Chapter -7 INTERPRETATION OF STATUTES, DEED AND DOCUMENTS Deco Coes Bie etc Decne) interpretation of enc esc) Mees) acest Astatute has been defined as “the will of the legislature”. Normally, it denotes the act enacted by the legislature. ‘The purpose of the interpretation is Tosee what is the intention expressed by the words used. OWiruat hea eer According to this rule, the words, phrases and sentences of a statute are ordinarily to be understood in their natural , ordinary or popular and grammatical meaning unless such a construction leads to an absurdity or the content or object of the statute suggests a different meaning. The objectives ‘natural’, ‘ordinary’ and ‘popular’ are used interchangeably. While discussing rules of literal construction the Supreme Court in State of H.P v. Pawan Kumar (2005) : - One of the basic principles of interpretation of statutes is to construe them according to plain, literal and grammatical meaning of the words. - If that is contrary to, or inconsistent with, any express intention or declared purpose of the Statute, or if it would involve any absurdity , repugnancy or inconsistency, the grammatical sense must then be modified, extended, abridged, so far as to avoid such an inconvenience, but no further. - The onus of showing that the words do not mean what they say lies heavily on the party who alleges it - He must advance something which clearly shows that the grammatical construction would be repugnant to the intention of the Act or lead to some manifest absurdity.In Heydon’s Case, in 1584, it was resolved by the Barons of the Exchequer “thal for the sure and true interpretation of all statutes in general (be they penal or beneficial, restrictive or enlarging of the Common Law) four things are to be discerned and considered : (1) What was the Common Law before the making of the Act; (2) What was the mischief and defect for which the Common Law did not provide; (3) What remedy the parliament had resolved and appointed to cure the disease of the Commonwealth; and (4) The true reason of the remedy. Although judges are unlikely to propound formally in their judgements the four questions in Heydon’s Case, consideration of the “mischief” or “object” of the enactment is common and will often provide the solution to a problem of interpretation. Therefore, when the material words are capable of bearing two or more constructions, the most firmly established rule for construction of such words is the rule laid down in Heydon's case which has “now attained the status of a classic.” The rule directs that the courts must adopt that construction which ‘shall suppress the mischief and advance the remedy.” But this does not mean that a construction should be adopted which ignores the plain natural meaning of the words or disregard the context and the collection in which they ‘occur. ( See Umed Singh v. Raj Singh, A.|.R 1975 S.C 43) The Supreme Court in Sodra Devi's case, AIR 1957 S.C. 832 has expressed the view that the rule in Heydon's case is applicable only when the words in question are ambiguous and are reasonably capable of more than one meaning. (c) Rule of Reasonable Construction i.e Ut Res Magis valeat Quam Pareat Normally, the words used in a statute have to be construed in their ordinary meaning, but in many cases, judicial ‘approach finds that the simple device of adopting the ordinary meaning of words, does not meet the ends as a fait and a reasonable construction. According to this rule,the words of a statute must be construed at res magis valeat quam pareat, so as to give a sensible meaning to them. A provision of aw cannot be so interpreted as to divorce it entirely from common ‘sense; every word or expression used in an Act should receive a natural and fair meaning Oita ea ‘A STATUTE MUST BE READ AS A WHOLE AND ONE PROVISION OF THE Act should be construed with referenve to other provisions in the same Act so as to make a consistent enactment of the whole statute. Such a construction has the merit of avoiding any inconsistency or repugnancy either within a section or between a section and other parts of the statute. itis the duty of the Courts to avoid “a head on clash” between two sections of the same Act and, "whenever itis possible to do so,to construct provisions which appear to conflict so that they harmonise "( Raj Krishna v. Pinod Kanungo, A.|.R 1954 S.C. 202 at 203). Where in an enactment, there are two provisions which cannot be reconciled with each other, they should be so interpreted that, if possible, effect may be given to both. This is what is known as the “rule of harmonious construction”.Piston Ejusdem Generis, literally means “of the same kind or species”. The rule can be stated thus: The statute contains an enumeration by specific words, The members of the enumeration constitute a class, The class is not exhausted by the enumeration, ‘A general term follows the enumeration, There is a distinct genus which comprises more than one species, and There is no clearly manifested intent that the general term be given a broader meaning that the doctrine requires. ( See Thakura Singh v. Revenue Minister, Air 1965 J & k 102) CMT eae The rule of exceptional construction stands for the elimination of statutes and words in a statute which defeat the real objective of the statute or make no sense. It also stands for construction of words ‘and’, ‘or, ‘may’, ‘shal’ & ‘must’ PoP Ps This rule has several aspects, viz. (a) The Common Sense Rule : Despite the general rule that full effect must be given to every word, if no sensible meaning can be fixed to a word or phrase, or if it would defeat the real object of the enactment, it should be eliminated. The words of a statute must be so construed as to give a sensible meaning to them, if at all possible. They ought to be construed ‘utres magis valeat quam pereat’ meaning thereby that it is better for a thing to have effect than to be made void. (b) Conjunctive and Disjunctive Words ‘or’ ‘and’ : The word ‘or’ is normally disjunctive and ‘and? is normally conjunctive. However, at times they are read as vice versa to give effect to the manifest intention of the legislature as disclosed from the context. This would be so where the literal reading of the words produces an unintelligible or absurd result. In such a case ‘and’ may by read for ‘or’ and ‘or’ for ‘and’ even though the result of so modifying the words is less favourable to the subject, provided that the intention of the legistature is otherwise quite clear. Example : in the Official Secrets Act, 1920, as per section 7 any person who attempts to commit any offence under the principal Act or this Act , or solicits or incites or endeavours to persuade another person to commit an offence, or aids or abets and does any act preparatory to the commission of an offence’. Here, the word nd! in bold is to be read as ‘or’ . Reading and’ as ‘and’ will result in unintelligible and absurd sense and against the clear intention of the Legislature. [R v. Oakes,(1959)] (c) ‘May’, ‘must’ and ‘shall’: Before discussing this aspect, it would be worth while tonote the terms ‘mandatory’ and ‘directory’. Practically speaking, the distinction between a provision which is ‘mandatory’ and one which is ‘directory’ is that when it is mandatory, it must be strictly observed; when itis ‘directoryit would be sufficient that itis substantially complied with. However, we have to look to the substance and not merely the form: an enactment in mandatory form might substantially be directory and, conversely, a