Contents

1. Caledonian Maritime Assests Ltd. V. HCC International Insurance Company .................. 6

2. Shimoga v Akkamahadevi .................................................................................................. 8
3. GWYNT Y MȎR OFTO PLC Claimant v. GWYNT Y MȎR OFFSHORE WIND FARM
LIMITED ................................................................................................................................... 9
4. Smith v South Wales Switch Gear .................................................................................... 11
5. Dugdale v Lovering .......................................................................................................... 11
6. Lala Shanti Swarup v Munshi Singh ................................................................................ 12
7. Gajanan Parelkar v Moreshwar Madan ............................................................................ 13
8. Sumitomo Heavy Industries v ONGC .............................................................................. 14
9. Anuj Jain Interim Resolution ... vs Axis Bank Limited.... Error! Bookmark not defined.
10. Ramchandra v Shapurji [diff b/w guarantee & indemnity] .......................................... 16
11. Punjab National Bank v Shri Vikram Cotton Mills ...................................................... 17
12. Mountstephen v Lakeman [Primary V Secondary Liability] ........................................ 18
13. Associated British Portways v Ferryways [Primary v Secondary Liability] ................ 19
14. Marubeni Hong Kong v Ministry of Finance [S133].................................................... 20
15. State Trading Corpn.Of India Ltd vs Jainsons Clothing Corpn [Bank Guarantee] ...... 21
16. National Bank of NZ v Charles Robert Dudley Ward [S32] ........................................ 22
17. A.L.S.P.Pl. Subramania Chettiar v. Moniam P. Narayanaswami Gounder [S128] ....... 23
18. Al. Sp. S. Rm. Subramanian vs Chinnamuthu Batcha Rowther [S128] ....................... 24
19. Gopala Mallar v Velloth Krishnan [S128] .................................................................... 25
20. Smith v Wood [s138] .................................................................................................... 26
21. Narendra Singh Panwar v. Pashchimanchal Vidyut Vitran Nigam Limited [ ............... 26
22. Durga Priya Chowdhary vs. Durga Pada Roy and others. [Continuing Guarantee] ..... 27
23. The Eastern Bank ltd. v. Parts Services of India ltd. and others [Continuing Guarantee]
28
24. Margaret Lalita Samuel vs Indo Commercial Bank [Continuing Guarantee] .............. 28
25. Syndicate Bank v Channaveerappa Beleri and Others [Continuing Guarantee] .......... 29
26. Moschi Appellant v. Lep Air Services [Revocation + repudiatory breach] .................. 30
27. M/S Poysha Oxygen Pvt. Ltd. vs Sh. Ashwini Suri & Others ...................................... 31
28. Bank Of Bihar Ltd vs Damodar Prasad & Anr ............................................................. 32
29. Craythorne v Swinburne [SUBROGATION] ............................................................... 33
30. Holmes v Brunskill [Alteration] ................................................................................... 35
31. Lloyd v Harper [Trustee exception/ S131] ................................................................... 36
32. John Hamilton v James Watson [Non-discolsure does not amount to S133] ............... 37

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33. Perry v National Provincial Bank of England [S135] ................................................... 38
34. Mahant Singh vs U Ba Yi ............................................................................................. 39
35. M. S. Anirudhan vs The Thomco'S Bank Ltd ............................................................... 40
36. Maharashtra State Electricity ... vs Official Liquidator ................................................ 41
37. Industrial Financial Corporation of India Ltd. v. E. Spinning and Weaving Mills ....... 43
38. Greer v Kettle [Mutual Mistake]................................................................................... 44
39. State Bank Of India vs Madras Bolts & Nuts (P) Ltd. And Ors. .................................. 45
40. Sicom Limited vs Padmashri Mahipatrai J. Shah And Ors ........................................... 46
41. Sripatrao Sadashiv Upre vs Shankarrao Sarnaik [S145]............................................... 47
42. State Bank Of India vs Saksaria Sugar Mills Ltd. [secured liabilities] ........................ 48
43. State Bank Of Saurashtra vs Chitranjan Rangnath Raja [S141] ................................... 49
44. State Of Madhya Pradesh vs Kaluram [s139/141, subrogation] ................................... 50
45. T. Raju Setty vs Bank Of Baroda .................................................................................. 51
46. Radha Kanta Pal vs United Bank Of India Ltd. [S139] ................................................ 52
47. Aziz Ahmad v Sher Ali and Others ............................................................................... 53
48. Charan Singh v M/s. Security Finance Pvt. Ltd. and Others ........................................ 55
49. Bolivinter Oil S.A v Chase Manhattan Bank N.A [Bank Guarantee] ........................... 56
50. Hindustan Construction Co. Ltd. vs State Of Bihar & Ors. .......................................... 56
51. ITEK CORPORATION, Plaintiff, v. The FIRST NATIONAL BANK OF BOSTON, et
al. 58
52. Annadana Jadaya Goundar vs Konammal And Anr. ..................................................... 59
53. Gujarat Maritime Board v Larsen and Toubro .............................................................. 60
54. Archana Deepak Wani vs Allahabad Bank ................................................................... 61
55. Amrit Lal Goverdhan Lalan v State Bank of Travancore and Others [ss.133, 135, 139
and 141, Suretyship, Subrogation] ........................................................................................... 62
56. Mahatma Gandhi Sahakra Sakkare ... vs National Heavy Engg. Coop. Ltd [Bank
Guarantee] ................................................................................................................................ 64
57. U.P. State Sugar Corporation vs M/S. Sumac International Ltd ................................... 65
58. Union Of India & Anr vs M/S Indusind Bank Ltd.& Anr ............................................ 66
59. Trustees of The Port of Bombay v Premier Automobiles Limited [IMPLIED
BAILMENT]............................................................................................................................ 67
60. United Breweries Limited v State of Andhra Pradesh .................................................. 69
61. State of Maharashtra, Bombay and Others v Britannia Biscuits Company Limited and
Others 70
62. Messrs Kalyani Breweries Limited v State of West Bengal and Others ....................... 71
63. State of Bombay v Memon Mahomed Haji Hasam ...................................................... 72

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64. Coggs v Bernard [hiring of labour or services without reward, duties owed by a bailee]
73
65. Hyman v Nye & Sons [breach of implied warranty, hiring] ................................. 74
66. Patel Roadways Limited v Birla Yamaha Limited ........................................................ 75
67. Hindustan Corporation ... vs M/S. United India Fire And General .............................. 76
68. Lakshmi Narain Baijnath vs Secretary Of State For India ........................................... 77
69. Shiv Nath Rai Ram Dhari And Ors. vs The Union Of India (Uoi) [S151-152] ............ 78
70. Dhian Singh Sobha Singh & Another vs The Union Of India ...................................... 79
71. The Bombay Steam Navigation Co. ... vs Vasudev Baburao Kamat ............................ 80
72. Union Of India And Ors vs Sugauli Sugar Works ........................................................ 81
73. Wilkinson vs Shields ..................................................................................................... 82
74. Taj Mahal Hotel vs United India Insurance Co.Ltd. ..................................................... 83
75. N.R. Srinivasa Iyer v New India Assurance [S148, 151, 152]...................................... 84
76. International Airport Authority vs Televista Electronics .............................................. 85
77. The Pioneer Container KH Enterprise v. Pioneer Container [sub-bailment] ................ 86
78. Scruttons Ltd v Midland Silicones Ltd [servant v sub-bailee] ..................................... 88
79. MORRIS v C. W. MARTIN & SONS LTD .................................................................. 89
80. Messrs Damodar Valley Corporation v State of Bihar.................................................. 90
81. M/S. Kalloomal Tapeshwari Prasad And ... vs M/S. Rastriya Chemicals & Fertilizers
[lien] 91
82. R. D. Saxena v Balram Prasad Sharma ......................................................................... 91
83. E. H. Parakh and Others v G. Mackenzie and Company Limited ................................ 92
84. Board of Trustees of The Port of Bombay v Sriyanesh Knitters [General Lien] .......... 93
85. Bank of Bihar v State of Bihar [Pledge to Pawnee]...................................................... 94
86. Karnataka Pawn Brokers Association and Ors. v. State of Karnataka and Ors. ........... 95
87. Central Bank of India vs Siriguppa Sugars & Chemicals Ltd. ..................................... 96
88. Lallan Prasad v Rahmat Ali and Another ...................................................................... 97
89. The Official Assignee of Madras v. The Mercantile Bank Of India Ltd....................... 98
90. The Morvi Mercantile Bank Ltd. and Anr. v. Union of India ....................................... 99
91. Hardman v Booth ........................................................................................................ 100
92. UOI v Tolaram Hariram and ors [Pledge] ................................................................... 101
93. Mahendrakumar Chandulal vs Central Bank Of India ............................................... 102
94. Om Shankar Biyani vs Board Of Trustees, Port Of Calcutta ...................................... 103
95. Balthazar v E.M Abowath ........................................................................................... 104
96. Bhagwandas v Burjorji Ruttonji [Pakka adaita] ......................................................... 105

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97. Chairman, Life Insurance Corporation & ... vs Rajiv Kumar Bhasker ....................... 106
98. Harshad J. Shah & Anr v. L.I.C. of India & Ors. [Types of authority] ....................... 107
99. Kuchwar Lime & Stone Co. v. Dehri Rohtas Light Railway Co. Ltd. & Anr. ........... 109
100. Shree Digvijay Cement Co. Ltd. vs The State Trading Corporation Of India ............ 110
101. Nensukhdas Shivnaraen vs Birdichand Anraj [subagency] ........................................ 111
102. Shanti Lal And Anr. vs Tara Chand Madan Gopal ...................................................... 112
103. Drew v Nunn [INSANITY] ........................................................................................ 113
104. De Bussche v Alt [s198] ............................................................................................. 114
105. China Pacific S.A v Food Corporation of India [GRATUTIOUS BAILMENT +
AGENT OF NECESSITY] .................................................................................................... 115
106. Loon Karan Sohan Lal vs Firm John And Co. And Ors. ............................................ 116
107. Bolton Partners v Lambert [RATIFICATION] ........................................................... 117
108. Himalayan Co-Operative Group Housing ... vs Balwan Singh [Lawer’s agency] ..... 119
109. Bird v Brown............................................................................................................... 120
110. Ram Asri v Rakesh Chand and ors ............................................................................. 121
111. Prickett v Badger......................................................................................................... 122
112. Boulton Bros. And Co. Ltd (India) Delhi vs New Victoria Mills ............................... 123
113. Amar Nath v Gian Chand [Irrevocable agency] ......................................................... 125
114. Kaluram Bholaram vs Chimniram Motilal ................................................................. 126
115. Kathoom Bivi Ammal And Anr. vs Arulappa Nadar .................................................. 127
116. Lachmandas Khandelwal v . Raghumul ..................................................................... 128
117. Ramprasad v State of Madhya Pradesh [Agent’s Lien] .............................................. 129
118. Kavita Trehan and Others v M/s. Balsara Hygiene Products Ltd. .............................. 130
119. Bostock v Jardine [Agent’s Liability to principal] ...................................................... 131
120. Dunne v English [Breach of agent’s duty] .................................................................. 132
121. Narandas Morardas Gaziwala & Ors vs S. P. Am. Papammal .................................... 133
122. Pannalal Jankidas v Mohanlal and Another ................................................................ 134
123. Richard Phillip Phillips v William Francis Barns ....................................................... 136
124. Monindra Lal Chatterjee v Hari Pada Ghose and Others ........................................... 137
125. Seth Loon Karan Sethiya v. Ivan E John .................................................................... 138
126. Ramdhandas Jhajharia v. Sholapur Spinning and Weaving Company ....................... 139
127. Kishan Lal v Banwar Lal ............................................................................................ 140
128. Ackroyd and sons v Hasan .......................................................................................... 141
129. Collen v Wright [Agent’s liability to 3rd parties] ........................................................ 142
130. Tashi Delek Gaming Solutions Ltd. v. State of Karnataka ......................................... 143

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131. Morris, Assignee of Smith, Bankrupt v. Cleasby [Del credaire agency] .................... 144
132. Prahlad v Laddevi [Position of agency after demise of principal].............................. 145
133. Gordon Woodroffe v. Sheikh M. A. Majid [Del credaire agency] .............................. 146
134. Keighley Maxted & Co. v. Durant [Undisclosed principal] ....................................... 147
135. Said v Butt [Undisclosed Principal] ............................................................................ 149

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 1. Caledonian Maritime Assests Ltd. V. HCC International
Insurance Company
Facts-
 A commercial agreement, referred to as the "Deed of Settlement," was negotiated
between sophisticated commercial parties who were advised by experienced
solicitors.
 The Deed of Settlement was executed as a deed, and a claim for rectification of the
deed has been brought.
 The Defendant has applied to have the claim struck out or alternatively for summary
judgment.
 The Claimant is CMAL, the asset owning arm of the Caledonian MacBrayne ferry
operator. In 2015, CMAL placed an order with Ferguson Marine Engineering Limited
(FMEL) for two vessels, but FMEL was significantly behind schedule in delivering
the ferries.
 CMAL's primary concern was to secure the release of HCCI's claims on FMEL to
protect FMEL's business and work on the ferries. HCCI also had an indemnity in
respect of its liabilities from another group company, Mackellar.
Issue- The main issue is whether the Deed of Settlement should be rectified based on
CMAL's claim of unilateral mistake.
Ratio- A claim for rectification on the basis of unilateral mistake must satisfy a high bar to
succeed, and an application for a strike-out must also satisfy a high bar. It is customary to
divide rectification cases into two categories, based respectively on common and unilateral
mistake. According to Chitty, “Most [rectification] cases involve what has been agreed by the
parties having been wrongly recorded in the document without either party being aware of the
mistake.”
Rectification may also be available when, whether or not the parties had reached a prior
agreement, one party signed a written document which did not record his intentions correctly,
and the other party knew of the first party’s intentions. In this case the court may rectify the
document so that it reflects the first party’s intentions. This may be termed a case of
rectification to correct a unilateral mistake. Rectification for unilateral mistake is an equitable
remedy. It arises where one party to a transaction (B) knows that the instrument contains a
mistake in his favour, but does nothing to correct it and seeks to take advantage of the
mistake by the other party (A).
Buckley LJ identified four requirements for a claim for rectification for unilateral mistake in
Thomas Bates v Wyndhams:
[1] that one party A erroneously believed that the document
sought to be rectified contained a particular term or provision, or
possibly did not contain a particular term or provision which,
mistakenly, it did contain;

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[2] that the other party B was aware of the omission or the
inclusion and that it was due to a mistake on the part of A;
[3] that B has omitted to draw the mistake to the notice of A;
[4] the mistake must be one calculated to benefit B.

So, CMAL would have to show 1. it was itself misled, 2. The fact was so significant that it
would not have done what it did if it hadn’t been misled.
CMAL had a number of pieces of information in their possession which, taken together,
would have enabled them to conclude (a) that Mackellar were involved in the transaction, and
(b) that there was more than one indemnitor under the Deed of Indemnity. As a material fact
in this context that the existence of the Mackellar indemnity was commercially irrelevant to
CMAL. What CMAL wanted was an end to HCCI’s ability to interfere in the future of
FMEL, and this they got.
If it can be established that a person has acted unconscionably, unconscionability can only
give rise to an equitable remedy if it can be shown that the result of the unconscionable
conduct was different from what it would have been had the unconscionable conduct not
happened.

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 2. Shimoga v Akkamahadevi [Implied Indemnity]

Facts- It is stated that, one Giriraj was working as driver of the tractor and trailer bearing
No.KA-15, T- 3678, owned by Smt.Girijamma. On 19.12.2004, on the instructions of Smt.
Girijamma, when Giriraj was transporting soil from Beggars' colony in the said tractor and
trailer, there was imbalance, because of which the tractor and trailer went upside down. Due
to the said impact, said Giriraj who was driving the said tractor and trailer was sandwich
between the tractor engine and the trailer and succumbed to death. The claim petition was
preferred by Smt.Akkamahadevi, wife of Giriraj, Master Adithya, son of Giriraj,
Sri.Dharmappa and Smt.Kamalamma, parents of Giriraj, submitting that the deceased was
working as driver and earning Rs.4,000/- + allowances per month in the form of wages and
sought for compensation of Rs.10,00,000/- before the Labour Officer and Commissioner for
workmen compensation, Shimoga.
Arguments- (a) Claimant- Even though there was an absence of jural relationship between
the owner of the vehicle and deceased, the commissioner has erred in granting compensation.
(b) Respondent- Insurance company had no liability to indemnify the victim, as he was not an
employee within the workmen compensation act.
Decision- Thus there is no surprise that the owner of the vehicle Smt. Girijamma wife of
Thirukappa taking a stand that there is no jural relationship between her and the deceased but
is to avert the liability. More particularly, in the accident occurred, Giriraj not only sustained
injuries but succumbed to death in the course of the employment and it is the liability of the
insurance company to compensate. The compensation cannot be rejected on bare denial of
jural relationship without any material. Except disputing the jural relationship between the
deceased and the owner, there are no further contentions taken up by the Insurance company
to deny the payment of compensation. The Insurance company has not raised objection
regarding non-production of driving license pertaining to the deceased before the Tribunal. It
is not established that Giriraj was not holding driving license. Sri. Shivakumar, who is present
in the Court, throughout the dictation did not choose to assist the Court through submissions.
Aberrant tendency is placed on record.

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 3. GWYNT Y MȎR OFTO PLC Claimant v. GWYNT Y
MȎR OFFSHORE WIND FARM LIMITED [Loss not
caused by promisor or any other person cannot be
indemnified]
Facts- By a sale and purchase agreement dated 11 February 2015 ("the SPA") the defendants
agreed to sell and the claimant agreed to buy the business of owning, maintaining and
operating the electrical transmission link between the Gwynt y Môr wind farm situated off
the North Wales coast ("the Wind Farm") and the National Grid ("the Business"). The
transaction completed on 17 February 2015 ("Completion"), at which point title to the Assets
passed to the claimant. The cost of reinstatement exercise has been agreed at 15 million. The
defendants deny that the Indemnity, properly construed, covers the costs of reinstating the
cables, contending: i) that the Indemnity (on a true interpretation) applies only if the cables
were damaged in the period between the signing of the SPA and Completion; ii) ongoing
corrosion (and the consequential failure of the two cables) did not entail that the cables were
damaged within the terms of the Indemnity; iii) that even if corrosion did amount to the
cables being damaged, such damage occurred prior to execution of the SPA or (in the case of
the failures of the cables), after Completion; and iv) that it was in any event a condition of
claiming under the Indemnity that the claimant had given notice of any Pre-Completion
Damage (pursuant to clause 8.3 of the SPA) so as to permit the defendants to put forward
proposals for making good the damage, a condition the claimant failed to fulfil.
The defendants were therefore required to sell the transmission system to a third party
licensed by the relevant regulator, Ofgem, to be the Offshore Transmission Owner, or OFTO.
The license was granted on 11 February 2015, upon execution of the SPA. It permitted the
claimant to operate the Business for 20 years.
Issue- The main issue in this case is whether the claimant is entitled to an indemnity under
clause 8.2 of the SPA for the costs of reinstating the cables.
Ruling- The court ruled that the claimant is not entitled to an indemnity under clause 8.2 of
the SPA. The claim was dismissed.
Reasoning- The court's task is to ascertain the objective meaning of the language which the
parties have chosen to express their agreement. The defendants' case in closing was that
clause 8.2 is only engaged by "new and patent physical harm", contending that that was the
natural reading of the words "are destroyed or damaged". However, the court found that there
is no basis for confining the phrase "are destroyed or damaged" to entirely new damage, or to
damage caused by an external event. The claimant further emphasized that clause 8.2 did not
qualify the term "damage" in any respect, whether by reference to source, length, or effect.
However, the court accepted the defendants' contention that the use of the term "damaged"
must be interpreted in the specific context in which it is used in clause 8.2 of the SPA, which
is neither a construction contract nor an insurance contract.
Furthermore, the court found that the claimant was not in breach of clause 8.3 and that its
right to an indemnity under clause 8.2 had not been lost. The court also considered the
defendants' alternative contention that clause 8.2 should be rectified to limit the indemnity to

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the period between signing of the SPA and Completion, but concluded that this issue did not
require determination.

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 4. Smith v South Wales Switch Gear [Negligence of
indemnity-holder not indemnifiable]
Facts- The purchaser and supplier entered into a maintenance contract where the work is to
be carried out at purchaser’s factory. In carry out the work at the purchaser’s premises an
employee of the supplier suffered injury by accident caused by the purchaser’s negligence.
The purchaser claimed to be indemnified in respect of the liability by virtue of indemnity
clause in general conditions. Cl. 23 says that the supplier will indemnify the purchaser in
respect of any injury or damage caused in the execution of work
Held- “it is now well established that if a person obtains an indemnity against the
consequences of certain acts, the indemnity is not to be include the consequences of his own
negligence unless those consequences are covered either expressly or by necessary
implication. In present case there are no express words to that effect.

5. Dugdale v Lovering
Facts- P were in possession of certain trucks, which were claimed by D, and also by the
proprietors of the K. P. Colliery. A correspondence took place between P and D, in which Ps
asked for an indemnity if they should deliver up the trucks to D. D, without giving any
answer as to the indemnity, wrote requiring Ps to send the trucks back to him, which they
thereupon did. The K. P. Colliery proprietors then brought an action against Ps for conversion
of the trucks, Ps were obliged to pay a sum of money which they sought to recover from D
upon a contract of indemnity.
Arguments- (a) Plaintiff- Plaintiff entitled to indemnity. Right to indemnity does not pre-
suppose existence of any specific relationship b/w the parties. Inferring a promise to
indemnify in this case is absolutely reasonable.
(b) Defendant- The principle taken by the plaintiff applies only in case of special
relationships. No relationship b/w current parties- promise to indemnify cannot simple be
inferred.
Held- Even if there is no pre-existing relationship, if there is an implied indemnity, one must
indemnify the other- stand-alone contract, on its own merits. Whenever an act is done by one
person at the request of another which act in itself is not manifestly tortious to the knowledge
of the person doing it, and such act turns out to be injurious to the rights of a third party, the
person doing it is entitled to indemnity from him who requested that it should be
done. Indemnity can be inferred.

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 6. Lala Shanti Swarup v Munshi Singh
Facts- Respondents executed a mortgage on a property, and later sold half of the mortgaged
property to the appellants. Part of consideration was the responsibility of the appellants to pay
the remaining amount due to mortgagees(encumbrance), but they didn’t pay. Mortgagees
brought suit for payment against respondents. Judge apportioned liability to pay mortgage
between appellants and respondents, thus they were both liable to pay half the amount due.
After non- payment, Collector subsequently took proceedings for liquidation of the debt and
directed the execution by the respondents of a self-liquidating mortgage of three-fourths of
the half share of the property of which they were the owners. As a result, the respondents had
to deliver possession of this share of the property to the mortgagees. The respondents
thereafter filed the suit out of which this appeal arises for the recovery of the sum
representing the loss they had sustained owing to the failure of the appellant to discharge
original mortgage.
Held- The contract of indemnity is implied in this case because of the covenant on the part of
the purchaser to pay off the previous encumbrance on the property sold.
If a conveyance contains a covenant by a purchaser to pay off an encumbrance on the
property sold, the failure of the purchaser to do so may give rise to two different causes of
action:
In the first place, the failure of the purchaser to discharge the encumbrance within
such time as is provided expressly or by implication entitles the vendor to bring an action to
have himself put in a position to meet the liability which the purchaser has failed to
discharge. Here, limitation will run from the date on which the purchaser ought to have paid
off the mortgage. (i.e. can ask for damages)
In the second place, it is also open to the vendor to bring a suit on the contract of
Indemnity of the failure oy if as a result f the purchaser to discharge the encumbrance the
vendor incurs a loss.
There is an Implied indemnity when encumbered property is sold. Indemnity and hence the
limitation period begins from when the actual loss/damnification occurs, i.e. when the self
liquidating mortgage was sold in this case.

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 7. Gajanan Parelkar v Moreshwar Madan [Indemnity can be
claimed even when loss has not yet occurred]
Facts- Plaintiff (P) got a plot of land on lease from municipal corp. of Mumbai. P allowed
Defendant (D) to erect building on that land. D, in this course, incurred debt of Rs.5ooo from
building material supplier (K), twice. On both the occasion, P mortgaged part of the land to
K. P, on D’s request transferred the land to D, on the consideration that he (P) would be
discharged of all the liabilities arising out of that land. D failed to adhere to his consideration.
P filed a suit for discharge of liabilities on him, alleging D to be indemnifier.
Issues- Whether the suit for indemnity was premature as P had not yet incurred any loss as
such?
1. Contentions- Defendant: As per s. 124, the promisor promises to safeguard the other
from the damage that is caused to him, not the damage which may be caused to him.
Since there is no damage to the plaintiff as yet, P is not entitled to sue the indemnifier.
(Shankar Nimbaji vs. Laxman Supdu, Chand Bibi vs. Santoshkumar Pal )
2. The liability of the plaintiff is not absolute but contingent. There is nothing to show
that if the mortgagee was to sue to enforce his mortgage and the property was sold,
there would be any deficit for which the plaintiff would be liable.
1. Held- (w.r.t 1st contention of D) ICA is both an amending and a consolidating Act,
and it is not exhaustive of the law of contract. Section 124 deals only with one
particular kind of indemnity in which the loss is caused by the conduct of the
indemnifier himself or of other person, but does not cover the cases outside this or
cases when liability arises because of something done by the indemnified at the
request of the indemnifier. S. 124 talks about subsequent conduct but here the
liabilities were past, i.e. prior to the date when the contract was actually entered into
force. Earlier to this contract, all the acts were done merely on request and without
any consideration and hence, were not binding. Therefore s.124 is inapplicable here.
2. (w.r.t 2nd contention of D) Under both the mortgage and the further charge there is a
personal covenant by the plaintiff to pay the amount due, and it would be open to the
mortgagee to sue the plaintiff on the personal covenant reserving his rights under the
security. Therefore, the liability of the plaintiff under the personal covenant is
absolute and unconditional.
3. Principles of equity (as applied in English Courts) can be applied here to relieve P
from all the liabilities (as ICA is not exhaustive of the law of indemnity).

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 8. Sumitomo Heavy Industries v ONGC [contractual
terms>>>S124]
Facts- A entered into a contract with R to install and commission certain works. A appointed
MII as a sub-contracted to the full knowledge of R. Due to a change in law, MII had to pay
tax which was paid by A. A seeks to recover money from R contending under clause 17.3
17.3 (boilerplate clause): R has to reimburse the amount to A in the nature of necessary and
reasonable cost arising due to change in law.
If there was no change in law, there would have been no payment at all. Therefore, the said
payment is not voluntary. The claim of the appellant restricted to ‘necessary and reasonable
costs arising due to change in law’ and such payment fell under the ambit of the same.
Land company was let out land by B. They had to build certain buildings within a stipulated
time period. Time expired and the land was sold by B to the railway company who then took
possession. Land company bought a suit claiming that time had expired. Railway company
claims indemnity from B.
Issues- whether there was an implied indemnity by way of nature of transaction- no.
Held- If there was no change in law, there would have been no payment at all. Therefore, the
said payment is not voluntary. The claim of the appellant restricted to ‘necessary and
reasonable costs arising due to change in law’ and such payment fell under the ambit of the
same.
Certain contracts will be construed more strictly than others. Thus, a contract of indemnity or
of insurance will be strictly interpreted. Nevertheless, if the contract is couched in wide terms
and commercially understandable and sensible, designed to cover an unforeseeable spectrum,
it has to be given a plausible and common-sense, meaningful interpretation. The intention of
the parties in providing a clause like clause 17.3 could not be ignored. It had to be given a
due weightage.
An agreement to compensate loss due to change of law is not covered by this section since
such loss is neither due to the conduct of the promisor nor due to any third party.
S124 ICA only deals with loss from the conduct of promisor or third person but Clause 17.3
dealt with costs arising out of change in law, so it cannot be compared to indemnity for loss
due to conduct of humans.
The contract was held to give protection to A since it was couched in wide terms.

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15 | P a g e
 9. Ramchandra v Shapurji [diff b/w guarantee & indemnity]
Facts- The plaintiff (P) was a sub-broker employed by the defendant broker (D) on 50%
commission. P introduced 6 constituents and became answerable to the broker for them. The
constituents defaulted which resulted in loss of Rs.16000. P asked for amount due under his
brokerage from D and agreed to make good Rs.16000[1]. D thereafter sued the constituents
and compromised his claim as against some of them by receiving amounts much smaller than
what was due from them and claimed the unrecovered amount. P sued to take accounts of the
dealings between himself and D, and as to the compromises arrived at by D with some of the
constituents, alleging D had settled the claims as against those constituents for lesser amounts
without P’s (guarantor) consent. Therefore P was discharged from his obligation to pay the
debts of those constituents.
Issues- Whether exhibit A was a contract of guarantee or a contract of guarantee?
Held- BEAUMONT, CJ.
1. (w.r.t 1st contention of D Trial court verdict) The contract fell within the terms of the
definition of indemnity under S. 124. The promisor is agreeing to save the promisee
from loss occasioned by the conduct of the constituents introduced. A contract of
guarantee involves three parties- the creditor, the surety and the principal debtor
(S.126). There must be a contract, first of all, between the principal debtor and the
creditor and between the surety and the creditor. But if those are the only contracts,
the case is one of indemnity. In order to constitute a contract of guarantee there must
be a third contract, by which the principal debtor expressly or impliedly requests the
surety to act as surety. S.145 provides that in every contract of guarantee there is an
implied promise by the principal debtor to indemnify the surety. This is not possible
unless the principal debtor is privy to the contract of surety-ship.
2. P was anyway liable to pay under the second agreement[2] by which he expressly
agreed to be liable for the amounts mentioned in the document and hence D was
entitled to the unrecovered amount.
KANIA, J.
1. There must be a third contract by which the principal debtor agrees to satisfy the
claim of the surety. If the surety satisfies the claim of the creditor without such
contract, the action of the surety would be voluntary, and the debtor may repudiate all
liability for the payment made by the surety, on the ground that he had never
requested the surety to make any payment.
2. (w.r.t 2nd contention of P & D) D’s contention accepted. The second agreement
completely defeats P’s claim. P’s rights, if any, come into existence only when he
makes the payment and not before. Under the circumstances of the case consent(in
law) is not consequential.

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 10. Punjab National Bank v Shri Vikram Cotton Mills
Facts- The first respondent company (R1) opened a cash-credit account with the appellant
bank (A) and to secure repayment of the balance due at the foot of the account R1 executed
three documents through its managing agents i.e. a promissory note, a deed of hypothecation
and a letter assuring A that R1 would remain solely responsible for all loss, damage or
deterioration of the stocks hypothecated with the bank. On the same day R, a Director of the
managing agents, executed a bond called “agreement of guarantee’ agreeing to pay on
demand all monies which may be due as the “ultimate balance” from R1. When R1 was
closed the stocks pledged were disposed of by the bank and the amount realized was credited
in the R1’s account. A balance of amount remained due at the foot of the account. Creditors
of R1 filed a petition for winding up the company. A scheme of composition was settled by
these creditors, which was sanctioned by the HC. The bank then filed a suit against R1 and R
for the amount due. The bank, being a secured creditor, wanted preference above the
unsecured creditors and proceeded under Contract Law as opposed to Company Law.
Issue- R was a guarantor and not a co-debtor, therefore, he could be called upon to pay only
if R1 fails to pay, which was not the case.
Held- The suit must be remanded to the trial court to determine “the ultimate balance” and
veracity of the relevant facts, for disposal according to law.
1. (w.r.t 3rd observ’n of HC) The bond executed by R was one of the four documents
executed on the same day and was part of the scheme to ensure payment of the
amount found due to the Bank. Although the bond was not also executed by the
company, the ‘fact that it was executed simultaneously with the other documents and
the conduct of R as well as the company indicated that R agreed to guarantee payment
of the debt due by the company showed that the Bank, R1 and R were parties to the
agreement under which for the dues of the company, R became a surety.
The bank was entitled to claim at any time the money due from R1 as well as from R under
the promissory note and the bond. The suit could not therefore be said to be premature.
1. The binding obligation created under the composition ‘between the company and its
creditors does not affect the liability of the surety unless the contract of surety-ship
otherwise provides.
R would be liable for payment of ‘the ultimate balance’ and decree should be in favour of the
Bank.

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 11. Mountstephen v Lakeman [Primary V Secondary
Liability]
Facts- Plaintiff (P) was employed by the local board of health to construct the main sewer of
a town. After the completion, the board directed the owners and occupiers of the adjacent
property to connect their drains with the main system within 21days. In case of failure, the
board was to undertake the work and charge public with the expenses. Board requested P to
do this. P objected and insisted on proper order from proper authority. P agreed when the
defendant (D) assured his competence and said “You go on and do the work, and I will see
you paid.” D also promised to procure a legally bound contract to P. After the completion,
when P asked for their charges, D refused to pay on the ground that they had not ordered the
work and denied all the promises.
Issues- Whether there was evidence of an original liability on part of the defendant to pay the
plaintiff on account of the work done by him (Cairns in house of lords).
Held- The Lord Chancellor (CAIRNS) (affirmed Exchequer Chamber): The conversation
between P & D may be construed to mean that the liability was that of the board and if it
failed to pay, D would be there as a backup. P could not be non-suited.
LORD HATHERLEY: Concurred with Cairns saying that that D’s words were capable of
another interpretation but there the evidence was sufficient enough to prove that there was
personal liability before the jury and therefore, P should not be non-suited.
LORD O’Hagan: Expressed the same opinion as the other judges.
LORD SELBORNE: Expressed same opinion. In contrary to some of the judges of the QB,
he said that there can be no surety-ship unless there be a principal debtor, who of course may
be constituted in the course of the transaction by matters ex post facto, and need not be so at
the time, but until there is a principal debtor there can be no surety-ship.
Lakeman stepped in and undertook himself, as a matter of primary liability, to pay for
the work that would be done. There can be no suretyship unless there be a principal
debtor, who of course may be constituted in the course of the transaction by matters ex
post facto, and need not be so at the time, but until there is a principal debtor there can
be no suretyship.

