Chapter V

OF CERTAIN RELATIONS RESEMBLING THOSE

CREATED BY CONTRACT

Quasi Contracts or Implied Contracts.—Chapter V does not deal with the rights
r
or liabilities accruing rorn the Contract but those accruing from relations resembling
those created by Contract.' These relations resembling contract are known as contract
implied in law or a quasi contract. It is not a real contract or as it is called, a consensual
contract based on agreement of the parties. These obligations come into existence by a
fiction of law. It may become necessary to hold one person to be accountable to another,
even without any agreement between them, on the ground that otherwise he would be
retaining money or some other benefit which has come into his hands to which the law
regards the other person as better cntiticd, or on the ground that without such accounta-
bility the other would unjustly suffer loss." The law of quasi-contract exists to provice
remedies in such circumstances.' In quasi-contracts, liability exists, according to some
wriiers, 4 to prevent unjust enrichment and for this the courts do not take notice of the
intention of the parties or their agreement. However, the other view is that it rests upon
y
a h pothetical contract which is implied by law." According to this restricted view
quasi-contractual liability can, only arise where a contract can he implied by law.6
68. If a person, incapable of entering into a contract, or anyone
Claim for nec- whom he is legally bound to support, is supplied by
cs.sar;cssuplicd
another person with necessaries suited to his condition in
able of contract- life, the person who has furnished such supplies is entit-
i2n
'our
on his
led to be reimbursed from the property of such incapable
person.
Illustrations
(a) A supplied B, a lunatic, with necessaries suitable to his conditions in life. A is
entitled to be reimbursed from B's property.
(h) A supplied the wife and children of B, a lunatic, with necessaries suitable to their
conditions in life. A is entitled i.e he reimbursed from B's property.
'Staic of W. Bengal v. B. K. Mont/al A. 1962
S C 779. Company Lid. v. Dewani (1960) A.C. 192,
2 Quoted in Dhrangadhra Mimi v. Dhran- 204, Per Lord Denning.
gad/ira Chemical Works. (1988) G.L.R. 5 Sinclairt /3roughoin (1914) A.C. 398,
388 at 400 from Anson's Contract, 25th 415, 452 Per Viscount Haldane and Lord
edn. Sumner, respectively; lb/i v. Markhu,n
3 Anson's Law of Contract (23rd ed) 589.
(1923) 1 K.B. 504, 513, Per Scsuurin L.J.;
Moses v. Macfar/an (1760) 2 Bun' 1005, Re: Diplock (1948) Cl,. 465, 480.
1008 Per Lord Mansfield; Fibrosa Case ' (1914) A.C. 398, 452; Lord Sumner: cf.
1943 A.C. 32, 63 per Lord Wright: United Supreme Court of India's Approach, State
Australia Lid. v. Barclays Bank Lid. (1941) of W. Bengal v.3K. Mondal A. 1962 S C
A.C. 1, 28, per Lord Atkin, Kiriri Cotton 779. S
 174 THE INDIAN CONTRACT ACT {Ss. 68, 69
Person incapable of entering into contract.—Since the decision of the Judicial
t:.mittee in Mohor: Bibi v. Dhurmodas Ghose 7 it is clear that this section apolics to
minors as well as to persons of unsound mind (see the illustrations) and other, i any dis-
quaifi.d from contracting by any law to which they are subject, e.g. a ward under U.P.
Court of Wards Act."
Necessaries.' '--Costs incurred in successfully defending a suit on behalf of a r.;inor
in which his property was in jeopardy ar "necessaries" within the meaning of this sec-
tion.9 And so are costs incurred in defending him in a prosecution for dacoity.'° So also
a
is a loan to minor to save his property from sale in execution of a decree." Money
advanced to'a Hindu minor to meet his marriage expenses is supplied for "necessaries,"
and may be recovered out of his properly' 2 but without interest; 13 so also moneys
advanced for the purposes of the marriage of Muslim girl. 14 But a distinction has been
drawn, it would seem rightly, between the case of male and female minors on the ground
that the Hindu text Mioined the marriage of the latter but not the former." It is submit-
ted that the passing of the Child Marriage Restraint Act, 1929, has made the child mar-
riage as an offence, and a court would scarcely regard expenditure on a purpose forbidden
by law as expenditure on necessaries.
As to the definition of necessaries in general, see notes to section 11, under the head
"Necessaries."
Any one whom he is legally bound to support.—This expression is well illustrated
by ill. (b). This expression covers cases of husband and wife.
Remedy, Nature of.—A supplier of necessaries has been given a remedy to proceed
against the estate of the person under a disability; he is not entitled to proceed personally
against such a person.

Reimhurscmer,t 69. A person who is interested in the payment of

of person paying
money due by the money which another is bound by law to pay, and who
Other, in payment therefore pays it, is entitled to be reimbursed by the other.
of which lie is
interested.
Illustration
B holds land in Bengal, on a lease grantee 5y A. the zamindar. The revenue payable
by A to the Government being in arrear, his land is advertised for sale by the Government.
Under the revenue law, the consequence of such sale will be the annulment of B's lease.
Bto prevent the sale and the consequent annulment of his own lease, pays to the Gov-
(1903) 30 Cal. 593, L.R. 30 Li'. .i4. Loan Co., Lid. v. Gopal 11ari Ghose
Vishwanath Khanna v. Shiarn Krishna Choudhurj (1928) 30 C.W.N. 366, 94, I.C.
(1937) 166 I.C. 47, 159 ('26) A.C. 657; Meenaks/zi Ranga Ayy-
9 Watkins v. Dhunnoc' Baboo (1881) . 7 CaJ,
a.ngar ('32) A.M. 696, 139 I.C. 383; Shni.
140; Phafrain v. Ayub Khan (i926) 49 niwasrac, v. Baba Ram ('33) A.N. 285, 145
All. 52, 98 I.C. 657, ('27) A.A. 55. I.C. 350.
10 Sham Charan Ma! v. Chowdhry De5ya 13 Rarnchandra v, Hari ('36) A.N. 12.
Singh (1894) 21 Cal. 872. 24 Rahima /Jibi v, Sherfuddin (1947) Mad.
Kidar Nath v. Ajudhia (1883) Punj. Rec. 541, ('47) A.M. 155.
no. 185. 15 Tik.kj Lai v. Korna/cha,zj./ (1940) Nag. 632.
' Z Paihak Kali Charan v. Rain Deal Rain ('40) A . N. 327.
(L. ' / ) 2 Pat. L.J. 627; cp. Regd. Jessore
S. 691 THE INDIAN CONTRACT ACT 175

ernment the sum due from A. A is bound to make good to B the amount so paid.'
[As to the date from which time runs for the purpose of limitation in cases within
this scctio, see Muthuswarni Kavundan v. Ponnayya Kavundan (1928) 51 Mad. 815.1
"Person . . . interested in the payment of money."—This section lays down a
wider rule Lan appears to be supported by any English authority. The words "interested
in the payment of money which another is bound by law to pay" might include the appre-
hension of any kind of loss or inconvenience, or at any rate of any detriment capable of
being assesse" in money.17 This is not enough, in the Common Law, to found a claim
to reimburscrnc'.t by the person interested if he makes the payment himself. Authoritative
statements in English books are much more guarded, for example: If A is compellable to
pay B damages which C is also compellable to pay B, then A, having been compelled to
pay B. can maintain an action against C for money so paid, for the circumstances raise
an implied request by C to make such payment in his case. In other words, A can call
upon C to indemnify him.' '
But the English authorities do not cover a case where he paintiff has made a pay-
ment operating for the defendant's benefit, but was not under any direct legal duty to do
so, nor where the defendant was not bound to pay, though 1h6 payment was to his advant-
age. The assignee of a term of years mortgaged the premises by sub-lease. The mortga-
gees took possession, but did not pay the rent due L'.rlder the principal lease. The original
lessees, who of course remained liable to the lessors, had to pay the rent, and sued the
morgagcc.s to recover indemnity. It was held that the action did not lic, 9 for there was
no obligation common to the plaintiff and the defendant. It was to the mortgagees' inter-
est that the rent should be paid, but no one could call on them to pay it.
This section only applies to payments made bona fide for the protection of one's
own interest. A person may be interested in the payment, but if in making the payment
he is not actuated by the motive of protecting his own interest, he cannot recover, under
this section,2° Thus where A purchases property from B, and the sale is fictitious, A
cannot recover from B money paid by him to save the property from being sold in exe-
cution of a decree against B.21 It is, otherwise, however, if the sale is bonafide, 22 Where
A's goods are wrongfully attached in order to realise arrears of Government revenue due
by B and A pays the amount to save the goods from sale, he is entitled to recover the
amounts from B.23

raiyaZWjjS5a v. Bajro.ng Bahadur Singh 19 Banner's Case (1898) 1 Q.B. 161, 167.
(1927) 1 Luck, 275, 104 I.C. 358, ('27) 20 Sec Desai I!i'nasireji v. Bhavabhai
A.O. 609. (1880) 4 Born. 643, 652. See also Secy. of
17 The view propounded in the text was Slate v. Raztgaswarni & Co. (1927) 106
adopted by Stanley, C.J., in Tulva Kunwar I.C. 657, ('28) A.M. 198.
v. Jageshar Prasad (1906) 28 All, 563, by 1 Janki Prasad Singh v. Baldeo Prasad
the Madras 1-ugh Court in Subra,nania iyer (1908) 30 All. 167.
v. Rugappa (1909) 33 Mad. 232 and by 22 Subramania Jyer v, Rwigappa (1909) 3
the Calcutta High Court in Pankitabaii v. Mad. 232.
Nani La! (1914) 18 C.W.N. 778, 781; Sii 23 Tulsa Kunwar V. Jagesizar Prasad (1906)
Fakir v. Cha,td l3ewa (1928) 32 C.W.N. 28 All. 563; Abid Ilusain v. Ganga Sahai
1087, 108 I.C. 46, ('28) A.C. 389. (1928)26 All. L.J. 435, 113 I.C. 441, ('28)
Bo,uier v. Tottenham, etc., Building Sockty A . A. 353; Exalt v. Partridge (1799) 8
(1898) 1 O.B. 161, 167, per A. L. Smith, Term R. 308(1775-1803) All. E.R. Rep.
L.J. 341.
176 THE INDIAN CONTRACT ACT [S. 69
It is enough for a person claiming under the provisions of this section to show that
he had an interest in paying the moneys at the time of payment. A mortgagee of a ant's
crop paid the amount c'ue to Government in respect of a loan given to the tenant (mort-
gagor) and raised the attachment. The mortgagee being interested in payment was entitled
to recover from the mortgagr (tenant) the amount so paid to the Government. 14 Thus
moneys paid by a persci while in possession of an estate under a decree of a court to
prevent the sale of the estate for arrears of Government revenue may be recovered by him
under this section, even though the decree may be subsequently reversed and he may be
deprived of possession. 23 The section does not require that a person interested in a pay-
ment should at the same time have a legal proprietary interest in the property in respect
of which the payment is made. The Appellant Company had contracted to buy the
mills but they were imminently threatened by the municipality to pay unpaid taxes on the
mills relating to a period before the date of sale and so payable by the Respondent (i.e.
the Maharaja). The Respondent, when approached by the Appellant, showed no sign of
paying the taxes to the municipality. So the Appellant company paid the sum to avoid
the stoppage of the supply of water to the mills and a forced sale whicil would defeat its
purchase. Such payment made by the Appellant Company cannot be called a voluntary
payment. The Appellant Company paid this sum as it was "interested in the payment."
"The Company was interested in the taxes being paid at the time when they were paid
since only through the payment could it realise the fruit of the contract that it had entered
• ,,27
into.
In Ram Tuhul Singh v. Biseswar Lai n the Judicial Committee, in dealing with the
riglts of parties making payments, observed: "It is not in every case in which a man has
beneitcd by the money of another that an obligation to repay that money arises. The ques-
tion is not to be determined by nice considerations of what may be tair or proper accord-
ing to the highest morality. To support such a suit there must be an obligadon express
or implied to repay. It is well settled that there is no such obligation in the case of a volun-
tary payment by A of B's debt."
"Bound by Law."—The liability for which payment may he made under this sec-
tion need not be statutory. 29 Contractual liability, on the other hand, is not a necessary
element."' An action to recover money is not maintainable under this section unless the
person from whom it is sought to be recovered was bound by law to pa y it. And where
the income-tax authorities assessed the widow of a deceased, notwithstanding remon-
strances on her part that the outstandings had not come to her, but had been bequeathed
under the will of the deceased to the defendants, the widow paid the tax, it was held that
she could not recover the amount from the defendants under this section, for the defen-
dants, not being the parties assessed, were not "bound by law'' to pay the tax. When

Swni PilIai v. R. Naidu (1972) A. Mad. 4. Panch/core V. Hari Dos (1916) 21 C.W.N.
23 DakhinaMohan Roy v. Saroda Mohan Roy 394, 399; Ruabon S.S. Co., v. London
(1893) 21 Cal. 142, L.R. 20 I.A. 160; Assurance (1900) A.C. 6, 15.
Nagendra ,Vath Roy v. Jugal Kishore Roy 29 Mothooranath v. Kristokumar (1878) 4

(1925) 29 C.W.N. 1052, 90 I.C. 281, ('25) Cal. 369, 373,

A.C. 1097. ° Rasappa Pihini V. Donaiswni Reddiar
26 Govindram v. State of Gondal(1950) 77 I.A. (1925) 49 Mad. L.J. 88, 90 IC. 545, ('25)
156, 52 Born. L.R. 450, c'50) A.P.C. 99. A.M. 1041.
27 ibid. A.I.R. 1950 P.C. 104.
Raglzuuan v. Aiwnelu AmrnaI (1907) 31
28(1875) 15 B.L.R. 208, L.R. 2 I.A. 131; Mad. 35.
Ss. 69, 701 THE INDIAN CONTRACT ACT 177
here is no joint family property n his hands, a Hindu father is not "bound by law" to
get his minor daughter married and therefore - mother incurring expense to get daughter
married cannot recover from the father under this Section . 32 A person purchasing prop-
erty subject to a charge is alone liable to pay it off and so he cannot recover the amount
paid by him from the person originally liable in respect thereof. So a mortgagee purchas-
ing a property in execL"on of a mortgage decree cannot recover from the original tenant
the amount which the mo r tgagee-purchaser pays to satisfy the rent decree held by a land-
lord for rents due prior to his purchase. A purchaser purchasing a property with the
incumbrance of rent due from the original tenant with respect to properly is deemed to
have knowledge of the prior incumbrances and the existence of an incumbrance must
have affected the price which he offered at the time of sale. Such a purchaser simply dis-
charges his own liability and not that of the original tenant and therefore the former is
not entitled to recover the prior rent charges paid by him from the latter. 33 Similarly a
person buying immovable property subject to a charge for maintenance in favour of a
widow cannot recover from the vendor maintenance money paid by him to the widow to
save the property from sale at the instance of a widow . 3 The Maharajah was bound to
pay this money in the sense that lie had made a legally enforerable contract with Mr. Sek-
saria to pay it. "Unless the words 'bound by law to pay,' where they occur in tl.. SCCtiOn,
exclude those obligations of law which arise inter panes, whether by contract o by tort,
and embrace no more than those public duties which are imposed by statute or general
law, the Maharajah was a person from whom reimbursement could he. claimed under the
section. But their Lordships think that the words extend to any obligation which is an
effective bond in law. Certainly the Common Law of England afforded a right of indem-
nity to one who had paid 'under compulsion of law' against the true obligor without un-
iting the circumstances in which the latter's liability had arisen. Certainly too, there is
authority in the Courts of India for the proposition that 'bound by law' covers "ob1i'a-
tc'ns of contract or tort.' '

70. Where a person lawfully does anything for another person, or-
Obligation of delivers anything to him not intending to do so gTatuit-
rk-rson enjoying
benefit of non- ously, and such other person enjoys the benefit thereof,
gratuitous act, the latter is bound to make compensation to the former
in respect of, or to restore, the thing so done or delivered.
Illustrations

(a) A, tradesman, leaves goods at B's house by mistake. B treats the goods as his
own. He is bound to pay I for them.
(b) A saves B's p-'operty from fire. A is not entitled to compensation from B, if the
circumstances show that he intended to act gratuitously.

Where a person lawfully does anything for another person. The word 'a person'
32 Sundaramma v. Suryanarayana, A.I.R. (1907) 17 Mad. L.J. 250.
1950 Mad. 274, 35 Govindrayn v. State of Gondal (1950) 77
Ranglal Sahu v. Kali Shan/car Sahai, I.A. 156, 52 Born. L.R. 450, A.I.. 1950
A.I.R. 1924 Pat. 235. P.C. 99, 104. para 14.
34 Mangalaihanunal v. Naravo.na Swami
178 ThE iNDIAN CONTRACT ACT [S. 70
mean a person who actually supplies goods or renders service. 36 In r last case the
plaintiff having admittedly not supplied the goods but the second defendar.: ad done so,
the suii was dismissed. The expression 'anothc person' includes within its scope indi-
viduals as well as Government37 and Municipalitice as well successor to the title of
the person who received the benefit such as the Government and Gondia Municipality
who succeeded 10 dispensary Fund Cammiuc.e.39
Benefit: Acceptance of benefit need not be a voluntary act.40
Benefit arising as a result of the Government issuing a blanket licence instead of a
restricted licence cannot be attributed to the act of the plaintiff and he is not entitled to
the restoration of benefit arising due to issue of blanket licence,41
Non-gratuitous act done for another—This section goes far beyond English
law By the Common Law, if goods, work, or anything valuable be offered in the way
.42
of business and not as a gift, the acceptance of them is evidence of an agreement—a real,
not a fictitious, agreement, though it need not be expressed in words—to pay what the
consideration so given and taken is reasonably worth. A man is not bound to pay for that
which he has not the option of refusing. 43 Under this section it would seem that who-
ever finds and restores lost property, apart from any question of a reward having been
offered, is entitled to compensation for his trouble if he did not intend to act gratuitously.
This is certainly not the Common Law rule.
"The terms of [this section) are unquestionably wide, but applied with discretion
they enable the Courts to do substantial justice in cases where it would be difficult to
impute to the persons concerned relations actually created by contract. It is, however,
especially incumbent on final courts of fact to be. guarded and circumspect in their con-
clusions and not to countenance acts or payments that are really officious.' It is plain
that the. Section ought not to he read as to justify the officious interference of one man
with the affairs or property of another or to impose obligations in respect of services
which the person sought to he charged did not wish to have rendered.45 If, case gov-
ernment repaired a tank from which were irrigated lands, some of which were Zamindari
villages and others were raiyatwari villages held under government. The government
effected the repairs as it was necessary for the purpose of preservation of the tank. It was
found that government had carried Out the repairs not gratuitously for the defendants who
had enjoyed the benefit of it. In a suit by government to recover from defendanLs iheir
share of the costs of repairs it was held that government was entitled under S. 70 of the
Act to recover part of the costs incurred from the defendents on the basis of irrigable area
of lands owned by plaintiff and defendants. 45 Upon the same principle, where a mort-

36 Hansraj Gupta & Co. v. Union of India 41 Srjnivas & Co. v. Inden Iliselers, (1971)
(1973) A.S.C. 2724. A.S.C. 2224.
Stale of Wes: Bengal v. Lt.K. Mondal & 42 This was recognised in Jarao Kumari v.

Sons, (1962) A.S.C. 779 - (1962) 2 S.C.A. Basanta Kumar Roy (1905) 32 Cal. 374,
375. 377.
38 Piloo Sidhwa v. Poona Municipal Corpora- Sumpter v. Hedges (1898) 1 Q.B. 673, 676
tion, (1970) 3 S.C.R. 415 = (1970) A.S.C. per Collins Li., see also Falcke v. Scottish
1201 = 73 Born. L.R. 301. Imperial Insurance Company (1887) 34
Panno-lal v. Dy. Commissioner I3handara, Ch. D. 234 248, Bowen L.J.
(1973) 1 S.C.C. 639 = (1973) A.S.C. 1174. Suchand V. !Jalaram (1910) 38 Cal. I at 7.
Khader Khan v. Doraiswami (1974) A. Dc.m.odara Mudaliar v. Secretary of State
Mad 371. for India 0895) 18 Mad. 88, 93.
 S.701 THE INDIAN CONTRACT ACT 179
gage threatened to sell the land mortgaged to him and one of the co-sharers paid up the
mortgage debt to prevent the mortgaged property from being sold, it was held that he was
entitled to conu-ibutjon from the other co-sharers.' Act was not gratuitous ir.' 'ie C21-
cutta Case. An entire tenure was sold in execution of rent decree obtained against some
of the tenants. A plaintiff who was not a party to the rent suit deposited, with the approval
of the court and lawfully, the prescribed amount under S. 310A of C. P. Code (XIV of
1882 to have the sales set aside to protect his own interest in the holding. The sales were
set aside with the result that the liabilities of the defendants in respect of rent were dis-
charged. It was held that plaintiff was entitled to contribution from defendants as per their
share in the decretal debts .47 The section does not apply where an act is done by one
person at the express request of another. Thus if a client engages a pleader to act for him
in a case, and if no fee is fixed, the pleader is entitled to reasonable remuneration not
under this Section, but because the request implies a promise to pay such rem uncra-
tion. On the other hand, it can be seen that the act was done gratuitously in the follow-
ing cases and so there was no liability under S. 70 of the Contract Act. So where under
the agreement the purchasers of the property sold undertook to pay on behalf of their ven-
dors a portion of the purchase price to a mortgagee who held the mortgage over some
other property of the vendors which was not the subject of sale. Owing to delay in the
registration of the sale deed which was caused by he action of the vendors, the purchas-
ers did not immediately pay the stipulated sum to mortgagee. Subsequently when they
tendered the sum to mortgagee, he refused to accept it without further payment of interest
which had fallen due by this lapse of time. The purchasers paid the additional sum to the
mortgagee but claimed it to recover from the vendors. It was held that there was no obli-
gauc upon the purchasers to pay to mortgagee any amount towards the payment of inter-
est. Their liability was restricted to the supulated sum only and the payment of interest
was gratuitously made. It may be that vendors were benefited by the payment of interest
to their Creditors but this by itself is not sufficient ground to fasten them with liabiLity.49
So where out of three defendants A, B and C, in a previous suit, A had one-half interest
in the disputed property of the litigation and in order to safeguard his interest A had to
fight out the case in the best way he could; if incidentally and without any special 6ffort
on A's part, B and C derive any advantage, it cannot be said that A
had done something
for the benefit of B ?nd C.
Essential conditions of this section.—By this section three conditions are required
to establish a right of action at the suit of a person who does anything for another: (1)
the thing must be done lawfully; (2) it must be done by a person not intending to act gra-
tuitously; and (3) the person for whom the act is done must enjoy the benefit of it.5'
Person liable to contribute.—In Governor-General in Council v. Madura Munic-
ipality52 the Provincial Government wrongly purported to exercise their powers under
46
Khairaj Hussain v. Ilaidri Begwn (1888) 51 Damodara Mudaljar v Secretary of State
All W.N. 10. for Itidia (1894) 18 Mad. 88; Ranjani Kau
Sewhand v. Balaram (1910) 38 Cal. 1. v. Puma Nath (1914) 19 C.W.N. 458, 460;
8
Sibkisor Ghose v, Manik Chandra (1915) Laksh,nanan v. Ariuiachalajn ('32) A.M.
21 Cal- L.J. 618. 151, 135 I.C. 590; Union of India v. Gas-
9 Suraj Bhan V. Ha.shmi Bewn (1918) 40
wapni (1974) A. Cal. 131.
All. 555; Sec also Naihu v. Balwantrao (1949) 75 I.A. 213, (1949) Mad. 529, 51
(1903) 27 Born 390, Born. L.R. 927. ('49) A.P.C. 39.
° Gula,nflhj v.fnayatAliA.I.R. 1933 Lah.95.
180 THE ENDIAN CONTRACT ACT ES. 70
the Railways Act and required the Rai l way Company to widen a culvert. The Railway
Company while stating that Government had no power to require such widening of the
culvert agreed to do the work and charge either Government or the Municipality. After
the .iork was completed the Railway Company filed a suit against the Municipality.
Their Lordships held that although the Railway Company did not intend to do the work
gratuitously, the work was not done for municipality and it did not enjoy the benefit of
it except in an indirect sense and so municipality was not liable under S. 70 of the Act.
The Division Bench of the High Court of Madras also Look the same approach when the
case was before it. Accordingly it stated:53
"This is a very indirect benefit, and Section 70 can in our opinion only have appli-
cation where there is direct benefit to the person for whom the work is done. The persons
who are enjoying the benefit of this work are the owners and occupiers of the buildings
in the locality. It would be doing violence to the section to say that in these circumstances
the work was done lor the benefit of the municipality."
14
But in the Supreme Court case the government was made liable under S. 70 of
the Act as it had full and direct benefit. A part of the steel supplied by the government
of India was utilized for manufacturing gas plants by the plantiff company and the rest
of the unused steel was delivered under the government's direction viz, the Controller of
Steel, Kanpur to another concern called G Bros. which held the steel on behalf of the gov-
erornent. of India. On a suit filed by the plaintiff company against the Union of India for
steel delivered, the Union of India was defended in the Supreme Court that it was tnerely
controlling the supply and distribution of iron and steel and that the liability to pay the
price of goods dealt with by it in the exercise of its powers of control rested upon the
party receiving the goods. However, the Supreme Court found that while directing the
plaintiff company to deliver steel to another concern, the Controller of Steel, Kanpur, was
dealing with the goods as if they belonged to the government of India and so it should
be liable to pay for them when the plaintiff company was directed to deliver the goods
to G. Bros. When G. Bros. held the supply of Steel made to them by the plaintiff com-
pany, they were holding the steel on behalf of the government of India who must have
reaped full benefit of the delivery to C. Bros. According to the Supreme Court the defen-
dant "had enjoyed the full benefit of the delivery of goods to G. Brothers and not merely
an indirect benefit thereof."55
Where a contract is partly performed, the other party is not bound to pay unless it
is shown that he has taken benefit of the part performance under circumstances sufficient
to raise an implied promise to pay for the part performance.
Quantum of Compensation.—Whcre a building contractor does 'extra work' over
and above the work mentioned in the contract, he would be entitled to be paid at the
market rate for such extra. work. Compensation is usually at the market price of the
goods supplicd.5
In respect of a contract for construction of drainage syphons, after acceptance of the
tender, specifications were altered by the Engineer and this resulted in additional item of
A.I.R. 1945 Mad. 427, 430. Board A.I.R. (1963) Ker. 181.
Union of India v. MIs. JX. Gas Plan! 57 V. R. Subramanyam v. B. Thayappa (1961)
(1980) 3 S.C.C. 459 = A.T.R. 1980 S.C. 3 S.C.R. 663: (1961) 2 S.C.J. 191.
1330. Piloo Sidiiwa V. Poona Municipal Corpora-
ibid. p. 475. tion (1970) A.S.C. 1201 = (1970) 3 S.C.R.
56 Krisnna Menon v, Cochin Dcwaswo,n 415 = 73 Born. L. R. 301.
 S. 70]
THE INDIAN CO NTRACT ACT
181
wore p' Dlcnging the duration of work and sharp rise in cost of material and labour.59
Th., contractor claimed on the basis of i
ciple of quantum meruic. 59 ncreased rates of material and labour on the prin-
It was held that so long as the contract remained and was not
frustrated it was not open to the contractor to ignore the express terms of the contract
and claim payments at the rates different from
those stipulated on the plea of equity. 59
Quantum meruit can be awarded only if the contract does not provide a fixed price
or a consideration for the work done. '0
ex In another case, where a formal lease was not
ecuted, lessee was held to be not entitled to damages for breaches of oral lease but it
was held that he was entitled to the return of security deposit.6'
"Lawfully. , —By
the use of the word "lawfully" in this section the
had in cont Legislature
emplation cases in which a person held such a relation to another as either
directly to create or re asonably to justify
the interference that by some act done for
another person the person doing the act was entitled to look for
person for whom it was done. 62 com pensation to the
sis Where a person managed the estate of his wife and his
ters-in-law and was under the impression that he would receive remuneration for his
Services, he was entitled to claim reasonable payment. 63
The word "lawfully" in this
section is not mere surplusage. It must be considered in each individual case whether the
person who made the payment had any lawful interest in making it, if not, the payment
can'o cc said to have been made lawfully.
64 A payment made by a person fraudulently
and dishonestjy with the intention of m
anufacturing evidence of title tojand which
belonged to the defendent, and to which he knew he had no claim, is not lawful vithi
the meaning of this section. 65
So a tenant could not invoke S. 70 of the Act as his action
was not lawful when he had effected rapairs amounting to renovation of building without
previous permission of Rent Controller as required under S. 22 of Madras Buiiding
(Lease and Rent Control) Act 1960 and also disregarded objections of
landlord.
aword "lawfully" indicates that after something is done or iclivered to one p 66 The
n erson by
other and the thing accepted and enjoyed, a lfl relationship arises between the
two.67 "There lawful
done fr is no doubt that the thing delivered or done must not be delivered or
audulently or dishonestly nor must it be delivered or done g
is not intended to entertain claims for com ratuitously. Sec. 70
pensation made by persons who officially inter-
fere with the affairs of ather or who impose on others services not desired by them.
Sec. 70 deals with cases where a person does a thing for another not intending to act gra-
tuitously and the other enjoys it. It is thus clear that when a thing is delivered or done
by
9
one person it must be open to the other person to reject it. . . . under Sec. 70 there is
State of Rajasthan v. Motiram (1973) A.
Raj. 223. est. Gopeshwar Banerjee v. firojo Suiari
Purar. La! Saiz v. Slate of liP. Di (1922) 49 Cal. 470.
(1917) 65 Desaj Himatsinji v. Bhavabhaj (1880) 4
A.S.C. 112.
61 Born. 643, 653. Sec a ls o JjnnajAli v. Fateh
State of Rajasthan v. Raghunain Singh
(1974) A. Raj. 4. Ali (1911) 15 C.W.N. 332, 334, 335,
62 6
Doraipandi Konar Y. Sundara Pathar,
Chedi La! v. Bhagwa,z Das (1888) 11 All.
A.I.R. 1970 Mad. 291.
234, 243; see Gord6anjai v. Darbar Shri
67
Surajma/jj (1902) 26 Born. 504, 518. Shabhaz Khan v. Bhangj Khan (1931) 135
3 I.C. 177, ('31) A.L. 344; Nathibai v. Waj-
Pa/anjye(u v. Neelava,/ij (1937) 39 Born.
L.R. 720, 167 I.C. 5, ('37) A.P.C. 50. laja (1937) Nag. 111, 169 I.C. 675, ('37)
A.N. 330; I3ankey Beharj v. Mahencira
Panchkore v. Hari Das (1916) 21 C.W. N.
394, 399. A reversioner' expectant on Prasad (1940) 19 Pat. 739, 188 IC. 772,
the ('40) A.P. 324 (FB.).
death of a Hindu widow has no such inter-
 THE INDIAN CONTRACT ACT [S. 70
182
no sc'pe for claismfor specific performance or for damages for breach of contract In
the vy nature of things claims for compensation are based on the footing that there has
be' - no contract and that the conduct of the parties in relation to what is delivered or
61
done creates a relationship resembling that arising out of contract."
Persons incompetent to contract.—This section does not apply to persons who are
r. :ompetent to contract. The section refers to circumstances in which the law implies a
con use to pay, and where there could not have been . a legally binding contract, a promise
to pay cannot be implied.67
Contracts required to be in writing.—Where there is a mandatory provision in an
void .6R But. it has been held
Act requiring contracts to be in writing, an oral contract is
by the Supreme Cour0 9 that where work has been done and accepted, sec. 70 is appli-
cable and payment should be made for the work done. So where the Respondent, a firm
of Contractors, had at the request of certain Officer of the government of Bengal (as it
then existed) done certain construction work for govertiment and the latter had taken the
benefit of that work. These officers were not authorised by the government to make the
request on its behalf and the Respondent was aware of such lack of authority. The
Supreme Court invoked s. 70 of the Act for the Respondent against the Appellant."
Similarly, a contract entered into by A with the government of India for the supply of coal
to Railway Administration was void and uwenforccablc as it contravened S. 175 (3) of
government of India Act, 1935. But if tinder the said void contract, A had performed his
part and government had received the benefit of the performance of the contract by A,
government was bound to make compc-nsalion to A in the form of the value of the said
Coal under S. 70 of the Contract Act, (' The said principle of invalidity of contract has
not been extended to pro-notes which are not admissible under section 35 of the Stamp
Act and especially where the loan was simultaneous or where it was not given by way
of collateral security. The provisions of this section would not apply to such a case even
on the basis of subsisting original contracL7'
Responsibility 71. A person who finds goods belonging to another
of finder of goods.
and takes them into his custody, is subject to the same
responsibility as a bailee.
Liability of finder.—As to who is a bailce and what are his responsibilities see Ch.
IX below.
One Ii picked up a diamond on the floor of K's shop and71handed it over to K to keep
it till the owner appeared. I! is therefore the finder of goods, Such a finder of goods is
liable (i) Ii try and find out the true owner, and (ii) to take due care of the goods. Such
a finder ;' ntiticd to the possession of such goods against all the world except the true
owner. -72 Such a finder is entitled to a lien, retain the goods even against the true owner
until he is paid by the owner compensation for the custody, care and preservation,
although he is not entitled to sue for such compensation. Where, however, the owner has
offered a reward to the finder, the finder could sue for the- reward on the basis of a con-
6a Chauurbhuj Vithaldas v. Moreshwar ('54) of India A.I.R. 1964 S.C. 152
,%.S.C.23-' 71 Perwnal Chettiar v. Kajrzakchiammal
69 ,' -le of Wrs: Bengal v. B. K. Mondal & ( 1938) A. Mad. 785 (F.B); L. Soinbosiva
foes ('62) A.S.C. 779,(1962) 2 S.C. A. Rao v. T. I3aiakatiah, (1973) A.A.P. 342
375. (F.B.).
70 New ,',. ne Coal Company LAd. v. Union 72 I/ohms v. Fowler, L.R. 7 H.L. 757.
 Ss. 71, 72] THE INDIAN CONTRACT ACT
183
tract (offer ard acceptance)." In English Law, once a finder accepts responsibility for
the goods his liability is that of a gratuitous bailee. In Newman v. Bourne & Ltoliin-'s-
worth, P, a cstornr in D's shop, put down a broach with the coat and forgot to pick
up. D's assistant found it and it was placed in a drawer over the week-end. On Monday
it was missing. D was held liable to P as D had failed to exercise ordinary care which
a prudent man would have taken .74
Agency..—esporidcni booked the goods at Quetta Railway Station for New Delhi
just after partition of the country. The wagon containin g the goods of the respondent
seemed to arrive safe upto New Delhi, Via Amritsar. The wagon was unloaded on
20-2-1948 and on 7-6-1948 he was told to take delivery of the goods. When he went to
collect the goods, the goods were not traceable. The owner sued the East- Punjab Railway
which was handling the wagon from Endo-Pakistan Border into India. It was held that in
the absence of any contract between the two governments or the railways, the respondent
delivered the goods to the Receiving Railway (N.W.Rly.) with authority to create the
Forwarding Railway (East Punjab Rly.) as his immediate bailee from the point the wagon
was put on its rails." The forwarding railway can be equated with the finder of goods
within the meaning of S. 71 of the Indian Contract Act." So the E.P. Rly. was liable
for the loss as a bailce. Plaintiff's timber was lying on the land which was subsequently
leased out to the defendant. The defendant gave notice to the owner of timber to remove
it but it was not removed. The defendant then cleared the site and timber was "damaged'
or "removed". The Plaintiff's claim under Section 71 of the Contract Act was dismissed
as the defendant had not taken the goods into his custody."
Liability of
person to whom
money is paid, or 72. A person to whom money has been paid, or any-
thin g de1red, by thing delivered, by mistake or under coercion, must
mistake or under
coercion. repay or return it.
Illustrations
(a) A and B jointly owe 100 rupees to C. A
alone pays the amount to C, and B, not
knowing this fact, pays 100 rupees over again to C. C is bound to repay the amount to
B.
(b) A railway company refuses to deliver up certain gcads to the consignee except
upon the payment of an illegal char g e for carriage. The consignee pays thc sum charged
in order to obtain the goods. He is entitled to recover so much of the charge as was ille-
gally excessive.