statute in directory form may in substance be mandatory. Hence, itis the substance that counts and must take precedence over mere form. ifa provision gives a power coupled with a duty, itis mandatory: whether itis or is not so woulddepend on such consideration as — The nature of the thing empowered to be done, — The object for which it is done, and — The person for whose benefit the power is to be exercised. (ec Osanna The rule means that express mention of one thing implies the exclusion of another. At the same time, general words in a statute must receive a general construction, unless there is in the statute some ground for limiting and restraining their meaning by reasonable construction, (b) Contemporanea Expositio est Optima et Fortissima in Lege The maxim means that the best way to give the meaning to a document or proposition of a law is to read it as it would have read when it was made. Where the words used in a statute have undergone alteration in meaning in course of time, the words will be construed to bear the same meaning as they had when the statute was passed ‘on the principle expressed in the maxim. In simple words, old statutes should be interpreted as they would have been at the date when they were passed and prior usage and interpretation by those who have an interest or duty in enforcing the Act, and the legal profession of the time, are presumptive evidence of their meaning when the meaning is doubtful (c) Noscitur a Socilis The ‘Noscitur a Socilis’ i.e. “itis known by its associates”. In other words, meaning of a word should be known from its accompanying or associating words. OPuetaeceicneacn In Wiberforce on Statute law, it is said that what is meant by ‘strict construction’ is that “Acts, are not to be regarded as including anything which is not within their letter as well as their spirit, which is not clearly intelligibly described in the very word of the statute, as well as manifestly intended’, while by ‘liberal construction’ is meant that ‘everything is to be done in advancement of the remedy that can be done consistently with any construction of the statute. Beneficial construction to suppress the mischief and advance the remedy is generally preferred. Presumptions Where the meaning of the statute is clear, there is no need for presumptions. But if the intention of the legistature is not clear, there are number of presumptions. These are: (a) That the words in a statute are used precisely and not loosely. (b) That vested rights i.e., rights which a person possessed at the time the statute was passed, are not taken away without express words, or necessary implication or without compensation.(c) That “means rea”, statute creating a guilty mind is required for a criminal act. There is a very strong presumption that a inal offence does not intend to attach liability without a guilty intent. The general rule applicable to criminal cases is “actus non facit reum nisi mens sit rea"(The act itself does not constitute guilt unless done with a guilty intent.) (4) That the state is not affected by a statute unless itis expressly mentioned as being so affected. (€) That a statute is not intended to be consistent with the principles of Intemational Law. Although the judges cannot declare a statute void as being repugnant to international Law, yet if two possible alternatives present themselves, the judges will choose that which is not at variance with i. (f) That the legislature knows the state of the law. Internal and external aids in interpretation (a) Internal Aids in Interpretation The following may be taken into account while interpreting a statute: Title The long title of an Act is a part of the Act and is admissible as an aid to its construction, The long title sets out in general terms, The purpose of the Act and it often precedes the preamble. it must be distinguished from short title which implies only an abbreviation for purpose of reference, the object of which is identification and not description. To give an example, The Civil Procedure Code, 1908 is a long title and CPC 1908 is a short title. The true nature of the law is determined not by the name given to it by its substance. However, the long title is a legitimate aid to the construction. Preamble The true place of a preamble in a statute was at one time, the subject of conflicting decisions. In Mills v. Wilkins, (1794) 6. Mad. 62, Lord Hold said: “the preamble of a statute is not part thereof, but contains generally the motives r inducement thereof.” Heading and Title of a Chapter \n different parts of an Act, there is generally found a series or class of enactments applicable to some special object, and such sections are in many instances, preceded by a heading. itis now settled that the headings or titles to prefixed to sections or group of sections can be referred to in construing an Act of the legislature. Marginal Notes In England, the disposition of the Court is to disregard the marginal notes. in our country the Courts have entertained different views. Although option is not uniform, the weight of authority is in favour of the view that the marginal note appended to a section cannot be used for construing the section. It is common to find in statutes “definitions” of certain words and expressions used elsewhere in the body of the ‘statute. The object of such a definition is to avoid the necessity of frequent repetitions in describing all the subject-matter to which the word or expression so defined is intended to apply. A definition section may borrow definitions from an earlier Act and definitions so borrowed need not be found in the definition section but in some provisions of the earlier Act.Proviso ‘When one finds a proviso to a section the natural presumptions is that, but for the proviso, the enacting part of the section would have included the subject-matter of proviso”. in the words of Lord Macmillan: “The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to the case.” Geeta Clause Differences "Exception’ is intended to restrain the enacting "Saving clause’ is used to preserve from destruction clause to particular cases certain rights, remedies of privileges already existing Illustrations or Explanation “Illustrations attached to sections are part of the statute and they are useful so far as they help to furnish ‘same indication of the presumable intention of the legislature. An explanation is at times appended to a section to explain the meaning of words contained in the section. It becomes a part and parcel of the enactment.” ‘Schedules The schedules form a part of the statute and must be read together with it for all purposes of construction. But ‘expression in the schedule cannot control or prevail against the express enactment (Allen v. Flicker, 1989, 10 A and F 6.40). In Ramchand Textile v. Sales Tax Officer, A..R 1961,All. 24,the Allahabad High Court has held that, if there is any appearance of inconsistency between the schedule and the enactment, the enactment shall prevail. If the enacting part and the schedule cannot be made to correspond, the latter must yield to the former. The statement of objects and reasons as well as the ‘notes on clauses of the Bill relating to any particular legislation may be relied upon for construing any of its provisions where the clauses have been adopted by the Parliament without any change in enacting the Bill, but where there have been extensive changes during the passage of the bill of Parliament, the objects and reasons of the changed provisions may or may not be