Bailment

A bailment is the delivery of goods by one person to another for some purpose upon a
contract that they shall be returned OR otherwise disposed off according to the direction
of the person delivering them, after the purpose has been accomplished.
The person delivering the goods is called as the ‘Bailor’ and the person to whom the goods
are delivered is called as the ‘Bailee’. The Contract is called as ‘bailment’.

Bailment therefore means the delivery OR handing over of goods. Change of possession of
goods for a specific purpose is the essence of Bailment.
Example :
A, delivers a piece of cloth to a tailor B, to be stitched into a suit. This would amount to
bailment.
Essentials of Bailment:
1) A Contract :
The delivery of goods should be upon a contract between the bailor and bailee. However a
person already in possession may become a bailee by a subsequent agreement.
2) Delivery of goods and change of possession :
Change of possession of goods by delivery from one person to another is essential. However
this must be for a temperory period. Mere change of custody of the goods without parting
with its possession does not constitute bailment.
Example :
A servant in custody of goods of his master ( not bailment )
This is not bailment as the right of possession of goods still is with the master.
The delivery of goods may be actual OR constructive. Actual delivery may be handing over
of the goods by the bailor.
Constructive delivery may be by doing anything that has the effect of putting the
possession of the goods in the hands of the bailee. ( eg. Handing over the keys of a car )
3) Specific purpose :
The delivery of goods in bailment must be for a specific purpose. When the purpose is
accomplished they shall be returned OR disposed off according to the direction of the
bailor.
4) Movable property :
The bailment can only be in respect of movable property. Money is not a movable property
and as such there can be no bailment in respect of money.
5) Return of the specific goods :
After the purpose for which the goods had been bailed has been accomplished the bailee
must return the goods either to the bailor OR to someone according to the direction of the
bailor.

Rights of the Bailor:

1) The return of the goods [ Section 160 & 161 ]:
The bailor has the right to receive back the goods from the bailee OR direct the goods to
be delivered to any person as soon as the time for which it has been bailed has expired OR
the purpose for which they were bailed has been accomplished.
If the goods are not returned, delivered OR tendered at the proper time the bailor can
claim compensation for any loss caused to him.
2) Treat the bailment as voidable [Section 153]:
If the bailee does any act in respect of the goods bailed, which is inconsistent with the
conditions of bailment then the contract of bailment is voidable at the option of the bailor.
3) Claim compensation for wrongful act OR use of the goods by the bailee [Section
154] :
In case of wrongful use of the goods by the bailee, the bailor can claim compensation for
any damage arising to the goods out of the wrongful use.
Eg. If the bailee wrongfully uses or disposes the goods, the bailor can terminate the
bailment and claim compensation.
4) To receive the increase of profits from the goods bailed [Section163]:
In the absence of any contract to the contrary the bailor is entitled to any increase in the
profits that may have accrued from the bailed goods.
5) In case of mixture of the goods by the bailee
a) Where the bailee with the consent of the bailer mixes the goods of the bailer
with his own goods the bailer can claim proportionate share in the mixed goods.
b) If the bailee without the consent of the bailer mixes the goods of the bailer
with his own goods & the goods can be seprated & divided the bailer can claim
expenses of separation and any damage arising out of the mixture.
c) If the bailee without the consent of the bailer mixes the goods of the bailer
with his own goods and the goods cannot be separated the bailer is entitled to
be compensated for the loss of goods.

Duties & liabilities of the bailer :

