Contracts are of many types such as standard form of contract, quasi-contract
and specific contracts. They all have distinct salient features from each other.
Bailment, pledge, indemnity, guarantee and agency, come under specific
Standard Form of Contract
Contract is a legal agreement between two or more patties, enforceable by court
of law. While preparing the contract, standard form of contract is a
prerequisite condition. It is also known by the name contract of adhesion or
boilerplate contract. It can be defined as a contract between two parties that
does not allow for negotiation. This type of contract is mainly signed between
unequal bargaining parties.
Party which has a bargaining power utilizes standard form of contract primarily
to his or her advantage. It helps business houses in concluding their volume of
transactions. Some prominent examples of standard form of contract are
insurance, carriers, banks courier and residential leases etc.
Acceptance of Standard Form of Contract
Standard form of contract is widely accepted by the people because of following
Advantages of standard form of contract
- The foremost reason behind acceptance of standard form of contract is
that people do not read the contract thoroughly.
- In such contract, people mainly give attention to the clauses related
with the prices, they don't really care about other clauses.
- Many times, a dominating party create pressure over other, moreover they
discuss terms orally.
- Most important reason behind acceptance of such contract is that people
do not have any choice but to accept it.
Disadvantages of Standard Form of Contract
- It helps in reducing the cost of contract.
- It is time efficient in nature, as there is no scope of negotiation.
Thus, it speeds up the bidding process.
- Such contracts consist of standardized clauses, which are suitable for
- The clauses of standard form of contract do not change frequently.
Therefore, it is easy for people to become familiar with the terms of
standard contacts of their industry.
- Its terms and conditions are decided by one party and other party does
not have any bargaining power.
- The prices of goods and services are fixed, there is no scope of
negotiation in it.
- The language used in standard contact is of high standard. Each word has
a specific meaning. So, it becomes difficult for people to understand it
A quasi-contract, also known as implied-in-law contract, is a contract created
by a court order. This type of contract is not a result of agreement by the
parties to the contract. The term 'Quasi' refers to pseudo, thus quasi-contract
is a pseudo contract.
The quasi-contract derives its existence from the maxim “No man must grow rich
out of another person's loss”. Moreover, it is based on the principle of
justice, equity and good conscience. It is a retroactive arrangement between two
parties who have no previous obligations to one another.
For example: A makes a contract with B, to supply 10 kg sweets to B on certain
occasion, however by mistake, A delivers sweets to B's neighbour C. C eats them
as he thinks that someone has sent him sweets. Although, there is no contract
between A and C, but court treats this as quasi-contract and orders C either to
return the 10 kg of sweet or pay to A, a sum of money equal to the value of
Features of Quasi-contract
History of Quasi-contract
- A quasi-contract cannot be considered as a real contract.
- It does not rely on express or implied intention of the parties.
- The offer and acceptance rule becomes negligible in case of
- Such a contract lacks the basic element of a valid contract i.e. consent
of the parties.
- The receipt of the item must have accepted or the acknowledged by the
- A plaintiff must be able to present evidence that he/she has served
tangible item or service to another person.
- Such contracts are not a result of any legal agreement, but they are
imposed by law.
- As they are meant for ensuring justice, these are also known as
- Quasi-contract follows principle of 'Nemo debet locupletari ex aliena jactura' (no
one should be enriched by another's loss).
The concept of quasi-contract evolved during the middle ages. The practice of indebitatus
assumpsit laid down the foundation stone of the quasi-contract. Indebitatus
assumpsit was a mechanism, through which the courts used to make one party pay
another as if a contract had been created between two parties. After number of
such rulings by the courts, it was accepted that it is defendant's obligation to
be bound by the contract which is seen as implied by law.
Further, concept of 'unjust enrichment' helped in the evolution of
quasi-contracts. It refers to an individual receiving benefit unfairly, whether
it's by chance or as the result of another person's misfortune.
Provisions for Quasi-contract under the Indian Contract Act, 1872
The Indian Contract Act, 1872 does not explicitly contain provisions regarding
quasi-contract. However, there are certain obligations mentioned in the Act, for
those contracts which miss one or more essential elements of a valid contract,
but are still enforceable by in a court of law. The Chapter V (Section 68 to 72)
contains indirect provisions regarding quasi-contract, which are as follows:
Section 68 of the Act
This section relates to the provisions of 'Claim for necessaries supplied to
person incapable of contracting, or on his account'.
