CASE BOOK ON CONTRACTS CONTRACTS II -
(Special Contracts)
Prepared by Prof. K. Govindarajan
I CONTRACT OF INDEMNITY
SL.NO
PARTIES TO THE CASE
PRINCIPLES LAID DOWN
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GajananMoreshwarParelkar Vs Moreszzhwar Madan Mantri, 1942 Bom.L.J. 703
Sections 124 and 125 of the Contract Act are not exhaustive of the law of Indemnity and the courts here would apply the same principles that the courts in England do…
Secretary of State Vs Bank of India,1938, 65 I.A.286
Damages were permitted to be recovered from the Bank on the principle of implied contract of Indemnity.
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Osman Jamal & Sons Ltd. Vs Gopal Purushottam, 1928 I.L.R. 56 Cal 262
The company being indemnifier was liable and the liquidator is to keep the amount in trust for payment of the vendor in respect of whose supplies the company has incurred liability.
Centax (India) Ltd. Vs VinmarImpex VinmarImpex Inc., and others, A.I.R. 1986 Cal. 356
The enforceability of the contract of indemnity depended on the terms and conditions of the same.
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II
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Contract of Guarantee
PARTIES TO THE CASE
State Bank of Patiala Vs Shri Durga Oil and Flour Mills, Mehatpur and others. A.I.R. 1984 NOC 22 HP 13A
PRINCIPLES LAID DOWN a) The execution of mortgage by deposit of Title deeds is sufficient to establish that they have accepted to be Guarantors for the loan given by the Bank b) When the guarantee is existing and the revival letter if any is given by the principaldebtor, such revival letter is also binding on the Guarantor.
R.D.Harbottle Ltd. Vs National Westminster Bank Ltd. 1978, Q.B. 146.
Nature and extent of a Bank Guarantee explained
S.M.S.Demag AG Vs NilachalIspat Nigam Nigam Ltd. A.I.R. 2004 Orissa 89
In case of an unconditional Bank Guarantee the court will not grant an injunction restraining the Bank from honoring the bank gurantee except in the case of fraud and irretrievable injustice.
M/s. Basant Polymers, Alwar Vs State Chemical & Pharmaceuticals Corporation of India Ltd., and another A.I.R. 1986 Raj 1.
The Bank Guarantee, for all practical purposes, should be taken to be a credit note issued by the Bank and it should be encashable just like credit-note cr edit-note ordinarily, unless the intention of the parties is otherwise.
Himadri Chemicals Industries Industries Ltd. Vs Coal Tar Refining Company, A.I.R. 1927 SC 2798.
Principles regarding the encashment of a Bank Guarantee has been listed out.
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II
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Contract of Guarantee (CONTD)
PARTIES TO THE CASE
Sita Ram Gupta Vs Punjab National Bank ,A.I.R. ,A.I.R. 2008 S.C. 2416
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Bank of Bihar Ltd. Vs Damodar Prasad, A.I.R. 1969 S.C. 297
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Union Bank of India Vs Manku Narayana, AIR, AIR, 1987 SC 1078
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Anikumar Vs Central Bank of India, AIR 1997 HP 150
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Aypunni Mani Vs DevassyKochouseph, DevassyKochouseph, AIR 1966 Ker 203 M.R.Chakrapani M.R.Chakrapani Vs Canara Bank, AIR 1997 Kant 216
National Provincial Provincial Bank of England Vs Brackenbury, Brackenbury, 1906 22 TLR 797
PRINCIPLES LAID DOWN The benefit available under Section 130 of the Contract Act cannot be availed of if the guarantee that was revoked is founded on an agreement which cannot be said to be unlawful. It is not necessary to exhaust the remedies of a decree-holder against the principal debtor before proceeding against a surety or guarantor. When there is a decree against the principal debtor, guarantor and the mortgaged property, the decree-holder bank should first proceed against the mortgaged property and then against the surety or guarantor. When one of the co-sureties becomes insolvent the entire liability to pay the creditor the full amount lies on the other cosureties A statutory reduction or extinguishment extinguishment of the principal debtor's liability will operate as a pro tanto reduction of the extinguishment extinguishment of surety's debt. When the creditor does any act or omission impairing surety's eventual remedy, the surety stands discharged. Where the document was to be signed by four parties but only three parties signed, the three parties signed were held to be not bound on the ground of variance from the terms of the guarantee.
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III CONTRACT OF BAILMENT
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PARTIES TO THE CASE
PRINCIPLES LAID DOWN
Kaliyaperumal Kaliyaperumal Vs Visalakshi, AIR 1938 Mad 32.