the same as the clause so f the original Bill and it will be unsafe to attach undue importance to the statement of objects and reasons or notes on ciauses. (b) External Aids in Interpretation ‘Apart from the intrinsic aids, such as preamble and purview of the Act, the Court can consider resources outside the Act, called the extrinsic aids, in interpreting and finding out the purposes of the Act. Where the words of an Act are clear and unambiguous, no resource to extrinsic matter, even if it consists of the sources of the codification, is permissible. Parliamentary History The Supreme Court, enunciated the rule of exclusion of parliamentary history in the way it is enunciated by English courts, but on many occasions, the Court used this aid in resolving questions of construction. The Court has now veered to the view that legislative history with circumspect limits may be consulted by Courts in resolving ambiguities. Reference to Reports of Committees The report of a Select Committee on whose report an enactment is based, can be looked into “so as to see thebackground against which the legislation was enacted, the fact cannot be ignored that Pariament may, and often does, decide to do something different to cure the mischief.” Social, Political and Economic Developments and Scient fic Invention Reference to Other Statutes \t has already been stated that a statute must be read as a whole as words are to be understood in their context. Extension of this rule of context, permits reference to other statutes in pari materia, i.e. statutes dealing with the same subject matter or forming part of the same system. Viscount Simonds conceived it to be right and duly to construe every word of a statute in its context and he used the word in its widest sense including other statutes in pari materia. The meaning of the phrase ‘pari materia’ has been explained in an American case in the following words: “Statutes are in pari materia which relate to the same person or thing, or to the same class of persons or things. The word par must not be confounded with the word simlis| Dictionaries When a word is defined in the Act itself, it is permissible to refer to dictionaries to find out the general sense in which that word is understood in common parlance, Use of Foreign Decisions Use of foreign decisions of countries following the same system of jurisprudence as ours and rendered on statutes in pari materia has been permitted by practice in Indian Courts. Perens Cee Sires 3 rr (i) Matter —This is the first element. its usage with the word “any” shows that the definition of document is comprehensive. (ii) Record — This second element must be certain mutual or mechanical device employed on the substance. It must be by writing, expression or description. i) Substance — This is the third elementon which a mental or intellectual elements comes to find a permanent form. (iv) Means —This represents forth elementby which such permanent form is acquired and those can be letters, any figures, marks, symbols which can be used to communicate between two persons.on aca iecl onstruction’ while interpreting the statutes quoting an example Where the language used in a statute is capable of more than one interpretation, the most firmly established rule for construction is the principle laid down in the Heydon’s case. This rule enables, consideration of four matters in constituting an act : (1) what was the law before making of the Act, (2) what was the mischief or defect for which the law did not provide, (3) whatis the remedy that the Act has provided, and (4) what is the reason for the remedy. The rule then directs that the courts must adopt that construction which ‘shall suppress the mischief and advance the remedy’. Therefore even in a case where the usual meaning of the language used falls short of the whole object of the legisiature, a more extended meaning may be attributed to the words, provided they are fairly susceptible of it f the object of any enactment is public safety, then its working must be interpreted widely to give effect to that object. Thus in the case of Workmen's Compensation Act, 1923 the main object being provision of ‘compensation to workmen, it was held that the Act ought to be so construed, as far as possible, so as to give effect to its primary provisions. However, it has been emphasized by the Supreme Court that the rule in Heydon’s case is applicable only when the words used are ambiguous and are reasonably capable of more than one meaning [CIT v. Sodra Devi (1957) 32 ITR 615 (SC). CPs Tn meu Meg ae) Z i Se Cm NIC ee Meee Ans. Principles of Grammatical Interpretation and Logical Interpretation : in order to ascertain the meaning of ‘any law/ statute the principles of Grammatical and Logical Interpretation is applied to conclude the real meaning of the law and the intention of the legislature behind enacting it. Meaning : Grammatical interpretation concerns itself exclusively with the verbal expression of law. It does not go beyond the letter of the law, whereas Logical interpretation on the other hand, seeks more satisfactory evidence of the true intention of the legisiature Application of the principles in the court: In all ordinary cases, the grammatical interpretation is the sole form allowable. The court cannot delete or add to modify the letter of the law. However, where the letter of the law is logically defective on account of ambiguity, inconsistency or incompleteness, the court is under a duty to travel beyond the letter of law so as to determine the true intentions of the legislature. So that a statute is enforceable at law, however, unreasonable it may be. The duty of the court is to administer the law as it stands rather it is just or unreasonable. However, if there are two possible constructions of a clause, the courts may prefer the logical construction which ‘emerges from the setting in which the clause appears and the circumstances in which it came to be enacted and also the words used therein.ere eee) () Normally a Proviso is added to a section of an Act to except something or qualify something stated in that Particular section to which it is added. A proviso should not be, ordinarily, interpreted as a general rule. A proviso to a particular section carves out an exception to the main provision to which it has been enacted as a Proviso and to no other provision. [Ram Narian Sons Ltd. Vs. Commissioner of Sales Tax AIR (1955) S.C. 765] (ii) Sometimes an explanation is added to a section of an Act for the purpose of explaining the main provisions contained in that section. If there is some ambiguity in the provisions of the main section, the explanation is inserted to harmonise and clear up and ambiguity in the main section. Something may added be to or something may be excluded from the main provision by insertion of an explanation. But the explanation should not be construed to widen the ambit of the section. ec Chee eae interpretation of Cece RET The rules regarding interpretation of deeds and documents are as follows : First and the foremost point that has to be borne in mind is that one has to find out what reasonable man, who has taken care to inform himself of the surrounding circumstances of a deed or a document, and of its scope and intendments, would understand by the words used in that deed or document, It is inexpedient to construe the terms of one deed by reference to the terms of another. Further, it is well established that the same word cannot have two different meanings in the same