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 12. Associated British Portways v Ferryways [Primary v
Secondary Liability]
Facts- Ferryways, a Belgian company, operated a ferry service between Ostend and Ipswich.
ABP, a British company, entered into a Second Agreement with Ferryways for the ferry
service running from 2003 to 2024. On the same day, ABP also entered into a Letter
Agreement with MSCB, intended to secure ABP's position by recourse against MSCB. This
Letter Agreement stated it would be governed by English law and subject to the jurisdiction
of the High Court in London. Negotiations broke down for a new agreement to replace the
Second Agreement with Ferryways. Ferryways went into liquidation in 2007 and was
declared insolvent in 2008. ABP sought to recover sums due from Ferryways under the
Second Agreement and from MSCB under the Letter Agreement. A judgment awarded ABP
against Ferryways but dismissed the claim against MSCB.
Issues- 1. Whether the letter agreement imposed a primary or secondary liability on MSCB?
2. Whether the letter agreement was a legally binding letter of comfort?
Held- The Court of Appeal upheld the decision of Field J and dismissed the appeal. The
Court held that the Letter Agreement imposed a secondary liability on MSCB, rather than a
primary liability. The Court also held that the Letter Agreement was a legally binding letter of
comfort, which gave rise to legal obligations enforceable by an action for damages for breach
of contract.
Reasoning- The Court held that the language of the Letter Agreement, particularly limb (i),
imposed a secondary liability on MSCB. The Court noted that the Letter Agreement did not
contain a provision for a primary liability, which would have accrued if Ferryways could not
meet its liabilities to ABP "as and when they fall due".
The Court rejected the argument that the Letter Agreement was a mere letter of comfort,
finding that it was a legally binding letter of comfort that gave rise to legal obligations
enforceable by an action for damages for breach of contract. The Court distinguished the case
of Kleinwort Benson Ltd v. Malaysia Mining Corp., which had found that letters of comfort
did not give rise to contractual liability. The Court noted that while a letter of comfort usually
does not give rise to legal obligations, sometimes a primary continuing legal obligation may
arise as a matter of construction, notwithstanding being labeled a letter of comfort.
The Court emphasized that "the court's task is to ascertain what common intentions should be
ascribed to the parties from the terms of the documents and the surrounding circumstances".

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 13. Marubeni Hong Kong v Ministry of Finance [S133]
Facts- The plaintiff, Buyan, entered into a contract with the defendant, the Government of
Mongolia, for the purchase of machinery, equipment, and materials for a cashmere processing
plant. The defendant waived any right to require the plaintiff to proceed against the buyer or
any security received from the buyer or any third party or to pursue any other remedy
available to the defendant. The plaintiff repeatedly failed to pay instalments due under the
contract and made no payments after April 19, 2000.
Issues-
1. Whether the defendant's waiver of rights precludes the plaintiff's claim.
2. Whether the defendant's obligation under the contract is a primary or secondary
liability.
3. Whether the plaintiff is entitled to appeal the judge's finding that the defendant had no
actual or apparent authority to undertake a primary liability.
Decision- The court held that the defendant's waiver of rights did not preclude the plaintiff's
claim. The defendant's obligation under the contract was a secondary liability. The plaintiff
was entitled to appeal the judge's finding that the defendant had no actual or apparent
authority to undertake a primary liability, but the appeal was dismissed.
Reasoning- The defendant's waiver of rights did not preclude the plaintiff's claim because it
only waived the right to require the plaintiff to proceed against the buyer or any security
received from the buyer or any third party or to pursue any other remedy available to the
defendant. The defendant's obligation under the contract was a secondary liability because the
contract was characterized as a "guarantee," which imposes a secondary rather than a primary
liability. The plaintiff was entitled to appeal the judge's finding that the defendant had no
actual or apparent authority to undertake a primary liability, but the appeal was dismissed
because the defendant's obligation was a secondary li- ability. The court did not consider the
defendant's objection to the plaintiff's change of position on the demand bond issue or the
potential objection that the case was con- ducted on a particular basis for 10 days.

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 14. State Trading Corpn.Of India Ltd vs Jainsons
Clothing Corpn [Bank Guarantee]
Facts- The appellant entered into a contract with Abu Dhabi Municipality, Abu Dhabi, to
supply 7500 MT of 'B' Grade Basmati Rice. Subsequently, the appellant contracted with the
respondent to supply 3000 MT initially, with an option for the respondent to supply an
additional 1500 MT if necessary. The contract required the respondent to furnish a bank
guarantee for Rs 11,70,000, equivalent to 5% of the contract value, as security for
performance. The bank guarantee clause stated that in case of default by the respondent, the
appellant could invoke the bank guarantee and forfeit the amount realized.
The respondent executed the contract of guarantee, agreeing to pay the appellant the
guaranteed amount in case of default by the supplier. The STC issued a certificate on 15-6-
1986, stating that the respondent had defaulted in performance and demanded payment under
the bank guarantee. The respondent then filed a suit in the High Court seeking to restrain the
appellant from enforcing the bank guarantee.
Issues- The question, therefore, is whether there is any fraud committed by the respondent
(sic appellant) as regards the contract of guarantee which the appellant was entitled to invoke.
Under Section 126 of the Indian Contract Act, 1872 a contract of guarantee is a distinct
separate contract to discharge the liability of a third person in case of his default.
Held- The appellant agreed to execute an unconditional and irrevocable bank guarantee for
the performance of the contract to supply 3000 MT of Basmati Rice. The guarantee is
independent and not conditional upon the performance of any other contract. The only
condition for enforcement is a certificate of default from the named officer. The bank
guarantee is "irrevocable and unconditional." The appellant is entitled to demand payment
from the bank if the respondent fails to perform its obligations under the contract. The
certificate of default issued by the officer is final and binding on the bank.
There is no fraud in the formation or execution of the bank guarantee. The failure to supply
the rice as contracted for does not cancel the contract between the respondent and the
appellant. The High Court was wrong in concluding that the respondent had proved a prima
facie case for granting an injunction against the enforcement of the bank guarantee. The
learned Single Judge was correct in refusing to issue the injunction.
Pending appeal, the respondent was directed to deposit the guaranteed amount in the
Registry, which the appellant can now withdraw.

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 15. National Bank of NZ v Charles Robert Dudley Ward
[S132]
Facts- Appellant had given a limited guarantee to the respondent to secure advances to John
King. Question decided upon this appeal was whether or not the appellant was discharged
from liability on his guarantee by reason of certain transactions b/w the respondent and the
appellant’s co-surety John Macintosh. [because the 2 were not joint promisors]
Analysis- The principle is that, if a man becomes a surety and pays, he acquires the right of
action against the debtor, and the benefit of all the securities which at the time the creditor
holds. If the creditor alters his rights in any way, then the contract is broken, and the surety is
in consequence discharged.
Though, if the debtor is released and the surety is so also, it does not follow that if the surety
is released, the co-surety is so in all cases. The principle is that if a man becomes a surety and
pays, he acquires the right of action against the debtor and the benefit of all the securities that
the creditor owns. If the creditor alters his rights in any way, then the contract is broken and
the surety is discharged.
In Holmes v Brunskill, J Cotton observes, if there is any agreement b/w the principals wrt the
contract guaranteed, the surety ought to be consulted and that, if he has not consented to the
alteration, although in cases where it is evident that the alteration is unsubstantial, the surety
may not be discharged; yet if the unsubstantiality of the alteration is not evident, the court
will not go into an enquiry into the effect of the alteration.
Thus, when the creditor releases one of the two or more sureties who have contracted jointly
and severally the others are discharged. The joint-suretyship of the others being part of the
consideration of the contract each.
However, when the creditor contracts only severally, the creditor does not break that contract
by releasing another several surety, the surety cannot claim to be released on the ground of
breach of contract.

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 16. A.L.S.P.Pl. Subramania Chettiar v. Moniam P.
Narayanaswami Gounder [S128]
Facts- D1 and D2 executed a promissory note on behalf of the plaintiff. A letter of guarantee
has been signed by D3 the surety. Subsequently, an act was passed reducing the liability of
people from the agriculturalist community. The principal debtor’s liability was reduced, but
the same was not done for the surety. The plaintiff claimed that since the liability was reduced
by a law and not the plaintiff, S128 does not apply.
Issues- Will the surety's obligation be lowered if the principal debtor's responsibility is
reduced as a result of the provisions of a statute or some statutory effect?
Decision- The surety’s obligation will stand discharged to that of the principal debtor’s
liability under the following Act. The effect of any statutory reduction on the rights and duties
of the principal debtor will have a pro tanto effect on surety as well unless the contract to
contrary.
Reasoning- In this instance, the court's stance was extremely important. It's important to
realise that the surety's obligation is secondary and ancillary. The interest of surety should be
protected in any case, first of all, because the surety is not directly involved in the dealings
between the creditor and the principal debtor, and also, he does not get any direct benefit
from the contract, it is critical to safeguard his interests. Furthermore, because the principal
debtor's liability was lowered by statute, it would have been unfair for the court to not
decrease the surety's liability to that of the principal debtor. Because the surety's liability is
coextensive with the principal debtor's, the court is justified in ruling that if the debtor's
liability is lessened or eliminated as a result of an act or otherwise in whole or in part under
the statute, the surety's liability is also lowered or extinguished. Moreover, as mentioned
above the surety after paying the whole debt would be entitled to all the rights which the
creditor has against the principal debtor as covered under sec 140. Since in the present case
the creditor can only recover the reduced amount as mentioned in the Act, not providing the
same reduction in the surety’s obligation would be very unjust because he would not be
entitled to recover the money from the principal debtor. Hence it has become very clear that
the debt must exist even though the creditor chooses to enforce his remedy not on the
principal debtor but on the surety. This judgement illustrates how we should approach surety
obligation and the applicability of Section 128 and other pertinent sections in this context. As
already mentioned, the case is significant not only because it was the first to establish this
position on a surety's duty in the event of statutory actions, but also because it clarifies the
section's applicability that deals with the surety's liability.

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 17. Al. Sp. S. Rm. Subramanian vs Chinnamuthu Batcha
Rowther [S128]
Facts- This Civil Revision Petition involves a Small Cause Suit based on a promissory note
signed by an agriculturist, the first defendant, and guaranteed by a non-agriculturist, the
second defendant. The guarantee stated that if the first defendant failed to pay the debt, the
second defendant would be liable to pay. The first defendant partially paid the debt, leading to
the suit. The plaintiff sought a reduced amount from the first defendant due to his
agriculturist status but claimed the full amount from the second defendant. The lower court
allowed the second defendant the benefit of reduction under Section 128 of the Indian
Contract Act, holding him liable only for the reduced amount.
Issues- Whether the liability of the surety (second defendant) is co-extensive with that of the
principal debtor (first defendant) under Section 128 of the Contract Act, or if subsequent
events can alter this liability.
Whether the discharge of the principal debtor by operation of law affects the surety's liability.
Ratio- The court found that under Section 128 of the Contract Act, the surety's liability is
generally co-extensive with that of the principal debtor unless the contract specifies
otherwise. The court noted that subsequent events can affect this liability, but in this case, the
discharge of the principal debtor by operation of law did not affect the surety's liability.
Citing legal precedent and insolvency laws, the court held that the surety remains liable even
if the principal debtor is discharged by operation of law. Therefore, the lower court's decision
to restrict the relief against the second defendant was incorrect. The court allowed the
revision petition, granting the plaintiff a decree against the second defendant for the principal
sum due with interest at 15% up to the date of the suit and subsequent interest at 6% till
realization. The decree against the first defendant stood.

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 18. Gopala Mallar v Velloth Krishnan [S128]
Facts- This civil revision petition arises from an order under Section 19 of Madras Act 4 of
1938. Defendants 1 and 2 were both agriculturists and jointly indebted under a contract
before 1932, which resulted in a decree in 1933. To satisfy this decree, a new promissory note
was executed by both defendants, where defendant 2, seemingly uninvolved in the prior debt,
joined as a co-obligor. Both defendants applied under Section 19 to reduce the debt. The
lower court scaled down the debt against both defendants, considering it a renewal of the
original liability. The plaintiff, the decree-holder, contested the validity of the Act and the
scaling down order, specifically regarding defendant 2's liability.
Issues- Whether defendant 2 is entitled to relief under the explanation to Section 8 of the Act.
Whether defendant 2's liability, if any, should be scaled down based on Section 128 of the
Contract Act.
Ratio- The court held that defendant 2 could not claim the benefit of the explanation to
Section 8, as the debt was not incurred by the same debtor who incurred the antecedent
liability. While defendant 1 could claim the benefit, defendant 2 could not as there was no
substantial identity of the debtor. The court also clarified that a surety's liability cannot be
scaled down based on Section 128 of the Contract Act unless there is a separate proceeding
for such relief. The promissory note in question showed both defendants as joint and several
promisors, making defendant 2 liable as a principal, not as a surety. Defendant 2's attempt to
reduce his liability through a private arrangement with defendant 1, to which the promisee
was not a party, was deemed invalid. Therefore, the lower court's decision to scale down the
debt against defendant 2 was incorrect. The plaintiff was entitled to a decree against
defendant 2 for the principal amount of the promissory note with interest.

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 19. Smith v Wood [s138]
Facts- With regards to an insurance policy there were 10 co-sureties and subsequently one of
the surety was released and then later the PD company went into liquidation and then the
remaining surety were called upon to pay the debt remaining. The defendants contended that
they being surety was released as one of them was released without their consent.
Decision- the principle of Holme v. Brunskill was upheld and applied. One of the 10 co-
surety was released and thus increasing their individual liability. Surety ought to be consulted
about any kind of alteration unless unsubstantial. Since, the alteration was substantial and
material, as increased each of their individual liability, surety also did not consent to the
alteration so they stood to be discharged. However, under Indian Law, Section 138 says that
sureties are joint and severally liable so discharge of one of the surety does not discharge the
rest.

20. Narendra Singh Panwar v. Pashchimanchal Vidyut

Vitran Nigam Limited [
Facts- The issues in this case was whether the director of the company who is claimed to be
the personal guarantor in the matter of payment of electricity dues of the company would be
able to sustain the challenge to the demand of dues of electricity from the personal assets of
the directors, in view of the Insolvency proceedings concluded in relation to the defaulter
company, namely the corporate debtor.
Held- The court held that the approval of the resolution under IBC would not ipso facto
absolve the surety/guarantor of his or her liability, which arises out of an independent
contract of guarantee. To what extent, the liability of a guarantor can be pressed into service
would depend on the terms of the guarantee/contract itself.

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 21. Durga Priya Chowdhary vs. Durga Pada Roy and
others. [Continuing Guarantee]
Facts- The plaintiff appealed for accounts against defendant 1, who served as a gomasta
under the plaintiff. Other defendants represented Mahendra Nath Roy, the surety for
defendant 1. A preliminary decree was issued on 11th March 1922, and the final decree was
made on 25th April 1923. The final decree ordered defendant 1 to pay the plaintiff Rs. 2,000
for unaccounted-for money received on behalf of the plaintiff.
The final decree stated that if defendant 1 did not pay within a month, the plaintiff could
recover the money by selling property pledged in the surety bond. If the sum was not fully
recovered, the balance would be taken from any property left by Mahendra Nath Roy with
defendants 2 to 8. Defendants 2 to 8 appealed, and the District Judge reversed the decision,
citing Section 131 of the Contract Act, stating that the death of the surety revokes the contract
of guarantee for future transactions.
Issues-
1. Whether the contract of guarantee is continuing.
2. Whether the death of the surety revokes the contract of guarantee for future
transactions.
3. Whether defendants 2 to 8 are liable for the debt of defendant 1 after the death of the
surety.
Rationale- The contract is deemed a continuing guarantee under Section 129 of the Contract
Act, similar to the situation in Illustration (a) of that section. The contract between the parties
after the death of the surety is governed by Section 131 of the Contract Act, which states that
in the absence of a contract to the contrary, the death of the surety revokes a continuing
guarantee for future transactions.
The terms of the surety bond indicate that the surety, Mahendra Nath Roy, and his heirs and
legal representatives would be bound by any act done by defendant 1 during his service, even
after the death of Mahendra Nath Roy. This indicates a contract to the contrary under Section
131, and therefore, the contract of guarantee continues after the death of the surety.
Defendants 2 to 8 are liable for the debt of defendant 1, and the plaintiff can recover the
amount not exceeding Rs. 600 by selling the property mortgaged in the surety bond.

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 22. The Eastern Bank ltd. v. Parts Services of India ltd.
and others [Continuing Guarantee]
Facts- PD had an overdraft account with the creditor bank to which the defendants were
surety, it was a continuing guarantee as it was for a series of transaction for a period of one
year. The bank made an effort for extending the guarantee but the guarantor did not consent
to the agreement. PD arears to pay; the bank sued the guarantors claiming that it was a
continuing guarantee. Surety’s defence was that the continuing guarantee was only for a
period of 1 year.

Held- All the arears for which the bank sued was for the debts that accrued after the expiry of
1 year. A continuing guarantee can be for a fixed period of time.
From the facts clear that the guarantor only wanted the guarantee to be of one year and also
had not signed the renewal.
Continuing guarantee can be limited in both the aspects: 1. Pecuniary 2. Periodical aspect.
Revocation of guarantee works on the basis of actual knowledge- as per INSTANT RULE.
(i.e. only on receipt of notice)

23. Margaret Lalita Samuel vs Indo Commercial Bank

[Continuing Guarantee]
Facts- The case involves an appeal where the defendant, Margaret Samuel, is contesting
against the Indo Commercial Bank Ltd. (now represented by Punjab National Bank). The
dispute revolves around a company called Modern Hindustan Food Products Ltd., in which
Margaret Samuel's husband was involved as a director. The company had financial dealings
with the bank, including an overdraft facility of Rs. 10 lakhs, guaranteed by Margaret Samuel
and her husband.
After the company ceased operations, Margaret Samuel acknowledged a debt of Rs.
2,71,531-8-6 in a letter dated February 2, 1952, and subsequent correspondence detailed the
outstanding amount. However, during the trial, Margaret Samuel requested the bank to
produce all relevant documents, particularly accounts from 1943 onwards. The Trial Judge
ordered the bank to produce these documents within two weeks, but they failed to do so.
Subsequently, the defendant filed an application requesting permission to dispute certain
items in the accounts after they were finally produced in court.
Issues- Does plaintiff prove the items in dispute as given in the written statement and in Ex.
85? Does defendant prove that the debit entries are in respect of amounts which she is not
liable to pay?
Ratio- Margaret Samuel's defense in the appeal included claims of the suit being time-barred,
alleging fraud in obtaining a letter from her dated February 2, 1952, and disputing liability for
amounts mentioned in her written statement. She also argued that the bank intentionally
withheld accounts from 1943 to 1946, crucial for her defense against other disputed items.
The Trial Judge ruled in favor of the bank based on evidence, including a letter from the
company to the bank on June 30, 1950, acknowledging a substantial debt. This
acknowledgment, the court held, bound Margaret Samuel, indicating her liability under the

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guarantee bond. Consequently, the suit filed on November 8, 1954, was within the statute of
limitations. Regarding the alleged fraud in obtaining the February 2, 1952, letter, both the
Trial Court and the High Court found no evidence of fraud, accepting that Margaret Samuel
wrote the letter voluntarily and with full awareness of its contents.
The High Court gave significant weight to three letters dated June 30, 1945, November 27,
1945, and December 6, 1945. These letters, signed by Margaret Samuel on behalf of the
company, acknowledged balances and discrepancies in the accounts. The High Court
reasoned that her involvement in these letters indicated her understanding and acceptance of
the financial transactions. Therefore, it upheld the bank's claims for debit items until
December 1, 1945.
Overall, the courts rejected Margaret Samuel's claims, emphasizing her active involvement in
financial matters and concluding that she couldn't disclaim liability based on the evidence
presented.

24. Syndicate Bank v Channaveerappa Beleri and Others

[Continuing Guarantee]
Facts- The appellant Bank filed a suit against Respondents 1 to 7 for the recovery of
Rs.19,77,478.60, with varying liability limits for each respondent. Credit facilities were
extended to Gadag Forge Fits (India) Pvt. Ltd., with guarantees provided by the respondents.
When the company stopped operations in 1986, the bank demanded payment from both the
company and guarantors. The respondents alleged the bank's failure to assist during a
financial crisis and demanded a moratorium on interest. Despite negotiations, the bank filed
for the company's winding-up, leading to the suit against the guarantors in 1990. The bank
claimed joint and several liability, citing demands made in 1987 and subsequent denials. The
suit sought repayment with interest, and the bank annexed statements of account as evidence.
Held- The guarantee agreement between Syndicate Bank and the guarantors, C. M. Beleri, I.
M. Beleri, K. M. Chhadda, Mrs. Shailaja Beleri, and T. Parthasarathy, stipulates that they will
pay the bank on demand any sums owed by M/s. Godrej Forge Fits (I) Pvt. Ltd., with a
capped liability of Rs. 11,70,000/- plus interest. The guarantee is continuous, regardless of
changes in the borrower's account or the guarantors' circumstances, and remains valid even if
one guarantor is discharged or deceased. A demand triggers interest liability and defines the
guarantors' obligation. The nature of the demand affects the limitation period for initiating
legal action against the guarantors. The application of Article 55 or Article 113 of the
Limitation Act, 1963, for initiating a claim against the guarantors depends on whether the
claim is for compensation or a fixed sum, but in either case, the bank's suit is within the
statute of limitations.

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 25. Moschi Appellant v. Lep Air Services [Revocation +
repudiatory breach]
Facts- There was an agreement between the parties by way of which the appellant used to
advance sum of money to the respondent, however on demand of sum of money, the
respondent failed to repay the loan and that failure on the part of the respondent to pay the
sum was treated as wrongful repudiation of contract and was subsequently accepted by the
appellant.
It was contended by the guarantor that repudiation of the contract would lead to discharge of
surety and therefore the gurantor will not be liable for damages.
Held- -Since the creditor’s acceptance of the debtor’s wrongful repudiation of the contract
was right given to the creditors by the law the exercise of that right did not discharge the
guarantor from liability under the guarantee nor was it a material variation of the contract
which extinguished the guarantor's liability
When a contract is brought to an end by repudiation accepted by the other party all the
obligations in the contract come to an end and they are replaced by operation of law by an
obligation to pay damages. The damages are assessed by reference to the old obligations but
the old obligations no longer exist as obligations
There are two types of Guarantees. The first is a guarantee where surety pays only if PD does
not pay. Here breach is sine qua non and a condition precedent. There are different limitation
periods for PD and surety. Second is when guarantor promises performance of the debtor.
Here, breach of PD is breach of surety and the limitation period for actions against both is the
same.

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 26. M/S Poysha Oxygen Pvt. Ltd. vs Sh. Ashwini Suri &
Others
Facts- Disputes arose between the parties due to defaults by M/s Ganga Automobiles Ltd.,
with the respondents acting as guarantors. The respondents claimed that their guarantees were
contingent on the petitioners providing temporary loans, which were never fulfilled. The
petitioners argued that past transactions justified the guarantees. The arbitrator ruled in favor
of the petitioners, finding the Inter Corporate Deposit Agreement to be supported by
consideration, as M/s Ganga Automobiles Ltd. already owed money to the petitioners. The
arbitrator held the respondents liable due to their awareness of M/s Ganga Automobiles Ltd.'s
existing liabilities and the likelihood of legal action if new documents weren't executed.
Regarding respondent No. 1, Ashwini Suri, liability was found in favor of one petitioner, but
a personal guarantee executed by him for another petitioner was deemed void for the same
reasons as the other respondents.
Held- Anything done for the benefit of the principal debtor in Section 127 are wide enough to
cover the past transaction also; it is not necessary that conferment of a benefit upon the
principal debtor by the creditor must be contemporaneous with the execution of surety bond,
in order to provide consideration for the agreement of guarantee. Illustration (c) to Section
127 applies only to a total stranger and volunteer who for no consideration whatsoever,
agrees to pay in default of payment by the principal debtor. It was held that only in those
cases the agreement would be void for being without consideration. Promise not to enforce a
valid claim against the debtor or a third person was held to be a sufficient consideration for a
counter-promise by the debtor or a third person i.e., to give security for the debt or to do
some other act.

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 27. Bank Of Bihar Ltd vs Damodar Prasad & Anr
[surety's liability coextensive with that of the principal
debtor]
Facts-
 The plaintiff Bank lent money to defendant No. 1, Damodar Prasad, with defendant
No. 2, Paras Nath Sinha, acting as a guarantor.
 Damodar Prasad failed to repay his debt despite demands, leading the plaintiff to file
a suit against both defendants to recover the outstanding amount.
 The Trial Court decreed the suit against both defendants, but directed that the plaintiff
could enforce its dues against defendant No. 2 only after exhausting its remedies
against defendant No. 1.
 The plaintiff appealed this direction to the High Court, which upheld the Trial Court's
decision.
 The plaintiff, dissatisfied with the High Court's decision, filed the present appeal
seeking to set aside the direction.
Issues-
 Whether the Trial Court's direction, allowing the plaintiff to enforce its dues against
defendant No. 2 only after exhausting its remedies against defendant No. 1, was
legally justified.
 Whether the Court had the power to impose such a condition, and if so, whether it was
warranted in this case.
Held-
 The guarantee bond between the plaintiff bank and defendant No. 2 clearly stated that
the surety's liability was coextensive with that of the principal debtor, and the surety
became immediately liable upon default by the principal debtor.
 The surety had no right to dictate terms to the creditor or ask him to pursue remedies
against the principal debtor first.
 The Trial Court's direction restraining the plaintiff from enforcing its dues against
defendant No. 2 until exhausting remedies against defendant No. 1 was unjustified
and vague.
 Such a direction could not be justified under Order XX Rule 11(1) of the Code of
Civil Procedure, which allows for postponement of payment under certain
circumstances.
 Even assuming the Court had inherent power under Section 151 to direct
postponement, the ends of justice did not require such action in this case.

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  Therefore, the Court allowed the appeal, setting aside the direction of the Trial Court,
and ordered defendant No. 2 to pay costs to the plaintiff in both the present appeal and
the High Court.

28. Craythorne v Swinburne [SUBROGATION]

Facts- Newcastle Bank (NB) gave money to Henry Swineburne (HS), for paying to other
bank, on the request of Sir John Swineburne (JS). Money was given on the security of two
bonds. One being the joint and several bond of HS as principle and Craythorne (C) as surety;
the other bond by JS, saying that this bond will be void as soon as the money is paid by HS
and C or either of them. Later HS died insolvent and C (plaintiff) paid the whole sum. C filed
a bill for making JS (defendant) pay his part.
Issues- Whether JS’ engagement was to be co-surety for C or surety for both (HS & C) i.e. to
pay only, if both should make default?
Held- Doctrine of principal and surety depends on the principles of equity than on contract
and hence one surety is entitled for contribution from another. S, who had no communication
with HS & C proposed to the Bank that he should become a co-surety. The proposition was
that HS & C were to be their debtors; and JS, voluntarily adding his security, cannot be bound
beyond the extent, to which JS thought proper to bind himself. It was merely an advance as
between JS and the Bank, to the other two. C had no right to complain of it, for there is no
contact by JS with the other two. Therefore JS is not a co-surety but as between him and C,
the latter is just as much a principal as HS; equity does not apply; JH liable only in case the
other two do not pay.
The second surety was a surety guaranteeing the performance of the first surety and not that
of the principal debtor that his liability arose only on default of surety- thus he is not entitled
to pay proportionately for default of PD- on payment of debt by first surety his guarantee
deed becomes void. He was not a co- surety and was not liable to contribute to the part of the
original surety.
There is no express contract for contribution: the bonds generally, if not universally, being
joint and several; creating several obligations by each. The contribution results from the
maxim, that equality is equity: proceeding where the instruments are several, very much upon
this; that a surety will be entitled to every remedy, which the creditor has against the principal
debtor; to enforce every security; to stand in the place of the creditor. This right of a surety
also stands, not upon contract, but upon a principle of natural justice: the same principle,
upon which one surety is entitled to contribution from another.
if there are co-sureties by the same instrument, and the creditor calls upon either of them to
pay the principal debt, or any part of it, that surety has a right in this Court, either upon a
principle of equity, or upon contract, to call upon his co-surety for contribution; right
generally depends rather upon a principal of equity than upon contract: unless; that, the
principle of equity being in its operation established, a contract may be inferred upon the
implied knowledge of that principle by all persons.

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34 | P a g e
 29. Holmes v Brunskill [Alteration]
Facts- The plaintiff having agreed to let to G. B., as yearly tenant, a farm, including certain
hill pastures and a flock of 700 sheep, the defendant gave the plaintiff a bond to secure the re-
delivery to him at the end of the tenancy of the flock in good order and condition. In
November the plaintiff gave G. B. a notice to quit, which was ineffectual to determine the
tenancy at the expiration of the then current year. G. B. objected to the insufficiency of the
notice, and on the 8th of April entered into an agreement with the plaintiff that G. B. should
surrender a field to the plaintiff, that G. B.'s rent should be reduced 10l., and the notice to quit
should be considered as withdrawn. G. B. then continued tenant of the farm less the field at
the reduced rent. In October, 1876, the plaintiff gave G. B. notice to quit on the 10th of April,
1877. On giving up the farm it was ascertained that the flock was reduced in number and
deteriorated in quality and value, and the plaintiff sued the defendant on his bond
Held- If there is any agreement between the principals with reference to the contract
guaranteed, the surety ought to be consulted, and that if he has not consented to the alteration,
although in cases where it is without inquiry evident that the alteration is unsubstantial, or
that it cannot be otherwise than beneficial to the surety, the surety may not be discharged; yet,
that if it is not self-evident that the alteration is unsubstantial, or one which cannot be
prejudicial to the surety, the Court, will not, in an action against the surety, go into an inquiry
as to the effect of the alteration, or allow the question, whether the surety is discharged or not,
to be determined by the finding of a jury as to the materiality of the alteration or on the
question whether it is to the prejudice of the surety, but will hold that in such a case the surety
himself must be the sole judge whether or not he will consent to remain liable
notwithstanding the alteration, and that if he has not so consented he will be discharged.

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 30. Lloyd v Harper [Trustee exception/ S131]
Facts- The father of a son gave a guarantee to a corporate body to allow him to become a
member of the corporate body and the guarantor would be held liable as surety for all the
engagements of his son, however the guarantor died. It was contended that the death results
in determination of guarantee.
Issues- Did the death of Samuel Harper amount to a revocation of the guarantee for
transactions entered into after his death?
Held- The court believes the death of the guarantor has nothing to do with the intention of
wanting to guarantee all the transactions of the son. In cases where consideration is given
once and for all (admission of son was consideration for guarantee), and not in distinct
transactions, the guarantor must be liable so long as he is a member.
Where a bond was given by a surety for the integrity of the person in consideration of that
person's appointment to that office is an example of an indivisible consideration and it is not a
continuing guarantee. When there is not a continuing guarantee, the guarantor cannot end the
guarantee at his pleasure nor could it be put to an end by the communication of the death of
the guarantor to the creditor. Whereas, fidelity guarantee where the conduct of the employee
will be guaranteed will be a case of continuing guarantee as the guarantee will be divisible
into various transactions.
The court held that – death of the guarantor does not determined the guarantee, however it
has to be ascertained from the terms of the contract whether the liability would extend to
dealings made after the death of the guarantor or not. In the present case the court came to the
conclusion that the whole of the liabilities of Mr.harper(son), during his continuance as an
underwriting member of Lloyd’s , were guaranteed by the late Mr.Samuel Harper(father).

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 31. John Hamilton v James Watson [Non-discolsure does
not amount to S133]
Facts- A surety entered into a cash credit bond for £750 with the Glasgow and Ship Bank
as cautioner for Peter Elles, a merchant in Glasgow.
 The cash account was drawn out by Elles before the end of the month it was granted,
with only interest added in subsequent years.
 The bank requested payment or additional security due to the death of one of the
obligants, but no settlement was reached.
 A merger between the bank and the Glasgow Bank Company occurred in July 1836,
with a contract stipulating the transfer of obligations to the new company.
 Negotiations for a new bond took place in 1837, with the appellant becoming surety
in October 1837.
 The new bond did not disclose previous transactions between the bank and Elles.
 Elles subsequently drew a draft on the new account for the full amount of the old
debt, which was used to pay off the debt.
 Elles later died insolvent, and the bank sought payment from the appellant as surety.
Issues-
1. Whether the surety is entitled to receive full disclosure of all circumstances of the
dealings between the principal and the party.
2. Whether an obligation to a banker by a third party to be responsible for a cash credit,
employed to pay off an old debt due to the banker, is valid.
3. Whether the suretyship is void due to lack of disclosure of previous transactions
between the bank and Elles.
Decision- The Court affirmed the judgment that the suretyship was valid, ruling that the mere
non-disclosure or concealment of a probable expectation, without an agreement altering the
nature of the contract, does not vitiate a suretyship. The Court held that the surety was not
entitled to disclosure of every detail and that the bank was not obliged to volunteer
information not naturally expected to be disclosed in such transactions.
Rationale- The case discusses the principle that a surety is not necessarily entitled to receive,
without inquiry, a full disclosure of all the circumstances of the dealings between the
principal debtor and the creditor. If a surety requires information about a specific matter,
which the creditor is aware of, the surety must make a distinct inquiry about it. The case
emphasizes that an obligation to a banker by a third party to be responsible for a cash credit
given to a customer of the banker is not avoided by the fact that the credit is immediately
used to pay off an old debt owed to the banker. If the surety wishes to rely on such facts for
defense, claiming there was a previous agreement between the banker and the customer to
deal with the credit in a particular manner, the surety must present this defense to the court by
putting it on the record.