1) Put the bailee in the possession of the goods[ Section 149 ] :
The bailer should put the bailee in possession of the goods by doing anything which has
the effect of putting the bailee I possession.
2) Disclose faults in the goods bailed [ Section 150] :
The bailer is bound to disclose to the bailee
a) Faults in the goods bailed of which he is aware.
b) Faults that materially interfere with the use of them OR expose the bailee to
extra ordinary risks.
If the bailer does not disclose to the bailee the above fact is responsible for the damage
arising from such faults.
If the goods delivered are dangerous the facts should be disclosed to the bailee.
If the goods are bailed on higher the bailer is responsible for such damages whether he
was not aware of such faults in the goods.
Eg :
A hires a truck from B.The truck is unsafe though B is not aware of it. A is injured, B is
responsible for the injury of A.
3) Repay necessary expenses[ Section 158 ] :
Whereby the conditions of bailment the goods are to be kept OR to be carried on to have
work done upon them by the bailee for the bailer the bailee is to receive no remuneration.
The bailer shall repay to the bailee the necessary expenses incurred by him for the purpose
of bailment.
4) Responsibility for any loss due to defect in title [ Section 154 ] :
The bailer is responsible to the bailee for any loss which the bailee may sustain {Incur}
by reason that
 c) The title of the bailer was defective & as such the bailer was not entitled to
make the bailment.
d) The bailer is not entitled to receive back the goods OR give direction regarding
them.
5) To take back the goods :
The bailor shall take back the goods from the bailee when the purpose is accomplished OR
after the term of expiry of the bailment.
Rights of bailee:
1) Right of lien [section 170] ;
A lien is a right of any person to retain that, which is in his possession belonging to
another until certain demand of the person in possession is satisfied.
In other words a lien means the right to retain the possession of goods OR property
until the claim is satisfied.
Lien is of 2 types:
a) General lien:
It means the right to retain any goods of another until all the claim of the holder.
General lien is available only to the bankers, policy brokers &attorneys.
b) Particular lien & Specific lien:
A particular OR specific lien means the right to retain the particular goods until the
claims arising out of those goods only are satisfied.
Particular lien is attached to specific goods for the unpaid price.
Where the bailee has in accordance with the purpose of bailment rendered any
services involving the exercise of labour of skill in respect of the goods bailed in the
absence of the contract to the contrary a right to retain such goods until he
receives due remuneration OR the services he has rendered in respect of the goods.
2) Right to know faults in the goods bailed [ Section 150 ];
The bailee has the right to know the faults in the goods bailed to him of which the
bailor is aware &which would materially interfere with the use of the goods & expose
him to extraordinary risks.
If the bailor does not disclose the bailee is entitled to receive damages arising from
such faults.
3) Claim expenses of bailment [Section 158 ]:
The bailee has a right to claim expenses incurred by him for bailment.
4) Claim losses for the defect in title of the bailor [ Section 160 ]:
If the bailors title to the goods is defective by reasons of which he was not entitled to
make the bailment OR to receive back the goods. The bailee is entitled to compensation
for any loss sustained by him on account of the effect.
5) Claim proportionate share in goods mixed [Section 155 ]:
If the bailee mixes the goods of the bailor with his own goods with the consent of the
bailor the bailee has a right to claim proportionate share in the goods bailed.
6) Wrongful deprivation of the goods [Section 180 & 181]:
If a 3rd person wrongfully deprives the bailee of the use OR possession of the goods OR
does them an injury the bailee is entitled to use such remedies as the owner might have
done in a similar situation. Either the bailor OR the bailee may bring a suit against the
3rd person for such deprivation OR injury.
Duties & liability of the bailee:
I. To take reasonable care of the goods bailed. [Section 157 ]:
II. Unauthorized use of the goods bailed. [Section 154 ]:
 If the bailee makes any use of the goods bailed that is not according to the
condition to the contract he is liable to pay compensation to the bailee for the loss
OR damages to the goods.
III. Return of the goods [Section 160 & 161 ]:
IV. To deliver any increase of profits accrued on goods [Section 163 ]:
In the absence of any contract to the contrary the bailee is bound to deliver to the
bailor any increase of profits that may have accrued from the goods bailed .
Eg:
A leaves a cow,in the custody of B,to be taken care of. The cow while in the custody
of B gives birth to a calf. B is bound to deliver the cow as well as the calf to A.
V. Effect of mixture of bailor’s goods with the bailee[Section 156 & 157]

The Contract of Indemnity :