According to this section, if a person, incapable of entering into a contract,
or any one whom he is legally bound to support, is supplied by another person
with necessaries suited to his condition in life, the person who has furnished
such supplies is entitled to be reimbursed from the property of such incapable
For example: A supplies B, a lunatic, with necessaries suitable to his condition
in life. A is entitled to be reimbursed from B's property.
Section 69 of the Act
This section covers 'Reimbursement of person paying money due by another, in
payment of which he is interested'.
According to the provisions of this section, a person who is interested in the
payment of money which another is bound by law to pay, and who therefore pays
it, is entitled to be reimbursed by the other.
For example: B holds land in Bengal, on a lease granted by A, the zamindar. The
revenue payable by A to the government being in arrears, his land is advertised
for sale by the government. Under the revenue law, the consequences of such sale
will be the annulment of B's lease. B to prevent the sale and the consequent
annulment of his one lease pays to the government the sum due from A. A is bound
to reimburse to B, the amount so paid.
Obligation of Person Enjoying Benefit of Non-gratuitous Act (Section 70)
Where a person lawfully does anything for another person, or delivers anything
to him, not intending to do so gratuitously, and such other person enjoys the
benefit thereof, the latter is bound to make compensation to former in respect
of, or to restore, the thing so done or delivered.
For example: A, a tradesman, leaves goods at B's house by mistake. B treats the
goods as his own. He is bound to pay A for them.
A saves B's property from fire. A is not entitled to get compensation from B, if
the circumstances show that he intended to act gratuitously.
Responsibility of Finder of Goods (Section 71)
A person who finds goods belonging to another, and takes them into his custody,
is subject to the same responsibility as a bailee.
Duties of the finder of goods
are as follows:
Rights of the finder of goods are as follows
- It is the duty of finder of goods to take proper care of the goods. The
finder should restrain himself from utilizing goods.
- A wise finder should not mix goods with their personal goods. After
getting goods, finder should make effort to find real owner of the goods.
- The finder has right to lien, which means he has a right to have custody
of goods, until he gets the compensation of expenses which he has incurred
on finding the owner.
- In situation of announcement of reward by the owner, a finder has right
to sue owner for such reward.
- A finder has a right to sell goods in following conditions:
- if owner is not found
- required compensation is not given, and
- goods are perishable in nature.
Section 72 of the Act
This section deals with 'Liability of person to whom money is paid, or thing
delivered, by mistake or under coercion'.
According to the provisions of this section, a person to whom money has been
paid, or anything delivered, by mistake or under coercion, must repay or return
For example: A and B jointly owe rupee 100 to C, A alone pays the amount to C,
and B, not knowing of this fact, pays rupee 100 over again to C. C is bound to
repay the amount to B.
A railway company refuses to deliver up certain goods to the consignee, except
upon the payment of an illegal charge for carriage. The consignee pays the sum
charged in order to obtain the goods. He is entitled to recover so much of the
charge as was illegally excessive.
Contracts which have certain specific features are known as specific contract.
These types of contracts are distinct from other contracts. The Indian Contract
Act, 1872 contains certain specific contracts such as bailment, pledge,
indemnity, guarantee, agency etc. All of the mentioned contracts are discussed
As per Section 148 of the Act, a bailment is a transaction whereby one person
delivers goods to another person for some purpose, upon a contract that they
are, when the purpose is accomplished, to be returned or otherwise disposed off
according to the directions of the person delivering them. The person who
delivers the goods is called 'the bailor' and the person to whom they are
delivered is called 'the bailee'. The ownership of the goods remains with the bailor, the bailee, getting only the possession while delivery of goods may be
actual or constructive.
Types of Bailment
Bailment that benefit both the bailor and bailee
There are many bailment's that benefit both the bailor and bailee.
For example: A park his car in a parking lot of B. In this case, A is bailor and
owner of parking lot and B is bailee. A will get the benefit of parking car and
the owner would get the benefit of the fee paid. The owners of parking lot can
face liability for damaging the bailed items, if they were negligent.
Bailment that only Benefit the Bailor
There are certain bailments in which only bailors are benefited. This type of
bailment is also referred to as gratuitous bailment, as the bailee does not
receive any compensation.
