INDIAN CONTRACT ACT, 1872

DISCHARGE OF SURETY BY RELEASE OR DISCHARGE OF PRINCIPAL DEBTOR
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.
Illustrations
(a) 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. Here B is
released from his debt by the contract with C, and A is discharged from his suretyship.
(b) 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 irrigation of A’s land and thereby prevents him from raising the indigo. C is
no longer liable on his guarantee.
CIA4
COMMERCIAL & INDUSTRIAL LAWS
INDIAN CONTRACT ACT, 1872
A 38
(c) A contracts with B for a fixed price to build a house for B within a stipulated time, B
supplying the necessary timber. C guarantees A’s performance of the contract. B omits to
supply the timber. C is discharged from his surety ship.
DISCHARGE OF SURETY WHEN CREDITOR COMPOUNDS WITH, GIVES TIME TO,
OR AGREES NOT TO SUE, PRINCIPAL DEBTOR
A contract between the creditor and the principal debtor, by which the creditor makes a
composition with, or promises to give time to, or not to sue, the principal debtor, discharges
the surety, unless the surety assents to such contract.
SURETY NOT DISCHARGED WHEN AGREEMENT MADE WITH THIRD PERSON TO
GIVE TIME TO PRINCIPAL DEBTOR
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.
Illustration
C, 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.
CREDITOR’S FORBEARANCE TO SUE DOES NOT DISCHARGE SURETY
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.
Illustration
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.
RELEASE OF ONE CO-SURETY DOES NOT DISCHARGE OTHERS
Where there are co-sureties, a release by the creditor of one of them does not discharge
the others; neither does it free the surety so released from his responsibility to the other
sureties.
DISCHARGE OF SURETY BY CREDITOR’S ACT OR OMISSION IMPAIRING
SURETY’S EVENTUAL REMEDY
If the creditor does any act which is inconsistent with the rights of the surety, or omits to do
any act which his duty to the surety requires him to do, and the eventual remedy of the surety
himself against the principal debtor is thereby impaired, the surety is discharged.
COMMERCIAL & INDUSTRIAL LAWS A 39
Illustrations
(a) 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.
(b) 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 realised. A is discharged from liability on the note.
(c) 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 that 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.
RIGHTS OF SURETY ON PAYMENT OR PERFORMANCE
Where a guaranteed debt has become due, or default of the principal debtor to perform a
guaranteed duty has taken place, the surety, upon payment or performance of all that he is
liable for, is invested with all the rights which the creditor had against the principal debtor.
SURETY’S RIGHT TO BENEFIT OF CREDITOR’S SECURITIES
A surety is entitled to the benefit of every security which the creditor has against the principal
debtor at the time when the contract of suretyship is entered into, whether the surety knows of
the existence of such security or not; and, if the creditor loses, or, without the consent of
the surety, parts with such security, the surety is discharged to the extent of the value of the
security.
Illustrations
(a) 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.
(b) 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.
(c) 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.
COMMERCIAL & INDUSTRIAL LAWS
INDIAN CONTRACT ACT, 1872
A 40
GUARANTEE OBTAINED BY MISREPRESENTATION INVALID
Any guarantee 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, is invalid.
GUARANTEE OBTAINED BY CONCEALMENT INVALID
Any guarantee which the creditor has obtained by means of keeping silence as to material
circumstances is invalid.
Illustrations
(a) A engages B as a 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.
(b) 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.
GUARANTEE ON CONTRACT THAT CREDITOR SHALL NOT ACT ON IT UNTIL COSURETY
JOINS
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.
IMPLIED PROMISE TO INDEMNIFY SURETY
In every contract of guarantee there is an implied promise by the principal debtor to indemnify
the surety; and the surety is entitled to recover from the principal debtor whatever sum he has
rightfully paid under the guarantee, but no sums which he has paid wrongfully.
Illustrations
(a) 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.
(b) 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.
COMMERCIAL & INDUSTRIAL LAWS A 41
(c) 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.
CO-SURETIES LIABLE TO CONTRIBUTE EQUALLY
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 cosureties, 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.
Illustrations
(a) 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.
(b) 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.
LIABILITY OF CO-SURETIES BOUND IN DIFFERENT SUMS
Co-sureties who are bound in different sums are liable to pay equally as far as the limits of
their respective obligations permit.
