UNIT – 3

Indemnity
The word indemnity has been derived from the Latin term “indemnis” which means
unhurt or free from loss. As we all know, the fundamental idea behind an indemnity or
indemnification is to transfer some or all of the liability from one party to another.
This means that one party to the contract, referred to as the “indemnifier” or
“indemnifying party”, promises to protect another party, referred to as the “indemnity
holder” or “indemnified party”, from not only loss, cost, expense, and damage but also
from any legal consequences resulting from an act or omission by either the
indemnifier or a third party or any other event. Section 124 of the Indian Contract Act,
1872.
As per Section 124 of the Indian Contract Act, an agreement by which one party
promises to save the other from loss caused to him by the conduct of the promisor
himself or by the lead of someone else is classified as “Contract of Indemnity”.
The term (Indemnity) means to make good the loss or to compensate for the losses.
To protect the promisee from unanticipated losses, parties enter into the contract of
Indemnity.
It is a promise to save a person without any harm from the consequences of an act.
There are two parties involved in the Contract of Indemnity. The two parties are:
Indemnifier: Someone who protects against or compensates for the loss of the
damage received.
Indemnified/Indemnity-holder: The other party who is compensated against the loss
suffered.
Example- A contracts to indemnify B against the consequences of any proceedings
which C may take against B in respect of a certain sum of 200 rupees. This is a
contract of indemnity.
X contracts to indemnify Y against the consequences of any legal proceedings that Q
may bring against Y for a certain sum of money. This contract or promise is known as
a contract of indemnity.
A promises to indemnify B if his car is damaged in an accident. B met with a minor
accident in which he did not suffer any injury, but his car was damaged completely.
Here, A is obliged to indemnify B for the damage.
A asks B to invest money in C’s business and contract to indemnify him if he suffers
any loss. B suffered a loss of Rs 1,00,000/-. According to the contract of indemnity
entered into by A and B, A must indemnify the damages and other costs to B.
Essentials to a contract of indemnity
For the purpose of a contract of indemnity, the following conditions must be satisfied:
There must be two parties.
One of the parties must promise the other to pay for the loss incurred.
The contract may be expressed or implied.
It must satisfy the essentials of a valid contract.
Objective and nature of the contract of indemnity
The purpose of entering into a contract of indemnification is to safeguard the promisee
from unforeseen losses. A contract for indemnity may be expressed or implied. In
other words, parties may directly impose their own conditions in such a contract. The
nature of circumstances may also create indemnity obligations impliedly.
A contract of indemnity has a contingent nature, i.e., it has a conditional structure, and
it mainly provides a safeguard provision for potential risks and uncertainties. A
contract of indemnity is just like any other contract, and it must necessarily follow all
the requirements of a valid contract. For instance, A fulfils B’s request for action.
When A pledges to make up for B’s losses, if he incurs any, they imply the formation
of an indemnity contract.
A contract of indemnity is essential because a party may not be able to command all
apparent aspects of the performance of a promise. When the circumstances
surrounding the performance are beyond the authority and control of the party, the
party can be sued for the actions of another. Indemnity is a subset of compensation,
and a contract of indemnity is a type of contract. The obligation to indemnify is a
responsibility that the indemnifier willingly and voluntarily accepts.
In most cases, an insurance contract is not considered an indemnity contract in India.
Agreements of marine insurance, fire insurance, or motor insurance, on the other
hand, are considered contracts of indemnity because, unlike life insurance, which
provides a specific sum of money upon the death of the policyholder, when a creditor
takes out a policy on the principal debtor, he becomes entitled to a specific amount of
money.
There is a contract between A and B in which A promises to deliver certain goods to B
for Rs. 7,000 every month. C comes and makes a promise to indemnify B’s losses if A
fails to deliver the goods.
C is the indemnifier or promises as he promises to bear the loss; and
B is the indemnity-holder or promisee or indemnified as his losses are compensated
for.
Rights incurred by an indemnity holder
Section 125 of the Act describes the right of an indemnity holder:
Any fee he was forced to pay in a matter or a suit to which the indemnifier’s guarantee