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 32. Perry v National Provincial Bank of England [S135]
Facts- The case involved P., who acted as a surety and mortgaged his own property to a bank
to secure an overdraft for P. Brothers, a firm in which he was not a partner. The mortgage
deeds allowed the bank to vary or release any securities held for the moneys secured. In 1908,
P. Brothers became insolvent, and a scheme was arranged where a company would take over
their properties and issue debentures to creditors in discharge of their debts. The bank applied
for debenture stock under this scheme, agreeing to accept it in full discharge of their debt,
except for the value of securities held on the firm's property. The bank threatened to sell P.'s
mortgaged property when the interest on the debentures was not paid. The court decided that
while the debt of 1900l. was discharged, the debt of 1630l. remained unpaid, so P.'s property
remained liable under the mortgage deeds.
Issues-
1. Whether the acceptance of a new debtor in place of the old, and release of the old
debtor, constitutes a complete novation and discharges the surety as well as the
principal.
2. Whether a provision in mortgage deeds that the bank may compound or enter into any
arrangement with the debtors prevents a release operating to release the surety.
3. Whether the acceptance by the creditor of debenture stock issued by a new debtor in
full discharge of an old debt puts an end to that debt and prevents the creditor from
suing the surety.
4. Whether, in a contract of suretyship containing special clauses excluding certain
rights which the surety would otherwise have had, the surety remains liable
notwithstanding certain acts being done by the creditor which would otherwise release
him.
Decision- The Court held that the acceptance of a new debtor in place of the old, and release
of the old debtor, does not necessarily discharge the surety. A provision in mortgage deeds
that the bank may compound or enter into any arrangement with the debtors may prevent a
release from operating to release the surety. However, in this case, the acceptance by the
creditor of debenture stock issued by a new debtor in full discharge of an old debt did put an
end to that debt and prevented the creditor from suing the surety. The Court also held that in a
contract of suretyship containing special clauses, the surety may remain liable
notwithstanding certain acts being done by the creditor which would otherwise release him.
Rationale- The Court distinguished between cases where the whole debt is paid or satisfied,
in which case the surety or his property is not liable, and cases where part of the debt remains
unpaid but the principal debtor cannot be rendered liable by the creditor, in which case the
surety may remain liable if the instrument by which the surety accepts liability contains apt
words to deal with that situation. The Court found that the instrument in this case contained
such apt words, allowing the surety to remain liable for the balance of the debt that had not
been paid by the debtor. The Court also relied on previous cases such as Cowper v. Smith and
Union Bank of Manchester v. Beech, which held that a surety may remain liable even if the
principal debtor has been released as long as the instrument of suretyship contains language
preserving the surety's liability.

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 33. Mahant Singh vs U Ba Yi [a surety is discharged if
the creditor releases the principal debtor or enters into a
binding arrangement with the debtor without the surety's
consent. However, if the creditor reserves the right to sue
the debtor, the surety's liability is not discharged.
Facts- The plaintiff, a building contractor, was employed by the trustees of a pagoda. The
plaintiff fulfilled the contract, and a sum was due to him from the trustees. The plaintiff sued
the trustees and an oral guarantor (the respondent) for the due amount.
Issues- Whether the respondent, as a guarantor, was discharged from liability due to the
plaintiff's actions in the case, specifically regarding the substitution of new trustees and the
withdrawal of the suit against the original trustees.
Decision- The court held that the respondent was not discharged from liability. The
substitution of new trustees and the withdrawal of the suit against the original trustees did not
release the debtor's liability. The court emphasized that the creditor's right against the surety
was preserved in such circumstances. The court allowed the appeal, set aside the High Court's
decree, and restored the trial Judge's decree, directing the respondent to pay the appellant's
costs.
The case discusses the legal principles related to surety and discharge from liability. It states
that a surety is discharged if the creditor releases the principal debtor or enters into a binding
arrangement with the debtor without the surety's consent. However, if the creditor reserves
the right to sue the debtor, the surety's liability is not discharged.
The court held that in this case, the withdrawal of the suit against the original trustees did not
discharge the debt but only prevented the creditor from suing them. The creditor's rights
against the surety were preserved, and the surety remained liable.

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 34. M. S. Anirudhan vs The Thomco'S Bank Ltd [if the
alteration is not substantial, such alteration will not lead to
the unenforceability of the agreement.]
Facts-
 The appellant agreed to stand surety for an overdraft allowed by the respondent bank
to S.
 A blank form of guarantee was given by the bank to S, who then had it filled up by the
appellant, stating the maximum amount guaranteed as Rs. 25,000/-.
 When S brought the guarantee letter, duly signed by both, to the bank, the bank
refused to accept the guarantee for the full amount, limiting it to Rs. 20,000/-.
 S then altered the letter to reflect the Rs. 20,000/- limit and gave it to the bank.
 The bank later sued S and the appellant based on the Rs. 20,000/- guarantee contract.
Issues-
Whether the appellant is discharged from liability due to the alteration made to the guarantee
document without his knowledge or consent.
Decision-
 The appellant was not discharged from liability under the contract of guarantee.
 Per Kapur, J.: S was acting on behalf of the appellant, and the alteration was not made
by the promisee but by S, who was the appellant's agent.
 Per Sarkar, J. (dissenting): The suit against the appellant must fail because the altered
document was not binding on him, and the unaltered document did not establish the
contract sued on.
 Per Hidayatullah, J.: The alteration was not material and did not change the nature of
the document. The alteration was made by S, who was deemed to be the appellant's
agent, and therefore, the alteration did not save the surety from liability.

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 35. Maharashtra State Electricity ... vs Official
Liquidator [guarantor's liability is not affected by the
principal debtor's discharge in bankruptcy or liquidation]
Facts-
 The Maharashtra State Electricity Board (the Electricity Board) entered into contracts
with Cochin Malleables (P) Ltd. (the Company in liquidation) for the supply of goods.
 The tenders required an earnest money or security deposit, which could be exempted
if a permanent deposit of Rs. 50,000 was made.
 The Company in liquidation made a bank guarantee for Rs. 50,000 with Canara Bank
Ltd. in favor of the Electricity Board, allowing it to offer tenders without additional
deposits.
 The Bank guarantee was called upon by the Electricity Board in 1973, and reminders
were sent for payment.
 The Company in liquidation was later ordered to be wound up by the High Court of
Kerala, and the Official Liquidator was appointed.
 The Electricity Board demanded payment from the Bank under the bank guarantee,
but the Official Liquidator sought to restrain this, arguing that the guarantee amount
could not be claimed due to the liquidation proceedings.
Issues-
 Whether the Bank's liability under the bank guarantee was affected by the liquidation
of the Company.
 Whether the Electricity Board could claim the guarantee amount from the Bank.
Decision-
 The Bank's liability under the bank guarantee was not affected by the liquidation of
the Company.
 The Electricity Board could claim the guarantee amount from the Bank.
 The Company in liquidation could still prefer claims arising from supply contracts
against the Electricity Board, and vice versa.
Ratio-
 The Bank's liability under a contract of guarantee is independent of the principal
debtor's status in liquidation.
 A guarantor's liability extends to the full amount guaranteed unless otherwise
provided in the contract.
 The guarantor's liability is not affected by the principal debtor's discharge in
bankruptcy or liquidation.

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  The Bank's obligation under the bank guarantee was unconditional, and the Electricity
Board had the right to claim the guarantee amount without proving default by the
Company in liquidation.

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 36. Industrial Financial Corporation of India Ltd. v. E.
Spinning and Weaving Mills [if the creditor loses or parts
with the security without the surety's consent, the surety is
discharged to the extent of the value of the security]
Facts- The case involves a dispute over a loan advanced to the first defendant (a company)
by the plaintiff (a corporation), with defendants 2 to 6 (and one deceased) acting as
guarantors for the repayment of the loan. The guarantors executed deeds of mortgage and
counter guarantee in their individual capacities. The loan agreements were modified several
times, and additional loans were granted, increasing the total liability. The first defendant
acknowledged the debt, but defendants 2 to 6 later repudiated their liability, claiming that the
documents were executed only in their capacity as directors of the company and that the
termination of their managing agency relationship with the company had frustrated the
contracts. They also alleged that the plaintiff had allowed the company to sell assets without
properly applying the proceeds towards the debt. The case also involves issues regarding the
plaintiff's entitlement to sue, given that the company's assets had been vested in the
government under the Sick Textile Undertakings (Nationalisation) Act, and compensation had
been declared.
Held- The passage discusses the applicability of Sections 139 and 140 of the Indian Contract
Act, 1872, in a case involving a corporation and a debtor. The debtor defaulted on payments,
leading to the corporation invoking a guarantee. The central issue revolves around whether
the creditor's actions or omissions impaired the surety's remedy, thereby discharging the
surety, as per Section 139. The trial court found that the Nationalisation Act had no effect on
the liability to make payment. The High Court, considering Sections 140 and 141, stated that
the surety, upon payment, is invested with all the rights the creditor had against the principal
debtor. The court suggested that if the creditor loses or parts with the security without the
surety's consent, the surety is discharged to the extent of the value of the security. The case
challenges this finding, arguing that the creditor's actions did not discharge the surety, as the
Act was a statutory event beyond the parties' control. The court rejects the plea of frustration
under Section 56 of the Contract Act, stating that the contract remained valid and enforceable.

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 37. Greer v Kettle [Mutual Mistake]
Facts- Defendant Company (S), in consideration of Plaintiff Company’s (C) giving credit to
principle debtor (D), guaranteed the payment of debt, which was stated in deed to be
secured by ‘validly issued shares in Company’. Though both S and C believed this fact to
be true but later on when D failed to clear the debt, it was found that the shares were never
issued. On suing S by C for paying off the guaranteed amount, S alleged that he wasn’t bound
by the contract.
Held- The Court observed that since S never undertook (or consented to, according to S.13 of
ICA) the liability to guarantee the payment of an unsecured debt, such that both S as well as
C were at the mutual mistake of fact essential to the formation of a contract (that the shares
were validly issued when no such shares were issued) hence the contract of guarantee was
void ab intio on account of S.20 of ICA.
As to the contention of the plaintiff that the defendant was estopped from denying the debt to
be secured, the Court observed –“when a recital is intended to be a statement which all the
parties to the deed have mutually agreed to admit as true, it is an estoppel upon all. But,
when it is intended to be the statement of one party only, the estoppel is confined to that
party, and the intention is to be gathered from construing the instrument.” Holding the
recital, in preset case, to be a statement as to matters which would normally be within the
knowledge of plaintiff and not within the knowledge of defendant, namely, that plaintiff had
made a loan to debtor and had obtained from him the stated security; estoppel didn’t bind the
defendant.
Furthermore, the Court observed that in Equity, “where there are proper grounds for
rectifying a deed, e.g., because it is based upon a common mistake of fact, then to the
extent of the rectification there can plainly be no estoppel based on the original form of the
instrument”. Since in the present case, the deed, having been tainted with mutual mistake as
to existence of the fact essential to the formation of contract, could have been rectified at a
later stage by deletion of section dealing with security, there can simply be no estoppel as to
the fact of existence of security.
Therefore, the defendant was held to be not bound by the guarantee.

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 38. State Bank Of India vs Madras Bolts & Nuts (P) Ltd.
And Ors. [sureties can claim benefit of the securities only
for the amount that they are held liable and not for the
subsequent payments that the bank is receiving from the
company.]
Facts- The State Bank of India (SBI) filed a suit against M/s. Madras Bolts & Nuts (P) Ltd.
and its three directors, seeking recovery of a sum under a cash credit account and overdraft
against bills account. The directors had given personal guarantees, and the company had
executed promissory notes as collateral. Defendants 1 and 2 did not contest the suit, while
Defendants 3 and 4, who had resigned as directors, contested the claim, arguing they should
only be liable for the company's liabilities as of their resignation date.
Issues-
1. Whether Defendants 3 and 4 are entitled to credit for payments received by the Bank
from the Company after 12-8-1966.
2. Whether Defendants 3 and 4 are entitled to the benefit of securities held by the Bank
to cover liabilities incurred by the Company after 12-8-1966.
Held- The learned Single Judge passed a decree against Defendants 3 and 4 based on the
Bank's concession that they would be liable only for the company's liabilities as of 12-8-
1966. The Division Bench upheld the Bank's claim against Defendants 3 and 4, including
interest accrued after 12-8-1966 and the value of securities held by the Bank.
1. Payments Received: The Division Bench held that subsequent credit entries after 12-
8-1966 were appropriated towards liabilities incurred after that date and cannot
benefit Defendants 3 and 4.
2. Securities: The Division Bench erred in considering the value of securities available at
the time Defendants 3 and 4 resigned. Section 141 of the Indian Contract Act, 1872,
applies when the surety's liability is coextensive with the principal debtor's liability,
which is not the case here. Therefore, Defendants 3 and 4 cannot avail themselves of
the securities held by the Bank.
It was held that the defendant/sureties can claim benefit of the securities only for the amount
that they are held liable and not for the subsequent payments that the bank is receiving from
the company. Further the value of the goods available as security at the time when D-3 and
D-4 resigned as directors should be taken into account while determining liabilities.

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 39. Sicom Limited vs Padmashri Mahipatrai J. Shah And
Ors
Facts- The petitions are filed under section 31(1)(aa) of the State Financial Corporation Act
against guarantors, where the facts and contentions are substantially identical. The petitioners
seek enforcement of guarantees given by respondent Nos. 1, 2, and 3 for a loan sanctioned to
M/s. Mehta Rubber Chemical Ltd. (respondent No. 4) by the petitioner. The loan was
disbursed on various terms, including mortgage of the company's assets. Despite notices
demanding repayment, respondent No. 4 failed to repay the loan, leading to the petitioner
invoking the guarantees given by respondent Nos. 1, 2, and 3.
Held-
1. The contention that assets were sold at a throwaway price is rejected as the power
exercised by the petitioner under section 29 was not challenged by respondent No. 4.
2. Enforcement of Liability: The liability of the guarantors is independent of the
principal debtor, and the petitioner can enforce the guarantee against the guarantors
without initiating proceedings against the principal debtor.
3. Validity of Waiver Clause: The clause waiving rights under certain sections of the
Indian Contract Act is valid as it is part of the consideration for the loan agreement.
4. Validity of Guarantee: The guarantee executed subsequent to the release of financial
assistance is valid as post consideration is recognized as valid consideration under
section 23 of the Contract Act.
5. Limitation: The claim is not barred by limitation as the period starts from the
invocation of the guarantee, which was done within the limitation period.
6. Rate of Interest: The petitioner is entitled to charge the agreed interest rate, which is
not disputed.

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 40. Sripatrao Sadashiv Upre vs Shankarrao Sarnaik
[S145]
Facts- The plaintiff seeks a declaration that the defendant is liable to pay the plaintiff the
amount the plaintiff is liable to pay under a decree and certain costs incurred. The plaintiff
also seeks a decree for the mentioned amount, costs of the suit, and interest on judgment. The
defendant raises preliminary objections, arguing that the plaint discloses no cause of action
and that the suit is not maintainable.
Issues-
1. Whether the suit discloses a cause of action.
2. Whether the suit is maintainable.
Decision-
1. Cause of Action: The declaratory decree sought by the plaintiff must fall within the
provisions of Section 42 of the Specific Relief Act, which provides for suits regarding
legal character or rights to property. The suit, however, concerns rights arising out of a
contract, which cannot form the subject matter of a declaratory suit. Therefore, the
suit does not disclose a cause of action for a declaratory decree.
2. Maintainability of the Suit:
 Declaratory Prayer: The suit is not maintainable for the declaratory prayer (a)
as it does not fall within the purview of Section 42 of the Specific Relief Act.
 Claim for Specific Sum: Prayer (b) of the plaint, though not clearly worded,
can be interpreted as a claim for a specific sum of Rs. 866-11-4. The plaintiff
is entitled to proceed with this claim, as the defendant was aware of the claim
before the suit, and the plaintiff has paid sums under the decree for which he
seeks indemnity from the defendant.
 Payment Under Guarantee: The defendant argues that payment under the
guarantee is a condition precedent to the plaintiff's right to recover from the
defendant. However, Section 145 of the Indian Contract Act does not debar a
surety from making a claim against the principal debtor without having made
payment under the guarantee. The suit is therefore maintainable.

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 41. State Bank Of India vs Saksaria Sugar Mills Ltd.
[secured liabilities]
Facts- The State Bank of India (SBI) provided a cash credit facility to M/s. Saksaria Sugar
Mills Ltd. (respondent No.1), secured by goods produced at the sugar factory and by an
equitable mortgage of immovable properties. Respondents Nos. 2 to 5 guaranteed the
repayment of amounts due from respondent No.1. When there was a default, SBI filed a suit
for recovery against respondents Nos. 1 to 5. The Central Government had taken over the
management of respondent No.1's sugar undertaking under the Sugar Undertakings (Taking
over of Management) Act, 1978. Respondent No.1 argued that the suit should be stayed due
to the Act.
Issues-
1. Whether the trial of the suit should be stayed due to the provisions of the Act?
2. Whether the notification under the Act suspends the operation of the mortgage in
favor of SBI and the guarantees of respondents Nos. 2 to 5?
Held- The High Court erred in interpreting the Act and the notification issued under it. The
notification did not apply to secured liabilities due to banks and financial institutions, such as
the mortgage in favor of SBI. Additionally, the Act did not suspend remedies against
guarantors. The trial court should proceed with the suit.
Ratio- The Act and the notification issued under it do not automatically suspend all contracts
and agreements of a notified sugar undertaking. Only those specified in the notification are
suspended. Secured liabilities to banks and financial institutions are excluded from the
suspension. Guarantors' liabilities are immediate and not deferred until the creditor exhausts
remedies against the principal debtor. Therefore, the suit against respondents Nos. 1 to 5 and
the mortgage in favor of SBI should not be stayed.

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 42. State Bank Of Saurashtra vs Chitranjan Rangnath
Raja [S141]
Facts- The appellant-bank allowed a cash credit facility limited to Rs. 75,000/- to the
Principal Debtor (PD) on his pledging 5,000 tins of groundnut oil under the lock and key of
the Bank and on personal guarantee of the Respondent-Surety. However, afterwards when the
Bank lost the pledged tins and sued the legal representative of PD (after the death of PD) and
the Surety to repay the debt, Surety contested discharge of his liability.
Issues-
1. Whether the pledge of the goods and the guarantee contract amounted to one single
transaction.
2. Whether S.141 is applicable here. If yes, to what extent is the Surety discharged?
Held- In order to attract section 141 of the Contract Act, it must be shown that the creditor
had taken more than one security from the principal debtor at the time when the contract of
guarantee was entered into and irrespective of the fact whether the surety knew of such other
security offered by the principal debtor, if the creditor loses or without the consent of the
surety parts with the other security, the surety would be discharged to the extent of the value
of the security. The letter of guarantee executed by the Surety and the pledging of the goods
evidenced one composite transaction; such that, as found by the High Court, the principal
debtor had offered two securities, (i) the pledge of goods, (ii) personal guarantee of the
Surety. The Surety himself agreed to give personal guarantee on the specific understanding
and with the full knowledge of the Bank that the principal debtor was offering another
security, namely, pledge of goods. First security, namely, the pledged goods are lost to the
Bank on account of its negligence. As the current market price of 5000 oil tins would have
satisfied the Bank’s entire claim, the Surety would be released to the whole extent.
With regard to contention upon Cl.5, release of security implies a volitional act on the part of
the Bank. In the present case, the bank had lost the security on account of negligence which
cannot be equated with release. Further, w.r.t Cl.7, the expression ‘any other guarantee,
security or remedy’ therein mentioned must be security other than the pledged goods (Amrit
Lal Goverdhan Case).

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 43. State Of Madhya Pradesh vs Kaluram [s139/141,
subrogation]
Facts- At an auction for sale of felled trees, Jagatram (J) was awarded the sale, on payment of
a security and subsequent payment of installments. He executed a contract in favour of the
Governor of M.P. which specified, (among other terms), that the contractor had to furnish a
coupe boundary certificate which concerned the area from which contractor was allowed to
take away the trees. Nathuram and Kaluram (K), the defendants, stood sureties for J. J
removed the entire quantity of the trees, paid the first installment but failed to pay the rest.
State of M.P(S) claimed for recovery. K filed an action against the S claiming that he was not
liable to pay the arrears of forest dues recoverable from J.
Held- (w.r.t K’s 2nd contention) S had a charge over the goods sold as well as the right to
remain in possession till full payment of the installments. When the goods were completely
removed by J that security was lost and to the extent of the value of the security lost the
surety stood discharged. Since S parted with the goods before receiving due payments s.83(2)
can’t be enforced.
1. (w.r.t 1st contention of K & S) As soon as the contract was entered into and the
coupe boundary certificate was produced, the property in the goods passed to J and
s.83 was attracted. The Divisional Forest Officer had authority to stop removal of
those goods until the amount was paid. They however allowed J to remove the goods
sold and thereafter were paid.
2. (w.r.t 2nd contention of S) The terms of the statute do not apply only to cases in
which by positive action on the part of the creditor the security is parted with. Even if
the security is lost by the creditor, the surety is discharged.
3. Kaluram stood discharged from all liability to pay.
Ratio- The expression “security” in s. 141is not used in any technical sense : it includes all
rights which the creditor had against the property at the date of the contract. The surety is
entitled on payment of the debt or performance of all that he is liable for, to the benefit of the
rights of the creditor against the principal debtor which arise out of the transaction which
gives rise to the right or liability
[1] “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 consent
of the surety, parts with such security, the surety is discharged to the extent of the value of the
security.”
[2] S.83(1)When any such money is payable for or in respect of any forest-produce, the
amount thereof shall be deemed to be a first charge on such produce, and such produce may
be taken possession of by a Forest-officer until such amount has been paid.
(2) If such amount is not paid when due, the Forest Officer may sell such produce, by public
auction, and the proceeds of the sale shall be applied first in discharging such amount.

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 44. T. Raju Setty vs Bank Of Baroda [that a surety can
waive rights under specific sections of the Act, provided
the contract is lawful.]
Facts- The appellant, the third defendant, was part of a suit filed by the plaintiff, Bank of
Baroda, against defendants 1 and 2. Defendant 1 was the principal debtor, and defendant 2
was a surety. The suit aimed to recover Rs. 4,545.81, a loan amount advanced to defendant 1
on April 7, 1969, under a promissory note and a hypothecation deed for a 3 h.p. pumpset.
Defendants 2 and 3 guaranteed the loan. The plaintiff sought repayment of the loan amount,
interest, court costs, and seizure and sale of the pumpset in case of default.
Defendant 2 did not contest the suit and was placed ex parte. Defendant 1 died before being
served with the summons. Defendant 3, the appellant, appeared and argued that the suit
abated against defendant 1 due to his death and that he was not liable for the claim.
Issues- Whether the third defendant proves that the suit is liable to be dismissed as abated,
since the legal representatives of the first defendant were not brought on record ?
(2) Whether the third defendant proves that the suit is barred by time ?
(3) What order and decree ?
Held- The court addressed the first point of appeal, focusing on Chapter VIII of the Indian
Contract Act, 1872, which covers indemnity and guarantee. It stressed that these provisions
should be interpreted together, highlighting that a surety's liability is typically the same as the
principal debtor's, unless the contract states otherwise. The court affirmed that a surety can
waive rights under specific sections of the Act, provided the contract is lawful.
Additionally, the court dismissed the argument that such waivers are against public policy. It
explained that a surety's rights are not absolute and can be waived unless obtained through
fraud or causing harm to others. The court clarified that public policy aims to protect
creditors' rights and ensure debtors fulfill their obligations.
To support its stance, the court cited cases, including one where the Supreme Court ruled that
a creditor's failure to include the legal representatives of a deceased debtor in a suit prevented
sureties from seeking reimbursement if they paid the debt. This failure was attributed to the
creditor's negligence, leading to the dismissal of the suit against the sureties.

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 45. Radha Kanta Pal vs United Bank Of India Ltd.
[S139]
Facts- The case concerns a contract in the nature of a fidelity bond or a guarantee. A
(deceased) executed a security bond in favour of a Bank, B, in consideration of the Bank
employing N. Later N was found to be guilty of mismanaging a certain amount of money.
Hence the bank wanted to enforce the bond and get the money. A’s heir (R), filed a suit
against the bank claiming the security back as A had been discharged of his liability as the
Bank had continued to employ N even after finding out the mismanagement without notice to
him. R also denied any knowledge of the defalcation or breach of duty committed by N.
Issues-
(1) (Regarding facts)Was N actually responsible for the shortage of the sum as alleged by the
bank? Did R have any knowledge of the aforesaid shortage?
(2) Is the bank entitled to claim that sum from N? If so, is it entitled to adjust the same
from the security deposit and N’s provident fund?
(3) To what reliefs, if any, is R entitled?
Held-
1. Answered all the questions raised in the first issue & 1st part of the 2nd issue in
AFFIRMATIVE.
2. (w.r.t. s.139 of ICA) Section 139, cannot be maintained. In order to attract that section
there must not only be either an act inconsistent with the rights of the surety or an
omission to do an act which it is the creditor’s or employer’s duty to do but also the
impairment of the eventual remedy of the surety against the principal
debtors. Nothing in evidence showed that the plaintiff’s eventual remedy against the
principal debtor N had in any way been impaired. The plaintiff, in his very action sued
and was suing the defendant N. Therefore the plaintiff’s own act of suing the principal
debtor in the suit itself goes against the plaintiff’s contention that his eventual remedy
against the principal debtor is impaired.
3. (w.r.t ‘bank continued to employ…’) Bank cannot dismiss its employee merely on
suspicion or merely because some shortage in the cash of which he was in charge is
reported without investigation. When N was found responsible under the
investigation, the bank duly intimated this to the plaintiff.
4. (w.r.t 3rd issue) R can recover from N but not from the Bank.

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 46. Aziz Ahmad v Sher Ali and Others [A creditor has no
duty to the surety (in the absence of an express provision in
the guarantee) to pursue a legal remedy against the
principal debtor. Creditor’s failure to take action will not in
such circumstances discharge the surety]
Issues- Whether a surety is discharged when the creditor allows the execution of his decree
against the ‘principal debtor to be barred by limitation.
Position in England- In England, a failure to sue the principal debtor until recovery is barred
by the Statute of Limitation does not operate as a discharge of the surety. Lindlay, L. J.
in Carter v. White [(1885) 25 Ch D 666] observed- “mere omission to sue does not discharge
the surety, because the surety can himself set the law in operation against the debtor.”
Position in India- Section 137 of the Indian Contract Act, provides that “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.”
As per Section 134 of the Indian Contract Act, “the surety is discharged by any contract
between the creditor and the principal debtor, by which the
Held- The effect of the expiry of the period of limitation (except in the case of suits to
establish a right to immovable property) is to bar the remedy without extinguishing the right
and the consequence is that the omission to sue a debtor within the period of limitation will
not result in the debtor’s discharge.
Section 25(3) of the Act makes it clear that a barred debt is a good foundation for a written
promise to pay signed by the persons to be charged therewith, or by his agent; and S. 60
speaks of a barred debt as a lawful debt actually due and payable to the creditor.
The Court in this case observed that Section 137 should not be interpreted restrictively and
noted that the phrase “mere forbearance” in Section 137 does not mean forbearance for a
limited time (namely that within which legal proceedings may be taken), but a forbearance
not resting upon or in consequence of such a promise to give time to, or not to sue the
principal debtor, as is the subject of S. 135.
As regards the Respondent’s contention, it was admitted that in such event the surety will be
deprived of certain rights, however, the Court pointed out that the surety can guard himself
against such a contingency as Section 140 of the Act provides that as soon as the guaranteed
debt becomes due the surety will, upon payment or performance of all that he is liable for, be
invested with all the rights which the creditor had against the principal debtor.
The Court further noted that Section 145 of the Act deals with quite a different matter
(namely the implied promise by the principal debtor to indemnify the surety) and provides
that the surety is entitled to recover from the principal debtor whatever sum he has rightfully
paid under the guarantee. As per the Court, here again the surety can undoubtedly exercise his
rights against the principal debtor as soon as the guaranteed debt becomes due by paying the

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debt himself. The payment by the surety of a debt which has become barred by time is a sum
rightfully paid in this regard.
A creditor has no duty to the surety (in the absence of an express provision in the guarantee)
to pursue a legal remedy against the principal debtor. Creditor’s failure to take action will not
in such circumstances discharge the surety.

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 47. Charan Singh v M/s. Security Finance Pvt. Ltd. and
Others
Facts- The creditor after obtaining the money decree against the two principal debtors (PDs)
and the Surety, holding them liable severally as well as jointly, decided to pursue his cause of
action against the Surety, after he arrived at an agreement with one of the principal debtors
whereby he agreed to accept lesser amount than the judgment-debt, from him (He did not
pursue any cause of action against the representatives of other PD after latter’s death). The
surety claimed his discharge from the liability.
Issue- Whether the fact that after the money decree has been passed against the principal
debtor and a surety, making them jointly and severally liable to the creditor, decree holder
(creditor) enters into a settlement with the principal debtor and agrees to accept some less
amount from him and decides not to proceed for recovering the remaining amount from him
has the effect of discharging the surety/judgement-debtor or not?
Decision- “After a decree has been passed the character of the principal debtor and the
character of the surety change into those of co-judgement debtors. The provisions of S. 133 to
139 of the Contract Act apply only where no decree has been passed by the court…The
subsequent dealing with the principal debtor does not operate to discharge the surety from a
liability under which he is [liable], no longer as a surety, but under the decree… The above
provisions of the Contract Act which govern the rights and liabilities of the creditor, the
principal debtor and surety, cease to operate after the rights and liabilities are determined
and declared by a decree.”
Therefore, the Court held that the Surety was not discharged by the very fact that he no
longer remained a surety under the contract rather became judgment debtor under the decree;
his rights and liabilities to be governed no longer by the Indian Contract Act but by the decree
provisions.

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 48. Bolivinter Oil S.A v Chase Manhattan Bank N.A
[Bank Guarantee]
Facts- Bolivinter Oil S.A. entered into a contract to transport crude oil for the General
Company of Horns refinery from Iran to Syria. As part of the agreement, Bolivinter agreed to
provide a $1 million bank guarantee to the refinery. Chase Manhattan Bank N.A. was asked
to arrange the guarantee, and the Commercial Bank of Syria issued the guarantee to the
refinery. Disputes arose between Bolivinter and the refinery, leading to Bolivinter obtaining
injunctions against the refinery and the banks involved to prevent them from claiming on the
guarantee or paying under the letter of credit.
Issues- The main issue was whether the injunctions preventing the banks from honoring the
guarantees were justified.
Decision- The Court of Appeal dismissed Bolivinter's appeal, stating that injunctions
restraining banks from honoring irrevocable letters of credit or guarantees should only be
granted in exceptional cases. The court emphasized that such instruments are valued for
providing an irrevocable undertaking by the bank, and allowing frequent injunctions would
undermine the trust in these instruments. The court noted that injunctions should only be
granted if there is clear evidence of fraud, and that the evidence must be substantial and not
solely based on the customer's statement. The appeal was dismissed, and costs were awarded
against Bolivinter.

49. Hindustan Construction Co. Ltd. vs State Of Bihar &

Ors. [Bank guarantee]
Facts-
 HCCL was given a contract to construct a Dam (Icha Dam across the river Kharkai in
village Kuju) by the State of Bihar.
 The contract had a period of 42 months according to which the work on the dam was
supposed to be completed by the 24th of October, 1992.
 HCCL furnished its work. A Bank Guarantee for 10 percent of the contract price as
“Performance Guarantee” in the sum of Rupees Three Crores Ninety Seven Lakhs
Thirteen Thousand One Hundred and Two only.
 Another Bank Guarantee was the Guarantee against “Mobilisation Advance”. HCCL
furnished fifty “Mobilisation Advance” bank Guarantees aggregating in all to Rs. 532
lacs.
Issues- In the above case, the High Court completely disregarded and unduly interfered with
the Single Judge bench’s decision of injunction prohibiting the defendants from invoking the
bank guarantee.
Decision-

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  The “performance guarantee,” which constituted a separate and distinct contract
between the defendants and the Bank, was unconditional and unequivocal and that
because the Bank had agreed to pay the defendants the amount covered by that
guarantee on-demand, the High Court’s injunction order was liable to be set aside.
 What matters is that the bank guarantee is written in clear, unconditional terms, and
states that the amount will be paid without question or objection, regardless of any
dispute that may have arisen or is pending between the bank guarantee beneficiary
and the person on whose behalf the guarantee was given.
 The terms of the bank guarantee are vitally important, and the invocation must be
done in line with those terms, or else the invocation will be invalid.
 After (i) execution the form of agreement by the parties thereto, (ii) provision by the
contract of the performance security following clause 5, and (iii) provision by the
contractor of a bank guarantee in an amount equal to the advance loan by a bank
acceptable to the employer, payment of the loan will be due under separate
certification by the Engineer.
 The High Court completely ignored this part of the case, interfering unduly with the
Single Judge’s judgement prohibiting the defendants from invoking the bank
guarantee.
 Concerning the defendants’ other appeal concerning the “performance guarantee,” it
should be noted that the injunction decision was upheld by the Single Judge as well as
the Division Bench of the High Court, preventing the defendants from invoking the
guarantee. The Banks have also been barred from paying the defendants the money
stipulated in the “performance guarantee.”
 They were requested that the bank draft for Rs 3,97,13,102.00 (Rupees three crores
ninety-seven lakhs thirteen thousand two) payable to the Executive Engineer, Kharkai
Dam Division II, Icha, Chaliama, PO Kesargarhia, District West Singhbhum,
Chaibasa to the undersigned as soon as possible as a claim against the said bank
guarantee.