Illustrations
(a) 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 30,000
rupees. A, B and C are each liable to pay 10,000 rupees.
(b) 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.
(c) 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.
COMMERCIAL & INDUSTRIAL LAWS
INDIAN CONTRACT ACT, 1872
A 42
1.13. BAILMENT
“BAILMENT”,”BAILOR”AND”BAILEE”
A “bailment” is the delivery of goods by one person to another for some purpose, upon a
contract that they shall, when the purpose is accomplished, be returned or otherwise disposed
of according to the directions of the person delivering them. The person delivering the goods
is called the “bailor”. The person to whom they are delivered is called the “bailee”.
Explanation: If a person already in possession of the goods of another contract to hold them as
a bailee, he thereby becomes the bailee, and the owner becomes the bailor, of such goods,
although they may not have been delivered by way of bailment.
DELIVERY TO BAILEE HOW MADE
The delivery to the bailee may be made by doing anything which has the effect of putting the
goods in the possession of the intended bailee or of any person authorized to hold them on his
behalf.
BAILOR’S DUTY TO DISCLOSE FAULTS IN GOODS BAILED
The bailor 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; and if he does not make such disclosure, he is responsible for damage arising to the
bailee directly from such faults.
If the goods are bailed for hire, the bailor is responsible for such damage, whether he was or
was not aware of the existence of such faults in the goods bailed.
Illustrations
(a) 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.
(b) 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.
CARE TO BE TAKEN BY BAILEE
In all cases of bailment the bailee is bound to take as much care of the goods bailed to him as a
man of ordinary prudence would, under similar circumstances, take of his own goods of the
same bulk, quality and value as the goods bailed.
BAILEE WHEN NOT LIABLE FOR LOSS, ETC., OF THING BAILED
The bailee, in the absence of any special contract, is not responsible for the loss, destruction or
deterioration of the thing bailed, if he has taken the amount of care of it described in section
151.
COMMERCIAL & INDUSTRIAL LAWS A 43
TERMINATION OF BAILMENT BY BAILEE’S ACT INCONSISTENT WITH
CONDITIONS
A contract of bailment is voidable at the option of the bailor, if the bailee does any act with
regard to the goods bailed, inconsistent with the conditions of the bailment.
Illustration
A lets to B, for hire, a horse for his own riding. B drives the horse in his carriage. This is, at the
option of A, a termination of the bailment.
LIABILITY OF BAILEE MAKING UNAUTHORISED USE OF GOODS BAILED
If the bailee makes any use of the goods bailed, which is not according to the conditions of the
bailment, he is liable to make compensation to the bailor for any damage arising to the goods
from or during such use of them.
Illustrations
(a) 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.
(b) 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.
EFFECT OF MIXTURE, WITH BAILOR’S CONSENT, OF HIS GOODS WITH BAILEE’S
If the bailee, with the consent of the bailor, mixes the goods of the bailor with his own goods,
the bailor and the bailee shall have an interest, in proportion to their respective shares, in the
mixture thus produced.
EFFECT OF MIXTURE, WITHOUT BAILOR’S CONSENT, WHEN THE GOODS CAN BE
SEPARATED
If the bailee, without the consent of the bailor, mixes the goods of the bailor with his own
goods, and the goods can be separated or divided, the property in the goods remains in the
parties respectively; but the bailee is bound to bear the expenses of separation or division, and
any damage arising from the mixture.
Illustration
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 expenses incurred in the separation of the bales,
and any other incidental damage.
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INDIAN CONTRACT ACT, 1872
A 44
EFFECT OF MIXTURE, WITHOUT BAILOR’S CONSENT, WHEN THE GOODS CANNOT
BE SEPARATED
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.
Illustration
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.
REPAYMENT BY BAILOR OF NECESSARY EXPENSES
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 is to receive no remuneration,
the bailor shall repay to the bailee the necessary expenses incurred by him for the purpose of
the bailment.
RESTORATION OF GOODS LENT GRATUITOUSLY
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 face 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.
RETURN OF GOODS BAILED ON EXPIRATION OF TIME OR ACCOMPLISHMENT
OF PURPOSE
It is the duty of bailee to return, or deliver according to the bailor’s directions, the goods bailed
without demand, as soon as the time for which they were bailed, has expired, or the purpose
for which they were bailed has been accomplished.