Held that that the bailee is not responsible for the loss unless there has been an effective delivery either actually or constructively
Coggs Vs Bernard, Harward Law Review, 222,(1891 -1892)
Classification of Bailment by LORD HOLT.
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Lyell Vs Ganga Dai, 1875, 1 ALL 60..
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Canara Bank Vs Bhavani Oil Co., Chennamannur, AIR 20004 Ker 273.
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SitalaBaksha Singh Vs BarijNath, AIR 1936 Oudh, 264. General Manager, Central Railway Vs Lakshmi Ratan Cotton Mills Ltd, AIR 1971 All,531.
Coldman Vs Hill, 1919 1 K.B 443,456
Bailor will be held liable if he fails to disclose the defects known to him
Banker will be liable for loss of goods hypothecated even if there is an exclusion ex clusion clause contained in the agreement. If the bailee has taken adequate care in respect of the safety of goods bailed and if in spite of such care the gods have been lost, the bailee is not responsible for the loss. The position of the railway administration regarding the goods entrusted to it is that of a bailee.
The failure of the bailee to lodge a police complaint if the goods have been lost whilst in his custody will not absolve him from liability
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III CONTRACT OF BAILMENT (CONTD)
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PARTIES TO THE CASE
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Rangaraju Vs Muthukrishna, Muthukrishna, 1963, 2 MLJ60
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Lilly Vs Double-day, 1881, 7 QBD 510.
Edwards Vs Newlands, 1950,1All.L.R 1072.
Shaw & Co. Vs Symmons& Sons, 1917, 1 K.B. 799
Hollins Vs Fowler, 1875, 7 HL 757
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Bevan Vs Waters, 1828, 3 Carr. 520.
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Chase Vs West more, 1816, 15 M&S 180
PRINCIPLES LAID DOWN Held that the loss or damage of things bailed was prima facie evidence of the negligence and the burden of disproving negligence lied on the bailee.. If the goods are to be kept in one place as per the terms of the agreement and if it is kept in a different place and loss if occasioned principle of deviation from the terms of the contract will apply. If the bailee changes the custody of the goods to any other person without the consent of the bailor it would amount to breach of duty by the bailee.I If the bailee has not chosen to return the goods bailed within a reasonable time and if loss occasions to the goods the bailee become responsible for the loss of goods. A finder of lost goods is entitled to retain possession of the goods as against the whole world except the true owner when he is deprived of his possession by anybody he can maintain an action for trespass. Observation by Best, Chief Justice: "if a man has an article delivered to him, on the improvement of which he has to bestow trouble and expense, he has a right to detain it until his demand is paid "……... Right of lien would attach to all goods even though on different dates deliveries were effected so long as the work is covered under one contract.
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IV: Pledge or Pawn
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PARTIES TO THE CASE
PRINCIPLES LAID DOWN
Morvi Mercantile Bank Ltd. Ltd. Vs A) Meaning of of 'Pledge' 'Pledge' explained. explained. Union of India, AIR 1965 SC 1954 B) The status of a Mercantile Agent explained. Bank of Baroda, Ahmadabad Distinction between Pledge and Vs R. BachubaiHirahabai and Hypothecation pointed out. others, AIR, 1988 Guj 1. When tools, equipments and plants were Hindustan Construction Construction hypothecated as security for the advance, the Company Vs Board of document was held not to be a mortgage deed Revenue, AIR 1986 Ker 148 but only an agreement relating to pawn
Bank of Bihar Vs State of Bihar, AIR 1971 SC 1210
When goods are held by the pledgee as security under a cash credit agreement, if any seizure is made by the Government, it becomes the duty of the Government to pay the amount.
State Bank of Hyderabad, If any sale proceeds have been deposited in Secunderabad, VS Susheela and court, the Pawnee has a special right and his others, AIR 1980 AP 1. lien being one of not ordinary nature no other creditor can take away the money. Rehmet Ali FatehUllah Vs Lallan Prasad, 1962, ALJ. 374
Prabhat Bank Ltd. Vs Babu Ram, AIR 1966, Aii. 134.
If the goods pawned are not available in the hands of the Pawnee and cannot return them to the Pawnor, the Pawnee cannot compel the debtor to pay the debt An agreement authorizing the sale of goods by the Pawnee without proper notice to the Pawnor "would be inconsistent with the provisions of the Contract Act and as such would be wholly void and unenforceable.
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V Law of Agency SL.NO
PARTIES TO THE CASE
A) Pole Vs Leask, 1860, 54 ER 481. 1
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B) De Bussche Vs Alt, 1878, 8 Ch.D 286. .
PRINCIPLES LAID DOWN A) 'No man can become the agent of another except by the will of that other person'.