extends will be recoverable by the indemnity holder. For example, A and B will agree
that if C sues B in a specific matter, A will indemnify B. For example, A and B will
agree that if C sues B in a specific matter, A will indemnify B.
C has now filed a lawsuit against B, and B has been forced to make a settlement.
According to the contract, A would be responsible for all payments made by B to C in
connection with that matter.
Any costs that the indemnity holder may have to pay to a third party are also
recoverable. However, the indemnity holder should have behaved prudently and in
accordance with the indemnifier’s instructions.
Any amounts charged under any suit or compromise, as long as it was not against the
indemnifier’s orders, are also recoverable by the indemnity holder.
Rights of an indemnifier
Despite the fact that the Act mentions the indemnity privileges, the Indian Contract
Act of 1872 excluded indemnifier rights.
In Jaswant Singh v. the State, it was concluded that the reimburse advantages are like
those of a guarantee under Section 141, where the person who indemnifies gains the
advantage of all protections held by the loan boss against the vital borrower,
regardless of whether the foremost account holder was worried about them.
On the off chance that an individual chooses to reimburse, he will be named as having
prevailed to the entirety of the structures and means which the individual who was
initially reimbursed may have ensured himself against any misfortune or harms; or
haggled for pay for his misfortune or harms.
When the indemnifier pays for the misfortunes or harms, he at that point moves into
the shoes of the reimburse, giving him the entirety of the advantages that the first
indemnifier needed to shield himself from misfortune or mischief.
Guarantee
The term "guarantee" is defined by the Black Laws Dictionary as "the certainty that a
legal contract will be duly enforced."A guarantee contract is regulated by Indian
Contract Act, 1872, and comprises of 3 parties, including one who serves as the
guarantor if the defendant fails to meet his obligations. Whenever a party seeks a loan,
products, or employment, a guarantee contract is usually required. In such
arrangements, the guarantor promises the creditor that the person in need can be
trusted, and that in the event of a default, he will accept responsibility for payment.
According to Section 126 of the Indian Contract Act, this is a contract to execute the
pledge or relieve the delinquent party of his obligation if he fails to satisfy his pledge.
Contract of Guarantee suggests that a contract is created to perform the guarantees or
discharge the liabilities of the person just in case he fails to discharge such liabilities.
As per Section 126 of the Indian Contract Act, 1872, a contract of guarantee has 3
parties –
Surety: A surety could be a person giving a guarantee during a contract of guarantee.
Someone who takes responsibility to pay cash performs any duty for one more person
just in case that person fails to perform such work.
Principal Debtor: A principal mortal could be a person for whom the guarantee is
given during a contract of guarantee.
Creditor: The person to whom the guarantee is given is referred to as a creditor.
Types of Guarantee-
A contract of guarantee could also be for Associate in Nursing existing liability or
future liability. A contract of guarantee may be a particular guarantee (for any specific
dealings only) or continued guarantee.
There are two sorts of guarantee contracts: specific guarantee and ongoing guarantee.
A specific or simple guarantee is one that is made in respect of a single debt or unique
transaction and is set to expire when the guaranteed debt is paid or the promise is
fulfilled. An ongoing guarantee, on the other hand, is a guarantee that covers a series
of transactions (Section129). In this instance, the surety's liability would remain until
all of the transactions were completed or the guarantor revoked the guarantee for
future transactions.
Specific Guarantee
a particular guarantee is for one debt or any specific dealings. It involves associates
finishing once such debt has been paid.
Continuing Guarantee
Act in 1872 defines Continuing Guarantee- A continuing guarantee is a form of
assurance that covers many transactions. Until the surety revokes it, it applies to all
transactions engaged into by the principal debtor. As a result, bankers prefer a
continuing guarantee because the guarantor's duty is not limited to the original
advances and extends to all subsequent defaults.
a) S is a bookseller who gives P a collection of books with the understanding that if
the person P is not able to pay for the books, his or her friend X will. This is a contract
of particular guarantee, and K's liability ends the minute S receives payment for the
books.