The contract of Indemnity is a contract by which one party promises to save the other
party from any loss cause to him by the conduct of the promissor himself OR by any
other person[Section 124]:
A person who promises to make good the loss
i.e. the promissor is called as the indemnifier & the person whose loss is made good is
called as the indemnifier holder.
To indemnify therefore means to save from the loss in respect of which the indemnity has
been given. As the happening of the loss is the contingency on which the liability of the
indemnifier depends.
Indemnity contracts are consider as a general class of contingent contract & therefore
has to satisfy all the essentials of a valid contract.
A contract of indemnity may be expressed OR implied from the circumstances of the
case.
Eg :
A contract of assurance other than life insurance is a type of indemnity contract
Essential of indemnity contract :
1) The contract of indemnity must contain all the essential of a valid contract
2) The promissor OR the indemnity holder must have suffered a loss. Under the English
law indemnity mean a promise to save a person harmless from the consequences of an
act. It includes instances where a person suffers a loss on acting under an instruction
of a person who is not authorized to give instruction.
Rights of an indemnity holder :
1) A indemnity holder when sued is entitle to recover from the indemnifier all
damages which he may be compelled to pay in respect of any matter to which the
promise to indemnify applies
2) All costs that the indemnity holder may be compelled to pay in any suit in instituting
OR defending it can be claimed from the indemnifier provided that the indemnity
holder did not contradict the orders of the promissor & has acted prudently.
3) All sums that the indemnity holder may have paid under the terms of any compromise
of any suit is recoverable from the indemnifier.
4) An indemnity holder can sue the indemnifier for the specific performance of the
contract of indemnity if he incurs liability that is covered by the contract of
indemnity.

The Contract of Guarantee :

 The contract of guarantee is a contract to perform the promise n discharge the liability
of a 3rd person in the case of his default.
The person who gives the guarantee is called the surety OR guarantor. The person in
respect of whose default the guarantee is given is called the principal debtor & the
person to whom the guarantee is given is called as the creditor.
The guarantee may be written OR oral. A contract of Guarantee has three parties.
A Contract of Guarantee has 3 agreements:
1) An agreement b/w the creditor & the principal debtor
2) An agreement b/w the creditor & the guarantor.
3) An agreement b/w the principal debtor & guarantor
The contract b/w the guarantor& the principal debtor is an indemnity contract
Whereby the principal debtor indemnifies the guarantor that if ha pays any amount on
account of the default committed by the principal debtor the surety would be indemnified
for the loss [Section 126]
Essentials of a Contract of Guarantee:
1) There must be a dept existing which should be recoverable.
2) There must be 3 parties in the Contract of Guarantee.
3) There must be a promise oral OR written by the surety to pay the dept
incase of the default committed by the principal debtor.
4) The liability of the principal debtor is primary {first liability} & the liability
of the surety is secondary
5) There should be some consideration.
6) The liability of the surety must be legally enforceable.
7) The Contract of Guarantee must have all the essentials of a valid contract.

Distinction Between Indemnity and Guarantee:

Sr. No. Contract of Indemnity Contract of Guarantee

1 There are two parties involved in the
contract namely the Indemnifier and
the Indemnity Holder.
2 There is only one agreement
between the Indemnity holder and
the Indemnifier
3 The liability of the Indemnifier is
primary.
4 The main object of the contract is
the reimbursement of loss.
5 The liability of the Indemnifier arises
only on the happening of a
contingency I.e. loss suffered by the
Indemnity holder.
6 Right to sue the indemnifier can be
exercised by the indemnity holder
however the indemnifier cannot sue
There are three parties namely the
Principal Debtor, Creditor and the
Surety.
There are three agreements 1.Between
Creditor & Principal Debtor, 2. Between
the Surety & Creditor and 3. Implied
agreement of Indemnity between the
Principal Debtor & Surety.
The Liability of the Surety is secondary
and arises if the principal debtor
defaults.
The main object of the contract is
surety of performance.
The liability OR debt is already in
existence & it is only the performance of
which that if guaranteed by the surety.
The surety if held liable can sue the
principal debtor and recover his loss.
 the third party for his loss.

Continuing Guarantee [Section 129] :

A guarantee that extends to a series of transaction between the creditor and the principal
debtor is called as a Continuing guarantee. A guarantee may cover a single OR a specific
transaction OR a series (separate and distinct) of transaction.