Payment under mistake of fact or mistake of law.—The rule of the Common Law
is that "money paid under mistake or ignorance of fact may be recovered back when the
supposed state of fact is such as to create a liability to pay the money, which is reality
is aot due" but "a payment made under the influence of a mistake which does not create
a supposed legal obligation, and which therefore as regards the motive of the party is
vo1unia-y, cannot be recovered back-' 71
"//a' Bhajan v. liar Charan, (1925) All. ibid P. 238. para 15.
L.J. 655.
' (1915) 31 T.LR. 209 " Union of India v. Mohammad Khan A.I.R.
15
1959 or 103.
of iidia v. Arnar Singh A.I.R. 1960 78
Leake on Contracts, 8th Edn,, pp. 68-69.
S.C. 233, 237, Para H.
184 THE INDIAN CONTRACT ACT [S. 72
Bramwell B, in Aiken v. Short" stated
"In order to entitle a person to recover back money paid under a mistake of
fact, the mistake must be as tc a fact which, if true, would make the person
paying liable to pay the mone y : not where, if true, it would merely make it
desirable that he should pay the money."
This dictum of Bramwcll B. has sohietimes been approved and sometimes criticise&,
but it seems probable that it no longer represents the law. "" In Morgan v. Ashcroft" a
bookmaker, through the error of his clerk, overpaid a client who was placing bets with
him. The bookmaker sought to recover the excess payment as money paid under a mis-
take of fact. He failed because even if the supposed fact had been true, plaintiff-
bookmaker would have been under no legal liability to pay as the excess payment was
based on Gaming and Wagering contracts which are null and void by S. 18 of the Gaming
Act, 1845. On these facts, the payment was a voluntary payment according to the Court
of Appeal and so Plaintiff could not recover the excess payment. Though the dictum of
Bramwell B. applied to the facts of the above case, both Lord Greene M.R. and Scot L.J.
did not consider that dictum as laying down an exhaustive statement of law. According
to Greene M.R. any mistake of fact which was sufficiently fundamental might allow a
plaintiff to recover the money paid. He gave an instance. If A makes a voluntary payment
(i.e. payment without any legal obligation to make the payment) of money to B under the
utisiaken belief that B is C. it may he that A can recover iL 82 This doubt expressed by
the Court of Appeal in Morgan v. Ashcrofi seems 10 have been confirmed partially by
another decision of the Court of Appeal in Lamer v, London County Council 2 where 3

the existence of a belief on the pail of the payer that he was morally bound to pay was
sufficienL to allow the recovery as the payment was not considcred as a voluntary pay-
ment. In that case the defendants, the London County Council, resolved to pay all their
employees who went on war service the difference between their war service pay and
their former civilian pay. The plaintiff, an employee of the defendants went on war ser-
vice and got this difference. The plaintiff as per resolution undertook to notify all changes
in his war service pay but this he did not notify and so the defendants over-paid him. The
whole of Lite over-payments had not been recouped at the time of plaintiff's demobili-
sation. When he returned to the service of the Council, the Council began to deduct
weekly amounts from his wages on account of the balance outstanding. The plaintiff
brought an action claiming repayment of the amount deducted from his wages and the
Council countcr . claimed for the balance and the sum over-paid then outstanding. Regard-
ing counter-claim of the council to recover the amount overpaid to plaintiff, it was admit-
ted by him that payments were made to him under a mistake of fact but he argued that
they were voluntary payments which were not made in discharge of legal liability and so
it fell within the words of Bramwell B., money which it was "merely desirable" that he
should pay. The court held that the defendants were entitled to rec aim them as they were
'in honour bound' to keep their promise and payments should ne, be regarded as wholly
gratuitous but made "as a matter of duty". But money paid under a mistake of law is

" (1856) 1 H. & N. 210, 215. 132 Ibid p. 99 = p. 66.

° Cheshire and Fifot's Law of Contract (9th 83(1949) 1 All. E.R. 964 = (1949) 2 K.
ad. 1976) p. 646. 683; See also Lady flood of Avalon v.
81 (19 1 7) 3 All. ER. 92 = (1938) 1 K.B. 49. Mackinnon (1909) 1 Ci. 476.
 S. 72) THE INDIAN CONTRACT ACT 185
not recoverable. 84 So money paid under a mistake as to the effect e f t:e Rent Act"' or
of the Income Tax Act' is irrecoverable.
According to the Gujarat High Court in Dhi-angadhra Municipality v, Dhraigadhra
Chemical Works Lid, 87 it is further essential for a plaintiff seeking refund of illegal tax
under S. 72 of the Contract Act to plead and prove that he would suffer legal injury or
prejudice if restitution is not granted. A plaintiff who has paid alleged illegal tax but has
himself not suffered the incidence of tax and has passed it on the consumers who have
borne the burden of tax cannot legitimately contend that refusal of his request for resti-
tution would prejudice him. In such a case the real plaintiffs should be those who have
actually suffered the burden of the tax. They would be innumerable unidentifiable con-
sumers bearing the burden of the tax and not intermediaries like traders and manufactur-
ers who have merely passed on the burden of tax entirety to the consumers. If such
pleading is not put forward, the requirements of S. 72 would remain uncomplied with and
a plaint not disclosing the cause of action is liable to be rejected under 0.7 R. 11 of the
C.P. Code, 1908.88 This section does riot make ziny distinction between money paid
under mistake of fact and money paid under mistake of law. In Shiba Prasad v. Srish
Chand,a 9 their Lordships drew a dislinction between the provisions of sec. 21 and
this
section and said: "If a mistake of law has led to the formation of a contract., s. 21 enacts
that the contract is not for that reason voidable. If money is paid under the contract, it
cannot be said that, that money was paid under mistakeof law; it was paid because it was
due under a valid contract, and if it had not been paid payment could have been enforced.
Payment by mistake' in s. 72 must refer to a payment which was not legall y due and
which could not have been enforced: the 'mistake' is in thinking that the money paid was
due when in fact it was not due. There is nothing inconsistent in enacting on the one hand
that if parties ente r into a contract under mistake in law that contract must stand and is
enforceable, but on the other hand that if one party acting under mistake of law pays to
another party money which is not due by contract or otherwise, that money must be
repaid. Moreover, ii the argument based on inconsistency with s. 21 were valid, a similar
argument based on inconsistency with s. 22 would be valid and would lead to the con-
clusion that s. 72 does not even apply to mistake of fact. The argument submitted to their
Lordships was that s. 72 only applies if there is no subsisting contract between the person
making the payment and the payee and that the Indian Contract Act does not deal with
the case where there is a subsisting contract but the payment was not due under it. But
there appears to their Lordships to he iio good reason for so limiting the scope of the Act.
Once it is established thc the payment in question was not due, it appears to their Lord-
ships to be irrelevant consider whether or not there was a contract between the panics
under which some ' ihcr sum was due-- . It may be well to add that their Lordships'
judgment does not imply that every sum paid under mistake is recoverable no matter
what the c i rcumstances may be. There ma y
in a particular case he circumstances which
disentitle a plaintiff by estoppel or otherwise," In that case a lessee and his agents made
o v er-payrnent.s in respect of rent and it was not clear why they made the over-payments.
They may have acted on inadequate information. They may have taken a wrong view or
----------------------------------
84 Thibie v. Lii-ml ' ley (1802) 2 Easi 469.
85 Sharp Bros v. Chant (1917) 1 Tax ACE, 1952, S. 66 229 (5).
K.R. 771 87 (1988) 1 G.L.R. 388.
National Pari-j44iu( Association Lid. v. 88 thid p. 41)0 .402 Para 14, 15.
The King 1930 47 T.L.R. 110. tIm now 89 (1949) 76 I.A. 244, 52 Born. L.R. 17. (49)
recovery is allowed in England by Income- A.P C. 287.
186 THE r1'DL&N CONTRACT ACT [S. 72

their legal rights or they may have continued paying at the old rates without giving any
thought to the matter. But . was clear that there was no intention to make a present to
the lessor of money which was not due. The money was paid under the belief that it was
legally due. As this belief was mistaken, that was considered by their Lordships sufficient
to bring the case within the provisions of the section. The Supreme Court held that sale
tax z.. 'unls paid under a mistake of law were recoverable under this sectionY° On the
other hand, every sum paid under mistake is not necessarily recoverable under all circum-
stances. There may be circumstances which disentitle a plaintiff from recovering on the
ground of estoppel or because no more blame attaches to the defendant than to the plain-
tiff and the defendant no longer retains the money.9'
Where moneys are paid voluntarily with full knowledge of all the facts relating to
the voidness of the contract, there does not arise a mistake of law or fact and such moneys
cannot be recovered back. 92 This would also apply to moneys paid under a compromise
of doubtful or disputed rights or claims. 93 Ignorance of law and a deliberate disregard
of law would not amount to a mistake of law.94
Where moneys are paid pursuant to orders of the Court, they would not fall under
this clause. 95 But if they are paid in execution of the Court's decree or order, the pay-
ment might be one under coercion.
Coercion.—The Judicial Committee had laid down that the word 'coercion' in this
section is;used in its general and ordinary sense and its meaning is not controlled by the
delinitionof "coercion" in sec. 15. Accordingly, where A who had obtained a decree
against B, obtained an attachment against C's property, and took possession of it to obtain
satisfaction for the amount of the decree, and C on being ousted from his property paid
the sum claimed under protest, C was held entitled to recover the sum as money paid
under "coercion" within the meaning of this section. 96 In this case C sued for a decla-
ration that the attachment was invalid and for a refund of the money paid. But if a defen-
dant has had an opportunity of defending, of which he has not availed himself, he is not
allowed to re-open the question in an action to get the money back. This is the foundation
97
of the rule that money paid under pressure of legal process cannot be recovered
Money paid under 0. 21, r. 89 of the Code of Civil Procedure, to set aside a sale
is paid voluntarily and cannot be recovered as paid under coercion YS
Where a person who is charged with a non-compoundable otlence is induced to pay
money to the complainant to stifle the prosecution, he may recover the money so paid
90 .SalesTax Officer Ilani.irn,c v. Kanhniyalal, Seth Kanhayo Lol v. National Hank of
(1959) S.C.R. 1350: AJ.R. (1959) S.C. India (1913) 40 l.A. 56; 40 Cal. 598; fol-
135; State of M. P. v. Bhoi&il Bhai, A.I.R. lowed in A Choon v. T. S. Firm (1927) 5
(1964) S.C. 1006, (10110). Rang. 653. 106 I.C. 468. ('28) A.R. 55;
91 Nrigorao v. Governor-General in Council Satyam v, Perraju ('31) A.M. 753,135 I.C.
A.J.R. 1951 Nag. 372. 24.
Anaih IJandhu v. Dominion of India, A.I.R. 97 Marriol v. II ampion (1797) 2 Smith L.C.
(1955) Cal. 626. 421; Secretary of Stale v. Tatyasaheb
" Stapilion v Stapilton. 26 E.R. 1: 1 Aik. 3; (1932) 56 Born. 501, 34 Born. L.R. 791,
Rameshczrv. Babulal, A.I.R. (1946) Pat. 97. 140 I.C. 171, ('32) A.B. 386; Bihar State v.
9' Anath Band/ut v. Dominion of India, A.I.R. Jhawarmal ('58) A. Pat. 310.
(1955) Cal. 626 (629). Shankarrao v. Vadjlal (1933) 57, Born.
9 5 Official . 4.ssignee v. Dayabhoy (1937) A. 601, 35 Born. L.R. 462_148 1.C.74, ('33)
ng. 234; S. of S. v. Ta:ya Saheb 34 Born. A.B. 239.
....R. 791.
S. 721 THE INDIAN CONTRACT ACT 187

under this secuonr but not if .io pressure or compulsion was exercised upon the
accused.' As the right under this section is a statutory right it is not subject to equitable
considerations!

Mwhuve, -appa v. Ramas'.dami (1917) 40 42 Cal. 286.

2 Kanhaya Lal v. National Bank of India,
Mad. 285.
I Ainjadennesra flibi v. kalthn 13,Lksh (1915) Ltd. (1923) 50 I.A. 162, 4 Lali. 284.
 Chapter VI

OF THE CONSEQUENCES OF BREACH OF CONTRACT

73. When a contract has been broken.' th party who suffers by

Compensation for such breach is entitled to receive, from the party who has
loss or darna
c ansed by breach of broken the contract, compensation for any loss or
contract,
damage caused to him thereby, which naturally arose in
the usual course of things from such breach, or which the parties knew,
when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss
or-damage sustained by reason of the breach.

When an obligation resembling those created by contract has been

Compensation for
failure to discharge incurred and has not been discharged, and person injured
obligation resem- by the failure to discharge it is entitled to receive the
bling those created
by contract. same compensation from the party in default, as if such
person had contracted to discharge it and had broken his
contract!
Explanation.—In estimating the loss or damage arising from a breach
of contract, the means which existed of remedying this inconvenience
caused by the non-performance of the contract must be taken into account.
Breach of Contract and Remedies..-.-The illustration to the section illustrate var-
ious kinds of breaches, There are three kinds of remedies upon a breach of contract viz.
(1) specific performance, (2) injunction, and (3) damages. This section deals with the last
remedy. This section lays down the principle of ascertaining damages. The next section
deals with what is known as liquidated damages i.e., the amount agreed upon between the
parties to be paid in the event of a breach. The damages contemplated in the section are
of pecuniary nature or of a loss of Property. The remote or indirect damages such as for
disappointment vexation of mind, injured feelings 3 are excluded by this section.
Damages: two standards:—
This section provides for loss or damage
(J) which naturally arose in the usual course of things from the breach; or
This section is declaratory of the Common Hamlin v. Great Northern Railway, I H. &
Law as to damages. Jamal v. Moola
N. 408 156 E.R. 1261; Addis v. Gramo-
Dawood Sons & Co. (1916) 43 I.A. 6, 11; phone Co. Lid. (1909) A.C. 488; Kemp v.
43 Cal. 493, 503.
2 See Am-udh Kumar v. LchJinsi Chad Sobers (1851) 1 Si, (N.S.) 517 (520)
Wsihers v. General Theatre Corporation
(1928) 50 All. 818, ('28) A.A. 500.
Lid. (1933) 2 K.B. 536.
S. 731 THE INDIAN CONTRACT ACT 189
(2) which the parties knew when they made the contract, to be likely to result from
the breach.
The first rule provides for usual losses and the second rule provides for additional
loss as well. The words 'likely to result' have been deliberately used. It is not necessary
to be proved upon a given state of knowledge, that the defendant, as a reasonable man,
could foresee that a breach must 'necessarily' result in the loss. It is enough if the defen-
dant could foresee that it was "likely so to result", In the second rule a criterion is "not
what was bound necessarily to result" but "what was likely or liable to result". This fore-
seen knowledge must be "at the time when the parties made the contract".
Remedy provided by this section not the only remedy for breach of
contract.—Where, under a contract 01 sale, the property in the goods has passed to the
buyer, and the buyer wrongfully neglects or refuses to pay for the goods according to the
terms of the contract, the seller may, at his option, either sue for the price of the goods
or for damages for non-acceptance. The present section prescribes the method of asses-
sing the damages, and it does not take away the right of a seller to maintain an action
for the price where the property in the goods has passed to the buyer.4
Rule in Hadley v. Baxendale.—The illustrations to this section were cb'*'usty con-
sidered of special importance. We have thought that several of the English and recent
Indian decisions would be most usefully dealt with by stating them in the form of addi-
tional illustrations and inserting them, distinguished by inclusion within square brackets
and by the reference to the report of each case, in the places which seemed most approp-
riate.
The intention of the farmers of the Act was plainly to affirm the rule of the Common
Law as laid down by :he Court of Exchequer in the leading case of Hadley v. Baxendi.i1e,
decided eighteen years before the passing of this Act. That rule, expressly and carefully
framed to be the guide to judges in directing juries, was as follows:
"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 contcmplatior of both parties at the time
they made the contract as the probable result of the bread' 'I it. Now, if the special cir-
cumstances under which the contract was actually made were communicated by the plain-
tiffs to the defendants, and thus known to both parties, the damages resulting from the
breach of such a contract, which they would reasonbly contemplate, would be the
amount of injury which would ordinarily follow from a breach of contract under these
special circumstances so known and communicated. But, on the other hand, if ktese spe-
cial circumstances were wholly unknown to the party breaking the contract, he at e
most, could only be supposed to have had in his contemplation the amount of injury
which woold arise generally, and in the great mulu-tude of case ,; not affected by any spe-
cial circumstances, from such a breach of contract. For had the special circumstances
been known, the parties might have specially provided for the breach of contract by spe-
cial terms as to damages in that case; and of this advantage it would be very unjust to
deprive them."5
' P. R. & Co. v. I3hagwandas (1909) 34 kissen (1909) 36 Cal. 736.
Born. 192; Finlay Muir and Co. v. Radha- 5 Hadley v. Baxendale (1854)9 Ex. 341, 354.
190 THE INDIAN Coim ACT ACT [S. 73
So far as practicable, "a person with whort.. ' contract has been broken has a right
to fulfil that Contract for himself as nearly as may be, but he .. not do this 'inreasor.-
ably or oppressively as regards the other party, or cxtravagan'.":.'' It is even his duty
take all reasonable steps to mitigate the loss consequent on t :each; and then the Cf ICCL
in ac:ual diminution of the loss he had suffered may be taken into account, and this apart
fro: the question whether it was his duty to act.' ''The question must always be
whcthr wnat was done was a reasonah'c thing to do, having regard to all the circum-
stances," and one test is "what a prudent person uninsured," i.e. not having 4. .Jaim for
eompen.aiion or indeinr.ity or anyone, "would do under the same circusuinccs." It
iS not C reasonable thing, for example, to hire a special train to save an hour or so of time
when there is no particular reason for being at one's destination at a certain hour; and
expense so incurred cannot be recovered as damages! :e English law, if a buyer disap-
pointed of his goods can buy in the market as a sum equal to or less than the contracted
price, he has suffered no Loss and can recover only nominal damages."
Illustra lions
(a) A contracts 10 sell and deliver 50 maunds of salt.petrc to B, at a certain price, to
be paid on delivery. A breaks his promise. B is entitled to receive from A, by way of com-
pensation, the sum, if any, by which the contract price falls short of the price for which
B might have obtained 50 maunds of saitpetre of like quality at the UtiLe when the salt-
petre ought to have been delivered.
[Note.—Market rate.—Under a contract for the sale of goods the measure of
damages upon a breach by the buyer is the difference between the contract price and the
market price at the dale of the breach. If the seller retains the gO(XiS after the breach, he
cannot recover from the buyer any lurlhcr loss if the market falls, nor is he liable to have
the damages reduced if LhC market rises?i
Generally it is quite settled that on a contract to supply goods'° of a particular sort,
which at the time of the breach can be obtained in the market, the measure of damages
is the difference between the contract price and the market price at the time of the breach.
But the subject-matter of the contract may not be marketable. In that case the value must
be taken as fixed by the price which actually has to be paid for the best and nearest avail-
able substitute; lIlade v. LiddcU (75) L.R. 10 Q.B. 265, 269.
Again, if the buyer, alter giving the seller time at his request, finally has to c into
the market and buy at an advanced price, he may recover the whole difference be- Veen
the contract price and the price he actually paid: Ogle v. Earl Vane Ex. Ch. (18(C'
3 Q.B. 272. Accordingly, the decisive date for fixing the damages is the last date to . . ' icIL
the contract was extended: Kidar 'aih-Behari La! v. Shirnbhu Nath-Nandu Ma! (1925)
8 Lah. 198, 99 I.C. 812, ('27) A.L. 176.
The fact that the buyer sustains no actual loss from the seller's failure to deliver the
goods is no ground for awarding merely nominal damages to the buyer. The buyer is entit-
led, as indicated by illustration (a) to the section, to receive from the seller by way of corn-
6 British Westinghouse, Etc., Co. v. Under- Gas, Etc., Co. v. Carroll (1911) A.C. 105.
growtd Electric Etc., Co. ('.912) A.C. 73, 8 Erie County, Etc. Co.'s Case, last note.
sec per Lord Haldane at p. 689. 'Jamal v. Mooki Dawood Sons- & Co.
' I.e JIIo,whe v. L. & N. W. P. Co. (l,'Y 1 (1916) 43 I.A. 6; 43 Cal, 493.
C.P. Div. 286, 309, 313; approved by the 10 Including shares in a company, see WI!-

Judicial ComniiLtcc in Erie Co'in.ty Natural liam.sBros. V. Ed. 1. Agius (1914) A.C. 510.
 S.73] TIE.JNDtAN CONTRACT ACT
pensation the sum by which ihe contract price falls short of the price for which the buyer
might have obtained goods of like quality at the time when they ought to have dcliv-
cred!' But the Delhi High Court L. rjjO of In v. Tribhuvan Paie1' declare-' its dis-
agreement with this view. According to a single Judge of tL D'hi High Court, under
S. 73 the plaintiff must prove the actual loss suffered by kni. The court found justifi-
cation for its view as the law disallows even remote or inlirect loss and so L is obvious
that plaintiff cannot be allowed recover damages if he has actually suffered no loss. Sec-
tion 73 would become nugatory if there be different interpretation. Illustration (a) to S.
73 has to be construct] in the light of this statutory provision so as to harmonise it with
the principles laid down in S. 73 and not to enlarge thescope Of the Section. While laying
down the above interpretation the Delhi High Court found itself to be in the line with the
basic principles of damages for the breach of contract, that it should not be penal but com-
pensatory.
Market rate limits of rule.—The market rate, however, is only a presumptive test:
"it is the general intention of the law that, in giving damages for breach of contract, tli
party complaining should, s far as it can be done by money, be placed in the same posi-
tion as he would have been in if the contract had been performed," and the rule as to
market price ''is intended to secure only an indemnity" to the purchaser. "The market
value is taken because it is prc:umed to be the true value of the goods to the purchaser."
If he does not get his goods he "should receive by way of damages enough to enable tmin
to buy similar goods ill the market. Similarl y , when deliver',' of goods purchased is
delayed, the goods are presumed to have been at the time they should have been delivered
W017Jh to the purchaser wLat he could then sell them for, or buy other like them for, in

the open market, and when they arc in fact delivered they are similarly presumed to be,
for the same reason, worth to the purchaser what he could then sell for in that market."
There is an important exception ''if in fact the purchaser, when he obtains possession of
the goods, sells them at a price greatly in advance of the then market value." In such a
case he must allow for the profit he actually makes and can recover only his actual loss;
otherwise he would be placed in a better position than if the contract had been performed.
o the law is explained by the Judicial Committee in Werthejin v. Chicoutimi Pulp Co.
911) A.C. 301, 307, 308.
If no ready niarket.—The defendant contracted to del ivcr to the plaintiff 1,000 tons

Of coal by i,islalments from February to June. The coal was not delivered and there was
in those months no ready market for coal of the contract quality. In the absence of other
maLerial, the Court, in order to ascertain the measure of dama g es, admitted evidence of
rates fixed in sub-contracts made by the plaintiff for the sale of the coal: Jagrrwhandas
v. Nusse wanji (1902) 26 Born. 744.
(':) A hires B's ship to go to Bombay, and there take on hoard on the lust of January,
a cargo which A is to provide, and to bring it to Calcutta, the freight to be paid when
earned. B's ship does not go to Bombay, "utA
has opportunities of procuring suitable con-
veyance for the cargo upon ternis as ad'anlageous as those on which he had chartered
the hi-. A avails himself of those opportu n ties, but is put to trouble and
expense ;.
so. A is entitled to receive compensation froii B in respect of such trouble and cxpcns,.
11
llajee Ismail & Sons v. Wilson & Co. ('32) A.P.C. 196; Vjshwanajh v. Anzarla(
(1918) 41 Mad. 709; Errol Mackey. 'i. A.I.R. 1957 MB, 190.
Karneshwar (1932) 59 I.A. 398, 11 Pat. 12 A.I.R. 1971 Delhi 120.
600, 34 Born. L.R. 1596, 138 I.C. 658,
192 THE INDIAN CONTRACT ACT [S. 73
[Note.—Actual loss.—A contracts with b .o sell and deliver goods which on the day
appointed for delivery are worth Rs. 8C cr ton. They are delivered later on a day when
they are worth only Rs. 50 per ton, but meanwhile A 1has sold them for Rs. 70 per ton.
A is entitled to damages only for his 2ctual loss of Rs. 10 per ton: Werihcirn V. Chicoutimi
P4 : Co 1) A.C. 301 (sec above).]
(c) A contracts to buy of B, at stated price, 50 maunds of rice, on time being fixed
for delivery. A afterwards informs B that he will not accept the rice if tendered to him.
B is entitled to :'ceive from A, by way of compensation, the amount, if any, by which
the contract price exceeds that which B can obtain for the rice at the lime when A informs
B that he will not accept it.
[Note.—Where no time fiked for delivery.—If in the case put above A gives notice
to B that he will not take delivery alter a certain date, and B does not deliver by that date,
the measure of damages would be the difference between the contract price and the
market price on that date: Gauri Dati v. Nanik Ram (1916) 14 AlI.LJ. 597.]
(d) A contracts 'o buy B's ship for 60,000 rupees, but breaks his promise. A must
pay to ., by w2y of compensation, the excess, if any, of the contract price over the price
whi" can obtain for th' ship at the time of the breach of promise.
) A, the owner Of a boat, contracts with B to take a cargo of jute to Mirzapur, for
sale a that placc, starting n a specified day. The boat, owing to some avoidable cause,
does not start at the lime appointed, whereby the arrival of the cargo at Mirzapur is
d&ayed beyond the time when it would have arrived if the boat had sailed according to
the contract, After that date, and before the arrival of the cargo, the price of jute falls.
The measure of the compcnsatio' payable to B by A is the difference between the price
which B could have obtained for the cxgo at Mirzapur the tnc when it would have
ar-ivc if forwarded in due course, and its market price at the lime when it actually
arrive 1.
[Note.—Late delivery, carriage by tea or land.—Thcrc is no general rule that the
measure cL' damages in the case of late delivery when the carriage is by sea is governed
by diffe"ent principles to those that apply when the carriage is by land: "wherever the
circurnances admit of calculations as to the time of arrival and the probable fluctuations
of the n arket being made with the same degree of reasonable certainty in the case of a
sea as of land transit, there can be no reason why damages for late delivery should not
be calculated according to the same principles in both cases": Dunn v. Buckncdl Bros.
(192) 2 K.B. 614, 623 CA.]
(1) A contracts to repair B's house in a certain manner, and receives payment in
advate. A repairs the b"s", it not according to contract. B is entitled to recover from
A the cost o r'tg the repairs conform to the contract-
Ths above illustration refers to a case where work done does not conform to the con-
tract-
(g) A contracts to let his ship to B for a year, from C­. of January, for a certain
price. Freights rise, and, on the first of anuary, the hire obtainable for s.ip is higher
than the contract price. A breaks his prc1isc. He must pay to B, by way of compensation,
a sum equal to the difference bc:wccr the contract price and the price for which B could
hire a similar ship for a year on and from the first January.
(h). A contracts to supply B with a certain quantity of iron at a fixed price, being a
higher price than that for which A could pocurc and deliver the iron. B wrongfully refu-
ses to receive the iron. B must pay to A, by way of compensation, the difference between
 S. 731 THE INDIAN CONTRACT ACT 193
the contract price of the iron and the sum for which A could have obtained and delivered it.
lNote.—Delivery by instlments—Antkipaoi•y breach.—If the iron was to be
delivered by instalments at certain dates, e.g. at the end (f the three months of September,
October and November, the measure of damages is he sum of the differences between the
contract and the market price of the several instalments of the respective final days for
performance: Brown v. Muller (1872) L.R. Ex. 319: and the same rule is applied where
the seller, before the expiration of the whole time for performance, has refused to com-
plete the contract, and the buyer has treated the refusal as an immediate breach unless the
seller can show that the buyer could have obtained a new contract on better terms: Roper
v. Johnson '1873) L.R. 8 C.P. 167; Krishna Jute Mills Co. v. Innes (1911) 21 Mad, L.J.
182.] If a vendor has a specified time allowed to him to deliver goods (the option was
to deliver in August or September), and before the expiry of that time he gives notice to
the purchaser that he will be unable to perform the contract, and the purchaser does not
rescind the contract (as he may do under S.39), the measure of damages is the difference
between the contract price and the market price on the last day of the period limited (i.e,
here last day of September). Mackertich v. Nobo Coornar Roy (1903) 30 Cal. 477.
(i) A delivers to B. a cornmoii carrier, a machine, to be conveyed, without delay to
A's mill informing B that his mill is stopped for want of the machine. B
unreasonably
delays the delivery of the machine, and A, in consequence, loses a profitable contract with
the Government. A is entitled to receive from B, by way of compensation, the average
amount of profit which would have been made by the working of the mill during the Lime
that delivery of it was delayed, but not the loss sustained through the loss of the Gov-
ernment contract.
[Note.—Notice of special circumstances.—The facts in Hadley v. Baxendale, 9
Ex. 341, were somewhat similar to those in illustration (i), except that thedefendants did
not know that the plaintiff's mill was slopped for want of part of the machinery which
they were to supply. They were held not liable for loss of profit. It may be collected from
the judgencnt that with such knowledge they would have been liable. As tc the general
rule the,' laid down see the commentary below. The loss of profits on a contract of which
the defendant had no notice is '1early too - remote. But where the defendant failed to
suppl y an essential part of a machine which the plaintiff, 10 the knowledge of the defen-
dant, 'as under contract to supply to a third person, and the plaintiff, by the defendant's
default, lost the benc'f that cc:nract, the d'fcndant was held liable both for the loss
of profi: and for the - .aintiff's charges in making other parts cf 1'ie machine: hydraulic
Engineering Co. v. Mc/Iaffie (1878) 4 Q.B. Div. 670.]
B dcivers ioA sevral cac.r of machinery to 5e carried by sea from Bombay to Kara-
chi for the purpose o ouilcling a mill. On arriva l at Karachi one of the cases, containing
indispensable parts of e inachncry, was not found. A knew thr the cases contained
machinery, but did not know the s pe'fic contents of each case, A is l iable to pay B by
way of conpcnsatmon the valun Df 'he 1 .' case, freight and interest, but not the profits
lost by '.e rr .1 not having been si, up at the 'me intended. See British Columbia Saw
Mill Co. Ltd. v. Neuleship (1868) L.R. 3 C.P. ec9.
:crpodent entered into Contract with Plaintiff (ApçiI,nt 'n July
1952 f: sae of certain quanty of scrap iron for 'i'ich controlled price was fixed. The
defendert did not know, nor was he told, ' the sc 'r iron was required by plaintiff for
sale to Export Corporation for export. The Plainti' .-a ci no knowledge that he would
subsequently contract with Export Corporation to sd. the scrap iron purchased from the
CA 13
194 THE INDIAN CONTRACT ACT [S. 73
'endanL Subsequently on 30-1-1953 Plaintiff contracted with the Export Corporation
to sell them scrap iron. The defendant failed to supply the scrap iron, plaintiff sued him
for damages for the breach. It was held that the loss which could have naturally arisen
in the usual course of things from the breach of the contract by the defendant would be
nil upon non-delivery of scrap iron as the plaintiff could have purchased the scrap iron
from market at the same controlled price. Further, as the defendant was not informed by
the plaintiff when they had entered into contract in July 1952 that the plaintiff was pur-
chasing the scrap iron for export, the defendant was not liable for the consequent loss suf-
fered by the plaintiff. Karsandas v. Saran Engineering Company Lid. A.I.R. 1965 S.C. 1981.
A sent by railway a set of books to :imsclf as consignee. On arrival it was found
that three volumds were missing, making the whole set useless. A sued the railway author-
ity for the price of the whole set. It was held that as the railway had no notice of the fact
that loss of three volumes would make the whole set useless, invoice mentioning only a
bundle of books, they were liable only for the price of the lost three volumes. Dominion
of India v. All India Reporter Ltd. AIR. 1952 Nag. 32 = ( 1952) Nag. 125.
In Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. (1949) 2 K.B. 528
the defendants, an engineering firm, contracted to sell and deliver to the plaintiffs on a
certain day a large boiler for their works. This, however, was damaged in the course of
removal and was delivered five months after the agreed date. The defendants were aware
of the nature of the plaintiff's business and they were informed that the boiler was
required for use as soon as possible.
In consequence of this delay the plaintiffs lost the profits which they would have
earned and, in particular, highly lucrative dyeing contracts which they could have
obtained with the Government. The plaintiffs sued the defendants to recover these losses.
It was held that the defendants knew at the time of the contract that the plaintiffs were
laundryrnen and dyers and required the boiler for immediate use in their business. From
their own technical experience and the business relations existing between them, they
must be presumed to have anticipated that some loss of profits would occur by this delay.
But without special knowledge on their part, the defendants could not reasonably foresee
the additional loss suffered by the plaintiffs because of their inability to accept the highly
lucrative dyeing contract with the Government. Trcitel in his Law of Contract (2nd ed.
1966-p. 663, 664) neatly distinguishes this case horn Hadley v. Baxendale, Judging the
defendants in both the cases from the facts known to them by the criterion of the rea-
sonable man, the loss of profits was recovered in the Victoria Laundry case because the
defendants knew that the boiler was required for immediate use, while in Hadley v. Bax-
endale defendants did not know that the delay in the delivery of the shaft would keep the
mills idle. Secondly, in Hadley v. Baxendale the defendants were the Carriers less able
to foresee the effects of delay than the defendants in the Victoria Laundry Case who were
qualified engineers and knew more than the uninstructed layman of the purposes to wlich
such boilers were -WI.
In Jaques v. Milla: (1877) 6 Ch. D. 153 it was held that where an intcndir. sor
knew that the lessee wanted the premises for a certain iradc,.and refused to de ll - pos-
session for several weeks after the lessee was entitled to it, the lessee could recover for
the estithated value to him of the possession during that time.
(j) A, having contracted with B, to supply B, with 1,000 tons of iron at 100 rupees
a ton, to be delivered at a stated time, contracts with C for the purchase of 1,000 tons of
iron at 80 rupees a ton, telling C 'hat he does so for the purpose of performing his contract
 THE INDIAN CONTRACT ACT 195
S. 73
with 8. C fails to perform his contract with A, who cannot procure other iron, and B, in
consequence rescinds the contract. C must pay to A 20,000 rupees, being the profit .aich
A would have made by the performance of his contract w ith 2. f ii suo-sale was in con-
templation, but the market prie t tue time fixed for delivery was only Rs. 90 a ton, it
WOUI(i uepcnd upon the facts whether A was entitled 10 damages at the rate of Rs. 20 a
ton; for example if he could honour his contract with B only by delivering the specific
iron to be supplied by C, or at the rate of Rs. 10 a ton, for example, if he could honour
his contract with B by purchasing similar goods in the market-
Kwei Tek Chao v. British
Traders (1954) 1 All E.R. 779, 797. per Devlin J.
Notice of contract of resale.—lf C only knew generally that A wanted the iron for
resale he would not be entitled to damages beyond the difference between the contract
price and the market price at the date of the breach: Thol v. Henderson (1881) 8 Q.B.D.
457. If there is no market price the measure of damages is the difference between the
resale price and the contract price: Zippel v. Kapur & Co. ('32) A.S. 9, 139 I.C. 114.
(k) A contracts with B to make and deliver to B, by a fixed day, for a specified price,
a certain piece of machinery. A does not deliver the piece of machinery at the time spec-
ified, and, in consequence of this, B is obliged to procure another at a higher price than
that. which he was to have paid to A, and is prevented from performing a contract which
B had made with a third person at the time of his contract with A (but which had not been
then communicated to A), and is compelled to make compensation for breach of that con-
tract. A must pay to B, by way of compensation. the difference between the contract price
of the piece of machinery and the sum paid by B for another, but not the sum paid by
1? to the third person by way of compensation.
(1) A, a builder, contracts to erect and finish a house by the first of January' in order
that B may give possession of it at that time to C, to whom B has contracted to let it. A
is informed of the contract between B and C. A builds the house so badly that, before the
first of January it falls down and has to be rebuilt by B, who, in consequence, loses the
rent which he was to have received from C, and is obliged to make compensation to. C,
and is obliged to make compensation to C for the breach of his contract. A must make
compensation to B for the cost of rebuilding the house, for the rent lost, and for the com-
pensation made to C.
Chain of contracts.—The following additional illustration is taken substantially
from the headnote to Kasler & Cohen v. Slavonski (1928) 1 K.B. 78:-
B, a wholesale furrier, brought some dyed rabbit skins from A for the purpose, as
A knew, of making them into fur collars. B, having made the fur collars, resold to C, C
resold to D, and D to E, a draper.
E then sold a coat, with one of these fur collars attached, to F, a customer, for her
own wear. F developed "fur dermatitis," owing to antimony in the fur. F sued E for
damages for breach of warranty on the sale of the coat. E gave notice of the action to
D, D to C, to B, and B to I. F recovered judgement for damages and costs. E claimed
this sum, together with his own costs, from D, who paid the amount and recovered it from
C, together with a. further sum for his costs. C claimed from B, and B paid him and sued
A for £699 damages for breach of the original warranty on sale of the skins.
The Court, having found as a fact the E has acted reasonably in defending the orig-
inal a:tion by F, held that B was entitled to recover from A (1) the damages recovered
in the original action by F (2) the costs of both sides in the action; and (3) a sum
respect of costs incurred by themselves and C and D respecuvcly in connectior with the
196 THE INDIAN CONTRACT ACT IS. 73
claims against them.
(m) A sells certain merchandise to B, warranting it to be of a particular qua1it'. an
B, in reliance upon this warranty, sells it to C with a similar warranty. The goods p:i'Je
to be not according to the warranty, and B becomes liable to pay C a sum of money 5y
way of compensation. B is entitled 10 he rcimhursed this sum by A.
[Note.Warranty.—A sells a cow to 3, whom he knows to he a farmer and likely
to --:it ihe cow in a herd, with a wafrariLy that she is free from lout and mouth disease.
The. cow -in thet has th disease and coIThTtunicaLee it 14) other COWS wtii whjcli she is
I)Ced, and several c-i .hem die. B can recover fi..rn 4 tha whole loss, and not only the
vahic of the cow sold. and ii. is immaterial '7,'hethor A cave the inwarranty
good faith oi
net: 5,niih v. Green (3.75) I C.P.D. 92.] -
(n) A. contract to pai a sum of money t.n B y.ria day soccified. A does not pay the
money on that day. B n COflSCUei1CC of not rcccivinc the money on that da y , is unable
in pay his dsbLs, and is totally ruined. A is not JiaNe to make good in B anything excepL
the pi-mcipai sum lie coriLractcd Lu pay, tcs'etlier with irtarest up in dte day of payment.
belay in payment f mone y.—"Thr3 law does mi regard collateral or cOil-
s-.'aaorsl daaa arising frori dcla in the recai. of mcncy Per Car. Giu,iuia V.
(I 7 ( a Div at ii. 49-J a j n !i rlrL Pwio o f rcrlr proocity B
L: b .'.noa Paita that B should pv to ins suin inc 1Th:rd rcnr. The nper-
sues A 'c therern, a. ad ! e;na of the e uy
n th._. :.uii., 10:.: ro.ure is sH. B is ;oL halOs c Al ibr lhc lo-' s t IC i;Pry. fu A
jr [ai.jit I,– aj.i sj;nj thc p 1iery oit. :aie Giiis! CAan-
ir :<enJa ne: 1908) 3 Cal68 3.
0-. A r,trasj.. indolivor 50 manuds t aILpCiIC to a: the first. of i::rioary, at a
CC. tam pocs, fociorc.dlr.r:r,k lh fir,! u hinuirv, _,1srs'-. 'o sob C
a trice hiel-er hun th market once of first. of Januay. A biOa:-5 his oomise. In
e.sth;.aiiiig the ce.;.;.c:sCiioa aynhle by A Ri B, die markei ;:LC of tie 1h-a of Jaiiiiar,
1)1 !. s,-hich w:m I.d t,avc arecil ( Li Iioir °h '(C ii:i(I
lit
-1:-a- or,
:-.a o cleth'er e5 thai here
.....':e on the lost of Janosry. if rhoro 's-as so '•:ei ees 5! y oe
tj:.-:a-5 is...e:n ni resae price end the entram ;.es eu'i b. tIe ......
notes on Iiiu,traticn i) and ai:e ,.rc not-n :...n otn:e 'iii the
A byn. /40 irs: red. In n 1n.lish : :ase ': 0 a .l..d .1 vcaciI . : 01
a -op-usae:soo a conoacL to resell e.- s-see :-'J as -iidense of . : ......1 L am: of