documents, unless the context compe's the adoption of such a rule. The Golden Rule is to ascertain the intention of the parties of the instrument after considering all the words in the documents/deed concerned in their ordinary, natural sense. For this purpose, the relevant portions of the document have to be considered as a whole. The circumstances in which the particular words have been used have also to be taken into account. Very often, the status and training of the parties using the words have also to bbe taken into account as the same words maybe used by a ordinary person in one sense and by a trained person or a specialist in quite another sense and a special sense. It has also to be considered that very many words are used in more than one sense. It may happen that the same word understood in one sense will give effect to all the clauses in the deed while taken in another sense might render one or more of the clauses ineffective. in such ‘a case the word should be understood in the former and not in the latter sense. It may also happen that there is a conflict between two or more clauses of the same documents, An effect must be made to resolve the conflict by interpreting the clauses so that all the clauses are given effect. If, however, it is not possible to give effect of all of them, then it is the earlier clause that will override the latter one.Cn ec ae CCR Uo eRe eet () Means, (ji) Includes Cee ees mera Ans. Interpretation of the words “Means” and “Includes’ in the definitions- The definition of a word or expression in the definition section may either be restricting of its ordinary meaning or may be extensive of the same When a word is defined to ‘mean’ such and such, the definition is ‘prima facie’ restrictive and exhaustive, we must restrict the meaning of the word to that given in the definition section. But where the word is defined to ‘include’ such and such, the definition is ‘prima facie’ extensive, here the word defined is not restricted to the meaning assigned to it but has extensive meaning which also includes the meaning assigned to it in the definition section, Example— Definition of Director [section 2(34) of the Companies Act, 2013]—Director means a director appointed to the board of a company. The word “means” suggests exhaustive definition Definition of Whole time director [Section 2(94) of the Companies Act, 2013]— Whole time director includes a director in the whole time employment of the company. The word “includes” suggests extensive definition. Other directors may be included in the category of the whole time director.Chapter - 4 THE INDIAN CONTRACT ACT, 1872 Unit - 1; CONTRACT OF INDEMNITY & GUARANTEE Section 124 | Contract of indemnity ‘Section 125_| Rights of Indemnity Section 126 _| Contract of guarantee, surety, principal debtor and creditor ‘Section 127_| Consideration for guarantee Section 128 | Nature of surety's liability Section 129_| Continuing guarantee ‘Section 130_| Revocation of continuing guarantee Section 131_| Revocation of continuing guarantee by surety’s death ‘Section 133_| By variance in terms of contract ie 7 = ‘Section 134 | By release or discharge of principal debtor ‘Section 135_| Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor ‘Section 136 _| Surety not discharged when agreement made with third person to give time to principal debtor Section 137_| Creditor’ forbearance to sue does not discharge surety. ‘Section 139_ | Discharge of surety by creditor's act or omission impairing surety's eventual remedy Section 140 _| Rights of subrogation ‘Section 141_| Surety’s right to benefit of creditor's securities Section 142 _| Guarantee obtained by misrepresentation invalid ‘Section 143 _ | Guarantee obtained by concealment invalid ‘Section 144 _| Guarantee on contract that creditor shall not act on it until co- surety joins ‘Section 145_| implied promise to indemnify surety Section 146 _| Co-sureties liable to contribute equally ‘Section 147_| Liability of co-sureties bound in different sums. eee ea UI Uke Ud (Section 124-147) eee totet enc fermi fer ec) ene on 126-127) tio 32) RC OReTY,Ceeetedar cums “Contract of Indemnity” defined (Section 124) : A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduet of any other person, is called a “contract of indemnity.” There are two parties in this form of contract. The party who promises to indemnify/ save the other party from loss is known as ‘indemnifier’, where as the party who is promised to be saved against the loss is known as ‘indemnified’ or indemnity holder. Example 1: A may contract to indemnify B against the consequences of any proceedings which C may take against B in respect of a sum of ° 5000/- advanced by C to B. In consequence, when B who is called upon to pay the sum of money to C fails to do so, C would be able to recover the amount from A as provided in Section 124. Example 2 : X, a shareholder of a company lost his share certificate. He applied for the duplicate. The company agreed to issue the same on the term that X will compensate the company against the loss where any holder produces the original certificate. Here, there is contract of indemnity between X and the company. Explanation To indemnify means to compensate or make good the loss. Thus, under a contract of indemnity the “existence of loss” is essential. Unless the promisee has suffered a loss, he cannot hold the promisor liable on the contract of indemnity. However, the above definition of indemnity restricts the scope of contracts of indemnity in as much as it covers only the loss caused : (i) By the conduct of the promisor himself, or (i) By the conduct of any other person. Thus, loss occasioned by the conduct of the promise, or accident, or an act of God is not covered. A contract of indemnity ike any other contract may be express or implied. A contract of indemnity is like any other contract and must fulfill all the essentials of a valid contract like consideration, free consent, competency of contract, lawful object etc. Examy asks B to beat C promising to indemnify him against the consequences. The promise of A cannot be enforced. Suppose, B beats C and is fined Rs. 1000, B cannot ciaim this amount from A because the object of the agreement is unlawful A contract of Fire insurance or Marine Insurance is always a contract of indemnity. But there is no contract of indemnity in case of contract of Life Insurance. Rights of Indemnity—holder when sued (Section 125) : The promise in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor/indemnifier— (1) All damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnity appli (2) All costs which he may be compelled to pay in any such suit if, in bringing or defending it. (3) All sums which he may have paid under the terms of any compromise of any such suit.Crate ee “Contract of guarantee”, “surety”, “principal debtor” and “creditor” [Section 126] Contract of guarantee : A contract of guarantee is a contract to perform the promise made or discharge the liability, of a third person in case of his default Three partis Example 1 : When A requests B to lend °10,000 to C and guarantees that C will repay the amount within the agreed time and that on C falling to do so, he will himself pay to B, there is a contract of guarantee. re involved in a contract of guarantee Here, B is the creditor, C the principal debtor and A the surety. Example 2 : Where ‘A’ obtains housing loan from LIC Housing and if ‘B’ promises to pay LIC Housing in the event of 'A failing to repay, it is a contract of