A, acting for B, enters into a contract with C without disclosing B's identity. DECISION? |
A is personally liable |
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PRINCIPLE: Agent not personally liable unless principal undisclosed or cannot be sued. FACT: P is a foreign principal. Agent A contracts with X in India. X later finds P cannot be sued. DECISION? |
A is personally liable |
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In what cases the agent is personally liable under section 230? |
Where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad; Where the agent does not disclose the name of his principal; Where the principal, though disclosed, cannot be sued. |
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Which provision deal with “Rights of parties to a contract made by agent not disclosed”? |
Sec.231 |
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Under Section 231 of the Indian Contract Act, what can the principal do if an agent enters into a contract without disclosing that he is acting as an agent? |
May enforce the contract, but subject to the same rights the other party had against the agent |
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What right does the Contractee has if a person enters into a contract believing the agent to be the principal, but later the real principal discloses himself? |
Can refuse to perform the contract under certain conditions |
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When can a party refuse to perform a contract upon learning the agent was not a principal? |
When the party proves he would not have contracted had he known the real principal |
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In which case was it held that the principal could enforce the contract made by an undisclosed agent, subject to the third party’s right to rescind the contract? |
Keighley Maxsted & Co. v. Durant |
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A enters into a contract with B, who acts in his own name but is an agent of C. After the contract, C seeks performance. A refuses, saying he would not have dealt with C had he known the truth. Is A’s refusal valid? |
Yes, A can refuse if he proves he wouldn't have contracted with C |
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Which provision deal with “Performance of contract with agent supposed to be principal”? |
Sec.232 |
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What is the main principle under Section 232 of the Indian Contract Act? |
The principal is entitled to performance only subject to the rights subsisting between the original contracting parties |
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Under Section 232, what will be the consequences if a person unknowingly contracts with an agent believing him to be a principal, and later the principal comes forward and requires the performance of the contract? |
The principal is bound by the contract only as per rights subsisting at the time |
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A, who owes 500 rupees to B, sells 1,000 rupees worth of rice to B. A is acting as agent for C in the transaction, but B has no knowledge nor reasonable ground of suspicion that such is the case. Can C compel B to take the rice without allowing him to set-off A’s debt? |
No
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Which provision deal with “Right of person dealing with agent personally liable”? |
Sec.233 |
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What does Section 233 of the Indian Contract Act empower the third party to do in cases where the agent is personally liable? |
Sue either the agent or the principal or both |
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When can an agent be personally liable under the Indian Contract Act? |
When he acts outside his authority When he contracts in his own name When he does not disclose his agency |
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An agent signs a contract in his own name, without mentioning the principal. What right does the third party have under Section 233? |
Against either the agent or the principal or both |
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What will happen if A enters into a contract with B to sell him 100 bales of cotton, and 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 |
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Which provision deal with “Consequence of inducing agent or principal to act on belief that principal or agent will be held exclusively liable”? |
Sec.234 |
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What is the main principle enshrined in Section 234 of the Indian Contract Act? |
Once a person induces either principal or agent to believe only one will be liable, he is estopped from suing the other |
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Which legal doctrine is the foundation of Section 234 of the Indian Contract Act? |
Doctrine of estoppel |
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Under Section 234, if the third party induced the principal to act upon the belief that only the agent will be liable, can the third party sue the principal later? |
No |
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A deals with B (an agent), and during negotiation, A assures B that he will hold only B’s principal, C, liable. Later, A sues B for breach. What is the correct legal position under Section 234? |
A is estopped from proceeding against B |
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If X tells Y (a principal) during negotiation that he intends to hold only the agent Z liable and based on that belief Y enters the contract, can X later proceed against Y? |
No, because X induced Y to believe Z would be liable |
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Which provision deal with “Liability of pretended agent”? |
Sec.235 |
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What is the key requirement for Section 235 to be attracted? |
False representation of agency by a person |