A mo_acts io sell and deliver 503 bali:....H' corcjn '.0 er a fixed da y .Ak;ows
nodung of B ' s mode of conducting his business. .4 breaks his prOm;Se., and B, having no
cotton, is obliged to close his mill. A is noi responsible in .B for the loss caused to B by
the cP'sing of the mill.
(q) A contracts to sell and deliver to B, on the first of January, certain cloth which
B intends to manufacture into caps of a particular kind, I r winch there is no demand,
except at that season. The cloth is not delivered till after tl:-e appointed time, and too late
10 be used that year in making caps. B is entitled 10 recci: from A, by way of compen-
sation, the difference between the contract price of the cloth and its market price at lime
13 Engdll v, Fitch (1869) L.R. 4 Q.B. 659 Ex,. Ch.
S. 731 THE INDIAN CONTRACT ACT 197
time of delivery, but not the profits which he expected to obtain by making caps, nor the
expenses which he has been put to in making preparations for the manufacture.
[Note.—.-Loss of profits on breach of contract.—Thc market price is here the price
as diminished by the want al demand consequent on the season being pact.
Note.—No notice of special circumstances.—A tailor, expecting to make a large
profit on the occasion of a festival that is to be held at a certain place delivers a sewing
machine and a cloth bundle to a railway company to be conveyed to that place, and
through the fault of the company's servants they are not delivered until after the conclu-
sion of the festival. The company had no notice of the special purpose for which the
goods were required. The tailor is not entitled to damages for the loss of profits nor for
his expenses incidental to the journey to that place and back, as such damages could not
have been in the contemplation of the parties whcnthcy macic the contract, nor can they
bc said to have naturally arisen in the usual course of things from the breach: Madras
Railway Co. v. Govinda Rau (1898) 21 Mad. 172.14
(r) A, a shipowncr, contracts with B to convey him from Calcutta to Sydney in A's
Ship, sailing on the first of January, and B pays to A. by way of deposit, onchaif of his
passage money. The ship does not sail on the first of January, and B, alter being, in con-
sequence, detained in Calcutta for some time, and thereby Put to some expense, proceeds
to Sydney in another vcssel, and, in consequence, arriving too late in Sydney, loses a sum
of money. A is liable to repay to B his deposit, with interest and expense. to wiich he is
put by his detention in Calcutta, and the excess, if any, of the passage money paid for
the second ship over that agreed upon for the fist, but not the sum of money which B
lost by arriving in Sydney too late."
In this illustration it seems to be assumed that A does not k'.aw B's particular reason
for wanting to be at Sydney by a Certain date. A contracts ta s2ll by description to B su!-
phuric acid commercially free from arsenic. A does not know what. B wants the acid for.
B receives Sulphuric acid from A under the contract, and uses it in producing a kind of
sugar used by brewers. The acid is, in fact, not free from arsenic, the sugar manufactured
with it is deleterious and useless, and B incurs liability to his customers, and the goodwill
of his business is diminished in value and other goods of B's are spoilt by being mixed
with this acid. B is entitled to recover from A only the price of the acid and the value of
the goods spoilt: Bo,siock & Co. v. Nicholson & Sons (1904) 1 KB, 725.]
Explanation to sec. 73: "means which existed," etc.—This explanation has
caused considerable difficulty in practice the wcrds "means which existed of remedying
the inconvenience" have seemed obscure.
Duty to mitigate loss.—In this connection may be noted the observations of the
Judicial Committee in Jamal v. Moolla Dawood Sons & Co."' "It is undoubted law that
a plaintiff who sues for damages owes the duty of taking all reasonable steps to mitigate
the loss consequent upon the breach and cannot claim as damages any sum which is due
to his own neglect. But the loss to be ascertained is the loss at the date of the breach.
If at that date the plaintiff could do something or did something which mitigated the
14 See also Fami lila/il v. East livilan Riy. 94, 99 I.C. 609, ('27) A.M. 99.
C. (1921)43 All. 623. 16 (1916)L.R.431.A. 6,10; 43 Ca]. 493,592-,
15 This illustration does not affect the rule as Meirlidhar Citiraeijilai v. IlarLchchandra
to measure of damages where the contract Divarkadas (1962) 1 S.CR. 653 A.I.R.
is for the sale of goods: Kandappa Mudal- (1962) S.C. 366.
iar v. Muthl4swarni Ayyar (1926) 50 Mud.
198 THE INDiAN CONTRACT ACT [S. 73
damage, the defendant is entitled to the benefit of it. Staniforsh v, Lyal1 17 is an illustra-
tion of this. But the fact that by reason of the loss of the contract which the defcndant
iias failed to perform the plaintiff obtains the benefit of another contract which is of value
to lirn does not entitle the defendant to the benefit of the latter contract."
In the case of an anticipatory breach, the duty to mitigate damages does not require
the pa-,y who suffers from the breach to go into the market in search of another contract.
Z, a mhlowner, agreed to put his mill at the disposal of A, a cotton merchant, for ix
months and o gin cotton which A would buy and bring to the mill. Z repudiated the con-
tract soon after it was made. The Privy Council held that A was not obliged to prove that
he had purchased Cotton and tendered it to other mills so that damages might be assessed
at a difference of rates. Their Lordships said that as it was an anticipatory breach A was
entitled to damages assessed on an estimate of profit at the date of brcach.'
Contracts relating to immovable property.—The rule as to damages as enunci-
ated in Hadley v. Baxendale' 9 does not apply in English law to contracts for the pur-
chase of immovable property. It was finally settled by the decision of the House of Lords
in Bain v Forther,gil?° that a purchaser of real estate cannot recover damages for the
loss of his bargain, but only his deposit and expenses; and that even if the vendor knew
that he had no title not any irieans of acquiring it, the purchaser may have a further
remedy by an action for deceit, but not on the contract. The reason for this exceptional
rule is that the purchaser of real estate in England must expect some degree of uncertainty
as to whether a good title can be effectively made by the vendor, whereas the vendor of
a chattel must know, or at all events is taken to know, what his right to the chattel is.
The rule. in Bain v. Fothergil! was at one time assumed in the High Court of Bombay
to be the law of India. 2' But sec. 73 is general iii its terms, and does riot exclude the
case of damages for breach of a contract to sell immovable property, and in fact the rule
was not settled beyond question in England when the Act was passed. "The Legislature
has not prescribed a different measure of damages in the case of contracts dealing with
land from that laid down in the case of Contracts relating to commoditics' Therefore,
when a purchaser of land claims damages for the loss of his bargain, the question to be
decided is whether the damage alleged to have been caused to his "naturally arose in the
usual course of things from such breach"; and in an ordinary case it would be difficult
to hold otherwise.
The view propounded above was approved by the High Court of Bombay in Ranch-
hod v. Manrnohandos.23 In that case the Court expressed the opinion that the rule in
Bain v. Foihergill was not law in this country. "As section 73 imposes no exception
on the ordinary Jaw as to damages, whatever the subject-matter of the contract, it seems
that
to me, in cases of breach of contract for sale of immovable property through inability
on the vcndor's part to make a good title the damages must be assessed in the usual way,
unless it can be shown that the panics to the contract expressly or impliedly contracted
that "s should not render the vendor liable to damages." 23 A similar view has been
' (1830) 7 Bing. 169. 21 Pitamber v. Ca.ssibai (1886) 11 Born. 272,
18 Ram.g opal v. Dhanji fad ha'iji Rhauia 22Per Farran, C.J.. in Nagardas v. Ahmedk-
('928) 55 Cal. 1048, 55 I.A. 299 (P.C.) 30 han (1895) 21 Born. 175, 185.
' -sm. 'R. 1389,111 l.C.480,(28) A.P.C. 23 (1907) 32 Born. 165,
200, (1874) L.R. 7 f-IL. 158.
19 (1854)9 Ex. 341, 96 R.R 742. 23 Per Macleod, J., 32 Born. 165, 171. Sec Val-
20 (1874) L.R. 7 H.L. 158.
labhdas v. Nagardas (1921) 23 Born. L.R.
S. 731 THE NDLAN CON1RACT ACT 199
expressed by the High Court of Calcutta, 26 Lahore-7 and Madras. Where a vendor of
l?:.d guarantees his title to The purchaser, and the latter is evicted from his l'olding, he
is entitled to recover the value of the land at the date of eviction, and not merely the pur-
chase money paid for it.
Interest by way of damage.—Act XXXII of 1839 provides for the payment of
interest by way of damages in certain cases. Under that Act the Court may allow interest
on debts or sums certain which are payable by an instrument in writing from the time
when the amount becomes payable where a Lime is fixed for payment, or, where no time
is fixed, from that date on which dcmand of payment is made in writing giving notice
to the debtor that interest will he claimed. The decisions in India were at one time divided
oil question whether interest was recoverable by way of damages under the present
section [Illustration (n)]. It has now been decided by the Privy Council 30 that the
illustration does not confer upon a creditor a right to recover interest UOfl a debt which
is due to him when he is not entitled to such interest under any provision of law. With
reference to the words "interest shall be payable in all cases in which it is now payable
by law" occurring in the proviso in the Interest Act, their Lordships observed that the
proviso applied to cases in which the Courts of Equity exercised jurisdiction to allow
interest.
But in the case. of breach of a contract of sale the Court may now award interest to
a seller suing for the price and to a buyer suing for refund: Sale of Goods Act III of 1930,
sec.
Althouh no interest by way of damages can be awarded under this section, where
money is obtained by fraud and is retained by frau& 2 or where a debt is wrongfully
de(ained, 33 ilUcrest by way of damages has been awarded by Courts on equitable prin-
ciples.
Damages Recoverable Under Revenue Recovery Act.—In Slate of Karnataka v.
Shree Rarneshwara Rice Mill? 4 the Supreme Court observed that when an agreement
entered into between the Government and private party specifically provided for recovery
or damages for breach of any condition of contract as arrears of land revenue, even if the
damages become payable on account of breach of conditions of the contract, the liability
to pay damages does not fall outside the terms of the contract but within the terms of the
contract. So it follows that though damages become payable on account of breach of con-
ditions of agreement they neveii.heless constitute amounts payable under the contract and
hence the damages can he recovered under the Revenue Recovery Act.

1213. In practice the assessment of 175.

damages for a defective title may have to 30Bengal Nagpur Railway Co., bd., v. Rut-
be rough; see jiarilal L)alsukizrarn V. Mul- :anjiRamji (1938)65 I.A. 66, (1938)2 Cal.
chand (1928) 52 Born. 883, 30 Born. L.R. 72, 173 I.C. 15, ('38) A.P.C. 67.
1149, 113 I.C. 27, ('28) A.B. 427; 31 As to the former Indian law, see Kandappa

2 Nabinchandra v. Krishna (1911) 38 Cal. Mwialiar v. Muihuswami Ayyar (1927) 50

458, at p. 465. Mad. 94, 99 I.C. 609, ('27) A.M. 99.
27 Jai Kishrn Dos v. Arya Priii Nidhi Sabha 32 Trojan & Co. v. Nagappa Cheitiar. A.I.R.

(1920) 1 Lah. 380; Mango! Singh v. Dial (1953) S.C. 235: (1953) S.C.R. 789.
Chand (1940) 188 I.C. 383, ('40) A.L. 159. Purshotiwn v, Amruth Ghee Co.. A.I.R.
Adikesawan Naidu v. Gurunaiha (1918) 40 (1961) A.P. 143.
Mad. 338. 34 A.I.R. 1987 S.C. 1359.
29 Nagardas v. Ahinedkhan (1895) 21 Born.
 200 TUE INDIAN CONTRACT ACT IS. 74
74. When a contract has been broken, if a sum is named in the co il -
as the amount to he paid in case of such breach, or
COMpensaii on
for breach of Con. if the contract contains any other stipulation by way of
tract where penalty penalty, the party complaining of the breach is entitled,
Stipulated.
whether or not actual damage or loss is proved to have
been caused thereby, to receive from the party who has broken the con-
tract reasonable compensation not exceeding" the amount so named or, as
the case may be, the penalty stipulated for.
Explanation.—A stipulation for increased interest from the date of
default may be a stipulation by way of penalty.
Exception—When any person enters into any bailbond, recognizance
or other instrument of the same nature, or, under the provisions of any law,
or under the orders of the Central Government or of any State Govern-
ment, gives any bond for the performance of any public duty or act in
which the public are interested, he shall be liable, upon breach of the con-
dition of any such instrument, to nay the whole sum mentioned. therein.
Exp1anation...A person whe enters into a contract with Government
does not necessarily thereby undertake an y public duty, or promise to do
an act in which the public are interested.
Illustrations
(a) A contracts with B to pay 13 Rs. 1,000 if he fails to pay B
Rs. 500 on a given
day. A fails to pay B Rs. 500 on that day. B is entitled to recover from A
such coinpen-
saiion not exceeding Rs. 1.000 as the Court considers reasonable.
(b) A contracts with B that, if A practises as a surgeon within Calcutta, he will pay
B Rs. 5,000. A practises as a surgeon in Calcutta. B
is entilcd to such compensation, not
exceeding Rs. 5,000, as the Court considers reasonable.
(c) A gives a recognizance binding him in a penalty of Rs. 500 to appear in Court
on a certain day. He forfeits his recognizance. He is liable to pay the whole penalty.
(d) .4 gives B a bond for thc. IepayniciL ol Rs. 1,300 with
interest at 12 per cent at
the end of six months, with a stipulation that in case of default, interest shall be payable
at the rate of 75 per cent from the date of default. This is a stipulation by way of penalty,
and B is only entitled to recover from A
such compensation as the Court considers rea-
sonable.
(c) A, who owes money to B, a money-lender, undertakes to repay him by deliver-
ing to him 10 maunds of grain on a certain date, and stipulates that , in the event of his
not delivering the Stipulated amount by the stipulated date, he shall be liable to deliver
20 --aunds. This is a stipulation by way of penalty, and B is only entitled to reasonable
compensation in case of breach.
•1) A undertakes to repay B a loan of Rs. 1,000 by five equal monthly instalments
with asEipulalion that, in default of payment of any instalments, the whole shall become
due. This stipulation is not by way of penalty, and the contract may be enforced accord-
ing to its terms.
(g) A borrows Rs. 100 from B and gives him a bond for Rs. 200 payable by fve
S. 74] THE INDIAN CONTRACT ACT 201
yearly instalments of Rs. 40, with a stipulation that, in default of payment of any instal-
ment, the whole shall become due. This is a stipulation by way of penalty. 35
Scope of this Sect ion.—Seetion 74 of the Indian Contract Act deals with the mea-
sure of damages in two classes of cases, viz (i) where the contract names a sum to be
paid in case of breach and (ii) where the contract contains any otfer stipulation by way
of penalty. The second category widens the amplitude of this section. The second cate-
gory would comprise forfeiture of a right to money or other property already delivered,
etc .36
such as a forfeiture of earnest money, security deposit, instalments of hire
Under section 73, the actual loss or damage which naturally arose in the course of
things has to be proved. But under this section the proof of actual loss or damage is not
the sine qua non of awarding reasonable compensation. The words "Whether or not
actual damage or loss is proved to have been caused thereby" contemplate cases where
it may not be possible to assess the actual damages or loss, as stated in sec. 73. This see-
Lion does not actually do away with the proof of actual loss or damage, if this is proved,
the Court may take it into account in awarding 'reasonable compensation.' 7 But vihere
it is not possible to prove actual loss or damage, and if the contract is the one which falls
under this section, the Court is entitled to award 'reasonable compensation'.
The provisions of sec. 73 laid down the principle of compensation in case of a
breach if a contract. This sec non also deals with compensation in respect of a breach of
a contract butthe contracts dealt with by this section are those containing a pcnahy:or
a r.arned sum to he paid in the event of a breach of contract. The provisions of scction
73, therefore, would extend to contracts wherein no named sum or a penalty is stated.
Penalty and liquidated darnages.—This section contemplates cases where the par-
ties to a contract anticipate possibility of a breach and prefer to name a particular amount
to be paid to the injured party. The sum so fixed by the contract itself may be either
(I) a genuine estimate of the actual loss likely to be suffered by the aggrieved party; or
(ii) it may be less than the genuine estimate of loss, parties contemplating that the liab-
ility should not exceed; or
(iii) it may be greater than the genuine estimate of loss which the injured party may
suffer; the sun was named so high as it was intended to operate as a threat to keep
the potential defaulter to his bargain.
The amouni so fixed or named in the contract is called (1) in the first case and the
second case, 'liquidated damages' or 'reasonable compensation' and is awardable LO the
injured party under this section and (ii) in the third case 'a penalty' which may be relieved
against under this section.
This section has provided a satisfactory solution to the vexed questions which arise in
English law.
If the subject matter of a contract is of a definite r indefinite value and a fixed sum
is payable on breach of the contract, the questions would be: (i) is this sum reasonable.?
' See as to a sjIfljlaT clause in a "chilfLtfld" 2.51: Maung IJo v. Motor House Co., (1929)
bond : Rama!inga Adoviar v Meenakshun. 7 Rang. 431.
dara.'n (1924) 47 Mad. L.J. 833, 85 LC. 261. 37 Maula Bu.x V. Union of india, (1970) 1
('25) A.M. i77. S.C.R. 928 = ( 1970) A.S...1955; Union of
Faieh C1-nd v, BaLkishan Doss, (1963) India v. Rainpur D&ciilk,y & Chemical Co.
A.S.C. 1005 (1904) 1 S.C.R. 515: Uni 'n of Lid. (1973) A.S.C. 1098.
India Lhia,n Sunder La!, (i963) All. Li.
202 THE INDIAN CONTRACT ACT LS. 74

c: (ii) is this sum extravagant or unconscionable in amount in comparison with the max
imjm loss that could conceivably be proved as a result of the breach? or is it in excess
of the value of the subject matter of the contract? or is the sum payable irrespective of
the importance and significance of the breach of contract? If the sum named falls in the
first category, It would be a liquidated damages and if it falls in the second category, it
would be a penalty.38 Penalty is a sum payable in lerrore,n, while liquidated damages is
a genuine covenanLed pro-estimate of damages.
Whether a sum is a penally or liquidated damages is to be judged of as at the time
of making of the contract and not as at the time of' the breach.38
Whether a sdrn is a penalty or liquidated damages is a question of construction to
be decided upon the terms and inherent circumstances of each particular contract.
s
This section has done away with all these difficult que tions and has laid down the
rule of awarding a reasonable compensation, not exceeding the sum so named, or the
penally named, in a contract.
Stipulations For Forfeiture of earnest money, security deposit, withdrawal of conces-
sion are dealt with separately.
Stipulations for interest.—By far the largest number of cases decided under this
section related to stipulations providing for interest. Those stipulations may be divided
into the following five classes:—
I. Stipulations for payment of interest at a higher rate on default on the part of the
debtor to pay the principal or part or interest on the due date, and these may again
be sub-divided in to:
(a) Stipulations for payment of enhanced interest From the date of the bond, and
(h) Those for payment of such interest from the date of default.
11. Stipulations for payment on default of compound interest, which may be divided
into:
(a) Stipulations for payment of compound interest at the same rate as simple inter-
est, and
(b) Those for payment of compound interest at a rate higher than simple interest, or
for payment of an increased-rate of interest and compound interest at that rate.
Ill. Stipulations for payment of interest at a specified rate if the principal or a part
thereof is not paid on the due date.
IV. Stipulations for payment of interest at a tower rate, if interest paid on due dates.
V. Stipulations for payment oF interest from the date of the bond, but at an exorbitant
rate.
The stipulations comprised in the above classes are considered below:-
I. Stipulations for enhanced rate of interest.—Such a stipulation occurring in a
contract. may be of a twofold character: (1) it may either provide for payment of interest
at :rl increased rate from the date of the contract on failure of the debtor to pay on the
due die the interest or principal or an insuilment of principal, or (2) it may provide for
paymcn. at a higher rei.e from the date of default only. Thus if A borrows Rs. 1,000 from
B on 1st 1902, A may give a bond to B for repayment of the loan on 1st June 1903,
with intcrc at 12 per cent per annun, with a stipulation either that in case of default
interest shall be payable at the rate of 25 per cent from the date of the bond, namely, 1St

313 Dunlop Pneumatic Tyre Co. Lid. v. New Garage & Motor Co. Ltd. (1915) A.C. 79.
 THE INDIAN CONTRACT ACT 203
S. 741

June 1902, or from the date of default, namely, IstJunc 1903. In the former case it has
been held that stipulation always amounts to a penally, and the provisions of sec. 74
apply, so 1:-al the Court may relieve the debtor, and award only such compensation to the
creditor as it considers reasonable. 40 In the latter case, where the increased rate of inter-
est is stipulated to have operation only from the dale of default, the provision has not gen-
erally been regarded as a pcnalty.'°. But such a stipulation may in some cases be penal.
Whether it is a penalty or not is a question of construction. "Ii is for the Court to decide
on the facts of the particular case whether the stipulation is or is not a stipulation by way
of penalty.' Ii. will be held to be. penal if tie enhanced rate is unconscionable or if it
42

is such as to lead to the conclusion thaL it could not have been intended to be part of the
primary contract between the parties. 43
The law as to such stipulations may be stated as follows:—
always in the
(a) A stipulation for increased interest from the date of the bond is
nature of a penalty, and relief will be granted against it.
be a stipulation
(b) A stipulation for increased interest from the date of default may
by way of penalty. and whenever it is so relief will be granted under this section. Whether
such a stipulation is penal is a question of construction dependent upon the consideration
SCL out above.
IL Stipulations for compound interst--A stipulation in a bond for payment
of compound interest on failure to pay simple interest at the same rate as was payable
upon (he principal is not a penalty within the meaning of this sccuon. 45 But a stipulation
for the payment of compound interest at a rate higher than that of simple interest is a
penalty within the meaning of this section, and would be relieved against. As observed
by the Judicial Committee, in Sunder Koer v. Rai Sham Krishen, ''compound interest
is in itself perfectly legal, but compound interest at a rate exceeding the rate of interest
on the principal moneys, being in excess of and outside the ordinary and usual stipula-
tion, may well be regarded as in the nature of a penalty."

39 The leading case on the subject is Mackin- (1906) 29 Mad. 491, 496; P.C. P1. v, K. A-
lush v. Crow (1883) 9 Cal. 689. The result L. P. Firm (1923) 1 Rang. 460; Jyoli Cold
of the eases will be found summarised in Stores v. Punjab Financial Corporation,
Umarkizan v. Satekhan (1892) 17 Born. (1973) A.P. & H. 38.
106, 113, 114, and in Abdul Gani v. Nand- Umarkfian v. Salekhan (1892) 17 Born.
lot (1902)30 Cal- 15,17. 106, 113.
40 Ra,neshwar Prosad Singh v. Poi Sham "The Courts do not lean towards com-
Kishen (1901) 29 Cal. 43, 50; Trimback v. pound interest, they do TaIL award it in the
Bhagchand (1902) 27 Born. 21. Sec also absence of stipulation; hut where there is a
Sunder Koer v. Rai Sham Krishen (1907) clear agreement for its payment it is, in the
34 Cat. 150, 157, L.R. 34 LA. 9. absence of disentitling circumstances,
"i Abdul Gc,.,ii v, Nan4lal (1902) 30 Cat. 15; allowed"; Hari Lahu Paid v. Rainji Va/ad
(J,'narkiian v. Sale/than (1892) 17 Born. Panda (1904) 28 Born. 371, 377.
45 Conga Dayal v. Bach/ia Liii (1902) 25 All.
106; Perio_sarni Ihallavar v, Subra,no.niwi
Ansari (1904) 34 Md. L.J. 136: Chum Lot 26; Surya Narain v. Jagendra Narain
v. Manna La! (1930) 11 Lab. 635, 331 I.C. (1892) 20 Cal. 360; Maui Cheujar v. Vee-
368, (31) A.L.. 20; Rama Krishnayya v. ranna Tevan (1921) 41 Mad. U. 470.
Venkaia ('34) /.,.M. 31, 14% I.C. 467; Jyoti (1906) 34 Cal. 150, at p. 158, L.R. 34 I.A.
Cold Stores Y. Punjab Financial Corpora- 9; ti4angaf Rai v. Baba Singh (1927) 8 L.ah.
tion, (1973) A.P. & H. 38. 721, 303 I.C. 437. ('27) A.L. 445
42 Abbakke lleggadthi v. Ki,thjamina Shefly
 204 THE INDIAN CONTRACT ACT [S. 74
ilL Stipulations for payment of interest if principal not paid on due date.—
These are cases where the bond does not provide for payment of two rates of interest, one
lower and the other higher, but for the payment of interest at one specified rate if the prin-
cipal money or part thereof is not paid within a stipulated period. To such cases s. 2 of
Act 28 of 1855 would seem to apply. That Act abolished all
usury laws of s. 2 of the Act
provides that "in any suit, in which interest is recoverable the amount shall be adjudged
or decreed by the Court at the rate (if any) agreed upon by the parties, and if no rate shall
have been agreed upon, at such rate as the Court shall deem reasonable." The section
refers to a single rate of interest and therefore cases under stipulation I, where there are
two rates of interest, the original rate and the enhanced rate, are outside its scope. But stip-
ulation III like s. 2 of the Act of 1855 refers to a single rate of interest and the difficulty
is to reconcile sec. 2 of the Act of 1855 with s. 74 in its application to cases under stip-
ulation Ill. Is the effect of the section to deprive We Court of jurisdiction to give relief
in cases where there is a stipulation for an exorbitant rate of interest in default of payment
of principal? On this point there were many conflicting decisions, but it is now generally
agreed that the words of s. 74 "if the contract contains any other stipulation by way of
penalty" introduced in the Contract Act by the Indian Contract (Amendment) Act, 1899,
are wide enough to cover cases under this stipulation.
IV. Stipulations for payment of interest at a lower rate, if interest paid regu-
larly on due dates.—Whcrc a bond provides for payment of interest at 24 per cent per
annum, with a proviso that, ii the. debtor pays interest punctually OL the end of every year,
the creditor would accept interest at the rate of 18 percent per annum, the creditor is entit-
led on failure of payment of interest on the clue date to interest at the higher rate of 24
per cent per annum. Such a clause is not in the nature of a penalty.47
V. Stipulations for payment of interest from date of bond, the rate of interest
being exorbitant.-....The question to he considered under this head is, whether a stipula-
tion for payment of interest can be deemed a "stipulation by way of penalty" within the
meaning of this section, if the bond provides for payment of interest at one rate from the
date of the bond, and that rate is high and exorbitant. This may be put in the form of an
illustration thus:— A borrows Rs. 500 from B
on 151h October 1930, and gives him a
bond for that amount promising to pay the principal with interest thereon at the rate of
75 per cent per annum on 1501 January 193 I. A does not repay hr' loan on 15th January
1931. B sues A to recover the amount of the loan with interest at 75 per cent per annum.
Is B entitled to Interest at the rate of 75 per cent per annum, or has the Court power under
this section to reduce the rate of interest? It has been held by the High Court of Calcutta
that whether the stipulation to pay interest at the rate of 75 per cent per annum is a stip-
ulation by way of penalty is a question of thci depending on the circumstances of each
case, and if the Court finds that the rate 0 inLereSt is of a penal character, the Court has
power G .-. der this section to grant relief."8
On the other hand, it has been held by the
High Court of Madras that the present section does not apply to cases like the above, the
Kwub-Ud-Din v. Bashir-Ud-Din (1910) 32 411 Krishna Charon v. Sanal Kwnar Das
All. 448; Fitz Holmes v. Bank of Upper (1917) 44 Cal. 162 [rate reduced from 75
India, Ltd., (1923) 4 Lah. 258; per cent to 15 per cent]; Abdul Majed v.
Administrator-General of Burma v, Mobla Khirode Chandra Pal (1914) 42 Cal. 690
(1927) 5 Rang. 573, 105 I.C. 592, ('28) [rate reduced from 60 per cent compound
A . R. 19; Wallingford v. Mutual Society interest to 30 per cent simple interest],
(1880) 5 App. Cas. 685, 702.
S. 741 - THE INDIAN CONTRACT ACT 205
r:s.- given being that there cannot be a stipulation by way of penalty unless there is
another antecedent promise. 49 The Madras decisions, it is submitted, are correct. The
Patna High Court has taken much the same view as the Madras High Court. 5 ° Gases of
the kind now under consideration arising since the enactment of the LTurious Loans Act,
18 will he dealt with tinder ih:.t ,c.t . sec. 3 of which empo w er s ihc Court to relieve
against exorbitant interest where (1) the interest is excessive, and (2) the transaction was
substantially unfair.
Withdrawal of corice.',sionai pa3mcnts.—An agrcc?nerIt may allow (Utol to dis-
charge his larger debt by payment of a lesser sum by instalments or wiLhin a specified
tirOC with a stipulation that. iii delault the lull amount of the debt shall be iiayaWe. Such
a stipulation is not in the nature of a penalty and is in the nature of a withdrawal of a
c0ncession.5'
Deposit on agreement for purchase of immovable property.—Maula Bu.x v.
52
Union of India supports an important distinction between earnest money and security
deposit. When the contract is not regardin g purchase of piopert.y but a deposit is given
for guaranteeing due perf:rmancc of the contract to deliver goods, such deposit is not an
earnest money" but security deposit. F;urie.st money is that which is paid by a pur-
chaser as a stake and when the contract is completed it is treated as part payment of the
price. 54 It is forfeited when the transaction falls through by reason of the default or li-
lure of the purchaser. 55 Forfeiture of earnest money tinder a contract for sale of
propcoy-ninvahle or immovable--if the. amount is reasonable,, does not fall within S.
74•5a
Forfeiture of a reasonable rniiount paid as earnest money is not a penalty. 57 But if
forfeiture is of the nature. of penalty, S. 74 applies whether the party in breach has under-
taken to pay or he has already paid a sum of money to the party complaining of the breach
of the contract. 5 0 is not correct to my that S. 74 has no application to cases of deposit
for due performance of a contract which is sipulate.d to be forfeited for breach. -59 Tn
Fate/i Cliand V. Baiki.chan Das 6° the plaintiff (Respondent) agreed to sell to Defendant

49 Kesavuluv. Arithulai (1913) 36 Mad. 533: 31 Born. L.R. 909., 117 I.C. 485, ('29)
Nojaf All Khan v. Itluha,n,nad FazI Au A.P.C. 179; Bhalchandra v. Mahadeo
Khan (1927) 26 Alt. L.J. 210, 107 I.C. 249, (1947) Nag. 60, ('47) A.N. 193; Vijaya
('28) A.A. 225 [rate rcuccd from 37 to 12 Foundry v. Gordon Woodroffe (1963) 2
per cent]. M.L.J. 153; Chiranjit Singh v. ilarxwa-up,
° Na:hani Sahu v. Baijnailz Prasad (1917) 2 A.I.R. 1926 P.C. I quoted in Mania flux v.
Pat. L.J. 22. pp. 216, 218. Uniàn of India A.I.R. 1970 S.C. 1955,
Si Bur/rjj v. Madhaolol (1934) 58 Born. 610: 19 58.
36 Born. L.R. 798: 152 I.C. 575: (1934) A. 55 Chiranjit Singh v. liar .cwarnp A.I.R. 1926
Born. 379; Woman v. Ieshwani (1948) P.C. I quoted in Mania L? u.x A.1.R. 1970
Born. 654; 50 Born. L.R. 68: (1949) A. S.C. at 195$; Il.C. Mills v. T'aia Aircraft
Born. 97; Popular Bank of India V. Cite. Lid. A.I.R. 1970 S.C. at 3994. Para 24.
ranji Lot (1947) All. 201: (1947) A.A. 136: 56 (htrarzjii Singh v. liar Swamp, See note
231 I.C. 275; Ko Kyam Swe v. U. Ba on Iviciula Bux v, Union of I,uija A. 70 S.C.
(1935) Rang. 341. - 1959, Para 7.
52 A.I.R. 1970 S.C. 1955. 7 58 Maula flux v. Union of India, supra.

para 4; sec also Union of

3 ibid p. 1958, 59 Maula I.iu.x v. lJ,uon of India A. 70 S.C.
India v. Rampur Dislilirry & Chemical Co. 1955.
Lid. (1973) 1 S.C.C. 649 = A.I.R. 1973 60 Safe/i C/and v. Iialkis/iiin Doss, (1963)
s.c. 1098. A.S.C. 1-105: (1 1)1) 1 S.C.R. 515. Mania
Pwuta Singh v. /irjan Singh (P.C.) (1929) flux v. Union of India, (1970) 1 S.C.R. 92$.
206 THE iNDi' CONTRACT ACT S. 74

(Appellant) his rights in the land and building at Rs. 1,12,500. At the time of the exc.
ection of agreement, purchaser (defendant) paid Rs. 1,000 to seller (plaintiff) Lnd Plain-
tiff 'as also paid Rs. 24,000 by the defendant out of the sale price at the tmc when the
pure' tser was given actual possession of the property. Under the agreement this entire
sum of APs. 25,000 was subject to forfoiture under the forfeiture clause along with resuftip
tion of possession provision if the defendant failed to get the sale deed registered by a
specific date. There was also a clause by which further liability was fastened on the pur-
chaser to pay an additional sum of Rs. 25,000 as damages if there was no registration of
the sale deed by the specific date. The defendant defaulted, plaintiff claimed to forfeit the
entire sum of Rs. 25,000 under the terms of the agreement as earnest money. The defen-
dant did not object to the plaintiff's rights to forfeit Rs. 1,000 paid as earnest money
under the agreement but he contended that Rs. 24,000 was expressly paid out of sale
price and the stipulation was in the nature of penalty. It was held by the Supreme Court
that Rs. 24,000 was not paid as an earnest money and it was expressly referred to in the
agreement as paid "out of sale price". Also there was no evidence that Rs. 24,000 was
paid as ' security for due performance of the contract. It cannot be assumed that because
there was a stipulation for forfeiture the amount paid must bear the character of a deposit
for due performance of the contract. Hence the plaintiff was only entitled to retain Rs.
1,000/- received by him as the earnest money. If there be no forfeiture clause, vendor
cannot forfeit earnest money but would he entitled to reasonable compensation.6'
Deposits other than earnest money—Moneys are often deposited as security for
the performance of a contract, without such moneys being earnest money. In such a case
there may be a forfeiture clause or not. Where there is no forfeiture clause, the party com-
mitting a breach of the contract is liable only to pay damages and is entitled to the return
of the remainder of the moneys deposi1cd. 2 Where however, there is a forfeiture clause,
the question in England arises whether thc deposit represented a g.niIinc pro-estimate of
liquidated damages or was in the nature of penalty. 63 The question in India is whether
such a case falls within the terms of sec. 74, so that only reasonable compensation has
to be paid whether the amount deposited in by way of liquidated damages or by way of
penalty. The words "any other stipulation by way of penalty" are scL';icntly ample to
cover the case of a deposit with regard to which there is a stipulatio' for forfei-
ture.
Cases go to show that if the aggrieved party does not prove the natural foss or
damage and asserts the right to forfeit the security deposit only, the Courts are incincd
to order the aggrieved )arty to refund the security deposit, 65 or earnest money.(­
Consent decree.—Sometimes decree passed on comprise provide that if the defen-
dant pa y s a particular amount within a specified time, the dec cc is to be marked as sat-
isfied but if the defendant dclaults in so paying he should pay an increased amount. In
such cases the question is whether the default clause operates as a penalty. The true
61 Mohammad Sultan v. Naina lvlohanvnad, Dass, (1963) A.S.C. 1405: (1964) S.C.R.
(1973) A. Mad. 233. 515; Union of India v. Rampur Distillery
62 Mayson v. Clonei (1924) App. Cas. 980; and Chemical Co. Ltd. (1973) A.S.C. 1098
Public WorksCommissioner v. 11111 (19C6) = (1973) 1 S.C.C. 640.
App. Cas. 368. 65 MIs. Variety Body Builders v. Union of
63 (1906) App. Cas. 368. supra. India (1973) A. Guj. 256.
64 Union of India v. S/iiam Sunder La! (1963) Patch Chand v. Ijalkishan Das, (1964) 1
All. L.J. 251; Patch Chand v. Balkishan S.C.R. 515 (553) = (1963) A.S.C. 1405.
S. 741 THE INDIAN CONTRACT ACT 207

test is as follows
(I) Does the decree holder get more than the amount he claimed in the suit if s',
it is a penalty.
(2) Does the decree holder get in default, or in execution of the decree, c.iy that
much of his just claim to which he was entitled in the suit, in that event there
is no penalty.
"Reasonable compensation."—The words of the section give a wide discretion to
the Court in the assessment of damages. "The only restriction is that the Court cannot
decree damages exceeding the amount previously agreed upon by tli parties. The dis-
cretion of the Court in the matter of reducing the amount of damages agreed upon is left
unqualified by any specific limitation, through, of course, the expression 'reasonable
compensation' used in tbe.scction necessarily implies that the discretion so vested must
be exercised with care, caution, and on sound principles.' ' The term 'reasonable'
implies having regard to the circumstances of each case. In the exercise of this discretion
the Judicial Committee has affirmed a judgment giving, as reasonable in the particular
case, compensation at the same rate as the increased interest stipulated for. 69 And gen-
eral])' it is open to the Court under this section to award as compensation a sum equal
to the agreed penalty, provided that it does not appear to.the Court to exceed what is
reasonable.'° It has been held by a High Court of Bombay that the. measure of damages
for breach of a contract to borrow moneys at interest for a certain period is no the dif-
ference between dic agreed rate of intcre.,t arid that realised by the lender from his bank-
ers for the full period of the loan, but only for such period as might he reasonably
required to find another borrower of a similar amount at the agreed rate.7'
Onus of proof to prove damages whether or not actual damage or loss is proved
to have been caused thereby—Onus of proof to prove actual extent of damage is on the
aggrieved pariy.7Z On this aspect of the section, the following observations of the two
Supreme Court Cases may be noted. In Maula liux v. Union of India, the Supreme Court
observed as follows:
"It is true that in every case of breach of contract the person aggrieved by the, breach
is not required to prove actual loss or damage suffered by him before he caii claim a
decree and the Court is competent to award reasonable compensation in case of breach
even if no actual damage is proved to have been suffered in consequence of the breach
of Contract. But the expression "whether or not actual damage or loss is proved to have
been caused thereby" is intended to cover different classes of contracts which come
before the- courts. In case of breach of some contracts it may he impossible for the Court
to assess compensation arising from breach while in oer cases compensation can be al-
culatcd in accordance with established rules. Where the Court is unable to assess the corn-
pensatbn, the sum named by the parties if ii be regarded as a genuine pre-estimate may
be taken into consideration as the measure of reasonable compensation, but not if the sum
named is in the nature of a peflalty. Where loss in terms of money can be determined,

Juhari Lal v. Mohin Das, (1972) A. All. Jivan Kumar (1932) 53 Cal.
457- Abbe/ce Ilcggadthi v. Kinhiamma Shelly
68 Nail Rem v. Shib Dal (1882) 5 All. 238, (1906) 29 M&. 491, 496.
242; Fetch Ciwad v Ilcilkishan Doss ('63) 71 Datubhai v. Abubaker (1387) 12 Born. 242.