BAILEE’S RESPONSIBILITY WHEN GOODS ARE NOT DULY RETURNED
If, by the default of the bailee, the goods are not returned, delivered or tendered at the proper
time, he is responsible to the bailor for any loss, destruction or deterioration of the goods from
that time.
TERMINATION OF GRATUITOUS BAILMENT BY DEATH.
A gratuitous bailment is terminated by the death either of the bailor or of the bailee.
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BAILOR ENTITLED TO INCREASE OR PROFIT FROM GOODS BAILED
In the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or
according to his directions, any increase or profit which may have accrued from the goods
bailed.
Illustration
A leaves a cow in the custody of B to be taken care of. The cow has a calf, B is bound to deliver
the calf as well as the cow to A.
BAILOR’S RESPONSIBILITY TO BAILEE
The bailor is responsible to the bailee for any loss which the bailee may sustain by reason that
the bailor was not entitled to make the bailment, or to receive back the goods or to give directions,
respecting them.
BAILMENT BY SEVERAL JOINT OWNERS
If several joint owners of goods bail them, the bailee may deliver them back to, or according to
the directions of, one joint owner without the consent of all, in the absence of any agreement to
the contrary.
BAILEE NOT RESPONSIBLE ON REDELIVERY TO BAILOR WITHOUT TITLE
If the bailor has no title to the goods, and the bailee, in good faith, delivers them back to, or
according to the directions of, the bailor, the bailee is not responsible to the owner in respect of
such delivery.
RIGHT OF THIRD PERSON CLAIMING GOODS BAILED
If a person, other than the bailor, claims goods bailed, he may apply to the Court to stop the
delivery of the goods to the bailor, and to decide the title to the goods.
RIGHT OF FINDER OF GOODS; MAY SUE FOR-SPECIFIC REWARD OFFERED
The finder of goods has no right to sue the owner for compensation for trouble and expense
voluntarily incurred by him to preserve the goods and to find out the owner; but he may retain
the goods against the owner until he receives such compensation; and, where the owner has
offered a specific reward for the return of goods lost, the finder may sue for such reward, and
may retain the goods until he receives it.
WHEN FINDER OF THING COMMONLY ON SALE MAY SELL IT
When a thing which is commonly the subject of sale if lost, if the owner cannot with reasonable
diligence be found, or if he refuses, upon demand, to pay the lawful charges of the finder, the
finder may sell it—
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INDIAN CONTRACT ACT, 1872
A 46
(1) when the thing is in danger of perishing or of losing the greater part of its value, or
(2) when the lawful charges of the finder in respect of the thing found amount to two-thirds
of its value.
BAILEE’S PARTICULAR LIEN
Where the bailee has, in accordance with the purpose of the bailment, rendered any service
involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of
a contract to the contrary, a right to retain such goods until he receives due remuneration for
the services he has rendered in respect of them.
Illustrations
(a) 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.
(b) A gives cloth to B, a tailor, to make into a coat. B promises A to deliver the coat as soon as
it is finished, and to give a three-months’ credit for the price. B is not entitled to retain the
coat until he is paid.
GENERAL LIEN OF BANKERS, FACTORS, WHARFINGERS, ATTORNEYS AND POLICYBROKERS
Bankers, factors, wharfingers, attorneys of a High Court and policy-brokers may, in the absence
of a contract to the contrary, retain, as a security for a general balance of account any goods
bailed to them; but no other persons have a right to retain, as a security for such balance, goods
bailed to them, unless there is an express contract to the effect.
1.14. BAILMENT OF PLEDGES
“PLEDGE”, “PAWNOR” AND “PAWNEE”
The bailment of goods as security for payment of a debt or performance of a promise is called
“pledge”. The bailor is in this case called the “pawnor”. The bailee is called the “pawnee”.
PAWNEE’S RIGHT OF RETAINER
The pawnee may retain the goods pledged, not only for payment of the debt or the performance
of the promise, but for the interest, of the debt, and all necessary expenses incurred by him in
respect of the possession or for the preservation of the goods pledged.
PAWNEE NOT TO RETAIN FOR DEBT OR PROMISE OTHER THAN THAT FOR
WHICH GOODS PLEDGED. PRESUMPTION IN CASE OF SUBSEQUENT ADVANCES
The pawnee shall not, in the absence of a contract to that effect retain the goods pledged for
COMMERCIAL & INDUSTRIAL LAWS A 47
any debt or promise other than the debt or promise for which they are pledged; but such
contract, in the absence of the anything to the contrary, shall be presumed in regard to
subsequent advances made by the pawnee.