guarantee. Example 3 : X and Y go into a car showroom where X says to the dealer to supply latest model of Wagon R. to Y. In case of Y's failure to pay, X will be paying for it. This is a contract of guarantee because X promises to discharge the liability of Y in case of his defaults. Explanation Guarantee is a promise to pay a debt owed by a third person in case the latter does not pay. ‘Any guarantee given may be oral or written. From the above definition, it is clear that in a contract of guarantee there are, in effect three contracts (i) Aprincipal contract between the principal debtor and the creditor (i) Asecondary contract between the creditor ad the surety. (ii) Aimplied contract between the surety and the principal debtor whereby principal debtors under an obligation to indemnify the surety; if the surety is made to pay or perform. The right of surety is not affected by the fact that the creditor has refused to sue the principal debtor or that he has not demanded the sum due from him. Consideration for guarantee [Section 127] : What constitutes consideration in a case of guarantee is an important issue and is laid down in Section 127 of the Act. As per Section 127 of the Act, “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.” Example 4 : B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of A's promise to deliver the goods. This is a sufficient consideration for C's promise.Example 2 : A sell 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. aT a ae Ee ee eae nen uae Example 3 : A sells and delivers goods to B. C afterwards, without consideration, agrees to pay for them in default of B. The agreements void Essentials of a valid Guarantee 4. Existence of a principal debt 2. Benefitto principal debtoris sufficient consideration, but past consideratio of guarantee. ona e Can be oral or written. no consideration for a contract Consent of surety should not be obtained by misrepresentation or concealment of a material fact. Surety can proceeded against without proceeding against the principal debtor first. If the co-surety does not join, the contract of guarantee is not valid Distinction between a Contract of Indemnity and a Contract of Guarantee Genie ene Coie iaor ead itera Number of parties/ [There are only two parties namely the| There are three parties creditor, principal Parties to the indemnifier [promisor] and the indemnified | debtor and surety. contract [promisee] ‘Nature of liability The liability of the indemnifier isprimary | The liability of the surety is secondary as| and independent the primary liability is that of the principal debtor. Time of liability The liability of the indemnifier arises only [Liability is already in existence but ‘on the happening of a contingency. specifically crystallizes when principal debtor fails. Time to Act The indemnifier need not necessarily act | Surety must act by extending guarantee at the request of indemnified at the request of debtor Righttosuethird | indemnifier cannot sue a third party for| Surety can proceed against principal party loss in his own name as there is no privity debtor in his own right because he gets| of contract, Such a right would arise only if there is an assignment in his favour. ail the right of a creditor after discharging the debts, Purpose Reimbursement of loss For the security of the creditor‘Competency ‘Al parties must be competent to contract to contract In the case of a coniract of guarantee, where a minor is a principal debtor, the contract is still valid. Number of Contracts | Onlyoneoriginalandindependentcontract | There are 3 contracts made between— between indemnifier and indemnified. |+ Creditor and principal debtor + Creditor and Surety + _ Surety and Principal debtor fet Prom ciae rs The liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. Explanation : (}) The term “co-extensive with that of principal debtor” means that the surety is liable for what the principal debtor's liable. (ii) The liability of a surety arises only on default by the principal debtor. But as soon as the principal debtor defaults, the liability of the surety begins and runs co-extensive with the liability of the principal debtor, in the sense that the surety will be liable for all those sums for which the principal debtor is liable. (iii). Where a debtor cannot be held liable on account of any defect in the document, the liabilty of the surety also ceases, (iv) Surety’s liability continues even if the principal debtor has not been sued or is omitted from being sued. In other words, a creditor may choose to proceed against a surety first, unless there is an agreement to the contrary. 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. Nature of Surety’s liability can be summed up as (a) Liability of surety is of secondary nature as he is liable only ‘on default of principal debtor. (b) his liability arises immediately on the default by the principal debtor (c) The Creditor has a right to sue the surety directly without first proceeding against principal debtor. (cere Be Continuing guarantee (Section 129): A guarantee which extends toa series of transactionsis called a “continuing guarantee’. The essence of continuing guarantee is that it applies not to a specific number of transactions but to any number of transactions and makes the surety liable for the unpaid balance at the end of the guarantee Example 4 : A, in consideration that B will employ C in collecting the rents of B's zamindari, promises B to be responsible, to the amount of 5,000 rupees, for due collection and payment by C of those rents. This is a continuing guarantee. Example 2 : 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. Example 3 : A guarantees payment to B of the price of five sacks of flour to be delivered by B to C and to beaid for in a month. B delivers five sacks to C. C pays for them. Afterwards B delivers four sacks to C, which does not pay for. The guarantee given by A was not a continuing guarantee, and accordingly he is not liable for the price of the four sacks. In the continuing guarantee, the liability of surety continues till the performance or the discharge of all the transactions entered into or the guarantee is withdrawn mek erat irety on other's default, primarily liable, not affected by arrangement between them that one shall Where two persons contract with a third person to undertake a certain liability, and also contract with each other that one of them shall be liable only on the default of the other, the third person not being a party to such contract. the liability of each of such two persons to the third person under the first contract is not affected by the existence of the second contract, although such third person may have been aware of its existence. (Section 132) Example : A and B make a joint and several promissory note to C. A makes it, in fact, as surety for B, and knows this at the time when the note is made. The fact that A, to the knowledge of C, made the note as surety for B, is no answer to a suit by C against A upon the note. Perce A surety is discharged from liability on a guarantee under the following circumstances: () By revocation of the contract of guarantee (ii) By the conduct of the creditor, or (ii) By the invalidation of the contract of guarantee Eee Cue Ruta id 3 ro 3 CON e enki cert cry By revocation of the Contract of Guarantee (a) Revocation of continuing guarantee (Section 130) : The continuing guarantee may at any time be revoked by the surety as to future transactions by notice to the creditors. Example 1 : A, in consideration of B's discounting, at A's request, bills of exchange for C, guarantees to B, for twelve months, the due payment of all such bills to the extent of 50,000 rupees. B discounts bills for C to the extent of 20,000 rupees. Afterwards, at the end of three months, A revokes the guarantee. This revocation discharges A from all liability to B for any subsequent discount. But A is liable to B for the 20,000 rupees, on default of C. Example 2 : A guarantees to B, to the extent of 100,000 rupees, 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. liable upon his guarantee.