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Law Of contract-II
notes
Ayushi Singh
Bailment [sec.148-
Introduction-
Bailment consists in delivery of goods i.e movable property by one person, who is generally the
owner to another person for some purpose. The goods are to be returned to their owner after the
purpose is accomplished or they are to be disposed of according to the directions of a person
delivering them.
For eg. When you take a fan on hire, or give your suit for dry cleaning, or give a watch for
repairs, or a give a parcel to courier service for being transported from one place to another.
Parties
There are two parties in a contract of Bailment- The person delivering the goods is called Bailer. A person to whom the goods are delivered is called the Bailee. Sec.148 of ICA, defines the term, Bailer, Bailee and the term Bailment.
Delivery in a contract of Bailment [sec.149]
The understanding of delivery in a contract of bailment would be any action by the bailer which has the effect of putting the goods in the possession of the intended Bailee or his agent.
Essentials of Bailment-
-Delivery of goods for some purpose- Delivery means transfer of position of goods from one person to another. Delivery need not always be actual it may sometime be constructive or symbolic. Sec.149 recognizes delivery which is not an actual delivery. For e g. Transferring the key of the godown to the caretaker for the same. In a contract of bailment, purpose of delivery is equally important, there should be a purpose , to validate the contract of bailment. Bailment can exist between two parties even without a formal arrangement. Case- Ultzen Vs Nicholas Facts- The plaintiff went to the defendant’s restaurant for a purpose of dining. When the plaintiff entered the restaurant, a waiter took the plaintiff’s coat from him without being requested to do so and hung it on a hook behind the plaintiff. When the plaintiff wanted to leave, he found that his court was lost. Judgement- It was held that the defendant was a Bailee of the coat as one of his waiters had assumed the position of the same and was therefore held liable for the loss.
That the Bailer is bound to disclose to the Bailee fault’s in the goods bailed of which the Bailer is aware and which will 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 the damage arising to the bailee directly from such cause. If the goods are bailed for higher, the bailer is responsible for such damage weather he was or was not aware of the existence of such faults in the goods bailed. Gratuitous Bailment.- Gratuitous Bailment is when the Bailer does not take any reward or money for the goods bailed. The liability in case of gratuitous bailment will arise only in cases where the bailer is aware of the defects in the goods which might cause loss or injury to the bailee. Bailment for reward- This is a bailment where the bailer takes reward or payment for the goods given to bailee. The bailer in case of the bailment for reward would be liable in both cases i.e. weather he knew about the defect or did not know about the defect. DUTIES OF BALIEE Section 151 to 157
- Section 151 and 152 is talking about the care that baliee has to take care. Bulk, quantity and value Bailee has to observe the following duties
1. Duty to take reasonable care of the goods bailed ( section 151 and 152)
- section 151 states that the standard of care required is that of reasonable manner the amount of care to be taken should be such as a man of ordinary prudence would take under similar circumstance of his own goods w.r.t bulk, quantity and value of the goods bailed. This section lays down a uniform duty of care for every kind of bailment whether the same is for reward or is gratuitous in nature. care of predulent man Case sturdy: UOI vs. udhoram and son’s Facts: certain goods were consigned by radha ram sohan lal from Kolkata to Delhi by railways and the railways received was indorse in favor of the plaintiff’s udhoram and son’s. Some of the articles is out of the consignment having being stolen in transit the same were not delivered to the plaintiff. The plaintiff brought an action to recover the compensation for the same.
Judgement: the trial court found that that the wagon in which the goods were loaded ws properly sealed when then train left from Kolkata to Delhi, but seems that the one of the door was found to open when it reached to chandanpur station at 3:30 am. The theft took place at and in between hawrah and chandanpur station it was found that the railway stops for home signal at 2:00 am for around 15 min. the railway police protection was also available to guard the van. The question before the court was whether the railways authority take care of the prudent man as prescribed under section 151. It was held that the railway did not take proper care as firstly they could not prove that the police was sufficient in strength (in no.) Secondly unlike a prudent man the railway protection police did not keep into the eye on the wagons particularly when the train stops and therefore the railways authority were held liable for the same. Section 152: section 152 describes the amount of care which a bailee suppose to take and if he has taken due care he will not be liable for any loss which may be cause to the goods bailed to him if due care has not be taken and there is damage to the goods as it consequence of his negligence, he will be answerable for the same. When he is negligent he cannot avoid the liability by a pleading thus that his own goods has also been damaged along with the goods bailed or he cannot states that the bailer was aware of the facts that the goods had been kept negligently.