B) In as much as confidence in the particular person employed is at the root of the contract of agency, such authority cannot be implied as an ordinary incident in a contract.
Loon Karan Vs John and Co., AIR, 1967, All 308, 311
The crucial test of the status of an agent is that his acts bind the principal
Delhi Electric Supply Undertaking Vs Basanti Devi, AIR 2000 SC 43.
The employer who deducts the LIC premium under the Salary Savings Scheme is an agent of the LIC.
Sakthi Sugar Ltd. Vs Union of India, AIR, 1981, Delhi 212.
Held that the State Trading Corporation, which was a legal entity, when permitted to export sugar, did not become the agent of UOI, we while exercising that commercial function
Lakshmi Narain Ram Gopal & Differences between an agent and servant Sons Vs Hyderabad pointed out. Government, AIR. 1954 SC 364 A DEL CREDERE agent incurs only a secondary liability towards the principal. His Champa Ram Vs Tulsi Ram, legal position is partly that of an 'insurer' and 1927, 26 All.L.J. 81 partly that of a 'surety' for the parties with whom he deals.
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V Law of Agency (Continued) SL.NO
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PARTIES TO THE CASE
PRINCIPLES LAID DOWN
Peacock Vs Baijinath, 1891, 18 I.A. 78 Calico Printers' Association Association Barday's Bank, 1931 145 LT 51.
The principal has no right of account against a banian (sub-agent). Held that the principal cannot recover damages from the sub-agent. Where in the course of employment, unforeseen emergencies arise which impose upon the agent the necessity of employing a substitute, and that when such authority exists and is duly exercised privities of contract arises between the principal and the substitute Held that an officer of the Government e.g., Post-master General was not liable for the acts of those employed under him, because the latter were not his servants but the servants of the Government.
De Bu ssche Vs Alt, 1878, 8 Ch,D. 286
Mersey Docks Trustees Vs Gibbs, 1866, 1 HL 93.
Devanham Vs Mellon, 1880, 6 AC 24.
A presumption arises that a wife can pledge her husband's credit for necessaries from the fact of cohabitation. cohabitation. In my opinion if an agent directly or indirectly colludes with the other side and so acts in opposition to the interests of his principal he is not entitled to any commission".
Andrews Vs Ramsay & Co., 1903, 2 KB 635.
Ram Prasad Vs State of MP, Significance of Agent's lien explained. AIR, 1970, SC 1818 at P 1821.
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V Law of Agency (Continued) SL.NO
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PARTIES TO THE CASE
Firm PannalalJankidas Vs Mohanlal, AIR, 1951 SC 144.
ArlapaNaick Vs NarsiKeshavji, 1871, 8 BHC AC 19.
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Gloriya Chemicals Vs R.K.Cables, AIR 1988 Delhi 213.
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Baxter Vs Gapp& Co. Ltd, 1939, 2 All.E.R. 752.
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S. Paul & Co. Vs State of Tripura, AIR 1984 Cal. 378.
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PRINCIPLES LAID DOWN Held that the agent is liable to compensate her principal to the full value of the goods as she had failed to insure the goods as per the directions of the Principal. Instructions involving performance of a void or illegal act need not be followed. If an Advocate has acted contrary to the instructions given by his client, or against the custom or practice of his profession and any loss was caused to his client thereby, he must make good the loss. A person acting as a skilled agent is expected to have reasonable skill and knowledge in regard to his duties. Held that the duty to keep accounts is a statutory duty and cannot be negative by agreements.
De Bussche Vs Alt, 1878, Ch.D 286.
Secret profits, if any, earned by the agent can be recovered by the Principal. Where a merchant abroad buys goods here through an agent, the seller contracts with the agent and there is no contract or privy between him and the foreign principal.
Smith Vs Anderson, 1848, 137, ER 9.
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V Law of Agency (Continued) SL.NO
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PARTIES TO THE CASE
PRINCIPLES LAID DOWN
Held that the Secretary of the committee Bhojabhi Vs Hayem Samuel, was liable on a rental agreement made 1898, 22 Bom. 754 by him where the principal was an association in England. TutikaBasavaraju Vs Parry & When foreign principals have contracted Co. 1903, 27 Mad 315. in their names, the agent in India is not liable. If an agent has entered into a contract Alliance Mills Vs Indian for the purchase of goods describing Cements Ltd, AIR 1989 Cal. himself as the purchaser, not disclosing 59. his status as an agent, he could enforce the contract and he is also personally liable for the same. If an agent has been authorized by a power of Attorney to sell only one property and if he has sold more than Cicifford George Pinto Vs one property, the transactions are M.R.Shenava, AIR 2005 Karn. binding on the Principal in view of the 167 conduct of the Principal inducing the third parties to believe that the act of the agent is within the scope of his authority.