(b) 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 transactions, The estate of deceased surety is, however, liable for those transactions which had already taken piace during the lifetime of the deceased. Surety's estate will not be liable for the transactions taking place after the death of surety even if the creditor had no knowledge of surety’s death By conduct of the creditor (@) By variance in terms of contract (Section 133) : Where there is any variance in the terms of contract, between the principal debtor and creditor without surety's consent, it would discharge the surety in respect of all transactions taking piace subsequent to such variance. Example 1 : A becomes surety to C for B's conduct as a manager in C’s bank. Afterwards, B and C contract, without A's consent, that B's salary shall be raised, and that he shall become liable for one-fourth of the losses on overdrafts. B allows a customer to overdraw, and the bank loses a sum of money. A is discharged from his suretyship by the variance made without his consent, and is not liable to make good this loss. Example 2 : A guarantees C against the misconduct of B in an office to which B is appointed by C, and of which the duties are defined by an Act of the Legislature. By a subsequent Act, the nature of the office is, materially altered. Afterwards, B misconducts himself. A is discharged by the change from future liability under his guarantee, though the misconduct of B is in respect of a duty not affected by the later Act. Example 3 : C agrees to appoint B as his clerk to sell goods at a yearly salary, upon A's becoming surety to C for Bis duly accounting for moneys received by him as such clerk. Afterwards, without A's knowledge or consent, C and B agree that B should be paid by a commission on the goods sold by him and not by a fixed salary. A is not liable for subsequent misconduct of B. Example 4: A gives to C a continuing guarantee to the extent of 3,00,000 rupees for any oil supplied by C to B on credit. Afterwards B becomes embarrassed, and, without the knowledge of A, B and C contract that C shall continue to supply B with oil for ready money, and that the payments shall be applied to the then existing debts between B and C. Ais not liable on his guarantee for any goods supplied after this new arrangement. Example 5 : C contracts to lend B 5,00,000 rupees on the 1st March. A guarantees repayment. C pays the 5,00,000 rupees to B on the 1st January. A is discharged from his liability, as the contract has been varied, in as much as C might sue B for the money before the 1st March. (b) By release or discharge of principal debtor (Section 134) : The surety is discharged by any contract between the creditor and the principal debior; by which the principal debtor is released, or by any act or ‘omission of the creditor, the legal consequence of which is the discharge of the principal debtor. Example : A contracts with B for a fixed price to build @ house for B within a stipulated time, B supplying the necessary timber. C guarantees A's performance of the contract. B omits to supply the timber. C is discharged from his suretyship. (©) Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor [Sector 135] : A contract between the creditor and the principal debior, by which the creditor makes ‘a composition with, or promises to give time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract. (@) Surety not discharged when agreement made with third person to give time to principal debtor [Section 136] : Where a contract to give time to the principal debtor is made by the creditor with a thirdperson, and not with the principal debtor, the surety is not discharged. Example : C, the holder of an overdue bill of exchange drawn by A as surety for B, and accepted by B, contracts with M to give time to B, A is notdischarged. (e) Creditor’s forbearance to sue does not discharge surety [Section 137] : Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him does not in the absence of any provision in the guarantee to the contrary, discharge the surety. Example : B owes to C a debt guaranteed by A. The debt becomes payable. C does not sue B for a year after the debt has become payable. A is not discharged from his suretyship. (f) Discharge of surety by creditor's act or omission impairing surety's eventual remedy [Section 139] + If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged Example 1 : B contracts to build a ship for C for a given sum, to be paid by instalments as the work reaches certain stages. A becomes surety to C for B's due performance of the contract. C, without the knowledge of A, repays to B the last two instalments. A is discharged by this prepayment. Example 2 : A puts M as apprentice to B, and gives a guarantee to B for M's fidelity. B promises on his part that he will, at least once a month, see that M make up the cash. B omits to see this done as promised, and M embezzles. A is not liable to B on his guarantee. By the invalidation of the contract of guarantee (a) 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 (b) 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 Example 1: A engages B as a clerk to collect money for him, B fails to account for some of his receipts, and A in consequence calls upon him to furnish security for his duly accounting. C gives his guarantee for B's duly accounting. A does not acquaint C with B's previous conduct. B afterwards makes default. The guarantee is invalid, Example 2 : A guarantees to C payment for iron to be supplied by him to B for the amount of ° 2,00,000 tons. B and C have privately agreed that B should pay five rupees per ton beyond the market price, such excess to be applied in liquidation of an old debt. This agreement is concealed from A. Ais not liable as a surety. (c) Guarantee on contract that creditor shall not act on it until co- surety joins (Section 144) : Where a person gives a guarantee upon a contract that the creditor shall not act upon it until another person has joined in it as co-surety, the guarantee is not valid if that other person does not join. Preise Rights of a surety may be classified as under: (2) Rights against the creditor, (b) Rights against the principal debtor, (©). Rights against co-sureties.Rn Right against the principal debtor (@) Rights of subrogation [Section 140] : Where, a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety, upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor. ‘This right is known as right of subrogation. It means that on payment of the guaranteed debt, or performance of the guaranteed duty, the surety steps into the shoes of the creditor. (b) Implied promise to indemnify surety [Section 145] : in every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety. The surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee, but no sums which he has paid wrongfully. Example 4 : B is indebted to C, and A is surety for the debt. C