Unit 2: Indemnity, guarantee, agency & partnership

• Contract of indemnity (Section 124): one party promises to save the other from loss caused by the conduct of the promisor or any other person. Parties: indemnifier and indemnity holder. Rights of indemnity holder (Section 125): recover damages, costs of suits, sums paid in compromise.
• Contract of guarantee (Section 126): to perform the promise or discharge the liability of a third person in case of default. Parties: surety, principal debtor, creditor.

Kinds of guarantee

• Specific guarantee (single transaction) and continuing guarantee (series of transactions — Section 129), revocable for future transactions by notice or death of the surety.

Rights of the surety

• Against the principal debtor: subrogation (Section 140), indemnity (Section 145).
• Against the creditor: benefit of securities held by the creditor (Section 141).
• Against co-sureties: contribution in equal shares (Section 146).

Discharge of the surety

By revocation, variation in terms without consent (Section 133), release or discharge of the principal debtor, compounding or giving time to the debtor, loss of security by the creditor's act.

• Bailment (Section 148): delivery of goods by one person (bailor) to another (bailee) for some purpose, on contract that they shall be returned or disposed of as directed when the purpose is accomplished. Example: giving a watch for repair, a car for parking.
• Duties of bailee: take reasonable care (Section 151), not make unauthorised use, not mix goods, return goods, return accretions.
• Rights of bailee: compensation for defects, reimbursement of expenses, particular lien (Section 170), sue third parties.
• Duties of bailor: disclose known faults, bear extraordinary expenses.
• Finder of goods is treated as a bailee.
• Pledge (Section 172): bailment of goods as security for payment of a debt or performance of a promise. Pawnor and pawnee.
• Rights of pawnee: retain goods (Section 173), extraordinary expenses, sue the pawnor, sell after reasonable notice if the pawnor defaults (Section 176).

Agent (Section 182): a person employed to do any act for another or to represent another in dealings with third persons. The person represented is the principal. "What a man does through another, he does himself" (qui facit per alium facit per se).

Kinds of agents

• General and special agents; mercantile agents — factor, broker, auctioneer, commission agent, del credere agent (guarantees payment by buyers); sub-agent and substituted agent.

Duties and rights

• Agent's duties: follow instructions and customs, reasonable skill and diligence, render accounts, not make secret profit, not deal on own account, communicate with principal.
• Agent's rights: remuneration, retainer, lien on principal's property, indemnity.
• Principal's liability: bound by acts within actual or apparent authority; liable for agent's misrepresentation and fraud in the course of business.

Termination of agency (Section 201)

By revocation by principal, renunciation by agent, completion of business, death or insanity, insolvency of principal, expiry of time, destruction of subject matter. Irrevocable agency — where the agent has an interest in the subject matter (Section 202).

Partnership (Section 4): relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Essentials: agreement, business, sharing of profits, mutual agency (the true test — Cox v. Hickman, 1860).

Admission of a partner (Section 31)

• With the consent of all partners; a new partner is not liable for acts before admission unless agreed.
• A minor can be admitted only to the benefits (Section 30); on majority, must elect within six months to become a partner or not.

Retirement (Section 32)

• With consent of all, by express agreement, or by notice in a partnership at will.
• Retiring partner remains liable to third parties for acts until public notice of retirement is given; may carry on a competing business (subject to restraint agreements).

Death of a partner (Section 35)

• Dissolves the firm unless the contract provides otherwise; the estate of the deceased is not liable for acts after death; no public notice needed.

Dissolution of a firm (Sections 39–44)

• Settlement of accounts (Section 48): losses paid first from profits, then capital, then by partners individually; assets applied to pay third-party debts, then partners' advances, then capital, and surplus shared in profit ratio.