A guarantee that covers a single transaction is called as SINGLE GUARANTEE and that which
covers a series of transaction is called as CONTINUING GUARANTEE.
In a single guarantee the liability of the surety exists only for a single or a specific
transaction. In Continuing guarantee the liability is not restricted to a single transaction but
it extends to a series of transaction.
Whether a guarantee is single or continuing depends upon the intention of the parties,
language of the guarantee and the position of the parties at the time the instrument was
written.
A guarantee for payment of a certain sum of money, in installments, within a definite time is
not a continuing guarantee.
Revocation of Continuing Guarantee:
1. By notice [Sec. 130]
The surety may at any time revoke a Continuing guarantee by notice to the creditor.
A notice of revocation by the surety to the creditor is sufficient to revoke the Continuing
guarantee as to all future transactions. Notice by the surety must be clearly and sufficiently
given. The liability of the surety ceases from the day of the service of the notice upon the
creditor.
A single guarantee cannot be revoked by notice if the liability has already arisen.
2. By death of Surety [Sec. 131]:
In the absence of a contract to the contrary the death of the surety operates as a revocation
of the continuing guarantee as regards the future transaction.
3. By discharge of the Surety ;
A Continuing guarantee is also revoked when the surety is discharged in any one of the
following ways:
a) By variance OR variation in the terms of the contract [Sec. 133]:
Any variation made, without the consent of the surety, in the terms of contract between
the Creditor and Principal debtor discharges the surety in respect of all future transactions.
i.e. any future transaction after the date of variance.
This is based on the principle that there is also a contract between the surety and the
principal debtor and the surety and creditor which may be effected because of the variation.
b) By release OR discharge of the principal debtor [sec. 134] :
The surety is discharged by any contract between the creditor and the Principal debtor by
which the principal debtor is discharged of his liabilities OR when the principal debtor is
discharged by an act of the creditor the consequence of which discharges the principal
debtor.
Eg. A contracts to build a house for B for a fixed price within a fixed time under the
condition that B would supply the raw material for construction. C guarantees the
performance of A. B fails to supply the raw materials on time. C is discharged of his liability.
c) By the creditor compounding with the principal debtor [Sec. 135] :
A contract between the creditor and the principal debtor by which the creditor makes a
compromise with the principal debtor or gives the principal debtor time to sue will discharge
the surety unless he has consented to the compromise.
d) By misrepresentation :
Where, a creditor misrepresents to the surety regarding the material facts, the guarantee is
invalid and the surety is discharged.
e) By the creditors act OR omission impairing the surety’s eventual remedy [Sec. 139] :
If the creditor does any act which is inconsistent with the rights of the surety OR omits to
do any act which he is bound to do towards the surety and which takes away the eventual
remedy of the surety against the principal debtor then the surety is discharged of his
liabilities.
Eg: B contracts to build a ship for C for a certain sum of money to be paid in installments as
the work reaches different stages. A guarantees the performance of B. C without the
knowledge of A prepays the last 2 installments to B. C is discharged of his liability because of
the prepayment.
f) By the concealment of material facts [Sec. 143] :
In case the creditor or the principal debtor, conceal facts, which are material to the
contract, from the surety the surety is discharged of his liability.
g) By the failure of the co-surety to join [ Sec. 144] :
Failure on the part of a person to join the contract as a co-surety, where the first surety had
given the guarantee under the expressed condition that the creditor shall not act upon the
guarantee unless the other person is joined as a co-surety, will discharge the surety of his
liability.
A surety is not discharged in the following cases:
a) When an agreement is made by the creditor with a third party to give time to the principal
debtor.
Eg.: A promised B to repay certain amount within a fixed period. C has guaranteed the
performance of B. A contracts with D whereby he agrees to give extra time for repayment to
D. In such a case C will not be released of his liabilities as a surety.
b) Creditors forbearance to sue the Principal debtor [Sec. 137] :
Mere forbearance on the part of the creditor to sue the principal debtor OR to enforce any
remedy against him does not in the absence of a contract to the contrary, discharge the
surety.
Eg: B owes C a debt guaranteed by A. The debt becomes payable but C does not sue B for a
year after the default. This will not discharge the surety of his liability.
c) By release of one of the Co-sureties. [Sec. 138]:
When two or more persons guarantee the performance of a debt they are called as joint co-
sureties.
When there are co-sureties in a contract of guarantee the release by the creditor of one of
them does not discharge the others, neither does it discharge the surety so released from
his responsibilities towards the other sureties.
Eg.: A owes C a debt which is guaranteed by 3 sureties S1,S2 and S3. C releases S3 of his
liabilities. S1 and S2 are not released of their liabilities towards C. Though S3 has been
released of his liabilities towards C he is not released of his liabilities towards S1 and S2.