PAWNEE’S RIGHT AS TO EXTRAORDINARY EXPENSES INCURRED
The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for
the preservation of the goods pledged.
PAWNEE’S RIGHT WHERE PAWNOR MAKES DEFAULT
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, the pawnee may bring a suit against
the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or
he may sell the thing pledged on giving the pawnor reasonable notice of the sale.
If the proceeds of such sale are less than the amount due in respect of the debt or promise, the
pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount
so due, the pawnee shall pay over the surplus to the pawnor.
DEFAULTING PAWNOR’S RIGHT TO REDEEM
If a time is stipulated for the payment of the debt, or performance of the promise, for which the
pledge is made, and the pawnor makes default in payment of the debt or performance of the
promise at the stipulated time, he may redeem the goods pledged at any subsequent time
before the actual sale of them; but he must, in that case, pay, in addition, any expenses which
have arisen from his default.
PLEDGE BY MERCANTILE AGENT
Where a mercantile agent is, with the consent of the owner, in possession of goods or the
documents of title to goods, any pledge made by him, when acting in the ordinary course of
business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner
of the goods to make the same; provided that the pawnee acts in good faith and has not at the
time of the pledge notice that the pawnor has no authority to pledge.
Explanation: In this section, the expressions ‘mercantile agent’ and ‘documents of title’ shall
have the meanings assigned to them in the Indian Sale of Goods Act,1930.
PLEDGE BY PERSON IN POSSESSION UNDER VOIDABLE CONTRACT
When the pawnor has obtained possession of the goods pledged by him under a contract
voidable under section 19 or section 19A, but the contract has not been rescinded at the time of
the pledge, the pawnee acquires a good title to the goods, provided he acts in good faith and
without notice of the pawnor’s defect of title.
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INDIAN CONTRACT ACT, 1872
A 48
PLEDGE WHERE PAWNOR HAS ONLY A LIMITED INTEREST
Where a person pledges goods in which he has only a limited interest, the pledge is valid to the
extent of that interest.
SUIT BY BAILOR OR BAILEE AGAINST WRONG-DOER
If a third person wrongfully deprives the bailee of the use or possession of the goods bailed, or
does them any injury, the bailee is entitled to use such remedies as the owner might have used
in the like case if no bailment had been made; and either the bailor or the bailee may bring a
suit against a third person for such deprivation or injury.
APPORTIONMENT OF RELIEF OR COMPENSATION OBTAINED BY SUCH SUITS
Whatever is obtained by way of relief or compensation in any such suit shall, as between the
bailor and the bailee, be dealt with according to their respective interests.
1.15. CONTRACTS OF AGENCY
AGENT
An “agent” is a person employed to do any act for another or to represent another in dealings
with third persons. The person for whom such act is done, or who is so represented, is called
the “principal”.
WHO MAY EMPLOY AGENT
Any person who is of the age of majority according to the law to which he is subject, and who
is of sound mind, may employ an agent.
WHO MAY BE AN AGENT
As between the principal and third persons any person may become an agent, but no person
who is not of the age of majority and of sound mind can become an agent, so as to be responsible
to his principal according to the provisions in that behalf herein contained.
CONSIDERATION NOT NECESSARY
No consideration is necessary to create an agency.
AGENT’S AUTHORITY MAY BE EXPRESS OR IMPLIED
The authority of an agent may be express or implied.
DEFINITIONS OF EXPRESS AND IMPLIED AUTHORITY.
An authority is said to be express when it is given by words, spoken or written. An authority is
COMMERCIAL & INDUSTRIAL LAWS A 49
said to be implied when it is to be inferred from the circumstances of the case; and things
spoken or written, or the ordinary course of dealing, may be accounted circumstances of the
case.
Illustration
A owns a shop in Serampore, 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.
EXTENT OF AGENT’S AUTHORITY
An agent having an authority to do an act has authority to do every lawful thing which is
necessary in order to do such act.
An agent having an-authority to carry on a business has authority to do every lawful thing
necessary for the purpose, or usually done in the course, of conducting such business.