Duty not to make unauthorized use of the goods bailed [sec.153-154]
When the goods have been bailed for the particular purpose, the bailee is supposed to use them
only for that purpose and none else. If he makes unauthorized use of the goods bailed there are
two remedies available to the bailer;
1. Termination of bailment by the bailer [sec.153]
2. The bailer may recover compensation for the loss caused due to unauthorized use of goods.
[sec.154] Termination of Bailment [sec 153] Sec 153 states, that a bailer may terminate a contract of bailment, if the bailee makes such use of goods which is inconsistent with a terms & conditions of the contract and claim back the goods. Refer illustration form Bare acts. Damage for loss due to unauthorized use [sec.154] If the bailee makes such use of the goods which is contrary to the conditions of bailment, he is liable to pay compensation to the bailer for any damage to the goods due to unauthorized use. Such a liability arises even if the unauthorized use was being made with care and caution. Illustration- bare acts
Duty not to mix bailer’s goods with his own goods [sec155-157]
Sec.163, Acc. To sec.163 in the absence of any contract to the contrary the bailee is bound to deliver to the bailer any increase or profit which may have accrued from the goods bailed. For instance, A leaves a cow in the custody of B to be taken care of. The cow gives birth to a calf, B is bound to deliver the calf as well as the cow to A. Acc. To sec.163, accretions (increase) in respect of the goods bailed are part of the bailed goods and hence such accretions do not belong to the bailee and therefore, they have to be handed over to the bailer when the goods bailed are return. Rights of the bailee Following are the rights of the bailee determined under the act. Right to recover necessary expenses incurred on bailment.[sec158]- when under a contract of bailment some remuneration is to be paid to the bailee for services he rendered in respect of them , he had right to recover the same. Even when the bailment is gratuitous i.e. Bailee is to receive no remuneration for the service rendered by him, he is none other less entitled to recover from the bailer necessary expenses incurred by him for the purpose of bailment. For eg-A leaves his horse with his neighbor B for safe custody for 1 week. B is entitled to recover the expenses incurred by him, in feeding the horse. Right to recover compensation from the bailer.[sec164]- Sometimes the bailer may not be entitled to make bailment or to receive back the goods, this may result some sort of loss to bailee. The bailee is entitled to recover from the bailer, such loss as may be caused due to the above stated reason. Right of lien on the goods bailed. [sec.170&171]- The act recognizes two kinds of lien-
- Particular lien
- General lien. The right of particular lien entitles the bailee to retain those very goods for the services regarding which the remuneration is due. The general lien entitles the bailee to retain the goods of the bailer for a general balance of account. When the bailee incurred some expenses from preserving the goods from detrivation during the lien, he can recover the same from the owner of the goods. If a bailee loses the goods from his position, his right of lien is lost
Section170, Particular lien-
Particular lien means the right of the bailee to retain those goods which have been bailed, and in
respect of which some service involving exercise of labor or skill has been rendered but the
remuneration for same has not been paid. This right can be exercised as long as the remuneration
in respect of those goods has not been paid.
If the bailee has agreed not to exercise the right of lien or has waived of his right, he cannot
exercise the same.