RIGHTS OF A SURETY:
1) Right of Subrogation [Sec 140]:
This is the right of surety against the principal debtor where the guarantee debt has become
due on the default of the principal debtor to perform a guarantee duty has taken place and
the surety is liable to perform. The surety upon the payment OR performance is vested with
all the rights which the creditor had against the principal debtor.
2) Right of Indemnity[Sec. 145]:
The surety has a right of indemnity against the principal debtor i.e. the principal debtor is
bound to make good any loss suffered by the surety on account of the default on the part of
the principal debtor.
3) Right to the benefits of the creditors securities [Sec. 141]:
If the principal debtor has given certain securities in addition to the surety, the surety will
have a right over the securities and if the creditor releases the securities without the
consent of the surety then the surety is released of his liability to the extent of the amount
of the security so released.
4) Right against the co-sureties[Sec 146 & 147]:
Where there are more than one sureties guaranteeing they are liable to share the debt or
equal share of the part that has remained unpaid.

CONTRACT OF AGENCY :

An agent is a person employed to do any act for another OR represent another in dealing with
a third party.
The person for whom such an act is done OR who is represented is called as the Principal and
the person employed OR who represents is called as the Agent. The relation between them is
agency.
An agent therefore brings together his principal and the third party. An agent is bound to
follow the lawful instructions of the Principal.

Essentials of agency:
1) The principal must be competent to contract [Sec 183]:
Any person who has attained the age of majority according to the law to which he is subject
and who is of a sound mind may employ an agent. This means that a minor cannot appoint an
agent as a minor’s contract is void.
2) any person can become an agent [section 184]:
any person can become an agent but no person who has not attended the age of majority &who
is not of a sound mind can become an agent so as to be responsible to the principal according
to the provisions in that behalf.
The section therefore states that even a minor OR a person of an unsound mind as an agent is
not responsible the principal therefore the agent who is a minor OR a person of an unsound
mind can represent the principal before third person & bind the principal by their acts.
The agent does not incur any personal liability. The contract of agency is based on the maxim
“Quit facit alium faut perse” meaning he who acts through others acts himself.
3) no consideration for the creation of agency [section 185]:
Creation of agency:
Agency is created by a contract b / w the principal & the agent in which the principal
authorizes the agent to act on his behalf.
This contractual relation b/w the principal & the agent can take place in any of the following
ways:
1) Agency by agreement [section 186 & 187]:
The agreement can be expressed OR implied.
a) Expressed agreement :
The authority of the agent may be expressed by writing OR orally OR by a simple
agreement.
 The agreement is expressed when it is given by words spoken OR written