A.S.C. 1405: (1964) 1 S.C.R. 515. 72

Karamcha'zd ihapar & Bros. Lid. v. II. II.
Sundar Koer 51n Krishen (1906) 34 .7eIhanan.ni, 76 C.W.N. 38.
Cal. 150; L.R. 34 I.A. 9; Chendi Charan v.
208 THE INDIAN CONTRACT ACT [Ss. 74, 75

the party claiming compensation must prove the loss suffered by him."73
In Fateh Chand v. Balkishan Das, the Supreme Court observed thus: "Jurisdiction
of the Court to award compensation in case of breach of contract is unqualified except
as to the maximum stipulated; but compensation has to be reasonable, and that imposes
upon the court duty to award compensation according to settled principles. The Section
undoubtedly says that the aggrieved party is entitled to receive compensation from the
party who has broken the contract, whether or not actual damage or loss is proved to have
been caused by the breach. Thereby it merely dispenses with proof of "actual loss or
damage;" it does not justify the award of compensation when in consequence of the
breach not legal injury at all has resulted, because compensation for breach of contract
can be awarded to make good loss or damage which naturally arose, in the usual course
of things, or which the parties knew when they made the contract, to be likely to result
from the breach".
Not less than: In a managing agency agreement it was provided that in the case of
the termination of the managing agency for any reason or cause other than that specified
in the agreement the managing agents shall receive as compensation or liquidated amount
as damages for the loss of the appointment, a sum equal to the aggregate amount of salary
which was not to be less than Rs. 6000 p.m. for the unexpired portion of the agency. The
Supreme Court held that the parties having specified the amount of liquidated damages
and it excluded the right to claim an unascertained sum as damages. The words "not less
than" only emphasise that the compensation would not be computable at a sum less than
the amount mentioned. The sum was regarded by the parties as reasonable and intended
that it should not be reduced by the Court in its discretion .71
Exception mentioned in S:74—Scope: A bond given by a person to whom the
right, of collecting fees from vendors of goods in a market formed by a Local Board under
the Madras Local Boards Act, 1884 stipulating that if he exacted fees in excess of the pre-
scribed rates he may be fined not exceeding Rs. 50 imposed by the President of the
Board, is a bond "for the performance of a public duty or an act in which the public are
interested," but it Is not "given under the provisions of any law," as there is no section
in the Local Boards Act which authorises or requires the giving of such a bond. Such
bond, therefore does not fall within the exception and contractor is not liable to pay the
full amount of the penalty on breach of the condition of bond. The Board is only entitled
to reasonable compensation:

Party rightfully 75. A person who rightly rescinds a contract is-

rescinding contract
entitled in compen- entitled to compensation for any damage which he has
Saliori. sustained through the non-fulfilment of the contract.77
" A.I.R. 1970 S.C. at 1959. Para 8. sale to recover it back if the seller makes
'' (19(>4) I.S.C.R. at 527. Default, if any more specific, authority is
75 Sir Chunilal Mehta v. Century Shipping & wante.J than his remedy for breach of con-
Mfg. Co. Ltd. A.I.R, 1962 S.C. 1314, 1319. tract under the genera] provisc; of s. 73.
76 President of the Taluk Board, Kundapur v. But as rightly observed in iari (or Pyare)
Burde Lakshmirzarayarza (1908) 31 Mad 54 Lot v. Mina Ma! 1928 (53) All, 82,102 I.C.
= 17 M.L.J. 537. 766, ('27) A.A. 621, right to recover money
This section appears fairly to cover the paid for a considerajion that has failed is
right of a buyer who has paid a deposit on not exhausted by statutory specifications.
S. 751 THE INDIAN CONTRACT ACT 209
Illustration
A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two
nights in every week during the next two months, and B engages to pay her 100 rupees
for each night's performance. On the sixth night A wilfully absent herself from the thea-
tre, and B. in consequence, rescinds the contract. B is entitled to claim compensation for
the damage which he has sustained through the non-fulfilment of the contract.
This section is to be read as supplementary to secs. 39, 53, 55, 64 and 65. The facts
of the illustration resemble those of illustration (a) to sec. 39. A party who rescinds on
the ground of fraud or the like is in a different position; he rescinds the contract not
because fulfilment has been refused or prevented, but because the contract, by reason of
the fraud, or as the case may be, is altogether to his disadvantage. It is sometimes said
that a party who rescinds for fraud cannot also recover damages.78 This limitation ()
the remedy must be confined to wholly executory contracts. In the case of partially exe-
cuted contract, the two remedies should be available.'

-. -. -

See Halsbury's Laws of England. 3rd edn., 79 SeeBowen L.J. Newbiging v. Adam
vol. 26, p. 857. (1886) 34 Ch. D. 582, 592.
C4 14
 Chapter VII

This chapter of the Act is wholly repealed by the Indian Sale of

Goods Act, 1930, Sec. 65, but the numbering of the later chapters and sec-
tions is not altered.

Chapter VIII

OF INDEMNITY AND GUARANTEE

124. A contract by which one party promises to save the other from
"Contract" of loss caused to him by the conduct of the promisor him-
indemnity defined,
self, or by the conduct of any other person, is called a
contract of indemnity."
Illustration
A contracts to indemnify B against the consequences of any proceediflgs which C
may take against B in respect of a certain sum of 200 rupees. This is a contract of indem-
nity.
Indemnity.—English usage of the word "indemnity" is much wider than this def
inition. It includes promises to save the promisee harmless from loss caused by events
or accidents which do not or may not depend on the conduct of any person, or by liability
arising from something done by the promisee at the request of the promisor; in the latter
case a promise of indemnity may be inferred as a fuet from Lhu nature of the transac-
tion.' A contract of insurance is kind of contract of indemnity.
The present chapter applies in terms only to express promises; but it should he noted
that a duty to indemnify may be annexed by operation of law to vr.rious particular kinds
of contract (cf. s. 69, above).
Commencement and Extent of Indemnifier's liability.—The text of the Act
leaves these matters undefined, and in fact the leading English authorities are cornpar-
atively recent. It might be supposed that an indemnifier (the person who gives the indem-
nity) could not be called on till the indemnified (the person for whose protcétion
indemnity is given is called the indemnity holder or indemnified) had incurred actual
loss, and this was at one time said to be the rule of English Common Law. But, according
to. the equitable principles which now prevail, "to indemnify does not merely mean to
reimburse in respect of moneys paid, but (in accordance with its derivation) to save from
loss in respect of the liability against wj
'i ich the indemnity has been given ... if it be held
that payment is a condition precedent to recovery, the contract may be of little value to
the person to he indemnified, who may be unable. to meet the claim in the first
Dugdale v. Levering (1875) L.R. 10 C.P,, 196.
Ss. 124, 1251 THE INDIAN C0IRACT ACT 211
instance"2
The Bombay High Court has held that an indemnity holder could sue for specific
performance of the contract of indemnity even before he incurs the damage provided that
it is shown that an absolute liability has been incurred by him and that the contract of
indemnity covers the said liability 3 . The reason advanced is that the law of indemnity in
this Act is not exhaustive'. Similarly in the well known case of Osinan Jamal & Sons
Lid. v. Gopal Purshouam 4 the plaintiff company in liquidation was commission agents
for the defendant firm in the purchase and sale of certain goods and was to be indem-
nified against all losses in such transaction. The plaintiff Company in that capacity
bought the goods from a vendor. The defendant firm refused to pay for or to take delivery
of the goods and so the vendor resold the goods at a loss. He sought to recover it from
the plaintiff Company. Hence the plaintiff company was seeking to recover this sum from
the defendant firm before paying over the amount of the loss to the vendor on the basis
of indemnity given by a contract. It was held that the Official Liquidator could recover
the amount from the defendant even though the Official Liquidator had not actually paid
it to the Vendor. Similarly in a later case of the same High Court 5 when A had agreed
to indemnify B against any loss or injury, B was entitled to have recourse to this indem-
nity and to call upon A to discharge his liability as soon as the loss or injury became immi-
nent. B was not bound to wait until B actually suffers loss or injury.
This view of the Court reflects the opiiuon expressed by Buckley, L.J. 5 in the case
of In re Richardson Ex pane the Governors of St. Thomas's Hospital where he observed:
"Indemnity is not necessarily given by repayment after payment. Indemnity requires that
the party to be indemnified shall never be called upon to pay ...........
Rights of in- 125. The promisee in a contract of indemnity, acting
dernniLy
when sed. holder W i thin the scope of his authorit y , is entitled to recover
from the promisor—
(1) all damages which he may be compelled to pay in any suit in
respect of any matter to which the promise to indemnify applies;
(2) all costs which he may be compelled to pay in any such suit if,
in bringing or defending it, he did not contravene the orders of
the promisor, and acted as it would have been prudent for him to
act in the absence of any contract of indemnity, or if the promisor
authorised him to bring or defend the suit;
(3) all sums which he may have paid under the terms of an y corn-
promise of any such suit, if the compromise was not contrary to
the orders of the promisor, and was one which it would have
been prudent for the promisee to make in the absence of any
2 Kennedy L.J., in Liverpool Morigage Jnsur- Kumar 26 Cal. 241; Pamadingazhudayar
a,iee Co's case (1914) 2 Ch. 617, 638. v. Unnamalai Uchi, 38 Mad. 791; Shaim
3 Kheiarpal v. Madhtd'.ar Piciures,
57 Born. La! v. Abdul Salarn (1931) A.A. 754.
LR. 1122 (1126): (1956) A. Born, 106; A.I.R. 1929 Cal. 208.
Gajanan Mores/i war v. Mor'shwar Profulla Kumar l3asu v. Gopee A.T.R. 1946
Madan, 44 Born. L.R. 703, approving Cal. 1.59.
KWiWF Nwh Bhuitacharjce v. Nobo
0911) 2 KB. 705 at 715.
212 THE INDIAN CONTRACT ACT ES. Us
contract of indemnity, or if the promisor authorised him to com-
promise the suit.
Rights of indemnity holders.— The rights conferred upon an indemnity holder by
this section are based upon an essential condition that he must be "acting within the
scope of his authority." This is clear from the principal part of the section. This aspect
is further emphasised by the sub-sections. Sub-sec- (1) requires that the suit must be "in
respect of any matter to which the promise to indemnify applies." Sub-sections (2) and
(3) also state that in bringing or defending or compromising, such suit, the indemnity
holder should have been either (I) authorised by the promisee, or (ii) he did not contra-
vene the orders of the promisor, or (iii) in absence of such authority or orders, his acts
should be aces of a prudent man.
It is only when an indemnity holder has complied with the said condition that he
would be entitled to recover from the promisor all damages and costs, which he has been
compelled to pay in such suit.
Sub-sections contemplate that at each stage, the indemnity holder applied for author-
ity or orders of the promisor. In the absence of such authority or orders from the pro-
misor, the indemnity holder has to act as a prudent man.
The provisions of this Section deal with the rights of an indemnity holder in the
event of being sued, and it is by no means exhaustive of the rights of an indemnity holder
who has other rights besides those mentioned in this section. Even before damage is incur-
red by an indemnity holder, it would be open to him to sue for specific performance of
the contract of indemnity provided it is shown that an absolute liability has been iricurrcä
and die liability is covered by the contract of ir-ideniriity.6
A contract or a bound by a scholar to reimburse the government if he failed to return
to India from San Francisco after completing his studies and then serve the government
for five. years could be a contract of indemnity and the scholar is bound to reimburse the
government in the event of his failure to comply with the conditions of the bond.'
Sub-sec. 1,—As to sub-sec. 1, "it is obvious that when a person has altered his posi-
tion in any Way on the faith of a contract of indemnity, and an action is brought against
him for the matter against which he was indemnified, and a verdict of a jury obtained
against him, it would be very hard indeed if when he came to claim the indemnity the
person against whom he claimed it could fight the question over again, and run the
chance of whether a second jury would take a different view and give an opposite verdict
to the first. Therefore, by reason of that contract of indemnity, the judgment is conclu-
sive," although the promisor was not a party to it.' This rule has been followed by the
Indian CourLs.9
Sub-sec. 2.—As to sub-sec. 2, "in the case of contracts of indemnity, the liability
of the party indemnified to a third person is not only contemplated at the time of the
indemnity, but is the very moving cause of that contract; and in cases of such a nature
there is a series of authorities to the-effect that costs reasonably incurred in resisting or
6 Khetarpal v. Madhukar Pictures, 57 Born. 9 Natlappa v. Virdhachala (1914) 37 Mad.
L.R. 1122 (1126-27). 270. And the promisee has a cause of
' 14. Sham Singh v. State of Mysore, (1972)
action as soon as a decree is passed against
A.S.C. 2440 = (1973) 2 S.C.C, 303. him; Chiranji Lal v. Naraini (1919) 41 All.
8 Parker v. Lewis (1873) L.R. 8 Ch. 1035,
395.
1059. per Mellish, L.J.
Ss. 125, 126] THE INDIAN CONTRACT ACT 213
reducing or ascertaining the claim may be recovered." But the costs must he such as
would have been incurred by a prudent man.'1
Sub-sec. 3.—As to sub-sec. 3, "if a person has [expressly] agreed to indemnify
another against a particular claim or a particular demand, and an action is brought on that
demand, he [the defendant] may then give notice to the person who has agreed to indem-
nify him to come in and defend the action, and if he does not come in, and refuses to
come in, he. may then compromise at once on the best terms he can, and then bring an
02
action on the contract of indemnity.' -

Cause of action and period of limitation.—In one case it was held upon a true con-
struction of the contract of indemnity that the plaintiff had two causes of action viz:-
(i) it was permissible for the plaintiff to call upon the defendants to pay the amounts
claimed in the order of the Sales Tax Officer directly to the authorities;
(i)) it was also permissible for the plainliff to wait till he suffers loss i.e when he
paid the amount of the claim."
Such a suit will lie within the period of three years under Art. 113 of Limitation Act
from the date of payment.' In another case the Supreme Court held that the statute
runs on the actual damnification .'
Rights of promisor.—This section deals with the rights of a promisee in a contract
of indemnity. There is no provision in the Act for the rights of a promisor in such a con-
tract. The absence, however, of such. a provision does not take away the rights which such
a promisor has according to English law, and which are analogous to the rights of surety
declared in sec. 141.15
126. A contract of guarantee" is a contract to perform the promise,
"Coniract of or discharge the liability, of a third person in case of his
guarantee, default. The person who gives the guarantee is called the
pal debtor," and surety," the person in respect of whose default the
creditor."
guarantee is given is called the "principal debtor" and
the person to whom the guarantee is given is called the 'creditor." A guar-
antee may be either oral or written.
The contract of guarantee presupposes a principal debtor: 16 the surety's obligation
must be substantially dependent on a third person's default."' A promise to be primarily
and independently liable is not a guarantee, though it may be an indemnity.' "Con-
tracts of suretyship . . . require the concurrence of three persons, namely, the principal
debtor, the creditor, and the surety. The surety undertakes his obligation at the request
express or implied of the principal debtor," on the true construction of sec. 141 as well
10 I3epin v. Chwider Seekur Mookerjce 15 See Maharana Shri Jasvatsingji Falesinji
(1880) 5 Cal. 811. v. The Secretary of State India (1889) 14
° Gopal Singh v . hawani Prasad (1888) 10 Born. 299, 303.
All. 531. ' Moutusiephen v. Lakeman (1871) L.R. 7
12 Mellish, LT, 8 Ch. at p. 1059, supra. Q.13. 196, 202, Ex. Ch. affirmed in House of
13 Abdul Hussain Jwnbawalla v. Bombay Lords, L.R. 7 H.L. 17.
Metal Syndicate, (1972) A. Born. 252. 27 Ilarburg India Rubber Comb Co. v. Marlin
14 Shanti Sivarup v. Munshi Singh, (1967) (1902) 1 K.B. 778 C.A.
A.S.C. 1315. 18 Guild & Co. v. Conrod (1894) 2 Q.B. 885.
214 THE INDIAN CONTRACT ACT [S. 126
as sec. 126.19 Accordingly, if A enters into a contract with B. C, without any commun-
ication with B, undertakes for a consideration moving from A to indemnify A against any
damage that may arise from a breach of B's obligation this will not make C a surety for
B or give him a right of action in his own name against B in the event of B's defautt.
A contract of guarantee without consideration is void. 20 A contract of guarantee
may be contained in more than one document. 2'
Distinction between guarantee and indemnity
Guarantee Indemnity
(1) Three panics (1) Two parties
(2) Three contracts: (1) between credi- (2) Once contract between indemnifier
tor and debtor; (2) between creditor and indemnified.
and surety; (3) between debtor and
surety by which principal debtor
requests the surety to act as such .22
(3) As security of creditor for perform- (3) it is for reimbursement of loss Only.
ance and/or for liability or for loss.
(4) It is only a consequential contract (4) It is an original and direct contract.
after the original is entered into. It creates primary liability for indem-
Guarantor's liability is secondary nifier which arises even though the
and hence if principal debtor is not promisee has no enforceable rights
liable, guarantor is not liable also! under the principal contract.
(5) There can be no contract of guaran- (5) A promise to be primarily and inde-
tee unless there be a principal debtor pendently liable is not a guarantee
(i.(,'. a third person) and the Surety's but it may he an indemnity,20
obligation must be substantially
dependent on a third person's default.
(6) In a contract of guarantee the surety (6) in a contract of indemnity the indem-
assumes a secondary liability to nifier assumes a primary liability.
answer for the debtor who is primar-
ily liable.
(7) in the case of a guarantee there is an (7) In indemnity, the possibility or risk-
existing debt or duty, the perform- of any loss happening is the only con-
ance of which is guaranteed by the tingency against which the incicrnni-
surety. lier undertakes to indemnify.20
19
Periamanna Marakkayar v. Banians & Co. Raj. 973.
(1925) 49 Mad. 156, 172, 185, 95 LC. 154, 21 S. Chatlanatha v, Central Bank of India,
('26) A.M. 544 at 553: Ramachandra v. (1965)3 S.C.R. 318 = (1965) A.S.C. 1856.
Shapurji (1940) Born. 552, 42 Born. LR 22 See
Ramchandra v. Shapurji (1940) 42
550. 192 I.C. 375, ('40) A.B. 315; Jaaa- Born. L.R. 550 = AIR, 1940 Born. 315.
nath Bakhsh v. Chandra ljhukhajn (1937) 23
Eldridge & Morris v. Taylor (1931) 2 K.B.
12 Luck. 484, 165 I.C. 370. ('37) A.O. 19. 416; Temperance Loan Fund Lid. v, Pose
20 Janaki Paul v. Ohokar Mall Kidarbux
(1932) 2 K.B. 522; Unity Finance Ltd. v.
(1935) 156 I.C. 200; Ram Narain v. Hari Woodcock, (1963) 1 W.L.R. 455.
Singh, A.I.R. (1964) Raj. 76: I.L.R. (1963)
Ss. 126, 1271 THE INDIAN CONTRACT ACT 215
In England a guarantee is within the statute of frauds and therefore it is not action-
able without a "memorandum or note" as is required by S. 4 of the statute, whereas
under S. 126 of the Indian Contract Act a guarantee may be either oral or written But
a contract of indemnity wider English Law may be oral.

Law of guarantee

What is a guarantee: Performing promise of principal debtor; or discharging liability

of principal debtor (s. 126).
Consideration: Past/future benefit to principal debtor (s. 127).
Invalidated: (I) By misrepresentation by creditor (S. 142). (2) By silence to material
circumstances by creditor (s. 143).
Liability of Surety: Surety's liability is co-extensive with that of principal debtor

Rights of Surety: (1) Guarantor entitled to be indemnified b y principal debtor (s.

145). (2) Guarantor entitled to be subrogated to rights of creditor (Ss. 140, 141).
Discharge of Surety: (I) Release of principal debtor; ) Act or omission of creditor
whereby principal debtor is discharged (Ss. 134, 135, 139).
Revocation of guarantee: (1) By notice to creditor (s. 130) (2) By death of surey
(s. 131). (3) By variation of original contract to the prejudice of surety (Ss. 133, 135).
Co-sureties liable to contribute equally inter se (Ss. 146, 147).
"Discharge Liability."—By the word "liability" in this section is intended a liab-
ility which is enforceable at law, and if such liability does not exist, there cannot be a
contract of guarantee. A surety, therefore, is not liable on a guarantee for the payment of
a debt which is barred by the law of liini1a1ion.2
Where the question of performing the promise of the pruicipal debtor, or of discharg-
ing the liability of the principal debtor, is not involved, there would not arise any contract
of guarantee. For example, in case of auction sales by Excise. Department, the auction off-
icer may insist upon the bidder to produce certificate of his solvency; after the auction
bid was closed, a person signed under the column headed 'certificate of solvency' in the
auction sale list; it was held that the person so signing did not stand guarantee for the
bidder.27

127. Anything done, or any promise made, for the benefit of the prin-
Consideration cipal debtor may he a sufficient consideration to the
for guarantee,
surety for giving the guarantee.

IIlu.siralions

(a) 8 requests n to sell and deliver to him goods on credit. A agrees to do so pro-
vided C will guarantee the payment of the price of the goods C promises to guarantee
the pay. i-ent in consideration of A's promise to deliver the goods. This is a sufficient con-
sideration for C's promise
2 }'cornaO Credit Lid. v Lauer (1961) 1 213 Manju Mahadeo v. Shivappa (1918) 42
W.L.R. 828 Lakernan v. Mountslcphcn Ibm. 444.
(1874) L.R. 7 H.L. 17. 27 Joseph Abraham v. Tchsi!dar Mcenrichi.
Guild & Co. v, Conrad (1894)2 Q.R. 885; (1971) A. Key . 334.
216 THE INDIAN CONTRACT ACT [S. 127
(b) A sells and delivers goJs to B. C afterwards requests 4 to forbear to sue B for
the debt for a year, and promises that if he does so, C will pay for them in default of pay-
ment by B. A agrees to forbear as requested. This is a sufficient consideration for C's pro-
mise.
(c) A sells and delivers goods to B. C afterwards, without consideration agrees to pay
for them in default of B. The agreement is void.
Consideration for a contract of guarantee.—This is nothing but an application of
the wider principle that in all cases of contract the really necessary element of consid-
eration is the legal detriment incurred by the promisee at the promisor's request, and it
is immaterial whether there is or is not any apparent benefit to the promisor. The
words "anything done" suggest that past consideration is a sufficient consideration for
a contract of guarantee.
Like any other contract, a contract of suretyship may be invalidated by total failure
of the consideration. A surety gave a written guarantee for payment of the judgment-
debts by intalments, in consideration of the decree-holders consenting to postpone the
sale under the execution. It turned Out that the consent of another person was necessary
to prevent the sale. In consequence the sale took place. The surety gave notice that the
consideration having failed, the guarantee was at an end. The decree holders represented
that when they look the guarantee they had power to stop the sale and that it would be
stopped. It was held that the surety was entitled to have the guarantee cancelicd, 2 or
where the consideration was withdrawal of a criminal prosecution against the debtor, but
the Court would not sanction the withdrawal as the offence was not compoundable,3°
Where A advanced money to B on a bond hypothecating B's property and mention-
ing C as surety for any balance that might remain due after realisation of B's property,
and C was no party to the bond, but signed a separate surety bond two days subsequent
to the advance of the money, it was held that the subsequent surety bond was void for
want of consideration! In Allahabad High Court case" the Creditor did not promise to
do anything and did not do anything "for the benefit of the principal debtor" and so there
was no consideration for the Surety's giving the guarantee. The creditor agreed to do
nothing and promised nothing in return for the surety's promise. The surety's separate
and subsequent bond was not made for the benefit of the principal debtor as required by
s. 127 of the Contract Act since the debtor had already received two days earlier the con-
sideration money. Accordingly, the court found that the act of surety was not on behalf
Of the principal debtor but as security for the benefit of lender alone and therefore there
was no consideration under S. 127 of the Act. So also in Tra. Coch. High Court case"
there was held to he no consideration for a contract of guarantee because after the debt
had been contracted, the surety came forward and promised that he would see that the
debtors duly discharged their obligation. The creditor did not suffer any dctrimcr.t at the
instance of the surety. Moreover the surely was not personally liable for the discharge of
the debt but would see that the debtors rcpa"y the debt. The mere fact that A ends money
to B on the recommendation of C is no consideration for a subsequent promise by C to
28 Sornaling v. Pcwhai Waickan (1915) 38
3011ei Ram v, Devi Prcsad (1881) 1 All,
Mad. 680; Pc.vtonji v. Bai Meherbai (1928) W.N. 2.
30 Born. L-k. 1407, 112 I.C. 740, (28) ' Nwiak Ra,n v, Mehin La! (1877) 1 All.
A.B. 519. 487; V6rghese v. Abraham ('52) A. Tra.-
29 Cooper V. Joel (1859) 1 D.F. & J. 240. =
Coch. 202.
(1859) 45 E.R. 350.
Ss. 127, 1281 THE INDIAN CON'IRACT ACT 217
fi32
pay the money in default of
Where after a lease is executed a person becomes surely for the payment of the rent
due by the lessee, the contract of suretyship is for Consideration. 33 In deciding sufici-
ency of consideration, it is not necessary to look at the events chronologically. If a sale
and the guarantee are substantially one transaction (e.g. goods sold are intended to be
guaranteed by manufacturers) it does not matter that a guarantee is given at a date later
than the sale?
128. The liability of the surety is co-extensive with that of the prin-
Surety's liability. cipal debtor, unless it is otherwise provided by the con-
tract.
Illustration
A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is
dishonoured by C. A is liable not only for the amount of the bill but also for any interct
and charges which may have become due on i.
Additional Illustration
[A guarantees to C the payment of rent becoming due from B to C. B fails to pay
rent. A is liable for the rent, but not for interest on the rent, unless the bond contained
soirie such words as "with interest thereon'': Maharaja of Benares v. i/ar Narain Singh
(1906) 28 All. 25.1
Proof of surety's liability.—The liability must be proved against the surety in the
same way as against the principal debtor. A judgment or award against the principal is
not admissible as against the surety without a special agrecmcnt to that effect. The
present section is merely a re-enactment of the Common Law.
Madras Agriculturists' Relief Act.—A full Bench of the Madras High Court-
has decided that where the principal debt of an agriculturist has been sealed down by the
Madras Agricullurist's Relief Act, a non-agriculturist surety will only be liable for the
debt as scaled down. Their Lordships distinguished eases in which it was held that dis-
charge of a principal debtor in bankruptcy did not operate as discharge of the sureties.
Liability for whole or part of debt.—A surety may limit his guarantee to a fixed
sum. If the debt is an ascertained sum exceeding that sum, the presumption is that the
surety guarantees the whole amount but limits his liability to the fixed sum. But if the
debt is a floating balance including sums to become due in the future, the presumption
is that the surety guarantees not the whole (Icht but a part of the debt equal to the fixed
sum. This is because ''it is inequitable in the creditor, who is at liberty to increase the
balance or not, to increase it at the expense of the Surety.' 37 The surely's liability
32
Mathukaruppa v. Kathappudyarz (1914) 27 647. 650; Srce Meenakslii Milk, Lid. v. Ra'.
Mad. L.J. 249. ilul Tribhovandas (1941) 43 Born. L.R. 53,
Ghu/am Husain v. Faiyaz li/i (1940) 15 ('41) A.B. 108.
Luck. 656, 188 I.C. 175. ('40) A.O. 346; 36 Subramania v. Narayana.cwami (1951)
Kali Charan v. Abdul Rahman (1918) 23 Mad. 305, ('51) A.M. 48 (EB.). Narayan
C.W.N. 545, 50 I.C. 651, (18) A.P.C. 226. Singh v. ChhaiarSingh, (1973) A. Raj. 347.
Thornion v. Jcnkyns (1840) 1 Mart. & C. Ellis v. Emanuel (1876) 1 Ex. Div. 157,
166; Tanner v. Moore (1846) 9 Q.B. 1. 164. Cur. per Blackburn, J.
/lajarirnol V. Krishnarav (1881) 5 Born.
218 THE INDIAN CONTRACT ACT [S. 128
depends upon the terms of the contracL3R If the guarantee is of the whole debt the
surety does not acquire rights of subrogation of contribution (see secs. 140,141 and 146)
until he has paid the whole of the fixed sum to which he has limited his guarantee. If the
guarantee is for a part of the debt the surety is entitled to the benefit in rateable proportion
of any dividends paid by the estate of the principal debtor.
Cr -existence liability.—This section limits the liability of a surety unless the con-
tract provides otherwise. The word 'co-extensive' indicates that a surety is liable to the
same extent as the principle debtor; he is jointly and severally liable with the principal
debtor?" In Bank of Bihar v. Damodar Prasad the Supreme Court observed that the
surety is liable to pay the crLije anlounL and his liability is immediate and cannot be defer-
red until the creditor exhausts his remedies against the principal debtor. The Court
approved Lord Eldon's observations in Wright v. Simpson (31 E.R. 1272, 1282) that
"Surety cannot restrain an action against him by the creditor on the ground that the
debtor is solvent or that the creditor may have relief against the debtor in some other pro-
ceedings." Likewise when the creditor has obtained a decree against the surety and the
debtor, the surety has no right to restrain execution against him until the creditor has
.40
exhausted his remedies against the debtor If the principal debtor is not liable on the
principal debt, surety is also not liable. If the principal debt is illegal 41 or is .tnen1orcc-
able under the Moneylenders Act,42 the principal debLor and guarantor are. no liable- If
the principal debtor is discharged by the creditor's breach, surety will not be liable.46
A surety's liability to pay die debt is not removed by reason of the creditor's ornis-
sion to sue the principal debtor. The creditor is not bound to exhaust his remedy against
the principal debtor before suing the surety, and a suit may be maintained against the
s Urety, though the principal debtor has not been sued.47
Nor can the surely ask for an in against the creditor restraining him from pro-
ceeding against surety until his remedies against the principal debtor are exhausted.'3
But a document which releases the principal debtor without expressly reserving the
creditor's rights against the guarantor, the guarantor would be also released from his
liability.49
If decretal debt is extinguished in whole or in part by substantive statute 5° or by
operation of substantive law"" e.g. Under Agriculturist Debtors Relief Act, or in
appeal; - the surety's co-extensive iiabiiiiy is pro-loaw exiinguihed, reduced or abates,
as the case may be. In Narayan Singh v. Cithatar Sin,gh°° the Rajasthan High Court
Subhankhan v. Lalkhan (1947) Nag. 643, 146; Depak Dais Chaudhari v. Secy. of
('48) A.N. 123. State, 118 I.C. 443 ('29) A.L. 393; J3adri
Suresh Narain v. Akhauri (1957) A. Pat Baton v. Vindhya Pradesh ('52) A.V.P. 18;
256; Madho Sah v, Sitaram (1962) A. Pat. As/zarjibi v. Pras.1u2dila! ('59) A. Madh. P.
405. 26; Madho Sn/a v. Sitara,n ('62) A. Pat.
° (1969) 1 S.C.R. 620. 405; Bank of flu/any v. Damodar Prosad,
41 Swan v. Bank of Scciand (1836) 10 Eli. (1961) A.S.C. 297 = (1961)S.C.J. 380.
N.S.) 627; A. V. Varado.rajulu Naith4 v. K. Bank of Bihar v. Damodar Pra.cad, Supra.
V. Thavasi Nadar (1963) A. Mad. 413. 49 Cutler v. McPhail (1962) 2 Q.B. 292,
Eldridge & Morris v. Taylor (1931) 2 KB. 50 Narayan Singh v. Cithasar Singh, (1973)
416; Temperance Loan Fund Lid. v. Rose A. Raj. 347 (349); Subramania Clietliur v.
(1932) 2 K.B. 522. Moniwn P. Narayan.rwwni Gounder,
Unity Finance Ltd. v. Woodcock (1963) 1 , (1951) A. Mad. 48; Aypwini Mani v.
W.L.R. 455. Dcvassy, A.I.R. 1966 Ker. 203; Bahu Rao
Sankura v. Virupak3Ilapa (1883) 7 Born. v. Babu Mona/lot AIR, 1938 Nag 413;
S. 1291 THE INffMAN CONTRACT ACT 219
observed that because the Surety's engagement is one of indemnity it would diminish in
like proportion as the liability of the principal debtor diminishes. So if the principal
debtor gels any benefit of the provisions of the Act, like Relief of Agricultural Indebt-
edness Act passed by the State Legislature, those benefits would enure for the benefit of
the surety as well because the liability of a surety under a contract could not be more than
that of a principal debtor. Moreover the purpose of the beneficial legislation which scales
down the debt of the agriculturist with his creditor would be defeated if the surety's liab-
ility towards the creditor is not correspondingly reduced because the surety has a right
under S. 145 to be reimbursed by the principal debtor for the amount paid by him to the
creditor on behalf of the principal debtor. Accordingly, after the judgment creditor gets
from the surely the entire dccrctal amount without being scaled down, then the surety
would exercise his right to be reimbursed by the principal debtor for the amount paid
under the decree to the creditor. By this, the benefit of the Act to scale down the debt
would ultimately be lost to the debtor-agriculturist for whose benefit the Act is passed.
However, mere failure to sue within the period of limitation or inability to sue by reason
Of the provisions of one of the orders under the Civil Procedure Code, would not render
the original contract void . 52 In Mahani Singh v. U Ba Yi the creditor had sued the
debtor and surety in one action but on a technical objection by the debtor, had withdnwn
the suit against him, without leave of court, and sought to continue the action against the
surety. The Privy Council held that the creditor's act amounted to a clear reservation of
rights against the surety. 52 As seen earlier a statutory reduction or extinguisliirieot of the
principal debtor's liability will operate as a pro tanto reduction or extinguishment of the
surety debt but its unenforceability against the principal debtor by operation of law of
Bankruptcy or Limitation Act is quite diffr, s A discharge of the principal debtor
not by act of the party but by operation of law, does not discharge the surety and the
remedy of the creditor against the guarantor (surety) should not he restricted to the
amount that the debtor may be operation of law be compellable to pay.5
So a surety in such a case is liable though the claim against the principal debtor
is barred by statute of limitation or by reason of the bankruptcy of the principal
debtor.
Suret y 's liabilit y where original contract is void 'r voidable.—This section only
explains the quantum of a surety's obligation when the term of the contract do not limit
it, as they often do. It does not follow, conversely, that a surety can never be liable when
the principal debtor cannot be held liable. Thus a surety is not discharged from liability
by the mere fact that the contract between the principal debtor and creditor was voidable
at the option of the former, and was avoided by the former. And when the ori g inal agree-
men' is void, as in the ease of a minor's contract in P..Iia, the surety is liable as 'a principal
deoto:; for in such a case the contract of the so-called suret y is not a collateral, but a prin-
cipal, contract."
but compare Gopilal Y. MI s. Trac Indus- Ker. 204, Para
fries & Componenis Ltd., A.I.R. 1978 Mad. 54 Bank of India Ltd. v. ." F. Cowasjee, A.I.R.
134 (D.B.). 1955 Born. 419 para 27.
Shek Sulenvj.n v. S/iivram, (1888) 12 5 Kashiba V. Shripat (1894)
19 3orn. 697:
Born, 71. fndar Sing v. lhcskur Singh (1921) 2 Lah.
52 Mahant Singh V.
U. lit. yi, 66 LA. 198 = 41 207; JaganiTalh Ganeshrans v, Shivi-ia-
Born. L.R. 742 (748). rayan (1940) Born. 387,42 Born. L.R. 451,
53 Aypunnj Mani v. De.'assy
A.I.R. 1966 190 I.C. 73, ('40) A.B. 247.
220 THE INDIAN CONTRACT ACT [Ss. 128, 129
Limitation.—The payment of interest by a debtor before the expiration of the
period of limitation does not give a fresh starting point for limitation against the surety
under sec. 20 of the Limitation Act, 1908* even in the absence of a prohibition by the
surety against the payment of interest by the debtor on his account. Payment of interest
by the debtor could not be regarded as made by a person liable to pay the debt, nor can
the surety be, for the purpose of that section, considered the agent of the principal duly
authorised to pay the intcresl 56 But where the terms of a contract with the surety imply
that he would he bound by the acknowledgements of the principal debtor, as when a
surety has agreed to a continuing guarantee with a hank, the surety will he bound by the
acknowledgements of the principal debtor.57
See also the commentary on sec. 134.
"Coniinuing 129. A guarantee which extends to a series of trans-
guarantee.
actions is called a "continuing guarantee".
Illustrations
a) A, ill that B will employ C in collecting the rents of B's zamindari,
prornises B to be responsible, to the amount of 5,00() rupees, for the due collection and
payment by C of those rents. This is a continuing guarantee. (Sec Dzzrga Priya Chowd-
hury v Durga Pada Roy (1928) 55 Cal. 154, 109 I.C. 752, ('28) A.C. 204, where this
illustration is relied on.]
(b) A guarantees payment to B, a tea-dealer, to the amount of £100, for any tea ne
may from time to time. supply to C. B supplies C with tea to the above value of £100 and
C pays B for it. Aferwards B supplies C with lea to the value of £200. C fails to pay.
The guarantee given by .4 was a continuing guaraiiicc, and he is accordingly liable to B
to the extent of £100. [Facts simplified from Wood v. Priesiner (167) L.R. 2 Ex. 66 and
282.]
(c) A guarantees payment to B of the price of five sacks of flour, to be delivered by
B .o C and to be paid for in a month. B delivers five sacks to C. C pays for them. After-
v rds B delivers four sacks to C which C does not pay for. Afterwards B delivers four
scks to C which C does not pay for. The guarantee given by A was nut a continuing guar-
antee, and accordingly he is not. liable for the of die four sacks. [Kay Y. Groves
(1829) 6 Bing. 276.1
Continuing guarantee.—hi a contract of guarantee the consideralioc may be an
entire consideration (and so outside the scope of S. 129 of the Act) or ii may be frag-
mentary consideration supplied from time to time and therefore divisible (and falling
within S. 129 of the Act)
In the case of an entire consideration it is indivisible and moves once for all from
the person to whom the guarantee is given (i.e. the creditor). The consideration for the
contract has flowed once for all and is contained to a single transaction and does not
extend to series of transactions. A guarantee given for the performance of a definite eng-
agement which has already come into existence is of this nature. So a guarantee for (tue
Corresponding to sec. 19 of Ehc Limiuition Insurance Society (1917) 44 Cal. 978.
Act XXXVI of 1963. 57 Popular Bank Lid. v, United Coir Factor-
56 Gopal Daji v. Gopal Bin Sonu (1903) 28 ies, I.L.R. (1961) Ker. 493.
Born. 248; Jjrojcndra v. IIiitucfrzn Co-op.
S. 1291 THE INDIAN' CONTRACT ACT 221