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 50. ITEK CORPORATION, Plaintiff, v. The FIRST
NATIONAL BANK OF BOSTON, et al. [irretrievable
injustice]
Facts- The plaintiff, Itek, contracted with the Imperial Government of Iran to manufacture
optical equipment. Iran made an advance payment of $4.5 million, secured by bank
guarantees issued by Bank Melli. Itek provided standby letters of credit issued by an
American bank as required by Bank Melli.
In 1979, Iran's revolution and the cancellation of the export license triggered a force majeure
event. Itek sought relief from American courts, fearing unwarranted demands on the letters of
credit. Despite negotiations, disputes remained unresolved. In 1980, Itek sought final
judgment against Bank Melli, but U.S. government agreements with Iran led to regulations
preventing entry of final judgment in cases involving Iranian assets, including the letters of
credit.
Decision- The plaintiff, Itek, sought a preliminary injunction to prevent FNBB and others
from honoring demands on three letters of credit. To determine whether the injunction should
be granted, the court considered four factors: irreparable harm, balance of injury, likelihood
of success on the merits, and public interest.
The court found that Itek would suffer irreparable harm without the injunction because it had
no adequate legal remedy. While FNBB argued that Itek could seek damages through
arbitration or Iranian courts, the court disagreed, noting the futility of pursuing remedies in
Iran due to the revolution and the disagreement over arbitration with Iran.
Regarding the balance of injury, the court acknowledged potential harm to FNBB's reputation
and the utility of letters of credit but concluded that the potential harm to Itek outweighed
these concerns.
The court also found that Itek demonstrated a likelihood of success on the merits. It cited the
Uniform Commercial Code, which allows injunctions on letters of credit if there is fraud in
the underlying transaction. The court concluded that Itek's allegations of fraud were likely
true, given the circumstances of the contract cancellation.
Finally, the court determined that granting the injunction served the public interest by
discouraging fraud and maintaining regularity in commercial transactions. It also aligned with
the Executive branch's intent to halt proceedings related to standby letters of credit litigation
to allow diplomatic negotiations to proceed.
Based on these findings, the court granted Itek's motion for a preliminary injunction,
preventing FNBB from honoring demands on the letters of credit until further court order.

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 51. Annadana Jadaya Goundar vs Konammal And Anr.
[if, though time is granted by the creditor to the principal
debtor by agreement with him, nevertheless under that
agreement the creditor’s right to proceed at once against the
surety is reserved, then the surety is not discharged]
Facts- This is an appeal against a decision that refused to hold the respondent (Anganna
Reddi) liable for a security bond. The background is that a lady named Konammal obtained a
decree against Annadana Jadaya Goundar for possession of a jaghir. Pending an appeal to the
High Court by Goundar, Konammal was allowed to execute the decree if she provided
security. A security bond was then executed by four sureties, including Anganna Reddi. The
bond stated that Konammal would return the jaghir, act according to the appellate court's
decree, and pay any amount she owed according to that decree. If she failed to pay, the
amount could be recovered from the properties provided as security.
Held- the court found that there was no explicit release of Konammal, and the provision for
execution against the security prevented the discharge of the surety. The principle was that if
the agreement between the creditor and the principal debtor impaired the surety's right of
recourse against the principal debtor, the surety would be discharged. Since there was a
reservation to proceed against the surety, the surety's liability continued, and the surety was
not discharged.
The principle that a contract by a creditor to give time to the principal debtor discharges the
surety is well recognised. The reason of the rule is this: the surety is entitled at any time to
require the creditor, to call upon the principal debtor to pay off the debt or himself pay off the
debt and when he has paid it off he is at once entitled to sue the principal debtor; and if the
creditor has bound himself to give time to the principal debtor, the surety cannot do either the
one or the other of these things until the time so given has elapsed.
The principle that the granting of time without the consent of the surety to his principal
discharges the surety is subject to the exception that, if, though time is granted by the
creditor to the principal debtor by agreement with him, nevertheless under that
agreement the creditor’s right to proceed at once against the surety is reserved, then the
surety is not discharged. Even if by agreement there is an explicit release of the
principal debtor by his creditor, when that is combined with a reservation of the
creditor’s right to proceed against the surety, that does not discharge the surety. The
effect of such an agreement with such a reservation is that the principal debtor, agrees
that the liability of the surety shall continue with the corollary that the right.

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 52. Gujarat Maritime Board v Larsen and Toubro [Bank
guarantee]
Facts- The Gujarat Maritime Board (GMB) issued a Letter of Intent (LoI) to the first
respondent for the development of a port at Kachchigarh, contingent upon the submission of
a Detailed Project Report (DPR) within 12 months and obtaining various clearances within
18 months, failing which the LoI would be canceled and the bank guarantee forfeited. The
Yes Bank Limited provided a bank guarantee of Rs. 5 crores to the GMB on behalf of the first
respondent.
The first respondent requested a change of location from Sutrapada to Kachchigarh, which
was granted, and the bank guarantee was extended. However, the first respondent could not
proceed with the work even at Kachchigarh, leading to the GMB canceling the LoI and
invoking the bank guarantee. The GMB communicated the cancellation of the LoI to the first
respondent and informed the bank of the forfeiture of the bank guarantee. The GMB then
invoked the bank guarantee furnished by the Yes Bank Limited at the instance of the first
respondent.
Issues- Whether the High Court is justified in exercising its discretionary jurisdiction
under Article 226 of the Constitution of India for restraining the appellant from invoking an
unconditional bank guarantee executed by the first respondent, is the main issue arising for
consideration in this case.
Held- The High Court erred in its analysis of facts and approach to the law regarding the
invocation of a performance bank guarantee. The Letter of Intent (LoI) did not involve the
forfeiture of a security deposit due to frustration of the contract but rather the invocation of
the bank guarantee. The bank guarantee is an independent contract between the guarantor
bank and the guarantee-appellant, and it is unconditional. The specific condition in the bank
guarantee states that the decision of the appellant regarding the breach is binding on the bank.
Therefore, it is not for the High Court, in a proceeding under Article 226 of the Constitution
of India, to question the justifiability of the decision, as several disputed facts are involved.
The Supreme Court referenced the legal position on exercise of writ jurisdiction in
contractual matters, emphasizing that a writ petition against a State or its instrumentality
arising from a contractual obligation is maintainable, even if disputed questions of fact arise.
The Court further clarified that the bank guarantee is a separate contract and is not qualified
by the main contract's performance obligations. Once there is a written demand invoking the
bank guarantee due to a breach of the covenants, as determined by the appellant, the bank is
bound to honor the payment under the guarantee.
Therefore, the appeal was allowed, and the High Court's judgment was set aside. However,
the judgment does not prevent the first respondent from pursuing its grievances in appropriate
proceedings as permitted by law.

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 53. Archana Deepak Wani vs Allahabad Bank [liability
of the Guarantor is co-extensive with that of the Principal
Debtor, and the Guarantor's default occurs when the debt
becomes due and payable and is not paid by the debtor]
Facts- The appeal before the Adjudicating Authority arose from an order dated 24.02.2023,
where the Authority admitted an application under Section 7 filed by Indian Bank against the
Corporate Guarantor. The Principal Borrower, M/s Poonam Resorts Ltd., a sister concern of
the Corporate Guarantor, had obtained a financial facility from Indian Bank, secured by a
Corporate Guarantee from the Corporate Guarantor. However, due to project delays, the
Principal Borrower informed the Bank on 07.03.2012 that it would be unable to meet the
original deadline of April 2012. By April 2012, the Bank had disbursed Rs.25 Crores out of
the total loan amount of Rs.62 Crores to the Principal Borrower. The Bank declared the
Principal Borrower as a Non-Performing Asset (NPA) on 31.03.2017, and subsequently
issued a demand notice under Section 13(2) of the SARFAESI Act, 2002, claiming an amount
of Rs.45,05,22,863/- due against the Corporate Guarantor. The Corporate Guarantor objected
to the notice and approached the Debts Recovery Tribunal (DRT) against the Bank's action.
On 03.04.2018, the DRT passed an order restraining the Bank from further steps under the
SARFAESI Act. The Bank filed an application under Section 7 before the Adjudicating
Authority seeking initiation of Corporate Insolvency Resolution Process against the Principal
Borrower, and also initiated proceedings under RDDBFI Act, 1993 against the Corporate
Guarantor. The Adjudicating Authority, on 23.12.2022, asked for clarification on the default
date and limitation aspect. Written submissions were filed, and on 24.02.2023, the
Adjudicating Authority admitted the Section 7 application, leading to this appeal.
Issues-
1. Whether the default in payment of the guaranteed amount by the Corporate Debtor is
the same default committed by the Principal Borrower, and if the period of limitation
for both shall be the same for filing the Section 7 application by the Bank.
2. Whether the application filed by the Bank on 17.03.2020 was barred by limitation
against the Corporate Guarantor.
3. Whether the order of the Adjudicating Authority admitting the Section 7 application is
unsustainable.
Held- The judgment concerns an appeal challenging the Adjudicating Authority's order
admitting an application under Section 7 filed by Indian Bank against the Corporate
Guarantor. The court considered the statutory scheme under the Insolvency and Bankruptcy
Code regarding limitation for such applications. It noted that the liability of the Guarantor is
co-extensive with that of the Principal Debtor, and the Guarantor's default occurs when the
debt becomes due and payable and is not paid by the debtor. The court analyzed the Deed of
Guarantee, which required a demand to be made to the Guarantor before any action could be
taken against them. As the Guarantor had not filed a reply to the Section 7 application and did
not challenge the forfeiture of their right to reply, the Adjudicating Authority did not err in
admitting the application. The court held that the application was not barred by limitation and
affirmed the Adjudicating Authority's order. It also granted the Appellant one month to

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negotiate a settlement with the Bank before the Committee of Creditors is constituted, failing
which the appeal would be dismissed.

54. Amrit Lal Goverdhan Lalan v State Bank of

Travancore and Others [ss.133, 135, 139 and 141,
Suretyship, Subrogation]
Facts- Respondents 3 to 6, as partners of Respondent 2 firm (R2), entered into an agreement
with a Bank (R1) to open a cash credit account to the extent of Rs. 100,000 to be secured by
goods to be pledged with the Bank. The agreement provided that the borrowers shall be
responsible for the quantity and quality of goods pledged. The appellant (A) became surety
for the borrowers w.r.t the account upto Rs.100,000 and allowed the Bank to recover,
notwithstanding any other security the Bank may hold. The stock pledged was initially valued
at about Rs. 99,991 but after verification shortage of goods to the value of Rs. 35,690 was
found. It was alleged that R2-R6 must have taken away the goods. They were granted time to
make up the deficit but they failed to do so. After adjusting the money realized on the sale of
the goods pledged and other adjustments, a sum of Rs. 40,933.58 was found due to the Bank
from R2-R6. The Bank filed a suit against them and A.
Contentions (Appellant, A)- Certain entries in the account books of the Bank showed that the
maximum limit of credit was reduced to Rs. 50,000 and again raised to Rs. 100,000 without
consulting the appellant, therefore there was variation in the terms of the contract without the
surety’s (appellant’s) consent and, under s. 133 of the Indian Contract Act the liability of the
appellant was discharged.
1. Under s. 135 of the Act, the conduct of the Bank in giving time to R2-R6 to make up
the deficit in the quantity of goods absolved A of all liability.
2. Under s. 141 of the Act, since a portion of the security was parted with or lost by the
creditor without surety’s consent, the liability of A was discharged to the extent of the
value of the security so lost.
Held- (w.r.t 1st contention of A) The entries in the books of account were mere internal
instructions not legally binding on the respondents, and in view of the formal record in the
original agreement and letter of guarantee, there could not have been a variation in the terms
without a proper written agreement. Therefore, there was no variance in the terms of the
contract and the provisions of s. 133 of the Act were not attracted.
1. (w.r.t 2nd contention of A) The act of the Bank in giving time to the principal debtor
to make up the quantity of goods pledged is not tantamount to giving of time to the
principal debtor for making payment of the money, within the meaning of the section
135 and hence it is not attracted. What really constitutes a promise to give time within
the meaning of s. 135 of the Act is the extension of the period at which, the principal
debtor was by the original contract obliged to pay the creditor, by substituting a new
and valid contract between them, or, whenever the taking of a new security from the
principal debtor operates as giving time.

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 2. (w.r.t 3rd contention of A) Under s. 140 of the Contract Act the surety is, on payment
of the amount due by the principal debtor, entitled to be put in the same position in
which the creditor stood in relation to the principal debtor. Under s. 141 of the Act the
surety has a right to the securities held by the creditor at the date when he became
surety. The shortage was brought about by the negligence of the Bank and to that
extent it must be deemed to be a loss by the Bank of the security. Contention
accepted.

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 55. Mahatma Gandhi Sahakra Sakkare ... vs National
Heavy Engg. Coop. Ltd [Bank Guarantee]
Facts- The case involves a dispute over the commissioning of a plant as per an agreement,
with the appellant alleging that the respondent failed to commission the plant as agreed. The
appellant sent multiple notices to the respondent regarding their failure to commission the
plant by the scheduled dates. A meeting was held between the parties where it was agreed that
the respondent would furnish a bank guarantee, start trial crushing of sugarcane, and fully
commission the plant by specific dates. The respondent furnished a bank guarantee and the
appellant released a sum of money as per the agreement. However, the trial crushing did not
start on time and faced issues, leading to the appellant incurring heavy losses. The appellant
invoked the bank guarantee, citing the respondent's failure to commission the plant as agreed.
Issue- The main question that arises for our consideration is whether the bank guarantee in
question is a conditional one or not
Held- The respondent's argument is that the project's issues were due to the appellant's
inability to arrange funds. They claim that after several disputes, the parties agreed to a final
course in a meeting on 1st July 2003. Pursuant to this agreement, the respondent furnished a
bank guarantee, and the appellant released a sum of money. The respondent contends that the
trial run of the plant was successful, and the actual commissioning started slightly late but
was still within a reasonable timeframe. The appellant, however, raised false claims to avoid
paying the respondent. The respondent requested arbitration, but instead of responding, the
appellant invoked the bank guarantee, allegedly to avoid payment.
The court examined the bank guarantee clauses and found that the guarantor was obligated to
pay the appellant if certain conditions were met, regardless of any disputes between the
parties. The court noted that the respondent's allegations did not establish fraud or irreparable
harm, which are typically required to restrain encashment of a bank guarantee. Therefore, the
court held that since the bank guarantee was unconditional, the appellant had the right to
encash it, even in the presence of a dispute.

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 56. U.P. State Sugar Corporation vs M/S. Sumac
International Ltd
Facts- The seller was required to provide a bank guarantee representing 5% of the contract
price for the guaranteed performance of the plant and machinery. This guarantee had to be
furnished eight months before the scheduled commissioning date or within six months from
the signing of the agreement or after 2-1/2 months of the opening of the Letter of Credit,
whichever came earlier. Additionally, three bank guarantees were required for advance
payments to the seller by the appellant, amounting to Rs. 89 lakhs, Rs. 178 lakhs, and Rs. 89
lakhs, representing 5%, 10%, and 5% of the contract price, respectively. These guarantees
were to be furnished upon specific milestones being met, such as the signing of the agreement
or the opening of a Letter of Credit.
The seller furnished four bank guarantees, including one for due delivery and three for
advance payments, totaling Rs. 3.56 crores, which was paid by the appellant to the seller as
an advance. However, the contract was not completed within the agreed time frame, and
despite an extension given until May 1992, the project was not completed by the seller. The
seller then filed for arbitration as per the agreement. The seller also filed for interim relief to
restrain the appellant from encashing the bank guarantees, which was initially dismissed by
the Civil Judge but later granted by the High Court. This injunction is now being challenged
by the appellant in the present appeal.
Held- The case involved bank guarantees furnished by the respondent to the appellant, which
were invoked by the appellant after the contract between them was cancelled. The bank
guarantees were payable on demand, and the terms explicitly stated that the guarantor
(respondent) could not question or challenge the demand made by the appellant. The
guarantees were invoked by the appellant after the contract was cancelled, and the appellant
sought a refund of the advance payment.
The High Court had granted an injunction restraining the appellant from enforcing the bank
guarantees, citing alleged fraud and the pending reference of the appellant as a sick industrial
company under The Sick Industrial Companies (Special Provisions) Act, 1985. However, the
Supreme Court held that the existence of a dispute between the parties or the appellant's
status as a sick industrial company did not constitute grounds for issuing an injunction to
restrain the enforcement of the bank guarantees. The Court emphasized that there must be
fraud in connection with the bank guarantee to justify such an injunction.
The Court further noted that the appellant had undertaken to earmark the amounts realized
from the bank guarantees for meeting any validly adjudicated claims of the respondent
against the appellant under or arising from the contract. Therefore, the Court allowed the
appeal, set aside the injunction granted by the High Court, and referred all disputes between
the parties under or arising from the contract to the sole arbitration of a retired judge.

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 57. Union Of India & Anr vs M/S Indusind Bank Ltd.&
Anr
Facts- A Memorandum dated 6.11.1995 issued by the Textile Commissioner under the
Imports and Exports (Control) Act, 1947, set terms and conditions for exporting raw cotton
and cotton waste for September 1995 to August 1996. Shipment was allowed only against an
irrevocable letter of credit, and exporters had to provide a bank guarantee of 10% of the
contract price, valid for 6 months with a provision for claims for an additional three months
after the last shipment date. Quota allocation was based on the highest unit value realization.
Four sale contracts were executed between M/s Indocomex Fibres Pvt. Ltd., Singapore, and
four exporters in January 1996. On 31.1.1996, the exporters submitted an application with a
bank guarantee. In February, they were permitted to export 9175 bales with a validity period
up to 31.7.1996, extended three times, with the final extension to 28.2.1997.
On 23.7.1998, the Textile Commissioner asked exporters and the Respondent Bank to pay the
sums covered by the bank guarantee. As there was no response, three summary suits
(2959/1999, 2963/1999, and 2996/1999) were filed on 8.4.1999 by the Union of India and the
Textile Commissioner against exporters and the Bank in the High Court of Bombay. The
Bank was granted unconditional leave to defend the suits, and the exporters were given
conditional leave to defend upon depositing Rs. 3,82,59,450/- in the Court within 12 weeks.
The Union of India's appeal was dismissed by the Division Bench on 20.1.2003/27.2.2003,
and an SLP filed by the Union of India met with the same fate on 14.8.2003.
Held- The case involved a dispute regarding bank guarantees issued in connection with the
export of cotton. The Textile Commissioner invited applications for export, setting a
shipment period of 180 days from the date of registration of quota or up to 31.8.1996,
whichever was earlier. After the exporters failed to furnish necessary documents, the Textile
Commissioner invoked the bank guarantees. The exporters argued that the amended Section
28 of the Indian Contract Act, which came into force on 8.1.1997, did not apply to their case.
They contended that the unamended Section 28, which was in force at the time of the bank
guarantees, should be applied. The Court examined the history and purpose of Section 28,
noting that the 1997 amendment sought to rectify anomalies and hardships caused by the
existing law. The Court held that the unamended Section 28 applied to the case, as the bank
guarantees were issued before the amendment came into force. The Court dismissed the
appeals, noting that Parliament had addressed such issues with a 2012 amendment to Section
28, which was not applicable in this case.

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 58. Trustees of The Port of Bombay v Premier
Automobiles Limited [IMPLIED BAILMENT]
Facts- The respondents (R) had imported some machinery, which upon its landing on the
Bombay port was taken charge of by the Board (Appellants, A). While being transported by
the Board’s employees to one of the sheds in the docks by trolley the case fell and machinery
was badly damaged. After finding the damage in the machinery, R claimed a large sum as
damages. Invoking the provisions of S.87, of the Bombay Port Trust Act the Board (A)
denied all liability for the damage caused to the machinery alleging that the machinery was
already in a broken condition and due to the damaged condition of the case that it slipped and
fell from the trolley accidentally.
Issues-
1. Whether the liability of the Board was that of a bailee?
2. Whether the employee who were with the trolley at the time of the accident, were
appointed under the Act?
Held- High Court
1. There was an element of negligence on the part of Board’s employee (Board admitted
it). Since a master is always liable for the torts committed by his servants in the
course of the employment the Board was responsible for the damage caused to the
machinery by its employees in the course of their employment.
2. (w.r.t 1st & 2nd issue) YES
3. (w.r.t S.87) The Provision related to a totally different subject with which section 61B
was not concerned and, therefore, S.87 not attracted.
SUPREME COURT (Shinghal, J.) (Board’s Appeal allowed)
1. The responsibility of the Board was clearly that of a bailee subject to the reservations
provided by the section. Since the claim was not based upon a mere breach of
statutory duty under section 61B but was based on the Board’s liability as bailee, it
was an action in tort. However, the liability of the master for the acts of his servants
would not possibly arise in a case where the statute intervenes.
2. (w.r.t S.87) As per S.87 the Board is made responsible for the misfeasance,
malfeasance or nonfeasance of only those of its employees who have not been
“appointed under this Act” which means that the protection does not extend to any
tortious act if it has been committed by an employee who has not been appointed
under the Act. Both the sections (87&61B) are interconnected and have to be read
together as a whole.
3. (w.r.t HC’s 3rd observation) This runs counter to the clear provisions of the two
sections if read together and is wholly unsustainable. It is section 61B which makes
the responsibility of the Board for the goods of which it has taken possession subject
to the other provisions of the Act.

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 4. (w.r.t 2nd issue & HC’s stand on it) If those employees “were appointed under the said
Act” it means that the Board was entitled to be absolved of its liability for the acts of
those employees by virtue of paragraph 2 of section 87.
Reasoning- The essence of bailment is possession. A bailment may arise, as in this case, even
when the owner of the goods has not consented to the possession by the bailee at all. A
bailment is not therefore technically and essentially subject to the limitations of an agreement
and the notion of privity need not be introduced in an area where it is unnecessary. It is
sufficient if that possession is within the knowledge of the person concerned. So a bailment
may very well exist without the creation of a contract.

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 59. United Breweries Limited v State of Andhra Pradesh
Facts- The assessee (the appellant) sold beer in bottles and crates. With regard to the sale of
beer, a scheme was framed under which the assessee collected the sale price of beer and also
deposits for the crates and the bottles so as to keep down the cost of Beer. The customers, in
turn, would sell beer to the consumers and apart from the price of beer will recover 40 paise
per bottle as deposit to ensure return of the bottles. The bottles will ultimately be taken back
by the assessee and the trucks will be sent and the credit notes will be given to the customers
for return of the empties. The Commercial Tax Officer held that since the customers did not
always return the bottles and crates and these were higher in value than the amounts
deposited as security, the taxable turnover had to be computed by the value of the bottles also.
Issue- Whether the transaction was an out and out sale, or a case of bailment?
Held-
1. (w.r.t 1st contention of the respondent ) Whether the bottles and the crates were sold
along with the beer or not will depend upon the intention of the parties. The facts of
this case reveal that UB did not intend to sell the bottles or the crates to the customers,
on the contrary UB was very anxious not to lose the bottles and crates in which the
beer was supplied. 40 paise was charged as deposit and the customers were also
advised to do likewise when they sold the beer to the consumers. Therefore, an out
and out sale of the bottles did not take place when beer was supplied in bottles by UB
to its customers
2. Section 24 of SOGA cannot be applied as s.24 is subject to the provisions of
Section 19 which provides that the property in specific or ascertained goods is passed
to the buyer only at such time as the parties to the contract intend it to be passed.
3. (w.r.t 2nd contention of the respondent) Agreed, no time limit was fixed for return of
bottles in this case; but, even if it had been fixed, it is well settled that time is not of
the essence of the contract unless the parties specifically make it so. Section 11 of the
SOGA gives statutory recognition to this principle. (This aspect of the matter was
overlooked in Britannia Biscuits Co.’s case.)
4. (w.r.t 3rd contention of the respondent) The deposit amount which was liable to be
forfeited on failure of the return of bottle was in the nature of liquidated damages
recoverable by the supplier under Section 74 of the Contract Act.
5. (w.r.t 4th contention of the respondent, case explained) The buy-back scheme was
devised by the Government due to scarcity of bottles. Under this scheme, a distiller on
a sale of liquor became entitled to charge the wholesaler a price for the bottles in
which the liquor was supplied at rates fixed by the Government. Therefore, not only a
sale of liquor took place but under “buy-back” scheme, the bottles were also sold. The
supplier was bound to repay the wholesaler the price as and when the bottles were
returned. Therefore, there could not be any doubt that under the “buy-back” scheme
the bottles were being sold in the first instance and bought back later on.

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 60. State of Maharashtra, Bombay and Others v
Britannia Biscuits Company Limited and Others
Facts- The respondents manufactured and sold biscuits in tins. In respect to the biscuits sold
in Bombay and its suburbs, the assessee (respondents) charged only for the price of the
biscuits. With regards to the tins, the respondents took a refundable deposit (which was 20%
more than the actual cost of the tin), with the stipulation that if the tins were returned within a
period of three months and in a good condition, the refundable amount would be returned.
The assessee however, did not adhere to this, in practice, and accepted tins even after three
months. As per its accounting practice the assessee wrote off 50% of the outstanding
unrefunded deposit for the assessment year 1967-68 and treated 20% of the deposit amount as
profit. The Assessing auth. treated this amount as sale price of unreturned tins and included
the same in the taxable turnover of the assessee.
Issue- Whether there was an obligation upon the purchaser to return the tins or was it a case
where the return or non-return of the tins lay within the discretion of the purchaser?
Held-
1. (w.r.t. 1st observation of the HC) SC concurred to this point and said that court should
not be led away by the manner in which the assessee has made entries in its own
account but must look to the substance of the transaction and decide what in truth it
amounts to.
2. (w.r.t 1st issue and 2nd observation of the HC) Neither the endorsement on the price list
nor the endorsement on the invoice can be said to create an obligation to return. Also,
the time limit was not strictly adhered to.
3. (w.r.t 1st & 2nd contention of the respondent) Once it is held that there was no
obligation to return the tins the theory of bailment falls to the ground and the said
trading receipt can’t be anything but sale price.
4. (w.r.t the 3rd contention of the respondent) Question which was referred by the
tribunal for the opinion of the HC reflect the approach adopted by the Assessing and
the First Appellate Auth. rather than the approach adopted by the tribunal.
5. (w.r.t 4th contention of the respondent) It is unacceptable in the light of the facts that
each customer had an account with the respondent and when a particular no. of tins
were supplied to a customer, an entry was made to the effect in that customer’s
account in the account books of the respondents besides making an entry in the other
relevant account books of the respondent.
The transaction relates to s, 24 of the Sale of Goods Act as per which the position of the
purchaser, until he returns the good within the prescribed period, is that of a bailee and on the
expiry of the said period he becomes a purchaser.

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 61. Messrs Kalyani Breweries Limited v State of West
Bengal and Others
Facts- The assessee brewed and sold beer in beer bottles and when empty beer bottles were
returned by the customers, refunds were made at same rate for deposit on bottles. There was
nothing on record which indicated that the terms under which the deposit would be repaid
were communicated to the assessee’s customers. There was no time limit for the return. The
assessor treated the amount written off (Bottle Deposit Forfeited Account) as a part of the
assessee’s sales realization and taxed it.
Issue- Whether transaction was a sale or bailment?
Contention (Assesses)- The intention of the assessee was not to sell the beer bottles. The fact
that the relevant invoices spoke of a deposit and the fact that a sum as Rs. 11 lakh had been
refunded from out of the bottle deposit account showed that there was only a bailment.
Held (S.B. Bharucha)-
1. The circumstances that the price of the product and the price of the container are
shown separately alone can’t be conclusive of the true nature of the transaction.
2. The fact that the customers were required to deposit for the beer bottle a rate which
was exactly equal to the cost of the bottles suggests the sale thereof more strongly
than the intention to get them back upon bailment.
3. He found that there was a lack of adequate factual material to decide the question and
remanded the matter to assessing auth. for fuller investigation.

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 62. State of Bombay v Memon Mahomed Haji Hasam
Facts- Two trucks of the respondent were seized by the appellant state for alleged smuggling;
they were kept outside in open where they were totally uncared for so much so that a greater
part of their machinery was pilfered away leaving only the their skeletons. They were
afterwards auctioned as unclaimed property under the orders of Magistrate. In the meantime,
respondent, in appeal, obtained decree for return of the vehicles as against the order of
confiscation of Customs Authority. However, when he was informed of such auction, he sued
government for the return of the vehicles or in alternative value for them.
Issues- Whether the State was liable to compensate the respondent?
Held- As the seizure of trucks was carried out with jurisdiction and as they were sold
pursuant to a judicial order, no liability can be attached on the State Government for their
disposal by public auction.
But between their seizure and the auction there was a statutory duty implicit to
take reasonable care of the property seized. This is so because the order of confiscation was
not final and was subject to an appeal and a revision, with the State being aware of the same.
The state was also aware that if the said order was set aside, the property would have to be
returned to the owner thereof in the same state in which it was seized except as to normal
depreciation. In spite of this clear position, while the appeal was still pending State allowed
its police authorities to have trucks disposed of as unclaimed property.
“There being thus a legal obligation to preserve the property intact and also the obligation to
take reasonable care of it so as to enable the Government to return it in the same condition in
which it was seized (let apart the natural depreciation), the position of the State Government
until the order became final was that of a bailee.” The contention of the State that there can
be no bailment without any contract is not well for “Bailment is dealt with by the Contract
Act only in cases where it arises from a contract but it is not correct to say that there
cannot be a bailment without an enforceable contract.” In fact, a finder of goods is also
obliged by law to take reasonable care of the goods till the owner such that his rights and
obligations are similar to that of bailee without any contract to that effect. Similarly, State
was also obliged by the law in pari materia as bailee to take reasonable care of the trucks.
Therefore, State would be liable to the value of the trucks.

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 63. Coggs v Bernard [hiring of labour or services
without reward, duties owed by a bailee]
Facts- The defendant undertakes to remove goods from one cellar to another and there lay
them down safely, and he managed them so negligently that for want of care in him some of
the goods were spoiled. Also, there was no consideration for the work.
Issues- Whether or not defendant liable, if he is not getting any consideration?
Decision- J.Gould
Any man who undertakes to carry goods is liable to an action, if through his neglect they are
lost or come to any damage. The reason being, the particular trust reposed in the defendant. In
case of general bailment, the bailee is liable only for gross neglect and in case of express
undertaking, even for the ordinary neglect. He criticized Southcote’s case in which the gee.
Bailment was taken to be an undertaking to deliver the goods at all events.
J. Powys & J. Powell (No differing opinion)
J.Holt
Concurred with the other judges and described six types of bailment. These are-
(a) depositum (simple deposits), (b) commodatum (goods lent for bailee’s use), (c) locatio et
conductio (hiring), (d) vadium (pawn or pledge), (e) locatio operis (hiring of labor and
services for reward) and (f) mandatum (hiring of labor and services without reward)(the
present case).

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 64. Hyman v Nye & Sons [breach of implied
warranty, hiring]
Facts-
1. The defendant was a job-master at Brighton, letting out carriages and horses for hire.
2. The plaintiff hired of him a landau, and a pair of horses, and a driver, for a drive from
Brighton to Shoreham and back.
3. After having driven some way, and whilst the carriage was going downhill and slowly
over a newly mended part of the road, a bolt in the under part of the carriage broke.
4. The splinter-bar became displaced; the horses started off; the carriage was upset; the
plaintiff was thrown out and injured, and he brought this action for compensation.
5. It was established at the trial that neither horsed nor the driver is at fault.
6. No ordinary inspection by the defendant would have discovered the defect.
7. Upon above two points the jury gave a verdict in the favour of the defendant.
Decision- LINDLEY, J (favoured the plaintiff)
1. The standard of duty of care that was subjected to the defendant by the trial judge was
too low.
2. The duty of the plaintiff is to supply a carriage as fit for the purpose for which it is
hired as care and skill can render it; and if whilst the carriage is being properly used
for such purpose it breaks down, it becomes incumbent on the person who has let it
out to show that the break down was in the proper sense of the word an accident not
preventable by any care or skill (Why? The hirer trusts the owner to supply a fit and
proper carriage). (The Judge here found fault in the argument of the trial judge)
3. A carriage to be reasonably fit and proper must be as fit and proper as care and skill
can make it for use in a reasonable and proper manner.
4. Whether the plaintiff sues the defendant in tort for negligence or contract for the
breach of an implied warranty, was wholly immaterial.
5. The plaintiff’s pleadings would have been free from all objection if he had stated in
his statement of claim that he hired the carriage of the defendant, and not merely that
the plaintiff was lawfully in the carriage.
MATHEW, J (favoured the plaintiff)
1. The essential part of the contract was the purpose and use, the time for which the
article is intended to be used.
2. The defendant let the carriage for the purpose of carrying the plaintiff safely. The
plaintiff trusted him to select the carriage, horses, and driver, and there seems to me
nothing unreasonable in charging the defendant with a duty which it was certainly in
his power to fulfil, and which from his business he would be presumed to have bound
himself to take the proper steps to perform strictly.