General lien, Sec.171- It entitles the bailee to retain goods of the bailer, for the general balance
of the account. Acc. To this right , the bailee may retain not only those goods to retainer, in
respect of which some particular service are rendered but also other goods in possession of the
bailee belonging to the bailer. The right of general lien has been conferred on the following
bailee-
1. Bankers
2. Factors { trading agents}
3. Wharfingers { people who take care of the loading/ unloading at stores}
4. Attorneys of High court
5. Policy brokers
Ques- Vishal had given his car on rent to Mithun for a week at a rental of Rs.1000 pr day. But the brakes of the car were defective. This defect was in full knowledge of Vishal, but he did not disclose the same to Mithun. Consequently, the same day, the car met an accident. Mithun had accordingly filed a suit against Vishal claiming damages from him. Do you think that Mithun will be awarded damages? Give reason for your answers. Ans- Yes, I think that Mithun will be awarded damages because from the Sec.150 of Indian Contract act, it is boldly mentioned about the responsibility of the Bailer in above given situation. Sec.150 clearly says that the bailer is bound to disclose to the bailee, if the goods are faulty, and which will materially interfere with the use of them, and if he failed to do his, The bailer is responsible for the damage arising to the bailee directly from such cause. Hence, Vishal knowingly hide the fact that the car has faulty brake, due to which Mithun’s accident took place, so Vishal is liable to pay the damages to Mithun. Pledge {sec.172}
Definition- The bailment of goods are security for the payment of a debt or performance of promise
is called ‘Pledge’. There are two parties in a contract of pledge. One is called the ‘Pawner’ and the other is called the ‘ Pawnee .{ Bailer= Pawner & Bailee= Pawnee} Pledge is a kind of bailment of goods with a special purpose. The goods pledged serve as security for the bailment of a debt or performance of promise. For e.g. A deposit his gold ornaments with a bank as a security for the amount of 5 lakh, which he has taken from the bank.
Law of Agency [sec.182-238]
An agency is a contract of employment to do any act for another or to represent in dealing with
third parties. It is a contract of employment for the purpose of bringing in a legal relationship
with a third party i.e. it is a contract between principal and agent to bring in business or
facilitate business between him and the third parties.
Definition of Principal and agent [sec.182]
An Agent is a person employed to do an act by another, or to represent another in dealing
with third persons. The person to whom such act is done or who is represented is
Principal.
Competency of the parties to enter into contract of agent [sec183-184]
As per sec.183 any person, who is of the age of majority according to the law to which he
is subject to and who is of sound mind may employ an agent. It means the person
employing an agent must himself has the legal capacity or be competent to do act for
which he employees an agent, this means that a minor or a person with unsound mind
cannot appoint an agent.
According to sec.184, there is no qualification which is required to become an agent, but
in case of liability toward the principal and the third party, he should be of sound mind
and a major.
Consideration in a contract of agency [sec.185]
As par sec.185, a contract of agency does not require any consideration to seek validity.
Different Kinds of agents-
Depending upon the authority given by the principle, there are four categories of agents. Auctioneer - An Auctioneer is an agent whose business is to sell goods for other property by auction, that is by open sale. The authority vested in him, is to sell goods only and not give warrantees on behalf of the seller unless expressly authorised in that behalf. He is a mercantile agent within the meaning of sec.2(9), of the sales of goods act. If the owner of the goods puts him in position of goods although the authority to sell has not been conferred in him, a buyer in good faith from such an auctioneer will get a good title in respect of the goods. Thus if he has been authorised to sell goods only at a reserved price but he sells the same to an innocent and bonafide buyer below the reserved price, the buyer will get a good title in respect to such goods. Factors- A factor is a mercantile agent who is entrusted with the position of the goods for the purpose of sale. He has also the power to sale the goods on credit and also to receive the price from the buyer. If the owner has put a factor in position of the goods or the document title but
without authorising him to sell the goods, the sale of goods by him will convey a good title to a bonafide buyer. Brokers- A broker is an agent who has an authority to negotiate the sale or purchase of goods on behalf of his principle with a third person. Unlike a factor he himself has no possession of the goods. He only makes the two parties enter a contract. He gets his commission or profit depending upon the number of transaction materialised by him. Del- credere agents- Generally the function of an agent is over after a contract is established between his principle and a third party. He is not answerable to the principle for the failure of the third person to perform the contract. A del- credere agent constitutes an exception to this rule. He is a mercantile agent who on the payment of some extra commission known as Dell-credere commission, guarantees the performance of the contract by the third person. If in such a case the third person for instance fails to pay the goods supplied to him, the principle can bring an action against the del-credere agent for the same.