b) A wealthy landlord hires P as his estate manager after M recommends him. P was
responsible for collecting rent from S's renters each month and remitting it to S by the
15th of each month. M, as the guarantee, undertakes to make good on any defaults
made by P. This is a contract with a long-term guarantee.
Revocation of Continuing Guarantee
A guarantee offered for an existing debt cannot be reversed since once an offer is
accepted, it is considered final. A continuing guarantee, on the other hand, can be
canceled for future transactions. In that instance, the surety is responsible for any
transactions that have already occurred.
A guarantee contract can be canceled in one of two ways:
Continuing guarantees can be canceled by giving notification to the Creditor (Section
130), however this only applies to future transactions. The surety cannot absolve
himself of his responsibility simply by giving notice; he remains liable for all
transactions made before the notification was delivered. If the contract of guarantee
has a stipulation requiring a particular amount of time's notice before the contract can
be revoked, the surety must abide by it, as stated in Offord v Davies (1862).
By Surety's Death (Section 131) - On the death of surety, a seamless guarantee is
revoked for all the long run transactions thanks to the absence of a contract. Unless
there is a contract to the contrary, the death of a surety revokes the ongoing guarantee
in respect of transactions occurring after the surety's death due to the lack of a
contract. His legal representatives, on the other hand, shall be accountable for
transactions made before his death. However, the estate of a deceased surety is
responsible for any transactions that occurred during the deceased's lifetime. Even if
the creditor had no knowledge of surety's death, the surety's estate will not be liable
for transactions that occurred after surety's death.
Requirements of Contract of Guarantee-
It must be agreed upon by all three parties - All the three parties to the transaction
that are the principal debtor, creditor, and surety, must consent with each other's
approval. It is to be noted that the surety will only except for the major debtor's debt if
the principal debtor expressly demands it. Now the outcome is that the primary debtor
must interact with the surety. The surety's communication with the creditor guarantee
transaction without informing the primary debtor does not constitute a guarantee
contract.
 Take into account anything done for the benefit of the principal debtor is to the surety
for delivering the guarantee. The consideration from the creditor, not one from the
past. It is not necessary for the guarantor to receive any value, and sometimes what
happens is even the creditor's tolerance in the event of default is sufficient
consideration.
Accountability - A surety's liability is secondary under a guarantee arrangement. This
tells that the primary contract was between the creditor and the principal debtor. The
surety is solely responsible for repayment if the principal debtor defaults.
Assume the presence of a debt - The fundamental purpose of a guarantee contract is
to ensure the payment of the major debtor's obligation. if there is no such debt. As a
result, in circumstances where the debt is time-barred or void, the surety has no duty.
In the Scottish case the House of Lords concluded that there can be no legitimate
guarantee if there is no principal obligation.
It must include all of the fundamental elements of a legitimate contract as the
guarantee contract is an agreement, it must meet all of the standards as a legal
contract.
No False Information - Any circumstances that may affect the surety's obligation
must be disclosed by the creditor to the surety. The confidence gained through the
concealment of such knowledge is invalid. As a consequence, if a creditor secures
such guarantee by omitting substantial information, the guarantee will be null and
unenforceable.
There will be no misrepresentation - This to be noted that the guarantee shouldn't be
acquired by misrepresenting the facts to the surety. It does not require the primary
debtor even while it is not a contract of Uberrima fides, or ultimate good faith.