Illustrations
(a) A is employed by B, residing in London, to recover at Bombay a debt due to B. A may
adopt any legal process necessary for the purpose of recovering the debt, and may give a
valid discharge for the same.
(b) A constitutes B as his agent to carry on his business of a shipbuilder. B may purchase
timber and other materials, and hire workmen, for the purposes of carrying on the business.
AGENT’S AUTHORITY IN AN EMERGENCY
An agent has authority, in an emergency, to do all such acts for the purpose of protecting his
principal from loss as would be done by a person of ordinary prudence, in his own case, under
similar circumstances.
Illustrations
(a) An agent for sale may have goods repaired if it be necessary.
(b) A consigns provisions to B at Calcutta, with directions to send them immediately to C at
Cuttack. B may sell the provisions at Calcutta, if they will not bear the journey to Cuttack
without spoiling.
SUB-AGENTS WHEN AGENT CANNOT DELEGATE
An agent cannot lawfully employ another to perform acts which he has expressly or impliedly
undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may, or
from the nature of the agency, a sub-agent must, be employed.
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INDIAN CONTRACT ACT, 1872
A 50
“SUB-AGENT”
A “Sub-agent” is a person employed by, and acting under the control of, the original agent in
the business of the agency.
REPRESENTATION OF PRINCIPAL BY SUB-AGENT PROPERLY APPOINTED
Where a sub-agent is properly appointed, the principal is, so far as regards third persons,
represented by the sub-agent, and is bound by and responsible for his acts as if he were an
agent originally appointed by the principal.
Agent’s responsibility for sub-agents.— The agent is responsible to the principal for the acts
of the sub-agent.
Sub-agent’s responsibility.—The sub-agent is responsible for his acts to the agent, but not to
the principal, except in case of fraud or wilful wrong.
AGENT’S RESPONSIBILITY FOR SUB-AGENT APPOINTED WITHOUT AUTHORITY
Where an agent, without having authority to do so, has appointed a person to act as a subagent,
the agent stands towards such person in the relation of a principal to an agent, and is
responsible for his acts both to the principal and to third persons; the principal is not represented
by or responsible for the acts of the person so employed, nor is that person responsible to the
principal.
RELATION BETWEEN PRINCIPAL AND PERSON DULY APPOINTED BY AGENT TO
ACT IN BUSINESS OF AGENCY
Where an agent, holding an express or implied authority to name another person to act for the
principal in the business of the agency, has named another person accordingly, such person is
not a sub-agent, but an agent of the principal for such part of the business of the agency as is
entrusted to him.
Illustrations
(a) 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.
(b) 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 a solicitor for A.
AGENT’S DUTY IN NAMING SUCH PERSON
In selecting such agent for his principal, an agent is bound to exercise the same amount of
discretion as a man of ordinary prudence would exercise in his own case; and, if he does this,
he is not responsible to the principal for the acts or negligence of the agent so selected.
COMMERCIAL & INDUSTRIAL LAWS A 51
Illustrations
(a) 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.
(b) 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.
RATIFICATION RIGHT OF PERSON AS TO ACTS DONE FOR HIM WITHOUT HIS
AUTHORITY. EFFECT OF RATIFICATION
Where acts are done by one person on behalf of another, but without his knowledge or authority,
he may elect to ratify or to disown such acts. If he ratifies them, the same effects will follow as
if they had been performed by his authority.
RATIFICATION MAY BE EXPRESSED OR IMPLIED
Ratification may be expressed or may be implied in the conduct of the person on whose behalf
the acts are done.
Illustrations
(a) A, without authority, buys goods for B. Afterwards B sells them to C on his own account;
B’s conduct implies a ratification of the purchase made for him by A.
(b) A, without B’s authority, lends B’s money to C. Afterwards B accepts interests on the
money from C. B’s conduct implies a ratification of the loan.
KNOWLEDGE REQUISITE FOR VALID RATIFICATION.
No valid ratification can be made by a person whose knowledge of the facts of the case is
materially defective.
EFFECT OF RATIFYING UNAUTHORIZED ACT FORMING PART OF A
TRANSACTION
A person ratifying any unauthorized act done on his behalf ratifies the whole of the transaction
of which such act formed a part.
RATIFICATION OF UNAUTHORIZED ACT CANNOT INJURE THIRD PERSON
An act done by one person on behalf of another, without such other person’s authority, which,
if done with authority, would have the effect of subjecting a third person to damages, or of
terminating any right or interest of a third person, cannot, by ratification, be made to have such
effect.