For example: someone is offering free transport services for any reason, you
utilize its services, you are benefited but the transport provider, a bailee,
does not get benefit from it. A bailee can face liability for damaging the
bailed items if they have been grossly negligent or acted in bad faith.
Bailment that only Benefits the Bailee
It is a kind of bailment in which property is temporarily transferred to bailee
without giving anything to the bailor in return. There are many cases where only
the bailee is benefited, checking out a book or movie from the library would be
common example of this.
Contrary to gratuitous bailment, a non-gratuitous bailment or bailment for
reward is one that involves some consideration passing between the bailor and
the bailee. In this case, the delivery of goods takes place for the mutual
benefit of both the parties.
For example: Amit hires Sumit's
Duties and Liabilities of a Bailor
Rights and Liabilities of Bailee
- It is the foremost responsibility of bailor to disclose all the material
information about the goods to the bailee.
- If bailee sustains any loss by reason of the fact that bailor did not
disclosed, so bailor will be responsible for it.
- It is onus to compensate the loss suffered by the bailee, where he was
compelled to return the goods before the expiry of the period of bailment.
- A bailor has to accept the goods, when they are returned by the bailee in
accordance with the terms of the agreement.
Provisions for Bailment under the Indian Contract Act, 1872
- Bailee has a right to retain the property which is in his possession.
- Bailee has right against wrongful deprivation of or injury to goods.
- He has responsibility to take care of goods bailed to him.
- A bailee has to return goods according to the bailors direction.
There are several sections in the Indian Contract Act, 1872 that cover the
various aspects of the bailment, which are as follows:
Delivery to Bailee How Made (Section 149)
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 (Section 150)
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
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
For example: A lends a horse, which he knows to be vicious, to B. He does not
disclose the fact that horse is vicious. The horse runs away. B is thrown and
injured, A is responsible to B for damage sustained.
Care to be Taken by Bailee (Section 151)
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 (Section 152)
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 as described in Section 151.
Section 183 of the Act
This section deals with Termination of bailment by bailee's act inconsistent
with conditions. According to the provisions of this section, a contract of
bailment is avoidable at the option of the bailor, if the bailee does any act
with regard to the goods bailed, inconsistent with the conditions of the
For example: A lets to B, for hire, a horse of his own riding. B drives the
horse in his carriage. This is, at the option of A, a termination of the
Section 154 of the Act
This section deals with 'Liability of bailee making unauthorized use of goods
According to the provisions of this section, 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 used of them.
For example: 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.
Section 155 of the Act
This section deals with 'Effect of mixture with bailor's consent of his goods
According to the provisions of this section, 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.
Section 156 of the Act
This section deals with 'Effect of mixture without bailor's consent, when the
goods can be separated'.
According to the provisions of this section, 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 expense of separation or
division, and any damage arising from the mixture.
For example: 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
Section 157 of the Act
This section deals with 'Effect of mixture without bailor's consent, when the
goods cannot be separated'.
According to the provisions of this section, 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.
Repayment by Bailor, of Necessary Expenses (Section 158)
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.
Section 160 of the Act
This section deals with 'Return of goods bailed on expiration of time or
accomplishment of purpose'.
According to the provisions of this section, it is the duty of the 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 of which they were bailed has been accomplished.
Section 161 of the Act
This section deals with 'Bailee's responsibility when goods are not duly
According to the provisions of this section, if, by the fault 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.
Bailor's Responsibility to Bailee (Section 164)
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.
Right of Third Person Claiming Goods Bailed (Section 167)
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 (Section 168)
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.
A pledge is a special kind of bailment, in which goods are delivered or
transferred, as an object to provide security for a loan or mutual obligation.
According to Section 172 of the Indian Contract Act, 1872, “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
Provisions for Pledge Under the Indian Contract Act, 1872
Sections of the Indian Contract Act dealing with pledge are as follows:
Pawnee's Right of Retainer (Section 173)
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.
Section 174 of the Act
This section deals with 'Pawnee not to retain for debt or promise other than
that for which goods pledged (Presumption in case of subsequent advances)'.
According to the provisions of this section, the pawnee shall not, in the
absence of a contract to that effect, retain the goods pledged for any debt or
promise other than the debt or promise for which they are pledged, but such
contract in the absence of anything to the contrary, shall be presumed in regard
to subsequent advances made by the pawnee.
Section 175 of the Act
This section deals with 'Pawnee's right as to extraordinary expenses incurred'.