Difference between a contract of indemnity and guarantee

Basis of
Contract of Indemnity Contract of Guarantee
difference

It is given under Section

Provisions 124 of the Indian Contract It is defined under Section 126 of the Act
Act, 1872.

Number of In a contract of indemnity, There are three parties. These are: Principal
parties there are two parties, debtor, Surety, Creditor.
namely, the indemnifier
(who promises to pay for
the losses) and the
indemnity holder (in whose
favour such a promise is
 made).

There are three contracts between the parties:

The first contract is between the principal debtor
and the creditor, which makes it obligatory for
There is only one contract
the principal debtor to perform his duties. The
in the case of indemnity,
Number of second contract is between the surety and the
which is between the
contracts creditor, which binds the surety to act on behalf
indemnifier and the
of the principal debtor. The third contract is
indemnity holder.
between the principal debtor and surety, by
which the principal debtor is bound to pay the
surety the amount that he paid on his behalf.

This contract aims to provide the creditor with

The aim is to protect a
the security that in the absence of the principal
Aim person from potential loss
debtor or if he fails to perform the obligations,
by humans or agencies.
the same will be done by a surety.

The indemnifier has The liability of the surety is secondary, as it is

primary liability because he the principal debtor who is initially responsible
Liability promised to pay for the loss for performing the obligations. The surety’s
incurred by the indemnity liability arises when the principal debtor fails to
holder. do so.

The indemnifier cannot

Recovery of
recover the amount that he If surety pays money on behalf of the principal
money/loss
paid for the loss from any debtor, he/she is liable to recover from him.
paid
person.

C takes out a loan from B and promises to return

A promises B that he will
the money within 3 years. A promises to be a
pay for losses incurred by
Example surety in this case. If C is unable to pay the
him due to his actions or
money within the stipulated time, it is the duty
those of a third party.
of A to do so.

Bailment
Bailment is a legal term referring to the transfer of possession of a good. This
transfer is from the bailor to the bailee. The purpose of bailment can vary. It can
be for safekeeping, repair, or use of the good. The bailee must return the good
after the agreed purpose is fulfilled. During the bailment, the bailee cannot use
the good for any other purpose. The risk of loss generally falls on the bailee.
Parties Involved
The following parties are involved in bailment:
Bailor: The bailor is the person who owns the good and transfers its possession
to the bailee. The bailor does this for a specific purpose, such as safekeeping,
repair, or use of the good.
Bailee: The bailee is the person who receives the good from the bailor. The
bailee holds the good for a specific purpose agreed upon with the bailor. After
fulfilling this purpose, the bailee must return the good to the bailor. The bailee
cannot use the good for any other purpose and generally bears the risk of loss.
Features of Bailment
The following are the feature of bailment:
Transfer of Possession: In bailment, there is a transfer of possession of a good
from the bailor to the bailee.
Purpose: The purpose of bailment can be for safekeeping, repair, or use of the
good.
Return of Good: The bailee must return the good after the agreed purpose is
fulfilled.
Limited Use: The bailee cannot use the good for any purpose other than the
agreed one.
Risk of Loss: The risk of loss generally falls on the bailee.
Two Parties Involved: Bailment involves two parties – the bailor (owner of the
good) and the bailee (the one who temporarily possesses the good).
Types of Bailment
The following are the different types of bailment:
Gratuitous Bailment: This is a bailment where only one party benefits. For
example, if you lend a book to a friend, you’re not receiving any benefit.
Non-Gratuitous Bailment: This is a bailment where both parties benefit. For
example, when you leave your car at a repair shop, both you and the shop owner
benefit.
Constructive Bailment: This type of bailment occurs when a person finds lost
property and takes care of it.
Pledge
Pledge is a legal term that refers to the transfer of a good’s possession to secure
a debt. The pledgor gives the good to the pledgee. The pledgee holds the good
until the debtor repays the debt. If the debtor fails to repay, the pledgee has the
right to sell the good. The pledgor bears the risk of loss. This process involves
three parties: the pledgor, the pledgee, and the debtor.
Parties Involved in Pledge
The following parties are involved in pledge:
Pledgor: The pledgor is the person who owns the good and transfers its
possession to the pledgee. The pledgor uses the good as security for a debt or
obligation.
Pledgee: The pledgee is the person who receives the good from the pledgor. The
pledgee holds the good until the debtor repays the debt. If the debtor fails to
repay, the pledgee has the right to sell the good.
Debtor: The debtor is the person who owes the debt or obligation. The debtor’s
repayment of the debt leads to the return of the good from the pledgee to the
pledgor. If the debtor fails to repay, the good may be sold by the pledgee.
Features of Pledge
A pledge has the following features:
Transfer of Possession: In a pledge, the pledgor transfers the possession of a
good to the pledgee.
Purpose: The primary purpose of a pledge is to secure a debt or obligation.
Return of Good: The pledgee returns the good to the pledgor once the debtor
repays the debt.
Right to Sell: If the debtor fails to repay the debt, the pledgee has the right to
sell the good.
Risk of Loss: Loss risk in a pledge falls on the pledgor.
Three Parties Involved: A pledge involves three parties – the pledgor, the
pledgee and the debtor.
Types of Pledge
The following are the different types of pledges:
Pawn: This is a type of pledge where the borrower (pawnor) gives an asset to
the lender (pawnee) as security for a loan.
Hypothecation: In this type of pledge, the borrower retains possession of the
asset but gives the lender the right to sell the asset if the borrower defaults on
the loan.
Lien: This is a type of pledge where the lender has the right to retain possession
of the asset until the borrower repays the loan.
Difference Between Bailment and Pledge: The Verdict
Bailment, defined under Section 148 of the Indian Contract Act, 1872, is a
concept in law involving the delivery of goods from a bailor to a bailee. In a
contract of bailment, the bailee holds the goods for a specific purpose, such as
safekeeping or repair. There are various types of bailment.
Each of them is defined by the specific purpose for which the goods remain
with the bailee. After fulfilling this purpose, the bailee must return the goods to
the bailor. The duty of the bailor and the bailee in a bailment contract can also
involve constructive delivery, where the means of accessing the goods are
transferred instead of the goods themselves.
On the other hand, a pledge, defined under Section 172 of the Indian Contract
Act, 1872, involves the delivery of goods as security for a debt. In the case of a
pledge, the goods are pledged as security by the pledgor to the pledgee.
The pledgee, or pawnee, can sell the goods if the debtor fails to make payment
of a debt. However, if the debtor manages to redeem the goods by repaying the
debt, the pledgee must return the goods. The key differences between bailment
and pledge lie in the purpose of the transfer and the rights of the possessor of
the goods.
Feature Bailment Pledge
Section 172 of Indian Contract
Defined As Per Section 148 of Indian Contract Act, 1872
Act, 1872
Bailment refers to the transfer of Pledge is the transfer of
Definition possession of a good from the bailor to possession of a good as security
the bailee. for a debt or obligation.
Three parties are involved: the
Parties Two parties are involved: the bailor and
pledgor, the pledgee, and the
Involved the bailee.
debtor.
The purpose is usually for the The purpose is to secure a debt
Purpose safekeeping, repair, or use of the good. or obligation.
Return of The good is returned after the agreed The good is returned after the
Good purpose is fulfilled. debt is repaid.