performance even of several payments of rent under a lease constitutes it definite eng-
agement of one transaction and it is not a continuing guararnee. 58 The successive pay-
Merit of rent upon each instalment falling due cannot be treated as successive transactions
and it is not a guarantee of the type falling within S. 129 of the Act. Similarly, where a
bond was given by a surety for the integrity of a person in consideration of that person's
appointment to an office 59 is an example of an indivisible consideration and it is not a
continuing guarantee. When the guarantee is not a continuing guarantee, Eh guarantor
cannot end the guarantee at his pleasure nor could it be put to an end by the commun-
ication of the death of the guarantor to the creditor.° However the position is different
when it is not an entire but a fragmentary consideration which is supplied from time to
time. In a continuing guarantee a surety may revoke his guarantee alter a notice to the
creditor and the guarantor is not then responsible with respect to future transactions
which may be made by the principal debtor after the surety has revoked the guarantee.
Accordingly, a guarantor is liable for all advances made or all the goods supplied upon
his guarantee before the notice to determine it is given. Whether in a particular case a
guarantee is continuing or not is a question of the intention of the parties, ''as expressed
by the language they have employed, understanding it fairly in the sense in which it is
used; and this intention is best ascertained by looking to the relative position of the par-
ties at the time the instrument is written.' 6 ' A guarantee in this form: "I, M will be
answerable for £50 sterling that Y. butcher, may buy from Ii,' was held to he a conti-
nuing guarantee to the extent of £50 when it appeared from the circumstances that the
parties contemplated a continuing supply of stock to Y. in thee, way of his trade. A guar-
antee intended to secure advances to be made from time to time in 18 months, the sureties
making themselves liable for those advances upto £1000 is a continuing guarantee. 62 B
became surety under bond to Government for the treasurer of a collectoraic. The collec-
tor yearly examined the accounts and struck a balance which he certified to be correct.
B on each occasion executed a new bond, but the old bonds were not cancelled. Subse-
quently the treasurer was discovered to have embezzled moneys during each year. It was
held tha. it was a continuing guarantee. Further, as the new bond was not in substitution
of the old bond, there was no.novation and the liability of a surety for the old bond
remaincd. 3 But a guarantee For the. due performance of the payment of rent under it
lease is not. a continuing guarantee as a guarantee has been given for the performance of
a definite engagement which has already come into existence. Stipulation for several
payments were definite engagements constituting once transaction. Guarantee was given
for due fulfilment of these engagemenLs during the lease period. In construing the lan-
guage of the parties the whole of their expressions must be looked to, and not merely the
operative words.
A guarantee of the faithful discharge of his duties by it person appointed to a place
of trust in a bank is not it guarantee as there are' no series of transaction but
it is one transaction, 65 so long as he continues in that place tc guarantee remairs.
Ilasan Ali v. Waliullah A.I.R. 1930 All. 62 Laurie v. Scholcj7eld L.R. 4 C.P. 622.
730. 63 Lola Bansidhar v. Govt. of Bengal (1872)9
9 In re Crace (1902) 1 Ch. 733; Sec also
B.L.R. 364; 14 MJ.A. 86.
Lloyds v. Harper (1880) 16 Ch. D. 290. 15,1 Ilasan /iIi v. O'aliullah A.I.R. 1930 All.
60 Lloyds v. Harper (1380) 16 Ch. D. 290.
730; 128 I.C. 821; (1930) A.L.J. 1272.
' Bobill, C.J., Coles v. Pack (1869) LR. 5
Seri v, Bank of [Jen, 'nl (1920) 47 LA. 164.
C.P. 65, 70.
222 THE' INDIAN CONTRACT ACT [Ss. 129, 130
Neither is a guarantee for the payment of a sum certain by instalments within a definite
time, a continuing guarantec. 66 The first is a guarantee of an appointment and the
second is a guarantee of a loan.
Revocation of 130. A Continuing guarantee may at any time he
CD
continuing guaran-
tee. revoked by the surety, as to future transaction, by notice
to the creditor.
Illustrations

(a) A, in consideration of B's discounting, at A's request, bills of exchange for C,

guarantees to B, for twelve months, the due payment of all such bills to the extent of
5,000 rupees. B discounts bills for C to the extent of 2,000 rupees. Afterwards, at the end
of three months, A revokes the guarantee. This revocation discharges A from all liability
to for any subsequent discount. But A is liable to B for the 2,000 rupees, cri default of C.
(b) A guarantees to B, to the extent of 10,000 rupees, that C shall pay all the bills
that B shall draw upon him. B draws upon C. C accepts the bill. A gives notice of revo-
cation. C dishonours the bill at maturity. A is liable upon his guarantee.

Revocation of continuing guarantee.-- 7A continuing guarantee can be revoked

under this Act in the following manner:-
(i) by notice to creditor (S. 130)
(ii) by death of surcly(. 131)
(iii) by variance in the tcms of the contract between debtor and creditor (S. 133).
Future transactions.—Thc words "future transaction" must he taken to imply that
the operation of this section is confined to cases where a series of distinct and separate
transaction is contemplated. It is otherwise in the case of an entire consideration, "Where
a continuing relationship is constituted on the faith of a guarantee ... the guarantee cannot
be annulled during the continuance of that relationship," and as the surety cannot deter-
mine it hinelf by notice, so his death does not relieve his estate from liability unless the
nature of the transaction implies a contract to the contrary under sec. 131. This rule was
applied in Lloyds v. 1arper67 where the father of a person admitted as an underwriting
member of Lloyd's gave a guarantee to Lloyd's "for all his engagements in that capac-
ity." Lloyd's was then a vuluntary association under which a person once admitted Could
not be excluded from a membership except for his insolvency. The association as such
incurred no liability on the policies underwritten by its members. In 1871, the society was
incorporated by Act of Parliament. In 1876 the father (guarantor) died and notice of his
death was given to Lloyds. In 1878 son became bankrupt and so ceased to be a member
of Lloyds. The question was whether the guarantee terminated with the father's death and
notice of it to Lloyds. It was held that guarantee was not determined by the death of the
father or by notice of it but the estate of father was liable in respect of engagements con-
tracted by the son.
But a material change in what we may call the guaranteed situation may justify a
revocation. Thus, in the common case of a guarantee for a servant's honesty, proved dis-
honesty on the servant's part entitled the surety to say: "After this you must employ such
66 Bhagandas v Scrctary of State (1926) 465.
28 Born. L.R. 662, 96 I.C. 248 ('26) A.B. 157
(1880) 16 Ch.D. 290.
Ss. 130, 1321 THE INDIAN C0N11ACT ACT 223
a man, if you will, at your OW: periI."
This section will not apply to a surety to the receiver appointed by a court of law.69
Notice: In a previous suit instituted by the creditor if the surety denied his liability,
that may not operate as a notice under his section. 70 This section requires a clear spe-
cific notice of revocation.
131. The death of the surety operates, in the absence of any contract
Revocation of to the contrary, as revocation of a continuing guarantee,
continuing guarazi-
tee by surety's so far as regards future transactions.
death.
"Contract to the contrary."—The English rule appears to be that where there is
a guarantee subject to revocation by notice, and the surety dies without having revoked
it, notice of his death to the creditor operates as a revocation. 7 ' But this does not govern
the construction of the present Section. 72 An express provision that a guarantor or his
representatives may determine the guarantee by notice is an example of such a contract
to the contrary as this section contemplates; in such a case mere notice of the death will
.71
not be enough
132. Where two persons contract with a third person to undertake a
Liability of two certain liability, and also contract with each other that
persons, primarily
liable, not affected one of them shall be liable only on the default of the
by arrangements other, the third person not being a party to such contract,
between them that
one shall be surety the liability of each of such two persons to the third
on other's default. person under the first contract is not affected by
the existence of the second contract, although such third person may have
been aware of its existence.
Illustration
A and B make a joint and several promissory note to C. A makes it in fact as surety
for B, and C knows that at the time when we note is made. The fact that A, to the know-
ledge of C, made the note a surety for B, is no answer to a suit by C against A upon
the note.
Joint debtors and internally one of them a surety for the other.—Where one of
two joint debtors is, to the knowledge of the creditor, in fact a surety for the other as
between themselves, his immediate liability to the creditor is not qualified, but he is entit-
led to the rghts of a surety under sections 133, 134, 135. "When two or more persons
bound as full debtors arrange, either at the time when the debt was contracted or subse-
quently, that inter .rc one of them shall only be liable as a surety, the creditor after he has
notice of the arrangement twist do nothing to prcjudicc the interests of the surety in any
65 Phillipsv. Foxlt (1872) L.R. 7 Q.B. 666, 42,
677, 681, 72 DurgaPriya Chowdhury v. Durga Pada
9 Mahoined Ali 'i. lioweson Bros. (1925) 30
Roy (1928)55Cal. 154, 159, 1091.C.752,
C.W.N. 266; lJai Somi v. Cho,tshi Ish. ('28) A.A. 204.
wardas, (1894) 19 Boni-. 245. " Re Silveslc'r (1895) 1 Ch. 573; Durga
70 Bhikabhai V. )Jai Bhuri, 27 Born. 418.
Priya Chowdhury v. Durga Pada Roy,
" Coulihart v, Clernenison (1879) 5 QH.D, supra.
224 THE INDIAN CONTRACT ACT [Ss. 132, 133
question with his co-debtors. That appear; !o me to be the law as settled by the judgments
of this House in Oake/ey v. Pasheller74 ar.d Overend, Gurney & Co. v. Oriental Finan-
cial Corporation," 75 This includes the case where one member of a firm retires and
another continues the business and agrees to indemnify the outgoing partner.
The provisions of this section do not apply where the liability undertaken is not the
same. A party who accepts bills of exchange for the accommodation of another is not pre-
cluded by this section from pleading that he was an accommodation acceptor only. See
Negotiable Instruments Act, 1881, sccs. 37, 38.
133. Any variance, made without the surety's consent, in the terms
Discharge of the contract between the principal debtor and the cred-
of
surety by Varlance
itor, discharges the surety as to transactions subsequent
ir, "srms of contract.
to the variance.
Illustrations

(a) A becomes surety to C for B's conduct as a manager in C's bank. Afterwards,
B and C contract, without A's consent, that B's salar y shall be raised, and that he shall
become liable for one-fourth of the losses on overdrafts. B allows a customer to over-
draw, and the bank loses a sum of money. A is discharged from his suretyship by the vari-
ance made without his consent and is not liable to make good this loss.
(b) A guarantees C against the misconduct of B in an office to which B is appointed
by C, and of which the duties are dcl'ined by an Act of the Legislature. By a subsequent
Act the nature of the office is materially altered. Afterwards, B misconducts himself. A
is discharged by the change from future liability-under his guarantee, though the miscon-
duct of B is in rerpect of a duty not affected by the later Act.
(c) C agrees to appoint B as his clerk to sell goods at a yearly salary, upon A's
becoming surety to Cfor B's duly accounting for moneys received by him as such clerk.
Afterwards, without A's knowledge or consent, C and B agree that B should be paid by
a commission on the goods sold by him and not by a fixed salary. A is not liable for sub-
sequent misconduct of B.
(d) A gives to Ca continuing guarantee to the extent of 3,000 rupees for any oil sup-
plied by C to B on credit. Afterwards B becomes embarrassed, and, without the know-
ledge of A, B and C contract that C shall continue to supply B with oil for ready money,
and that the payment shall be applied to the then existing debts between B and C. A is
not liable on his guarantee for any goods supplied after this new arrangement.
(e) C contracts to lend -B 5,000 rupees on the 1st March. A guarantees repayment.
C pays the 5,000 rupees to B on the 1st January. A is discharged from his liability, as the
contract has been varied inasmuch as C might sue B for the money before 1st March.
Variation of contract between creditor and principal—This is a rule of long
standing, thus expressed by Lord Couenham: "My variance in the agreement to which
the surety has subscribed, which is made without i.he surety's knowledge or consent,
which may prejudice him, or which may amount to a substitution of a new agreement for
a former agreement, even though the original agreement may, notwithstanding such van-

(1836)4 Cl. & F. 207, 42 R.R. 1. in Rouse v. Bradford Banking Cc'. (1894)
75 (1874)
L.R. 7 H.L. 348; per Lord Watson A.C. 586. 598.
S. 1331 THE ThDL&N CONTRACT ACT 225
awe, be substantially performed, will discharge the surety.""
Again it was laid down a generation later by a Judicial Committee: "A long series
of cases has decided that a surety is discharged by the creditor dealing with the principal
or with a co-surety in a manner at variance with the contract, the performance of which
the surety has guaranteed." Where a surety handed over a letter of guarantee to the
principal debtor for a sum of Rs. 25,0001- but the creditor got the said ligure reduced to
Rs. 20,000/- and the figure was altered by the debtor, it was held that the guarantor
having left the letter with the debtor was estopped from pleading want of authority of the
principal debtor to alter and the alteration was unsubstantial and to the benefit of the guar-
antor and hence the guarantor was not discharged by virtue of such alteration, 7'
In one case guarantor executed a surety bond for Rs. 25,000/- under sec. 145
C.P. Code and in the suit the defendant submitted to a consent decree for Rs. 22,717.12,
costs of the suit and interest, with a stipulation that if Rs. 20,000/- were paid the decree
was to be marked satisfied. The plaintiff decree holder took out execution of the decree
against the guarantor who pleaded material variation of the guarantee and consequently
disclaimed all liability. The Court held that the liability of the surety was reduced by the
compromise decree, surety was not prejudiced and the guarantor could not plead varia-
tion of the guarantee to his prejudice nor could he disclaim his liability."
Where a guarantee Is for the performance of several and distinct contracts or duties,
a change in one of those contracts or duties will not affect the surety's liability as to the
rest. 8 ° The intention of a "settlement" contract, for repurchase of goods by the seller
from the buyer, is not that the original contract shall be discharged but that the two con-
tracts shall stand together: 8 ' accordingly, a contract of re-sale to the vendor does not dis-
charge a surety from his original contract. 82A stipulation in a contract of guarantee
whereby the surety purports to waive all his rights, legal, equitable, Statutory or other-
wise, which may be inconsistent with the guarantee, will not deprive him of his right to
discharge under this section because the surety did not thereby consent to a variation of
the contract. 83 The general clause in the letter of indemnity under which he waived all
rights under the stature cannot be read as implying any consent to the variation within the
meaning of S. 133 or as entitling the plaintiffs to enforce the liability against the surety
even though, according to law, he (surety) is discharged from such liability. The dis-
charge from liability is an incident of the variation and any such general agreement could
not be interpreted as amounting to that specific consent to the variation contemplated by
S. 133. Such a consent necessarily implies that the surety has knowledge of the nature
of variation,"
A becomes surety to C, for payment of rent by B under a lease. Afterwards B and
C contract, without A's consent, that B will pay rent at a higher rate. A is discharged
76 Borw., v. Macdonald, (1850) 3 H.L.C. 226 80 Skilleu v. Fletcher (1866-67) L.R. 1 C.P.
at pp. 238, 239; Brahmayya & Co. v. K. Sri- 217, 1 C.P. 469.
niva.sa,, ('59) A.M. 122. 81 Uita,n Chand Saligram v. Jewa Mamooji
' Ward v. National Bank of New Zealand
7 (1919) 46 Cr1. 534, 542.
(1883) 8 App. Ca. 755, 763. 82 Uderam v. Shivbhajai (1920) 22 Born.
78M. S. Anirudham v. Thomcos Bank Ltd. LR. 711.
('63) A.S.C. 746. 83 Chitguppi
& Co. v. Vinayak Kashinath
7
'Ajnin Abdul M,sr:aza v. Jivraj Otmal Rat- (1921) 45 Born. 157 22 Born. L.R.
nagiri Bhagidari, (1972) A. Born. 88 = 73 659.
Born. L.R. 715.
CA.i5
226 m, INDIAN CONTRACT ACT [Ss. 133, 134
from his suretyship in respect of arrears of rent accruing subsequent to such variance.
A surety for a partner was held to be discharged where the partners had extended the bus-
iness and increased the capital, thus makingthe partner for whom the surety stood guar-
antee liable for greater losses than was contemplated at the date of the bond.
An attempted variance which is inoperative, as being against the local law applica-
ble as between the creditor and the principal debtor, will not discharge the surety. A
Canadian banker's loan and interest were guaranteed; the bank increased the rate of inter-
est from 7 to 8 per cent, 7 per cent being the highest the bank could legally charge in
Canada; the guarantors remained bound for principal and lawful interest, But it is for
the promisee (the Creditor) to show performance of the contract before he can hold the
promisor (the Surety) to his promise, and therefore, the guarantor will not be held liable
if the promisee has failed to perform the original contract. The surety cannot be held
bound to something for which he has not contracted. If the original parties have expressly
agreed to vary the terms of the original contract, no further question arises. The original
contract has gone and unless the surety has assented to the new terms, there is nothing
to which he can be bound, for the final obligation of the principal debtor will be some-
thing different from the obligation which the surety guaranteed." Presumably he is dis-
charged forthwith on the contract being altered without his consent, for the parties have
made it impossible for the 'guaranteed performance to take place. So in the Privy
Council case the guaranteed transaction was an advance of Rs. 1,25,000 on security of
four properties. The transaction carried out was an advance of Rs. 1,00,000 on security
of three properties. It was held that the sureties cannot he held liable in respect of this
performance which was not what they contracted to guarantee.8'
If there is a substantial variation in a contract without the consent of the surety, the
surety will be discharged even though there is no extra perejudice to him!' The Court
will not go into the question whether WCrc has been any actual prejudice or not. is
for the surety to judge whether he will continue to remain liable on the new contract or
not-81
If the surety has mortgaged his property as security for his guarantee, any variance
in the contract between the creditor and the principal debtor will discharge the surety
from liability and release the property mortgaged. 89 The property will be released even
if the surety has not made himself personally liable.90

134. The surety is discharged by any contract between the creditor

Discharge of and the principal debtor, by which the principal 'debtor is
surety by release
or discharge of released, or by any act or' omission of the creditor, the
principal debtor. legal consequence of which is the discharge of the
principal debtor.

84 K/ia-Jun Bibi v. Abdullah (1880) 3 All. 9.

I.C. 700, ('35) A.P.C. 21,
85 Jowari4 Singh v. Tirath Ram (1939) 183
A.I.R. 1935 P.C.24,
I.C. 740, ('39) A.L. 193. Bolton v. Salmon (1892) 2 Ch. 48.
' Eghert v. National Crown Bank (1918) ° Smith v. Wood (1929) 1 Ch. 14; Jagjiwan.
A.C. 903. das v. King Hamilton & Co. (1931) 55
7 Praiapsingh v. Keshavlal (1935) 62 LA. Born. 677, 33 Born, L.R. 709, 134 I.C. 545,
23. 59 Born. 180.37 Born. L.R. 315, 153 ('31) A.B. 337.
S. 134) THE INDIAN CONTRACT ACT 227
Illustrations
(a) A gives a guarantee to C for goods to be supplied by C to B. C supplies goods
to B, and afterwards B becomes embarrassed and contracts with his creditors (including
C) to assign to them his property in consideration of their releasing him from their
demands. Here B is released from his debt by the contract with C, and A is discharged
from his suretyship.
(b) A contracts with B to grow a crop of indigo on A's land, and to deliver it to B
at a fixed rate, and C guarantees A's performance of this contract. B diverts a stream of
water which is necessary for irrigation of A's land, and thereby prevents him from raising
the indigo. C is no longer liable on his guarantee.
(c) A contracts with B for a fixed price to build a house for B within a stipulated
time, B supplying the necessary timber. C guarantees A's performance of the contract. B
omits to supply the timber. C is discharged from his suretyship.
Creditor's discharge or principal debtor.—"The law upon this subject is clear
and well settled. If the creditor, without the consent of the surety, by his own act destroys
the debt, or derogate from the power which the law confers upon the surety to recover
it against the debtor in case he shall have paid it to the creditor, the surety is dis-
charged."9'
But it 1s to be observed, with regard both to-this and to the following section, that
if the creditor expressly reserves his remedies against the surety, or generally his secur-
ities and remedies against persons other than the principal debtor, the surety is not dis-
charged. In section 135, the creditor in order to reserve his remedies has to obtain assent
of the surety. In England this is as well seWed as the main rule; and it is really quite con-
sistent with the terms of the present section as well as sec. 135. This has been followed
in India.92The surety's ri g ht to indemnity against the principal debtor is a necessary
result of such a reservation. If a creditor, without ceasing to hold the principal debtor
liable, prefers to sue the more solvent of two sureties for the debt, this does not discharge
the other surety.93
But where there is a final and full release of the principal debtor by a complete nova-
tion or otherwise, "the remedy against the surety is gone because the debt is extin-
guished, and where such actual release is given no right can be reserved because the debt
is satisfied, and no right of recourse remains when the debt is gone." Acceptance of a
new debtor instead of the old one puts an end to the liability of a surety for the old
debt-'
Where a creditor filed a suit against the principal debtor and the surety but the prin-
cipal debtor could not be traced and served with the writ of summons and consequently
the name of the principal debtor was struck off under 0 IX r. 5 of the Civil Procedure
Code. The striking off the name of principal debtor would not amount to an omission on
the part of the creditor so as to dischare the surety and hence the creditor was entitled
to the decree against the surety alone.9
9' Kelley, C.B., in Cragoe v. Jones (1873) 465
L.R. 8 Ex. 81, 82. 94 Commercial Bank of Tasmania v. Jones
92 Ram Ranjan v. Chief Administrator ('60) (1893) A.C. 313, 316.
AC_ 416. 95 Nathabhai v. Ranchhodlal, 16 Born. L.R.
93 Bhagwandas v. Secretary of State (1926) 696; Mahant Singh v, U Ba yi, 41 Born.
28 Boim L.R. 662, 96 I.C. 240, ('26) A.B. LR. 742 (749) = 66 I.A. 198.
228 THE INDIAN CONTRACT ACT [Ss. 134, 135

"Act or omission of the creditor."—The acts or Omissions contemplated by this

section may be those referred to in secs. 39, 53, 54, 55, 63 and 67 (ante). If the principal
debtor is discharged from his obligation by reason of any acts or omissions pcified in
those sections, the liability of the surety will determine. But the act or omission must be
one of which the legal consequence is the discharge of the principal debtor. For further
comments read commentary under sec. 139.
Creditor's omission to sue principal within limitation period.—The question
whether a surety is discharged when a creditor allows his remedy against the principal
debtor to become barred by iirrjitatiori may be considered at this stage. On this point there
are two opposite views taken by the Indian High Courts. On the one hand, it has been
held by the High Courts of Bombay, Calcutta,"'. Madras," Lahore," Allahaba& and
Rangoon" that the surety is not under such circumstances discharged from liability to
the creditor; the Judicial Commissioner's Court at Peshawar ,a on the other hand, has
held that the surety is discharged. The Madras High Court relies on the well-known dis-
tinction between the barring of the remedy by action and the complete extinction of a
debt. It is also thought in England that omission of the creditor to sue within the period
of limitation does not discharge a surety for another and more substantial reason, that
"the surety can himself set the law in operation against the debtor. 4 In a Privy Council
case the reasoning of the majority of the High Courts has been preferred by their Lord-
ships and the point, therefore, may be regarded as settled. The Supreme Court has also
held that a creditor is entitled to recover the debt from the surety though the Suit against
the principal debtor is barred
The provisions of this section are qualified by section 137.
Discharge of 135. A contract between the creditor and the prin-
compounds cipal debtor, by which the creditor makes
a composition
Lot
gi'es Lime to, with, or promises to give time to or not to sue, the prin-
with,
or agree not .jtocipal debtor discharges the surety, unless the surety
debtor. assents to such contract.

Contract to give time to principal debtor—The general principle was thus stated
in the earliest decision on this subject: "It is the clearest and most evident equity not to
carry on any transaction without the privity of him who must necessarily have a concern
in every transaction with the principal debtor. You cannot keep him bound and transact
9 Sankara v. VirMpakshapa, (1883) 7 Born. 2 U Ba Pe v. Ma Lay (1932) 12 Rang, 398,
146. 139 IC. 138, ('32) AR. 88.
97 Krishto Kishori Chowdhrain v. Radha Chauar Singh v. Makhan Singh ('36) A.
Romun (185) 12 Cal. 330. Pesh. 20.
" Subrarnania v. Gopala (1909) 33 Mad.. 308. Per Lindley, Li., Carter v. White (1883)
99 Dii Mahoiwned v. Sain Das 100 I.C. 922, 25 Ch. Div. 666, 672.
('27) A.L. 396; Bharat National Bank v. 5 Maha.nth Singh v. U Ba Yi (1939) 66 l.A.
Thakur Das (1935) 16 Lah. 757, 156 I.C. 198, 41 Born. L.R. 742, 181 I.C. 1. ('39)
553, ('35) A.L. 729; Nur Din v. Allah Diva A.P.C. 110.
(1931) 12 Lah. 546, 133 I.C. 628, ('32) 6 Bombay Dyeing & Manufacturing Co. Ltd.
A.L. 419. V. State of Bombay (1958) S.C.R. 1122,
1 Aziz Ahinad v. Sher All, AIR. 1956 All. 8 1134, 1135 = A.U. 1958 S.C. 328.
(F.B.).
 S. 1351 THE fl'DIAN CONTRACT ACT 229
his affairs (for they are as much his as your own) without consulting him."7
A contract to give time to the principal debtor means that the creditor Is precluded
from suing the principal debtor until that time expires.'
A contract whereby the creditor promises to give time to the principal debtor must
be distinguished from an unconditional contract not to sue him. In the former case, the
remedy of the creditor is merely suspended until the determination of the fixed period;
in the latter case the principal debtor is completely released from his obligation so as to
entitle the surety to a discharge under sec. 134, apart from the specific provisions of this
section. In either case, the mere formation of the contract is sufficient to operate as a dis-
charge of the surety irrespective of any forbearance that may be exercised under it. The
reason of this rule appears to be that a surety has a right, immediately on the debt becom-
ing clue, to insist upon proceedings being at once taken by the creditor against the prin-
cipal debtor, and any Contract that would prevent the creditor from suing him would be
inconsistent with that right (s. 139). In the Supreme Court case an agreement between
a creditor Bank and a debtor provided that the debtor should be responsible for the quan-
tity of the goods pledged with the creditor. Tht goods pledged with the creditor Bank
showed shortage of Rs. 35,000 and the Bank immediately asked the debtor to make up
the deficit and the debtor promised to make up the deficit within a month but failed to
do so. The surety contended that the conduct of the Bank in giving time to the principal
debtor to make up the deficit absolved the surety of the liability under the guarantee. It
was held that the Bank's act of giving time to the debtor to make the deficit did not
amount to giving of. time within the meaning of S. 135 of the Act.Up
A consent decree, made without the surety's consent for payment by instalments of
the sum due from the principal debtor, is a composition such as to discharge the surety!'
It is not necessary that the contract should be express; a tacit or impliedconu-act
inferred from the acts of the parties is equally binding as an express one. Thus the accep-
tance of interest in advance by a creditor operates as a general rule as an agreement to
give time to the principal debtor and consequently as a discharge to the surety, for the
creditor is in that event precluded from suing the principal debtor until the time covered
by the payment in advance has expired."
Surety's assent—The operation of the rules as to giving time to the principal
debtor may be excluded by express agreement. If the instrument creating the debt and the
suretyship declares that the surety or sureties shall be taken, as between themselves and
the creditor, to be principal debtors, and shall not be released by reason of time being
given, or of any other forbearance, act or omission of the creditor which, but for this pro-
visions would discharge the sureties, then any defence on these grounds is effectually
barred, and it is unnecessary to consider whether the facts would otherwise raise it."
'Rees v. Berrigton, 2 Vas. Jr. 540 (Lord "National Coal Co. Y. Kshiiish Bose & Co.
Loghborough). (1926) 30 C.W.N. 540, 95 I.C. 409, ('26)
$ Kali Prasauig v. Ambka Charan (1872) 9 A-C' 818; Mahor,iedallj Ibrahinijj v.
B .L.R. 261; T. N. S. Fir,, v, Maho,nd Hus- Lakshmibai Azant Palande (1930) 54 Born.
sain (1933) A. Mad. 756: (1934) 57 Mad. 118, 31 Born. L.R. 1442, 124 I.C. 227,
398: 146 I.C. 608. ('30) A..B. 122; Bondru v. Dagadu, 45
See Protab Chwider V. Gow- CJ,w,der Born, LR, 438.
(1878) 4 Cal. 132, 134.
10 Kali Prasanna v, Ambica Charan (1872) 9
Amrirlal v, State Bank of Travancore B.L.R. 261,
A.I.R. 1968 S.C. 1432, 1435.36. "Greenwood v. Francis (1899) 1 Q.B. 312
 THE INDIAN CONTRACT ACT [Ss. 135, 137
230
Assent of the surety to such a contract to give time may be obtained either prior or sub-
sequent to the contracL The reason for obtaining the assent of the surety is to enable
the creditor to reserve his remedy against the surety.

Surety not dis-

charged when 136. Where a contract to give time to the principal
agreement made debtor Is made by the creditor wit1 a third person, and
with third person
to give time to prin- not with the principal debtor, the surety is not discharged.
cipal dcbtor.
Illustration
B, and
C, the holder of an overdue bill of exchange drawn by A as surety for
accepted by B, contracts with M to give time B. A is not discharged.
• In the above illustration C is the creditor, B is the principal debtor and A is surety
for B. If C agrees with B to give time to B, the contract between C and B for which A
stood surety is varied and A is no longer liable. But if C contracts with a stranger M to
give B time, that is a contract which B cannot enforce. B's liability under his contract with
C is not affected and A is not discharged. In an English case the law was stated as follows:
"It is clear that when the creditor enters into a binding contract with the principal
debtor to give him time without the assent of the sureties, and without reserving his
remedy against the sureties, such giving of time discharges the sureties. . . But, to pro-
duce this result two things are necessary. There must be a binding contract to give time,
capable of being enforced by the principal debtor and hence the contract must be with
the principal debtor. If merely made with a third party it will not do, as was decided in
Frazer v. Jordan, 15 where in an action by the holder against the drawer of a bill of
exchange it was held to be no defence i.e the drawer that the holder had, without the draw-
er's consent, made a binding contract with a third party to give time to the acceptor, in
consideration of an undertaking by the third party to see the bill paid." 16 If there is no
contract, with the principal debtor to give time, the mere taking of additional security does
not discharge the surety.7
137. Mere forbearance on the part of the creditor to sue the princi-
Creditors for- pal debtor or to enforce any other remedy against him
bearance to sue does not, in the absence of any provision in the guaran-
does not discharge
surety. tee to the contrary, discharge the surety.
Illustration

B owes to C a debt guaranteed by A. The debt becomes payable. C does not sue B
for a year after the debt has become payable. A is not discharged from the suretyship.
"Mere forbearance"—Section 135 enacts that a contract between the creditor and
the principal debtor by which the creditor promises not to sue the principal debtor dis-

C.A. Krishnas-warni v. Travancore 8 E. & B. 303.