demands payment from A, and on his refusal ‘sues him for the amount. A defends the suit, having reasonable grounds for doing so, but is compelled to pay the ‘amount of the debt with costs. He can recover from B the amount paid by him for costs, as well as the principal debt Example 2 : C lends B a sum of money, and A, at the request of B, accepts a bill of exchange drawn by B upon ‘Ato secure the amount. C, the holder of the bill, demands payment of it from A, and, on A's refusal to pay, sues him upon the bill. A, not having reasonable grounds for so doing, defends the suit, and has to pay the amount of the bill and costs. He can recover from B the amount of the bill, but not the sum paid for costs, as there was no real ground for defending the action. Example 3 : A guarantees to C, to the extent of 2,00,000 rupees, payment for rice to be supplied by C to B. C supplies to B rice to a less amount than 2,00,000 rupees, but obtains from A payment of the sum of 2,00,000 Tupees in respect of the rice supplied. A cannot recover from B more than the price of the rice actuallysupplied. Right against the Creditor Surety’s right to benefit of creditor's securities [Section 141] : A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not; and, if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security. Example 1 : C advances to B, his tenant, 2,00,000 rupees on the guarantee of A. C has also a further security for the 2,00,000 rupees by a mortgage of B’s furniture. C cancels the mortgage. B becomes insolvent, and C sues Aon his guarantee. A is discharged from liability to the amount of the value of thefurniture. Example 2 : C, a creditor, whose advance to B is secured by a decree, receives also a guarantee for thatadvance from A. C afterwards takes B's goods in execution under the decree, and then, without the knowledge of A, withdraws the execution. A isdischarged. Example 3: A, as surety for B, makes a bond jointly with B to C, to secure a loan from C to B, Afterwards, C obtains from B a further security for the same debt. Subsequently, C gives the up the further security, A is not discharged. Rights against co-sureties (a) Co-sureties liable to contribute equally (Section 146) : Equality of burden is the basis of Co-suretyship. This is contained in section 146 which states that “when two or more persons are co-sureties for the same debt, or duty, either jointly, or severally and whether under the same or different contracts and whether with ‘or without the knowledge of each other, the co-sureties in the absence of any contract to the contrary, are liable, as between themselves, to pay each an equal share of the whole debt, or of that part of it which remains unpaid by the principal debtor’ Example 1 : A, B and C are sureties to D for the sum of 3,00,000 rupees lent to E. E makes default in payment. A, B and C are liable, as between themselves, to pay 1,00,000 rupees each. Example 2 : A, B and C are sureties to D for the sum of 1,00,000 rupees lent to E, and there is a contract between A, B and C that A is to be responsible to the extent of one-quarter, B to the extent of one-quarter, and C to the extent of one- half. E makes default in payment. As between the sureties, A is liable to pay 25,000 rupees, B 25,000 rupees, and C 50,000 rupees. (b) Liability of co-sureties bound in different sums (Section 147) : The principal of equal contribution is, however, subject to the maximum limit fixed by a surety to his liability. Co-sureties who are bound in different sums are liable to pay equally as far as the limits of their respective obligations permit Example 1 : A, B and C, as sureties for D, enter into three several bonds, each in a different penalty, namely, A in the penalty of 1,00,000 rupees, B in that of 2,00,000 rupees, C in that of 4,00,000 rupees, conditioned for D's duly accounting to E. D makes default to the extent of 3,00,000 rupees. A, B and C are each liable to pay 1,00,000 rupees. Example 2 : A, B and C, as sureties for D, enter into three several bonds, each in a different penalty, namely, A in the penalty of 1,00,000 rupees, B in that of 2,00,000 rupees, C in that of 4,00,000 rupees, conditioned for D's duly accounting to E. D makes default to the extent of 4,00,000 rupees; A is liable to pay 1,00,000 rupees, and B and C 1,50,000 rupees each. Example 3 : A, B and C, as sureties for D, enter into three several bonds, each in a different penalty, namely, A in the penalty of 1,00,000 rupees, B in that of 2,00,000 rupees, C in that of 4,00,000 rupees, conditioned for D's duly accounting to E. D makes default to the extent of 7,00,000 rupees. A, B and C have to pay each the full penalty of his bond. 4M advan 5,000 on the guarantee of P. The loan carries inter canta! Tee en AN auc eu R eu Piet aan per annum and does not sue N for one ye Rieu eM tut a eal Pp? Ans. M cannot sue P, because a surety is discharged from liability when, without his consent, the creditor makes anychange in the terms of his contract with the principal debtor, no matter whether the variation is beneficial to the surety or does not materially affect the position of the surety (Section 133, indian Contract Act, 1872) PU Rua CMe ci Pienci cu ien eer nes Teruo Sree ai Ans. ‘Section 124 of the Indian Contract Act,1872 says that “A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or the conduct of any person’, is called a “contract of indemnity” Section 126 of the indian ContractAct says that “A contract to perform the promise made or discharge liability incurred by a third person in case of his default.”is called as “contract of guarantee’. The conditions under which the guarantee is invalid or void are stated in section 142,143 and 144 of the Indian Contract Act are Guarantee obtained by means of misrepresentation. creditor obtained any guarantee by means of keeping silence as to material circumstances. ‘When contract of guarantee is entered into on the condition that the creditor shall not act upon it until another person has joined in it as co-surety and that other party fails to join as such. Ce acu Oe ae a monthly salary of °2,000 by ABC bank for a period of three gave surety for X's good After nine months, the financial position of the bank deterioratt X agrees to accept a lower salary of °1,500/- per month from Bank. Two months later, it was found that X} has misappropriated cash since the time of his appointment. What is the liability of Y ? Ans. Ifthe creditor makes any variance (i.e. change in terms) without the consent of the surety, then surety is discharged as to the transactions subsequent to the change. in the instant case Y is liable as a surety for the loss suffered by the bank due to misappropriation of cash by X during the first nine months but not for misappropriations ‘committed after the reduction in salary. [Section 133, Indian Contract Act, 1872] Cv et et eee hee ketene sary material to be used in the construction. C guarantees A's performance of the contract. B does Pee ce aie eer eric sy Ans. According to Section 134 of the Indian Contract Act, 1872, the surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released or by any act or omission for the creditor, the legal consequence of which is the discharge of the principal debtor. in the given case the B omits to supply the timber. Hence C is discharged from his liability.Unit- 2; BAILMENT AND PLEDGE Section 150 Bailor's duty to disclose faults in goods bailed Section 154 Care tobe taken by bailee Section 152, Bailee when not liable for loss, etc., of thing