Modes of creation of agency
An act done by agent on behalf of the principle binds the principle towards the third parties. The relationship between principle and agent has to exist in order that principle’s liability can be ascertained towards the third persons. In the following situations the agent has the power to bind his principle. By actual authority being conferred on the agent to act on behalf of the principle; such authority may be expressive or implied. The agent’s authority to act on behalf of the principle in a situation of emergency. By the conduct of the principle, which creates an agency on the basis of law of estoppel. By ratifications of the agent’s act by the principle even though the same has been done without the principle’s prior authority. By presumption of agency in husband-wife relationship. 1.By actual authority being conferred on the agent to act on behalf of the principle; such authority may be expressive or implied. A principle bound by the act done by his agent with his authority.The authority of the agent may be expressive or implied. Sec.187 define express or implied authority. Expressive authority - An authority is said to be expressive when it is given by words spoken or given. Implied authority - An authority is said to be implied when it is to be inferred from the circumstances of case and things spoken or written or the ordinary dealing may be accounted - circumstance of the case. For instance- A owns a shop un Mumbai, 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 purpose of the shop and of paying for them out of A’s funds with
The agent is expected to act, only with the authority and the prescribed limit authorised by his
principle.
Essentials of valid ratification-
. The act should be done on behalf of another person. The principle should be in existence and competent to contract when the act is done. Ratification may be express Or implied. Ratification should be with full knowledge of facts. Ratification should be of the whole transaction. Ratified acts should not be injurious to third persons. Ratification should be made within a reasonable time. Section 196 According to sec. 196, for an act to be ratify it is necessary that it has been done on behalf of the person who seeks to ratify the same. Which means a person cannot ratify an act which is done for him. When an act has been done by one person on behalf of other, though without his authority or knowledge, the person on whose behalf the act is done has a following options.
- To disown the act
- To ratify the same. Ratification means according approval to an act by a person on whose behalf the act is done. If an act is done on behalf of a person, although without the knowledge or the authority of that person and is ratified, the person ratifying the act becomes the principle and the person who has done the act becomes an agent. And such an act binds the principle. Section 197 Ratification may be express or implied Acc. To section197, Ratification may be either expressive or may be implied in the conduct of the person on whose behalf the acts are done. For e.g.- Refer bare act. Section 198- Ratification with full knowledge of facts. Acc. To section198, no valid ratification can be made by person whose knowledge of facts of the case is materially defective. Ratification does not validate an illegal or invalid contract. For e.g. A, an agent of B without authority enters into a contract with Z for B’s business. Z was unsound at the time when the contract was entered into. B’s ratification of the A’s act does not validate a void contract entered between A&Z. Section199- Ratification of whole transaction
Acc. To section 199, a person ratifying any unauthorized act done on his behalf ratifies the whole transaction of which the act formed a part. The objective of this provision is that no principle may ratify only that part of the transaction which is favourable to him and disown the rest. If he makes ratification it is deem to be ratification of the whole act. Section200- Ratified act should not be injurious to third person If ratification of an act, which is done by an agent results in injury to the interest of third person than such ratification would be invalid
Principle should be consistent and competent to contract-
When a principle ratifies an act, the validity of act relates back to time of doing the act by agent. The act is valid as if the same had been done which the prior authority of the principle. In order to validate the ratification it is necessary that the principle must have been in existence and also competent to contract at the time when the agent perform the unauthorised act.
Ratification within reasonable time
In order that ratification is valid, it is necessary that the same must be done within reasonable time. Subagent and substituted agent
Introduction-
A person to whom some power has been delegated, in not authorised to delegate it further. This
is based on the principle Delegitus non potest delegare which means that a delegated person
cannot delegate further. In a similar manner an agent cannot appoint is own sub agent as a
general rule. This is so because a person appoints another person as his agent only when he feels
he can trust him. But this does not mean that the principle can have the same level of trust and
confidence in the other person appointed by the agent.