According to the provisions of this section, 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 (Section 176)
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 pledge 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 Pawner's Right to Redeem (Section 177)
If a time is stipulated for the payment of the debt, of 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
Section 178-A of the Act
This section deals with 'Pledge by person in possession under voidable
According to the provisions of this section, when the pawnor has obtained
possession of the goods pledged by him under a contract voidable under Section
19 or Section 19-A, 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.
Section 179 of the Act
This section deals with 'Pledge where pawnor has only a limited interest'.
According to the provisions of this section, where a person pledges goods in
which he has only a limited interest; the pledge is valid to the extent of that
In legal term, indemnity simply means insurance. It is referred as a holistic
form of insurance compensation for damages or loss, and in the legal sense, it
provide for exemption from liability for damages. It is meant for security and
protection against a financial liability. According to Section 124 of the Act, a
contract by which one party promises to save the other from loss caused to him
by the contract of the promissory himself, or by the conduct of any other
person, is called a contract of indemnity.
Essential elements of contract of indemnity
Existence of All Elements of a Valid Contract: It is essential for a contract of
indemnity that all the essential elements of a valid contract must be present,
otherwise indemnity would not be valid. It means there must be offer,
acceptance, consideration, capacity of parties to contract etc.
Promise to Save from Loss: It is essential for a valid contract of indemnity
that there must be a promise by the indemnified to save the indemnity holder
from the loss. The loss may be caused by the conduct of the promisor himself or
by the conduct of any other person. It means loss must be caused by a human
agency. The losses caused by accidents are not covered under the contract of
indemnity, that's why contract of insurance is not a contract of indemnity.
Contract may be Express or Implied: Contract of indemnity may be express (by
words oral or written) or implied. Implied means contract of indemnity is
inferred from the conduct of parties or from the circumstances of the case.
Commencement of Liability of Indemnifier: Liability of the indemnifier commences
when the indemnity holder had really incurred a liability and the liability is
absolute. The indemnity holder can claim damages for only actual amount of
liability which the indemnity holder had incurred.
Rights of Indemnity Holder
According to Section 125 of the Indian Contract Act, 1872, the promisee in a
contract of indemnity, acting within the scope of his authority, is entitled to
recover from the promisor:
- all damages which he may be compelled to pay in any suit in respect of
any matter to which the promise to indemnify applies; [Section 125(1)]
- all costs which he may be compelled to pay in any such suit if, in
bringing or defending it, he did not contravene the orders of the promisor,
and acted as it would have been prudent for him to act in the absence of any
contract of indemnity, or if the promisor authorized him to bring or defend
the suit; [Section 125(2)]
- all sums which he may have paid under the terms of any compromise of any
such suit, if the compromise was not contrary to the orders of the promisor, and
was one which it would have been prudent for the promisee to make in the absence
of any contract of indemnity, or if the promisor authorized him to compromise
the suit. [Section 125(3)]
As per Section 126 of the Act, 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 for whom the
guarantee is given is called 'the principle debtor' and the person to whom the
guarantee is given is called 'the creditor'. A guarantee may be either oral or
written, although in the English law, it must be in writing. Like a contract of
indemnity, a guarantee must also satisfy all the essential elements of a valid
Essential Elements of a Contract of Guarantee
Agreement of Three Parties: For signing and executing contract of guarantee
there should be at least three parties i.e. the principle debtor, the creditor
and the surety. All of them must agree with the terms and conditions of the
Consideration: The consideration is the second basic element of a contract of
guarantee. The Section 127 of the Act states that consideration is important for
a contract of guarantee. It should be fresh consideration given by the creditor
and not a past consideration. In State Bank of India v. Premco Saw Mill, the
court held that such patience and acceptance by the State Bank of India
constituted good consideration for the past.
Liability: The liability plays very significant role in the contract of
guarantee. It is onus of the principal debtor to fulfill the terms of the
contract. The liability of a surety is secondary.
Presupposes the Existence of a Debt: The primary objective of such a contract is
to secure the payment of the debt taken by the principal debtor. So, it is a
debt which forms basis of the contract of guarantee. Hence, there will be
nothing left for the surety to secure.
Must Contain All the Essentials of a Valid Contract: Apart from above mentioned
elements, a contract of guarantee must contain all those things which are
mandatory for the valid contract. The essential elements of a valid contract
include-free consent, valid consideration, offer and acceptance, intention to
create a legal relationship etc.