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 65. Patel Roadways Limited v Birla Yamaha Limited
Facts- The appeal in question involves the determination of whether Section 9 of the Carriers
Act, 1865 applies to proceedings under the Consumer Protection Act, 1986. M/s Birla
Yamaha Limited (the respondent) booked 237 consignments containing 267 generator sets
with M/s Patel Roadways Limited (the appellant) for transportation. The goods were
destroyed in a fire in the appellant's godown shortly after booking. The respondent claimed
the value of the goods, refund of freight charges, and compensation for the loss. The National
Consumers Disputes Redressal Commission held that the appellant was deficient in service as
a common carrier, as the goods were not delivered according to the contract. The
Commission relied on Section 9 of the Carriers Act, which relieves the complainant from
proving negligence. The Commission awarded Rs. 51,00,799 to the respondent, which
included the cost of the generator sets and refund of freight charges. The appellant filed an
appeal under Section 23 of the Consumer Protection Act, challenging the Commission's
order.
Held- The judgment clarifies the applicability of the Carriers Act, 1865, and the Consumer
Protection Act, 1986, to cases involving loss or damage to goods during transportation. The
Carriers Act is meant to protect common carriers and enhance business credibility by limiting
their liability for loss or damage to property, while also declaring their liability for negligence
or criminal acts. It defines common carriers as persons engaged in transporting property for
hire.
The Consumer Protection Act defines consumers, services, and deficiencies in services, and
establishes Consumer Disputes Redressal Agencies at the district, state, and national levels.
These agencies have the power to adjudicate consumer disputes, including those related to
loss or damage of goods due to deficient service. The orders of these agencies are final and
can be enforced as decrees of the court.
The judgment concludes that the dispute redressal agencies under the Consumer Protection
Act have jurisdiction to entertain complaints involving loss or damage to goods during
transportation, rejecting the contention that such disputes fall outside their purview.

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 66. Hindustan Corporation ... vs M/S. United India Fire
And General
Facts- The appellant, a transport company, is challenging a judgment that confirmed a lower
court's decision awarding compensation to the respondents for loss and damage to goods
entrusted to the appellant for transportation. The goods, 41 bales of semi-tanned sheepskin,
were entrusted to the appellant for transport from Hyderabad to Madras. Upon delivery in
Madras, the 2nd respondent found 24 bales in wet condition with damaged sheepskin. The
damage was certified by the appellant's manager. The 2nd respondent claimed compensation
from their insurer, the 1st respondent, who paid the claim and obtained the rights to recover
from the appellant. The appellant denied liability, citing heavy rain as an unforeseen
circumstance beyond their control and suggested the 2nd respondent claim from their
insurance. The respondents filed a suit claiming compensation for negligence in transporting
the goods, which was decreed in their favor.
Held- The judgment addresses the liability of common carriers for goods entrusted to them
for transportation. It emphasizes that the Carriers Act, 1865, allows carriers to limit their
liability by special contract but not for negligence or criminal acts. Section 8 of the Act
specifically states that carriers are liable for loss or damage due to their negligence or the
negligence of their agents or servants, irrespective of any special contract. Section 9 of the
Act places the burden of proof on the carrier in cases of loss, damage, or non-delivery of
goods.
The court rejects the appellant's argument that they could limit their liability by stating that
the goods were carried at the owner's risk. It emphasizes that the burden is on the carrier to
prove that there was no negligence on their part. In this case, the court finds that the appellant
failed to provide convincing evidence to show that they took all reasonable care and that
there was no negligence on their part. The court also dismisses the appellant's argument
regarding the transfer of the right to sue, affirming the insurer's right to claim damages from
the carrier for negligence.
The court upholds the method of determining damages and the quantum of damages awarded
by the trial court, finding no grounds for interference. It notes that the loss was made good by
the insurer to the owner of the goods. The court concludes that the appellant likely ignored
the intimation of the survey of goods, further supporting the finding of negligence.

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 67. Lakshmi Narain Baijnath vs Secretary Of State For
India
Facts-
 The plaintiff contracted to sell jute to the National Jute Mills and entrusted sixty-eight
bales of jute to the Eastern Bengal Railway for carriage to the mills.
 During transit, the jute got damaged, and the mills refused to accept it, leading the
plaintiff to sell it at a loss.
 The defendant, Secretary of State for India in Council, did not deny the damage but
claimed it was caused by an act of God, a severe cyclone during transit.
Issues-
 Whether the defendant, as a bailee under the Indian Contract Act, was liable for the
damage to the goods.
 Whether the defendant failed to take proper care of the goods during transit, thereby
causing or contributing to the damage.
Held-
 The Court of first instance decreed the suit, holding that the defendant did not take
proper care of the goods, and the damage could have been avoided if proper care had
been taken.
 The decree was reversed on appeal, but the Supreme Court restored the decree of the
Court of first instance.
 The Court found that the defendant, by sending the jute in a leaky boat during a
cyclone, did not take as much care of the goods as a person of ordinary prudence
would have taken of their own goods.
 The continuous pumping of water to prevent the boat from sinking did not absolve the
defendant of liability, as the goods were damaged by water entering through the leaks.
 The Court held that the defendant failed to meet the standard of care required under
Section 151 of the Indian Contract Act and, therefore, was liable for the damages
suffered by the plaintiff.

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 68. Shiv Nath Rai Ram Dhari And Ors. vs The Union Of
India (Uoi) [S151-152]
Facts- The dispute revolves around the non-delivery of the appellants' consignments, which
were to be delivered at Delhi but were not. The respondent claims that the consignments were
looted from a stabled train between September 4th and 11th, 1947. Due to congestion at the
yard in Agra, the wagons carrying the goods, along with others, were formed into a separate
goods train and stabled at Asaoti siding. Normally, this train would have proceeded to Delhi,
but congestion there led to several goods trains being stabled at different stations between
Agra and Delhi. The respondent attributes this congestion and the stabling of trains to
communal disturbances in the region, which made railway operations difficult.
On September 4th, a station staff member noticed thieves opening wagon doors of the stabled
train. Upon discovery, the thieves fled, and some doors were found open and resealed. There
is no record of actual looting on this date, and it appears that the thieves were discovered and
fled, suggesting opportunistic rather than organized looting.
Issue- whether the Union of India is liable to the consignees of different commodities or
goods which were consigned to them by rail from various places in the country on account of
their non-delivery.
Held- The judgment concerns the Indian Railways Act of 1890, before its amendments by
Acts 56 of 1949 and 89 of 1961. Section 72 of the Act defines the responsibility of the
railway administration as a carrier of animals and goods, stating that this responsibility is that
of a bailee under certain sections of the Indian Contract Act, 1872. However, this
responsibility could be limited by a special contract approved by the Governor General.
One such contract was risk note form "B," which consignors could execute to have their
consignments carried at a reduced rate, with the railway administration being held harmless
for any loss, destruction, or damage to the consignment except in cases of misconduct by the
administration or its servants.
The judgment discusses the interpretation of such risk notes and whether they effectively
limit the liability of the railway administration. It notes that the amended provisions of the
Act, particularly Sections 73 and 74, require the railway administration to prove reasonable
foresight and care in the carriage of goods, and there is no provision for the execution of risk
notes like form "B" under the amended Act.
In conclusion, the court assumes that despite the execution of risk notes, the railway
administration was bound to take as much care of the consignments as it would of its own
goods, based on the provisions of the Act before its amendments.

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 69. Dhian Singh Sobha Singh & Another vs The Union
Of India
Facts- This appeal under s. 110 of the Code of Civil Procedure involves the rights of a bailor
when a bailee fails to return goods. The appellants, partners in a firm, hired two trucks to the
respondent for military tuition. The respondent did not return the trucks or pay hire charges,
claiming delivery to one Surjan Singh, allegedly a partner of the appellants. Disputing this,
the appellants demanded hire charges, damages, and return of the trucks or their value. They
sued for wrongful detention of the trucks. The Trial Court held the respondent unjustified in
delivering the trucks to Surjan Singh, awarding the appellants the trucks' price, interest, and
hire charges but denied mesne profits.
The appeal focuses on the relief due to the appellants. They demanded re-delivery or Rs.
3,500 as the trucks' value. The High Court rejected the claim for the appreciated value, not
raised earlier by the respondent and possibly waived. The appellants' claim for the trucks'
value as of the judgment date appears justified, as the notice was reasonable and met the
requirements of the law.
Issues- whether the rule is the same in trover as in detinue; (b) whether damages should be
calculated at the moment of the wrong, or of the verdict or at some intermediate period and
(c) whether the doctrine of special damage can be so used as to compensate the owner for
fluctuations in value.
Held- The judgment deals with the case of the appellants who hired two trucks to the
respondent for military tuition. The trucks were not returned, and the respondent claimed to
have delivered them to another person, which the appellants disputed. The Trial Court found
the respondent unjustified in delivering the trucks to the other person and awarded the
appellants the trucks' price, interest, and hire charges. The High Court upheld the Trial
Court's decision but rejected the claim for the trucks' appreciated value, stating it was not
raised earlier by the respondent. The judgment discusses the distinction between action for
wrongful conversion and action for wrongful detention (trover and detinue), emphasizing the
plaintiff's right to elect the remedy. It criticizes the Trial Court for not properly appreciating
the evidence on the trucks' appreciated value and concludes that the appellants were entitled
to the trucks' value as of the judgment date, which had significantly appreciated since the
wrongful detention. The High Court's decision to limit the damages to the originally claimed
amount is criticized as not based on the evidence and circumstances of the case.

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 70. The Bombay Steam Navigation Co. ... vs Vasudev
Baburao Kamat
Facts-
 The plaintiff, a merchant in Honawar, had a dalal (agent) in Bombay who sent a cask
of iron nails along with other goods through the defendant company's ship, Indravati,
for delivery to the plaintiff.
 The plaintiff received a bill of lading from his dalal, presented it to the company at
Honawar, and received all goods except the cask of nails, which the company claimed
was lost overboard during unloading due to the ship rolling.
 The plaintiff sued the company, but the trial court dismissed the suit, citing a clause in
the bill of lading that protected the company from negligence of its servants.
 The plaintiff appealed, arguing that he did not expressly authorize his broker to accept
the bill of lading's terms, making it non-binding on him.
Issues-
 Whether the terms of the bill of lading, including the clause protecting the company
from negligence, are binding on the plaintiff.
 Whether the loss of the cask of nails was due to an incident of the sea or negligence of
the company's servants, affecting the company's liability.
Held-
 The court held that under the Bills of Lading Act, every consignee of goods named in
a bill of lading is bound by its terms, regardless of whether they expressly authorized
their broker to accept the terms.
 The court found that the trial court's decision disregarded this statutory authority,
leading to an incorrect result.
 The court also rejected the argument that the clause in the bill of lading protecting the
company from negligence was illegal under Section 151 of the Indian Contract Act.
 Ultimately, the court made the rule absolute, discharged the order of the District
Judge, restored the decree of the Subordinate Judge, and directed the plaintiff to pay
costs throughout.

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 71. Union Of India And Ors vs Sugauli Sugar Works
Facts-
 Sugauli Sugar Works Limited and Majhaulia Sugar Works filed suits for non-delivery
of consignments booked under railway risk, alleging gross negligence and misconduct
by the Railways.
 The Railways defended that the goods sank in a river due to an accident while being
transported on a barge, denying negligence.
Issues-
 Whether the sinking of the barge and non-delivery of goods resulted from the
negligence of railway employees.
 Whether the Railways fulfilled their duty as a bailee to take necessary care.
Decision-
 The Subordinate Judge dismissed the suits, finding no negligence by railway
employees.
 The High Court, however, reversed this decision, holding the Railways liable for
serious negligence.
 The High Court found that the sinking of the barge was not an inevitable accident but
resulted from the gross negligence of railway employees.
 The High Court also concluded that the Railways failed to take the required care as a
bailee.
 The High Court awarded the respondents the price of sugar, damages, and interest,
based on the contract price as the measure of damages, affirming the principle of
compensating for pecuniary loss resulting from the breach of contract.
 The appeals were dismissed, affirming the High Court's judgment.

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 72. Wilkinson vs Shields
Facts-
1. The plaintiff rented a horse to the defendant for riding, but the horse died while in the
defendant's custody.
2. The plaintiff alleged that the defendant's negligence caused the horse's death, while
the defendant claimed he acted reasonably.
3. The defendant's evidence suggested that the horse became restive, bolted, and ran
away, leading to its death from over-exertion.
4. A veterinary expert confirmed that the horse died from rupture of the diaphragm,
likely due to galloping with a full stomach.
Issues-
1. Whether the Small Cause Court had jurisdiction to pass a decree against the defendant
without evidence to support it.
2. Whether the burden of proof regarding the care of the horse rested on the defendant,
as per the Indian Contract Act.
Decision-
1. The defendant argued that he acted as a reasonable person would in the
circumstances, given the horse's behavior.
2. The evidence suggested that the horse's death was caused by over-exertion after
becoming restive, not by any negligence on the defendant's part.
3. There was no evidence to support the assumption that the defendant had used the
whip excessively or acted negligently, making the decree against him unjustified.

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 73. Taj Mahal Hotel vs United India Insurance Co.Ltd.
Facts-
1. Respondent No. 2 parked his car at the Appellant-hotel and handed it to the valet.
2. The parking tag stated the hotel wasn't responsible for any loss or damage.
3. Another person stole the car from the hotel parking.
4. The car insurer settled the claim with Respondent No. 2.
5. Respondent No. 1 and 2 filed a complaint against the hotel.
6. The State Commission initially dismissed the complaint but later allowed it.
7. The National Commission upheld the decision, citing strict liability on hotels for
guests' property within the premises.
Issues-
1. Whether the insurer had the right to file the complaint as a subrogee?
2. Can the Appellant-hotel be held liable for the theft of a car taken for valet parking,
under bailment laws or otherwise?
3. If liable, what is the degree of care required by the Appellant-hotel?
4. Can the Appellant-hotel be absolved of liability by a contract clause?
Decision-
The appeal concerns the liability of a hotel for the theft of a guest's car parked for valet
parking. Historically, innkeepers were held strictly liable for guests' property, but this has
evolved in many jurisdictions to require proof of negligence by the innkeeper. The Hotel
Proprietors Act, 1956 in the UK, for example, limits strict liability. Similarly, other countries
have restricted strict liability for innkeepers regarding vehicles. In India, the standard is that a
bailee (such as a hotel) must take as much care of the bailed goods as a person of ordinary
prudence would take of their own goods. The hotel's failure to return the vehicle creates a
prima facie case of negligence, and the burden is on the hotel to prove that it took reasonable
care. The hotel cannot contract out of liability for its negligence, but it is not liable for
unforeseen circumstances or the guest's negligence.

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 74. N.R. Srinivasa Iyer v New India Assurance [S148,
151, 152]
Facts- The appellant's motor car, insured with the respondent (`insurer') suffered damage in
an accident and was taken to and left in the custody of a repairer. On receipt of intimation of
the accident, the insurer entered into correspondence with the repairer, accepted the
estimate of repair charges and advised the repairer to proceed with the repairs. The. motor
car was, however, destroyed in a fire which occurred at the repairer's workshop. The
appellant filed a suit claiming from the insurer the value of the motor car on the footing that
the insurer was the bailee of the motor car while it was in the custody of the repairer.
Held- In this case, the court considered the terms of a contract of insurance related to a motor
car. The court found that the insurer was a bailee of the motor car, and the repairer had
custody of the car as a sub-bailee. The court criticized the High Court for not considering the
contract of insurance, which outlined mutual rights and obligations of the insurer and insured.
The contract required the insured, in case of damage, to either keep the damaged car attended
or to move it to a repairer, with the insurer reimbursing the cost of removal. The insurer had
the option to repair, reinstate, or replace the car, with the insured having little say if the
insurer chose to repair.
In this specific case, the appellant's son had taken the damaged car to the nearest repairer
soon after the accident, effectively placing it in the custody of the insurer. The insurer's
obligation was to repair the car, and it formally took custody when it accepted the repairer
and negotiated repair charges. As per the contract, the insurer was the bailee, and the repairer,
upon approval and payment, became the sub-bailee.
When the car was destroyed by fire while in the repairer's custody, the court found that the
repairer, as a sub-bailee, was bound to take reasonable care of the car. However, there was no
evidence presented by the insurer regarding the care taken by the repairer. The appellant
presented evidence of the repairer's careless manner in keeping the car in the workshop,
where inflammable material was present. The court held that since the repairer failed to show
proper care, the trial judge was justified in finding the bailee and sub-bailee liable for the loss
suffered by the appellant.

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 75. International Airport Authority vs Televista
Electronics
Facts-
 The respondent/plaintiff filed a suit against the appellant/defendant for the recovery of
money due to the loss of goods while in the custody of the appellant/defendant.
 The goods, consisting of 2000 sets of integrated circuits, were booked from Singapore
to Delhi via M/s. KLM Airlines and arrived in India in sound condition.
 The consignment was received by the appellant/defendant from the carrier but was
subsequently found to be not traceable while in the possession of the
appellant/defendant.
 The suit was decreed for Rs.33,060/- with interest.
Issues-
1. Whether M/s. KLM Airlines should have been made a party to the case, and if the suit
is bad for non-joinder of a necessary party.
2. Whether there is privity of contract between the appellant/defendant and the
respondent/plaintiff, affecting the appellant's liability.
3. Whether the appellant/defendant took reasonable care of the goods and should
therefore be exempt from liability as a bailee under Sections 151 & 152 of the
Contract Act, 1872.
4. Whether the exchange rate of francs used for compensating the respondent should be
the rate on the date of the judgment or on the date of the loss.
Decision-
 The appeal is dismissed as without merit.
 The Trial Court appropriately addressed the issue of non-joinder of M/s. KLM
Airlines, stating that the contract between the appellant/defendant and the carrier will
only operate between them and does not alter the appellant's liability towards the
respondent.
 The appellant/defendant's argument regarding taking reasonable care as a bailee under
Sections 151 & 152 of the Contract Act, 1872, is rejected. The liability of the carrier
(bailee) and sub-bailee (appellant/defendant) is governed by the Carriage by Air Act,
1972, which imposes strict liability akin to that of an insurer.
 The calculation of damages using the conversion rate of francs as on the date of the
judgment is upheld, following the Supreme Court's decision in Forasol vs. ONGC
1984 Supp. SCC 263, which dictates that the conversion rate for foreign currency
should be taken as on the date of the judgment.

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 76. The Pioneer Container KH Enterprise v. Pioneer
Container [sub-bailment]
Facts- The plaintiffs (owners) contracted with the freight carriers (first bailee) for the
carriage of their goods by container from Taiwan to Hong Kong. The carriers issued the
plaintiffs with bills of lading which provided that the carrier was entitled to sub-contract ‘on
any terms’ the whole or any part of the handling, storage or carriage of the goods. The
carriers sub-contracted the carriage to the defendant shipowners (sub-bailees) who issued
former the feeder bills of lading incorporating an exclusive jurisdiction clause (cl 26) which
provided that the bills of lading were governed by Chinese law and that any claim or other
dispute arising under the ‘bill of lading contract‘ was to be determined in Taiwan unless
the carrier otherwise agreed. The vessel on which the plaintiffs’ containers were being
shipped from Taiwan to Hong Kong sank with the loss of all cargo following a collision with
another vessel during the voyage. The plaintiffs commenced proceedings in Hong Kong by
the issue of a writ, claiming damages from defendant against the losses sustained out of
negligent mismanagement of plaintiff’s goods—i.e. breach of duty to take reasonable care
characteristic of bailee. The shipowners applied to have the proceedings stayed on the
grounds that the plaintiffs had, by cl. 26 of the bills of lading, agreed that any claim or other
dispute thereunder should be determined in Taiwan.
Issues-
1. What was the nature of relationship between bailor and sub-bailees?
2. Whether the plaintiffs were bound by the exclusive jurisdiction clause, albeit they
were not privy to the contract between sub-bailees and first bailee? (Whether the
principle enunciated in Morris v. Martin was applicable?)
3. Whether Court of Appeal was right in staying the proceedings to refer the dispute to
Taiwanese tribunal, albeit plaintiff’s cause of action in Taiwan had already become
time barred?
CONTENTIONS:
1st Contention: The clause in question refers to any claim or other dispute arising under
‘This Bill of Lading contract‘; and plaintiffs submitted that this wording compelled the
conclusion that the clause applied only to contractual claims. However, shipowners sought to
build upon that dictum in order to advance an argument that cl. 26 should be read broadly, to
embrace not only claims which are contractual in nature, but also claims in bailment or in tort
where the liability of the shipowners was governed by the contractual terms set out in a bill of
lading in the shipowners’ form.
2nd Contention: Plaintiffs submitted that the exclusive jurisdiction clause should be excluded
from such incorporation because it was not a clause directly germane to the subject matter of
the bill of lading, viz the shipment, carriage and delivery of the relevant goods
3rd Contention: Plaintiff’s contended that the bailees were never in the possession of the
goods, in which circumstance, the defendants were quasi-bailees; since the principle of sub-
bailment does not extend to quasi bailees, hence, plaintiff’s will not be bound by the terms of
such sub-bailment, even of authorized]

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EQUITABLE GROUNDS:
To produce a uniformity of jurisdiction and convenience in commercial terms, plaintiffs
should be held to be bound. This is because if there would not be exclusive jurisdiction clause
applicable to plaintiffs, the claims would arise under various jurisdictions which would be
both inequitable and grossly inconvenient for the defendants.
LEGAL GROUNDS:
1) MORRIS v. MARTIN: “the defendants, by voluntarily receiving into their possession,
goods which were the property of another, became responsible to the plaintiff as bailees of
the goods.” Therefore, in a case such as this, the obligation is created by the delivery and
assumption of possession under a sub-bailment. Further, the obligation owed by the sub-
bailee to the owner must likewise be that of a bailee for reward vis-à-vis the owner,
notwithstanding that the reward is payable not by the owner but by the bailee. (this proves
that the sub-bailee’s liability is co-extensive as that of bailee) The PC however added that the
sub-bailees must be aware of bailor’s interest in the goods, so as to become obliged to take
due care of the goods bailed.
2) MORRIS case: the owner is bound by the conditions if he has expressly or impliedly
consented to/ authorised the bailee making a sub-bailment containing those conditions, but
not otherwise.
(Note: Estoppel may also arise as against the plaintiffs who will be estopped from denying
the ostensible authority of the bailees, as according to 1st contract, to act as agents of them)
HELD:
1st Contention: Bills of lading are documents which operate as receipts for the goods, and
which contain or evidence the terms of the contract of carriage. Therefore, it must be the
intention of both sub bailees and the bailers who consented for the inclusion of the same that
these terms must be held to be binding notwithstanding the liability to arise as under tort or
contract. It will be commercially unapt if the contention of the plaintiffs is withheld.
2nd Contention: Where the consent is very wide in its terms, only terms which are so
unusual or so unreasonable that they could not reasonably be understood to fall within such
consent are likely to be held to be excluded. However, the exclusive jurisdiction clause was
neither unreasonable and nor unusal for it was commonly being included in such bills of
lading.
3rd Contention: As it was, the form of bill of lading issued by 3rd type of plaintiffs in respect
of these goods represented that Scandutch had received the goods for transportation from the
place of receipt; and no evidence was adduced to contradict this. Therefore, they weren’t
quasi bailees rather sub-bailees.
3) Applying the principle that the court should exercise its discretion by granting a stay of
proceedings brought in breach of an agreement to refer disputes to a foreign court unless
strong cause for not doing so was shown, the expiry of the time limit in Taiwan was not
sufficient reason for refusing a stay since the plaintiffs had advisedly but unreasonably
gambled on being permitted to litigate in their preferred forum of Hong Kong rather than
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Taiwan, which was where they were bound to litigate, and had let time run out in Taiwan
without taking the trouble even to issue a protective writ there. In so doing, the plaintiffs had
acted unreasonably. The appeal would therefore be dismissed.

77. Scruttons Ltd v Midland Silicones Ltd [servant v

sub-bailee]
Facts-The respondents were consignees of a bill of lading. The cargo was a drum of
chemicals. The contract limited the carrier’s liability to £179 per package in the event of loss,
damage or delay. The appellants were the stevedores responsible for unloading the cargo from
the vessel. Their contract with the carrier specified that they should have ‘such protection as
is afforded by the terms, conditions and exceptions of the bills of lading’. During the
unloading process, they negligently dropped and damaged the drum, losing £593 worth of
chemicals. The respondents sued the appellants in tort for the £593 of loss. The appellants
accepted liability for negligence. However, they claimed that they could take advantage of the
carrier’s limitation clause.
Issues- Could the appellants take advantage of the limitation clause, despite apparently not
being a party to the contract?
Decision- The House of Lords held in favour of the respondents. On the facts, the carrier had
not acted as the appellants’ agents when making the carriage contract. Therefore, there
was no privity between the appellants and respondents. There was no evidence of an implied
contract between the parties either. The word ‘carrier’ did not include stevedores, so there
was no indication that the limitation clause in bill of lading was intended to benefit the
stevedores.
Authority- Only a person who is a party to a contract can sue and be sued upon it. Similarly,
only a contract party can take advantage of any defences or limitations claimed within a
contract. This is the rule of privity of contract. In the modern era, a third party may be able to
take advantage of the Contracts (Rights of Third Parties) Act 1999 to enforce the terms of a
contract. There was no equivalent provision at the time this case was decided.
Lord Reid noted that there are three instances in which the House of Lords (now the Supreme
Court) can depart from its ratio in previous cases:
1. Where the ratio of the case is obscure and difficult to decipher;
2. If the case is out of line with other authorities;
3. Where the ratio of the case is much wider than necessary for the decision.
Lord Denning dissented. He questioned the validity of the privity of contract rule as a matter
of historical precedent, explaining that it arose before negligence was an independent tort. He
relied on a precedent in which the House had allowed stevedores to sue in this kind of case.
The other Lords dismissed the case as obscure or inconsistent, and departed from it.
Lord Denning also thought that the appellants could rely on the clause in their own contract
with the carrier which entitled them to the same defences as the carrier. This was because he

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considered the carriers to be the bailees of the respondents’ goods. Bailees can enter into
contracts concerning the goods which bind their owners. All that it required is that the
contract is of a kind which the owner implicitly consented to. Lord Denning therefore thought
that the respondents were bound by the limitation clause in the contract between the carrier
and the appellants.

78. MORRIS v C. W. MARTIN & SONS LTD

Facts- The plaintiff took her mink stole to a furrior for cleaning. Sine he did not do cleaning,
he subcontracted the fur to defendant on the current trade condition which provided that
goods belonging to customers on the defendant premises were held at customer’s risk and
defendant was liable only for his negligence during the processing. M, an employee of the D,
entrusted with the task, stole the fur.
Issues- Whether or not D vicariously liable for the tortuous and criminal act (conversion) of
M?
Decision- LORD DENNING
1. Criticized Cheshire v. Bailey and said that if the master is under a duty to take care of the
goods and protect it from theft and depredation, he can’t get rid of his responsibility by
delegating his duty to another, regardless of servant’s dishonesty, negligence or fraud.
2. D as sub-bailee for reward was under a duty of care and P as head-bailor could sue for
breach of this duty.
3. The exemption of the trade condition was not applicable as the “customer” was actually the
furrier not P and the fur was not “goods belonging to” furrier”.
DIPLOCK LJ
As per Lloyd v Grace, Smith & Co (issue of benefit, immaterial) D cannot escape liability for
the conversion of the plaintiff’s fur by their servant Morrisseyas the said act was within the
scope of employment.
SALMON LJ
A bailee for reward is not answerable for a theft by any of his servants but only for a theft by
such of them as are deputed by him to discharge some part of his duty of taking reasonable
care…..

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 79. Messrs Damodar Valley Corporation v State of Bihar
Facts- The Damodar Valley Corporation, a construction firm, contracted with Hind
Construction Ltd. and Patel Engineering Company Ltd. to build a dam in Hazaribagh, Bihar.
After inspection, the dam's design was changed, leading to an amendment in the contract
(clause 8 of Part 2). The new clause stated that the corporation would provide all necessary
equipment for construction, with the price inclusive of freight and custom duty but exclusive
of sales tax. The equipment was divided into two groups: A (to be returned to the corporation
at residual value) and B (to become the contractors' property after full payment). A dispute
arose when the Tax Superintendent assessed sales tax for group A items, which the
corporation argued was a hiring agreement, not a sale. The appeal was rejected by the deputy
commissioner and the Board of Revenue, leading to further legal action.
Decision- The Supreme Court examined the agreement's Clause 8 and the terms regarding the
use of machines and equipment in Groups A and B. They found that the contract was not
unconditional, with the requirement of equal installments for payment being reasonable. The
Court emphasized that the case primarily concerned the application of law to facts rather than
a question of law.
To determine if the agreement was a hiring or a sale, the Court considered whether there was
a binding obligation to purchase the goods or the right to return them at any time during the
contract. They found that the contractors had no right to return the goods at their
convenience, had to maintain a residual value, pay two-thirds of the price in installments,
bear all damages, and arrange for spare parts. Based on the Helby v. Mathews (1895)
judgment and the High Court's reasoning, which deemed the corporation's stand weak, the
Supreme Court concluded that the agreement was a sale on deferred payments, rendering the
corporation's claim invalid.
Legal stance- This case is considered a landmark for clarifying the differences between hire
and sale agreements. The Supreme Court discussed various sections of the Act, such as
Section 25, 13(2), and 2(g), as well as constitutional articles like 132, 133(1), and 136. It
highlighted that new issues cannot be raised through Special Leave Petitions (SLPs),
emphasizing the importance of raising all relevant points at an earlier stage. The court aimed
to clarify confusion surrounding transactions involving such agreements.
Additionally, the court explained the roles of Article 132 (original jurisdiction) and Article
133 (appellate jurisdiction) of the Indian Constitution. This judgment is significant for its
comprehensive analysis and clarification of legal principles related to hire and sale
agreements.

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 80. M/S. Kalloomal Tapeshwari Prasad And ... vs M/S.
Rastriya Chemicals & Fertilizers [lien]
Facts- The appellant, a buffer stockist for a Public Sector Undertaking engaged in
manufacturing chemicals and fertilizers, had a contractual agreement to store fertilizers in
their godown. Disputes arose when the respondent sent larger quantities of fertilizers than
agreed upon, leading to the appellant incurring extra costs for alternative storage
arrangements. The appellant refused further delivery until outstanding dues were paid,
leading to a lawsuit seeking a permanent injunction against the respondent's attempt to
forcibly remove the stocks
Issues- The main issue was whether the appellant had a right to retain the goods for non-
payment under Section 170 of the Contract Act. Additionally, the appellant sought an
injunction to prevent the respondent from invoking a bank guarantee.
Decision- The court held that the appellant did not have a prima facie case under Section 170
for a lien over the goods due to a contract clause explicitly denying such a right. The court
also found that the appellant had failed to establish a case for a temporary injunction based on
the balance of convenience and the likelihood of suffering irreparable injury. The appeal was
dismissed, and each party was ordered to bear their own costs.

81. R. D. Saxena v Balram Prasad Sharma

Facts- The case involves a lawyer who also served as a legal advisor to the Madhya Pradesh
State Cooperative Bank Ltd. The bank terminated his services and requested the return of
files related to the bank's legal matters. However, the lawyer refused to return the files until
he was paid for his legal services. The bank, needing the files for ongoing legal cases,
considered the lawyer's demands unreasonable. Consequently, the Managing Director of the
Bank filed a complaint with the State Bar Council accusing the lawyer of professional
misconduct for not returning the files. The lawyer admitted to not returning the files but
argued that he had the right to keep them using his right of lien. He offered to return the files
once the bank paid him for his legal work.
Issues- Whether the advocate has a lien for his fees on the litigation papers entrusted to him
by the client?
Decision-
The Supreme Court clarified that files and records held by an advocate do not fall under the
definition of "goods" that can be withheld for unpaid fees, as per the Sale of Goods Act,
1930. The concept of bailment under the Indian Contract Act, 1872, which involves
delivering goods with an agreement for their return, also does not apply to legal files. The
court highlighted that withholding records for unpaid fees could harm the client's case and
emphasized that advocates should not have the right to withhold records due to unpaid fees.
Instead, they can pursue legal remedies for payment. If a client changes advocates, the former
advocate must return the case files, and any disputes over fees should be resolved separately.
The court emphasized the social duty of the legal profession to support people, ensuring they
are not deprived of their rights due to an advocate's position. While advocates can set fees by
agreement, unpaid fees do not justify withholding client documents.