COMMERCIAL & INDUSTRIAL LAWS
INDIAN CONTRACT ACT, 1872
A 52
Illustrations
(a) A, not being authorized thereto by B, demands on behalf of B, the delivery of a chattel, the
property of B, from C, who is in possession of it. This demand cannot be ratified by B, so as
to make C liable for damages for his refusal to deliver.
(b) 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.
REVOCATION OF AUTHORITY TERMINATION OF AGENCY
An agency is terminated by the principal revoking his authority; or by the agent renouncing
the business of the agency; or by the business of the agency being completed; or by either the
principal or agent dying or becoming of unsound mind; or by the principal being adjudicated
an insolvent under the provisions of any Act for the time being in force for the relief of insolvent
debtors.
TERMINATION OF AGENCY, WHERE AGENT HAS AN INTEREST IN SUBJECTMATTER
Where the agent has himself an interest in the property which forms the subject-matter of the
agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice
of such interest.
Illustrations
(a) A 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.
(b) A 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.
WHEN PRINCIPAL MAY REVOKE AGENT’S AUTHORITY
The principal may, save as is otherwise provided by the last preceding section, revoke the
authority given to his agent at any time before the authority has been exercised so as to bind
the principal.
REVOCATION WHERE AUTHORITY HAS BEEN PARTLY EXERCISED
The principal cannot revoke the authority given to his agent after the authority has been partly
exercised so far as regards such acts and obligations as arise from acts already done in the
agency.
COMMERCIAL & INDUSTRIAL LAWS A 53
Illustrations
(a) A authorizes B to buy 1,000 bales of cotton on account of A, and to pay for it out of A’s
money remaining in B’s hands. B buys 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.
(b) A authorizes B to buy 1,000 bales of cotton on account of A, and to pay for it out of A’s
money remaining in B’s hands. B buys 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.
COMPENSATION FOR REVOCATION BY PRINCIPAL, OR RENUNCIATION BY
AGENT
Where there is an express or implied contract that the agency should be continued for any
period of time, the principal must make compensation to the agent, or the agent to the principal,
as the case may be, for any previous revocation or renunciation of the agency without sufficient
cause.
NOTICE OF REVOCATION OR RENUNCIATION
Reasonable notice must be given of such revocation or renunciation; otherwise the damage
thereby resulting to the principal or the agent, as the case may be, must be made good to the
one by the other.
REVOCATION AND RENUNCIATION MAY BE EXPRESSED OR IMPLIED
Revocation and renunciation may be expressed or may be implied in the conduct of the principal
or agent respectively.
Illustration
A empowers B to let A’s house. Afterwards A lets it himself. This is an implied revocation of
B’s authority.
WHEN TERMINATION OF AGENT’S AUTHORITY TAKES EFFECT AS TO AGENT,
AND AS TO THIRD PERSONS
The termination of the authority of an agent does not, so far as regards the agent, take effect
before it becomes known to him, or, so far as regards third persons, before it becomes known
to them.
Illustrations
(a) 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, revokes 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.
CIA5
COMMERCIAL & INDUSTRIAL LAWS
INDIAN CONTRACT ACT, 1872
A 54
(b) 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.
(c) 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.
AGENT’S DUTY ON TERMINATION OF AGENCY BY PRINCIPAL’S DEATH OR
INSANITY
When an agency is terminated by the principal dying or becoming of unsound mind, the agent
is bound to take, on behalf of the representatives of his late principal, all reasonable steps for
the protection and preservation of the interests entrusted to him.
TERMINATION OF SUB-AGENT’S AUTHORITY
The termination of the authority of an agent causes the termination (subject to the rules herein
contained regarding the termination of an agent’s authority) of the authority of all sub-agents
appointed by him.
AGENT’S DUTY TO PRINCIPAL AGENT’S DUTY IN CONDUCTING PRINCIPAL’S
BUSINESS
An agent is bound to conduct the business of his principal according to the directions given by
the principal, or, in the absence of any such directions, according to the custom which prevails
in doing business of the same kind at the place where the agent conducts such business. When
the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and, if
any profit accrues, he must account for it.
Illustrations
(a) 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.
(b) B, 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.