b) Implied agreement :
An authority is said to be implied when it is inferred from the conduct situation OR the
relation of the parties OR circumstances of the case by the ordinary course of dealings.
2) Agency by necessity [section 189] :
When one is compelled to act as an agent of another without the authority of that other such
an agency is known as agency by necessity.
An agent has an authority in any emergency to do all such acts for the principal for the
purpose of protecting from any loss if the act done is such as would be done by a person of
ordinary prudence in his own case.
Eg:
1) The master of a ship may borrow money to carry out necessary repairs to the ship.
Such an act by the master in the absence of an owner would be binding on the
owner {principal}. He should act in the interest of the parties concerned.
2) An agency is created b/w a husband or wife i.e. a wife may purchase goods which
are necessary and bind the husband for the payment of the same.
3) Agency by estoppel OR holding out [section 237] :
When an agent has without the authority done an act OR has incurred an obligation to a third
person on behalf of his principal the principal is bound by the act OR obligations if he has by
words OR conduct induced the third person to believe that the act OR obligation were within
the scope of the agents authority.
In other words when a principal by his words OR conduct induces a third party to believe that
a certain person is his agent he is precluded from subsequently denying the fact of agency.
Eg:
B a servant of A purchases goods from C on credit for A without the authority of A. later A
pays for the goods. He has induced C to believe that B is his agent and therefore will be
bounded by subsequent purchases made by B from C for A even if they are made without
authority.
4) Agency by operation of law:
In a particular firm a partner is an agent of the other partner and of the partnership for
while dealing with third parties. The act of the partner while carrying on the business of the
firm in the usual way binds the firm and its partners. This is an implied agency created by the
operation of law.
5) Agency by ratification [section 195-200]:
Where a person on behalf of another but without his knowledge does an act OR authority the
other person may elect to ratify OR to disown such an act.
If he ratifies them the same effect will follow as if the act had been done with the previous
authority [section 196]
The ratification may be expressed OR implied by the conduct on whose behalf the act has
been done [section 197]
Eg:
A without the authority buys a good for B. later B sells them to C as his own.
B’s conduct implies a ratification of the purchase made by A.
By ratification the person becomes an agent with retrospective effect i.e. he becomes an
agent from the time he has done the act and not from the time act has been ratified
Ratification would constitute as if the act was done with the previous permission of the
principal.
Rules regarding ratification:
 1) A person on behalf of another must do the act.
2) The act must be done without the knowledge OR the authority of the person on whose
behalf the act has been done.
3) The person on whose behalf the act has been done must be legally in existence at the
time of the act.
4) The ratification may be done by expressed terms OR could be implied by the conduct.
5) A person whose knowledge of the facts of the case is materially defective can make no
valid ratification.
6) The principal must be competent to ratify both at the time of the contract i.e. the time
when the act has been done and also at the time of ratification.
7) The ratification must be done within a reasonable time.
8) Ratification must be communicated.
9) Ratification must be of the whole contract and not a part of it.
10) Ratification should no put a third party to damages.
Sub agent:
A sub agent is a person employed by and acting under the control of the original agent in the
business of agency [section 191]
An agent appointed by an original agent would therefore be termed as a sub agent.
The relation of the sub agent to that of the original agent is that of a principal and agent.
As a general rule an agent cannot delegate his authority to another. This is based on the
maxim “delegatus non protest deligare “which means a delegatee cannot delegate i.e. one
who has an authority from another to do an act must do it himself and cannot delegate the
authority to another therefore an agent cannot lawfully appoint another person to perform
the act which he has expressly OR impliedly undertaken to perform personally.
However there are certain exceptions to this rule
i.e. when an agent can appoint another person as an agent to act as a sub agent.
1) A sub agent may be employed by an ordinary custom of the trade.
Eg:
Appointment of sub agents like architects, engineers, lawyers by an agent for the sake
of development of land.
2) From the nature of the agency a sub agent may be employed
Eg:
An agent authorized to find OR defend suits may engage a lawyer {sub agent}.
3) Where unforeseen emergencies arise necessitating OR compelling the agent to appoint
a sub agent it would be allowed.
4) The acts of the sub agent are of purely ministerial nature like an authority to sign .
5) Where circumstances exists to reasonably presume that the parties to the contract
originally intended that the authority would be delegated.

Relation between the principal, agent and sub agent:

The relation between principal, agent and sub agent depends upon whether the agent has an
authority to appoint a sub agent and whether the sub agent has been properly appointed.
a) If the sub agent has been properly appointed the principal is a liable for the act of the sub
agent:
The sub agent is not responsible to the principal because there is no privity of contract b/w
the sub agent and the principal. It is only the case of fraud that the principal may proceed
against the sub agent.

b) Where the sub agent is not properly appointed:

Where an agent has appointed aperson to act as a sub agent without the authority to do so
the principal shall not be liable for the acts of the sub agents so employed nor is the sub
agent responsible to the principal. The agent is responsible for the acts of such a sub agent
both to the principal and the third person.
Duties of an agent:
1) To conduct the business of the principal under his instructions [section 211]
2) To conduct the business with skill and diligence [section 212]
3) To render proper accounts to the principal [section 213]
4) T pay sums received from the principal [section 217 and 218]
5) To communicate with the principal while in difficulty [section 214]
6) On he death OR insanity of the principal he is bound to protect and preserve the interest
of the principal [section 209]
7) Not to deal with the goods of the principal on his own account [section 215]
8) Must not earn secret profits [section 216]
9) Not to delegate [section 190]
10) Liable for the acts of the sub agents [section 192 and 193]
11) Liable for misrepresentation OR fraud [section 238]
12) Liable for misconduct [section 220]
Rights of an agent:
1) Right to retain [section 217]:
The agent may retain out of the sum of the principal all monies due to himself in respect of
advances mode OR expenses incurred in conducting the business of the principal.
He can retain only such sums as in his possessions. He cannot retain the sums received by
him in one business for his remunerations in another business.
2) Right to claim remunerations [section 219]
3) Right of lien {particular lien} [section 211]
4) Right of indemnity [section 222 and 223]
5) Right of compensation [section 225]
6) To do all lawful things for the purpose of agency [section 188]
7) The emergency he is entitled to do any act to protect the interest of the principal
[section 189]
8) To appoint a substitute agent [section 194]
9) To renounce agency [section 201]
10) Compensation for premature revocation.
Duties and liabilities of a principal:
1) To indemnify the agent [section 222 and 223]
2) To compensate the agent for any injury caused [section 225]
3) To pay remunerations and dues to the agent [section 217]
4) Misrepresentations OR fraud by an agent [section 238]:
Misrepresentations OR fraud committed by an agent acting in the course of business
for his principal has the same effect as if the misrepresentations OR fraud has been
committed by the principal. Hence the principal is liable for these acts of the agent to
3rd parties.
5) All contracts entered into by the agent with third persons [section 226]
6) All notices given to the agent [section 229]
7) Where the principal induces a 3rd party to believe that the agents unauthorized acts
were authorized [section 237]
Rights of the principal:
1) To repudiate the contract [section 215 ]:
 Where an agent deals with his own account in the business OR agency without obtaining
the consent of his principal and acquainting him with all material circumstances which
has come to the knowledge of the principal the principal in such cases
a) Repudiate the transaction.
b) Affirm the transaction and claim benefits.
c) Claim damages for any loss caused to him.
2) To claim benefits out of secret profits made by the agent [section 216].
3) To ratify OR disown the agents act [section 196]
4) To revoke agents authority [section 203]
5) To claim for loss in profit [section 211 and 212]
6) To demand accounts [section 213]
7) To refuse remunerations when the agent is guilty of misconduct.
Termination of agents:
An agent may be terminated in any of the following ways
1) By the act of the parties [section 201]:
a) By agreement:
When both the parties to the contract terminate agency by way of an agreement.
b) By revocation:
When the principal revokes the contract agency.
c) By renouncing:
By renouncing the agency on the part of the agent.
d) By completion:
By the completion OR performance.
2) By the operation of law:
a) By the death OR insanity of the principal OR the agent.
b) By the insolvency of the principal.
3) By another mode of termination:
a) By the flux of time:
Where an agency is for a fixed period it is terminal on the expiry of the time
whether the purpose for which the agency has been created is accomplished OR not.
b) By destruction of the subject matter of the contract.
c) Where the object of the agency becomes unlawful.
d) When the principal OR the agency becomes on alien enemy.
 Question bank

1. Define Bailment. What are its essentials? What are the right and liabilities of a
Bailee/ bailor?
2. What is a contract of Agency? What are the different methods for creation of
an Agency?
3. Define agency. What are its essentials .what are the different ways of
Termination of agency?
4. Define the contract of Guarantee. When is the surety discharged of the liability
Under the provisions of the Indian contract act?
5. What is a ‘Contract of Pledge’? What are the rights and liabilities of a pledgee?
6. Define and explain a Contract of Indemnity. What are the rights of an Indemnity
Holder?

Short Notes:
1. Rights of indemnity holder.
2. Contract of Pledge.
3. Termination of Agency
4. Sub-agent
5. Contract of Guarantee
6. Right of lien
7. Continuing Guarantee
8. Rights of Surety
9. Rules of ratification / agency by ratification
10. Rights of an Agent
11. Duties and liabilities of the Principal
12. Duties and liabilities of an Agent
13. Rights of bailer and Bailee
14. Contract of Indemnity
15. Rights of Pledgee.