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 82. E. H. Parakh and Others v G. Mackenzie and
Company Limited
Facts-
1. Dispute between G. Mackenzie & Co. and E.H. Parakh over a car sale.
2. Parakh refused to pay for accessories, offered to return the car.
3. Lawsuits filed in Calcutta and Lucknow over payment and car return.
4. Parakh won in Lucknow, claiming car payment and garage charges.
5. Mackenzie & Co. paid, but Parakh detained the car over garage charges.
6. Mackenzie & Co. sued for car release; Parakh counter-sued for more charges.
7. Car returned; appeals filed over damages and garage charges.
Issues-
1. Whether Mr. Parakh was justified in detaining the car over garage charges.
2. Up to what date Mr. Parakh was entitled to garage charges.
3. Whether Messrs. Mackenzie & Co. were entitled to damages for the detention of the
car.
4. Whether Messrs. Mackenzie & Co. were liable for garage charges as claimed by Mr.
Parakh.
5. Whether Mr. Parakh was justified in refusing delivery of the car until garage charges
were paid.
6. Interpretation of relevant sections of the Contract Act regarding lien and bailment.
Decision-
1. Mr. Parakh was not justified in detaining the car after full payment was made, as he
had no lien other than for unpaid price.
2. Messrs. Mackenzie & Co. were entitled to damages for the car's detention, awarded at
a fair rate.
3. Mr. Parakh was not entitled to garage charges beyond a certain date, as there was no
valid lien.
4. Messrs. Mackenzie & Co. were not liable for garage charges beyond what was already
paid.
5. Mr. Parakh's claim under Section 170 of the Contract Act was not applicable to his
situation.
6. The appeals by both parties were dismissed, with costs, and certain modifications
were made regarding costs in favor of Messrs. Mackenzie & Co. in their suit against
Mr. Parakh.

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 83. Board of Trustees of The Port of Bombay v
Sriyanesh Knitters [General Lien]
Facts-
 Importers faced a dispute with customs over whether imported goods were woollen
rags or garments.
 Goods were eventually confiscated by customs but later ordered to be released on
payment of a fine.
 Port Trust authorities demanded demurrage charges for the period the goods remained
at the docks.
 Appellants refused to release subsequent acrylic fibre consignments until demurrage
charges from earlier woollen rags consignments were paid.
 This refusal was based on a circular asserting a general lien under Section 171 of the
Indian Contract Act.
Issues- The common question involved in these appeals is whether the appellant - Board of
Trustees of the Port Trust constituted under the Major Port Trusts Act, 1963 (for short the
MPT Act) have a general lien for their dues over the present or future consignments imported
by the importers at the Bombay Port when the said dues are in respect of the past imports
made by the said importers.
Decision- The court rejected the appellant's claim of a general lien under the Major Port
Trusts (MPT) Act, citing sections 59 and 61, which only confer a lien on specific goods for
the amount due in respect of those goods. The court clarified that the MPT Act does not
provide for a general lien but only a specific lien on goods for which charges are due.
Additionally, the court noted that the MPT Act is not exhaustive and should be read in
conjunction with other laws. Despite the MPT Act's provisions, the court found that Section
171 of the Indian Contract Act applies, granting wharfingers the right of a general lien. This
right extends to goods bailed to wharfingers for a general balance of account, including
charges for services provided under the MPT Act. Therefore, the appellant, as a wharfinger,
can claim a general lien for amounts due in respect of the services rendered, beyond just
wharfage charges.

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 84. Bank of Bihar v State of Bihar [Pledge to Pawnee]
Facts-
 Certain sugar was pledged with the plaintiff bank (appellant) by Defendant No. 2
under a cash credit agreement.
 Part of the sugar was seized under the Public Demands Recovery Act for non-
payment of sugar cess.
 The seized sugar was sold, and the sale proceeds were attached to pay the cess, with
no payment made to the bank.
 The bank filed a suit to enforce its claim against the State of Bihar for the price of the
sugar.
Issues-
 Whether the bank's right as a pawnee (pledgee) could be extinguished by the lawful
seizure of the goods.
 Whether the Government, by seizing the goods, could deprive the bank of the amount
secured by the pledge.
 Whether the Cane Commissioner, as an unsecured creditor, had higher rights than the
bank.
Decision-
 The High Court erred in holding that the bank's rights were extinguished by the
seizure.
 The pawnee has a special property and lien on the pledged goods, and no other
creditor of the pawnor has the right to take the goods or their price until the pawnee's
claim is satisfied.
 The Government, through lawful seizure, could not deprive the bank of the amount
secured by the pledge.
 The bank was entitled to reimbursement for the amount it would have realized by
selling the pledged goods upon the pawnor's default.
 The appeal was allowed, and the High Court's decision was set aside, with a decree
granted in favor of the bank against the State of Bihar.

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 85. Karnataka Pawn Brokers Association and Ors. v.
State of Karnataka and Ors.
Facts- The Sales Tax Authorities of Karnataka and Tamil Nadu deemed the sale of
unredeemed articles at the instance of the pawnbrokers by an auction and levied taxes on the
pawnbrokers contending that auctioneer cannot be treated as seller of goods for the purpose
of levying sales tax.
Issues- Whether a Pawn-broker is a dealer and carries on ‘business‘ within the meaning of
the State General Sales Tax Act read with the State Pawnbrokers Act and Rules when he
causes the sales of unredeemed articles/goods, occasioned by the default of the Pawner
through (statutory) Auctioneer.
Decision-
1. The pawnbroker have the statutory right to sell the goods pledged in the instance the
pawner defaults and the goods get unredeemable; and thereby transfer the possession
permanently to the purchaser.
2. The pawner cannot be subjected to sale tax, because he had played no role in the sale
of the goods, the only thing he could have done was to redeem the goods.
3. The auctioneer on the other hand cannot be subjected to tax on the sale proceeds
because the auctioneer does not act under the control of the pawnbroker but acts under
the control of the statutory authorities that had appointed him for that purpose. The
definition given under the rules makes it necessary to transfer the property from one
person to the other in return of some valuable consideration, cash or deferred
payment. The auctioneer merely served the role of bringing the bidder and the
pawnbroker and conduct the auction in the public but it’s the pawnbroker who
ultimately delivers the possession.
4. The contention that since the pawnbroker also acts as a bidder, he cannot be said to be
the seller. This argument is misconceived because in such circumstances he plays a
dual role, one as a pawn broker and the other as a buyer.
5. The act incidental and ancillary to the main business will also come under the
definition of ‘business’ under the sale tax Act. The contention of the appellant that the
sale of pledged goods were incidental to the business and therefore will not be
subjected to the sale tax cannot be accepted.

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 86. Central Bank of India vs Siriguppa Sugars &
Chemicals Ltd.
Facts-
 The Division Bench of the High Court issued an interim order in a pending writ
appeal, directing the disbursement of certain amounts realized from the sale of sugar
stocks owned by the first respondent company and held under pledge by the appellant
bank.
 The Labour Commissioner had ordered under Section 33(c) of the Industrial Disputes
Act for dues to be paid to the workmen by the first respondent company, which was
challenged in a writ petition.
 Similarly, the Cane Commissioner had ordered the recovery of amounts due from the
first respondent company for payment to sugarcane growers.
 During the pendency of the writ petition, the recovery authority forcibly seized the
stock of sugar pledged to the appellant bank, which had gotten itself impleaded in the
writ petition.
 The High Court, considering the potential loss of value of the sugar stock, directed its
sale, which fetched a price of Rs.1,53,50,400. After payment of Rs.10,60,800 towards
excise duty, the balance was held under court orders.
Issues-
 Whether the High Court erred in directing the disbursement of the sale proceeds to the
Labour Commissioner and the Cane Commissioner, ignoring the appellant bank's
rights as a pawnee.
 Whether the rights of the pawnee, the appellant bank, were superior to those of other
unsecured creditors, such as the Cane Commissioner and the workmen.
Decision-
 The High Court erred in ignoring the appellant bank's rights as a pawnee, which are
protected under the law.
 A pawnee has special property and lien on the pledged goods, and no other creditor of
the pawnor (the first respondent company) has the right to the goods or their price
until the pawnee's claim is satisfied.
 The Cane Commissioner and the workmen, in the absence of any winding-up
proceedings, are unsecured creditors and their rights cannot prevail over those of the
pawnee.
 The appellant bank, as the pawnee, is entitled to the sale proceeds to satisfy its debt
secured by the pledge of the goods.
 The interim order of the High Court directing the disbursement of the sale proceeds to
the Labour Commissioner and the Cane Commissioner is set aside.

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  The appellant bank is directed to appropriate the sale proceeds towards its debt, and
any surplus, if available, may be disbursed to the Cane Commissioner and the Labour
Commissioner.
 Each party is directed to bear its respective costs

87. Lallan Prasad v Rahmat Ali and Another

Facts- Facts: On January 10, 1946, the appellant lent Rs. 20,000 to the first respondent, who
agreed to pledge aeroscraps as security. The first respondent allegedly failed to deliver the
goods, storing them near an aerodrome. The appellant sought to recover the loan based on a
promissory note and receipt, while the first respondent claimed to have delivered 147 tons of
aeroscraps. The Trial Court ruled in favor of the appellant, but the High Court reversed the
decision, holding that the goods were delivered to the appellant, forming a valid pledge.
Issues- The dispute centered on whether the goods were in the appellant's custody. The
appellant's actions, such as hiring watchmen and issuing sale notices, indicated possession.
The High Court found the appellant's explanations unconvincing, leading to the dismissal of
the suit. The appellant challenged the findings, but the Supreme Court upheld the High
Court's decision.
Decision- The judgment clarifies the legal principles regarding pledges, emphasizing that a
pledge involves delivering goods as security for a debt. The pawnee (creditor) has a special
property in the pledged goods, but the general property remains with the pawner (debtor).
The pawnee's right to sell the goods arises on default, but until sold, the pawner can redeem
them by paying the debt. If the pawnee sues for the debt without returning the goods, he must
return them upon payment of the debt. If he cannot return the goods, he cannot obtain a
decree for the debt. The appellant, having received and retained the goods pledged, cannot
both recover the debt and keep the goods. Therefore, the appellant is not entitled to a decree
against the promissory note and must return the pledged goods. The appeal is dismissed.

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 88. The Official Assignee of Madras v. The Mercantile
Bank Of India Ltd.

Facts- The Official Assignee of Madras has been assigned with the property of the insolvents
CK Nayaran and sons. The insolvents had a big business of groundnuts. They were purchased
from up-country and transported through railways to the madras port. A godown in the port
was leased to the insolvents, but the signboard had the respondents’ name(R). R financed the
business by advancing money against a consignment of goods. The insolvents used to take
loans against the consignments and R used to give them regularly; the railway companies
knew about this arrangement, but were never specifically informed. The company was
declared insolvent. After that some consignment reached the port but the port auth. was not
willing to release them until their debts were paid off. The goods were then sold off by port
auth. and the proceeds were kept.
Issue- Whether a railway receipt is a document of title and thus the pledge of railway
receipts, the pledge of the goods?
Held- (Wright J.) [Respondent (port trust) WON; Appellant (official assignee) LOST]
1. Railway receipt is a document of title and pledging such documents is same as
pledging the goods themselves. This is backed up by S.178 of ICA, S.2 (4) of SOGA.
2. The consideration that, no third party holding the goods or dealing with them without
notice of the respondents’ lien, would be affected by that lien, is irrelevant to the
equitable rights constituted as between the respondents and the insolvents. Even if the
documents of title are regarded as merely tokens of an authority to receive possession,
their transfer for value by way of security for advances must at least raise an equity as
between transferor and transferee entitling the latter to restrain transferor from
claiming delivery of the relative goods without producing the receipts. If so, the
appellant must be subject to the same equity.
3. (obiter) Application of Hypothecation, which is a right in equity, could also have
helped R. Insolvents used to give letters of hypothecation to R, and it stated that the R
had the right to sell off the pledged goods to recover their debt. Thus the letter crated
an equitable right of R against the official assignee. (as the assignee was in the shoes
of the insolvent and thus did not have any greater right than the insolvent).
In common law a mercantile agent can pledge the goods by pledging their documents of
title but not the owner. This is an anomalous position. Indian law uses the term
“person” and not “agent” to define who can pledge the goods. This includes both
owners and agents of the said goods. The concept that the pledging of the documents of
title is akin to pledging the goods has been established by the Indian Factors Act and
can also be construed by sec. 178 of ICA.

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 89. The Morvi Mercantile Bank Ltd. and Anr. v. Union
of India
Facts- A firm doing business in Bombay entrusted goods worth Rs.35500 with the Railway
for delivery in Delhi. The goods were consigned to “self” and the firm endorsed the railway
receipts to a Bank against an advance of Rs. 20,000 made by the Bank to the firm. The firm
also executed a promissory note in favour of the Bank for that amount. When the goods
reached the destination, the Bank refused to take delivery, on the ground that they were not
the goods consigned by the firm. The Bank, thereafter filed a suit for the recovery of the
value of the goods against the Railway.
Issues- Can an owner of goods make a valid pledge of them by transferring the railway
receipt representing the said goods? What value such a document carry for this purpose?
Held- Subba Rao[2], Raghubar Dayal and Bachawat, J J
1. An owner of goods can make a valid pledge of them by transferring the railway
receipt representing the said goods.[3]The firm by endorsing the railway receipts in
favour of the Bank, for consideration, pledged the goods covered by the said receipts,
to the Bank, and the Bank being the pledgee could maintain the suit for the recovery
of the full value of consignment amounting to Rs. 35,500.
2. A pledge being a bailment of goods under s. 172 of the Contract Act the pledgee, as a
bailee will have the same remedies as the owner of the goods would have against a
third person for deprivation of the said goods or injury to them under s. 180 of the
Act.
Mudholkar & Ramaswami JJ. (Dissenting)
1. There was no valid pledge of the consignments of goods represented by the railway
receipt in favour of the Bank and the Bank was not entitled to sue the Railway for
compensation for the loss of goods, relying upon the endorsements of the railway
receipts in its favour.
2. After the passing of the Indian Contract (Amendment) Act, 1930, the legal position
with regard to the pledge of railway receipts, is exactly the same in Indian Law as it is
in English Law, and consequently, the owner of the goods cannot pledge the goods
represented by a railway receipt, by endorsing the railway receipt, unless the railway
Authorities were notified of the transfer, and they agreed to hold the goods as bailee
of the pledgee. Under the amended law a valid pledge can no longer be made by every
person “in possession” of goods. It can only be made by a mercantile agent as
provided in s. 178 of the Contract Act (after amendment) or by a person who has
obtained possession of goods under a contract voidable under s. 19[4] or s. 19A of the
Contract Act, as provided by s. 178 of the Act or by a seller or buyer in possession of
goods, after sale as provided in s. 30[5] of the Indian Sale of Goods Act.
3. Negotiability of such receipt is a creature of a statute or mercantile usage, not of
Judicial decisions apart from either. So, in the absence of any usage of trade or any
statutory provision to that effect, a railway receipt cannot be accorded the benefits
which flow from negotiability under the Negotiable Instruments Act, so as to entitle

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 the endorsee, as the holder for the time being of the document of title, to sue the
carrier-the railway authority-in his own name. In view of cl. (3) of the notice printed
at the back of the receipt that an endorsement made on the face of the receipt by the
consignee was only meant to indicate the person to whom the consignee wished
delivery of goods to be made if he himself did not attend to take delivery, the Bank
had no right to sue the Railway.
Since the language of s. 178[6]of the Contract Act is clear and explicit, if any hardship and
inconvenience is felt because of, such practice of treating the receipt as a symbol of goods as
not recognized, it is for Parliament to take appropriate steps to amend the law and it is not for
courts to legislate under the guise of interpretation.

90. Hardman v Booth

Facts- The claimant attended a business by the name of ‘Gandell & Co’. The business owner
was Thomas Gandell. The business was managed by Edward Gandell, who was merely a
clerk. The claimant asked to speak to ‘Messrs Gandell’, and was directed to Edward. Edward
led the claimant to believe that he was one of the business owners. The claimant, acting on
that belief, sent goods to Gandell & Co’s place of business addressed to ‘Edward Gandell &
Co’. Edward pledged those goods to the defendant for credit, and the defendant later sold the
goods.
The claimant sued for the defendant in trover for the proceeds of the sale. This action could
only succeed if the claimant was still the owner of the goods. This would only be the case if
there was no valid contract between the claimant and Edward. The claimant relied on
the defence of mistake to show that any contract was void.
Issues-
1. Was any contract between the claimant and Edward void for mistake?
Held- The Court held in favour of the claimant. The claimant intended to contract with
Gandell & Co, not with Edward Gandell personally. Gandell & Co had not authorised
Edward to contract on their behalf. As such, there was no contract between the claimant and
Edward or the firm, and property had not passed. The claimant was entitled to the proceeds of
sale. Normally, the courts presume that parties who contract face-to-face intend to contract
with the person in front of them, whomever that turns out to be. This case shows that this
presumption can be rebutted where it is clear that the claimant only intended to contract with
a specific person or entity.

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 91. UOI v Tolaram Hariram and ors [Pledge]
Facts- The case involves a dispute between the plaintiffs, M/s. Tolaram, Hariram, and K. A.
Khadar, and the Union of India representing Western Railway. The plaintiffs, a fruit merchant
and a grower-supplier of mangoes, had arranged for the transportation of a wagonload of
fresh raw mangoes from Damalcharuva to Ahmedabad by parcel or passenger train. The
mangoes were loaded into a wagon and handed over to the Railway administration for
transportation. However, upon arrival in Ahmedabad, it was found that the mangoes were in a
decayed condition, resulting in a loss assessed at 27% of the value of the mangoes. The
plaintiffs claimed that the deterioration was due to unreasonable delay by the Railway
administration in transporting the mangoes.
Issues- whether a consignor who is not an owner of a part of the goods consigned by him
(whom we shall call "consignor-non-owner" for the sake of convenience) along with his own
goods and under the same parcel way bill, is competent to file a suit for recovery of
compensation from the Railway administration for loss, destruction, deterioration or damage
caused to the goods as a result of delay or detention on the part of the Railway administration
in their carriage?
Held- The court first examined the nature of the Railway administration's responsibility as a
carrier of goods. Before the Indian Railways Act, 1890, was amended in 1961, the Railway
administration's responsibility was that of a bailee under the Indian Contract Act, 1872.
However, the 1961 amendment converted the responsibility to that of a common carrier
during the actual transit, although this responsibility is regulated by specific provisions in the
Act.
Section 73 of the Act specifies the general responsibility of the Railway administration as a
common carrier, except in certain circumstances such as Act of God, act of war, etc. Section
74 further restricts the responsibility when goods are carried at the owner's risk rate. Section
76 holds the Railway administration responsible for loss, destruction, damage, or
deterioration of goods caused by delay or detention in their carriage unless the administration
proves that the delay or detention was without negligence or misconduct.
The court rejected the defendant's contention that only the consignee, and not the consignor,
could sue for damages if the goods were damaged. It affirmed that the consignor, being a
party to the contract of carriage, could sue for damages caused by the breach of contract or
misconduct of the carrier. The court also clarified that Section 76 does not affect the right of a
consignor to sue for damages, as it only shifts the burden of proof in cases of damage caused
by delay or detention.
In conclusion, the court held that the consignors in the cases at hand, being parties to the
contract of consignment, had the right to sue the Railway administration for damage or
deterioration of their consignments caused by delay or detention in transit, as long as they
could prove such damage or deterioration.

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 92. Mahendrakumar Chandulal vs Central Bank Of India
Facts-
 The appellant had a pledge account with the respondent.
 Pledged bales of cloth belonging to the appellant were kept in a godown owned by the
appellant but under the control of the respondent.
 The godown was operated by the respondent in the presence of the appellant's agent,
using keys held by the respondent.
 When the appellant's agent went to take delivery of 2 bales, it was discovered that 4
bales were missing.
 The appellant sent a notice to the respondent demanding the return of the missing
bales or payment of the value, including interest.
Held- The agreement between the appellant and respondent contained a clause (Clause 9)
stating that the bank (respondent) would not be responsible for any loss or damage to the
pledged goods, regardless of the cause.
 Another letter (Exhibit 46) from the appellant to the respondent confirmed this
agreement, stating that the appellant would be responsible for the safety of the goods
and absolved the bank from liabilities for any loss due to pilferage, theft, or removal
from the godown.
 The court held that these documents, read together, absolved the respondent from
liability even if the loss was due to their negligence.
 The court examined Sections 151 and 152 of the Indian Contract Act, which deal with
the care to be taken by a bailee and the bailee's liability for loss or damage to the
bailed goods, respectively.
 Section 151 requires a bailee to take care of the goods as a person of ordinary
prudence would take of his own goods. Section 152 provides that in the absence of a
special contract, the bailee is not responsible for loss or damage if he has taken the
care described in Section 151.
 The court noted that Section 152 allows a bailee to undertake a higher responsibility
under a special contract but does not allow a bailee to reduce his liability below the
limit prescribed by Section 151.
 The court cited case law and legal commentary to support the interpretation that a
bailee's liability cannot be reduced by contract below the minimum standard set by
Section 151.
 The court concluded that there was no contract in the case that excluded the liability
provided in Section 151 of the Indian Contract Act.
 The court did not address the pecuniary aspects of the case, such as the value of the
missing bales or other claims made in the suit, as these were not challenged or
discussed during the hearing.

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 93. Om Shankar Biyani vs Board Of Trustees, Port Of
Calcutta
Facts-
 The Appellant imported a consignment of bearings from Singapore to India, which
landed at the Port of Calcutta on 13th July, 1989.
 The Customs Authorities passed a seizure order on 1st August, 1989, under Section
110 of the Customs Act, before the goods could be cleared by the Appellant.
 The Appellant filed a Writ Petition in the High Court of Calcutta, and an interim order
was passed on 27th September, 1989, allowing the Appellant to clear the goods on
payment of duty as assessed based on the CIF value in the invoice, with a bank
guarantee for the difference.
 The Customs Authorities applied for modification of the order, which was granted on
15th December, 1989, directing storage in a bonded warehouse of the Customs
Authorities.
 The Appellant sought to remove the goods to the bonded warehouse without payment
of charges due to the 1st Respondent but was not allowed.
 The Appellant joined the 1st Respondent as a party to the Writ Petition, and on 2nd
February, 1990, the High Court permitted the Appellant to remove the goods to the
bonded warehouse without payment of port charges, with an undertaking to pay all
charges and customs duty upon adjudication.
 The 1st Respondent filed an Appeal against this order, which was stayed by the
Appellate Court.
 The Customs Authorities withdrew the seizure order on 19th December, 1989,
allowing the Appellant to clear the goods by paying all charges to the 1st Respondent,
but the Appellant made no efforts to clear the goods.
 The High Court directed the Customs Authorities to complete adjudication
proceedings, and if decided in favor of the Appellant, the Customs Authorities would
pay demurrage charges for the detention period.
 The 1st Respondent appealed this decision, and by the impugned order dated 27th
July, 2000, it was held that the 1st Respondent could recover charges for the entire
period the goods remained with it.
Issues-
 Whether the High Court erred in permitting removal of the goods without payment of
the port charges, setting aside the statutory lien of the 1st Respondent.
 Whether the 1st Respondent is entitled to recover demurrage charges for the entire
period the goods remained with it.
 Whether the 1st Respondent should have exercised its power of sale under Section 62
of the Major Port Trusts Act.

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Decision-
 The Appellate Court rightly stayed the order permitting removal of goods without
payment of port charges.
 The 1st Respondent is entitled to recover charges for the entire period the goods
remained with it.
 The 1st Respondent should have sold off the goods after obtaining permission from
the Appellate Court, and therefore, cannot claim demurrage charges after 10th
January, 1992.
 The Appellant must pay all charges of the 1st Respondent till 10th January, 1992, and
if not cleared within 30 days, the 1st Respondent can take action under Section 62 of
the Major Port Trusts Act and make a claim against the Appellant for recovery of the
balance amount due after sale of the goods.

94. Balthazar v E.M Abowath

Plaintiffs are merchants in Rangoon, deal in sugar, habit of getting from the defendants.
Defendant did not grow sugar- outsourced from Joakim & Company. After consultation with
the appellants, D sent a telegram to Joakim. The respondents did call and signed an indent.
Indent form was printed on a form of offer, not appropriate to a contract. The sugar was
shipped and delivered in instalments.
Upon war breaking out, 300 tonnes out of 600 had been delivered, other 300 not delivered.
Present action is for non-delivery.
Defence- Appellants had acted only as agents in the whole matter and hence they accepted no
responsibility under the contract.
Held- An acceptance of offer to buy must infer an obligation to sell. Appellants must infer an
obligation to sell. Appellants must either have sold as principals in which case there is
liability on their part to perform or they must have sold as agents for Joakim- however, a title
to agent ship is not present.
It comes to this that all the documents show on the face of them a contract as principals. No
agency because there was no authority in existence. The defendants were not authorised
to represent the manufacturer (Joakim).

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 95. Bhagwandas v Burjorji Ruttonji [Pakka adaita]
Suit for recovery of money. The transactions on which the claim rests were agreements by
way of wager. Trial judge found all issues in plaintiff’s favour. HC agreed on all but the third
issue, on that it held in favour of defendant.
Plaintiff, a firm carrying on mercantile business. Defendant a young man without any regular
business. In June, D asked for P to sell 4000 tonnes of linseed for him. Plaintiffs sold linseed
to 39 buyers. P acted as pakka adaita.
Market fell. Plaintiff asked for either delivery of linseed or authorise them to purchase linseed
on his behalf. Defendant did neither, so plaintiff discharged their obligation to the 39 buyers
by delivering 300 tonnes, making cross contracts, paying differences as to the balance of the
linseed.
Held- Plaintiff acted in conformity. As they made these contracts, they became liable for
performance, they also became entitled to e indemnified by the defendant, against the
consequences of the act done.
In case of Pakka adaita, the principal does not know of the sub-agent and the sub-agent
does not know of the Pakka Adaita, so for the sub-agent the Pakka adaita is the
principal. Pakka adaitas are different kinds of agents- since they operate as autonomous
entitites.

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 96. Chairman, Life Insurance Corporation & ... vs Rajiv
Kumar Bhasker
Facts- The Life Insurance Corporation (LIC) created a "Salary Savings Scheme" offering life
insurance policies to salaried employees, with premiums deducted automatically from their
salaries.
 The Scheme was not a group insurance; each employee owned their policy
individually and could continue it in case of employment changes.
 Employers were asked to cooperate by deducting premiums from employees' salaries
and remitting them to LIC.
 Employers agreed to the Scheme, accepting responsibility for premium collection and
remittance to LIC.
 Employees were not informed about the correspondence between LIC and their
employers regarding the Scheme.
 A circular stated that premiums were payable as long as the employee remained with
the employer, and premiums were to be collected and remitted by the employer.
Issues- Whether the employer was an agent of LIC in collecting and remitting premiums
under the Scheme.
 Whether the employer's failure to deduct and remit premiums absolved LIC of its
obligation under the policy upon the employee's death.
Decision-The court held that the employer acted as an agent of LIC in the Scheme, even
though not appointed as an agent under the law.
 The Scheme's terms and conduct of the parties indicated an agency relationship, with
the employer representing LIC to the employees.
 As the employer was responsible for premium collection and remittance, LIC could
not avoid its obligations under the policy due to the employer's default.
 LIC's failure to inform employees about premium payment consequences also
contributed to the employer's agency role.
 The court rejected the contention that the matter required reconsideration by a larger
bench, affirming the decision in Basanti Devi's case.
 The court emphasized that the Scheme's objective was to improve employees' service
conditions, and LIC could not escape its contractual obligations due to the employer's
default.
 The employer's role as an agent was crucial in the Scheme, and it had a duty to inform
employees about premium payment issues, which it failed to fulfill.
 The court cited various legal principles to establish that an agency relationship could
be inferred from the parties' conduct and the circumstances of the case, even if not
expressly contract9

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 97. Harshad J. Shah & Anr v. L.I.C. of India & Ors.
[Types of authority]
Facts- A bearer-cheque, with the name of agent on it, towards the payment of premium was
handed over to a general agent (R3) of the LIC (R1). (This payment was being made after the
lapse of the grace period). The agent encashed the cheque and deposited it with the LIC.
However, the insured meanwhile met an accident and died (Aug 9) the day before actual
deposition took place (Aug 10). The widow of the insured (A2), (as the nominee under the
policies), submitted a claim to the LIC in Gujarat State Consumer Disputes Redressal
Commission. LIC refused to pay claiming a default in payment of premium.
Issues-
1. Whether payment of premium by the insured to the general agent of the LIC can be
regarded as payment to the insurer so as to constitute a discharge of liability of the
insured?
2. Whether the LIC can be held liable on the basis of the doctrine of apparent authority?
Contentions
Appellants (Naresh S. Mathur )
1. Since the payment had already been made to R3, the policies did not lapse on account
of non-payment of the premium and that in any event that said policies could be
revived on payment of the interest payable for the delayed payment of the premium
amount.
2. Since the agents receive commission on the amount of premium, the said act of R3
was within the scope of their authority and the limitation imposed (by regul’n and
appointm’t letter) cannot be binding as against third parties viz., the policyholders.
3. Since, LIC by its conduct induced the policyholders to believe in the authority of the
agent w.r.t the said act; LIC was liable under S.237[2] of the ICA.
4. Since LIC is ‘state’ under Article 12 of the Constitution it has a duty to act fairly in
view of the mandate contained in Article 14 of the Constitution. ( LIC of India and
Anr. v. Consumer Education & Research center and Ors.)
Respondent (Harish Salve)
1. R3 had not been empowered by LIC Regulations and his appointment letter to receive
payment from the insured.
2. The grace period had already expired (on April 6) without due payment and the
policies had lapsed. The revival of the policies was subject to LIC’s discretion and
could arise only if the premium can be said to have been paid to the LIC during the
life time of the insured (before August 9).
3. The agent had neither express (letter of appointment) nor implied authority
(regulation 8(4)), which shows that collection of premium was neither necessary nor
incidental. The issuance of the receipt for the said amount by LIC in the name of

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 the insured does not indicate that the amount was received through R3 and that on the
basis of the said receipt it cannot be said that the LIC had induced the insured.
HELD (S.C. Agrawal and G.B. Pattanaik, JJ)
Judges found considerable merit in Salve’s submission.
1. (w.r.t 3rd contention of the Appellants) LIC did not do any sort of inducement.
Doctrine of apparent authority underlying S. 237 can’t be invoked especially when the
LIC has been careful in making an express provision in the Regulations/Rules, which
are statutory in nature.
2. (w.r.t 4th contention of the appellants) This constitutional obligation has no bearing on
the present case. In disclaiming its liability the LIC was acting in accordance with the
Regulations/Rules. The said provision has been made in public interest in order to
protect the Corp. from any fraud on the part of an agent and LIC was acting quite
fairly.
Authority
Actual authority
Actual authority results from a manifestation of consent that he should represent or act
for the principal made by the principal to the agent himself. It may be express or
implied.
Implied authority
Implied authority may arise in the form of incidental authority, i.e., authority to do
whatever is necessarily or normally incidental to the activity expressly authorised, or
usual authority, i.e., authority to do whatever an agent of the type concerned would
usually have authority to do, or customary authority, i.e., authority to act in accordance
with such applicable business customs as are reasonable.
Apparent Authority
The doctrine of apparent authority involves the assumption that there is in fact no
authority at all. Under this doctrine where a principal represents, or is regarded by law
as representing, that another has authority, he may be bound as against a third party by
the acts of that other person within the authority which that person appears to have
though he had not in fact given that person such authority or had limited the authority
by instructions not made known to the third party.

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 98. Kuchwar Lime & Stone Co. v. Dehri Rohtas Light
Railway Co. Ltd. & Anr.
Facts- A quantity of coal was booked by a Colliery to the appellant Company carriage to
Banjari station on the respondent Railway’s line and the freight on the consignment was to be
paid by the appellant Company. The Company declined to take delivery of a part of the
consignment which reached Banjari on November 12, 1954 on account of inferior quality of
the coal. After some correspondence between the parties as well as with the Coal Controller,
the Railway sold the coal by public auction on June 2, 1955, after serving a notice on the
appellant. It thereafter filed a suit against the Company claiming outstanding amount of
freight and demurrage charges for 202 days during which six wagons in which the coal was
loaded were detained and ‘sought a decree for Rs. 17,625/14/- after giving credit for the
amount realized from the sale of the coal.
Issues-
1. Whether consignee liable to pay after refusing to accept consignment?
2. If railway entitled to demurrage for full period or obliged to unload and claim
demurrage only for reasonable period?
Held- It is clear that the Colliery supplied coal in pursuance of the “sanction order” in favour
of the Company and arranged to transport it in wagons which were allotted for that purpose
by order of the Deputy Coal Commissioner. Under the forwarding notes the freight was made
payable by the Company. In these circumstances, it would be reasonable to infer that the
Colliery was acting as an agent of the Company in entering into the contract of consignment
and the liability for payment of freight and of demurrage charges for failure to take delivery
of the goods lay upon the Company.
The High Court erred in holding that the Company was liable to pay demurrage for the full
period of 202 days. Railway was entitled to demurrage for the detention of wagons for only
one month and cannot claim the entire amount. The Railway was in the position of a bailee
qua the Company and was bound to minimize the loss. It could have sold off the coal under s,
56 of the Railways Act. Even assuming that in view of the Colliery Control Order, the
Railway could not sell the coal without the Coal Commissioner’s sanction, it could have
unloaded the coal from the wagons and put the wagons to use. Hence, the consignee could be
liable only for wharfage.
(w.r.t 3rd contention of the company) There was no force in the contention that it is only in
those cases where delivery of goods is taken by the consignee that the liability to pay
demurrage may be imposed upon him. Even where the consignee does not ultimately take
delivery, if the wagon is detained for his benefit, normally the Railway would be entitled to
hold him liable for demurrage.