Rights of the The bailee cannot use the good for any The pledgee has the right to sell
Possessor purpose other than the agreed one. the good if the debt is not repaid.
 The risk of loss generally falls on the The risk of loss falls on the
Risk of Loss bailee. pledgor.

Duties of the bailor:

To disclose faults in goods
It is the bailor’s responsibility to inform the bailee of all the faults in the goods.
If the bailor fails to do so, he is liable to the bailee for any loss caused by that
fault. For example: ‘X’ took a car from ‘Y’ to go for a vacation. ‘Y’ was aware
that the brakes weren’t working properly. However, he didn’t inform ‘X’ about
it. ‘X’ is involved in an accident due to the failure of brakes. ‘Y’ will be liable
for all the losses ‘X’ faced in this accident.
To cover necessary and extraordinary expenses
The bailor has to pay the bailee all the necessary and extraordinary expenses
incurred by the bailee to safeguard the goods bailed. For example: ‘A’ gave his
cat to his friend ‘B’ when he had to travel for work. ‘A’ will have to pay the
expenses incurred in the cat’s daily necessities such as food, shelter, etc. ‘A’ will
also have to pay any extraordinary expense like doctor’s bill, daycare, etc. if it
was necessary to keep the cat safe.
To indemnify the bailee of all the losses
The bailor has to indemnify any loss incurred by the bailee if the bailor asks for
his goods before the agreed time in the contract as per Section 159 of the Indian
Contract Act. As per Section 164, the bailee can also claim losses from the
bailor if the bailor intentionally bails goods with a defective title.
To collect the bailed goods
The bailor must collect his goods once the time for which the goods were bailed
is expired. If the bailor fails to collect the goods on the expiry of the bailment
period, he will be liable to pay for any losses incurred by the bailee.,For
example: ‘X’ bailed his dog with ‘Y’ for a week, and returned after 10 days to
get his dog back. ‘X’ will be liable to pay ‘Y’, the expenses incurred for the
safekeeping of the dog for those 3 extra days.
Duties of the bailee:
To take proper care of the goods
As per Section 151 of the Indian Contract Act, 1872, “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 goods of the
same bulk, quantity and value as the goods bailed.” However, in Section 152, it
is stated that “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 described in Section 151.” For example: ‘A’
bailed his vehicle with ‘B’ for one week. If due to negligence of ‘B’, ‘A’s
vehicle is damaged, ‘B’ will be liable to compensate for the same. However, if
the vehicle is damaged due to some act of god such as an earthquake or a flood,
‘B’ will not be liable for such loss.
To use the goods for authorised purpose only
It is the bailee’s responsibility to use the goods only for the authorised purpose
under a contract. If it is found that the goods are used for unauthorised purposes,
the entire contract can be declared void by the bailor. As per Section 154, “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 use of them.”
Some examples:
(a) ‘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 caused to
the horse.
(b) ‘A’ hires a horse in Calcutta from ‘B’ expressly to march to Banaras. 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 caused to the
horse.
To keep the bailed goods separate
All the goods bailed should be kept separately and safely by the bailee as it
ensures the safe return of the goods. However, there are a few provisions related
to the mixing of bailed goods.
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.
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 expense of separation or division, and any damage arising from the
mixture.
Section 157: 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.
To return any profits arised from the goods
If during the course of bailment, any profit has arisen from the bailed goods, the
same should be transferred to the bailor by the bailee. Example: ‘A’ bails his
cow with ‘B’ for a period of 7 days. The cow gives milk daily. ‘B’ sold this milk
during the period of bailment. The profit earned by ‘B’ during the sale of milk
must be returned to ‘A’ while returning the goods.
To return the goods
The bailee must return the goods to the bailor once the purpose of the bailment
is accomplished or the term of the contract expires. This return must be as per
the bailor’s discretion.
Agency
Agency, in law, the relationship that exists when one person or party (the
principal) engages another (the agent) to act for him—e.g., to do his work, to
sell his goods, to manage his business. The law of agency thus governs the legal
relationship in which the agent deals with a third party on behalf of the
principal.
When a person employs another person to do any act for himself or to represent
him in dealing with third persons, it is called a ‘Contract of Agency’. The
person who is so represented is called the ‘principal’ and the representative so