No Concealment of Facts: one thing that needs to be kept in mind while making
contract of guarantee is that there should be any concealment of facts. It is
the duty of creditor to disclose all the facts to the surety, thus surety will
be aware about the terms of liability. If anyone signs a contract of guarantee
by the concealment of facts, then such contract will be treated as invalid and
will be unenforceable.
No Misrepresentation: It will be illegal to obtain guarantee through
misrepresenting the facts to the surety. All the facts which may affect the
extent of surety's responsibility, must be represented in simple and lucid
Kinds of Guarantee
Guarantee can be mainly categorized into two types, which are as follows:
Specific Guarantee: As the name suggest, specific guarantee meant for only
specific transaction or debt. Once, such transaction or debt is repaid or
obligation is fulfilled, then specific guarantee is discharged. Such contract
deals with some prominent subjects only.
Continuing Guarantee: When a guarantee keeps on arising for a series of
transactions, it is known as continuing guarantee. In this type of guarantee,
the guarantor has liability for all the transactions. Contract of guarantee is
not discharged until revoked.
Provisions for Guarantee under the Indian Contract Act, 1872
There are many sections in the Indian Contract Act, 1872, which contain
provisions regarding guarantee, which are as follows:
Consideration for Guarantee (Section 127)
Anything done, or any promise made, for the benefit of the principal debtor, may
be a sufficient consideration to the surety for giving the guarantee.
For example: A sells and delivers goods to B. C afterwards requests A to forbear
to sue B for the debt for a year, and promises that, if he does so, C will pay
for them in default of payment by B. A agrees to forbear as requested. This is a
sufficient consideration for C's promise.
Surety's Liability (Section 128)
The liability of the surety is co-extensive with that of the principal debtor,
unless it is otherwise provided by the contract.
For example: A guarantees to B the payment of a bill of exchange by C, the
acceptor. The bill is dishonoured by C. A is liable, not only for the amount of
the bill, but also for any interest and charges which may have become due on it.
Continuing Guarantee (Section 129)
A guarantee which extends to a series of transactions is called a continuing
For example: A guarantees payment to B, a tea-dealer, to the amount of 100, for
any tea, he may from time to time, supply to C. B supplies C with tea to above
the value of 100, and C pays B for it. Afterwards, B supplies C with tea to the
value of 200. C fails to pay. The guarantee given by A was a continuing
guarantee, and he is accordingly liable to B to the extent of 100.
Revocation of Continuing Guarantee (Section 130)
A continuing guarantee may at any time be revoked by the surety, as to future
transactions by notice to the creditor.
For example: A guarantees to B, to the extent of 10,000 that C shall pay all the
bills that B shall draw upon him. B draws upon C. C accepts the bill. A gives
notice of revocation. C dishonours the bill at maturity. A is liable upon his
Revocation of Continuing Guarantee by Surety's Death (Section 131)
The death of the surety operates, in the absence of any contract to the
contrary, as a revocation of a continuing guarantee, so far as regards future
Guarantee Obtained by Misrepresentation Invalid (Section 142)
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 (Section 143)
Any guarantee which the creditor has obtained by means of keeping silence as to
material circumstances, is invalid.
For example: A engages B as clerk to collect money for him. B fails to account
for some of his receipts and A in consequence calls upon him to furnish security
for his duly accounting. C gives his guarantee for B's duly accounting. A does
not acquaint C with B's previous conduct. B afterwards makes default. The
guarantee is invalid.
Section 144 of the Act
This section deals with 'Guarantee on contract that creditor shall not act on it
until co-surety joins.
According to the provisions of this section, 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
In law, agency deals with the agent-principal relationship. It is a relationship
where one party has the legal authority to act in a place of another. The
chapter X of the Indian Contract Act 1872 contains various sections related to
Appointment and authority of agents
Appointment and authority of agent is covered under sections 182 to 189, which
are as follows:
Agent and principal defined (Section 182):
An 'agent' is a person employed to do
any act for another, or to represent another in dealings with third person. The
person for whom such act is done, or who is so represented, is called the
Who may Employ Agent (Section 183):
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 (Section 184):
As between the principal and third person,
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 (Section 185):
No consideration is necessary to
create an agency.