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 99. Shree Digvijay Cement Co. Ltd. vs The State
Trading Corporation Of India
Facts- The plaintiff requested the defendant for a letter of authority to import 1,000 tons of
craft paper to maximize exports and maintain paper bag stocks for cement export. The request
was accepted with conditions: paper use limited to bags for STC-exported cement,
conversion by an approved converter, disposal of unutilized stock as directed by STC, and no
right to sell or dispose of unutilized bags. The plaintiff cleared about 992.855 metric tonnes,
making 26,84,200 bags, with 6,61,714 bags remaining unutilized, valued at Rs. 31,86,087/-.
Purchase agreements required packing in 50 kg kraft paper bags, with 3% empty bags
supplied free with each shipment. The plaintiff claimed to act as the defendant's agent for
paper bag imports and sought compensation for unutilized bags, which was denied by STC.
Held- The plaintiff, a cement manufacturing company, sought permission from the defendant,
a canalizing agency for cement exports, to import craft paper for packaging cement for
export. The defendant agreed under conditions, including that the paper be used only for
cement bags for export and be converted by approved converters. The plaintiff imported and
used the paper but had unutilized stock due to a government ban on cement exports. The
plaintiff sought compensation for the unutilized bags, claiming agency with the defendant.
The court examined the circumstances and found that the relationship between the parties
was that of principal and agent, despite no separate consideration or contractual provision for
the craft paper. The defendant controlled the utilization of the paper, and the plaintiff's
undertaking to use it exclusively for export bags indicated an agency relationship. The court
awarded the plaintiff compensation for the unutilized bags, totaling Rs. 18,94,161/-, along
with simple interest at 6% per annum from 1.1.1979, as the defendant refused liability despite
legal notices.

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 100. Nensukhdas Shivnaraen vs Birdichand Anraj
[subagency]
Facts- The plaintiffs sent 440 bales of Malkapur cotton to the defendants in Bombay for sale
on commission. The defendants advanced 80 to 85 per cent of the market value against the
bales. The bales were stored by a firm, Damji Hirji and Co., who later failed. At that time,
300 bales were accounted for, but 140 were missing. The defendants later found 23 of the
missing bales. It was found that Damji Hirji and Co. were involved in fraudulent transactions,
possibly selling bales and misappropriating proceeds. The court noted that bales cannot be
stolen, suggesting that the missing bales were sold fraudulently.
Issues- who their the defendants are liable to the plaintiffs for the acts and defaults of Damji
Hirji and Co. ?
Held- The learned Judge summarized the rights and obligations of commission agents and
Muccadams in the following manner: A commission agent's role is primarily to advance
funds against goods sent to Bombay and, if they do not have storage, to employ a Muccadam
on typical terms. The Muccadam, in turn, has custody of the goods, provides samples to
buyers, finalizes deals, weighs and delivers the goods, and sends the weighment receipt to the
commission agent. Goods are sold in the name of the commission agent, who then calls for
payment, credits it against advances, and charges a small commission and interest. The
commission agent also keeps the principal informed about market fluctuations, takes
minimum price orders, and reconciles accounts. The Muccadam's responsibilities are broader
as they handle the practical details of goods disposal.
Regarding the missing bales, the Judge noted that the plaintiffs' Bombay representative,
Laxmandas, was informed by the defendants' man, Rambus, that the 140 missing bales had
been sold. Laxmandas instructed Damji Hirji and Co. to store the bales separately, which was
sometimes verified by him. It seems unlikely that Damji Hirji and Co. disposed of the bales
before 9th September, as Laxmandas would have likely noticed their absence when
overseeing the sale and weighing process. It is noted that as of 24th September, the plaintiffs'
representative believed the bales were still in Damji Hirji and Co.'s godown.
The Judge then discussed the legal aspects of the case, particularly whether Damji Hirji and
Co. were appointed as Muccadams by or with the plaintiffs' agreement. The witness,
Laxmandas Harakchand, stated that while the commission agent typically chooses the
Muccadam, owners can suggest a Muccadam, subject to the commission agent's approval.
The acceptance of terms by the plaintiffs does not make them the principals of the
Muccadams.
The employment of a Muccadam can be for storage or for sale and delivery, and these
employments are not necessarily concurrent. Fraudulent disposition of bales by the
Muccadam before being authorized to find a buyer would not be within his authority, but
after such authorization, it would be considered within his authority. There is evidence
suggesting that the fraudulent disposition of the plaintiffs' bales occurred after Damji Hirji
and Co. were authorized to find buyers for them.
Additionally, there is evidence suggesting that 72 of the plaintiffs' bales were disposed of on
13th September, as indicated in the balance book of Damji Hirji and Co. Another entry in the

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Ankra book of Damji Hirji and Co. under 20th September refers to 45 bales, totaling the
missing 117 bales. These bales were listed under different names in Volkart's documents,
indicating a possible attempt to disguise their origin.

101. Shanti Lal And Anr. vs Tara Chand Madan Gopal

Facts-
 The plaintiff, a commission agent, purchased grain on behalf of the defendants, which
was stored in the plaintiff's godown in Agra.
 Unexpectedly, a flood occurred on 6th October 1924, causing the grain to be
damaged. The Health Officer ordered the destruction of a large quantity of the grain.
 The plaintiff sought to recover the price of the destroyed grain from the defendants.
 The defendants argued that the plaintiff was negligent in caring for the goods and that,
under the Contract Act, the bailee (plaintiff) was responsible for the price of goods
lost or destroyed while in custody.
Issues-
 Whether the plaintiff acted with due diligence in caring for the goods.
 Whether the plaintiff is responsible for the loss of the goods under the Contract Act.
Held-
 The lower courts found that the plaintiff had not been negligent in caring for the
goods and had fulfilled his duty to his principals.
 The bailee (plaintiff) was not responsible for the loss, destruction, or deterioration of
the goods bailed.
 In emergencies, the bailee has the same power to act as an agent under the Contract
Act and is under the same duty to use reasonable diligence in communicating with the
principal.
 The defendants should not be allowed to contest the loss of certain bags of grain, as
they had not raised the issue in the lower appellate court.
 The plaintiff failed to account for 37 maunds of laha (a type of grain), but it was
determined that this could be due to natural causes such as shrinkage or drying.
 The defendants are entitled to a deduction of Rs. 225 from the amount decreed by the
lower appellate court.

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 102. Drew v Nunn [INSANITY]
Facts-
 Plaintiff, a tradesman, supplied goods to defendant's wife upon her order while the
defendant was insane.
 Defendant had given his wife authority to deal with the plaintiff and held her out as
his agent.
 Plaintiff was unaware of the defendant's insanity at the time of supplying the goods.
 Defendant recovered his reason and refused to pay for the goods supplied to his wife
by the plaintiff.
Issues-
1. Does insanity terminate the authority of an agent?
2. What is the consequence when a principal becomes insane, and a third person deals
with the agent without notice of the principal's insanity?
Decision-
 Insanity does terminate the authority of an agent if it prevents the principal from
acting for himself.
 The person dealing with the agent without knowledge of the principal's insanity has a
right to enter into a contract with the agent, and the principal is bound by the contract.
 The defendant, by holding out his wife as his agent, entered into a contract with the
plaintiff, and until the plaintiff had notice that this authority was revoked, he was
entitled to act upon the defendant's representations.
 The plaintiff is entitled to recover the price of the goods supplied to the defendant's
wife while the defendant was insane.

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 103. De Bussche v Alt [s198]
Facts- DB appointed G as agent to sell a ship at a price not below 90K pounds. G appointed
Alt as their sub agent in Japan with the knowledge of DB. Alt bought the ship himself for
90K and gave money to DB. He later sold it at a higher price and DB sued him for profit.
Held- D (alt) claims he is only liable to the Agents (G) (under §192) – But the principal may
go against the sub agent under certain circumstances of fraud or wilful wrong. As a general
rule, no doubt, the maxim “delegatus non potest delegare” (one to whom power is delegated
cannot himself delegate that authority) an agent cannot, without authority from his principal,
devolve upon another obligations to the principal which he has himself undertaken to
personally fulfil; and that, in as much as confidence in the particular person employed is at
the root of the contract of agency, such authority cannot be implied as an ordinary incident in
the contract A case like the present, where a shipowner employs an agent for the purpose of
effectuating a sale of a ship at any port where the ship may from time to time in the course of
its employment under charter happen to be, is pre-eminently one in which the appointment of
substitutes at ports other than those where the agent himself carries on business is a necessity,
and must reasonably be presumed to be in the contemplation of the parties. What cannot but
be looked upon as express authority to appoint a substitute, and a complete ratification of the
actual appointment of D in the letters which passed respectively between P on the one side,
and G on the other. D was the substituted agent.
Allegation of ratification by the principal could not be sustained as there was no complete
knowledge of the circumstances surrounding the transaction done by Alt. Every agent must
account for all profit which he makes out of a transaction, and cannot put it into his own
pocket, and profit was made by Alt, an agent, and therefore it must be accounted for (§198,
215). For the acquiescence to the transaction by P of sale by D to himself there has to be full
knowledge of the circumstances and transaction at hand. Therefore, there is no such evidence
of ratification or adoption on the part of P. P did not say anything do anything which induced
D to believe that he had the authorisation to give up the agency and become the buyer. There
can be no estoppel by conduct as the principle requires bad intent to induce the person relying
on the estoppel to act in a particular manner all of which is absent in the present case P did
not in any malafide intention induce D to buy the vessels. There was no acquiescence by DB
to waive off rights to the profit made by Alt. Therefore, Alt must pay.

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 104. China Pacific S.A v Food Corporation of India
[GRATUTIOUS BAILMENT + AGENT OF NECESSITY]
Facts- The defendant cargo owner chartered a vessel to carry a cargo of wheat from a US
port to Bombay. The vessel was duly loaded, but during the voyage, it stranded on a reef in
the South China Sea. The ship’;s managing agents in Hong Kong signed a Lloyd’;s Standard
Form of Salvage Agreement No Cure - No Pay, which provided that the salvors would use
their best endeavours to salvage the vessel and/or the cargo. By clause 16 the master signed
the agreement on behalf of the property to be salved and entered into the agreement as agent
for the vessel, her cargo and freight and the respective owners thereof and bound each to the
performance thereof. The salvors salved 15,429 tons of wheat, in six parcels between
February 10 and April 20, 1975, and took them in barges to Manila where each parcel was
off-loaded and stored at the salvors’; expense. On February 25, 1975, the salvors; solicitors
wrote to the cargo owner’;s solicitors advising them that salvage work was being carried on
and asking them to ask the cargo owner to make arrangements to accept delivery of the cargo
at Manila. There was no answer to that letter. On April 24, the shipowner abandoned the
voyage and notified the cargo owner accordingly. Subsequently, the cargo owner accepted
responsibility for the salvors’; storage charges for the period from April 24 to August 5, 1975,
but it refused to pay the storage charges incurred by the salvors between February 10 and
April 24, 1975. The salvors claimed those expenses in an action against the cargo owner.
Held- Bailee entitled to reimbursement for the expenses he undertook, as agents of necessity,
under Sec 158. (In india pre-existing relationship of agency is required for agency of
necessity however in English law any relationship is fine) Even in absence of necessity, if
bailee acts reasonably in discharge of his duty, he must be reimbursed. As far as contract
between bailee and salvors was not in violation of the contract of bailment, it is alright. The
salvors as bailees were under a duty to deliver goods to the cargo owners upon completion of
salvage services. wheat being a perishable cargo and the cargo owner being unwilling to give
instructions, it was clearly necessary for the salvors to take reasonable steps to store and
preserve the wheat that they had salved. Salvors are entitled to recover the agreed sum from
the cargo owner (together with interest), subject to the lien point. If possession of property is
retained in order to exercise a lien, there can be no recovery of costs consequential on
retaining the property, but if possession of property is retained not for the purpose of a lien at
all but simply to benefit the owner of the goods then recovery may be had on ordinary
restitutory or quasi- contractual principles. (remedy either under §158 or §170) a lienee
remains in possession of goods in the exercise of his right of lien only (i.e., one who has
refused a demand by the lienor for redelivery of the goods with which, in the absence of the
lien, the lienee would be under a legal obligation to comply), he cannot recover from the
lienor loss or expenses incurred by him exclusively for his own benefit in maintaining his
security as lienee and from which the lienor derives no benefit as owner of the goods. For an
agency of necessity to arise, the action taken must be necessary for the protection of the
interests of the alleged principal, not of the agent; the alleged agent must have acted bona fide
in the interests of the alleged principal: eld that the salvor's *966 purpose in storing the
salved cargo was to maintain his lien on it. This was assuredly at least in part the
salvor's purpose. The law does not seem to have determined in this context what ensues
where interests are manifold or motives mixed: it may well be that the court will look to the
interest mainly served or to the dominant motive. In an emergency, the bailee has the power

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to act as an agent under section 189, and in cases of difficulty he is under the same duty as
has been cast upon an agent under section 214 requiring him to use all reasonable diligence in
communicating with his principal, and in seeking to obtain his instructions If there is a
preexisting relationship there can be a relationship of agency of necessity since under section
189. Since that implies consent. The preexisting relationship can be contractual or even
statutory. the bailment which up to the conclusion of the salvage services had been a bailment
for valuable consideration became a gratuitous bailment; and so long as that relationship of
bailor and bailee continued to subsist the salvors, under the ordinary principles of bailment
owed a duty of care to the cargo owner to take such measures to preserve the salved wheat
from deterioration by exposure to the elements as a man of ordinary prudence would take for
the preservation of his own property.

105. Loon Karan Sohan Lal vs Firm John And Co. And
Ors.
Facts- The plaintiffs, a registered partnership firm, were appointed yarn procuring agents by
the Govt. of Assam in 1948 under the Cotton Yarn and Cloth Control Order. The Textile
Commissioner issued a Release Order directing John Mill Company Limited Agra to sell and
deliver 600 bales of yarn to the plaintiffs. The plaintiffs paid the full price of Rs. 3,96,783-1-
6, including taxes, to John Mills Agra. However, John Mills and its financier, M/s Sethiya &
Company, delivered only 448 bales and failed to deliver the remaining 152 bales. The
plaintiffs sought compensation from the Government of Assam, which was refused. The
plaintiffs then filed a suit against John & Company, M/s Sethiya & Company, Seth Sugan
Chand (a partner of M/s Sethiya & Company), the Union of India, and the State of Assam for
the recovery of Rs. 1,38,720-12-6. The plaintiffs claimed that M/s Sethiya & Company, as
financiers of John Mills, were also liable for the delivery of the 600 bales. The defendants
argued that it was M/s Sethiya & Company's responsibility to deliver the bales and that they
had paid the price to M/s Sethiya & Company. The trial court decreed the suit against John
Mills and its partners for a reduced amount, and dismissed the claim against M/s Sethiya &
Company, Seth Sugan Chand, the Union of India, and the State of Assam. The plaintiffs
appealed seeking a decree against all defendants.
Held- After examining Exhibit C, it appears to be a license granting the plaintiff exclusive
rights to purchase and sell yarn within Assam, akin to a licensee selling intoxicating liquor
under permit terms. While termed an agent, the plaintiff was more a licensee, acting at the
government's request. The defense argued that the plaintiff wasn't an agent as per Section 182
of the Contract Act, which distinguishes between an agent and someone acting at another's
request. An agent is entitled to indemnification for lawful acts; however, the plaintiff had no
such contract with the Assam government. Even if directed to pay within ten days, the
plaintiff could have demanded delivery at the time of payment, forfeiting this right by paying
in advance. The court sympathized with the plaintiff but ruled against them.
Regarding Seth Suganchand, he denied being the plaintiff's financier or a partner in Sethiya
& Company, claiming no liability. Regarding the delivery of 600 bales, the argument was
made that Sethiya & Company, acting as John Mills' agent, were bound to deliver the bales to
the plaintiff. However, it was disputed that the agreement bound Sethiya & Company to act
as delivery agents. The court found no proof that John Mills instructed Sethiya & Company
to deliver the bales to the plaintiff, highlighting inconsistencies in the evidence.

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The court also addressed the claim that Sethiya & Company, having received full payment for
the 600 bales, were liable for not delivering all bales. The plaintiff's witnesses' credibility was
questioned, and it was concluded that no specific bales were appropriated for the contract.
The letters presented as evidence did not prove that specific bales were earmarked for the
plaintiff.
In conclusion, the court found no legal basis to hold Sethiya & Company liable for not
delivering the 152 bales to the plaintiff, as there was no evidence of specific bales being
appropriated for the contract. The plaintiff's claim against Sethiya & Company was
dismissed.

106. Bolton Partners v Lambert [RATIFICATION]

Facts- An offer of purchase was made by the Defendant, A. J. Lambert, to P. A. Scratchley,
who was acting as an agent of the Plaintiffs, Bolton Partners (Limited), but was not
authorized to make any contract for sale on 8th of December, 1886. The offer was accepted
by Scratchley on 9th of December on behalf of the Plaintiffs with a direction that the
company’s solicitor had been instructed to prepare the necessary documents. On the 13th of
January, 1887, the defendant withdrew his offer on the ground that he had been misled by the
statements that had been made to him as to the value of the property. After the withdrawal,
the Plaintiffs, on 28th of January, ratified the acceptance of the offer by S.
Issues-
1. Whether there ever was a completed contract between the parties?
2. Whether the contract was obtained by misrepresentation on the part of those seeking
to enforce it?
3. Whether the ratification was ultrà vires?
CONTENTIONS:
Defendant
1. There was no concluded contract but only negotiations. The letters relied on
amounted only to a conditional offer as formal documents were yet to be prepared.
Also, other terms were introduced by subsequent letters and hence Hussey v. Horne-
Payne is applicable.
2. If there is a contract, it was induced by the misrepresentations of the company’s
agents.
3. After the Defendant had repudiated his offer it was too late for the company to
ratify Scratchley’s acceptance and such ratification was ultra vires.
Plaintiff
1. As soon as an offer has been accepted the contract is complete.

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 2. The ratification by the board of directors on the 28th of January, was good, and
related back to the date of the original contract; so that the repudiation by the
Defendant on the 13th of January, 1887, was of no effect
3. There was no misrepresentation.
Held- Cotton L.J.
1. (w.r.t 1st contention of the defendant) Mere expression of an intention to have further
documents does not prevent there being a contract. There was a binding contract
constituted by the two letters alone. Hussey v. Horne-Payne is not applicable as in that
case it was not because the subsequent letters raised a doubt, that it was held that the
two original letters did not form a completed agreement, but because the two original
letters of themselves contained terms which raised the doubt.
2. (w.r.t 2nd contention of the defendant) The rule of ratification is applicable as per
which ratification is thrown back to the date of the act done, and that the agent is put
in the same position as if he had had authority to do the act at the time the act was
done by him.
3. On the evidence, that there had been no misrepresentation on the part of the Plaintiffs.
Lindley L. J. & Lopes, L.J.: They all concurred to Cotton L.J.’s observation.

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 107. Himalayan Co-Operative Group Housing ... vs
Balwan Singh [Lawer’s agency]
Facts-
The appeals are against a High Court judgment and order in a writ petition and a review
petition. The High Court affirmed lower courts' orders and issued directions to the appellant
based on a concession by the appellant's counsel. The appellant, a co-operative society under
the Delhi Cooperative Societies Act, 1972, with 150 members, demanded payment for
residential quarters/apartments on 28.05.1998. Despite continuous demand, the respondents
failed to pay and were expelled from the society. The expulsion was confirmed by the
Registrar of Co-Operative Societies after due procedure. The respondents appealed to the
Delhi Co-operative Tribunal, then withdrew and filed a Revision Petition before the Financial
Commissioner, Government of NCT of Delhi, which upheld the expulsion. The respondents
then approached the Writ Court to set aside the orders, which refused to interfere. However,
the Writ Court, on the respondents' request and the appellant's agreement through its counsel,
issued directions for the construction and allotment of additional quarters/apartments to the
respondents.
Issues-
1. Whether the counsel for a co-operative society could make concessions without
express authorization and whether such concessions bind the society and its members.
2. Whether the subject matter of the concession made by counsel was the issue before
the Writ Court and whether it binds the society and its members.
Held-
1. An advocate must obtain specific instructions from the client before making any
compromise or concession on behalf of the client before the Court.
2. The Bar Council of India Rules and the Code of Ethics require advocates to uphold
the interests of their clients and act only on their instructions. A lawyer has no implied
authority to settle a case against the express instructions of the client.
3. Admissions made by counsel are binding if unequivocal, but doubt regarding an
admission should be carefully considered, and a lawyer generally has no authority to
make an admission that surrenders the client's substantial legal rights.
4. Lawyers can make decisions regarding tactics without consulting the client, but
decisions affecting legal rights are reserved for the client.
5. The Court set aside the directions issued by the Writ Court and the judgment and
order passed by the High Court in the Review Petition.

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 108. Bird v Brown
Facts- Merchants at Liverpool sent orders to a merchant, I., in New York, to purchase goods
for them. I. accordingly shipped the goods on five vessels bound for Liverpool, consigned to
C. & T. Bills were drawn for the goods, partly on C. & T., partly on R. & Co., with whom C.
& T. had dealings. B. & Co., merchants at Liverpool, purchased several of the bills drawn by
I. C. & T. stopped payment on April 7, 1846, after receiving goods from one of the vessels. A
fiat in bankruptcy was issued against C. & T. on May 8, 1846. The other four vessels arrived
at Liverpool on May 3rd, 5th, 6th, and 9th respectively. B. & Co., on behalf of I., claimed to
stop the goods in transitu upon the arrival of each vessel. Assignees of C. & T. made formal
demands for the goods on May 11th but were refused. The goods were delivered to B. & Co.
on May 11th. I. executed a power of attorney to H. of Liverpool on April 29th to stop the
goods in transitu. H. adopted and confirmed the previous stoppages by B. & Co. on May
13th. I. ratified all actions by H. and B. & Co. before the commencement of the suit.
Issues-
1. Validity of stoppage in transitu after formal demand by assignees of C. & T. and
subsequent delivery to defendants.
2. Effect of ratification by I. on altering ownership retrospectively.
Held-
1. No valid stoppage in transitu after formal demand by assignees and subsequent
delivery to defendants. Transitus ended upon arrival of goods at Liverpool and
demand by assignees.
2. Ratification by I. after conversion by defendants did not alter ownership
retrospectively. Defendants failed to establish their claim based on ratification.

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 109. Ram Asri v Rakesh Chand and ors
Facts-
1. The dispute involves a property owned by Mahant Jaram Dass.
2. Jaram Dass executed a power of attorney on June 10, 1968, authorizing Ram Gopal to
manage and sell his property.
3. Ram Gopal claims to have sold the property to defendant Nos. 1 and 2 through a sale
deed dated July 7, 1977.
4. Jaram Dass also executed a will on May 26, 1978, in favor of his grandson, Harish
Kumar.
5. The plaintiff, claiming to be Jaram Dass's daughter, filed a suit for possession of the
property after Jaram Dass's death, challenging the sale deed and the will.
Issues-
1. Whether a written notice of cancellation of a General Power of Attorney by the
Principal is essentially required to be issued to the person holding such GPA and the
subsequent vendee?
2. What is the extent of enquiries that a vendee must make to be eligible for the
protection envisaged under Section 41 of the Transfer Of Property Act, 1882 as a bona
fide vendee?
3. Whether the objections taken by the plaintiff against the subsequent will dated May
26, 1978, in favor of Harish Kumar amount to "suspicious circumstances"
surrounding the said will.
Held-
1. The termination of an agent's authority does not take effect until communicated to the
agent and does not affect third parties until it becomes known to them. Written notice
of cancellation is not necessary, but there must be adequate evidence of verbal or
written notice to the attorney and subsequent vendees.
2. While a vendee must be vigilant and make necessary enquiries, there was no evidence
presented to suggest that defendant Nos. 1 and 2 had knowledge of the cancellation of
the power of attorney. Therefore, their rights as bona fide purchasers are protected.
3. The objections raised against the will do not amount to suspicious circumstances, as
the plaintiff failed to provide evidence challenging the validity of the will.
4. The plaintiff's appeal is dismissed.

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 110. Prickett v Badger
Facts-
1. The plaintiff, a house and estate agent, was approached by the defendant, who
represented himself as having an interest in a piece of land for sale.
2. The defendant proposed to the plaintiff to find a purchaser for the land at a specified
price per acre.
3. The plaintiff agreed to find a purchaser at the stipulated price, with a commission of
1.5% on the purchase price.
4. The plaintiff engaged in various activities to find a buyer, ultimately securing an offer
of a higher price per acre from the Birkbeck Land Society.
5. It was later revealed that the defendant did not own the land; rather, it belonged to
another individual named Wagstaffe.
6. Wagstaffe, the actual landowner, declined to proceed with the sale.
7. The plaintiff's efforts to sell the land were thus thwarted due to the defendant's
misrepresentation and the landowner's refusal to sell.
Issues-
1. Whether the plaintiff is entitled to compensation for the work and labor performed in
attempting to find a purchaser for the land.
2. Whether the plaintiff's action is properly framed as a claim for work and labor or
should have been pursued as a special action for wrongfully revoking the authority to
sell.
Held-
1. The Lord Chief Baron ruled that the plaintiff is entitled to recover a reasonable
remuneration for his services, even though the special contract for a commission was
not fulfilled due to the defendant's actions.
2. The court held that the plaintiff could maintain the action on a quantum meruit basis,
implying a contract to pay reasonable compensation for the services rendered.
3. The court rejected the argument that the action should have been framed as a special
action for wrongfully revoking the authority to sell, ruling that the plaintiff could seek
compensation for his work and labor.
4. The jury returned a verdict in favor of the plaintiff, awarding damages of £50.
5. However, as the Lord Chief Baron expressed dissatisfaction with the verdict, a new
trial was ordered, with costs to abide by the outcome.

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 111. Boulton Bros. And Co. Ltd (India) Delhi vs New
Victoria Mills
Facts-
1. W.W. Boulton and R.G.H. Boulton, prominent figures in the business, were the only
directors of the defendant company, which derived its significance from its name,
association with the Boulton brothers, and the belief in its connection with the English
company of the same name. The defendant company's directors, at the time of the
agency agreement in February 1922, included Mr. A. West, Mr. B. West, Mr. A.A.
Black, Mr. A.H. Silver, and Mr. W.G. Clarke, later replaced by Mr. W.W. Boulton.
2. The management of the defendant company was in the hands of Messrs. A. West, B.
West, and A.A. Black, who received regular salaries and a share of profits. Article 119
of the Memorandum of Association allowed the company to appoint managing agents,
subject to directors' control, either by shareholder resolution or director discretion.
The plaintiff company became managing agents for 20 years through a shareholder
resolution on January 16, 1922, with an agreement executed on February 1, 1922,
entitling them to 10% of profits and an office allowance.
3. Concerns about the Boulton brothers' reputation in December 1922 led to the
defendant company's directors perceiving the association with the plaintiff company
as detrimental. Subsequently, on March 29, 1923, they passed a resolution to dismiss
the plaintiff company from the managing agency, confirmed by a shareholder meeting
on April 7, 1923. Mr. Treeby, a shareholder, challenged the legality of the meetings
and resolutions but withdrew the suit after correspondence with the defendant
company's legal advisors. The plaintiff company filed a suit seeking recovery of
commission, a declaration of the invalidity of the March 29, 1923 meeting
resolutions, and other subsidiary charges.
4. A subsidiary charge claimed by the plaintiff company was initially disallowed by the
Subordinate Judge but was later conceded and awarded with interest.

Held-
1. The plaintiff company, incorporated in India, operated as a branch of the English
company "Messrs. Boulton Bros. Ltd." and engaged in various agency businesses,
including managing agents for other firms.
2. The plaintiff sought relief for commission and incidental charges, claiming they
commenced their duties under the agreement immediately upon execution.
3. The defendant company's Articles of Association provided for immediate effect of the
agency agreement and the obligation of the directors to enforce it.
4. Despite subsequent dissatisfaction with the arrangement, the defendant company
acquiesced to the continuation of the managing agency until March 29, 1923,
suggesting a waiver of objections.

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 5. The plaintiff company's association with the Boulton name was initially esteemed but
later became undesirable due to failed expectations and lack of substantial benefit to
the defendant company.
6. The defendant company was justified in severing ties with the plaintiff company due
to changed circumstances, lack of benefits, and potential harm to its reputation.
7. The plaintiff's technical objections to the irregularities in the dismissal process were
deemed of little consequence as they did not suffer any loss solely due to those
irregularities.
8. The plaintiff's claim for continuing as managing agents and establishing compliance
through their office in Delhi was rejected, as the office did not serve the defendant
company's interests nor fulfill the terms of the agreement.
9. The plaintiff's failure to pursue their claim or address the defendant company's
assertions implied abandonment or tacit admission of the defendant's assertions,
leading to the rejection of their claim.

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 112. Amar Nath v Gian Chand [termination of the
authority of an agent does not take effect until it becomes
known to the agent and third parties]
Facts- The plaintiff, a junior engineer, owned a property that he agreed to sell for Rs. 55,000
in an oral agreement. When the buyer couldn't arrange the money, the plaintiff executed a
special power of attorney for the sale. However, the buyer, in collusion with a deed writer,
forged a sale deed for Rs. 30,000. Upon discovering this, the plaintiff sued for a declaration
of ownership and sought an injunction against interference. The buyer claimed he paid Rs.
30,000 and the sale was legal. The deed writer argued there was an agreement for Rs. 30,000,
and the sale was valid even without the original power of attorney. The plaintiff alleged fraud
and sought to void the sale deed.
Issues-
1. Whether in view of the admitted position that defendant No.2 who was the
petition writer, and in whose favour power of attorney had been executed by
the appellant for executing the sale deed for a consideration of Rs. 55,000/- to
the knowledge of respondent No.1, it had to be assumed that the sale deed
Ex.PW-3/A was fraudulently executed for Rs. 30,000/- when the Power of
attorney had been cancelled and revoked and returned by the appellant and the
document Ex.PW-5/A was duly proved?
2. Whether the sale deed Ex.PW-3/A conferred any valid title on defendant No.1
and the plaintiff was entitled to the relief of injunction and declaration?
Ratio- The key issue was whether the power of attorney had been cancelled before the sale
deed was executed. The court considered Section 201 of the Contract Act, which deals with
the termination of agency by the principal. It noted that an agency can be terminated by the
principal revoking the authority of the agent, except in cases where the agent has an interest
in the property, making the agency irrevocable. The court also referred to Sections 207 and
208, which discuss the manner and timing of the termination of an agent's authority. It
emphasized that the termination of the authority of an agent does not take effect until it
becomes known to the agent and third parties. The judgment highlighted the principle that
third parties who enter into contracts with an agent in good faith and ignorance of the
revocation are protected, and the principal remains bound by the agent's actions until third
parties have notice of the termination.

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 113. Kaluram Bholaram vs Chimniram Motilal
Facts:
1. The suit began in 1920 over a claim of about Rs. 79,000 by the plaintiffs against the
defendants for acting as commission agents in buying and selling piece-goods.
2. Defendants alleged improper accounts delivery and breaches of duty by the plaintiffs as
agents.
3. In 1924, the matter went to a Commissioner for taking accounts, lasting five years until the
Commissioner's report in 1929.
4. Plaintiffs challenged some propositions of law formulated by the Judge.
5. The main issue revolved around three sets of cotton bales delivered by plaintiffs to
defendants, falsely claimed as purchased for defendants but actually supplied by plaintiffs
from their own stock.
6. Plaintiffs tried to amend their claim to assert they were "pakka adatias" but were denied by
the Commissioner and upheld by the Judge.

Issues:
1. Whether plaintiffs, acting as commission agents, breached their duty by supplying their
own goods to defendants and falsely claiming them as purchased for defendants.
2. Whether defendants, having received the goods, could cancel the contracts and claim
profits made by plaintiffs.
3. Whether plaintiffs were entitled to compound interest, considering the practice of annual
accounts and the long duration of non-payment by defendants.
Decision:
1. The Court held that plaintiffs, being commission agents, were not entitled to supply their
own goods to defendants and falsely claim them as purchased for defendants.
2. Defendants were entitled to claim profits made by plaintiffs under Section 216 of the
Indian Contract Act.
3. Compound interest was allowed from the date of the suit, based on the implied agreement
between parties during the course of their transactions.

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 114. Kathoom Bivi Ammal And Anr. vs Arulappa Nadar
Facts-
1. The appeal arises from O. S. No. 42 of 1962, involving husband and wife defendants.
2. O. S. No. 17 of 1962 was filed by the wife against her step-daughter and others,
regarding mortgage deeds.
3. Third defendant acted as power-of-attorney agent and executed mortgages for the
wife.
4. O. S. No. 17 of 1962 was decreed in favor of the wife due to the cancellation of
power-of-attorney.
5. O. S. No. 42 of 1962 was filed by the husband against the plaintiff in O. S. No. 17 of
1962.
6. O. S. No. 42 of 1962 was initially dismissed but later decreed on appeal.
7. The main issue is the validity of the mortgage executed by the fourth defendant.
Issues-
1. Validity of cancellation of power-of-attorney by the wife.
2. Validity of mortgage executed by the fourth defendant.
3. Application of res judicata.
Held-
1. Lower courts held cancellation of power-of-attorney valid, but the mortgage valid due
to Section 208 of the Indian Contract Act.
2. The cancellation of power-of-attorney by the wife does not render the mortgage void
against the plaintiff.
3. The appeal is not barred by res judicata as the subject matter and parties were the
same, and appeals were consolidated.
4. The appeal is dismissed, and the decree passed by the lower appellate Court stands.
5. Cross-objections are also dismissed.
6. No order as to costs.