employed is called the ‘agent (Sec. 182). The duty of the agent is to enter into
legal relations on behalf of the principal with third parties. But, by doing so he
himself does not become a party to the contract to the contract not does he incur
any liability under that contract. Principal shall be responsible for all the acts of
his agent provided they are not outside the scope of his authority.
Agent
The Indian Contract Act, 1872 defines an ‘Agent’ in Section 182 as a person
employed to do any act for another or to represent another in dealing with third
persons.
Principal
According to Section 182, The person for whom such act is done, or who is so
represented, is called the “principal”. Therefore, the person who has delegated
his authority will be the principal.
Competence of the parties to enter into a contract of agency
The person employing the agent must himself have the legal capacity or be
competent to do the act for which he employ the agent. A minor or a person
with unsound mind cannot appoint an agent so as to be legally represented by
him (Sec. 183). But an agent so appointed need not necessarily be competent to
contact (Sec: 184) and hence minor or an insane can be appointed as an agent he
can bring about legal relations between the principal and the third party but such
an incompetent agent cannot personally be held liable to the principal.
Consideration not required: Contract of agency requires no consideration. It
comes under the category of those contracts which law has declared to be valid
without consideration (Sec. 185).
Creation of Agency: Agency may be created by any of the following ways:
1. Expressly (Sec. 187)
When an agent is appointed by words spoken or written, his authority is said to
be express.
2. Impliedly (Sec. 187)
When agency arises from the conduct of the parties or inferred from the
circumstances of the case, it is called implied agency.
Example: A of Calcutta has a shop in Delhi. B, the manager of the shop, has
been ordering and purchasing goods from C for the purpose of the shop. The
goods purchased were being regularly paid for but of the funds provided by A.
B shall be considered to be an agent of A by his conduct.
Partners, servants and wives are usually regarded as agents by implications
because of their relationship.
Wife as an implied agent to her husband
(a) Where the husband and wife are living together in a domestic establishment
of their own, the wife shall have an implied authority to pledge the credit of her
husband for necessaries. The implied authority can be challenged by the
husband only in the following circumstances.
(1) The husband has expressly forbidden the wife from borrowing money or
buying goods on credit
(2) The articles purchased did not constitute necessities.
(3) Husband had given sufficient funds to the wife for purchasing the articles
she needed to the knowledge of the seller
(4) The creditor had been expressly told not to give credit to the wife.
(b) Where the wife lives apart from husband without any of her fault, she shall
have an implied authority to bind the husband for necessaries, if he does not
provide for her maintenance.
Classification of agents
A general classification of agents from the point of view of the extent of their
authority is as follows
1) Special agent. A special agent is one who is appointed to perform a particular
act or to represent his principal in some particular transaction as, for example,
an agent employed to sell a house or an agent employed to bid at an auction.
Such an agent has a limited authority and as soon as the act is performed, his
authority comes to an end. He cannot bind his principal in any matter other than
that for which he is employed. The persons who deal with him are bound to
ascertain the extent of his authority.
2) General agent. A general agent is one who has authority to do all acts
connected with a particular trade, business or employment. For example, the
manager (general agent) of a firm has an implied authority to bind his principal
by doing anything necessary for carrying on the business of the firm or which
falls within the ordinary scope of the business. Such authority of the agent is
continuous until it is put to an end. If the principal, by secret instructions, limits
the authority of the general agent, and the agent exceeds the authority, the
principal is bound by the agent's acts done within the scope of his authority,
unless the third parties dealing with the agent have a notice of the curtailment of
the authority of the agent.
3) Universal agent. A universal agent is one whose authority to act for the
principal is unlimited. He has authority to bind his principal by any act which he
does, provided that act
(i) is legal, and
(ii) is agreeable to the law of the land.
Another classification of agents from the point of view of the nature of
work performed by them is as follows
1. Commercial or mercantile agent.
(1) Factor
(2) Auctioneer
(3) Broker
(4) Commission agent
(5) Del credere agent