National Bank (1940) Mad. 757, ('40) 16 Clarke v. Birty (1889) 41 Ch. Li 422,
A.M. 437. 433-434, per North, I.
17 T. N. Finn v. Mahorited Hussain (1934) 57
14 Hail Prasad v. Chardrajirao, A.I.R.
(1962) M.P. 69. Mad, 398. 146 I.C. 609,.('33) AM. 756.
Ss. 137, 139] THE INDIAN CONTRACT ACT 231
charges the surety. But there must be a positive agreement not to sue and mere neglect
to sue will not discharge the surety. The illustration refers to failure to sue before the
period of limitation has expired. The case where the creditor fails to sue until the period
of limitation has expired is dealt with in the note to s. 134. Reading both sections
together, it is evident that the legislature contemplated that mere forbearance would not
have the legal consequence of discharging the principal debtor.
138. Where there are co-sureties, a release by the creditor of one
of them does not discharge the others; neither does it
Release of one
co-surety does not
free the surety so released from his responsibility to the
discharge others.
other sureties.
Release of one of several sureties.—This section applies to co-surities whether
they are joint and/or several. This section is a necessary consequence of the principle laid
down in sec. 44. It is a deliberate extension of a rule which in the Common Law is limited
to the case of co-sureties contracting severally and not jointly Having regard to the lan-
guage of this section and of section 44, this Act places joint sureties on par with co-
sureties.
139. If the creditor does any act which is inconsistent with the rights
Discharge of of the surety, or omits to do any act which his duty to the
act surety requires him to do, and the eventual remedy of the
sion impairing surety himself against the principal debtor is thereby
surety's eventual
impaired, the surety is discharged.
Illustrations
- (a) B contracts to build a ship for C for a given sum, to be paid by instalments as
the work retches certain stages. A becomes surety to C for B's due performance of the
contract. C, without the knowledge of A. prepays to B the last two instalments. A is dis-
charged by this prepayment.
(b) C lends money to B on the security of a joint and several promissory note made
in C's favour by B, and by A as surety for B, together with a bill of sale of B's furniture,
which gives power to C to sell the furniture, and apply the proceeds in discharge of the
note. Subsequently, C sells the furniture, but owing to his misconduct and wilful negli-
gence, only a small price is realised. A is discharged from liability on the note.
(c) A puts M as apprentice to B, and gives a guarantee to B for M's fidelity. B pro-
mises on his part that he will, at least once a month, see M make up the cash. B omits
to see this done, as promised, and M embezzles. A is not liable to B on his guarantee.
Act or omission of creditor tending to impair surety's remedy.—The injurious
quality to be considered is tendency to diminish the surety's remedy or increase his liab-
ility. Transactions having an immediate tendency to cause or permit the principal debtor
to make default are only one species of those to which the surety may object. "In almost
every case where the surety has been released, either in consequence of time being given
to the principal debtor, or of a compromise being made with him, it has been contended
that what was done was beneficial to the surety—and the answer has always been that
' Oriental Financial Corporation v, Over- 150 (Lord Hatherley); Sankaranarayana v.
end Gurney & Co. (1871) L.R 7 Ch. 142, Kottayam Bank ('50) A. Tra-Coch. 66.
232 THE INDIAN CONTRACT ACT [Ss, 139 140
the surety himself was the proper judge of that— and that no arrangement different from
that contained in his contract is to be forced upon him; and bearing in mind that the
surety, if he pays the debt, ought to have the benefit of all the securities possessed by the
creditor, the question always is whether what has been done lessens that security9
But mere passive acquiescence by the credior in irregularities on the part of the prin-
cipal debtor such as laxity in the time and manner of rendering accounts by a collector
of public moneys whose fidelity is guaranteed, will not of itself discharge the surety.20
The employer of a servant whose due performance of work is guaranteed does not
contract with the surety that he will use the utmost diligence in checking the servant's
work.21 If the employer of a servant whose fidelity has been guaranteed continues to
employ him after a proved act of dishonesty, the surety is discharged
The Mysore High Court held in respect of a surety who had given a fidelity bond
for a bank's manager's service that the failure of the directors to carry Out scrutiny of
cash balances and appointment of a treasurer as required by the bye-laws discharged the
surety.
Act or omission impairing surety's eventual remedy.—The case in which a party
is discharged by an act or omission of the creditor, of which the legal consequence is the
discharge of the principal debtor, has been dealt with in sec. 134 above. Under the present
section a surety will be discharged by acts or (subject to the caution above given) omis-
sions of the creditor specified therein which, though not having the legal consequence of
discharging the principal, impair the eventual remedy of the surety against him.
Where a creditor failed to execute the decree obtained by him against the debtor
within one month thereof as required specifically by the bond and allowed the decree to
get time '.tarred, it was held that the creditor had impaired the eventual remedy of the
surety and hence the latter was discharged.
As to negotiable instruments, it is specially provided by Act XXVI of 1881, sec. 39,
that where the holder of a negotiable instrument without the consent of the indorser
destroys or impairs the indorser's remedy against a prior party, the indorser is discharged
from liability to the holder to the same extent as if the instrument had been paid at matur-
ity.
140. Where a guaranteed debt has become due. or default of the
Rights of principal debtor to perform a guaranteed duty has taken
surety on payment place, the surety, upon payment or performance of all
or performance
that he is liable for, is invested with all the rights
which the creditor had against the principal debtor.
This section lays down a general principle of which the most important practical
application is to be found in sec. 141. It seems that the intention of the Act is to keep
19 Lord Langdale, Calvert v. London Dock Singh (1944) A. Lah. 424; Radha Kanta v.
Co., 2 Keen 638 at p. 644. United Bank of India (19551 A.C. 217.
° Mayor of Durham v. Fowler (1889) 22 23 Charsdrarekhara Pal v, Town Co-op. Bank,
Q.B .t. 394. A.I.R. (1965) Mys. 209,
20 Mayor of Kingston-upon-Hull Harding 24 See Pagose v. The Bank of Bengal (1877) 3

(1892) 2 Q.B. 494. C.A. 01, 174; Ghuvtavi v. National Bank of

22 Phillips v. Foxall, L.R. 7 Q.B. 666; Ca- India (1916) 20 C.W.N. 562.
operative Commission Shop Udham Haari v, Chunni Lai, 8 All. 260.
 Ss. 140, 1411 THE INDIAN CONTRACT ACT 233
alive for surety's benefit any right of the creditor, under a security or otherwise, which
would otherwise have been extinguished at law by the payment of the debt or perform-
ance of the duty.
"When a surety is only a surety for a part of the debt, and has paid that part of the
debt, he is entitled to receive the dividend which the principal debtor pays in respect of
that sum which the surety has discharged."' In such a case it may be said that "the
right of the surety arises merely by payment of the part, because that part, as between him
and the principal creditor, is the whole." Such a surety has a right, having paid part of
the debt in that way, to stand pro tanto in the shoes of the principal creditor. But a surety
who has become surety, though with limited liability in respect of the entire debt, has no
rights by way of subrogation or in preference to the creditor until the-creditor is fully
paid.' So a distinction is made as to whether a person is a surety for a part of the debt
only i.e. a person is a surety of a limited amount for an ascertained debt, in which event
his right comes into existence immediately on payment of that fraction, for that fraction
is, so far as he is concerned the whole.a On the other hand a person may be a surety
though his liability may be limited in respect of the entire debt, i.e. guarantee is given
for the whole of the debt with a limitation on the liability of a surety to a specified
amount, in which case his position is different as he has no right of subrogation until the
creditor is fully paid.
Moreover, the benefit of this principle is intended for persons who, though not actu-
ally sureties, are in an analogous position. The indorser of a bill of exchange "is pri-
marily liable as principal on the bill, and is not strictly a surety for the acceptor," but
"he has this in common with a surety for the acceptor, that" after notice of dishonour
"he is entitled to the benefit of all payments made by the acceptor, and is entitled, on
paying the holder, to be put in a situation to have a right to sue the acceptor..a
See as to the right of a payer of a bill of exchange for the honour of any party liable
upon it the provision of the Negotiable Instruments Act XXVI of 1881, W. 114,
141. A surety is entitled to the benefitof every security which the
Surety's right creditor has against the principal debtor at the time when
to beneflt
tor's the contract of suretyship is entered into, whether the
of cred'_
securities.
surety knows of the existence of such security pr not;
and, if the creditor loses or, without the consent of the surety, pai'ts with
such security, the surety is discharged to the extent of the value of
the
security.

Illustrations
(a) C advances to B, his tenant, 2,000 rupees on the guarantee of A. C
Has also a
further security for the 2,000 rupees by a mortgage of B's furniture. C. cancels the mort-
gage. B becomes insolvent, and C sues A on his guarantee. A
is discharged from liability
36 Gray V. Secicham (1872) L.R. 7 Ch. 680, ('27) A.A. 538.
683, per Mellish, U. 28 Bhushayya V. SwyOJ;ar2Yana A.I.R. 1944
' Re Safi (1896) 2 Q.B. 12, 15; he becomes M.d. 195, 204.
only e creditor of the principal debtor for 29 Duncan Pox & Co. v. North and South
what he has paid; Darbrl Lai v. Mahbub Wales Bank (1880) 6 App, Cu. 1, 18.
All Mian (1927) 49 A]]. 640, 101 I.C. 513,
234 TIlE INDIAN CONTRACT ACT [S. 141

tç,the amount of the value of the furniture. [Cf Pearl v. Deacon (1857) 1 Dc G. & J. 461,
where the creditor, being also the debtor's lessor, destroyed the security on the furniture
by distraining 1or rent (which in English law is a paramount right).]
(b) C. a creditor whose advance to B is secured by a decree, receives also a guar-
antee for that advance from A. C afterwards takes B's goods in execution under the
decree, and then, without the knowledge of A. withdraws the execution. A is discharged.
(c) A, as surety for B, makes a bond jointly with B to C, to secure a loan from C
to B. Afterwards, C obtains from B a further security for the same debt. Subsequently,
C gives up the further security. A is not discharged.

Surety's right to benefit of securities.—The law in England is different. It has

been staLed as follows: "As a surety, on payment of the debt, is entitled to all the secur-
ities of the creditor, whether he is aware of their existence or not, even though they were
given after the contract of suretyship, 3° if the creditor who has, or ought to have had,
them in his full possession or power loses them or permits them to get into the possession
of the debtor, or does not make them effectual by giving proper notice, tht surety to the
extent of such security will be discharged. A surety, moreover, will be released, if the
creditor, by reason of what he has done, cannot, on payment by the surety, give him the
securities in exactly the same condition as they formerly stood in his hands."3
It will be seen that the present section, by limiting the surety's right to securities held
by the creditor at the date of his becoming surety, has adopted a view which in England
has now been treated as untenable. In Amritlal v. State Bank of Travancore" the
Supreme Court clarified the point by saying that S. 141 of the Act has limited the surety's
right, to securities held by the creditor at the date of his becoming surety. while under Eng-
lish law the surety is entitled to the securities given to the creditor both before and after
the contract of surety.
The rule is not confined to securities in any technical sense. A surety is entitled to
the benefit of the principal debtor's set-off against the creditor, if it arises out of the same
transaction; this follows from the surety's right to be indemnified by his principal', com-
bined with the equitable maxim of avoiding circuity of action.33
The High Court of Bombay has cited the reason of the present rule as laid down by
Turner, V.C.34 : "I take it to be, because, as between the principal and surety, the prin-
cipal is under an obligation to indemnity the surety [see s. 145, oeiow]; and IL is, as I con-
ceive from this obligation that the right of the surety to the benefit of securities held by
the creditor is derived." If the Creditor loses or parts with such security— In Amrit Lal
v. State Bank of Travancore. 32 the Supreme Court observed that the word security in S.
141 is not used in any technical sense. It includes all rights which the creditor has 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 debtor. If the creditor has lost or parted with the security, without the consent of the
surety, the surety is discharged to the extent of the value of the security lost or
30 See judgement of Hall, V.C,, in Forbes v. 3' Bechervaise V. Lewis (1872) L.R. 7 C.P.
Jackson (1882) 19 Ch. D. 615. 619, 372.
3' Notes to Rees v. Berrington (1795) in 2 Yonge v. Reynell (1852) 9 Hare, at pp.
Wh. & T.L.C. as approved by Hannen, J., 818-819; Goverdhaptda,c v. Bank of Bengal
WLdffv. Jay (1872) L.R.,1 Q.B. 756, 764. (1890) 15 , 13om. 48, 63.
32 A.I.R. 1968 S.C. 1432, 1437, par 7.
S. 1411 THE INDIAN CONTRACT ACT 235
parted with. So where the creditor Bank due to its negligence or some other reason lost
the pledged goods with itself, it was held that the surety was discharged to that extent.
Loss of security by negligence of the creditor cannot be equated with release of security
which implies a volitional act of the creditor! Similarly in State of M.P. v. Kaluram35
K. executed a surety bond undertaking to discharge the Liability arising out of any act,
or omission or negligence or default of a forest contractor who was required to pay the
bid sum in four instalments. The Contract rules provided for preventing the contractor
from removing the forest goods if there in non-payment of the instalments due. However,
the authority responsible for supervising the contract allowed the contractor to remove
the felled trees without making the payment. The State of M.P. started proceedings to
recover the balance of the amount through surety. It was held that surety was discharged
as the State had lost or parted with the security i.e. forest produce.
"To the extent of the value of the security."—Where a creditor sued the principal
debtor and the surety on a mortgage bond, and in his plaint formally relinquished his
claim against part of the mortgaged property which was worth the amount guaranteed by
the surety, it was held that the surety was discharged .37
When surety becomes entitled to benefit of creditor's securities.—The Act does
not lay down at what point of time the surety is entitled to have the creditor's securities
made over to him wholly or in part, whether it is when the debt of the creditor is paid
off, or when the surety pats the amount of his guarantee. This point arose in Goverd-
hondas v. Bank of Bengal, where it was held that a surety was not entitled to the ben-
efit of a portion of the creditor's securities until the whole of the debt due to the creditor
was paid off. In that case a surety who had guaranteed an aliquot and defined portion o
a past due debt secured by a mortgage, claimed to be entitled, on payment by him of the
portion of the debt which he had guaranteed, to share in the mortgage in proportion to
the amount of the debt which he had guaranteed and paid before the mortgagee had been
paid the full amount of his mortgage debt. The Court held that the right of the creditor
to hold his securities until the whole debt is discharged is paramount to the surety's claim
upon such securities; and that the surety's claim could only arise when the creditor's
claim against such securities is satisfied. Farran, J., in rejecting the surety's claim said:
It seems to me to be a strange doctrine that a creditor not fully secured by a mortgage
who obtains the benefit of a surety for part of his mortgage debt in order to further secure
himself by that very act is deprived of portion of th security the inadequacy of which
was a reason for demanding the surety; or that a person advancing say Rs. 10,000 on a
mortgage which is valued only at Rs. 5,000 and has Rs. 5,000 of his advance guaranteed
by a surety, is only in reality secured to the extent of Rs. 7,500 by reason of the surety's
right to claim the benefit of half the mortgage security on paying his half of the debt. To
hold so would, I think, defeat the intention of the parties to such a transaction. A principle
of equity is seldom adopted which has that effect. If such were the result of sec. 141 of
the Contract Act, I should expect to find the wording of sec. 140 repeated in sec. 141.
The srrikinIdifference in the language of the two sections is a strong argument against
the plaintiff's contention.' 39
A.I.R. 1968 S.C. 1432; See also State Bank 37 Narayan v. Ganesh (1870) 7 B.H.C.A.C.
of Saurashira v. Chitranjan (1980)4 S.C.0 118.
516; State of M.P. V. Ktitutjn A.I.R. 1967 ' (1890) 15 Born, 48.
S.C. 1105 = ( 1967) I S.C.R. 266. 39 Goverdhandas v. Bank of Bengal (1890) 15
36 (1980) 4. S.C.C.,
523, para 13. Born. 48 at pp. 64, 65.
2345 THE INDIAN CONTRACT ACT [Ss. 141, 143
It is submitted that the answer lies in deciding the question whether the surety has
guaranteed a fraction only of the debt or whether a guarantee is given for the whole debt
with a limitation on the liability of a surety to a specified amount, a point which we have
already discussed earlier on S. 140 of the Act.
142. Any guarantee. which has been obtained by means of mis-
Guarantee representation made by the creditor, or with his know-
obtained by MISTep- and assents concerning a material part of the uans-
action, is invalid.
The English authorities on the subject matter of this and sec. 143 will be dealt with
together under that section.
Guarantee 143. Any guarantee which the creditor has
obtained by con- obtained by means of keeping silence as to material cir-
cealment invalid.
cumstances is invalid.
Illustrations

(a) A engages B as clerk to collect money for him. B. fails to account for some of
his receipts, az)d A, in consequence, calls upon him to furnish security for his duly account-
ing. C gives his guarantee for B's duly -accounting. A does not acquaint C with B's pre-
vious conduct. B afterwards makes default. The guarantee is invalid.
(b) A guarantees to C payment for iron to be supplied by him to B to the amount
of 2,000 tons. B and C have privately agreed that B should pay five rupees per ton beyond
the market price, such excess to be applied in liquidation of an old debt. This agreement
is concealed from A. A is not liable as a surety.
Guarantee obtained by misrepresentation or concealment.—English law is set-
tled that, although the contract of suretyship is 'one in which there is no universal obli-
gation to make disclosure"—that is, it is not, like a contract of insurance, liable to be
avoided by the mere non-disclosure of any material fact whatever—still the surety is entit-
led to know so much as will tell him what is the transaction for which he is making him-
self answerable; and he will be discharged if there is either active misrepresentation of
the matter by the creditor, or silence amounting in the circumstances to misrepresenta-
tion. "Very little said which ought not to have been said, and very little not said which
ought to have been said, would be sufficient to prevent the contract being valid."40
Thus where a surety guarantees an agent's existing and future liabilities in account
with his employer, and the agent is in fact already indebted to the employer for more than
the full amount of the guarantee and the statements made about his position are calculated
to mislead, though not false in terms, this is evidence of.material misrepresentation on
the creditor's pait4
To avoid a guarantee under this section it must be proved not only that there was
silence as to a material circumstance, but that the guarantee was obtained by means of
such silence.42 The meaning of the words "keeping silence" in this section was consid-
Fry, J., Davies v. London and Provincial Ch.
Matins Insurance Co. (1878) 8 Ch. D. 469, Per Cur. in Secretary of State for India v.
475• Nilainekan (1883) 6 M. 406, 408.
4) Lt V. Jones (1863) 17 C.B. N.S. 482, Ex.
 THE INDIAN CONTRACT ACT 237
Ss. 143, 1453
The expression "keeping silence," said the
ered by Sargent C J. , in a Bombay case. 4
learned Judge. "clearly
' implies intentional concealment as distinguished from mere non
disclosure, which no doubt is of itself a fatal objection in insurance policies, and virtually,
v. Lloyd,4 that
we think, expresses what is laid down in North British Insurance Co.
the withholding must be fraudulent, which necessarily must be the case when a meterial
circumstance is intentionally concealed."
Misrepresentation or silence by creditor,—The two sections speak of the said acts
or omissions on the part of the creditor and not on the part of the debtor. In the latter
event, these sections would not apply.
144. Where a person gives a guarantee upon a contract that a cred-
Guarantee on itor shall not act upon it until another person has joined
Contra' thl 1111i- in it as co-surety, the guarantee is not valid if that other
tor shO not a x
it until co-surety person does not join.
joins.
A surety who "entered into the obligation upon the understanding and faith that
another person would also enter into it . . . has a right in equity to be relieved on the
ground that the instrument has not been executed by the intended co-surety.4

145. In every contract of guarantee there is an implied promise by

Implied pro- the principal debtor to indemnify the surety; and the
miw to indemnity surety is entitled to recover from the principal debtor
whatever sum he has rightfully paid under the guarantee,
but no sums which he has paid wrongfully.
Illustrations
demands payment from A and
(a) B is indebted to C and A is surety for the debt. C
on his refusal sues him for the amount. A defends the suit, having reasonable grounds for
doing so, but is compelled to pay the amount of the debt with costs. He can recover from
B the arnountpaid by him for costs, as well as the principal debt..
B accepts a bill of exchange
(b) C lends B a sum of money, and A at the request of
drawn by B upon A to secure the amount. C, the holder of the bill, demands payment of
A, not having reasonable
it from A, and, on A's refusal to pay, sues him upon the bill.
grounds for so doing, defends the suit, and has to pay the amount of the bill and costs.
He can recover from B the amount of the bill, but not the sum paid for costs, as there
was no real ground for defending the action.
(c) A guarantees to C, to the extent of 2,000 rupees, payment for rice to be supplied
A
by C to B. C supplies to B rice to a less amount than 2,000 rupees, but obtains from
payment of the sum of 2,000 rupees in respect of the rice supplied. A cannot recover from
B more than the price of the rice actually supplied.
Surety's right to indemnity.—'Me proposition "that as soon as his obligation to

Boikris)ina v. Bank of Bengal (1891) 15 Bengal, 33 Cal. 713.

Born. 585, 591. Evans v. flremridge (1856) 8 D.M.G. 100,.
44 10 Ex. 523, 532. 109.
Debendra v. Administrator General of
 238 THE INDIAN CONTRACT ACT [S. 145
pay becomes absolute, [a surety] has a right in equity to be exonerated by his princi-
pal," 47 is treated throughout the English authorities as fundamental, and as furnishing
the reason for several of the more specific rules. Further, it has long been settled in Eng-
land that "a surety is entitled to come" to the Court "to compel the principal debtor to
pay what is due from him," provided that an ascertained debt is actually due; and this
relief is not limited, as at one time supposed, to cases where the creditor has refused to
sue the principal debtor.4
The surety's only claim is to be fully indemnified and the English rule is followed
that the right to indemnity arises as soon as the obligation to pay becomes absolute.49
He cannot compound the debt for which he is liable, and then proceed as if he stood in
the creditor's place for the full amount. "Where a surety gets rid of and discharges an
obligation at a less sum than its full amount, he cannot, as against his principal, make him-
self a creditor for the whole amount; but can only claim, as against his principal, what
he has actually paid in discharge of the common obligation.-'o
"Whatever sum he has rightfully paid."—Where sureties to a money bond ack-
nowledged their liability before the claim against the principal debtor became time barred
and upon the creditor suing the ' sureties and obtaining a decree against them and in exe-
cution of such decree one of the sureties paid the decretal amount, it was held that the
amount must be treated as a sum "rightfully paid under the guarantee." 5 ' As per
Madhya Pradesh High Court it was important in the aforesaid Bombay case that "the
surety had kept the liability alive by bonafide payment of interest within time to the cred-
itor and it was because of these payments of interest within time that the Bombay High
Court held that the payment made by the surety to the creditor was not wrongful within
the meaning of S. 145 of the contract Act". 52 According to Madhya Pradesh High
Court the question whether the payment made by the surely was or was not rightful has
to be decided in the context of the circumstances. If the claim of the creditor is barred
by time against both the sur y and the debtor, then prima facie the surety's payment to
the creditor would not be rightful or just. However, the surety may prove that thispay-
ment, though it was made after the expiry of the period of limitation, was yet rightful.
This expression includes "not only coin, but also property, of whatever kind, which is
parted with in lieu of ifioney, but not the mere incurring of a pecuniary obligation of the
creditor in lieu or discharge of the deh cvng 0 huii Therefore it the creditor accepts
in discharge of the debt a promissor e.'ec,tted b\' the surety and an other person,
that is not equivalent to a payment of the debt by th surety. Th reason is that, the
principal debtor being bound to indemnify the surety, the cause of action cannot be
merely the procuring by the surety of the principal debtor's exoneration front liability to

47 Bechervaisev Lewis (1872) L.R. 7 C.P,

Mad. 156, 95 IC, 154. ('26) A.M. 544.
.372, 377. ' Rpghaversdra v. Mahipat, 27 Born. L.R.
Ascherson v. Tredegar Dry Dock. etc., Co. 178: 49 Born. 202 = A.I.R. 1925 Born. 244.
(1909) 2 Ch. 401, 406. 52 Tarczchan4 Lakh,'nichand Chuhan v. Gopal
4'Sripa:rao v. Shankarrao (1930) 32 Born. A.I.R. 1959 M.P. 297, 298, Para 4.
L.R. 207, 127 I.C. 330, ('30) A.B. 331. " Per Bhashyarn Ayyangar, J., in
Puui
° Reed v. Norris t1837) 2 My. & Cr. 361, Narayanarrjurthi v. Marimu g hu (1902) 26
375, (Lord Couenham). On the point that Mad. 322, 328.
there is no subrogation. cf. Periamanna Puuj Narayonarnurihj v, Marimathu
Marakkayar v. Banians & Co. (1925) (1902) 26 Mad. 322, 328.
 Ss. 145, 146] THE INDIAN CONTRACT ACT 239

the creditor, but must also include the surety being himself damnified, 55 and the surety
cannot be said to be damnified unless the payment is actually made. But a different
approach is taken by the Bombay l4igh Court holding that S. 145 does not debar a
surety from making a claim against the principal debtor in cases where he has not made
the payment under the guarantee but has only become liable "in praesenti" to make the
payment and a suit for indemnity athis instance is maintainable.
Guarantee without concurrenèe of principal debtor.—Where a person becomes
a surety without the knowledge and consent of the debtor, the only rights which he
acquires are those given by secs. 140 and 141, and not those given by this section.57
146. Where two or more persons are co-sureties for the same debt or
Co-sureties duty, either jointly or severally and whether under the
liable to contribute same or different contracts, and whether with or without
the knowledge of each other, the co-sureties, the absence
of any contract to the contrary, are liable, as between themselves, to pay
each an equal share of the whole debt or of that part of it which remains
unpaid by the principal debtor.
Illustrations

(a) A, B and C are sureties to D for the sum of 3,000 rupees lent to E. E makes
default in payment, A, B and C are liable, as between themselves, to pay 1,000 rupees
each.
(b) A, B and C are sureties to D for the sum of 1,000 rupees lent to E, and there
is a contract between A, B and C that A is to be responsible to the extent of one-quarter,
B to the extent of one-quarter. and C to the extent of one-half. E makes defaultin pay-
ment. As between the sureties, A is liable to pay 2,50 rupees, and C 500 rupees.
Contribution by co.sureties.—This has long been elementary. The earliest case
usually cited settled that co-sureties need not be bound under the same contract and laid
down that the right to contribution is independent of any agreement for that purpose.58
It must be observed that a "surety has no claim against his co-sureties until he has
S9
paid more than his share of the debt to the principal creditor," for only then does it
become certain that there is ultimately any case for contribution at all. But a judgment
against the surety at the suit of the creditor for the full amount of the guarantee (or an
equivalent process, such as the allowance of a claim for the sum in the administration of
the surety's estate) will have the same effect as payment for this purpose, and entitle the
surety or his representatives to a declaration of the right to contribution.60
All the co-sureties are entitled to share in the benefit of any security or indemnity
which any one of them has obtained from the principaPdebtor, and this whethcr they
knew of it or not,61 the surety bringing in, under this rule, what he receives from his
" Ibid., 326. Wright, J., in Wol,nershausers v. Guflick
6 Sripalrao Sadashiv v. Shankarrao A.I.R. (1893) 2 Ch. 523 seq.
1930 Born. 331. ' Ex pane Snowdon (1881) 17 Ch. Div. 44.
Muthu Raman v. Chinna Vellayan (1916) 48; Shirley v. Burdett (1911) 2 Ch. 418.
39 Mad. 965. 60 Wohnershausen v. Gullick (1893) 2 Ch.

Dering v, Earl of Winchilsea (1787) 1 Cox. 514.

318, ad see other judgments cited by 61 Steel v. Dixon (1881) 17 Ch. D. 825.
 240 THE INDIAN CONTRACT ACT [Ss. 146,147
security, may resort again to that security for the liability to which he remains subject,
NO the co-sureties may again claim the benefit of participation and so on until the co-
sureties may again claim the benefit of participation and so on until the co-sureties have
been fully reimbursed or the counter security is exhausted.
Liability of co- 147. Co-sureties who are bound in different sums
diffemnt sums, are liable to pay equally as far as the limits of their
respective obligations permit.
Illustrations
(a) A. B and C. as sureties for D, enter into three several bonds, each in a different
penalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees, C in that
of 40,000 rupees, conditioned for D's duly accounting to E. D makes default to the extent
of 30,000 rupees. A, B and C are each liable to pay 10,000 rupees.
(b) A, B and C, as sureties for D, enter into three several bonds, each in a different
penalty, namely, A in the penalty of 10,000 rupees, B in that of 20000 rupees, C in that
of 40,000 rupees, conditioned for D's duly accounting to E. D makes default to the extent
of 40,000 rupees. A is liable to pay 10,000 rupees, and B and C 15,000 rupees each.
(c) A, B and C. as sureties for D, enter into three several bonds, each in a different
penalty, namely, A in a penally of 10,000 rupees, B in that of 20,000 rupees, C in that
of 40,000 rupees, conditioned for D's duly accounting to E. D makes default to the extent
of 70,000 r'pees. A, B and C have to pay each the full penalty of his bond.
T he wording of this section and its effect as shown by the illustrations is perfectly
clear and the use of the words "equally" and not "rateably," shows an intention to make
a deliberate departure from the rule as previously understood

• ,,.•;.. .

'-• ;,., .
-. . •-•.-
•- ,. -
•i_ 1_ -- I-
•- - .-:•

62 Berridge v. Berridge (1890) 44 Ch. D. 168.

 Chapter IX

OF BAILMENT

Bailment
Definition: Delivery of goods by bailor to bailee for a definite purpose on condition
of their return or disposal, when purpose is accomplished. (S. 148).
Classification: (i) for hire (s. 150): (ii) for custody (s. 158); (iii) for carriage (s. 158);
(iv) to have work, labour and skill done thereon (ss. 158, 170); (v) for loan (s. 159); (vi)
Gratuitous (ss. 159, 162); (vii) for security for repayment of debt (a. 172); (viii) for secur-
ity for performance of promise (S. 172).
Voidable: Bailor may avoid bailment if bailee wrongfully uses or disposes of goods
(a. 153).
Determination: When purpose is accomplished or goods are returned (s. 160); Gra-
tui tous bailment by death of bailor/bailee (s. 162).
148. A "bailment" is the delivery of goods by one person to
another for some purpose, upon a contract that they
"bailor," and
defined, shall, when the purpose is accomplished, be returned or
otherwise disposed of according to the directions of the
person delivering them. The person delivering the goods is called the
"bailor." The person to whom they are delivered is called the "bailee."
Explanation.—If a person already in possession of the goods of
another contracts to hold them as a bailee, he thereby becomes the bailee,
and the owner becomes the bailor of such goods although they may not
have been delivered by way of bailment.
Nature of the transaction .—"Bailment" is a technical term of the Common Law,
though etymologically it might mean any kind of handing over (Fr. hauler). It involves
change of possession. One who has custody without possession, like a servant, or a guest
uing his host's goods, is not a bailee. But constructive delivery will create the relation
of bailor and the bailce as well as actual, as stated in the Explanation.
The bailee's duty to deal with the goods according to the bailor's orders is incidental
to the contract of bailment, and arises on the delivery of the goods, although those orders
may have already been given and accepted in such a manner as to constitute a prior spe-
cial contract.
The words "otherwise disposed of" in the present section express the Common
Law as now understood. "It seems clear that a bailee is not the less a bailee because he
is clothed with authority to sell the thing which is bailed to him," e.g. a factor for sale.2
I Streeter V. Horlock (1822) 1 Bing. 34. pp. 161, 162.
2 See Pollock and Wright on Posscsson.

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242 THE INDIAN CON1RACT ACT IS. 148