Agent's Authority may be Expressed or Implied (Section 186):
The authority of an
agent may be expressed or implied.
Definitions of Expressed and Implied Authority (Section 187):
An authority is
said to be express when it is given by words spoken or written. An authority is
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.
Extent of Agent's Authority (Section 188):
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 is the course,
of conducting such business.
Agent's Authority in an Emergency (Section 189):
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
Subagent and Ratification
Section 190 to 200 deals with the provisions related to sub-agent, which are as
When Agent cannot Delegate (Section 190): 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.
Sub-agent Defined (Section 191):
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 (Section 192):
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-agent:
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 cases of fraud or wilful wrong.
Agent's Responsibility for Sub-agent Appointed without Authority (Section 193):
Where an agent, without having authority to do so, has appointed a person to act
as a sub-agent, 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 person; 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 (Section 194) 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.
Agent's Duty in naming such Person (Section 195):
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
Right of Person as to Acts done for him without his Authority (Effect of
ratification) (Section 196):
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 (Section 197):
Ratification may be
expressed or may be implied in the conduct of the person on whose behalf the
acts are done.
Knowledge Requisite for Valid Ratification (Section 198):
Valid ratification can
be made by a person whose knowledge of the facts of the case is materially
Effect of Ratifying Unauthorized Act forming Part of a Transaction (Section
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 (Section 200):
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.
Revocation of Authority
Following are some of the important sections dealing with the provisions of
revocation of authority:
Termination of Agency (Section 201):
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.
Termination of Agency where Agent has an Interest in Subject-matter (Section
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.
When Principal may Revoke Agent's Authority (Section 203):
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 (Section 204):
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.
When Termination of Agent's Authority takes Effect as to Agent, and as to Third
Person (Section 208):
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 person, before it becomes known to them.
Termination of Sub-agent's Authority (Section 210):
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.
Agents Duty to Principal
Agent's Duty in Conducting Principal's Business (Section 211): 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.
Skill and Diligence Required from Agent (Section 212): 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 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.
Duties and Rights of Agent and Principal
The sections dealing with rights and duties of agents and principal are as
Agent's Duty to Communicate with Principal (Section 214): 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 (Section 215): 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.
Principal's Right to Benefit Gained by Agent dealing on his own Account in
Business of Agency (Section 216): 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.
Agent's Right of Retainer out of Sums Received on Principal's Account (Section
217): An agent may retain, out of any sums received on account of the principal
in the business of the agency, all money 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 action as agent.
Agent's Duty to Pay Sums Received for Principal (Section 218): Subject to such
deductions, the agent is bound to pay to his principal all sums received on his
When Agent's Remuneration Becomes Due (Section 219): 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 money 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 Misconduct (Section 220): 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
Agent's Lien on Principal's Property (Section 221): 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 an Agent Section 222 to 224 deals with the principal's duty
towards an agent, which are as follows:
Agent to be indemnified against Consequences of Lawful Acts (Section 222): The
employer of an agent is bound to indemnify him against the consequence of all
lawful acts done by such agent in exercise of the authority conferred upon him.
Agent to be Indemnified against consequences of Acts done in Good faith (Section
223): When one person employs another to do an act, and agent does the act in
good faith, the employer is liable to indemnify the agent against the
consequences of that act, though it cause an injury to the rights of third
Non-liability of Employer of Agent to do Criminal Act (Section 224): Where one
person employs another to do an act which is criminal, the employer is not
liable to the agent, either upon an express or an implied promise, to indemnify
him against the consequence of that act.
Compensation to Agent for Injury Caused by Principal's Neglect (Section
225): The principal must make compensation to his agent in respect of injury
caused to such agent by the principal's neglect or want of skill.
Termination of Agency
An agency comes to an end or terminates:
- By the performance of the contract of agency, (Section 201).
- By an agreement between the principal and the agent.
- By expiration of the period fixed for the contract of agency.
- By the death of the principal or the agent. (Section 20)
- By the insanity of either the principal or the agent. (Section 201)
- By the insolvency of the principal and in some cases that of the agent. (Section
- Where the principal or agent is an incorporated company, by its dissolution.
- By the destruction of the subject-matter. (Section 56)
- By the revocation of authority by the principal. (Section 201)
- Termination of an agency takes effect or is complete, as regards the agent when
it becomes known to the agent.
As regards the third party, the termination takes effect when it comes to their