Duties of an Agent
1. To follow the instructions of his principal: The agent must conduct the
business of the principal according to the directions of the latter. In the
absence of any such directions, he must follow the custom of the business
prevailing in the locality where the agent is conducting such business. If the
agent acts otherwise and the principal sustains a loss, the former must
compensate the latter for it. He will have to account for the profits to the
principal if there are any. He will also lose his remuneration (Sec. 211).
Example: A, an engaged in carrying on for B a business in which it is the
custom to invest from time to time, at interest, the money which may be in
hand omits to make such investment. A must take good to B the interest
usually obtained by such investment.
2. Duty to act, with skills and diligence (Sec. 212): The agent must conduct
the business of 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.
Example: A, an agent for the sale of goods, having authority to sell on credit,
sells to B on credit without, making the proper and usual enquires as to the
solvency of B. B. at the time of such sale is insolvent. A must make
compensation to his principal in resepct of any loss thereby sustained.
3. Duty to render accounts: An agent is bound to render proper accounts to
his principal on demand. He must explain those accounts to the principal and
produce the vouchers in support of the entries (Sec. 213).
4. Duty to communicate with the principal: In cases of difficulty it is the
duty of the agent to use all reasonable diligence in communicating with the
principal and in seeking to obtain the instructions. It is only in an emergency
where there is no time to communicate that he may act bonafide without
consulting the principal (214).
5. Duty not to deal on his own account: The relationship of principal and
agent is of a fiduciary character. An agent, therefore, should not deal on his
own account and should not do anything which may indicate a clash between
his interest and duties. An agent shall have to pay all the benefits to the
principal, which may have resulted to him from his dealings on his own
account in the business of the agency without the knowledge of the principal
(Secs. 215 & 216).
Example: A directs B, his agent, to buy a certain house for him. B tells A that
it cannot be bought, any buys the house for himself. A may, on discovering
that B has bought the house, compel him to sell it to A at the price he gave
for it.
6. Duty not to delegate his authority: An agent cannot delegate his authority
to another person unless authorised or warranted by the usage of trade or
nature of the agency. A work entrusted to the agent must be done by him.
7. Duty to protect the interest of principal or his legal representative in the
event of principal’s unsoundness of mind or his death: When an agency is
terminated by the principal dying or becoming of unsound mind, the agent is
bound to take on behalf of the representatives of his late principal, all
reasonable steps for the protection and preservation of the interests entrusted
to him (Sec. 209).
8. Duty to pay sums received for principal: The agent is bound to pay to his
principal all sums received on his account after deducting for his own claim
(Sec. 218).