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S. 1481 THE INDIAN CONTRACT ACT 243
On the whole a bailment may be described as a delivery on condition, to which the law
usually attaches an obligation to redeliver the goods in identical or altered form, or oth-
erwise deal with them as directed, when the condition is satisfied; but there may be, in
particular cases, a bailment without an enforceable obligation.' Nor is consent indis-
pensable for the relationship of bailor and bailee in respect of property, e.g. a finder of
goods is considered as a bailee in certain circumstances. 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. So where certain properties
including vehicles of the respondent were seized pursuant to the powers under the cus-
toms Act it was found that the-seizure was unjustifiable. In the meanwhile the State gov-
ernment sold the goods as unclaimed property and could not be returned to the owner.
The government was held liable as being in the position of a bailee, either to return the
vehicles or the price thereof. The property seized by Customs Officials belongs to iS
owner till the final order of confiscation is passed. In the meanwhile the State is bound
to preserve it and return it to the owner in case the order of confiscation is not made
final.' Where property is deposited in Court in pursuance of an order of the Court,
there is no bailment as there is no contract.5
Where a chattel is delivered by mistake, the intention being to deliver another chattel
either with or without conditions, the legal result, whatever it may be, is not a bailment;
for there is no intention at all to deliver the chattel which is in fact delivered, and no con-
tract with respect to it. Where Government through the police have recovered stolen prop-
erty, the possession by Government of the property is not that of bailee.' The hiring of
elephants by mahouts does not amount to a bailment." But it was held as bailment by
the High Court of T.C.,8 where defendant took possession of an elephant with two
mahouts from a plaintiff for hire for one year.
No bailment where whole property transferred.—Obviously no transaction can
be a bailment within the Act which does not satisfy the terms of this section. Accordingly
there is not a bailment if the thing delivered is not to be specifically returned or accounted
fo? : and this is also the Common Law.
A delivery of property on a contract for an equivalent in money or in other com-
modities (whether like the property delivered or not) is a sale or exchange and not a bail-
ment, as where farmers deliver grain to a miller to be used by him in his trade, and are
entitled to claim an equal quantity of corn of like quality or its market price.'0
An agent authorised to receive payment, and bound to hand over to his principal an
equivalent sum, but not necessarily the actual coin, or instruments of credit received by
him, is not a bailee."
Similarly, the delivery of Government promissory notes to a treasury for cancella-
tion and consolidation into a single note is not a bailment, for there is no contract in such
'Judgment of Cave, J., R. v. McDonald Assam 55.
(1885) 15 Q.B.D. at p. 328. Timber Trust Lid. v. Trippuniih.
Stoic of Gujarat v. Memon Muhammad ui-a AIR. 1954 T.C. 305.
A.I.R. 1967 S.C. igss. Gangaram v. Crown A.I.R. (1943) Nag.
5 Mohainmed Mw-ad v. Govt. of Uttar Pro. 436.
desh, A.I.R 1956 All. 75. 10 South Australian Insurance Co. v.
Randell
6jj Gulam v. U.P. Governme,u ('50) (1869) L.R. 3 P.C. 101.
A.A. 206, " See Bridges v. Garrett L.R. 5 C.P.
7 Surendra Naih v. Kali Kumar, A.I.R. 1956
451. in Ex Ch. judgment of Blackburn, J.
244 THE INDIAN CONTRACT ACT [Ss. 148, 150
a case that the notes shall be returned or otherwise disposed of according to the directions
of the owner.'2
Compare Secs. 33. 34 of the Sale of Goods Act, 1930.
149. The delivery to the bailee may be made by doing anything
Delivery to which has the effect of putting the goods in the posses-
bailee, t)W made.
sion of the intended bailee or of any persod authorised to
hold them on his behalf.
Putting bailee in possession.—The ballot's part need not be very active. Mere
assent, for example, of a guest at a place of public entertainment to a servant's officious
assumption of custody may be sufficient evidence of delivery to make the prdprietor of
the house a bailee and responsible for loss.' 3 The railway authorities were held as bai-
lees where cotton was sacked on a station platform,, with the consent of the station
master, as no wagon was available. Subsequently there was a fire due to sparks from a
passing train. 14 The mere fact that a loading clerk ara railway station enters the number
of the package in the consignor's forwarding note does not amount to registration or deliv-
ery of possesion to the railway company. This was so held in a case where the consignor
neglected to obtain a railway receipt or to leave the goods in the custody of the railway
company! A lady employed a goldsmith for the purpose of melting old jewellery and
making new jewels. Every evening she used to receive the half-made jewels from the
goldsmith and put them into a box which was left in a room in the goldsmith's house of
which she retained the key. It was held that there was a redelivery of the jewels to the
lady and they were not in the possession of the goldsmith when during one night they
were stolen.6
150. The bailor is bound to disclose to the bailee faults in the goods
B ' d bailed, of which the bailor is aware, and which mater-
disclose faults in ally interfere with the use of them, or expose the bailee
goods bailed,
to extraordinary risks; and, if he does not make such dis-
closure, he is responsible for damage arising to the bailee directly from
such faults.
If the goods are bailed for hire, the bailor is responsible for such
damage, whether he was or was not aware of t he existence of such faults
in the goods bailed.
Il1utrations
(a) A lends a horse, which he knows to be vicious, to B. He does not disclose the
fact that the horse is vicious. The horse runs away. B is thrown and injured. A is respons-
ible to B for damage sustained.
12 Secretary of State for India in Council v. tral India Railway (1923) 45 All. 235;
Sheo Singh (1880) 2 All. 756. 760. Dhaz,zraj v: Union of India ('58)' A. Assam
13 Ultzen v. Nicols (1894) 1 Q.B. 92.
5.
14 Gay . Gen. of India in Council v. Jubilee 16 KaliaperumaJ v. Visalakyhmi (1938) 175
Mills A.J.R. 1953 Born,. 46, I.C. 343, ('38) A.M. 32.
15 Lachmi Narain v. Bombay, Baroda & Cen-
Ss. 150, 1511 THE INDIAN CONTRACT ACT 245
(b) A hires a carriage of B. The carriage is unsafe, though B is not aware of it, and
A is injured. B is responsible to A for the injury.
Bailor's duty to disclose material faults.—A bailor is under an obligation to dis-
close to the bailee faults in the goods bailed. Para two of the section refers to bailment
for hire. Para one therefore would apply to all other bailments. In respect of a gratuitous
bailee, the duty to disclose is confined to the faults known to the bailor and in respect
of a non-gratuitous bailee, i.e. bailee who has paid hire, the duty of bailor is not so con-
fined. The faults which are required to be disclosed are (1) those which materially affect
the use of the goods bailed, or (ii) which may expose the bailee to extraordinary risks.
Failure to disclose such defects entails a liability to pay damages. Such damages must
have arisen directly from such faults.
The facts in Illustration (a) to the section were thus referred to by the Court in a case
in England: "Would it not be monstrous to hold that if the owner Of a horse, knowing
it to be vicious and unmanageable, should lend it to one who is ignorant of its bad qual-
ities and conceals them from him, and the rider, using ordinary care and skill, is thrown
from it and injured, he should not be responsible? ... By the necessarily implied purpose
of the loan a duty is contracted towards the borrower not to conceal from him those
defects known to the lender which may make the loan perilous or unprofitable to him,",
It is equally certain that a gratuitous lender is not liable for defects in the things lent of
which he is not aware.18
A person who delivers to a carrier goods which he knows to be of a dangerous char-
acter, such as explosives, and to require extraordinary care in handling, and omits to give
warning of it (the nature of the goods not being apparent) is liable for any resulting
damage! 9 But this duty seems to be independent of the contract of bailment, and antec-
edent to the formation of any contract between the parties.
151. In all cases of bailment the bailee is bound to take as much care
Care to be of the goods bailed to him as a man of ordinary prudence
taken by bailee.
would, under similar circumstances, take of his own
goods of the same bulk, quality and value as the goods bailed.
Prudent Man's Care.—The duty to take care laid down in this section is very gen-
eral. It will depend upon the facts of each case to determine whether the bailee has taken
the care required of him by this section.
"Good sense and policy of the law impose some limit upon the amount of care, skill
and nerve required of a person in a position of duty who has to encounter a sudden emer-
gency. In a moment of peril and difficulty, the Court should not expect perfect presence
of mind. accuiatc judgment and promptitude. . . . If in sudden emergency a man does
something which he might, as he knew the circumstances, reasonably think proper, he is
not to be held guilty of negligence, because, upon review of the facts, it can be seen that
the course he had adopted was not in fact the best."20
This section abolishes the distinctions in the amount of care required of various
kinds of bailees which were established, or supposed to be established, by the judgment
"Blakemore v. Bristol and Exeter Ry. Co. 19 Lye!! v. Canga Dai (1875) 1 All. 60.
(1858) 8 E. & B. 1035, 1051. 20 Dwarkanath v. River Steam Navigation
10 MacCarthy v. lounge (1861) 6 H. & N. Co. Ltd., 20 Born. L.R. 735: (1917) A.P.C.
329.. 173.
246 THE INDIAN CONTRACT ACT [S. 151
of Holt, CJ., in Coggs v. Bernard 21 By modern English law a gratuitous bailee is
bound to take the same care of the property entrusted to him as a reasonable, prudent and
careful man may fairly be expected to take of his own property of the like description;
and it does not seem that in practice an ordinary bailee for reward is bound to anything
more.2' Even a gratuitous bailee must use such skill as he actually possesses, or by his
profession or condition may reasonably be expected to possess; a man who undertakes
to show off a horse is presumed to be a competent rider. 24 Whether the required care
has been taken is a question of fact, but the fact that in a fire, the bailee's ownoods were
also destroyed is not in itself evidence that he had taken the required care.
Read comments under section 152.
Common carriers.—The provisions of secs. 151 and 152 of the Contract Act
embody in effect the Common Law rule as to the liability of bailees other than common
carriers and innkeepers. The measure of care required of these bailees in respect of goods
entrusted to them. was the same as a man of ordinary prudence would take of his own
goods; in other words, the liability was one for negligence only, in the absence of special
contract. Common carriers 24 and innkeepers, on the other hand, were liable as insurers
of goods; that is, they were responsible for every injury to the goods occasioned by any
means whatever, except only the act of God and the King's enemies. Therefore the mere
proof of delivery of goods and injury thereto, unless caused by the act of God or the
King's enemies, was sufficient to entitle the plaintiff to compensation without proof 01
negligence on the part of the defendant 27 principles of the English Common
Law applied in India, 24 but they were subsequently
" modified by legislation as respects
common carriers, and the Carriers Act III of 1865 now enables a bailee of thIs class to
limit his liability by special contract in the case of certain goods, but not so as to get rid
of liability for negligence. 29 The question about the liability of eommon carriers arose
in a case before the Judicial Committee of the Privy Council in an appeal from the Court
of the Recorder of Rangoon, where it was held, that the duties and liabilities of a
common carrier in India are governed by theprinciples of the English Common Law in
conjunction with the provisions of the Carriers Act, and that, notwithstanding some gen-
eral expressions in the chapter on Bailments, the responsibility of a common carrier is not
within the Contract Act.'°
Carriers by railways.—TIT liability of carriers by railway is nrw governed by the
-
21 (1703) 2 14. Raym, 909, 1 Sm. LC. 173. sengers safely. Their duty is to exercise rea-
Giblin v, McMullen (1869) L.R. 2 P.C. sonable care and diligence, and they
317, 339. cannot, therefore, be held responsible
23 Searle v. Laverick (1874) L.R. 9 Q.B. 122,
except for neglect of that duty: East Indian
24 Wj150,i Y.
Brett (1843) Il M. & W. 113. Railway Co. v. Kalidas (1901)28 Ca]. 401,
2$ Calcutta Credit Corporation v, Prince L.R. 28 LA. 144.
Peter ('64) A.C. 374. Irrawaddy Flotilla Co. v. Ragwandas
26
"Common carrier" denotes a person other (1891) 18 Cal. 620, 625, L.R. 18 I.A. 121.
than the Government, engaged in the busi- 29 Secs, 6 and 8.
ness of transporting for hire property from 3° Irrawaddy Flotilla Co. v. Bugwandas
place to place, by land or inland naviga- (1891) 18 Cal, 620, L.R. 18 I.A. 121;
tion, for all persons indiscriminately: Car- Orient Ship Supply Co. v. Kalamarsand
riers Act Ill of 1865. s. 1 Co. ('51) A. Tra-Coch. 1; Air Carrying Cor-
' Carriers of passengers are not liable as poration v. Shibendra Nash ('64) A. Cal.
insurers so as to render them liable under 396. (a case of carriage by air),
all circumstances for not carrying the pas-
S. 151} THE INDIAN C0N1'RACT ACT 247
Railways Act IX of 1890. Section 72 of that Act provides that the responsibility of a rail-
way administration for injury to goods delivered to it to be carried by railway is, subject.
to the other provisions of the Act, that of a bailee under sees. 151, 152 and 161 of the
Contract Act,3' and that it shall not be affected by the Common Law of England or the
Carriers Act, but that it may be limited by a special agreement between the parties, pro-
vided that it is in writing by or on behalf of the person sending the goods and is otherwise
in a form approved by the Governor-General-in-Council. Thus where a riotous mob
attacked a railway station and destroyed records and goods, the Railway were not held
liable for the loss as bailees. 32
Innkeeper.-.--It has been held by the High Court of Allahabad that the liability of
a guest in respect of goods belonging to a hotel-keeper and used by the guest is that of
a bailee under secs. 151 and 152 of this Act, so that the guest is not responsible for the
loss, destruction, or deterioration of the furniture in his use if he has taken as much care
of it as a man of ordinary prudence would, under similar circumstances, take of similar
furniture of his own." It was held by the Bombay High Court, in a case which arose six
years before the date of the Contract Act, that the liability of a hotel-keeper in respect
of goods belonging to a guest was governed by the Common Law of England. To us
it appears that the liability of an innkeeper should now be governed by the ,-ovisions of
sees. 151 and 152. The case of an innkeeper is different from that of a common carrier
there is nothing to show that the Common Law rule as to the liability of an innkeeper
has been recognised throughout India, as is the case with common carriers. This opinion
is now supported by a decision of the Aflahabad High Court.35
Carriage by air.—The Indian Airlines Corporation is a common carrier but not a
"common carrier" within the mear.ing of Common Carriers Act, 1865. Air Lines Cor-
poration can therefore exempt itself from liability for negligence by special agreement"
but this position may be altered if the Union of India issues a notification under section
1934,r
4 of the Indian Carriage by Air Act,
Sea Carrier.—It is competent to a shipping company to protect itself by a clause
inserted in a bill of lading from liability for negligence of its servants notwithstanding the
provisions of this section. Sea carrier is now governed by Carriage of Goods by Sea
Act, 1925.
Burden of proof.—.In cases governed by the provisions of secs. 151 and 152, the
loss of or damage to goods entrusted to a bailee is prima facie evidence of negligence
and the burden of disproving negligence lies on the bailee.
As regards bailments for hire, the rule has thus been stated by Strachey, CJ.: "If
the damage caused were such that in the ordinary course of events it would not happen
to goods of the kind in question if used with ordinary prudence, then I think it would be

31 The Secretary of State v. Bhagwan Das " Jan and Son v. Cameron (1922) 44 All.
(1927) 49 All. 889, 102 I.C. 440, ('27) 735.
A.A. 371. Parsram v. Air India Ltd, 56 Born. L.R.
32 Jusaj'& Ismail Co. v. Governor-General 944,
Council (1947) Nag. 335, 231 I.C. 185, 37 National Tobacco Co. v. J.A.C. (1961)

('48) A.N. 65. A.C. 383; Rukmanand v. Airways India

33 Rwnpal Singh v. Murray & Co. (1899) 22
Lid. (1961) A. Ass. 71; 1. A. C. v. MadAuri
All. 164. Chaudiiuri (1965) A.C. 252.
34 Whateley v. Palanji (1866)
3 B.H.C.O.C. Bombay Steam Navigation Co. v. Vasudev.
137, 146. 29 Born. L.R. 1551.
248 THE INDIAN CONTRACT ACT [Ss. 151, 152

for the hirer to prove that he had exercised such prudence; otherwise I think the owner
must give some evidence of negligence. 39 Thus where a person hires a horse for riding
in a sound condition and the horse dies the same day while it is in his custody, it is for
the hirer to prove that he had taken such care of the horse as a man of ordinary prudence
would, under similar circumstances, have taken of his own. 4° Similarly, where goods
delivered for safe custody for reward are lost while in the possession of the bailee, the
burden lies on the bailee to prove absence of negligence on his part."
Contract by bailee exempting himself from liability for negligence.—A bailee's
liability cannot be reduced by contract below the limit prescribed by this section; a con-
tract b1 a bailee purporting to exempt him wholly from liability for negligence is not
valid.'
Bailee's liability for negligence of servants.—A bailee's liability extends to
damage caused by the negligence of his servants acting in the course of their employment
about the use or custody of the thing bailed; but it does not extend to damage caused by
the acts or defaults of third persons which he could not by ordinary diligence have fore-
seen and prevented, nor to unauthorised acts of his servants outside the scope of their
employment.43
152. The bailee, in the absence of any special contract, is not
Bailee responsible for the loss, destruction or deterioration of
whcn
not liable O a :
etc., of thing the thing bailed, if he has taken the amount of care of it
described in section 151.
No liability for loss if Care taken by bailee.—Since the standard of diligence
required of a bailee is that of the average prudent man, a bailee of goods is not liable for
loss of the goods by theft in his shop, if it is shown that he took as much care of the arti-
cles bailed as an ordinary prudent man would, under similar circumstances, take of his
own goods of the same quality and value. For the same reason if A sends jewels to B for
repairs, asking B to return them after repair as a value-payable parcel, and B does so, B
is not liable for the loss of the jewels merely because he failed to insure the parcel. Failure
to insure the jewels is not evidence of want of such care as a man of ordinary prudence
would, under similar circumstances, take of his own goods, specially when the owner him-
self does not insure them when sending them out for repair.' But it is negligence on the
part of a carrier of goods to send jute in a boat wiLh twenty or thirty leaks on its side,
one or one and a half inches in length, and keep the goods in the hold of the boat for thirty
hours;45 similarly, where a commission agent purchases silver bars on instructions and
places them against the wall of a shop which is unattended and some of
39 Rampal Singh v. Murray & Co. (1899) 22 (1928) A.B. 5; Raipur Transport Co. v.
AIL 164, 167. Ghanshyam. (1956) A. Nag. 145.
40 Shields v. Wilkinson (1887) 9 All. 398, 43 Sanderson v. Collins (1904) 1 K.B. 628
406. See Evidence Act, s. 106. CA.; Bilaspur Central Co-operative Bank
"Trustee of the Harbour, Madras v. Best & Ltd. v. The State of Madhya Pradesh ('59)
Co. (1899) 22 Mad. 524. A. Madh. p. 77.
42 Sheikh Mahwned v. The British Indian 44 Boseck & Co. v. Maudlestan (1906) Punj.
Steam Navigation Co. Ltd. (1908) 32 Mad. Rae. no. 70.
95, at p. 120; Bombay Steam Navigation 4S Lakshmi Narain v. The Secretary of State
Co. v, Vasjj,lev Baburao (1928) 52 Born. for India (1923) 27 C.W.N. 1017.
37, 29 Born. L.R. 1551, 106 I.C. 470,
 LI

Ss. 152-154] THE INDIAN CONTRACT ACT 249

the bars are losL

The bailee' s duty does not necessarily come to an end when the goods are lost or
stolen. In England a bailee for reward ought to take such steps, if any, as are reasonable
and usual with a view to recovering the goods. If he fails to do so, the burden
47
of proof
is on him to show that reasonable efforts would not have been successful.
Termination of 153. A contract of bailment is voidable at the
bailment by bai- option of the bailor, if the bailee does any act with regard
inconsist-
ent with conditions, to the goods bailed, inconsistent with the conditions of
the bailment.
Illustration

A lets to B for hire a horse for his own riding. B drives the horse in his carriage. This
is, at the option of A, a termination of the bailment.
Termination of bailment.—It is well settled law that a wrongful use or disposal of
the goods by the bailee determines the bailment and remits the bailor to the rights and
remedies of a person entitled to possession; a wrongful act means, for this purpose, a deal-
ing wholly inconsistent with the terms of the bailment. Merely irregular exercise of a
right, such as a sub-pledge to a third person by a pledgee, or a premature sale by a pled-
gee with power of sale, has not the same effect.48
154. If the bailee makes any use of the goods bailed, which is not
Liability of according to the conditions of the bailment, he is liable
bailee making to make compensation to the bailor for any damage aris-
unauthorised use
of goods bailed. ing to the goods from or during such use of them.
Illustrations

(a) A lends a horse to B for his own riding only. B allows C, a member of his family,
to ride the horse. C rides with care, but the horse accidentally falls and is injured. B is
liable to make compensation to A for the injury done to the horse.
(b) A hires a horse in Calcutta from B expressly to march to Banares. A rides with
due care, but marches to Cunack instead. The horse accidentally falls and is injured. A
is liable to make compensation to B for the injury to the horse.
Illustration (b) is apparently suggested by the case put in old English books of a man
borrowing a horse to ride to York and riding to Carlisle. See I C.B, 681.
Bailee's liability for unauthorised use.—This section provides for a positive duty
on the part of a bailee. A bailee is liable to make use of the goods bailed according to
the conditions of bailment. If he commits a breach of this duty and if the bailor suffers
any damage to the goods from or during such use he can call upon the bailee to pay the loss.
As regards the observance of the conditions of bailment, read the provisions of sec-
tions 158 and 159.
Bailor's remedy.—Nothing is said here about the extent of the bailor's remedies if
the goods are not forthcoming. he can have an action for damages against the bailee, and
46 Lakhaji Dollaji & Co. v, Boorugu (1939) " Coidman v. hill (1919) 1 K.B. 443.
48 holiday v. Holgate (1868) Ex. Ch. L. IL 3
41 Born. L.R. 6, 181 I.C. 334. ('39) A.B.
101, Ex. 299, 302.
250 THE tNDLkN CONTRACT ACT [Ss. 154-158
he has also further equitable rights. "If the bailee sells the goods bailed, the bailor can
in equity follow the proceeds and can follow the proceeds wherever they can be distin-
guished, either being actually kept separate, or being mixed up with other moneys."
155. If the bailee, with the consent of the bailor, mixes the goods of
Effect of mix- the bailor with his own goods, the bailor and the bailee
consent , of his shall have an interest, in proportion to their respective
oods with bailee's. shares, in the mixture thus produced.
This and two following sections are clear enough.
156. If the bailee, without the consent of the bailor, mixes the
Effect of mix- goods of the bailor with his own goods, and the goods
lor's without bai-. can be separated or divided, the property in the goods
consent.
when the goods remains in the parties respectively; but the bailee is
can be separated.
bound to bear the expense of separation or division,
and any damage arising from the mixture.
Illustration
A bails 100 bales of cotton marked with a particular mark to B. B, without A's con-
sent, mixes the 100 bales with other bales of his own, bearing a different mark A is entit-
led to have his 100 bales returned, and B is bound to bear all the expense incurred in the
separation of the bales, and any other incidental damage.
157. If the bailee, without the consent of the bailor, mixes the goods
Effect of mix- of the bailor with his own goods, in such a manner that
lor's consent, whenit is impossible to separate the goods bailed from the
the goods cannot be other goods and deliver them back, the bailor is entitled
separated.
to be compensated by the bailee for the loss of the goods.
Illustration
A bails a barrel of Cape flour worth Rs. 45 to B. B, without A's consent, mixes the
Pour with country flour of his own, worth only Rs. 25 a barrel. B must compensate A
for the loss of his flour.
Mixture of goods by bailee.-.---These three sections lay down the liability of a bailee
when he mixes up the goods bailed with those of his own.
Mixture may be either with the consent of the bailor or without the consent of the
bailor. If the goods are mixed without the bailor's consent, the two further contingencies
are provided for viz. (i) where goods are separable and (ii) where goods are impossible
of separation.
Any other contingency will be covered by the general provisions of sec. 154 viz, use
of the goods contrary to the conditions of bailment.
158. Where, by the conditions of the bailment, the goods are to be
Rcpament by kept or to be carried, or to have work done upon them by
bailor
necessary the bailee for the bailor, and the bailee is to receive no
49 Jessel, M. R., Re. Hcl1eu's Estate (1879) 13 Ch. Div. 696, 710,
 251
Ss. 158-1601 THE II4DIAN CONTRACT ACT

remuneration, the bailor shall repay to the bailee the necessary expenses
incurred by him for the purpose of the bailment.
Bailor to pay expenses to gratuitous bailee.—This section is intended to lay down
a gratuitous haile. In so doing, the legislature had to
the duty of a lai1or in respect of
specify the classes of bailment such as for (i) custody, storage, warehousing, (ii) for trans-
port by person, railway, air, sea, motor car etc and (iii) for work and labour to be done
such as repair work, laundering, ironing, decorating, watching, checking. The next sec-
tion relates to a gratuitous loan of the article to the bailee. The legislature has described
the classes of bailment or purposes thereof by words " the' conditions of bailment". It
stands to reason that when bailee is to render service free, he should not be put to further
this section provides for payment of necessary expenses
Loss of expenses and that is why
to the bailee.
159. The lender of a thing for use may at any time require its return,
though he lent it for a
Restoration of if the loan was gratuitous, even
goods lent gratwi- specified time or purpose. But, if, on the face of such
loan made for a specified time or purpose, the borrower
has acted in such a manner that the return of the thing lent before the time
agreed upon would cause him loss exceeding the benefit actually derived
by him from the loan, the lender must, if he compels the return, indemnify
the borrower for the amount in which the loss so occasioned exceeds the
benefit so derived.
Gratuitous bailor,—This section lays down the rights and duties of a gratuitous
bailor. Just as the bailee may be gratuitous similarly bailor may also be gratuitous. The
gratuitous bailor or lender of the article should generally abide by the terms and condi-
tions of bailment or gratuitous loan but if he needs the article back he need not wait and
can ask for its return. In doing so if he puts the bailee to any loss caused by earlier
demand, he must indemnify the bailee. This is quite a reasonable and sensible rule.
160. It is the duty of the bailee to return, or deliver according to the
Return of bailor's directions, the goods bailed, without demand, as
goods bailed on soon as the time for which they were bailed has expired,
atio ti
or accomplishment or the purpose for which they were bailed has been
of PUrP0&e. accomplished.
Duty to return.—This section lays down the most important duty of the bailee.
Bailor can exercise his right to receive back the goods either directly or can give direc-
tions to be returned e.g. if the bailor had deposited the goods with the warehouseman and
secured a warehouse receipt and if he endorses over such receipt to a bank for obtaining
the loan, the bank would be entitled to claim back the goods as a transferee­ 50 of the
receipL5 ° This will be covered by the words "according to bailor's directions.
Where an article is hired for use or for a'purpose but such article is unfit for such
use or purpose, this is treated as a breach of warranty and the bailee is not bound to return
India, A.I.R. (1974) A.P. 8.
50 Central Warehousing Corporation v. Central Bank of
22 THE INDIAN CONIRACT ACT (Ss, 160-164
it to the bailor because the purpose cannot be accomplished. In such a case, the bailec
may give notice to the bailor who is then bound to take it back.M
161. If, by the default of the bailee, the goods are not returned, deliv-
Bailee respon- ered or tendered at the proper time, he is responsible to
sluity when
goods am not duly the bailor for any loss, destruction or deterioration of the
returned, goods from that time.
Ballee's liability for loss, If goods not returned..—Unexplained failure to return
the thing bailed is presumed to be by the bailee's default. 52 Where there is a breach of
warranty in respect of the goods bailed i.e. they are not fit for the purpose for which they
are bailed, the bailee is not bound to return and hence there can be no question of-his
default.
If the goods in possession or custody of bailee are seized by Government by author-
ity of law, the bailee cannot comply with the provisions of sections 160 and 161 and is
excused from returning the goods to the bailor.,"
Termination of 162. A gratuitous bailment is terminated by the
gratuitous bail-
ment by death, death either of the bailor or of. the bailee.
Termination of gratuitous bailment.—The executors of persons who have bor-
rowed things, especially books, do not always remember this, as is shown by common
experience. On the other hand, the executors of a lender may tacitly and discreetly, In
many cases, treat the loan as a gift without fear of being called to account for a deva.uavit.
163. In the absence of any contract to the contrary, the bailee is
Bailor entitled bound to deliver to the bailor, or according to his direc
to increase or prorit
from goods bailed. tons, any increase or profit which may have accrued
from the goods bailed.
Illustration
A leaves a cow in the custody at to be taken care of. The cow has a calf. B is bound
to deliver the calf as well as the cow to A.
Good sense and therefore good law, seemingly without any previous reported author-
ity. New shares allotted in respect of shares that have been pledged are an increase claim-
able by the p1edgor.

164. The bailor is responsible to the bailee for any loss which the
Bailor's Tespon- bailee
may sustain by reason that the bailor was not entit-
sibility to bailee.
led to make the bailment, or to receive back the goods,
or to give directions respecting them.
If a bailor or consignee omits or refuses to take his goods at the proper time from
Isufalli v. Ibrahim, 23 Born. L.R. 403: 45 Union of India, (1976) 1 S.C.C. 893.
Born. 1017. UMofilal Hirabhai v. Sal Mani (1924) 52
52,,jh Kansa Burkakazi v. Chandra Kana LA. 137, 49 Born. 233, 27 Born. L.R. 455,
Kalcaii (1923) 28 C.W.N. 1041. 86 I.C. 368, ('25) A.P.C. 86.
53 MI:. Jssggilal Kamalapat Oil Mills v.
Ss. 164-1671 THE INDIAN CONTRACT ACT 253

a carrier (or, it would seem, any other kind of bailee) who is ready and willing to deliver
them, he may be liable to compensate the bailee for any necessary expenses of and inci-
dental to their safe custody."
165. If several joint owners of goods bail them, the bailee may
Bailment by deliver them back to, or according to the directions of,
several joint one joint owner without the consent of all, in the absence
of any agreement to the contrary.
Bailment by joint owners.—The section is permissive; it says "may", not
"must". Even if there is an agreement to the contrary. one of several joint owners
cannot, after having accepted redelivery from the bailee, sue him jointly with the other
owners; for "one party to a contract cannot maintain an action for a breach occasioned
by his own act, and neither can three parties maintain an action unless each party sep-
arately could."1
166. If the bailor has no title to the goods, and the bailee in good
Bailee ri ot faith, delivers them back to, or according to the direc-
respnsibte •n tions of, the bailor, the bailee is not responsible to the

without title. owner in respect of such delivery.

Return of goods to or to the order of the bailor.—A bailee who in good faith
returns the goods bailed to the bailor or to his order is not liable to the true owner of the
pledged
goods. N entrusted certain bales of cotton to L a muccadam (warehouseman). L
the cotton with B (with whom he had dealings for several years) to secure advances made.
B to or
by B to L. Subsequently L redeemed the pledge, and the cotton was returned by
to the order of L. N sued B and L claiming delivery of the goods or their value. The judi-
cial Committee held that whether the pledge by L to B was or was not valid under sec.
178, the return of the goods by B in good faith to L was a complete defence to the suit
against B.
Estoppel of bailee.—Cf the Evidence Act I of 1872, sec. 117.—The rule of the
Common Law is that generally a bailee is estopped from denying his bailor's title. He
is not only justified in delivering to the bailor or according to his directions, but he is
estopped from setting up the title of a third person against the bailor, unless he is under
the effective pressure of an adverse claim, and defends upon the right and title and by
the authority of the third person so claiming.9
Right of third 167. If a person, other than the bailor, claims goods
person Iai,"g apply to the Court to stop the delivery of the goods to the
goods bailed,
bailor, and to decide the title to the goods.
Third party's right—The bailee's protection against conflicting claims appears to

G. N. R. Co v. Swaffleld (1874) LR. 9 Ex. Tltorene v. Ti1bu.ry, 3 H, & N. 534 (537) fol-
132. towed in Diddle v. Bond (1865) 6 B. & S.
' May v. Harvey (1811) 13 East. 197. 225, approved by C.A. in Rogers. Sons &
' Brandon v, Scott (1857) 7 E. & B. 334. Co. v. Lambert & Co. (1891) II Q.B. 318,
Bank of Bombay v. Nandlal Thackersey- 325.
doss (912) L.R. 40 I.A. 1, 37 Born. 122.
 254 THE Th4DIAJt CONIRACT ACT [Ss. 167-170
be left to the general directions of the Code of Civil
Procedure. In England the bailee can
takerefuge with the Court by interpleading. 60 In India such an interpleader suit can be
filed.
168. The finder of goods has no right to sue the owner for compen-
Right of finder sation for trouble and expense voluntarily incurred by
for specific reward him to preserve the goods and to find out the owner; but
offered,
he may retain the goods against the Owner until he
receives such compensation; and, where the owner has offered a specific
reward for the return of goods lost., the finder may sue for such reward,
and may retain the goods until he receives it.
Finder of goods, rights to sue and to retain.—By the Common Law a person who
finds lost goods and holds them with the intention of saving them for the true owner is
certainly not a trespasser, and has no higher dunes than a bai1ee 6
but, the service being
rendered without request from the owner, he does not seem entitled to any remunera-
tion62
unless a specific reward has been offered for the return of the goods, and the
offer has come to his knowledge; and if he cannot claim compensation there is no ground
on which he can retain the goods.
The rule of the present section appears to be intended to satisfy natural justice. Pre-
sumably the compensation, if no specific reward has been offered and the parties cannot
agree, is to be what the Court considers reasonable. If the parties do agree, the owner's
promise of reward may be binding under sec. 25. sub-sec. 2.

169. When a thing which is commonly the subject of sale is lost, if

When finder or the owner cannot with reasonable diligence be found, or
thing commonly
on le if he refuses, upon demand, to pay the lawful charges of
the finder, the finder may sell it—
(1) when the thing is in danger of perishing or of
losing the greater
part of its value, or,
(2) when the lawful charges of the finder, in respect of the thing
found, amount to two-thI.ds of its value.
Finder's right to sell—in order not to place a finder of goods in an embarassing
Position, it was essential to give power of sale to the finder. In case the goods are per-
ishable or excisable or insurable or risky, power of sale should be given even if the finder
had not incurred any charges.
But for this power of sale, if the finder were to sell the goods, he would be guilty
of conversion.

170. Where the bailee has, in accordance with the purpose of the
Bailee 's particu-
far lien, bailment, rendered any service involving the exercise of
labour or skill in respect of the goods bailed, he has, in
the absence of a contract to the contrary, a right to retain such goods until
60 .Rogers, Sons & Co. v. Lambert & Co. 61 Isaack v. Clark
(1891)1 Q.B. 318, 327. (1615) 2 Bulstr. 306, 312.
62Bjnstead v. Buck (1777) 2 W. BI. 1117.
S. 170] THE INDIAN CONTRACT ACT 255
he receives due remuneration for the services he has rendered in respect
of them.
Illustrations

(a) A delivers a rough diamond to B, a jeweller, to be cut and polished, which is

accordingly done. B is entitled to retain the stone till he is paid for the services he has
rendered.
(b) A gives cloth to 8, a tailor, to make into a coat. B promises A to deliver the coat
as soon as it is finished, and to give A three months' credit for the price. B is not entitled
to retain the coat until he is paid.
Principle of bailee's lien.—This section expresses the "Common Law principle
that if a man has an article delivered to him, on the improvement of which he has to
bestow trouble and expense, he has a right to detain it until his demand is paid.' '
"Where a bailee has expended his labour and skill in the improvement of a chattel
delivered to him, he has a lien for his charge in that respect.. Thus the artificer to whom
the goods are delivered for the purpose of being worked up into form, or the farrier by
whose skill the animal is cured of a disease, or the horsebreaker by whose skill he is rend-
ered manageable, have liens on the chattels in respect of their chares."
Particular lien.—This section deals with a lien of a bailee in respect of the goods
bailed only. The lien can be exercised provided the service involving labour and skill has
been rendered in respect thereof and such service has been rendered in accordance with
the contract i.e. in accordance with the purpose of bailment. If service is not rendered in
accordance with the terms of the contract, the bailee cannot exercise his right of Particular
lien.6
The right of lien being possessory in nature, it can be exercised so long as the .bailee
is in possession thereof. Once a bailee has parted with possession of the goods bailed, he
loses his right of lien.
Further, where a person does work on goods delivered to him under one entire con-
tract, the fact that the deliveries are at different times does not affect his right to a lien
on all goods dealt with under that contract. Accordingly, where jute was delivered to
a pressing company from time to time to be baled, but all under one contract, the lien was
held to attach to all such goods. 67-
No Transfer of lien.—A bailee for reward cannot transfer his lien to a sub-
contractor without the bailor's authority.
Contract to the contrary.—Where there is an express contract to do certain work
for a specified sum of money, there is no room for a quantum :neruit claim.
Particular lines,—In India, various statutes have providcd for p articular liens as
follows:—
(1) Lien of a finder of goods (s. 168).
(2) Bailee's lien (s. 170).
63 Best,CJ., in Bevan v. Waters (182) 3 Skinner v. Jager. (1883) 6 AU. 1894.
Car. & P. 520. See Judah v. Emperor 66 Chase v. Westnwre (1816) 15 M. & S. 180.
(1925) 53 Cal. 174. 90 I.C. 289, ('26) A.C. 67 Miller v.Namtyih's Patent Press Co. Ltd..
464. (1882) 8 Cal. 312.
Parke. B., in Soy-fe v. Morgan (1838) 4 M. 68 Pennington v. Reliance Motor Works
& W. 270, 283. (1923) 1 K.B. 127
 256 THE INDIAN CONTRACT ACT [Ss. 170, 171
(3) Pledgee's or Pawnee's lien (s. 173).
4) Agent's lien (s. 221).
(5) Unpaid vendor's lien (s. 47, Sale of Goods Act).
(6) A partner's hen on surplus or assets of a firm if partnership is rescinded on the
ground of fraud (s. 52 of Partnership Act).
171. Bankers, factors, wharfingers, attorneys of a High Court, and
General lien of
policy-brokers may, in the absence of a contract to the
bankers. factors,
contrary, retain, as security for a general balance of
neys and policy- account, any goods bailed to them; but no other persons
brokers,
have a right to retain, as a security for such balance,
goods bailed to them, unless there is an express contract to that effect.
General as distinct from particular lien.—A general lien is a right to retain any
property of another for a general balance of accounts due to the persons specified-,a par-
ticular
ular lien is a right to retain it only for a charge on account of labour or skill employed
or expenses bestowed upon the identical property detained . 69 Since a general lien can
be exercised in respect of a property of another, it cannot be exercised in respeci of one's
own property. 70 This "general lien," as it is called by way of distinction from the "par-
ticular lien" of an aniuicer for work done by him on the particular goods in question,61
was originally established in England, as regards bankers and others, as a proved usage
of trade; but once being so established, it became part of the law merchant, and as much
to be judicially noticed as any other part of the law.7'
Lien of bankers.—The right does not extend to securities or other valuable property
deposited with a banker merely for sale custody or for a special purpose, 12 and this on
the ground that the limited and special purpose must be deemed to imply a contract to
'he contrary. Nor does the right extend to a trust account not the property of the cus-
tomer.'" Where a member o f a firm deposited a lease to secure a particular advance to
the firm, it was held that the banker had no lien for the general balance due from the
fum.74 Nor does the lien of a banker extend to title deeds casually left at the bank after
a refusal by him to advance money on them.75
But, in order that t he general lien may be excluded by a s pecial agreement, whether
express or implied from the circumstanccs, tho agreement must be clearly inconsistent
with the existence of such 'a lien .?6 Accordingl y , a deposit of valuables with a banker to
secure debts and advance to a customer is subject to the banker's lien for the customer's
general balance of accounts, unless the customer can prove an agreement to give up his
general lien.
A banker's lien, when it is not excluded by special contract, express or implied,
extends to all bills, cheques, and money entrusted or paid to him, and all securities depos-
9 Kent, Comm. ii, 634.
70 Brahmqya v. Thangàvelu (1956) A. Mad. tor General of Bw'ma (1934) 12 Rang. 25,
151 1.0 1018, ('34) A.R. 66,
570. 74
Wols:enjzoLin v. Sheffield Bank (1886) 54
7-1 Brandao v. Barnett (1864) 12 Cl. & F. 787. L.T. 746,
72 See Cuthbert v. Robarts, Lubbock & Co. 75 Lucas v. Dorrein (1817) 7 Taunt 278.
(1909) 2 Ch. 226, C.A 76 Agra Bank's Claim (1872) L.R. 8 H.L. 41.
73 Ex porte Kingston and Gross (1871) 6 Ch. 77 Official
Assignee of Madras v. Ramaswami
App. 632; Lloyds Bank Ltd. v. Administra- Cheui (1920) 43 Mad. 747.
S. 1711 THE INDIAN CONTRACT ACT 257
ited with him, in his character a g a banker.' In the case of money and negotiable secur-
ities, the lien is not prejudiced by any defect in the tide of the customer, nor by equities
of third persons, provided the banker acts honestly and without notice of any defect of
title." But there is no lien for advances made after notice of a defect in the customer's
title,80 or after notice of an assignment of the moneys or securities in the banker's
hands. 8'
Factor.—A factor "is an agent entrusted with the possession of goods for the pur-
pose of sale." 82He may buy and sell either in his own name or in that of the principal,
though "he usually sells in his own name, without disclosing that of his princial." The
factor is said to have a "special property" in the goods consigned to him. Private
instructions to sell only in the principal's name or within fixed limits of price will not
make him the less a factor or deprive him of his claim to llen.' But a banian in Cal-
cutta is not a factor and has no lien for a general balance of account in the absence of
an express contract to that effect. Though advances made by a factor for sale confer a
lien on him, they do not confer upon him the right to sell, invim domino. To claim such
a right there must be an agreement either express or to be inferred from the general course
of business or from the circumstances attending the particular consignment.
Conformably to the principle governing all general liens, a factor's lien, where it
exists, applies only to debts due to the factor in that character, it does not extend to
"debts which arise prior to the time at which his character of factor commences." 8' But
it extends to all his lawful claims against the principal as a factor, whether for advances,
or remuneration, or for the losses or liabilities incurred in the course of his empkjment
is respect of which he is entitled to be indemnified.88
In order that the lien may attach, the goods must come into the possession, actual
or constructive, 89 of the factor. If, for instance, a factor accepts bills on the faith of a
consignment of goods which, by reason of the bankruptcy of the principal, are never
received by him he has no lien on the goods as against the principal's trustee in bank-
ruptcy.9Q Nor does the lien extend to goods acquired otherwise than in his character of
a factor," or entrusted to him with express directions or for a special purpose inconsist-
ent with the existence of a general lien. 92
dictionary meaning of the word is that he is a person in charge
of handling of freight, loading, unloading, storage, removal of goods at the port or wharf
on behalf of importers and exporters of goods. The lien of a wharfinger is, generally
speaking, only effective as regards claims against the owner of the goods. He has no lien
against a buyer for charges becoming due from the seller after he has had notice of the
78 Misa v. Currie (1876) 1 App. Cas. 554; 84 Stevens v. Biller (1883)25 Ch. Div. 31, 37.
London Chartered Bank v. White (1879) 4 93 Peacock v. Baijriazh (1891) 18 Cal. 573;
App. Cas. 413. L.R. 18 I.A. 78.
"Bank of New South Wales v. Goulbuni Jaffe.rbhoy v, Charleswonh (1893) 17
Butter Factory (1902) A.C. 543, Born. 520. 542.
90 Locke v. Prescott (1863)32 Be8v. 261. 8
'Hough:on v. Mathews (1803) 3 B. & P.
81 Jeeys v. Agra Bank (1866) L.R.
2 Eq. 674. 485. 488.
82 Cotton, L. J., in Stevens v. Biller (1883) 25 88 Hammonds v. Barclay (1802) 2 East. 227.
Ch Div. 31, 37; Emperor v. Para.kh (1925) ' Bryans v. Nix (1839) 5 M. & W. 775.
I . Luck. 133, 92 I.C. 744, ('26) A.O. 202. 9° Kinloch v. Craig (1790) 3 T.R. 119, 783.
33 Baring v. Cowie (1818) 2 B. & All. 137, 91 Dixon v. Stansfeld (1850) 10 C.B. 398,
143, 148. 92 Spalding v. Ruding (1843) 6 Beav, 376.