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 115. Lachmandas Khandelwal v . Raghumul [agency
agreement may depend for its existence and duration on the
continuance of the principal contract.]
Facts- David Sassoon & Co., Ld. appointed Raghumull and Juggomull of the firm Madhoram
Hurdeodas as brokers for the sale and purchase of sugar for five years from May 31, 1911,
unless mutually extended or sooner terminated. The agreement allowed the brokers to appoint
under-brokers under their control. On June 8, 1911, the brokers appointed the appellants as
under-brokers. Juggomull died on April 27, 1912. A new agreement was made on May 24,
1912, between Sassoon & Co. and Raghumull, but its contents are unknown. The appellants'
contract was terminated on August 12, 1912, for alleged breaches of duty. A new agreement
was made on December 2, 1912, between Sassoon & Co. and Raghumull, appointing the
latter as broker for a new five-year term. The appellants claimed damages for wrongful
termination and accounts under the written and verbal contracts.
Held- The High Court rightly interpreted the contracts, awarding damages on the correct
principle. The contract of June 8, 1911, depended for its existence and duration on the
continuance of the original contract of May 31, 1911. When the original contract ended, the
appointment of the appellants as brokers also ended. The contract of December 2, 1912,
terminated the original contract, and whether by notice or agreement, no breach occurred in
the respondent's duties to the appellants. Regarding accounts, the respondent is entitled to
deduct losses from incomplete contracts existing at the appellants' dismissal. The claim for
profits under the verbal contract was rejected as insufficiently supported by evidence.
1. The case emphasizes that an agency agreement may depend for its existence and
duration on the continuance of the principal contract. When the principal
contract ends, the agency agreement may also come to an end.
2. Termination of Agency: It clarifies that the termination of the principal contract
can lead to the termination of the agency agreement, even if the termination of
the principal contract is not aimed at defeating the rights of the agent.

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 116. Ramprasad v State of Madhya Pradesh [Agent’s
Lien]
Facts-
1. The plaintiff filed a suit claiming Rs. 30,699/1/3 against two defendants, alleging they
owed him money.
2. The trial court decreed the suit against the defendants for Rs. 22,634/4/- with costs
and interest from the date of the decree.
3. The State of Madhya Pradesh, the 1st defendant, appealed against the decree, but the
second defendant did not.
4. The plaintiff filed a cross-objection claiming interest on the principal amount from the
date of the suit till decree.
5. The High Court allowed the State's appeal, setting aside the decree against it, but
didn't address the plaintiff's cross-objection.
Issues-
1. Whether the plaintiff had a legal basis for claiming reimbursement from the State for
money owed by one defendant.
2. Whether the plaintiff's claim for interest on the principal amount from the date of the
suit till the decree is valid.
3. Whether the High Court's failure to address the plaintiff's cross-objection constitutes
an error.
Held-
1. The plaintiff's claim against the State was rejected because there was no evidence of a
pledge or lien over the goods in question.
2. The plaintiff's appeal against the State was dismissed, but their cross-objection
regarding interest on the principal amount was upheld.
3. The decree of the trial court was modified to include interest on the principal amount
from the date of the suit till the decree.
4. No costs were ordered for the appeal.

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 117. Kavita Trehan and Others v M/s. Balsara Hygiene
Products Ltd.
Facts-
1. On March 27, 1989, M/s. Subhagya Agencies filed Civil Suit No. 74/1989 in
Chandigarh court, seeking an injunction under Rules 1 and 2, Order 39 C.P.C.
2. M/s. Subhagya Agencies claimed to be clearing and forwarding agents for M/s.
Balsara Hygiene Products Ltd., appointed by an agreement in 1985.
3. They alleged non-payment of commissions and invalid termination by Balsara.
4. An ex-parte injunction was granted on March 27, 1989, allowing Subhagya to sell
goods.
5. Respondent objected, but the injunction was made absolute on April 29, 1989.
6. Subhagya sold goods worth Rs. 32.4 lakhs but only remitted Rs. 7 lakhs to Balsara.
7. Suit was transferred to Delhi High Court due to a Supreme Court order.
8. Suit was dismissed due to non-registration of partnership under Section 69 of the
Indian Partnership Act, 1932.
Issues-
1. Whether the suit was liable to be dismissed due to non-registration of the partnership.
2. Whether Balsara was entitled to restitution of goods or their money-value.
Held-
1. The suit was dismissed due to non-registration of the partnership.
2. Balsara was not entitled to restitution of goods' money-value; Subhagya was directed
to furnish security for Rs. 25.4 lakhs within 30 days.
3. Subhagya's appeal against the High Court's decision was dismissed, upholding the
order for security payment. The court criticized the initial ex-parte injunction for
enabling Subhagya to sell goods, causing prejudice to Balsara.

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 118. Bostock v Jardine [Agent’s Liability to principal]
Facts-
1. Plaintiff, a cotton speculator, instructed defendants, cotton brokers, to purchase 50
bales of Surat cotton for him.
2. Defendants, acting as brokers, bought 300 bales of Surat cotton (including 50 for
plaintiff) from Hankey & Co. through Marriott & Co.
3. Contract notes were exchanged between defendants and plaintiff, specifying the
purchase.
4. Upon arrival of the cargo, defendants informed plaintiff of inferior quality cotton.
5. Arbitrators appointed by defendants and Marriott & Co. awarded rejection of some
bales and a price reduction.
6. Plaintiff refused the bales and sued to recover the money paid to defendants.
Issues-
1. Whether defendants fulfilled their obligation to the plaintiff by purchasing the agreed-
upon quantity of cotton.
2. Whether the contract made by defendants was in accordance with plaintiff's
instructions.
3. Whether there was a complete failure of consideration justifying the plaintiff's claim
for a refund.
4. Whether the plaintiff could sue based on the contract as made by the defendants.
Held-
1. The court ruled that there was no contract made as authorized by the plaintiff.
2. Defendants' purchase of 300 bales, instead of the instructed 50, constituted a failure to
fulfill plaintiff's instructions.
3. As there was no valid contract as per plaintiff's instructions, there was a complete
failure of consideration.
4. Plaintiff was entitled to recover the money paid to defendants.
5. The customary practice of cotton brokers did not justify defendants' deviation from
plaintiff's instructions.
6. The rule to discharge the plaintiff's claim was dismissed.

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 119. Dunne v English [Breach of agent’s duty]
Plaintiff and defendant were in partnership and wanted to sell a mine. Defendant was the
negotiating agent. D told P that he would be one of the buyers and hence had interest in the
sale. D says the syndicate is willing to buy from him and not from P. D buys the mine from P
and instead of selling it to the new company, D formed a new company with another person
to take advantage of the sale and use the mine to accrue greater profits.
Held- An agent for sale who takes an interest in a purchase negotiated by himself is bound to
disclose to his principal the exact nature of his interest; and it is not enough merely to
disclose that he has an interest, or to make statements such as would put the principal on
inquiry. In such a case the burden of proving that a full disclosure was made lies on the agent,
and is not discharged merely by the agent swearing that he did so, if his evidence is
contradicted by the Plaintiff and not corroborated. If, in a transaction between principal and
agent, it appears that there has been any underhand dealing by the agent, ex. gr., that he has
purchased the estate of the principal in the name of another person, instead of his own,
however fair the transaction may be in other respects, it has no validity in a Court of Equity.

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 120. Narandas Morardas Gaziwala & Ors vs S. P. Am.
Papammal
Facts-
1. Narandas Morardas Gaziwala and Lakshmi Chand & Co. were partnership firms
conducting business in lace and silver thread in Surat, Bombay.
2. They had dealings with Krishna & Co., acting as their agents in Tanjore,
Tiruchirapalli, and Madurai in the State of Madras.
3. Murugesa Chettiar and Gopal Chettiar were partners in Krishna & Co. until its
dissolution in 1951.
4. Murugesa Chettiar, upon dissolution, took over assets and liabilities of Krishna & Co.
5. Murugesa Chettiar claimed to be constituted as the sole agent for selling goods of the
Surat firms in the mentioned territories.
6. The Surat firm allegedly breached the sole agency agreement by making direct sales.
Issues-
1. Whether an agent (Murugesa Chettiar) can sue the principal (Surat firm) for accounts,
considering no statutory provision for such a right exists in the Indian Contract Act.
Held-
1. The High Court held that the agent (Murugesa Chettiar) could sue the principal (Surat
firm) for accounts under special circumstances where the principal possessed all the
accounts, and the agent could not determine their commission claim without them.
2. The High Court also determined that the oral agreement between the parties
constituted a condition precedent to the enforceability of the promissory note,
allowing the plaintiff to introduce evidence under the third proviso to Section 92 of
the Evidence Act.
3. Both appeals were dismissed by the Madras High Court, upholding the judgment in
favor of Murugesa Chettiar.

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 121. Pannalal Jankidas v Mohanlal and Another
Facts- Plaintiffs, as agents of the defendants had stored the goods in Government godowns,
requiring permit to supply them to the defendants. In the meanwhile, due to the fire in
godown, the goods got burned up and plaintiffs got compensation of 50% of damage caused
in respect of the goods as they were uninsured. However, plaintiffs sued defendants to be
indemnified against the rest 50% of damages caused to the goods while handling those as
latter’s agent. The defendants pleaded, and it was found as a fact that plaintiffs had
agreed to insure the goods and even charged defendants, nevertheless omitted to insure
the goods; they further pleaded that they were entitled to set off or counter claim for the
value of the goods destroyed as damages caused to them by the neglect or breach of duty of
the plaintiffs.
Issues- What damages are plaintiffs liable to pay to the defendants for failure to insure the
goods which were destroyed?
Decision-
MAJORITY- “Where two parties have made a contract which one of them has broken the
damages which the other party ought to receive in respect of such breach of contract should
be such as may fairly and reasonably be considered either arising naturally, i.e., according
to the usual course of things, from such breach of contract itself, or such as may reasonably
be supposed to have been in the contemplation of both parties at the time they made the
contract, as the probable result of the breach of it.” (HADLEY v. BAXENDALE)
Restitutio In Integrum: “the party who has suffered the loss should be placed in the same
position, as far as compensation in money can do it, as if the party in breach had performed
his contract or fulfilled his duty”
As full compensation under the Ordinance was payable on proof of the existence of a fire
insurance policy irrespective of the terms of the policy, and the non-recovery of half the value
of the goods from the Government under the Ordinance was due to the absence of a fire
insurance policy, the loss to the defendants arose directly from the neglect or breach of duty
of the plaintiffs to insure the goods as they had been instructed and agreed to do; intervention
of the Ordinance did not break the chain of causation or make the loss remote or indirect as
the liability of plaintiffs arises not because of the Ordinance but because of the breach of their
duty in failing to insure, which has taken place apart from the Ordinance and which is not
affected by the Ordinance.
Even when there would have been no such ordinance passed, defendants could have filed a
suit against the fire insurance policy contending that the fire, and not the explosion, was the
cause of destruction of goods such that court would then have decided the liability and rights
of the parties. Therefore, contending that had the ordinance not there, only nominal damages
would have been given, cannot hold true.
Ordinance did not create any new liability but only quantified the damages such that failure
of plaintiffs to insure the goods must now be measured on new basis; and the fact that it did
not exist at the time of the explosion and could not have been in the contemplation of the
parties was irrelevant for deciding the question of liability. Therefore, plaintiffs must put the
defendants in the same position as they would have been had the goods been insured.

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MINORITY- The defendants’ inability to recover the full value of the goods from the
Government under the Ordinance did not arise directly and naturally in the usual course of
things from the plaintiffs’ failure to insure, but from independent and disconnected events,
namely, the Government’s scheme for compensation, embodied in the Ordinance, the
agreement with the insurance companies regarding contribution and the consequent
discrimination made by the Government between insured and uninsured goods. Even when
the plaintiffs would have insured the goods, then such an explosion would not be ‘naturally’
covered under the insurance; it was only when the ordinance was promulgated that the
defendants would have become entitled to whole value of goods had they been insured, the
consequence which could never have naturally arose in due course of things.
If the Ordinance had provided for partial compensation in both cases, the respondents could
have no claim to recover the balance from the appellants, notwithstanding that the supposed
direct causal connection between the appellants’ default and the respondents’ loss would still
be there. The truth is there was no such connection and it was because of the provisions of the
Ordinance which made a distinction between insured and uninsured property in the matter of
compensation and the defendants were unable to recover the balance of the value of their
goods destroyed by fire. But such inability cannot be regarded as flowing naturally or directly
from the plaintiffs’ default.
The Ordinance did not, displace the ordinary rules of law as to remoteness of damage or
amend or abrogate any terms in the fire insurance policies and it was further difficult to see
how by virtue of an Ordinance passed some months after the explosion, the right to damages
could become enlarged. The broad principle of restitutio in integrum upon which the
assessment of the quantum of damages is based cannot be carried to its utmost logical results
but must be qualified by the rule of remoteness.

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 122. Richard Phillip Phillips v William Francis Barns
[ power of attorney does not relieve agents of the obligation
to inform the principal of all the developments pertaining to
the business.]
Facts- The plaintiff entrusted certain monies for investment to the defendants, who were
acting as agents on behalf of the plaintiff, and gave the defendant the power of attorney.
Losses occurred in 1929 due to investments in brokers' loans. The plaintiff filed a claim in
1934 for negligence and breach of duty. The trial judge dismissed the claim in 1935, but the
Court of Appeal allowed the appeal in 1935 and awarded damages.
Held- The majority of the Court of Appeal found a breach of duty under Section 214, holding
that the loss resulted from the defendants' conduct. They awarded damages based on the
difference between the amount invested and the amount realized. However, the Privy Council
found that the plaintiff would have made the same decisions as the defendants if provided
with earlier and more adequate information.
The case raises issues related to the duties and responsibilities of agents towards their
principals, including the duty to provide timely and proper information. The power of
attorney gives the power to the defendant, (Agent) to proceed with the business without
the instruction of the principal. The court further went on to observe that this power of
attorney did not relieve them of the obligation to inform the plaintiff of all the
developments pertaining to the business.
It's the duty of the agent that every possible information pertaining to the agency is
communicated to the principal at the earliest, without any delay.

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 123. Monindra Lal Chatterjee v Hari Pada Ghose and
Others
Facts-
 The defendant was appointed as an agent by Rakhal Das Sarcar, acting as the guardian
of minors Hari Pada Ghose and Guru Pada Ghose, and also as the husband of Gokul
Mohini Dassi.
 The defendant's duties included collecting rents, managing properties, and submitting
accounts.
 The plaintiffs alleged that the defendant failed to submit complete accounts after Guru
Pada attained majority in 1313 and refused to render accounts despite repeated
demands.
 The plaintiffs filed a suit seeking accounts from 1313 to 1337 B. S.
 The defendant contested the suit on various grounds, including misjoinder of parties,
misjoinder of causes of action, and limitation.
Issues-
1. Whether the claim for accounts up to the death of Guru Pada is maintainable based on
the facts presented in the plaint.
2. Whether the defendant's agency terminated upon Guru Pada's death, affecting the
limitation period for the claim.
Held-
 The court ruled that the suit is maintainable despite the alleged misjoinder of parties
and causes of action.
 The claim for accounts up to Guru Pada's death was found to be maintainable.
 The defendant's agency continued after Guru Pada's death under Hari Pada, and thus,
the claim for the period after Guru Pada's death is not barred by limitation.
 The court dismissed the appeal, affirming the decree for accounts from 1313 to 1337
B. S., and ordered the defendant to pay costs.

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 124. Seth Loon Karan Sethiya v. Ivan E John
Facts-
1. The appeal arises from a decision of the Allahabad High Court in execution First
Appeal No. 26 of 1961.
2. The appellant, a decree-holder, executed a power-of-attorney in favor of the State
Bank of Jaipur (referred to as "the bank").
3. The power-of-attorney authorized the bank to execute a decree in Suit No. 76 of 1949
and to realize and recover the decretal amounts.
Issues-
1. Whether the power-of-attorney is irrevocable as it is a power coupled with interest.
2. Whether the bank can be considered an agent with authority to execute the decree.
3. Whether the bank, acting as an agent, can continue execution despite the appellant's
objection.
Decision-
1. The power-of-attorney is deemed irrevocable as it is a power coupled with interest,
according to Section 202 of the Indian Contract Act, 1872.
2. The terms of the power-of-attorney do not indicate a transfer of the appellant's rights
in the decree to the bank.
3. However, the transaction under the power-of-attorney constitutes an equitable
assignment of the decree in favor of the bank, allowing it to act as the appellant's
agent in executing the decree.
4. As the bank is acting as the appellant's agent, it can continue the execution despite the
appellant's objection, as it serves the interest of both parties.
5. The execution application was filed in the name of the appellant, but the bank can
continue the execution in its own right as it was acting within the scope of its
authority as the appellant's agent.
6. The appeal is dismissed with costs.

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 125. Ramdhandas Jhajharia v. Sholapur Spinning and
Weaving Company
Facts-
 The defendant company, established in 1874, has experienced various financial
fluctuations but has remained involved in spinning and weaving, making profits along
the way.
 In 1930, the company faced a winding-up petition, leading to borrowing
approximately 70 lakhs via debentures.
 In 1931, managing agents, Morarji Goculdas & Co., were obtained, but conflicts
arose, leading to their dismissal in 1933.
 The dismissal resulted in multiple lawsuits between the company and the managing
agents, the Jhajharia family (who were selling agents), and disputes over debentures.
 From 1933 to 1937, there were no managing agents, but in 1937, the Murarkas were
appointed as managing agents, exacerbating existing tensions.
 In August 1938, a contentious company meeting occurred, allegedly involving
attempts to sway opposition members.
 In 1939, the selling agency agreement with the Jhajharias was terminated, leading to
disputes over shares and claims of wrongful actions.
Judgement- The judgment discusses the increase of capital and the underwriting agreement,
highlighting the resolutions and meetings where these decisions were made. It notes that the
scheme to issue new shares and increase capital was initiated by the directors, with the
ultimate goal of acquiring a majority of shares. The judge examines the legal principles
involved, particularly regarding suits brought by shareholders against the company for
alleged wrongs committed by the directors. The judgment distinguishes between suits based
on individual wrongs and those aimed at restraining acts ultra vires. It discusses the concept
of "fraud upon the minority" and the circumstances under which such suits may be brought.
The judgment emphasizes the importance of specifying the wrongdoers in such cases and
making them party defendants to the action. It notes that the real wrongdoers may include
both directors and managing agents, and they should be sued accordingly.

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 126. Kishan Lal v Banwar Lal
Facts-
 The plaintiffs, operating a business as commission agents in Indore and Jodhpur under
the name "Kanmal Kishenmal" and "Kanmal Surajmal" respectively, filed a suit
against the defendant in August 1946.
 The suit concerned forward contracts for the purchase and sale of bullion made by the
defendant through the plaintiffs' firm in Indore, resulting in significant losses.
 The plaintiffs claimed recovery of the outstanding balance from the defendant,
amounting to Rs. 10,342 annas, plus interest and costs.
Issues-
 The main issue revolved around the legality of the forward contracts in bullion, as the
defendant contended that they were illegal under Marwar law.
 The specific issue raised was whether the contracts were illegal under a notification
dated 3rd June 1943, which deemed forward contracts in bullion illegal if the delivery
date exceeded 12 days.
Held-
 Initially, the trial judge dismissed the suit, citing the contracts' violation of the
notification and Marwar law.
 On appeal, the High Court accepted the plaintiffs' argument that the contracts were
made outside Marwar and hence not subject to its laws. However, they upheld the
dismissal based on the notification's application to the agency contract itself, as
payments were to be made in Marwar.
 The Supreme Court disagreed with this reasoning, finding that the indemnity claim by
the plaintiffs, based on the contract of agency, was separate from the forward
contracts and not subject to the notification.
 As a result, the Supreme Court set aside the lower courts' judgments and remanded
the case to the original court for trial on other issues, directing evidence to be heard.
The plaintiffs were awarded costs up to that stage, with further costs to be determined
later.

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 127. Ackroyd and sons v Hasan
Facts- The plaintiff, a firm of estate agents entered into a contract with defendant for the
purpose of sale of leasehold interest in some premises. The clause of the agreement recited
that – “"We would take this opportunity of confirming that in the event of our introduction of
a party prepared to enter into a contract to purchase on the above terms or on such other terms
to which you may assent you will allow us commission upon the scale of the Estate Agents'
Institute.” Thereafter, negotiation took place between parties, solicitors of both the parties
prepared contracts, however the defendant then decided not to sign her part of the contract
and, in consequence, no enforceable contract came into existence. A suit was filled by the
plaintiff claiming that they had earned their commission under the contract with the
defendant.
Held- the defendant could not give her assent to the terms of the proposed sale until she had
received and approved the counterpart of the proposed contract, accordingly there had been
no assent by her to the terms of the proposed sale, and in consequence, the event stipulated in
the contract as that upon which the plaintiff’s commission would be earned had never
occurred and the plaintiff’s claim failed.
First, when an agent claims that he has earned the right to commission, the test is
whether upon the proper interpretation of the contract between the principal and the
agent the event has happened upon which commission is to be paid. Secondly, there are
no special principles of construction applicable to commission contracts with estate agents.
Thirdly, contracts under which a principal is bound to pay commission for an
introduction which does not result in a sale must be expressed in clear language

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 128. Collen v Wright [Agent’s liability to 3rd parties]
Facts- The testator Wright was not authorized by Gardner to sign the said agreements, or
either of them, as his agent or on his behalf, or to let the said farm for the period or on the
terms specified in the said agreements; and that neither of the said agreements was in law
binding upon Gardner. The testator Wright, however, bonâ fide believed, at the time when he
signed the said agreements, that he was so authorized.
Held- If a man describes himself as agent, when he is not so, he must pay for the damage
occasioned by the breach of warranty.
If a man makes a contract as agent he does promise that he is what he represents
himself to be, and he must answer for any damage which directly results from
confidence being given to the representation. There can be no doubt that in the present case
the testator did represent himself to be agent for William Dunn Gardner: he thought he had
Gardner's authority for making the lease; but he had not. He became answerable for the
consequences.
an agent who impliedly warrants that he has authority, is liable to be sued on his warranty.
The duty is grounded on an implied warranty by the agent that he has authority, and the
action, being in contract, lies even if the agent honestly believed he had authority, and against
executors.

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 129. Tashi Delek Gaming Solutions Ltd. v. State of
Karnataka
Facts-
 Section 7(3) of the Act imposes penalties for involvement in lotteries organized
against its provisions.
 Article 131 of the Constitution grants the Supreme Court original jurisdiction over
disputes between the Government of India and states, or between states themselves.
 The appellants, acting as agents for the State, challenged a notification affecting their
lottery business in Karnataka, which they claimed would cause significant financial
loss.
Held-
 Initially, the Single Judge ruled that the appellants lacked standing to challenge the
notification, as their rights were seen as derivative of their principal, the State of
Sikkim.
 However, the Supreme Court disagreed, emphasizing that agents have a right to sue
independently, especially when they have an interest in the subject matter.
 Referring to legal principles and precedents, the Court affirmed that agents with a
stake in contracts have the right to sue in their own names.
 Moreover, the Court highlighted that individuals facing potential prosecution for
violating a notification have the right to challenge its validity. Therefore, the
appellants had the right to challenge the notification affecting their business.
 Access to justice was emphasized as a fundamental human right, ensuring individuals
can defend their interests and liberties.
 The Supreme Court upheld the appellants' right to challenge the notification,
establishing their locus standi, or legal standing, to do so

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 130. Morris, Assignee of Smith, Bankrupt v. Cleasby [Del
credaire agency]
Facts- Morris was the assignee of the buyer and Cleasby was del credere agent/broker.
Broker, on behalf of Principal, sells goods to third parties. Buyers became bankrupt after
winning the auction. Buyers did not know identity of the Principal during auction; got to
know only on day of delivery. After identity is revealed, buyers ask the broker to sell the
goods on their behalf. (There has been no payment by the buyer to the Principal). Goods are
sold and whatever is due from the sale proceeds is given to the Principal. After original
principal is paid off, the broker is left with balance amount and is claiming for del credere
commission. The assignee of the bankrupt buyer files a case against the brokers.
Held- When the identity of the Principal is revealed, can the agent still apply for del credere
commission? Def. can't claim del credere commission because the defendant is no longer to
be liable to guarantee the solvency of the buyer, because once the identity of the principal is
revealed, then there is no role of agent
under a del credere commission as both the principal and third party can deal with each other.
The third party can thus directly deal with the principal.
Del Credere Agency- It’s Principal- Agent relationship, where the agent acts not just as a
salesperson/broker for the principal, but also as a guarantor of credit extended to the buyer. If
the buyer is unable to pay the bill after the transaction is completed, a del credere agent may
become liable for the amount that was unable to be collected. A DC agent doesn't reveal the
3rd party to P and vice versa (like a pakka arhtia). DC agent alone is responsible to the 3rd
party. The DC agent receives a DC commission, no tripartite contract. Need not be in writing.
Assures the P of the credit worthiness of the other party. Specifically, for sale of goods.
Additional commission of risk.

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 131. Prahlad v Laddevi [Position of agency after demise
of principal]
Facts-
1. The dispute involves a sale deed executed by the defendant No. 1 concerning a piece
of agricultural land originally owned by Mr. Milap Chand Jain.
2. Mr. Jain had granted power of attorney to the defendant No. 1 regarding the land but
passed away shortly after.
3. Despite Mr. Jain's demise, the defendant No. 1 proceeded to execute a sale deed in
favor of the defendant No. 2, who is the defendant No. 1's wife.
Issues-
1. Whether the power of attorney remained valid after Mr. Jain's demise, enabling the
defendant No. 1 to sell the land to defendant No. 2?
2. Did the defendant No. 1 act within the scope of the agency relationship when
executing the sale deed?
3. Was the sale deed executed with proper authority, considering the termination of the
power of attorney upon Mr. Jain's death?
Held-
1. The Court ruled that the power of attorney terminated upon Mr. Jain's death, thereby
ending the agency relationship between Mr. Jain and the defendant No. 1.
2. As the agency relationship ceased to exist, the defendant No. 1 lacked the authority to
act on behalf of Mr. Jain in executing the sale deed to defendant No. 2.
3. The sale deed was deemed invalid due to the absence of proper authority, and the
defendant No. 1's actions were unauthorized following the termination of the agency
relationship.
4. Consequently, the Court upheld the trial court's decision to cancel the sale deed and
grant a permanent injunction, dismissing the appeal.
A power of attorney granted by the donor to the donee is operative and effective only during
the lifetime of the donor. The donor and donee stand in relationship of master and agent.
Since the actions done by the donee are deemed to be actions done on the part of the donor,
naturally such a power of attorney cannot be operative or be effective after the demise of the
donor.
It is also not conceivable that the appellants did not know about the death of Mr. Jain. For, the
power of attorney is given to a person who is person of truth.

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 132. Gordon Woodroffe v. Sheikh M. A. Majid [Del
credaire agency]
Facts-
1. The respondent was a trader dealing in hides and skins, while the appellant was an
exporter.
2. Between January and August 1949, there were multiple contracts between them for
the sale of goods.
3. The contracts stipulated that the appellant was purchasing the goods for resale in the
UK at a price CIF less 2 1/2 %.
4. The contracts also included clauses regarding time as the essence, sales tax
responsibility, weight, quality, lien on goods, and arbitration in the UK for quality
disputes.
5. Before shipment, the goods underwent trimming and reassortment in the appellant's
godowns, were marked with the respondent's mark, and premiums were paid for
special quality goods.
Issues-
1. Whether the appellant acted as an agent or outright purchaser of the respondent's
goods.
2. Whether the settled accounts between the parties could be reopened by the
respondent.
Held-
1. The Court held that the appellant was the purchaser of the respondent's goods under
the contracts, not his agent for sale.
2. The essence of sale involves the transfer of title to goods for a price paid, whereas
agency involves delivering goods to be sold on behalf of the principal.
3. The terms of the contracts and the course of dealing indicated an agreement of sale,
not agency for sale.
4. The appellant purchased goods at a reduced price and sold them to London purchasers
at full price, making the 2 1/2 % difference its profit margin, not agency commission.
5. Additional factors like the respondent's mark on goods and premium payments did not
alter the nature of the transaction as a sale.
6. The accounts between the parties were settled and accepted by both sides without
objection, barring any reopening without sufficient grounds like fraud or mistake.

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 133. Keighley Maxted & Co. v. Durant [Undisclosed
principal]
Facts- K & Co authorized Roberts, a corn merchant, to buy wheat on a joint account for
himself and them at a certain price. Roberts, on his own behalf and without authority of
anybody else, bought wheat at a higher price than the authorized one, from Durant. The
intention that he was acting for K& Co. as well as himself was not disclosed by Roberts to
Durant. K & Co, however, later agreed with Roberts to buy the wheat at that (high) price but
eventually failed to do so. Durant resold it at a loss and sued them for loss.
Durant – Plaintiff at court of 1st instance
Roberts – appellant in Court of appeal, respondent in House of Lords.
K & Co – appellant in House of Lords.
Issues- Whether a contract made by a man purporting and professing to act on his own behalf
alone, and not on behalf of a principal, but having an undisclosed intention to give the benefit
of the contract to a third party, can be ratified by that third party, so as to render him able to
sue or liable to be sued on the contract.
Held- Earl of Halsbury L.C
He found the *marked observation of the court of appeal as contrary to all principles and
disagreed with the observation of the court of appeal and suggested for reversal of the ruling
of the court of appeal.
Lord Macnaghten (favoured Appellant)
He was of the same opinion as Earl of Halsbury. He pointed that “civil obligations are not to
be created by, or founded upon, undisclosed intentions.”On the point of lack of authority, he
quoted the observation of James L., “The clearer a thing is, the more difficult it is to find any
express authority or any dictum exactly to the point.”
Lord Shand
He was also of the same opinion. He found the evidences for the respondents (buying on
behalf of K & Co.) unsatisfactory and observed that there was no evidence that the
appellants, by any communication, conduct or dealing with the respondents, ratified or
adopted their contract with Roberts. He said that the result of such judgment of the court of
appeal is to give one of two contracting parties in his option, merely from what was passing
in his own mind and not disclosed, the power of saying the contract was his alone, or a
contract in which others were bound with him.
Lord James of Hereford
He also agreed to the same.He observed that D contracted with Roberts alone and he knew of
no disclosed principal other than Roberts, and there was no undisclosed principal. He pointed
out the fact that an undisclosed principal must exist at the time of the contract and such
principal cannot be brought into life after the contract has been made without any recognition
of his existence.
Lord Davey

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He also allowed the appeal and made a crucial point that “the rule which permits an
undisclosed principal to sue and be sued on a contract to which he is not a party, though well
settled, is itself an anomaly, and to extend it to the case of a person who accepts the benefit of
an undisclosed intention of a party to the contract would, in my opinion, be adding another
anomaly to the law, and not correcting an anomaly”.
Lord Brampton
Considering the facts of the case, he observed that there is a contract between Roberts and
Durant simply, to which it was never avowedly contemplated that Keighleys should be
parties.he allowed the appeal.
Lord Robertson
He held that “unless the contract made by the unauthorized agent purports or professes … to
have been entered into on behalf of another … then that contract made by the unauthorized
agent was not capable of being ratified by a stranger to it.” He also observed that there is no
room for ratification until the credit of another than the agent has been pledged to the third
party. Thus he allowed the appeal.
Lord Lindley
There is an anomaly in holding a person bound to another of whom he knows nothing and
with whom he did not in fact intend to contract. He said, “what Roberts intended was never
disclosed to Durant & Co., and cannot be inferred from the nature of the transaction itself.
His intention, therefore, cannot be allowed to affect the rights of the parties”.
A contract made by a person intending to contract on behalf of a third party, but
without his authority, cannot be ratified by the third party so as to render him able to
sue or liable to be sued on the contract, where the person who made the contract did not
profess at the time of making it to be acting on behalf of a principal.

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 134. Said v Butt [Undisclosed Principal]
Facts- The plaintiff wanted to go to a play’s first night. He had fallen out with the
management of the theatre, and knew that he would not get a ticket in his own name. He got a
friend to go to the theatre and buy a ticket for him without disclosing the fact (undisclosed
principal). When he turned up for the performance he was refused admission. He brought a
claim against Sir Alfred Butt, the managing director of the theatre.
Held- It must be proven that there was a binding and subsisting contract between the
Plaintiff and the Def. The purchaser’s identity was a material element in the formation of
the contract and that the failure to disclose the fact that the ticket was bought on his
behalf prevented the plaintiff from asserting that he was the undisclosed principal.
Owing to the fact that the present contract had a personal element (the Plaintiff would have
been denied a ticket had he personally applied), the Court held that Def. was right in refusing
entry to the undisclosed principal. The basic exclusionary rule is that the undisclosed
principal cannot intervene where the terms of the contract, express or implied, exclude
his right to sue and his liability to be sued.

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