There are certain circumstances which make it expedient to appoint a subagent. Section 190
specify situation under which a sub agent may be appointed.
1. Where he is expressly permitted by the principle to do so
2. Where it is generally permitted as per the customary practise of the trade.
3. Where the nature and magnitude of the task is such that it cannot be accomplished
without appointing a subagent.
4. Where the nature of the job interests to the main agent is of clerical nature , and does not
require specific skill of an agent
Section 212- Skill and diligence required from agent – The agent is supposed to take due care and act with reasonable diligence w.r.t principle’s business. He is expected to use specifics kill required in that particular business. The agent will be bound to compensate the principle is some loss occurs to the principle which can directly be attributed towards the agent’s negligence, want of skill or misconduct. An agent will not be responsible for any indirect losses. Section 213- Duty to render proper accounts The agent is should render the proper accounts to the principle. This mean that he should maintain proper account of the sum belonging to the principle which are in his hands, he should not misutilize or misappropriate them and on demand from the principle he should render true accounts to his principle. Section 214, Duty to communicate with the principle In cases where it become difficult to contact, consult, or communicate with principle to seek some clarification or approval in certain matters of the business transaction, the agent is expected to make all possible reasonable efforts to communicate with him and if despite the best possible efforts if he fails to contact with principle the agent is required to use reasonable diligence towards the business. Duty not to make any secret profit.{associated with sec.215}- The agent is expected to hand over to his principle the entire amount received by him on his principle’s behalf including any secret profits. he however is authorised to make all lawful deduction from such amount for eg. His own remuneration, an expenses incurred by him for the conduct of the principle’s business. Section215, Duty not to deal on his own account- An age t is under a duty not to deal on his account in the business of agency unless the principle consents to it. If in any transaction an agent deals on his own account without the principle’s prior consent the principle has the following two rights-
- He can repudiate (cancel) the transaction. a. If any material fact is dishonestly conceived by an agent b. The dealing of the agent has been disadvantageous to the principle. Rights of an agent
Right to remuneration (section 219 & 220)
The agent is entitle to recive the amount of his remuneration Or commission on an agreed rate and in the absence of any agreement he is entitle to receive a reasonable amount by way of his remuneration Or commission. If agent is fount to be guilty of misconduct in the business of agency he will not be entitle to receive his remuneration for that part of the transaction which he has misconducted that is not conducted satisfactorily Or in a simple manner.
Right of retainer (section 217)
The agent has a right of a retainer that is to say he can rightfully retain with himself the entire amount recieved by him on behalf of the principal in the business of agency and he will be legally required to hand over to his principal only the balance amount that remains after deducting and retaining with himself the amount of his remuneration and commission payable to him as an agent. It is to be understood that, the agent 's right of retainer applies only on exclusively to the amount recieved by him in the course of the business.
Right of lien (section 221)
In the absence of a contract to a contrary, an agent is entitle to retain by virtue of exercising his lien on goods, papers, and property both movable and immovable of his principal that he might has deceived.
Right to be indemnified ( sec 222-225)
The agent is entitled to get indemnified by his principle against the consequences of all the lawful act performed by him under his instruction and under the authority conferred by the principle. The agent will be indemnified by the principle- Against all the consequences of lawful acts done by such agent in exercise of the authority conferred by him.(222) Against all the consequences of act done in good faith, even though the act causes an injury to the rights of third persons (223). The principle must make compensation to his agent in respect of injury cause to such agent by the principle’s neglect or want of skill. No indemnity in case of criminal offences-(224) Sec.224 makes it clear that the agent commits a crime at the instinct of principle, the agent cannot claim indemnity from the principle against the consequences of crime even though the principle have expressly or impliedly promise to indemnify him. Rules of revocation of the authority
1. Section 202
No revocation of the agency when the agent has interest in subject matter. When the authority of the agent is coupled with interest the authority conferred on the agent cannot cancel of the agent interest.