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Under Section 235, when a pretended agent be held liable? |
If The principal does not ratify the act |
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What does the term "pretended agent" denotes? |
One who falsely claims to act as an agent without authority |
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X pretends to be an agent of Y and induces Z to sell goods to Y. Y refuses to ratify the act. Who is liable? |
X is liable under Section 235 |
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Will sec 235 apply If a pretended agent induces a third party to enter into a contract, and the principal later ratifies the contract? |
Section 235 does not apply |
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Which provision deal with “Person falsely contracting as agent not entitled to performance”? |
Sec.236 |
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When Section 236 applies? |
A person falsely claims to be an agent but is acting for himself |
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What will be the consequences if a person who falsely contracts as an agent but actually acts on his own behalf? |
He is not entitled to performance under the contract |
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A poses as an agent of B and enters into a contract with C. In fact, A had no authority and intended to contract for himself. Later, A demands performance. What is the correct legal outcome? |
A cannot demand performance under Section 236 |
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Which provision deal with “Liability of principal inducing belief that agent’s unauthorized acts were authorized”? |
Sec.237 |
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Under Section 237, when is a principal liable for unauthorized acts of an agent? |
When the principal’s conduct induces belief of authority |
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What is essential for liability under Section 237? |
Principal’s inducement of belief |
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Z allows Y to act as his purchasing agent. Y buys items beyond limit but Z had earlier allowed similar actions. Can seller sue Z? |
Yes, due to apparent authority |
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When the Principal is liable for unauthorized acts of agent? |
Agent had apparent authority due to principal’s conduct |
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Under Section 237, How the belief of the third party must be induced? |
Induced by conduct or words of principal |
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A company director permits its sales manager to negotiate and sign deals, although he lacks formal authority. A third party deals with the manager in good faith. Is the company bound? |
Yes, under ostensible authority and Section 237 |
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What will be the consequences if A consigns goods to B for sale, and gives him instructions not to sell under a fixed price. C, being ignorant of B’s 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. |
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Will the sale be valid if A entrusts B with negotiable instruments endorsed in blank. B sells them to C in violation of private orders from A? |
The sale is good. |
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Which provision deal with “Effect, on agreement, of misrepresentation of fraud, by agent”? |
Sec.238 |
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What is the effect of fraud or misrepresentation by an agent under Section 238? |
Principal is bound as if he committed the act If the fraud/misrepresentation is committed in the course of business and within the agent’s authority, it binds the principal as if he had committed it |
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When the Misrepresentation or fraud by an agent will bind the principal? |
The act was committed in the course of the agency business |
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X is an agent of Y for property dealings. X fraudulently sells Y’s land with forged documents. Can Y be held liable? |
Yes, if X was acting within apparent authority |
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An insurance agent lies about policy benefits while selling policies. The client sues the insurance company. Is the company liable? |
Yes, under Section 238 |
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B is a real estate agent for C. B tricks a buyer D into buying land by misrepresenting its ownership. D sues C. Will D succeed? |
Yes, because B was in course of business |
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An employee in a bank misrepresents loan terms to a customer. Is the bank liable under Section 238? |
Yes, as employee acted in course of business |
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R, acting as S’s agent, fraudulently tells T that a vehicle has no accident history. T buys the vehicle and finds it was damaged. Can T hold S liable? |
Yes, under Section 238 |
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An agent, while negotiating a deal, suppresses material facts. The deal is signed. Later, the principal denies liability. What does Section 238 say? |
Principal is liable for suppression |
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Will the principle be liable in a case where the agent commits fraud unrelated to his agency? |
not liable under Section 238 |
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What will be the status of contract if A, being B’s agent for the sale of goods, induces C to buy them by a misrepresentation, which he was not authorized by B to make? |
The contract is voidable, as between B and C, at the option of C. |
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What will be the consequences if A, the captain of B’s ship, signs bills of lading without having received on board the goods mentioned therein? |
The bills of lading are void as between B and the pretended cosignor. |