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Lloyd Vs Grace Smith & Co., 1912, AC 716.
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Armstrong Vs Stokes, 1872, 7 QB 598
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If an agent commits fraud, misrepresentation or torts in the course of agency he is liable for the loss that has occasioned. Where a person employs another to make a contract of purchase he as Principal , is liable to the seller, though the seller never heard of his existence and entered into the contract solely on the credit of the person whom he believed to be the Principal though, in fact, he was not.
V Law of Agency (Continued) SL.NO
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PARTIES TO THE CASE
PRINCIPLES LAID DOWN When an agent has insured the goods without the Principal's authority and if the Principal ratified his agent's act of insurance, the Principal is bound even if he has notice of the loss at the time of ratification.
Williams Vs North China Insurance Co., 1876, 1 CPD 757.
Bolten Vs Lambert, 1885, 41 Ch.D.295.
Ratification relates back to the date on which the offer was first accepted.
The first essential to the doctrine of Imperial Bank of Canada Vs ratification with its necessary Begely 1936, ALJ 944. consequences of relating back is that the agent shall not be acting for him, but shall be intending to bind a named or ascertainable Principal. A promoter of a company was held Kelner Vs Baxter, 1866, LR 2 personally liable since at the time of CP 174. entering onto a contract the company was not in existence. M.P.State Cooperative Bank Held that the authority of an agent to Ltd. Vs P.B.Dalal, AIR 1967 collect bills and to remit the proceeds Bom. 279. when realized by demand drafts come to an end as soon as the drafts were dispatched. Blackburn Vs Scholes, 1810, 2 A broker employed to sell the goods Camp. 341. became functus officio on the completion of the sale. "Where an agent has been appointed for Lalljee Vs Dadabhai, 1916, 23 a fixed term, the expiration of the term Cal L.J. 190,202. puts an end to the agency whether the purpose of the agency has been accomplished or not"….
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V Law of Agency (Continued) SL.NO
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PARTIES TO THE CASE
PRINCIPLES LAID DOWN
Moosajee Ahmed & Co. Vs Administrator General, 1921, 60 IC 739.
When a person enters into a contract with an agent after the Principal's death with knowledge of the fact would be precluded from subsequently s ubsequently impugning the validity of the transaction on the ground of want of authority of the agent Held that if after the termination of agency by the death of the Principal the erstwhile agent continued in the service of the deceased's Principal's heirs, a new agency was created and there was nothing to show in Section 209 that the agency continued on old terms.
Madhusudan Vs Rakhal Chandra, 1816, ILR 43.
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Salton Vs New Beeston Cycle Co., 1900, 1 Ch.D. 43.
Death or insanity revokes an agent's authority
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Parker Vs Smith, 1812, 104 ER 1133.
Bankruptcy of the agent also terminates the agency.
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French & Co Vs Leeston Shipping & Co., 1922, 1 AC 451.
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Where the subject-matter for which the agency was created, the agency comes to an end. Held that where an agent was authorized to recover a sum of money Jagadhari Vs Rustomji, 1885, 9 due by a third party to the Principal and Bom. 311. to pay himself, out of the amount so recovered , the debts due to him from the Principal, the agent had an interest in the subject matter of the agency, and the authority could not be revoked.
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V Law of Agency (Continued) SL.NO
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PARTIES TO THE CASE
PRINCIPLES LAID DOWN
Held that where in pursuance of the authority the agent had incurred contractual liability to pay money to a Chappell Vs Bray, 1860, 6 third party, he was entitled to be H&N 143. indemnified in respect of payments made by him though the Principal then forbade the payments. The doctrine of 'imputed notice' dealt with in Section 229 is based on the Rivers Steam Navigation Co. assumption that an agent who gets Vs Bisweswar, 1928, Cal. 371. notice or receives any information does do his duty to communicate the same to the Principal and therefore the knowledge of the agent is the knowledge of the Principal. The rule laid down in Section 229 is intended to declare general principle of Wylie Vs Pollen, 1863, 32 LJ law. It is not a mere question of Ch. 782. constructive notice or inference of fact but a rule of law which imputes the knowledge of the agent to the Principal. Bawden Vs London etc. If the agent had knowledge of a Assurance Co., 1882, 2 QB particular fact it will be imputed to the 534 Principal and the contract cannot be avoided on the ground of non-disclosure. non-disclosure. When the knowledge of an agent was imputed to the Principal , the Principal Proudfoot Vs Monteflori, is considered to have notice as from the 1867, LR 2 QB 511. time when he would have received notice if the agent had performed his duty and communicated with him with reasonable diligence.
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