2. Section 203
Revocation possible before the authority has been exercised According to this section the principal may expect as provided in section 202 revoke the authority given to the agent at the any time before the authority has been exercised by the agent to bind the principal. It means that
5. by insolvency of the principal
Contract of Guarantee Parties of Contract of Guarantee- Creditor Principle-Debtor Surety
Section 126 of Indian Contract Act defines a contract of guarantee, it states that a contract of
guarantee is a contract to perform the promise or discharge the liability of a third person in case
of his default.
The person who gives the guarantee is called the surety , the person in respect of whose default
the guarantee is given is called the principle debtor, and the person to whom the guarantee is
given is called the creditor.
Guarantee can be given either in oral or written form. For eg. If A takes loan from canara bank,
and C promises the bank that in case A is not able to return back the money, I will pay on his
default. A in the present case is the principle debtor, C is the surety or the guarantor and the bank
is the creditor. The object of contract of guarantee is to provide additional security to the creditor
in the form of promise by the surety to fulfil the certain obligation in case the principle debtor
fails to do that.
In every contract of guarantee, there are three parties, the creditor, the principle debtor and the
surety , Similarly there are 3 contract in the contract of guarantee-
Firstly, a contract between principle debtor and creditor (bank)
Secondly, surety undertakes to be liable towards the creditor if the principle debtor makes the
default.
Thirdly, an implied promise by the principle debtor in favour of the surety that in case the surety
has to discharge the liability on the default of the principle debtor , the principle debtor shall
indemnify the surety for the same.
Features of contract of guarantee
1. The contract may be either oral or in writing
According to 126 expressly state that contract guarantee May be in oral or in written form. In order to proof the existence of guarantee one needs maintain sufficient circumstances evidences (in oral guarantee)
2. There should be a principal debt
A contract of guarantee pre supposes the principal debt or an obligation to be discharged by the principal debtor. The surety under takes the to be liable only if the principal debtor fails to discharge his obligation. If there is no such principal debt, but there is a promise by one party in favour of another for compensating in a certain situation and performance of this promise is not dependent upon the default of somebody else such a contract is not a contact of guarantee. For example If A and B go to a shop where A purchases goods and B tells the seller that if A does not pay you, I will. This the contract of guarantee on the other hand if A is not the principal debtor and B only promises to the shopkeeper that let have the goods and I will pay for the same, this is not a contract of guarantee.
3. Benefit to the principal debtor is sufficient
consideration
As in any other contract, the consideration is also needed for a contract of guarantee. For the surety is promise it is not necessary that is there should be direct consideration between creditor and the surety. It is enough that the creditor have done something for the benefit of the principal debtor.Section127 if Indian contract Act also states the same. (Refer illustration form bare act)
4.Consent of surety should not have been obtained by
misrepresentation or concealment
The creditor should not obtained guarantee either by any misrepresentation or concealment of
any material facts concern the transaction if the guarantee has been obtained by that way such a
guarantee is invalid. obtaining a person consent to act as surety either by misrepresentation or
keeping silence as to material circumstance renders a contract invalid keeping silence as to
material would affect the surety’s mind to stand as a surety.
FOR EXAMPLE: if a cashier has been found guilty of embezzlement (funds ka her feher krna
vlaa) and this facts is not discos when a surety has been made to guarantee the future conduct of
the cashier the surety will not be liable under this circumstance.
Similarly if a surety is made to guarantee an employee’s existing and further liabilities without
being informed that the self employed already embezzled to an extent more than that of
guarantee, such a guarantee is invalid.
KINDS OF GUARANTEE
1. SPECIFIC GUARANTEE: It is the one which pertains to a specific debt and once that
debt is repaid the guarantee automatically ends and gets cancelled but then it must be noted that
specific guarantee is irrevocable. Once it is given the surety cannot revoke it during his lifetime
and even after his death the legal successors may have to owner the commitment of the deceased