CAl'?
258 THE INDIAN CONTRACT ACT {Ss. 171, 172
sale;93 and where it was agreed between a buyer and seller, before the goods sold came
to the hands of the wharfinger, contract of sale should be rescinded, it was held that the
latter had no lien as against the seller for a general balance due to him from the buyer.9'
Attorneys—In England a solicitor has a lien on his client's documents (not only deeds
and law papers)95 entrusted to him as solicitor' "for all taxable costs, charges, and expen-
ses incurred by him as sôliëitor for client; but he has no lien for ordinary advances or loans.
His taxable costs, charges, and expenses would include money payments which he makes
for his client in the course of his business, such as counsel's fee." A solicitor has also
a lien for fund or sum
his of money costs
recovered for his client.
onto A solicitor in
India has:the same lien? As long as the Court has control of the funds, the lien is not
liable to be defeated by a third party such as an assignee of a decree or an attaching cred-
itor, even though the third party has no express notice of the lien.'
A solicitor who is discharged by his client holds the papers entrusted to him subject
to his lien for costs. If, however, a solicitor discharges himself, he is not, according to
English law, entitled to a lien, and the same law applies in India! Section 1 (of the Con-
tract Act) saves usages and customs of trade not inconsistent with the provisions of this
Act, and the usage of trade of attorneys sanctioned by English law is not inconsistent with
this section. Applying this reasoning, it was held by the Calcutta High Court that a dis-
solution of a firm of solicitors operates as a discharge of the client who employs them,
and the attorneys are not entitled to retain the papers until their costs are paid .2
The kinds of lien dealt with in this Act are as follows*
(1) Lien of finder of goods (s. 168 above);
(2) Particular lien of bailees (a. 170 above);
(3) General lien of bankers, factors, wharfingers. High Court attorneys and policy-
brokers (s. 171 abo've);
(4) Lien of pawnee.s (ss. 173, 174 below); and
(5) Lien of agents (s. 221 below).
Some further comments with regard to liens, general and particular, of agents and
sub-agents, and to the modes in which such liens may be extinguished, or lost, will be
found in the commentary on sec. 221 below.
Bailment of Pledges
172. The bailment of goods as security for payment of a debt
"Pledge" "paw-or performance of a promise is called "pledge." The
nor" and 1pawnee' I
bailor is in this case called the "pawnor." The bailee is
Barry v. Longmore (1840) 12 A. & E. 639. (1925) 49 Born. 505, 27 Born. L.R. 556, 88
'
4 Richardson v. Goss (1802) 3 B. & P. 119. I.C. 81, ('25) A.B. 351; Tyabji Dayabhai
95 E.g., cheques: General Share Trusl Co. v. & Co. v. Jetha Devji & Co. (1927) 51 Born.
Chapman (1876) 1 C.P.D. 771, 855, 29 Born, L.R. 11 96, 105 I.C. 383,
Sheffield v. Eden (1878) 10 Ch. Div. 291. ('27) A.B. 542;- Ghulam Moideen v,
1 Re Taylor Silenian and Underwood (1891) Mahonigd Oomer (1931) 60 Mad, L.J. 133,
1 Ch. 590 596. 131 I.C. 158, ('31),A.M. 183.
98 Devkabai v. Jefferson. Bhai,thankar and 'Aool Chandra Mukerjee v. Shoshee
Di,tsha (1886) 10 Born. 248; Mangal Bhusan (1904) 6 C.W.N. 215.
Chand v. Puma Chandra (1945) 1 'Cal. 2 Re McCorkindale (1880) 6 Cal. 1, follow-
430, ('49) A.C. 505. ing Re Moss- (1866) L.R. 2 Eq. 345.
99 Ved and Sopher v. R. P. Wagle & Co.
 S. 1723
THE INDLk4 CONTRACT ACT
259
called the "Pawnee."

Ingredients of a pledge.—A bailment of goods as a security

for payment of a debt
or for performance of a promise is called a pledge. A mere licence to take possession or
an agreement to give possession will not constitute a pledge. Unless there is actual deliv-
ery of the goods there is no bailment and there is, therefore, no pledge.
Delivery of possession may e actual or constructive. In a constructive delivery, the
pledgee retains dominion over the pledged article. Goods in custody of railway can be
pledged by constructive delivery i.e. by endorsing the railway receipt in favour of the
pledgee. It is sufficient if the thing pledged is delivered under the contract within a rea-
sonable time of the lender's advance being made.' Government promissory notes may
be pledged, but this must be done as required by statute by endorsement and delivery.4
The rules of delivery and the like which are generally applicable to bailments are appli-
cable here.
Subject matter of a pledge.—Any kind of goods, documents or valuable things of
a personal nature may be pledged.' Shares, 6 and Government promissory notes may
also be the subject matter of a pledge. There cannot be a pledge of that which cannot be
the subject matter of a sale, therefore money cannot be pledged.
Pledge and hypothecation distinguished..– ...It is clear from the definition of "bail-
ment" (S. 148 above) that there can be no pledge of goods unless there is an actual deliv-
ery of the goods. A loan, however, may be secured by a hypothecation of goods. Such
a transaction does not require delivery of goods for its validity; nor can it be said to be
prohibited by the Contract Act because the Act contains provisions for bailments of
pledges and none for hypothecation of goods.1
Uen and pledge di stinguished.—On goods deposited a banker has a general lien
under sec 171 as security for a general balance of account. This general lien is a mere
right of retainer. But if goods are deposited with a bank to secure drafts drawn on the
bank for the price of the goocis the transaction is a pledge and the bank has a right of sale
wider sec. 176.8
Pledge and mortgage.—In a pledge, the general property or ownership continues
in pledgor; a pledgee has a special right to retain, file a suit and to sell (s. 176)(1). In case
of a mortgage, the legal title passes to the mortgagee subject to the right of redemption
which vests in the mortgagor;' o mortgagee has a right of foreclosure while a pledgee
has no such right of foreclosure.9
A pledge cannot be effected except by delivery of possession while a mortgage can
be effected without possession .ID
-
As the right to property vests with the pledgee a pawn or a pledge is intermediate
Hilton v. Tucker (1888) 39 Ch. D. 669; Haripczda v. Anath Nash De (1918) 22
Jyoti Prakash v. MUkIj Prakash (1917) 22 C.W.N. 758.
C.W.N. 297.
4
Alliance Bank of Simla
Jyoti Praka.rh v. Muksi Prakath (1917) 22 JaL'zi La! (1927) 8 Lah.
C.W..N. 297. See also Neckra.'n v. &znk of ('25) A.L. 408.
Bengal (1891) 19 Cal. 322, L.R. 19 I.A. 60. 9 Raghunathaiya Y. Sabi
10 Enc, Laws of England, 2nd ed., 642, A. Mad. 946; Carter
citing Story.
D. 605.
6 Atjun Prasad Y. Central Bank of India
"'Damodar v. Atma,v
(1956) A. Pat. 32; Official Assignee, Tehilram v. D'Mel
Bombay v. Madholal, 48 Born. L.R. 828.
260 THE INDIAN CON'IRACT ACT [Ss, 172-174

between a simple lien and a mortgage which wholly passes the property in the thing
conveyed."
Rights and liabilities of pledgee.—Pawnee has a right to claim payment of debt or
performance of promise at stipulated. time, interest on debt, expenses (necessary and
extraordinary) to preserve the goods (secs. 173, 175). He could detain the goods Wi pay-
ment of debt or performance of promise, payment of interest and necessary expenses (s.
173). He could bring a suit upon the debt or promise and retain goods by way of collateral
security or sell the goods after reasonable notice (a. 176). He cannot detain the goods for
any other debt or promise (s. 174) or for extraordinary expenses (s. 175); out of sale pro-
ceeds if there be excess, he has to pay to the pawnor (s. 176), The supreme Court has
held that where a bank has advanced a loan and the borrower has executed a promissory
note in favour of the bank in respect of the loan, and endorsed in favour of the bank a
railway receipt which is a document of title in respect of the goods, the transaction taken
as a whole is a pledge of the goods. The bank has all the remedies of a pledgee against
the railway authorities.' 2 A pawnee's liability for loss of goods is that of a bailee, and if
the goods are lost without his fault, he is not liable for the loss and is entitled to sue for
the debt.13
173. The pawnee may retain the. goods pledged, not only for pay-
Pawnee's right metu of the debt or the performance of the promise, but
of retainer, for the interest of the debt, and all necessary expenses
incurred by him in respect, of the possession or for the pfeservation of the
goods pledged.
Right of retention.—As discussed in foregoing paras, the pledgor continues to be
the general owner, this section declares the 'special property or right' of the pawnee viz.
the limited right of retention. This right of retention is 'further elaborated in sections 174
and 176.14 It is because the pawnor is the general owner he can redeem the pledge
before the sale as per section l77,'
The special right or property of the pawnee is determined if proper tender of the
moneys due to the pawnee, as stated in sections 173, 175-and 177, is made. 14 If the
pawnee refuses the proper tender he becomes the wrongdoer and the pawnor can exercise
his right of return of the goods and compensation as per SCtJC)1IS 160 and 161.14
174. The pawnee shall not, in the absence of a contract to that effect,
Pawnee not to retain the goods pledged for any debt or promise other
retain for debt or than the debt or promise for which they are pledged; but
promise other than
that for which such contract, in the absence of anything to the contrary,
goods .pledged. Pro- shall be presumed in regard to subsequent advances
stuription in case
of subsequent made by the pawnee.
advances.
Retention not for any other debt.—This section may be read into two parts viz.

11 LaZian Parshad v. Relzmat All AIR. 1967 13Rampal V. Gourishankar ('52) A.N. 8.
S.C. 1322 (1967) 2 S.C.R. 233. 14 Bank of New South WaIe.,r v. O'Connor
12 Mor#i Mercantile Bank Ltd. v. Union of (1880) 14 App. Cas. 273, 282.
India C65) A.S.C. 1954.
Ss. 174-1761 THE INDIAN CONTRACT ACT 261
that the pawnee cannot, in the absence of a contract to that effect, retain the goods
pledged for a debt for which the goods are not pledged. Thus pledge is specific.
The second part of the section refers to the presumption in respect of subsequent
advances. This part is not clear. The words 'subsequent advances' and the presumption
have been explained as "if the writing said that subsequent advances were to be secured
on article X, it cannot be said that they were to be secured on article A the subject matter
of prior pledge. Similarly if the parties specifically in writing A provide that X articles
are to be a security for a particular sum under writing A and state in writing B that the
articles Y are to be pledged for another sum, it would be dangerous to hold that both the
lots i.e. articles X and Y were to be a security both the debts."
175 The pawnee is entitled to receive from the pawnor extraordinary
Pawnee's right expenses incurred by him for the preservation of the
as to extraordinary
expenses goods
g Pledged
"Entitled to receive."—Note that the word is not "retain," as in the two preceding
sections, but "receive" A pawnee has, therefore, no right of lien for "extraordinary"
expenses, as he has in the case of "necessary" expenses (s.173), but has only a right of
action to recover them.
176. If the pawnor makes default in payment of the debt, or perfonn-
Pawnee's right ance, at the stipulated time of the promise, in respect of
where
makes ieiaur° which the goods were pledged, the pawnee may bring a
suit against the pawnor upon the debt or promise, and
retain the goods pledged as a collateral security; or he may sell the thing
pledged, on giving the pawnor reasonable notice of the sale.
If the proceeds of such sale are less than the amount due in respect
of the debt or promise, the pawnor is still liable to pay the balance. If the
proceeds of the sale are greater than the amount so due, the pawnee shall
pay over the surplus to the pawnor.
Pawnee's rights.—The substance of this section is familiar and well settled English
law.
This section confers upon the pawnee two rights in the event of the default on the
part of the pawnor. The one right is to file a suit for recovery of the debt or for perform-
ance of the promise. In such a case he is entitled to retain the pledged article as and by
way of collateral security. If the pawnee does not file the suit, he is given the right to sell
the pledged article but before selling it, he must give to the pawnor a reasonable notice
of sale.
The right to tile suit as aforesaid would also entitle the pledgee to have the collateral
security sold through the Court under the Civil Procedure Code.16
Where no time is originally stipulated for payment, it seems that the debtor is not
in default until notice is given by the creditor that he requires payment on a certain day,

Is Cciwasji v, Official Assignee (1928) 30 16Htuidas Mi,rsdra v. Nwioal and Grind.

Born. L.R. 1310, 115 I.C. 389, ('28) A.B. lays Bqnk (1963) A. Cal. 132.
507.
 THE II'D1AN CONTRACT ACT [S. 176
262
and that day is past. The debtor is then in default, and is in the same position as if a day
for repayment had been fixed in the original contractY
"May sell the thing pledged."—A pawnee, not being the legal owner, is not entit-
y , and authorities on mortgage transactions
led to foreclose, but has onl power, to sell;' 8
are to be applied to cases of pledge, if at all, only with great caution.
The power conferred an the pledgee under this section to sell the property without
reference to the Court does not take away his right to sue the pawnor on the debt or bring
19
a suit for the sale of the property pledged to him.
Cannot sell to himself.—There is nothing in the Act to forbid the pawnee from
buying the thing pledged at the sale, though he cannot sell to himself. But it has been held
by the Judicial Committee that a sale by the pawnee to himself, though unauthorised,
does not put an end to the contract of pledge so as to entiile the pawnor to have the thing
pledged without payment of the debt secured by it.20
Reasonable notice of sate, requirement of,—!L is not necessary that the notice
under this section should state the date, time or place of the intended sale. A notice by
the pledgee to the pawnor that unless the latter redeems the articles e'dged within a fort-
night, the pledgee will sell them is good notice, though the pledgee may not sell the goods
until some days after the expiration of the fortnight. 21 In this case the Allahabad and
Calcutta High Courts held that notice of an intention to sell is . siifficiCflt and :, was not
necessary to state that the exact date and time and place of sale. The Madras iiih Court
has held that if notice is given of the sale, the pawnee is not obliged to sell within a rea-
no tice . " Where the pledgee
sonable time of the expiry of the period prescribed in the
before selling had consulted the pledgor, who had consented to the transfer of the shares,
it was held that the provisions of the, section with regard to notice did not anse and as
the pledgor after notice of sale had acquiesced in transfer, he was deemed to have ratified
the i.ransfer!3
If goods are sold by the pawnce without notice of sale, the sale is bad and
void!' Unqualified right of sale without notice is bad as it would be contrary to this sec-
lion.24
Notice to surety.—If due notice of sale has been given to the pledgor, there
Ls nothir; in the section that requires notice of sale to be given to the pledgor's guar-
antor. 2S However, in order to afford an opportunity to the surety iu make payment or to
perform the promise. (under sec. 140) or in order not to impair the eventual remedy of
the surety (under sec. 139), it will be advisable to give notice to the surety as well.

17 Aloxilal v. Lakhmichand (1943) A. Nag. Haridas Mumira v. Notional & Grindlays

23& Bank (1963) A. Cal. 132
18 Carter v. Wake (1877) 4 Ch. D. 605. 72 Kesarim.aI v. Gundabathula Suryanarayan-
19 Malia!inga v. Gamzpathi (1902) 27 Mad. a?nurry (1928) 114 LC. 820. ('28) AM-
528; Nim Chand v Jogabundhu (1894) 22 1022.
Cal. 21; Jyoü Prakash v. Mukii Prakash 23 Madholal v. Official Assignee of Bombay
(1917) 22 C.W.N. 27. (1949) F.C.R. 441. 51 Born. LR: 906,
2o Neckrwn v. Bank of Bengal (1891) 19 Cal. ('50) ARC- 21.
322, 333; L.R. 19 I.A. 60. 0. A. v. Madhola!, 48 Born. L. R.
' Kw'zj Deha,i La! v. Bhargava Commercial 830.
batik (1918) 40 All. 522, 45 I.C. 462; 25 Sankaranaraywia v. Ko:tayam Bank,
Kesari ma! v • Gundabathula Siiryanaray- (1950) A.T.C. 66.
anainurty 114 I.C. 820, ('28) A.M. 1022;
Ss, 177, 1781 THE INDIAN CON1RACT ACT 263
177. If a time is stipulated for the payment of the debt, or perform-
Defaulting paw. ance of the promise, for which the pledge is made, and
nor's right to the pawnor makes default in payment of the debt or per-
redeem.
forrnance of the promise at the stipulated time, he may
redeem the goods pledged at any subsequent time before the actual sale of
them; but he must, in that case, pay, in addition, any expenses which have
arisen from his default.
Pawnor's right to redeem.—This is supplemental to the foregoing section, and
requires no further explanation. The word sale' means 'lawful sale'- 24 Until Lawful
sale, right to redeem subsists.
Limitation.—The period for a suit against a pawnee LO recover the thing pledged is
thirty years from the date of the pawn. See Limitation Act, XXXVI of 1963 Sch. I, art. 70.
178. Where a mercantile agent is, with the consent of the owner, in
Pledge by mer- possession of goods or the documents of title to goods,
cantile ageni
any pledge made by him, when acting in the ordinary
course of business of a mercantile agent', shall be as valid as if he were
expressly authorised by the owner of the goods to make the same; pro-
vided that the pawnee acts in good faith and has not at the time of the
pledge notice that the pawnor has not authority to pledge.
Explanation.—In this section the expressions "mercantile agent"
and "documents of title" shall have the meanings assigned to them in the
Indian* Sale of Goods Act, 1930.
The section is the counterpart of the second paragraph of sec. 27 of the Sale of
Goods Act, 1930, which relates to sales.
The present sec. 178 and sec. 178-A were inserted by the Indian Contract (Amend-
ment) Act, 1930, which came into force on the 1st July 1930.
Pledge by mercantile agent.—By sec. 2 of the Sale of Goods Act, sub-sec. (9),
"mercantile agent" means a mercantile agent having in the customary course of business
as such agent authority either to sell goods or to consign goods for the purpose of sale
or to buy goods or to raise money on the security of goods. This definition has been taken
from the English Factors Act, 1889, sec. 1.
The old section 178 was as follows: "A person who is in possession of any goods,
or of any bill of lading, dock-warrant, warehouse-keeper's certificate, wharfmger's cer-
tificate, or warrant or order for delivery, or any other document of title to goods, may
make a valid pledge of such goods or documents: Provided that the pawnee acts in good
faith and under circumstances which are not such as to raise a reasonable presumption
that the pawnor is acting improperly:
Provided also that such goods or documents have not been obtained from the lawful
owner or from any person in lawful custody of them, by means of an offence or fraud."
The language of the old sec. 178 was very wide and it appeared capable of giving

• The word 'Indian" has been omitted by Act, 1963 (Act 33 of 1963), s. 2.
the Indian Sale of Goods (Amendment)
 264 ThE MIAN CONTRACT ACT [S. 178

effect to pledges made by persons who were in temporary possession of goods or doc-
uments of title without having either the real or apparent authority of mercantile agents,
and indeed without being agents of any kind. The Courts endeavoured to keep the results
within tolerable bounds by putting a strict construction on the word "possession," but
this was only a partial remedy.
The old section allowed an owner of goods though not in physical possession of the
goods to obtain a loan on the security of a pledge of the goods by a pledge of the doc-
uments of title, as decided by the Privy Council in Official Assignee of Madras v. Mer-
cantile Bank.' Under the English law an owner cannot do this unless constructive
delivery has been completed by the person in physical possession attorning to the pled-
gee. In 1930 the Indian Legislature brought the section into conformity with the English
law and the privilege of pledging goods by pledging documents of title was restricted to
mercantile agents as in the Factors Acts. This establishes, as the Privy Council in the case
last cited observed, the curious and anomalous position that the mercantile agent can do
what the owner cannot do, i.e. make a pledge of goods by a pledge of the documents of
title without the attornment of the warehouseman or other custodian.
Other cases in which a person other than the owner of the goods may make a valid
pledge are dealt with in sec. 178-A below and in sec. 30 of the Sale of Goods Act con-
sidered below. The result is that a valid pledge can now only be made by a mercantile
agent as provided in sec. 178, or by a person who has obtained possession of the goods
under a contract voidable under sec. 19 or sec. 19-A of the Act as provided in sec. 178-A,
or by a seller or by a buyer in possession of goods after sale as provided in sec. 30 of
the Indian Sale of Goods Act.
The changes caused by the amendment of the section may he illustrated by the fol-
lowing examples:-
(1) A commission agent or broker may make a valid pledge of the goods under the
old as well as the present section.
(2) A seller left in possession of goods may make a valid pledge under the old sec-
tion as well as under sec. 30 of the Sale of Goods Act.
(3) A person in bare custody of goods may not make a valid pledge either under the
old or the present stction.
(4) A hirer under a hire-purchase agreement who has entered into a binding agree-
ment to buy goods may make a valid pledge under the old as well as the present section.
See notes below, "Seller or buyer in possession after sale."
(5) A person entrusted with goods for a specific purpose may not make a valid
pledge either under the old or the present section.
(6) under the old and present law, both the owner and the mercantile agent could
create a pledge by delivering documents of tille.V
Antecedent debt—The present section seems to protect a pledge for an antecedent
debt as well as al pledge for an advance made specifically upon it. See English Factors
Act, 1889. sec. 4.
Possession with Owner's consent.—As the Supreme Court in Morvi Mercantile
Bank v. Union of India observed, if a mercantile agent is with the consent of the owner
in possession of the goods or document of title to the goods, the pledge made by him will
2 (1934) 61 I.A. 416, 427, 68 M.LJ 26, 37 Morvi Mercantile Bank v. Union of India
Born. L.R. 130, 152 I.C. 730, ('34) A.P.C. (1965) A.S.C. 1954.
246..
S. 1781 THE INDIAN CONTRACT ACT 265
be deemed to have been expressly authorized by the owner of the goods and the fiction
of authorisation indicate that he is doing what the owner could have done. Regarding
the nature of consent under S. 178 of the Contract Act the Supreme Court decision of
Central National Bank v. United Industrial Bane may be referred to, though the said
decision was on S. 30 (2) of the Sale of Goods Act, 1930 and not on S. 178 of the Con-
tract Act. It is submitted that the nature of consent under S. 178 of the Contract Act will
not receive a different interpretation from that given by the Supreme Court under S. 30
(2) of the Sale of Goods Act, 1930. Accordingly, the Supreme Court in the above men-
tioned case observed that a consent secured by false representation may not be free con-
sent but it is a real consent as the effect of fraud or misrepresentation is to make a
transaction voidable and not void. So a pledgee obtaining goods from a person in pos-
session whose possessory right is defeasible on the ground of fraud but has not actually
been defeated at the time when the transaction took place, is protected. So, if a mercantile
agent induces the owner to pass the property to him by some false pretence, the owner
cannot claim it back from an innocent pledgee until the pledgee's rights are satisfied.
However, the position is different where the fraud committed is of such a character as
would prevent there being consent at all on the part of the owner to give possession of
the goods to a particular person, e.g. fraud induced by an error regarding the identity of
the person to whom the property was to be given, the whale thing is void and there is
no consent of two persons on the same thing in the same sense under S. 13 of the Indian
Contract Act.29 In the aforesaid Supreme Court case, Defendant 2 (Radhika Bhaiya)
agreed to sell shares to M. for R.. 38,000. For this, Defendant 2 sent the shares with the
transfer deeds to the Defendant bank with the instruction to deliver over the share cer-
tificate with the transfer deeds to M only against full payment of its price. The Defendant
bank directed its official, Paul, with the aforesaid instruction to see M. at Ms Office. Paul
saw Al, at his office. M. asked for the shares but Paul refused to make over the share cer-
tificate to him unless pay order was given. Then M. desired to have a look at the share
and transfer deed to ascertain that they were all right. So Paul placed them on the table
and M. examined them and then went out of his chamber with these documents, inspite
of Paul's objection, as the pay order was not given by M. M. told Paul that he was going
out to get the pay order and asked Paul to sit in the Chamber. However, M. bolted and
pledged the share with the plaintiff Bank who, acting innocently, advanced Rs. 29,000 to
M. On these facts the Supreme Court found that when Paul placed the shares on the table
for M's scrutiny, Paul did not part with possession or control over the shares, as while
scrutinising the papers, Paul was present there. When M went out of the office with the
shares, '-" got possession of them but M. had no possession with the consent of Paul (an
agent of the owner of the Shares) as Paul had objected to his going away with the shares
without making payment, It was against Paul's desire that M. took the shares and left the
Office. Accordingly the plaintiff Bank had no right of a pledgee to sell the shares in
enforcement of the pledge against the interest of the defendant Bank.
Good faith.—To validate a pledge by a mercantile agent the pledgee must have
acted in good faith and must not have at the time of the pledge notice that the pawnor
has no authority to pledge the goods. The onus of proving both these facts upon the
person disputing the validity of the pledge. 3° Under sec. 3, ci. 20, of the General Clau-

28 AIR. 1965 S.C. 1954, 1959, Pare 7. 30 Stadiwn Finance v. Robbins (1962) 2 Q.B.
A.I.R. 1954 S.C. 181, 184, Para 10, 11. 664 (673).
266 THE fl-DEAN CONTRACT ACT [S. 178
ses Act, 1897, a thing is to be deemed done in good faith where it is in fact done honestly
whether it is done negligently or flOL Gross negligence may be evidence of bad faith, but
it is not the same thing and does not entail the same consequence.3'
Instances of this are (1) a pledge by a jeweller)' broker, the pawnee acting in good
faith,32 (2) a pledge by a sharebroker of the shares, the pledgee being unaware of the
authority of the sharebroker.33
Acting in the ordinary course of business.—The requirement is that the mercantile
agent must act in the ordinary course of his business. If he therefore does the business
outside his business premises or out of business hours, such a transaction would fall out-
side this section. A sale of a motor car without a registration book may not be in the
ordinary course of his business.35
Notice.—The term "notice" in this section includes both express and constructive
notice.
Seller or buyer in possession after sale.—Besides the cases mentioned above,
there are two other cases in which a person who is not the owner of goods may make
a valid pledge thereof, namely, a seller left in possession after sale, and a buyer to whom
possession has been delivered before payment of the price. These- cases have been pro-
vided for in sec. 30 of the Sale of Goods Act, 1930, which is a reproduction of sec. 25
of the English Sale of Goods Act, 1893.
That section provides not only for a sale by a buyer or Sdiler in possession, but also
for a pledge, mongage or other disposition of goods.
Pledge by seller remaining in possession.—The following is an illustration of a
pledge by a seller left in possession of the goods sold:—.
A sells 100 cases of cutlery to B under an agreement made in July 1927, that pay-
ment should he made within five months from the date of the agreement and delivery
should be taken within that time, the goods remaining in the meanwhile in A's godown
free of rent. In August 1927, A pledges the goods with C who has no notice of the sale
to B. The pledge to C is valid,'
Pledge by buyer obtaining possession.—Section 30(2) of the Sale of Goods Act
validates a pledge not only by a person who has bought goods but also by one who has
agreed to buy them, The hirer under a hire-purchase agreement is not a person who has
agreed to buy goods within the meaning of this section unless he is under a binding
agreement to buy them. An option to buy will not suffice.'?
Competition between prior mortgagee and subsequent pledgee.—A mortgages
certain goods to• B, the mortgage not being accompanied with possession. Afterwards

31 See Jones v. Gordon (1877) 2 App. Cas 275.

616, at p. 629. Cases Under the Indian Fac- Haji Rahimbux v. Central Bank of India.
tors Act, 1842; Gobind Chunder Sein v, Ltd. (1928) 56 Cal. 367, 119 I.C. 23, ('29)
Rayan (1861) 9 M.I.A. 140; 1 W.R. 43, A.C. 447; a case under the old s, 178,
P.C.; Jonmenjoy v. Watson (1884) 10 Cal. 31 Belsize Motor Supply Co. v. Cox (1914) 1

901; L.R. 11 I.A. 94. K.B. 244,

32 Scrappier v. Subra.man.ia (1917) 40 Mad. 38 a mortgage of movable property, although

678. not accompanied by possession, is valid in

33 Fuller v. Glyn (1914) 2 K.B. 168. India: Shrish Chandra Roy v. Mungri Bewa
34 Coppenizeimer v. Azienborough & Son (1904) 9 C.W.N. 14; Damodar v. Atmaram
(1908) 1 K.B. 221. (1906) 8 Born. L.R. 344.
35 Pearson v. Rose & Young (1951) 1 K.B.
Ss. 178, 178-A] THE INDIAN CONTRACT ACT 267
A pledges the goods with C, who has not notice of the mortgage. The pledge to C is not
valid, and C has a priority over B.39
Documents of title to goods.—As to what this term means see sec. 2, sub-sec. (4),
of the Sale of Goods Act, 1930, below. Share certificates are not document of title to
goods within the meaning of that section, 4° nor cash receipts given in place of delivery
orders.41
Revocation of authority of mercantile agent.—A pledge by a mercantile agent,
though made after the revocation of his authority, is valid, provided the pledgee has not
at the time of the pledge notice of such revocation.42
178-A,. When the pawnor has obtained possession of the goods
Pledge by pledged by him under a contract voidable under section
Person in posses-
sion under '(: 19 or section 19-A, but the contract has not been
able contract. rescinded at the time of the pledge, the pawnee acquires
a good title to the goods, provided he acts in good faith and without notice
of the pawnor's defect of title.
This section is the counterpart of sec. 29 of the Sale of Goods Act, 1930. That sec-
tion is based on sec. 23 of the English Sale of goods Act, 1893.
Pledge by person in possession under voidable contract.—A person may obtain
possession of goods under a contract which is voidable at the option of the lawful owner
on this ground of fraud, misrepresentation or coercion (s. 19), or on the ground of undue
influence (s. 19-A). Possession so obtained is not by free consent as defined in sec. 14
of the Act. It is nevertheless possession by consent, and the person in possession may
make a valid pledge of the goods, provided the contract has not been rescinded at the time
of the pledge. There is in such case a defacto contract, though voidable on the ground
of fraud and the like. It is, however, different if there is no real consent, as where goods
have been obtained by means of theft as defined in sec. 378 of the Indian Penal Code.
A thief has no title and can give none.
Where goods have been obtained by fraud the person who has so obtained tnay
either have no title at all, or a voidable title, according to the nature of the transaction.
If the nature of the fraud is such that there never was a contract between the parties, the
person who so obtains the goods has no title and can give none. Thus if A represents
to B that he is acting as agent for C, and B relying on that representation delivers goods
to A as buyer, there is not a voidable contract between A and B, but no contract at all.
No property passes to A, and he can neither make a valid sale" nor a valid pledge. This
is really acase of fundamental error as to the person with whom one is contracting. There
is no real Consent and no contract; there is only an offer on B's part to the person with
whom alone he. means to-deal and thinks he is dealing: See note under sec. 13 above.,
"Error as to person of the other party." But if a person buys goods with the intention
of not paying for them, there is consent, though not free, and a contract, though void-
39 Chuinmun Khan v. Mo-dy (1874) Punj. Rec. 41
Kemp v. Folk (1882) 7 App. Cas. 573, at p.
no 70; Abdul tfabth v. Mczung Tur Kyaing 585.
(1921) 9 Rang. 182, 131 l.C. 723, ('31) 42 See English Factors Act. 1889. s. 2(2). and
A.R. 201, Moody v. Pa//mall (1917) 22 Times L.R.
40
La/it Mohan v. jlaridas (1916) 24 Cal. L.J. 306.
335- '3 Hardman v,Baoth (1863) 32 L.J. Ex, 105.
268 THE iNDIAN CONTRACT ACT [Ss. 178-180
able," and he may make a valid pledge or sale of the goods while the contract is still
subsisting,45 though the fraud may amount to the offence of cheating, as defined in sec.
415 of the Indian Penal Code.
Pledge by co-owner in possession.—One of several joint owners of goods in sole
possession thereof with the consent of the rest may make a valid pledge of the goods .°
Compare Sale of Goods Act, sec. 28.
Good faith.—See note under sec. 178.
Notice.—See note under sec. 178.
Pledge where 179. Where a person pledges goods in which he has
pawnor has only a
limited interest, only a limited interest, the pledge is valid to the extent of
that interest.
This must be taken as subject to the operation of the foregoing section. In those
cases where a pledge which otherwise would not be valid is made valid by sees. 178 and
178-A, it does not matter whether the pawnor has any interest of his own or not. The
present section applies to other cases where the pawnor has possession and some interest,
but not the whole interest, in the goods; and where it applies, it is immaterial that the
pawnee had no notice of pawnor's limited interesC' The pawnor on satisfying his debt
to the pawnee is entitled to the return of his goods even if the sub-pledge is for a larger
amount. 4' The true scope of the section has been thus defined by Scott, C. J.: "Section
179 does not limit the scope of Ithe old] section 178, but saves a pledge to the extent of
the. pledgor's own interest notwithstanding the presence of invalidating conditions falling
under one of the provisions to [the old] sec. 178. In other words, whenever he has interest,
the person in possession of the goods or documents has unconditional authority to charge
at 'east that interest."49
Suits by Bailees or Bailors against Wrong-doers
180. If a third person wrongfully deprives the bailee of the use or
Suit
possession of the goods bailed, or does them any injury,
bailor
or iee>' the bailee is entitled to use such remedies as the owner
wrong-doer.
might have used in the like case if no bailment had been
made; and either the bailor or the bailee may bring a suit against third
person for such deprivation Or injury.
In Morvi Mercantile Bank Lid v, Union of India -"o appellant bank advanced Rs.
20,000 to a firm which had endorsed in favour of the appellant batik some railway
receipts issued by the railway for carriage of consignments from Thana to Okhla (near
Delhi). The said consignments sent by the firm to the railway for carriage did not arrive
' Clough v. Lond. & N. W. Ry. Co. (1871)
4 Credit Bank v, Salyapromoda (1962) A.
LR. 7 Ex. 26. Mays. 48.
' Croft v. Lumley (1858) 6 H.L.C. 672, 705,
4 49 Lakhanisey Ladha & Co. v. Lakmichand
Shadi Rain v, Maiztab Chand (1895) Punj. (1918) 42 Born. 205, doubted in Haji
Rec. No. 1. Rahirn Bux v. Ceistrai Bank of India, Lid.
,17 Hoare v Parker (1788)2 T.R. 376. (1928) 56 Cal. 367, 387-388, 119 I.C. 23,
' Firm Thakür Das v. Mathura Prasad ('58)
4 ('29) A.C. 497.
A.A. 66; Belgaum Pioneer Urban Co-op, 50 A.I.R. 1965 S.C. 1954.
Ss. 180, 181] THE INDIAN CONTRACT ACT 269
at their destination. The Bank as endorsee of the railway receipts sued the Union of India
to recover as damages Rs. 35,000 being the value of the lost consignments. The Division
Bench of the Bombay High Court held that the bank as endorsee of the railway receipts
was entitled to sue for compensation for loss suffered by it by reason of the loss of con-
signments, but as pledgee of the goods it suffered the loss only to the extent of the amount
secured under the pledge and so decree was limited to Rs, 20,000. Reversing this part of
the judgment of the High Court, the Supreme Court held that S. 180 of the Contract Act
was applicable and that a pledge being a bailment of goods as security for debt, the pled-
gee will have the same remedies as the owner of the goods would have against third
person (i.e. here the Railway) for deprivation of the said goods. Accordingly, the Bank
being a pledgee can maintain a suit for recovery of the full value of the consignments.
This section recognizes concurrent rights of an owner and of a bailee. The right
given to a bailee is by virtue of his possession so that his possessory right should be an
efficacious one.
Apportionment 181, Whatever is obtained by way of relief or corn-
of relief or comoen-
sation obtained by pensation in any such suit shall, as between the bailor
such suits, and the bailee, be dealt with according to their respective
interests.
In other words, it does not matter which of them recovers first, or whether one sues
or both. Of course the defendant cannot be liable in all for more than the value of the
goods, and special damages, if any.