bailed Section 153 ‘Termination of baiiment by bailee’s act inconsistent with conditions Section 154 Liability of bailee making unauthorised use of goods bailed ‘Section 155 Effect of mixture, with bailor’s consent, of his goods with bailee’s Section 156, Effect of mixture, without bailor's consent, when the goods can be separated Section 157 Effect of mixture, without bailor’s consent, when the goods cannot be separated Section 158 Repayment by bailor of necessary expenses ‘Section 160 Return of goods bailed on expiration of time or accomplishment of purpose. ‘Section 164 Ballee's responsibilty when goods are not duly retumed Section 163 Bailor entitled to increase or profit from goods balled Section 164 Bailor's responsibilty to baile Section 165 Bailment by several joint owners [Section 167 Right of third person claiming goods bailed Section 168 Right of finder of lost goods; may sue for specific reward offered Section 169 ‘When finder of thing commonly on sale may sel ‘Section 170 Bailee’s particular lien ‘Section 172 Pledge, pawnor and pawnee ‘Section 173 Right of retainer Section 174 Right to retention of subsequent debts Section 175 Pawnee's right as to extraordinary expenses Incurred Section 176 Pawnee's right where pawnor makes default Section 177, Right to redeem Pledge by person in possession under voidable contract Section 179 Pledge where pawnor has only a limited interest ‘Section 178 Pledge by mercantile agents Section 179 Pledge where pawnor has only a limited interest Section 180 ‘Suit by bailor & bailee against wrong doers ‘Section 181 ‘Apportionment of relief or compensation obtained by such suitsCee acc Ce URe ara) Taree d particular As per Section 148 of the Act, bailment is the delivery of goods by one person to another for some purpose, upon a contract, that the goods shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the “bailor”. ‘The person to whom they are delivered is called the “ballee”. Example : Where X' delivers his car for repair to 'Y',°X’ is the bailor and Explanation : The essential characteristics of bailment are— is the baile. (a) Ballmentis based upon a contract. Sometimes it could be implied by law as it happens in the case of finder of lost goods. (b)_Itinvolves the delivery of goods from one person to another for some purposes. (0) Delivery involves change of possession from one person to another, and not change of ownership. In ailment, bailor continues to be the owner of goods as there is no change of ownership. (d)_Bailment is only for moveable goods and never for immovable goods or money. (©) Inbailment, possession of goods changes. Change of possession can happen by physical delivery or by any action which has the effect of placing the goods in the possession of bailee. (1) Bailee is obliged to return the goods physically to the bailor. The bailee cannot deliver some other goods, even not those of higher value Deposit of money in a bank is not bailment since the money returned by the bank would not be identical currency notes. Similarly depositing ornaments in a bank locker is not bailment, because omaments are kept in a locker whose key are still with the owner and not with the bank. The ornaments are in possession of the owner though kept in a locker at the bank. Different forms of Bailment : Following are the popular forms of bailment (1) Delivery of goods by one person to another to be held for the balior’s use. (2) Goods given to a friend for his own use without any charge(3) Hiring of goods. (4) Delivering goods to a creditor to serve as security for a loan. (5) Delivering goods for repair with or without remuneration. (6) Delivering goods for carriage. Duties of Bailor : The duties of bailor are spelt out in a number of Sections. These are categorized under the following headings : ‘These are enumerated hereunder (i) Bailor’s duty to disclose faults in goods bailed [Section 150] : The bailor is bound to disclose to the ballee faults in the goods bailed, of which the bailor is aware, and which materially interfere with the use of them, or expose the baile to extraordinary risks; and if he does not make such disclosure, he is responsible for damage arising to the bailee directly from such faults. I the goods are bailed for hire, the bailor is responsible for such damage, whether he was or was not aware of the existence of such faults in the goods bailed. Example 1 : A lends a horse, which he knows to be vicious, to B. He does not disclose the fact that the horse is, vicious. The horse runs away. B is thrown and injured. A is responsible to B for damagesustained. Example 2 : A hires a carriage of B. The carriage is unsafe, though B is not aware of it, and A is injured. B is responsible to A for the injury. (ii) 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. (iil) 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 (iv) where the baiiment is gratuitous, the bailor must reimburse the bailee for any expenditure incurred in keeping the goods, (v)_ the bailor should reimburse any expense which the baile may incur by way of loss in the process of returning the goods or complying with other directions for returning the goods. (vi) the bailor must compensate the bailee for the loss or damage suffered by the bailee that is in excess of the benefit received, where he had lent the goods gratuitously and decides to terminate the bailment before the expiry of the period of bailment.(vii) The bailor is bound to accept the goods after the purpose is accomplished. if bailor fails, he is responsible for any loss or damage to the goods and has to reimburse for expenses incurred by the bailee for keeping the goods safely. Rights of Bailor : Broadly rights of bailor can be categorized as under : Reka The following are the rights of bailor : () Liability of bailee making unauthorised use of goods bailed [Section 154): if the baile makes any use of the goods bailed, which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of them. Example 1 : 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. Example 2 : A hires a horse in Calcutta from B expressly to march to Benares. A rides with due care, but marches to Cuttack instead. The horse accidentally falls and is injured. A is liable to make compensation to B for the injury to the horse, (ii) Effect of mixture, with bailor’s consent, of his goods with bailee’s [Section 155] : 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. (iil) Effect of mixture, without bailor’s consent, when the goods can be separated [Section 156] : if the bailee, without the consent of the bailor, mixes the goods of the bailor with his own goods, and the goods can be separated or divided, the property in the goods remains in the parties respectively; but the bailee is bound to bear the expenses of separation or division, and any damage arising from the mixture. 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 entitied to have his 100 bales returned, and B is bound to bear all the expenses incurred in the separation of the bales, and any other incidental damage. (iv) Effect of mixture, without bailor's consent, when the goods cannot be separated [Section 157]: if the baile, without the consent of the bailor, mixes the goods of the bailor with his own goods, in such a manner that itis 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. Example : A bails a barrel of Cape flour worth *45 to B. B, without A's consent, mixes the flour with country flour of his own, worth only * 25 a barrel. B must compensate A for the loss of his flour.