SKILL AND DILIGENCE REQUIRED FROM AGENT
An agent is bound to conduct the business of the agency with as much skill as is generally
possessed by persons engaged in similar business, unless the principal has notice of his want
of skill. The agent is always bound to act with reasonable diligence, and to use such skill as he
COMMERCIAL & INDUSTRIAL LAWS A 55
possesses; and to make compensation to his principal in respect of the direct consequences of
his own neglect, want of skill or misconduct, but not in respect of loss or damage which are
indirectly or remotely caused by such neglect, want of skill or misconduct.
Illustrations
(a) 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.
(b) 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.
(c) 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 afterwards 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.
(d) 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.
AGENT’S ACCOUNTS
An agent is bound to render proper accounts to his principal on demand.
AGENT’S DUTY TO COMMUNICATE WITH PRINCIPAL
It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in communicating
with his principal, and in seeking to obtain his instructions.
RIGHT OF PRINCIPAL WHEN AGENT DEALS, ON HIS OWN ACCOUNT, IN BUSINESS
OF AGENCY WITHOUT PRINCIPAL’S CONSENT
If an agent deals on his own account in the business of the agency, without first obtaining the
consent of his principal and acquainting him with all material circumstances which have come
to his own knowledge on the subject, the principal may repudiate the transaction, if the case
shows either that any material fact has been dishonestly concealed from him by the agent, or
that the dealings of the agent have been disadvantageous to him.
COMMERCIAL & INDUSTRIAL LAWS
INDIAN CONTRACT ACT, 1872
A 56
Illustrations
(a) A directs B to sell A’s estate. 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.
(b) A directs B to sell A’s estate. B, on looking over the estate before selling it, finds a mine on
the estate which is unknown to A. B informs A that he wishes to buy the estate for himself,
but conceals the discovery of the mine. A allows B to buy, in ignorance of the existence of
the mine. A, on discovering that B knew of the mine at the time he bought the estate, may
either repudiate or adopt the sale at his option.
PRINCIPAL’S RIGHT TO BENEFIT GAINED BY AGENT DEALING ON HIS OWN
ACCOUNT IN BUSINESS OF AGENCY
If an agent, without the knowledge of his principal, deals in the business of the agency on his
own account instead of on account of his principal, the principal is entitled to claim from the
agent any benefit which may have resulted to him from the transaction.
Illustration
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.
AGENT’S RIGHT OF RETAINER OUT OF SUMS RECEIVED ON PRINCIPAL’S
ACCOUNT
An agent may retain, out of any sums received on account of the principal in the business of
the agency, all moneys due to himself in respect of advances made or expenses properly incurred
by him in conducting such business, and also such remuneration as may be payable to him for
acting as agent.
AGENT’S DUTY TO PAY SUMS RECEIVED FOR PRINCIPAL
Subject to such deductions, the agent is bound to pay to his principal all sums received on his
account.
WHEN AGENT’S REMUNERATION BECOMES DUE
In the absence of any special contract, payment for the performance of any act is not due to the
agent until the completion of such act; but an agent may detain moneys received by him on
account of goods sold, although the whole of the goods consigned to him for sale may not have
been sold, or although the sale may not be actually complete.
AGENT NOT ENTITLED TO REMUNERATION FOR BUSINESS MISCONDUCTED
An agent who is guilty of misconduct in the business of the agency is not entitled to any
remuneration in respect of that part of the business which he has misconducted.
COMMERCIAL & INDUSTRIAL LAWS A 57
Illustrations
(a) 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.
(b) 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.
AGENT’S LIEN ON PRINCIPAL’S PROPERTY
In the absence of any contract to the contrary, an agent is entitled to retain goods, papers, and
other property, whether movable or immovable, of the principal received by him, until the
amount due to himself for commission, disbursements and services in respect of the same has
been paid or accounted for to him.
PRINCIPAL’S DUTY TO AGENT
AGENT TO BE INDEMNIFIED AGAINST CONSEQUENCES OF LAWFUL ACTS
The employer of an agent is bound to indemnify him against the consequences of all lawful
acts done by such agent in exercise of the authority conferred upon him.
Illustrations
(a) B, at Singapore, under instructions from A of Calcutta, contracts with C to deliver certain
goods to him. A does not send the goods to B, and C sues B for breach of contract. B
informs A of the suit, and A 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.
(b) 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.